First Sound Bank (fka FSWA)

[illegal_alias]

So, Salty, where do you see this stock going? Do you think the share price right now is more of a reflection of ttm earnings X PE rather than book value? I do like the fact that their troubled asset trend is on the way down.

[56Chevy]

As long as its traders in this and not actual investors, this stock is going to go thru some wild gyrations.

[SaltyMutt]

It appears that both reality as well as gravity are beginning to take hold. It might take a few more weeks but I don't think these two "forces" can be held at bay much longer.

[SaltyMutt]

Maybe Sir Isaac Newton would be a better choice than Dr. Freud to help us understand what is going on here. FSWA seems to be defying the law of gravity!

[SaltyMutt]

When it comes to this bank and Mr. Market's reaction to it, I don't think even Dr. Freud, were he alive today, could give us a good explanation as to what is going on.

[56Chevy]

It's Thursday March 28th and the pps just went from .125 to .15 on 5,400 shares of volume.

Don't get me wrong..I like this bank because I believe in Mr. Faheys leadership but I will never understand why someone would buy a bank stock with a current book value of .038 and pay nearly 5x BV! And yet there are literally hundreds of other publically held banks in the same exact financial condition (some in even much better shape than FSWA) selling for wayyyyy below BV... and they won't even consider it.

Mr. Market is a funny guy sometimes!

[Enterprising Investor]

The slow and steady price decline has begun.

Prospective investors should defer any buys until the market price approximates book value.

[56Chevy]

Are the new shares restricted or can they sale at any time without registering them

I see that my good friend and partner EI has allready answered this question.

The 150MM shares issued has to be a minimal number since, according to Mr. Fahey, a few of the investors paid < .05 ..so we could have several million more.

[Enterprising Investor]

Rule 506 Exemption used in the past.

Rule 506 of Regulation D

Rule 506 of Regulation D is considered a "safe harbor" for the private offering exemption of Section 4(2) of the Securities Act. Companies using the Rule 506 exemption can raise an unlimited amount of money. A company can be assured it is within the Section 4(2) exemption by satisfying the following standards:

- The company cannot use general solicitation or advertising to market the securities;

- The company may sell its securities to an unlimited number of "accredited investors" and up to 35 other purchases. Unlike Rule 505, all non-accredited investors, either alone or with a purchaser representative, must be sophisticated—that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment;

- Companies must decide what information to give to accredited investors, so long as it does not violate the antifraud prohibitions of the federal securities laws. But companies must give non-accredited investors disclosure documents that are generally the same as those used in registered offerings. If a company provides information to accredited investors, it must make this information available to non-accredited investors as well;

- The company must be available to answer questions by prospective purchasers;

- Financial statement requirements are the same as for Rule 505; and

- Purchasers receive "restricted" securities, meaning that the securities cannot be sold for at least a year without registering them.

While companies using the Rule 506 exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file what is known as a "Form D" after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s owners and stock promoters, but contains little other information about the company.

Link to all SEC filings:

http://www.sec.gov/cgi-bin/browse-edgar?company=first+sound&match=&CIK=&filenum=&State=&Country=&SIC=&owner=exclude&Find=Find+Companies&action=getcompany

[jokerwild477]

Are the new shares restricted or can they sale at any time without registering them

[56Chevy]

I called and spoke with Mr. Fahey today to ask the price the investors paid to participate in the cap raising efforts.

He said that the UST regulators more or less dictated what the price participants would pay since the banks' book value at the current time was a negative -.019

Consequently they [UST] set the price the investor would buy in at and that number was a nickle a share .05 .

Mr. Fahey went on to say that the banks' BV is now a positive +.038 cents a share.

Todays' mid-day pps is .13 which represents 2.5X what the accredited investors paid.

The goal imo for us small retail investors in a situation like this is to get in as close to the accredited investor buy-in price (.05) as possible...or risk waiting a substantial amount of time for BV (and market value) to catch up. You have to consider that 150MM new shares just entered the SS.

Todays' pps at .13 would indicate that the stock is overpriced according to this new information...however FSWA deserves to be watched closely for entry opportunities.

All this aside, Mr. Fahey did what had to be done and it was an absolutely terrific effort on his part to save this bank. With his leadership going forward I think they'll do fantastically!

[56Chevy]

I needed to edit my last post and ran out of time..that's why I had it deleted. I'll repost my edited version soon.

