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First Sound Bank Is Meeting The Need For An Independent
Commercial Bank In Downtown Seattle That Is Focused On Small And Medium Sized Businesses
Financial
Commercial Bank
(FSWA-OTC: BB)
First Sound Bank
925 Fourth Avenue, Suite 2350
Seattle, WA 98104
Phone: 206-515-2004
Don L. Hirtzel
Chairman and CEO
Steve Shaughnessy
President and COO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published – August 17, 2007
BIO:
Donald L. Hirtzel Director Since 2004
Chairman
and Chief Executive Officer
Mr. Hirtzel has been
involved in the banking industry for 39 years with the past 26 in the greater
Seattle-Eastside markets. He resigned as Senior Vice President and Division Manager of
Business and Professional Banking from Pacific Northwest Bank (Wells Fargo) to pursue the
formation of First Sound Bank. At Pacific Northwest Bank Mr. Hirtzel developed a new King
County Commercial Banking Team in addition to managing the activities of five other
Business Centers throughout Washington. Prior experience included serving as Executive
Vice President in charge of production for Tacoma-based Columbia Bank and various other
Senior Vice President positions with responsibilities in retail, business and corporate
banking for Rainier National Bank, Security Pacific Bank, West One Bank and U S Bank. Mr.
Hirtzel was recognized in 1984 as Area Executive of the Year by Rainier National Bank, in
1991 by Security Pacific Bank as Business Banking Center Leader of the Year, in 1992 by
West One Bank as Banker of the Year, and in 1998 awarded the U S Bank Leadership Award.
Mr. Hirtzel currently serves on the Board of the Council of Better Business Bureaus, a
national organization based in Arlington, VA. and is also Board member of the local Better
Business Bureau of Western Washington, Oregon and Alaska where he has served for 7 years
and was their former Board Chair. Mr. Hirtzel has served on a variety of community boards
over the years including the Bellevue Chamber of Commerce, Kirkland Chamber of Commerce,
Bellevue Community College Foundation (where he served as Treasurer), Youth Eastside
Services and Junior Achievement. Mr. Hirtzel is a graduate of the University of South
Dakota and a graduate of the Colorado Graduate School of Banking at the University of
Colorado.
Steven M. Shaughnessy Director
Since 2004
President
and Chief Operating Officer
Mr. Shaughnessy has 27 years of experience in the Seattle banking and
finance market encompassing a wide range of positions in traditional banking as well as
asset-based finance. In 1990 he helped form CAPCO Financial, for which he served as
President until the company was sold to Greater Bay Bancorp of Palo Alto, Ca. in 2001.
CAPCO designed and delivered secured finance products targeting high risk or
non-conforming small and medium-sized business borrowers in Washington and Oregon. Prior
to forming CAPCO, Mr. Shaughnessy was a Vice President with First Interstate Bank of
Washington and Rainier National Bank with various positions in retail branch management,
internal bank auditing, commercial lending and business development. He is a graduate of
the University of Washington with a BA degree in Finance and Accounting.
Company Profile:
First Sound Bank
is a Seattle-based bank offering 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, First Sound Bank is committed to delivering
personalized service, convenient access and competitive rates to support the needs of the
business community. First Sound Bank offers online banking plus an expansive banking
network in the western U.S., as well as ATM banking throughout the country and abroad.
CEOCFO: Mr. Hirtzel, what was the vision when you founded
First Sound Bank and where are you with that vision today?
Mr. Hirtzel:
“We founded the bank in 2004 and we just celebrated our third year anniversary on
July 19th. The vision for First Sound Bank was that we saw an opportunity and a
market need for an independent commercial bank in downtown Seattle. It really resulted
from a couple things, primarily big bank acquisitions, which created unrest in the market
place and our focus on business banking. So when we say we are a commercial bank vs. a
community bank, we take that seriously because we are focused on attracting small and
medium sized businesses to First Sound.”
CEOCFO: What is the economy
like in Seattle?
