After a frustrating failure to save Frontier Bank, veteran banker Patrick Fahey's relief at his successful turnaround of Seattle-based First Sound Bank has him focused on "having some fun now" running the newly healthy bank rather than retiring for the fourth time.
Fahey, whose career running banks began in 1981 when he was named president and chief operating officer of what was then Spokane-based Old National Bank, completed his 15-month-long turnaround effort at First Sound by paying back its TARP debt to the Fed last month.
Fahey had been a consultant to First Sound, after the Fed fouled up an infusion of capital that would have saved Everett-based Frontier Financial Corp. Then the First Sound board asked him in January 2012 to take over as CEO, the third time a bank board had tapped him to un-retire.
When he took over, First Sound was, as he describes it now, "one of the most troubled banks in the state," viewed by the Fed as "significantly undercapitalized." It was under a Fed cloud, required to raise at least $7 million as a condition of paying off its outstanding TARP shares and making a healthy exit from Fed oversight.
But as a result of Fahey's turnaround efforts, including quest for capital, the bank last month closed an offering that raised nearly $8 million, from which it paid the Treasury Department $3.7 million for its $7.4 million in outstanding Tarp shares, a 50 per cent discount. It thus extinguished all its warrants and unpaid dividends.
Fahey says the raise and satisfying the Fed with the TARP payback have turned First Sound into "one of the healthier banks in the state" and its funding infusion means its capital ratios will now exceed the regulatory definition of a "well-capitalized" bank.
So I asked Fahey the inevitable retirement question, having followed him since he left U.S. Bank in 1987 to launch Pacific Northwest Bank.
"Actually the fun begins now," he replied. "We've now literally tripled our legal lending limits so we can make larger loans. This gives us a cushion against shock waves in the economy and decreases the risk for the bank.
"Our new business won't necessarily come by upside in the economy, it will come by taking business from the larger banks and we'll do that by being more responsive to small businesses, who need an answer now, even if it's a 'no,'" Fahey said.
"But it will still be a great opportunity to participate in the recovery by providing financing to businesses that need to grow," he added.
The success with First Sound, although Fahey emphasizes the next step is profitability, is a welcome outcome for Fahey after the frustration of Frontier's seizure by the Fed and sale to Union Bank.
A board member at Frontier, he was asked in 2008 to assume the position of CEO at what was, at the time, the largest bank based in Washington (Washington Mutual having already been seized and tossed to Chase). He brought the turnaround effort to the point of a planned private-equity infusion of $430 million that had been committed, pending Federal Reserve approval.
But the Fed dithered and the private-equity people decided they could do better elsewhere and rescinded the offer, forcing the closure of Frontier and the acquisition a couple of days later by Union Bank in a regulatory-assisted transaction in 2010.
The Frontier experience didn't sit well with Fahey, who had built Pacific Northwest Bank into the largest commercial bank headquartered in the Northwest (that was a few years prior to WAMU's growth spiral up and its death spiral down.
He sold PNWB to Intrawest and went on the board of theOak Harbor-based bank, only to be summoned from the relative retirement of board work to take over as CEO and turn Intrawest around, which he did as he put the PNWB name on Intrawest and then guided it into an acquisition by Wells Fargo.
So what's the outlook now for lending, as Fahey sees it?
"I still think there is the possibility of a boom and bust cycle in apartment construction," he said. "I would think that banks doing that kind of lending would prudently tighten equity and secondary repayment source requirements. Just drive through Ballard."
And he remains a critic of the impact the regulatory environment is having on lending.
"The Dodd-Frank legislation and resultant regulation and bureaucracy make it very difficult for a small bank to risk making residential mortgage loans, and ultimately passes the cost of compliance with these regulations on to the consumer," Fahey said.
" Many of the regulations implementing Dodd-Frank have yet to be written despite thousands of pages that are already out," he added.