Aside of what the buy in price was.what is the difference I'm the company at .13 today and 2008 at 10.00.and can we get there Agan..in your opinion

What I think you're essentially saying is - This is now a healthy bank and ran by an excellent management team so why does .13 look expensive especially when you compare it to its' ten dollar past (?)

That's a fair question and I can appreciate that on one level as a distressed investor. The only problem with that on the surface is stocks are like poker playing cards..they have no memory of what they were on the last hand dealt.

The bank just sold $7.5MM dollars worth of stock at a nickle each. I don't know the official SS as it stands today but if you do the quick math they just added 150MM shares to the SS.
No matter how you slice it that is some major league dilution and because of that future earnings will be spread mighty thin..which means it will take awhile to appreciate per share. I don't say this like I'm bashing the bank or anything of the sort..its' just a reality an investor might oughta consider going forward.

Mr. Fahey didn't say this but the bank will more than likely do a reverse split sometime soon.

[Enterprising Investor]

Price paid per share was not disclosed.

I called and left a message for Fahey.

No one should ever invest after a capital raise without knowing the price paid by new investors.

[56Chevy]

You gotta love the way Mr. Fahey dug in and found a way to save this bank. I had my doubts he would find 70 accredited investors and yet he not only did it but it only took him a little over 3 months to get it done. Truly remarkable.

Way to go Fahey!

[Enterprising Investor]

FSWA raises $7.9M, gets exit from TARP (2/21/13)

Seattle’s First Sound Bank has raised $7.9 million in new capital, which will allow the bank to exit the Troubled Asset Relief Program (TARP) and boost lending to business customers.

The new capital gives the once-troubled bank an added cushion of capital and also helps the bank finalize a deal with the Treasury Department that gives First Sound a $5 million break on the debt it owes the government.

The new round of funding signals a turnaround for the business bank, which was significantly under-capitalized a year ago and faced being seized and closed by regulators.

First Sound CEO Patrick Fahey said the bank can accelerate efforts to attract new business now that the bank has become well capitalized and shed the yoke of the TARP debt.

Under a deal that took months to negotiate with government agencies, including the Federal Deposit Insurance Corp., the government will waive $3.7 million of the $7.4 million in TARP money the bank received in late 2008. In addition to that 50 percent discount, the Treasury will forgive First Sound’s unpaid dividends totaling $1.3 million.

“It’s one of those things you just wondered if you were ever going to get this done,” said Fahey. “It was touch-and-go negotiations with the Treasury Department. It was touch-and-go negotiations with the FDIC.”

Without the negotiated TARP deal, Fahey said he would not have been able to raise new capital. Treasury officials, eager to wind down TARP, had been looking to pool all the government’s investments in small banks and sell the pool to investors. That would have given those investors preferred stock, putting them ahead of common stockholders and basically wiping out common stockholders, Fahey said. The negotiated deal avoided that scenario.

Fahey said the $7.9 million in new capital, which the bank announced Thursday, came primarily from existing investors. Fahey put $300,000 of his own money in the round, and now has about $500,000 invested in the bank, which he joined in January 2012 to help turn around.

Since then, First Sound has worked to improve its pile of bad loans. The quality of the bank’s assets continue to show improvement; for the fourth quarter of 2012, the bank reported that its non-performing assets were $4 million, down from $15.8 million a year ago, and down from $45.5 million at the end of 2009.

The bank now holds only two foreclosed properties, down from dozens.

The bank posted a fourth-quarter 2012 profit of $175,000, which was the third consecutive quarter the bank had net income after losing money in eight of the 10 previous quarters.

With the new investment, the bank gets the cushion necessary to boost its stability. The money also will allow the bank to increase lending limits from $1 million per loan to $2.5 million, significantly boosting the bank’s earning power, Fahey said.

First Sound has assets of $131 million, a 34 percent decline from the end of 2009. Fahey said the bank had to shrink its assets to keep its capital ratios in line. The ratios had sunk so low that the bank’s failure seemed imminent a year ago.

“The bank was hunkered down. In fact we were in the unfortunate position previously of having go ask some customers, ‘Would you mind taking your business elsewhere?’ because we had to shrink the assets,” Fahey said.

