Business & Finance
Business and Finance
Business and Finance
Thu, July 30, 2009
Wed, July 29, 2009 Frontier Financial Corporation: Frontier Financial Corporation Announces Second Quarter 2009 Results
EVERETT, WA--(Marketwire - July 29, 2009) - Frontier Financial Corporation (
The results for the three and six months ended June 30, 2009, reflect continued pressure from an uncertain economy and the negative impact on the local housing market. The ratio of nonperforming assets has increased to 20.53% of total assets at June 30, 2009, up from 16.25% at March 31, 2009, and 2.97% a year ago. Because of this continued pressure, the provision for loan losses was $77.0 million for the three months ended June 30, 2009, compared to $58.0 million and $24.5 million for the three months ended March 31, 2009 and June 30, 2008, respectively. For the six months ended June 30, 2009, the provision for loan losses totaled $135.0 million, compared to $33.5 million for the same period in 2008. Net charge-offs for the three and six months ended June 30, 2009, totaled $90.2 million and $149.8 million, respectively, compared to $6.5 million and $9.5 million, respectively, for the same periods a year ago.
Despite these challenging times, the Board of Directors and management continue to take important steps to strengthen the Corporation. Management has been diligently working to reduce the concentration in real estate construction and land development loans, and has successfully reduced these portfolios by $916.0 million, or 37.1%, from June 30, 2008 to June 30, 2009, including undisbursed loan commitments, as defined by the FDIC.
As part of our ongoing strategy to reduce noninterest expense, the Board of Directors voted to suspend the Corporation's matching of employee 401(K) Plan contributions, effective May 1, 2009. This cost saving measure is expected to reduce noninterest expense by approximately $1.7 million annually. This is in addition to other previously announced expense reduction measures; including reductions to executive compensation, salary freezes and the elimination of performance bonuses and discretionary profit sharing contributions to the 401(K) Plan for the year ended December 31, 2008.
On June 11, 2009, we announced a workforce reduction of approximately six percent of the workforce, effective immediately. The action was taken as the result of an ongoing review of Bank operations to identify ways to operate more efficiently and continue to adjust the Bank's structure to reflect current economic conditions. The reductions occurred at all levels and in all parts of the Corporation. The departing employees received severance pay based on their years of service. This reduction resulted in a $360 thousand pre-tax charge in the second quarter of 2009 and is expected to provide an annual pre-tax cost savings of approximately $2.5 million.
Subsequent to June 30, 2009, the decision was made to close our downtown Poulsbo branch as a result of our continuing efforts to reduce noninterest expense. We currently have another Poulsbo branch that is within 0.8 miles of the branch being closed, and therefore, we do not expect our customers to be adversely affected by the closure. This branch closure had no material effect on our consolidated financial statements for the period ended June 30, 2009.
Patrick M. Fahey, Chairman and CEO of Frontier Financial Corporation, said, "While economic conditions remain difficult, we have made progress in a number of areas as noted in this report. I am pleased with the efforts of our staff to maintain and build customer relationships, to control expenses and resolve problem loans. While we have reduced the concentration in acquisition, construction and development loans significantly from a year ago, this continues to be our primary challenge, despite signs of recovery in the housing markets."
As noted in our March 25, 2009, Form 8-K filing, Frontier Bank ("Bank") entered into a Stipulation and Consent to the Issuance of an Order to Cease and Desist ("FDIC Order") on March 20, 2009 with the Federal Deposit Insurance Corporation ("FDIC") and the Washington Department of Financial Institutions, Division of Banks ("DFI") resulting from a June 30, 2008 examination. In addition, on July 2, 2009, Frontier Financial Corporation entered into an agreement with the Federal Reserve Bank of San Francisco ("FRB") resulting from the same examination. The Corporation and the Bank have been actively engaged in responding to the concerns raised in the FDIC Order and FRB Agreement, and we believe we have already addressed all of the regulators' requirements, with the exception of increasing Tier 1 capital, in which efforts are currently underway.
Liquidity
We continue to closely monitor and manage our liquidity position, understanding that this is of critical importance in the current economic environment. Attracting and retaining customer deposits remains our primary source of liquidity. Noninterest bearing deposits increased $9.4 million, or 2.4%, from December 31, 2008 to June 30, 2009, and $15.6 million, or 4.0%, from a year ago.
