2008 Interview with: First Sound Bank (Seattle WA) (FSWA-OTC: BB), Chairman and CEO, Donald L. Hirtzel, President and COO, Steven M. Shaughnessy - featuring: their customized banking for small- to medium-sized businesses, organizations, not-for-profits and professionals in the Puget Sound region.
|First Sound Bank (Seattle WA) (FSWA-OTC: BB)|
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After Raising $20 Million During Their
IPO And Another $11 Million Afterwards, Today First Sound Bank Is Well
Capitalized And Well Positioned For Future Growth With A Nice Asset Mix
First Sound Bank offers customized banking for small- to medium-sized
businesses, organizations, not-for-profits and professionals in the Puget
Sound region. Founded by a team of veteran local banking executives, it is
committed to delivering personalized service, convenient access and
competitive rates to support the needs of the business community. The bank
offers online banking at plus an expansive banking network in the western
U.S., as well as ATM banking throughout the country and abroad. On March 1,
2008, First Sound Bank purchased a majority of the assets of Puget Sound
Leasing Company, Inc. -- a small-ticket, business-to-business leasing
company with a prior 23-year history -- and established Puget Sound Leasing
as a division of First Sound Bank.
Mr. Hirtzel: “The big change for us in the last twelve months has been the asset acquisition of Puget Sound Leasing. It is a company we have known for a long time and they have been in this market for over 23 years. Puget Sound Leasing is a small ticket, privately held leasing company that does business primarily in the Pacific Northwest but also in states throughout the country. On March 1st we closed that transaction so now they are operating as a division of First Sound Bank. Their sixty-four employees, including the original principals, Lou and Dick Secord, are now employees of the bank. Lou Secord is also a member of the Board of Directors as an inside member. We are very excited about the transaction; that took about a year to negotiate and close. They do something over $70 million a year in lease transactions with the average lease being less than $27,000. It is business to business leasing in a market that fits our niche very well. They will close about 250 new leases per month and service a portfolio in excess of $190 million. Therefore, as you can see, this was a significant transaction for us.”
CEOCFO: With creditworthiness such a concern today, how do you insure the quality of the leases?
Mr. Hirtzel: “Regarding the credit quality, both the principals, Lou and Dick Secord had prior banking experience before forming their own leasing company and, specifically, in credit underwriting. They are proven underwriters. Many of the leases are with customers they have had business with in the past. The credit quality is generally sound; we are seeing some deterioration in outlying markets, but it is not anything significant. Most of the leases are in Washington, Oregon and Idaho and those markets are still operating pretty soundly.”
CEOCFO: Do you anticipate that the economic conditions in your area will continue favorably?
Mr. Shaughnessy: “To be honest our clients appear to be doing very well, in spite of the media coverage of the weakening economic conditions around the nation. Unlike the typical community bank our client base, comprised mainly of commercial business accounts, has not been adversely effected by the troubles of the residential real estate market downturn.”
CEOCFO: Is it easier to attract new business these days because of the concern in the industry or does it make it harder for you?
Mr. Shaughnessy: “The level of new business that we attract has little or nothing to do with the market or industry concern. We attract commercial accounts with annual revenue between $1 and $30 million by essentially customized banking solutions that better suit their individual business banking needs. We have found that companies in this market segment, who are often treated as a faceless mass market by the large banks, welcome the enhancements that we bring to their attention.”
CEOCFO: How do you actively pursue new business?
Mr. Hirtzel: “We actively pursue business from the concept of direct referrals from existing clients, directors, and shareholders. The rest is purely cold calling on companies that are representative of the King, Pierce, and Snohomish County marketplace that we target with annual revenues greater than $1 million, less than $30 million. We introduce ourselves and explain our differences and our benefits and simply spend the time to build the relationships to make people comfortable so when there is a disruption in their current banking relationship, we are the first on their list to call.”
CEOCFO: Looking at your website, I see ‘innovative business banking your way’; would you give us a couple of examples of what is innovative, and what might people find that they won’t get elsewhere?
Mr. Shaughnessy: “Innovative business banking your way is another way of saying that we offer customized solutions. We know that all businesses must have a bank but we find that rarely have they reexamined their banking as their business has grown over time. By targeting the niche that the large banks view as “mass market” we are exposing our clients to the full array of what modern banking has to offer and regularly find that our clients can greatly improve their banking efficiency and value through our consultative solutions.”