“That’s a tough spot to be in.”

http://www.bizjournals.com/seattle/blog/2013/02/first-sound-bank-raises-79m-gets.html?page=all

[Enterprising Investor]

A Message from First Sound Bank (11/25/12)

November 25, 2012

Dear First Sound Shareholders,

I am pleased to report continued progress since our 2nd Quarter report. I delayed this report pending the resolution of some issues that have now been successfully concluded. For the 3rd Quarter, we reported a profit of $1.435 million compared with a $4.438 million quarterly loss in 2011. Year-to-date profit through September was $1.503 million compared to a loss of $6.965 million in 2011. Asset quality continued to improve, with non-performing assets at $5.350 million, down from $16.011 million a year ago. There has been further improvement since September 30.

We continued to shrink the asset size of the bank by resolving problem assets and shedding excess liquidity to strengthen capital ratios. We now have a Tier 1 leverage capital ratio of 4.13%, and a Total Risk-weighted ratio of 8.03%, up from 2.07% and 4.23%, respectively, a year ago. The Bank now meets the regulatory capital definition of "adequately capitalized" as opposed to "significantly undercapitalized" a year ago.

The 3rd Quarter results included the settlement agreement on a participation loan I mentioned in the last report. This resulted in the collection of $1.5 million of default interest (booked as a gain on sale) and payment in full of the balance on the foreclosed property. This was partially offset by charges to resolve problem assets and the issue of space previously occupied by a leasing company acquired in 2008. Last quarter I indicated we had negotiated an amendment of the lease to current market rates in order to be able to sublease the space. We have now subleased 85% of that space effective this month, resulting in savings of approximately $500 thousand annually. An accounting charge of $365 thousand for commissions, rent abatement and remaining fixture depreciation was taken in the 3rd Quarter.

The most significant recent event relates to the $7.4 million in TARP (Troubled Asset Relief Program) funds the Bank received in late 2008 before the onset of its troubled condition. When the U. S. Treasury Department, having made a profit on bank TARP, announced last March its intention to negotiate repayments with banks that were unable or not allowed by regulators to repay, I initiated discussions with them. In October, an agreement was reached with the Treasury for repayment of the Bank's TARP at a 50% discount ($3.7 million). This would include extinguishment of the accumulated unpaid dividends of approximately $1.3 million to-date on the preferred stock issued to the Treasury for the TARP. The agreement requires the Bank to raise $7 million in new capital, bringing our ratios above the regulatory definition of a "well-capitalized" bank.

Permission to sign the agreement with Treasury has now been received from state and federal regulators. This is a major milestone in restoring the bank to a condition where it can operate successfully and thrive. We intend to raise the necessary capital from accredited investors (generally defined as investors with a net worth of $1 million or more, excluding their personal residence) through a private placement offering beginning immediately. I would hope to hear from current shareholders who may have an interest before broadening the effort. Since taking on this role in January, I have been encouraged by the support of the Bank's shareholders, staff and customers, which I greatly appreciate. Please feel free to contact me at [phone] if you have an interest in the offering or other questions.

Sincerely,

Patrick M. Fahey
Chairman, President, & CEO

[Enterprising Investor]

First Sound Bank 2012 Q3 Financial Report (11/25/12)

https://www.firstsoundbank.com/investor_pdfs/Q3_2012_Financial_Report.pdf

[Enterprising Investor]

Patrick M. Fahey (Bio)

Chairman, President and Chief Executive Officer

Mr. Fahey-who has over 40 years of distinguished service in local community banking-began his career in 1967 with Seattle-First National Bank, following his service as a U.S. Army infantry officer. There he rose through the ranks to senior vice president and manager of several banking divisions and served as the head of the bank's Washington Branch Banking Administration, as well as a member of its Senior Management Committee, before joining Old National Bank in 1981. At ONB, Fahey was elected president and chief operating officer in 1983 and served in that capacity until he left U.S. Bank of Washington (formerly ONB) four years later to found Pacific Northwest Bank and serve as its chairman, president and chief executive officer. It was under his leadership that Pacific Northwest Bank grew to become the largest commercial bank headquartered in the Northwest before its acquisition by Wells Fargo in 2003. Fahey left his position as chairman of Washington Regional Banking at Wells Fargo in 2004 to retire-but not for long. When asked to assume the position of CEO at financially troubled Frontier Bank four years later, Fahey joined in the effort to save the bank. Although a private equity infusion of $430 million was committed, Federal Reserve approval could not be obtained in time, and the bank was acquired by Union Bank in a regulatory-assisted transaction in 2010. Fahey became a consultant to the board of First Sound Bank in 2011 and was asked to assume his current position in January of 2012.