In an effort to increase on-balance sheet liquidity, we have been focused on restructuring our balance sheet, and in particular, reducing the loan portfolio. For the first six months of 2009, total loans decreased $362.5 million, or 9.6%, compared to December 31, 2008. Year-over-year, total loans decreased $391.1 million, or 10.3%. Additionally, we have increased our federal funds sold balances to $289.9 million at June 30, 2009, an increase of $172.1 million from December 31, 2008, and $271.6 million from a year ago.
Capital
We are currently taking steps to strengthen our capital position. We continue to look at adding capital through a private equity investment and have engaged an investment banking firm to help facilitate this process. Emphasis has also been placed on shifting higher risk weighted assets into lower risk weighted categories for the purpose of calculating capital ratios. At June 30, 2009, our total risk-based capital and Tier 1 leverage capital ratios were 9.42% and 6.74%, respectively, and continue to be above the established minimum regulatory capital levels. Our tangible common equity ratio was 6.74% at June 30, 2009.
Review of Financial Condition
Loans
At June 30, 2009, total loans, including loans held for resale, were $3.42 billion, compared to $3.78 billion at December 31, 2008, and $3.81 billion at June 30, 2008.
The decreases in total loans at June 30, 2009, compared to the year ended 2008 and a year ago, is attributable to decreases in new loan originations, loan pay downs and increased loan charge-offs. With few exceptions, we have suspended the origination of new real estate construction, land development and completed lot loans. New loan originations for the first six months of 2009 totaled $77.7 million, compared to $583.7 million for the same period in 2008.
Management continues to recognize loan quality deterioration on a timely basis and aggressively address work out strategies. Net charge-offs for the three and six months ended June 30, 2009, totaled $90.2 million and $149.8 million, respectively, compared to $6.5 million and $9.5 million, respectively, for the same periods a year ago. Due to the increased net charge-offs, the Corporation has adjusted its income tax provision to claim these losses as current tax deductions.
Allowance for Loan Losses
The total allowance for loan losses was $98.6 million, or 2.89%, of total loans outstanding at June 30, 2009, compared to $112.6 million, or 2.98%, at December 31, 2008, and $78.7 million, or 2.07%, at June 30, 2008. The allowance for loan losses, including the reclassified allocation for undisbursed loans of $1.3 million, would amount to a total allowance of $99.9 million, or 2.92%, of total loans outstanding at June 30, 2009.
Asset Quality
Nonperforming assets are summarized as follows (in thousands):
June 30, March 31, December 31, September 30, June 30, 2009 2009 2008 2008 2008 ---------- ---------- ---------- ---------- ---------- Commercial and industrial $ 27,092 $ 12,745 $ 12,908 $ 1,256 $ 394 Real estate: Commercial 73,130 14,527 10,937 2,986 - Construction 267,102 286,342 181,905 135,419 96,526 Land development 267,907 217,082 177,139 40,602 13,450 Completed lots 88,072 94,438 34,005 17,949 7,872 Residential 1-4 family 40,433 30,521 17,686 6,985 1,010 Installment and other 822 718 645 - 684 ---------- ---------- ---------- ---------- ---------- Total nonaccruing loans 764,558 656,373 435,225 205,197 119,936 Other real estate owned 54,222 18,874 10,803 3,693 3,681 ---------- ---------- ---------- ---------- ---------- Total nonperforming assets $ 818,780 $ 675,247 $ 446,028 $ 208,890 $ 123,617 ========== ========== ========== ========== ========== Restructured loans - - - - - Total loans at end of period (1) $3,416,219 $3,659,510 $3,778,733 $3,832,052 $3,807,278 Total assets at end of period $3,987,403 $4,154,267 $4,104,445 $4,244,963 $4,156,721 Total nonaccruing loans to total loans 22.38% 17.94% 11.52% 5.35% 3.15% Total nonperforming assets to total assets 20.53% 16.25% 10.87% 4.92% 2.97% (1) Includes loans held for resale.
The ratio of loans past due over 90 days was 20.3% of total loans at June 30, 2009, compared to 8.9% at December 31, 2008, and 3.2% at June 30, 2008. There were no loans 90 days or more past due and still accruing interest at June 30, 2009.
Results of Operations
Net interest income
Net interest income for the three months ended June 30, 2009, was $21.4 million, compared to $23.8 million for the three months ended March 31, 2009, and $44.9 million for the three months ended June 30, 2008. Net interest income for the six months ended June 30, 2009, totaled $45.2 million, compared to $92.3 million for the same period a year ago.