Are people a bit put off initially because you do not have a physical branch
to look at?
CEOCFO: That is substantial!
Mr. Shaughnessy: “It is substantial!”
CEOCFO: Are many of your customers taking advantage of the personal services as well or is that an area that needs to grow?
Mr. Hirtzel: “When we bank a company we also offer to bank the principals of the company and their employees and we have ways to do that. While retail banking is not our primary focus we are certainly capable of doing it. We cross-sell those services when we bring on a new business client. We are also attracting some significantly high net-worth individuals in this market that are looking for alternatives to where they may be banking today and that has been quite successful. We don’t specifically have a private banking department per se, but we think of ourselves as all private bankers and we don’t need to have those departments that you would see in other much larger organizations. In addition, if our bankers are banking the business relationship, they are also capable in banking the personal relationships as well rather than have another bank officer involved.”
CEOCFO: Is there much competition from newer banks in your area or is it pretty stable at this point?
Mr. Hirtzel: “When we formed in 2004, we were the first bank that formed in about a year and a half. However, since we have opened there have been five or six other community banks that have followed our model and, in some instances, they have opened more traditional retail offices. When we first formed the bank, we raised $20 million in capital and were over subscribed in our offering. Four hundred investors put up an average of $50 thousand a piece, and the $20 million that we raised had never been raised before in the Pacific Northwest. Since we have done that, others have followed and others have raised $20 million as well. In the last year or so though, there have not been any new banks formed, with one exception. Typically, today if you are trying to raise equity to start a new bank or even get the application approved you would be hard-pressed to do so. We reached profitability in our seventeenth month and some of the banks that formed after us are still struggling to become profitable. Several of them are not expecting to be profitable for another twelve months or so which would probably take them 24-36 months from inception before they reach profitability. In addition, after we raised our initial $20 million we subsequently raised another $11 million, so today we are very well capitalized, very well positioned for future growth, and we are very proud of our asset mix as compared to a lot of the other banks in this market.”
CEOCFO: You stand out from the crowd!
Mr. Hirtzel: “Absolutely!”
CEOCFO: What is ahead two or three years down the line?
Mr. Shaughnessy: “Our primary focus is to complete the integration of the leasing company and then focus on growing the bank into its current level of capital.”
CEOCFO: Building good will is simply good business at First Sound Bank!
Mr. Hirtzel: “There you go!”
CEOCFO: Is the investment community paying attention or are you still below the radar screen?
Mr. Hirtzel: “I think we are still below the radar screen. We have had two really good quarters, but we don’t think our stock has performed as well as we would like it to. We know it is a tough market and financial stocks are not doing very well anywhere, so we think it is going to take another few quarters before we get any notice. We have got to continue to prove ourselves over the long-term and the investment community has to be comfortable that the leasing acquisition was good and certainly the last two quarters would indicate that. We need some consistent increase in earnings and then, hopefully, we will gain more attention from the investment community.”
CEOCFO: Why should investors be looking at First Sound Bank?
Mr. Shaughnessy: “Simply put, I believe that our model is unique among community banks in our market and our performance to date has demonstrated a good return for investors. On a broader scale, the fact that our results are regularly in the top 25% of all de novo banks formed across the nation in 2004 gives further support to our model.”
CEOCFO: Final thoughts, what should people remember most about First Sound Bank?
summary I think I would like to focus on the mix of our earning assets.
Steve touched on this, but we are primarily a C&I bank, we do real estate
lending as well but real estate credit is not our primary objective. Our
primary objective is to help small to medium sized businesses use and invest
their deposits more effectively and to provide credit for working capital,
asset acquisition and growth. That piece of the market continues to look
pretty strong in the Pacific Northwest. If you compare us to the other banks
in this market, we are unique in that regard. Therefore, it is our focus on
deposit gathering, the mix of our earning assets and our focus on business
banking that makes us unique.”
“Keep in mind, we are a primarily a commercial and
industrial bank so the mix of our earning assets is mostly C&I. Over sixty
percent is C&I, and something less than forty percent real estate. That is a
much different mix than what you see in a lot of the smaller community banks
in this market or even nationally for that matter.” - Donald L. Hirtzel
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