Mr. Hirtzel: “The economy here is very strong and
there is a lot of job growth led by Microsoft Corp.(Nasdaq-MSFT) and Boeing Co.(NYSE-BA.)
Beyond that the economy is strong even below those big ticket names and small businesses
are doing quite well. The real estate market continues to be very strong for both
residential and commercial real estate, but more importantly our customers are doing well
and they are doing well with their clients. The whole northwest economy including
Washington, Oregon and Idaho is particularly strong compared to some of the other regions
in the country.”
CEOCFO: Is there a particular
type of business that you focus on?
Mr. Shaughnessy: “Our target is broad based. We
are looking at manufacturing, wholesale and distributing, professional service companies
and not-for-profit organizations. We are not particularly targeting regions but, rather
successful clients willing to consider an improvement in their banking relationship.”
CEOCFO: What do you do that is
different with your customized banking?
Mr. Hirtzel: “We are unique in that we are on the
23rd floor of an office tower in downtown Seattle with no retail presence and
yet we have had some remarkable growth. What we are doing differently is that we recognize
this is a relationship business and we are out calling on customers and prospects that we
have known from our prior banking connections, and offering them a different level of
service. However, it is not just about better service; it is also about a better product
offering and being a bit more competitive on some of the pricing offered particularly on
the deposit side of a relationship. We have really focused on adding value to new
customers with our deposit services.”
CEOCFO: What might you offer
that you would say is a better product or a little different from other banks?
Mr. Shaughnessy: “I would say an example would be
online banking, particularly focused on using our overnight suite of products for business
customers. With the large banks we find they reserve those services for companies that
are, in their mind, in the mid to large corporate market. We find that our target market
is companies with annual revenues in the $2 million to $30 million space, which the large
banks deem as their mass market and these clients often do not have access to these very
standard products in banking which we can deliver at a modest fee.”
CEOCFO: As a newer bank is it
easy to take full advantage of new technologies?
Mr. Hirtzel: “Absolutely! Before we formed First
Sound Bank, we spent nine to twelve months researching vendors that could help us form
this institution. There are some excellent vendors out there that can bring, to a small
bank such as ours, all the services a big bank can offer and allow us to provide them very
efficiently. The products can be more competitively priced and the sophistication is just
as good as what the big banks can offer. We spent a great deal of time choosing our
vendors selectively. These are vendors that continue to upgrade their products and
services and then we can pass those upgrades on to our clients.”
CEOCFO: Are there services that
you are not offering now that you would like to add?
Mr. Shaughnessy: “I do not know if there are but
there may be and we continually evaluate that need. This is a very commodity driven
business. In the financial services industry First Sound will not likely invent anything
new. I would say that the latest, greatest technology in banking is the advent of remote
deposit capture allowing businesses to make deposits electronically from their location.
We led with that product last fall. And it is now being discussed and implemented industry
wide. It is really about how each institution chooses to embrace new products, price them
and make them available for their clients. Of course, we do not have our own branch
system; we are, therefore, very aggressive in our pricing of remote capture.”
CEOCFO: Do you see the need to
branch out at all?
Mr. Hirtzel: “No. We do not anticipate branching
at all. We have been adamant about that from the beginning. We have a unique relationship
with three major correspondent banks that allow our customers to deposit anywhere in the
country and the deposits are posted to their account at First Sound early the next
morning. In addition, there is remote capture, as we have discussed, plus some of the less
sophisticated ways to make your deposit such as bank by mail and courier services. We do
not see ourselves getting into the retail banking environment at all; we want to continue
to be a commercial bank. That is not to say that we cannot offer consumer products to the
major owners of our companies or their employees, because we can do that.”
CEOCFO: Relationship is
everything; what are the intangibles that you want in your people?
Mr. Shaughnessy: “The thing I look for are people
that are anxious and aggressive to walk in any door to sell banking services. My opinion
is that banking has done a terrific job of making order takers out of bankers. Our banking
officers are long on service and they are also long on an aggressive tactic to be able to
spread the word and to meet new business opportunities head on.”