Net interest income decreased $2.3 million, or 9.7%, for the three months ended June 30, 2009, compared to the linked quarter. For the period, changes in average earning assets and interest bearing liabilities increased net interest income by $347 thousand whereas changes in interest rates decreased net interest income by $2.6 million. For the second quarter of 2009, average earning assets decreased $213.7 million, or 5.1%, and average interest bearing liabilities decreased $175.0 million, or 5.0%. The average quarterly yield on earning assets decreased 29 basis points to 4.66% for the second quarter 2009, compared to 4.95% for the first quarter 2009. The average cost of funds decreased 18 basis points for the same period.
For the three months ended June 30, 2009, net interest income decreased $23.5 million, or 52.2%, compared to the same period a year ago. For the period, changes in average earning assets and interest bearing liabilities decreased net interest income by $5.8 million and changes in interest rates decreased net interest income by $17.7 million. For the quarter ended June 30, 2009, average net earning assets (earning assets less interest bearing liabilities) totaled $631.4 million, compared to $698.4 million a year ago, a decrease of $67.0 million, or 9.6%. The average yield on earning assets was 4.66% for the second quarter 2009, down 282 points from 7.48% for the second quarter 2008. The average cost on interest bearing liabilities was down 52 basis points for the period.
For the six months ended June 30, 2009, net interest income decreased $47.1 million, or 51.0%, compared to the six months ended June 30, 2008. For the period, average earning assets increased $190.9 million, resulting in an additional $1.7 million of interest income. Average interest bearing liabilities increased $234.5 million for the six months ended June 30, 2009, compared to the same period a year ago, resulting in $10.1 million of additional interest expense. Therefore, changes in average earning assets and interest bearing liabilities for the six months ended June 30, 2009, compared to the same period a year, negatively impacted net interest income by $8.4 million. Changes in interest rates reduced net interest income by $38.7 million for the same period. Year-over-year, the average yield on earning assets and average cost of funds decreased 303 basis points and 64 basis points, respectively.
The annualized tax equivalent net interest margin was 2.21% for the three months ended June 30, 2009, compared to 4.63% for the three months ended June 30, 2008, a decrease of 242 basis points. For the three months ended June 30, 2009, the reversal of $5.4 million of interest accruals lowered the tax equivalent net interest margin by approximately 55 basis points. The remainder of the decrease in net interest margin can be attributed to the increase in total nonaccruing loans, lower loan fees as a result of reduced loan originations and a reduction of average outstanding loan balances.
The annualized tax equivalent net interest margin was 2.26% for the six months ended June 30, 2009, compared to 4.82% for the six months ended June 30, 2008, a decrease of 256 basis points. For the six months ended June 30, 2009, the reversal of $11.7 million of interest income on nonaccrual loans lowered the tax equivalent net interest margin by approximately 58 basis points. The year-over-year decrease in the tax equivalent net interest margin can also be attributed to the increase in total nonaccruing loans, as well as, decreases in interest rates by the Federal Reserve, and the resulting repricing of variable rate loans at lower rates. At June 30, 2009, the Federal Funds rate was 0.25%, down 175 basis points from 2.00% at June 30, 2008. In addition, loan originations for the six months ended June 30, 2009 decreased 86.7%, compared to the same period a year ago, resulting in lower loan fees.
Also contributing to the decrease in the annualized tax equivalent net interest margin for the three and six months ended June 30, 2009, compared to the same periods in 2008, was the change in mix of earning assets. As previously mentioned, in an effort to increase on-balance sheet liquidity, we have increased federal funds sold balances. For the second quarter of 2009, average federal funds sold accounted for approximately 6.1% of total earning assets, compared to 0.05% for the second quarter of 2008. For the six months ended June 30, 2009 and 2008, average federal funds sold accounted for approximately 6.8% and 0.2% of total earning assets, respectively. Typically, federal funds sold are a lower earning asset and currently yield a rate of 0.25%.
Noninterest income
For the three months ended June 30, 2009, noninterest income totaled $3.6 million, compared to $4.3 million for the three months ended March 31, 2009, and $4.2 million for the three months ended June 30, 2008. For the six months ended June 30, 2009, noninterest income totaled $7.9 million, compared to $10.5 million for the same period a year ago.
