big banks or the people who run them. But he also knows it's not his cup of tea. He should know. He's been there. Mr. Fahey, the chairman, president, and chief executive officer of Seattle's Pacific Northwest Bank, had a chance years ago to continue up the ladder of a large Washington institution after it took over the bank he ran. Instead, he set out on his own. "Back when the takeovers started in the state, I was president of Old National Bank, before it was bought by U.S. Bancorp," Mr. Fahey said. "It began to look like the end of independent banks, so we decided to start up Pacific Northwest." It's been seven years since Mr. Fahey got together with six other area bankers, all from independents that had been sold or merged, and began Pacific Northwest. Today the institution is one of the best-performing banks in the state. Mr. Fahey's experience should give heart to community banks in regions where megamergers are most pronounced: Small banks that stay focused on niches - be they small businesses or others - can thrive in such an environment. The $133 million-asset bank, which recently opened its third branch, has logged $855,000 in net income for the first six months of the year, for a 1.34% return on assets, according to Sheshunoff Information Services. "We don't measure success by our next career move, but by growing our book of business," said Roderick Budd, senior vice president. "If the bigger banks were doing the job, these smaller community bank start-ups wouldn't be thriving." R. Jay Tejera, managing director of research for Seattle's Dain Bosworth Inc., said much of Pacific Northwest's success can be traced to its focused approach. Pacific Northwest has identified and pursued the small-business market. "Bank of America and Wells Fargo are the Costcos of the banking industry," Mr. Tejera said. "Pacific Northwest can't compete with big banks like that. It's a boutique bank, catering to a specialized niche." Pacific Northwest customer James E. Wilkinson is the type of businessman most put off by banks that become big. Mr. Wilkinson is the president and CEO of Fliteline Services Inc., a seller of aviation fuel in nearby Everett. Mr. Wilkinson said his company has had to upgrade its fuel storage facilities to meet Environmental Protection Agency guidelines. Fliteline needed a loan of around $1.25 million to build new facilities while continuing to use the existing ones. The response he got from other banks was less than enthusiastic. "We were wined and dined for many, many weeks by seven other banks, each of whom kept requesting more and more information, which was followed by silence," he said. "A month would go by and I'd call, but no answer. This kept going on and on until finally the banks said they just didn't want to take the risk with the pollution problem." Mr. Wilkinson said Pacific Northwest instead asked about solutions, contacted Fliteline's landlord, the Snohomish County Airport, and worked out the problem. "The bank was willing to take some very simple steps and solve the problem," he said. "Any other bank could have done that, but they didn't." Pacific's small-business niche opened up because of the environment of banking in Washington over the past decade, according to Mr. Tejera. "You had major mergers taking place, so you had new managers coming in everywhere and new names and a lot of customer disruption," he said. "It takes a major event to jar a customer loose, something such as mergers or management changes, and you had a combination of that with the mergers going on." "Our clients have enjoyed the same account officer for seven years," Mr. Budd said. "That makes a big difference to small and medium-size businesses. Those locally owned businesses are our bread and butter, and we treat them like gold." Employing a decentralized strategy, Mr. Fahey said his bank is "almost obsessed" with responding quickly to credit requests. "The most common complaint is the constant turnover of loan officers at big banks," Mr. Fahey said. "Here a customer is always talking to the same person every time they call." Pacific Northwest recently opened its third branch, in southern Snohomish county, to go with offices in Seattle and Bellevue. Though rapid expansion is not in the bank's immediate plans, Mr. Fahey did say some growth is inevitable, particularly south of the city. But Pacific Northwest officials have said its growth won't be at the expense of the institution's community bank roots. "We're not going to grow for growth's sake," said Mr. Budd. "I think we'll grow when we come across the right opportunity."
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