Mr. Hirtzel: “They are not
bashful about making a cold call; they are not afraid to ask for referrals when they are
out networking in the community. They are not afraid to look at something that some other
bank may have declined. We look for ways to do things a bit creatively; not outside the
box where it will get us into trouble, but certainly with a more aggressive posture than
what we see in other institutions in this market.”
CEOCFO: How is business?
Mr. Hirtzel: “Business is good. Our assets are up
over 30% from year end. Deposits and loans are up significantly and our profitability is
up from $290k to $380k from first to second quarter 2007, which was recently reported.
When we initially formed the bank people said we would have a challenge growing deposits.
We have proven everybody wrong in that regard. Deposits have been a real plus for us. We
emphasize core deposit growth; we are out selling deposit services, as aggressively or
more so, than we are selling lending services. The other important point is we are not a
commercial real estate bank. We are a C & I (commercial and industrial) bank. We
will do commercial real estate, but if you look at a lot of the other banks in this market
or other parts of the country, they are full of real estate loans, construction loans, and
acquisition and development loans. We have done some of that, and very competitively, I
might add, but it is not our highest priority.”
CEOCFO: What has allowed you to
weather the interest rate scenario, and how do you plan for the fluctuations?
Mr. Shaughnessy: “With the interest rate
environment you find it extremely difficult for community banks to offer long term fixed
rate loans especially with the real estate conduit market so competitively priced and
eager to do those deals. We, as a small commercial bank, cannot source deposit dollars
that cheaply and therefore really cannot compete with the money centers for fixed rate
real estate loans. Therefore, our model, of being primarily skewed toward commercial and
industrial banking, frankly isn’t affected by that. Revolving lines of credit for
working capital and capital assets and acquisition financing are very common loans that
are tied to a variable rate index (generally prime) and those types of loans are a very
large percentage of our portfolio which is variable rate by nature.”
CEOCFO: Good position to be in.
Mr. Shaughnessy: “It is a very good position and
we have the luxury of being there because we are new. Our business plan caters to a broad
market of commercial and industrial lending.”
Mr. Hirtzel: “Our net
interest margin is strong and certainly not deteriorating, which is also counter to what
many banks are experiencing at this time.”
CEOCFO: What is ahead for First
Sound Bank?
Mr. Hirtzel: “As of June 30 we were $160 million
in total assets and we think we can grow the bank significantly more with the equity that
we have. We raised $20 million when we started the bank. We went out and raised another
$11 million last fall. We have the equity base to continue to grow this institution
substantially and we think there is the opportunity to do that in Seattle and greater King
County.”
CEOCFO: Why should investors be
interested and what should they realize about First Sound Bank that might not jump off the
page?
Mr. Shaughnessy: “What might not jump off the
page is that we are a business bank. When people look at community banks and you are a
state chartered bank there is a connotation of being a “community” bank, it
really does not jump off the page that we have a business specialty emphasis. Many people
give lip service to being a small bank; therefore, they are friends of business. We
challenge you to find one, other than First Sound Bank, that does not have greater than
75% of its earning assets in real estate secured transactions. They are real estate banks
primarily and a business bank secondarily. We are on the inverse and that is probably the
single biggest differentiator of what we are doing. To be a business bank, we have to be
cash management consulting experts, we have to provide services for businesses that are
like the large bank but with a custom feel of a small bank. To that end, those are things
I do not believe that community banks are particularly steeped in, whether in their
practices or in their experience.”
CEOCFO: What should readers
remember about First Sound Bank?
Mr.
Hirtzel: “Steve Shaughnessy and I both came from the big banks and we both
had extensive experience working for large financial institutions. We have been through
multiple bank mergers in our 27 to 39 year banking and finance careers. We recognized
there was a niche in this market that needed help getting through some of those mergers
that are difficult for the business customers to cope with. We are offering our services
in the commercial banking market, helping businesses improve their bottom line. They might
find us to be good people to bank with, but they want to see that there is a financial
advantage to bank here as well. Typically we offer a very substantial financial advantage
for banking with First Sound Bank.”
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