Noninterest income decreased $732 thousand, or 16.9%, for the three months ended June 30, 2009, compared to the linked quarter, and $608 thousand, or 14.5%, compared to the same period a year ago. For both periods, the decrease in noninterest income is primarily attributable to the net loss on other real estate owned and the decrease in other noninterest income. During the second quarter 2009, we recognized a net loss of $451 thousand related to other real estate owned, as the result of a $3.8 million valuation adjustment, partially offset by a $3.3 million gain on sale of other real estate owned. The valuation adjustment was the result of declines in the market value of these properties subsequent to foreclosure. The linked quarter and year-over-year decreases in other noninterest income are primarily attributable to decreases in insurance and financial service fees and annuity commissions generated by our Trust department.
For the six months ended June 30, 2009, noninterest income decreased $2.6 million, or 24.7%, compared to the six months ended June 30, 2008. The decrease in noninterest income for the period is primarily attributable to the $2.6 million decrease in gain (loss) on sale of securities. For the six months ended June 30, 2009, we recognized a $102 thousand loss on sale of securities, compared to a $2.5 million gain on sale of securities for the six months ended June 30, 2008. For the six months ended June 30, 2008, we sold our stock in Skagit State Bank for a gain of $2.0 million and recorded a one-time gain of $274 thousand related to the required liquidation of a portion of our stake of VISA, Inc., which went public in March 2008.
Noninterest expense
For the three months ended June 30, 2009, total noninterest expense was $25.4 million, compared to $23.3 million for the three months ended March 31, 2009, and $21.5 million for the three months ended June 30, 2008. For the six months ended June 30, 2009, total noninterest expense was $48.7 million, compared to $43.1 million for the six months ended June 30, 2008.
For the three months ended June 30, 2009, noninterest expense increased $2.1 million, or 9.0%, compared to the linked quarter. Other noninterest expense totaled $10.3 million for the three months ended June 30, 2009, compared to $7.7 million for the three months ended March 31, 2009, an increase of $2.6 million, or 33.1%. The most significant increase related to the $1.9 million special FDIC insurance assessment to be paid in the third quarter of 2009. In addition, foreclosure expense increased $387 thousand, collection expense increased $337 thousand and legal fees increased $159 thousand. The increases in these expenses are directly related to the increase in nonperforming assets during the period.
For the three months ended June 30, 2009, noninterest expense increased $3.9 million, or 17.9%, compared to the same period a year ago. For the same period, other noninterest expense increased $4.9 million, or 91.5%. The increase in other noninterest expense for the period was primarily attributable to the $4.8 million increase in FDIC insurance assessments and the one-time 5 basis point special assessment to be paid in the third quarter of 2009.
For the six months ended June 30, 2009, noninterest expense increased $5.6 million, or 13.0%. For the period, salaries and employee benefits decreased $1.9 million, or 7.3%, primarily as the result of the elimination of bonus and incentive pay, a reduction in executive compensation, a moratorium on hiring and a reduction in force. At June 30, 2009, full time equivalents ("FTE") employees totaled 714, down from 813 at June 30, 2008. In addition, the Board of Directors voted to suspend the Corporation's matching of employee 401(K) Plan contributions, effective May 1, 2009.
The increase in other noninterest expense for the six months ended June 30, 2009, over the same period in 2008, is primarily attributable to an increase in FDIC insurance assessments and the one-time special assessment of 5 basis points to be paid in the third quarter of 2009.
Certain amounts in prior years' financial statements have been reclassified to conform to the 2009 presentation. These classifications have not had an effect on previously reported income or total equity.
Frontier Financial Corporation is a Washington-based financial holding company providing financial services through its commercial bank subsidiary, Frontier Bank. Frontier Bank offers a wide range of financial services to businesses and individuals in its market area, including investment and insurance products.
CERTAIN FORWARD-LOOKING INFORMATION -- This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). This statement is included for the express purpose of availing Frontier of the protections of the safe harbor provisions of the PSLRA. The forward-looking statements contained herein are subject to factors, risks and uncertainties that may cause actual results to differ materially from those projected. The following items are among the factors that could cause actual results to differ materially from the forward-looking statements: general economic conditions, including their impact on capital expenditures; business conditions in the banking industry; recent world events and their impact on interest rates, businesses and customers; the regulatory environment; new legislation; vendor quality and efficiency; employee retention factors; rapidly changing technology and evolving banking industry standards; competitive standards; including increased competition with community, regional and national financial institutions; fluctuating interest rate environments; higher than expected loan delinquencies; and similar matters. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only at the date of this release.
