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Member Profile: Frontier Bank
Frontier Bank
Everett, Wash.
Asset Size: $2.2 billion
# Customers: 50,000
# Employees: 660
# Locations: 38 |
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Frontier Bank of Everett, Washington, is a $2.2-billion independent
community bank, serving approximately 50,000 customers. It is the largest
commercial bank headquartered in western Washington. Chartered in 1978,
Frontier Bank has been a Seattle Bank member since 1992.
Frontier Bank is an active user of many Seattle Bank products and services,
including advances, financial advisory services, securities safekeeping,
library services, and our community investment products and services.
We recently talked with Frontier Bank’s President and CEO, John
Dickson, about his bank’s business and its relationship with the
Seattle Bank. Here’s what he had to say.
| Seattle
Bank: |
Tell us a about your institution. What
is Frontier Bank’s mission and core competency? |
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Our mission is to be a highly respected and profitable,
independent community bank. We are widely recognized as a premier
provider of financial services within the communities we serve. We
provide balance between our customers, employees, and shareholders,
while satisfying regulatory requirements and treating each other
with respect and dignity. I would say our distinct competency is
our construction and land development lending. I believe our expertise
is unmatched, and we have a strong niche in that market. |
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What markets do you serve? |
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Our 38 offices are in the eight counties that border
Puget Sound. We are a full-service commercial bank. Our lending-side
strengths are construction and land development, along with commercial
real estate. On the deposit side, our make-up is 60 % consumer
and 40 % commercial—split fairly evenly between transaction
accounts, savings, and time CDs. |
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What are your primary products and services? Which
are most valued by your customers—and which are most valuable
to your bank? |
John Dickson: |
Again, construction and land development lending is
of high value to our customers. On the deposit side, most recently
with the historical low rates, our premium savings account has been
a customer favorite. As we place most value on our construction and
land development portfolio, we have had very few credit quality concerns.
In addition, with the high turnover in that type of lending, we can
lend the same dollar two to three times a year, resulting in a high
yielding loan portfolio. |
Seattle Bank: |
Which Seattle Bank products and
services do you use? |
John Dickson: |
We have used, or will use in 2005, nearly all of the
Seattle Bank’s services—advances, financial advisory,
A/L management, securities safekeeping, community investment, and
the library. We’ve also participated in the Strategies
for Success workshop. |
Seattle Bank: |
Who from your organization attended the Strategies
for Success workshop? |
John Dickson: |
The CEO, CFO, and the SVP and cashier of the bank
attended the two-and-a-half-day workshop in Seattle. We were there
in October 2004. |
Seattle Bank: |
As the largest independent commercial bank headquartered
in Western Washington, were there any specific factors that prompted
you to attend the workshop? |
John Dickson: |
We attended the workshop for two primary reasons.
First, we were interested in strategies that could improve total
risk-based capital ratios without compromising profitability. Due
to our highly leveraged balance sheet and the level of assets in
the 100 % risk-weighting category, our total risk-based capital
is lower than that of our peers. The second reason was to have an
additional measurement of interest-rate risk. The Seattle Bank’s
simulation tools helped to confirm the accuracy of our existing model
and will help us address its viability in our ongoing dialogue with
our regulators |
Seattle Bank: |
Was the workshop helpful in designing a framework
for improving shareholder value? |
John Dickson: |
We did not expressly intend to design a framework
to enhance shareholder value at the workshop. Our principal means
of enhancing shareholder value has always been to remain a highly
profitable bank. However, using the strategies that we evaluated
during the session to enhance our total risk-based capital, we’ve
considered reducing primary capital, through stock buybacks, which
would ultimately further enhance shareholder value. |
Seattle Bank: |
Did the workshop prompt you to consider any modifications
to your deposit or loan strategies? |
John Dickson: |
We came away with a number of ideas for new loan and
deposit products. Dr. Tom Parliament was a dynamic speaker with many
unique ideas. |
Seattle Bank: |
What tangible results have you seen based on your
implementation of any of the strategies you evaluated in the workshop? |
John Dickson: |
Funding our loan growth is our biggest challenge moving
forward. We have been discussing several new deposit products to
enhance deposit growth. We are hopeful that we will implement them
in the first quarter of 2005. |
Seattle Bank:
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The Strategies for Success workshop incorporates an
analysis of product demand and demographic characteristics of current
and prospective market locations. Was this a useful part of the program? |
John Dickson:
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The demographic information that is available through
the Seattle Bank was a surprise to me. This information was comprehensive
and could definitely be useful in analyzing both appropriate branch
locations and appropriate product mix for each market analyzed. Because
our strategy is to hire the right banker for each market, we’ve
put less reliance on market demographics. |
Seattle Bank:
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A cornerstone of the program is the use of income-simulation
modeling, which allows a dynamic and immediate approach to forecasting
future cash flows and assesses performance of financial institutions
under different interest-rate environments. Did the immediate ability
to assess the impact of your institution’s rate sensitivity
upon your asset and deposit strategies help you evaluate the impact
of different strategy scenarios? |
John Dickson:
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The income-simulation model was the biggest benefit
of the session. It helped confirm and validate our existing model.
In addition, with the instant results, we were able to explore many
different strategies and their impact on capital, earnings, and other
key ratios. We are all very busy, and it was extremely valuable to
gather members of our key management team offsite, for an extended
period of time, to focus on strategies. Some of the results surprised
us, and eliminated some misconceptions. |
Seattle Bank:
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Once your management team agreed on a course of action,
what steps did you take to implement your strategies after the conclusion
of the workshop? |
John Dickson:
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As a result of the ideas discussed during the session,
we are developing some deposit products that we hope will assist
our efforts to optimize our funding. We also considered asset strategies
that included assessing the impact of adding mortgages or mortgage-backed
securities to our balance sheet, along with other growth strategies.
To fund asset growth, we explored a different combination of deposit
and Seattle Bank advance funding options. As our loan growth has
been very strong since we attended the workshop and we have never
placed mortgages on our balance sheet, we have, thus far, opted not
to grow our assets via mortgage-backed securities. |
Seattle Bank: |
Once they implement a particular strategy, many organizations
choose to recalibrate on a regular basis. Which of the following
strategies do you plan to use on an ongoing basis to assist in your
efforts? |
John Dickson: |
Since attending the workshop, we have elected to add
the Seattle Bank’s A/L management service to our product usage.
The IRR and simulation model is very comprehensive and uses detailed
data extracts. The service is reasonably priced and will complement
the existing A/L reports and models we currently use. |
Seattle Bank: |
Thanks for your time, John. Do you have any additional
comments regarding your experience with the Seattle
Bank’s Strategies workshop? |
John Dickson: |
One of the biggest benefits was getting out of
the office and focusing on discussing strategies with key management
personnel. Dr. Tom was a very good leader and pushed us to think
outside the box. It was time well spent. |
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