A Washington native, Fahey is a graduate of Seattle University, Pacific Coast Banking School and the Management Program of the University of Washington Graduate School of Business. Throughout his career, he has offered his leadership to numerous business, community and non-profit organizations, including the Washington Bankers Association (director/president), Association of Washington Business (director/vice chair), Greater Seattle Chamber of Commerce (trustee, vice chair), Providence Foundation of Seattle (board chair), Seattle University (trustee), YMCA of Greater Seattle (director), and Edmonds Center for the Arts (co-chair/capital campaign), to name a few.

https://www.firstsoundbank.com/about_people.html

[Enterprising Investor]

FSWA Raises $7.9 Million in New Capital and Completes Repurchase of TARP Preferred Securities (2/21/13)

SEATTLE, Feb. 21, 2013 /PRNewswire/ -- First Sound Bank (OTCBB: FSWA) today announced that, in accordance with a negotiated agreement with the U.S. Treasury, it has retired all $7.4 million in preferred stock issued to the Treasury in late 2008 in exchange for capital received under the Troubled Asset Relief Program (TARP). The Bank received regulatory approval to close on the agreement and repaid the Treasury on February 20.

The agreement, which called for a 50 percent discount to purchase the securities and warrants and extinguish accumulated unpaid dividends of approximately $1.3 million, required First Sound to raise at least $7 million in new capital and meet certain other requirements. The Bank closed out its offering on February 15, 2013, raising over $7.9 million from individual investors.

CEO Patrick Fahey , who was appointed to his position in January, 2012, stated, "This is a major milestone for First Sound Bank, as it has recovered from being one of the most troubled banks in Washington State to one of the healthier ones." The Bank was considered "significantly undercapitalized" a year ago, but with its increased funding, its capital ratios will now exceed the regulatory definition of a "well-capitalized" institution.

Fahey also noted that First Sound Bank has made significant progress on improving its asset quality, reducing non-performing assets from a high of $46 million to $4 million as of December 31, 2012. "The Bank has benefitted from an amazingly loyal customer base and staff who have stayed with it through its difficult period," said Fahey. "As a result, First Sound Bank is poised to increase its lending to small- and medium-sized businesses and is better positioned to make larger loans with its increased capital base," he added.

Forward-Looking Statements
Certain of the statements contained herein are forward-looking statements within the meaning of the Private Securities Reform Act. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "intend," "may increase," "may fluctuate," "hope" and similar expressions or future or conditional verbs such as "will," "should," "would" and "could." These forward-looking statements involve risks and uncertainties including, but not limited to, economic conditions, portfolio growth, and the credit performance of the portfolios, including bankruptcies and seasonal factors; changes in general economic conditions, including the performance of financial markets, prevailing inflation and interest rates, realized gains from sales of investments, gains from asset sales, and losses on commercial lending activities; results of various investment activities; the effects of competitors' pricing policies, of changes in laws and regulations on competition, and of demographic changes on target market populations' savings and financial planning needs; industry changes in information technology systems on which we are highly dependent; failure of acquisitions to produce revenue enhancements, cost savings at levels or within the time frames originally anticipated, or unforeseen integration difficulties; and the resolution of legal proceedings and related matters. In addition, the banking industry in general is subject to various monetary and fiscal policies and regulations, which include those adopted by the Federal Reserve Board, the Federal Deposit Insurance Corporation and state regulators, whose policies and regulations could affect First Sound Bank's performance. These statements are representative only on the date hereof, and the bank undertakes no obligation to update any forward-looking statements made.

About First Sound Bank
Seattle-based First Sound Bank offers customized banking for small- to medium-sized businesses, organizations, not-for-profits and professionals in the Puget Sound region. The bank 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 www.firstsoundbank.com plus an expansive banking network in the western U.S., as well as ATM banking throughout the country and abroad.

SOURCE First Sound Bank

http://www.prnewswire.com/news-releases/first-sound-bank-raises-79-million-in-new-capital-and-completes-repurchase-of-tarp-preferred-securities-192239541.html

[SaltyMutt]

I think this bank just might have a future.

[Juschilln]

Nice long term hold here.