Frontier undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this release. Readers should carefully review the risk factors described in this and other documents Frontier files from time to time with the Securities and Exchange Commission, including Frontier's 2008 Form 10-K.
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except for shares and per share amounts) (Unaudited) Three Months Ended ---------------------------------- June 30, March 31, June 30, 2009 2009 2008 ---------- ---------- ---------- INTEREST INCOME Interest and fees on loans $ 44,732 $ 49,400 $ 70,970 Interest on investments 849 1,091 1,372 ---------- ---------- ---------- Total interest income 45,581 50,491 72,342 ---------- ---------- ---------- INTEREST EXPENSE Interest on deposits 20,148 22,635 23,261 Interest on borrowed funds 3,984 4,102 4,190 ---------- ---------- ---------- Total interest expense 24,132 26,737 27,451 ---------- ---------- ---------- Net interest income 21,449 23,754 44,891 PROVISION FOR LOAN LOSSES 77,000 58,000 24,500 ---------- ---------- ---------- Net interest income (loss) after provison for loan losses (55,551) (34,246) 20,391 ---------- ---------- ---------- NONINTEREST INCOME Gain (loss) on sale of securities (149) 47 144 Gain on sale of secondary mortgage loans 630 584 377 Net loss on sale of other real estate owned (451) - - Service charges on deposit accounts 1,539 1,446 1,421 Other noninterest income 2,021 2,245 2,256 ---------- ---------- ---------- Total noninterest income 3,590 4,322 4,198 ---------- ---------- ---------- NONINTEREST EXPENSE Salaries and employee benefits 12,217 12,420 12,592 Occupancy expense 2,732 2,838 2,991 State business taxes 179 326 594 Other noninterest expense 10,259 7,708 5,356 ---------- ---------- ---------- Total noninterest expense 25,387 23,292 21,533 ---------- ---------- ---------- INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES (77,348) (53,216) 3,056 PROVISION (BENEFIT) FOR INCOME TAXES (27,354) (19,405) 982 ---------- ---------- ---------- NET INCOME (LOSS) $ (49,994) $ (33,811) $ 2,074 ========== ========== ========== Weighted average number of shares outstanding for the period 47,131,853 47,126,801 47,006,729 Basic earnings (losses) per share $ (1.06) $ (0.72) $ 0.04 ========== ========== ========== Weighted average number of diluted shares outstanding for period 47,131,853 47,126,801 47,069,136 Diluted earnings (losses) per share $ (1.06) $ (0.72) $ 0.04 ========== ========== ========== FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Continued) (In thousands, except for shares and per share amounts) (Unaudited) Six Months Ended ---------------------- June 30, June 30, 2009 2008 ---------- ---------- INTEREST INCOME Interest and fees on loans $ 94,132 $ 146,888 Interest on investments 1,940 2,954 ---------- ---------- Total interest income 96,072 149,842 ---------- ---------- INTEREST EXPENSE Interest on deposits 42,783 48,986 Interest on borrowed funds 8,086 8,567 ---------- ---------- Total interest expense 50,869 57,553 ---------- ---------- Net interest income 45,203 92,289 PROVISION FOR LOAN LOSSES 135,000 33,500 ---------- ---------- Net interest income (loss) after provison for loan losses (89,797) 58,789 ---------- ---------- NONINTEREST INCOME Gain (loss) on sale of securities (102) 2,468 Gain on sale of secondary mortgage loans 1,214 766 Net gain (loss) on sale of other real estate owned (451) 12 Service charges on deposit accounts 2,985 2,746 Other noninterest income 4,266 4,509 ---------- ---------- Total noninterest income 7,912 10,501 ---------- ---------- NONINTEREST EXPENSE Salaries and employee benefits 24,637 26,585 Occupancy expense 5,570 5,581 State business taxes 505 1,145 Other noninterest expense 17,967 9,767 ---------- ---------- Total noninterest expense 48,679 43,078 ---------- ---------- INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES (130,564) 26,212 PROVISION (BENEFIT) FOR INCOME TAXES (46,759) 8,637 ---------- ---------- NET INCOME (LOSS) $ (83,805) $ 17,575 ========== ========== Weighted average number of shares outstanding for the period 47,126,801 47,296,849 Basic earnings (losses) per share $ (1.78) $ 0.37 ========== ========== Weighted average number of diluted shares outstanding for period 47,126,801 47,385,620 Diluted earnings (losses) per share $ (1.78) $ 0.37 ========== ========== FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In thousands, except for shares and per share amounts) (Unaudited) June 30, December 31, June 30, 2009 2008 2008 ----------- ----------- ----------- ASSETS Cash and due from banks $ 42,697 $ 52,022 $ 68,161 Federal funds sold 289,871 117,740 18,265 Securities Available for sale, at fair value 80,318 90,606 108,796 Held to maturity, at amortized cost 3,081 3,085 3,740 ----------- ----------- ----------- Total securities 83,399 93,691 112,536 Loans held for resale 5,271 6,678 3,793 Loans 3,410,948 3,772,055 3,803,485 Allowance for loan losses (98,583) (112,556) (78,722) ----------- ----------- ----------- Net loans 3,317,636 3,666,177 3,728,556 Premises and equipment, net 49,649 51,502 52,212 Intangible assets 687 794 78,009 Federal Home Loan Bank (FHLB) stock 19,885 19,885 21,698 Bank owned life insurance 24,824 24,321 24,236 Other real estate owned 54,222 10,803 3,681 Other assets 104,533 67,510 49,367 ----------- ----------- ----------- Total assets $ 3,987,403 $ 4,104,445 $ 4,156,721 =========== =========== =========== LIABILITIES Deposits Noninterest bearing $ 404,832 $ 395,451 $ 389,275 Interest bearing 2,844,301 2,879,714 2,907,051 ----------- ----------- ----------- Total deposits 3,249,133 3,275,165 3,296,326 Federal funds purchased and securities sold under repurchase agreements 17,564 21,616 38,005 Federal Home Loan Bank advances 421,130 429,417 330,249 Junior subordinated debentures 5,156 5,156 5,156 Other liabilities 24,934 21,048 24,773 ----------- ----------- ----------- Total liabilities 3,717,917 3,752,402 3,694,509 ----------- ----------- ----------- SHAREHOLDERS' EQUITY Preferred stock, no par value; 10,000,000 shares authorized - - - Common stock, no par value; 100,000,000 shares authorized 257,694 256,137 254,703 Retained earnings 14,215 98,020 208,221 Accumulated other comprehensive loss, net of tax (2,423) (2,114) (712) ----------- ----------- ----------- Total shareholders' equity 269,486 352,043 462,212 ----------- ----------- ----------- Total liabilities and shareholders' equity $ 3,987,403 $ 4,104,445 $ 4,156,721 =========== =========== =========== Shares outstanding at end of period 47,131,853 47,095,103 47,010,131 Book value $ 5.72 $ 7.48 $ 9.83 Tangible book value $ 5.70 $ 7.46 $ 8.17 FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES SELECTED OTHER FINANCIAL INFORMATION AND RATIOS (In thousands) (Unaudited) For the Period Ended (Year-to-Date) ---------------------------------------------------------- June 30, March 31, December 31, September 30, June 30, 2009 2009 2008 2008 2008 ---------- ---------- ---------- ---------- ---------- Loans by Type (including loans held for resale) Commercial and industrial $ 425,221 $ 444,681 $ 457,215 $ 452,286 $ 448,360 Real Estate: Commercial 1,017,204 1,020,530 1,044,833 1,049,939 1,048,321 Construction 713,571 870,201 949,909 1,030,591 1,048,552 Land development 476,562 512,804 580,453 607,501 598,931 Completed lots 272,824 297,702 249,685 242,234 236,004 Residential 1-4 family 433,884 443,361 431,170 379,485 357,650 Installment and other loans 76,953 70,231 65,468 70,016 69,460 ---------- ---------- ---------- ---------- ---------- Total loans $3,416,219 $3,659,510 $3,778,733 $3,832,052 $3,807,278 ========== ========== ========== ========== ========== Allowance for Loan Losses Balance at beginning of period $ 114,638 $ 114,638 $ 57,658 $ 57,658 $ 57,658 ---------- ---------- ---------- ---------- ---------- Provision for loan losses 135,000 58,000 120,000 75,600 33,500 ---------- ---------- ---------- ---------- ---------- Loans charged-off Commercial and industrial (18,891) (5,355) (3,101) (1,167) (381) Real Estate: Commercial (1,176) (149) (1,264) - - Construction (62,036) (29,448) (31,968) (17,316) (9,275) Land development (38,015) (19,057) (12,165) (1,050) - Completed lots (19,286) (3,504) (13,839) (4,031) - Residential 1-4 family (10,771) (2,127) (846) (250) - Installment and other loans (1,089) (205) (343) (246) (106) ---------- ---------- ---------- ---------- ---------- Total charged-off loans (151,264) (59,845) (63,526) (24,060) (9,762) ---------- ---------- ---------- ---------- ---------- Recoveries Commercial and industrial 496 211 308 237 226 Real Estate: Commercial - - - - - Construction 863 51 161 9 10 Land development 57 57 - - - Completed lots 66 16 9 5 - Residential 1-4 family 27 - - - - Installment and other loans 4 2 28 23 11 ---------- ---------- ---------- ---------- ---------- Total recoveries 1,513 337 506 274 247 ---------- ---------- ---------- ---------- ---------- Net (charge-offs) recoveries (149,751) (59,508) (63,020) (23,786) (9,515) ---------- ---------- ---------- ---------- ---------- Balance before portion identified for undisbursed loans 99,887 113,130 114,638 109,472 81,643 Reserve acquired in merger - - - - - Portion of reserve identified for undisbursed loans (1,304) (1,646) (2,082) (2,837) (2,921) ---------- ---------- ---------- ---------- ---------- Balance at end of period $ 98,583 $ 111,484 $ 112,556 $ 106,635 $ 78,722 ========== ========== ========== ========== ========== Allowance for loan losses as a percentage of total loans, including loans held for resale 2.89% 3.05% 2.98% 2.78% 2.07% ---------- ---------- ---------- ---------- ---------- FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES SELECTED OTHER FINANCIAL INFORMATION AND RATIOS (Continued) (In thousands) (Unaudited) For the Period Ended (Year-to-Date) ---------------------------------------------------------- June 30, March 31, December 31, September 30, June 30, 2009 2009 2008 2008 2008 ---------- ---------- ---------- ---------- ---------- Nonperforming Assets (NPA) Nonaccruing loans $ 764,558 $ 656,373 $ 435,225 $ 205,197 $ 119,936 Other real estate owned 54,222 18,874 10,803 3,693 3,681 ---------- ---------- ---------- ---------- ---------- Total nonperforming assets 818,780 675,247 446,028 208,890 123,617 ---------- ---------- ---------- ---------- ---------- Restructured loans - - - - - ---------- ---------- ---------- ---------- ---------- Total impaired assets $ 818,780 $ 675,247 $ 446,028 $ 208,890 $ 123,617 ========== ========== ========== ========== ========== Total nonaccruing loans to total loans 22.38% 17.94% 11.52% 5.35% 3.15% Total NPA to total assets 20.53% 16.25% 10.87% 4.92% 2.97% Interest Bearing Deposits Money market, sweep and NOW $ 409,606 $ 365,807 $ 325,554 $ 557,323 $ 600,023 Savings 285,725 334,076 365,114 418,535 367,731 Time deposits 2,148,970 2,243,362 2,189,046 2,050,857 1,939,297 ---------- ---------- ---------- ---------- ---------- Total interest bearing deposits $2,844,301 $2,943,245 $2,879,714 $3,026,715 $2,907,051 ========== ========== ========== ========== ========== Capital Ratios Tier 1 leverage ratio 6.74% 7.60% 8.62% 8.88% 9.69% Tier 1 risk-based capital ratio 8.15% 9.13% 9.64% 9.48% 9.96% Total risk-based capital ratio 9.42% 10.40% 10.91% 10.75% 11.22% For the Three Months Ended ---------------------------------------------------------- Performance June 30, March 31, December 31, September 30, June 30, Ratios 2009 2009 2008 2008 2008 ---------- ---------- ---------- ---------- ---------- ROA (annualized) -4.92% -3.18% -8.68% -1.69% 0.20% ROE (annualized) -63.92% -38.70% -81.58% -15.32% 1.75% Average assets $4,061,874 $4,248,979 $4,125,319 $4,221,730 $4,087,538 Average shareholders' equity $ 312,851 $ 349,465 $ 438,908 $ 464,500 $ 473,750 For the Period Ended (Year-to-Date) ---------------------------------------------------------- Performance June 30, March 31, December 31, September 30, June 30, Ratios 2009 2009 2008 2008 2008 ---------- ---------- ---------- ---------- ---------- ROA (annualized) -4.03% -3.18% -2.18% -0.01% 0.87% ROE (annualized) -50.63% -38.70% -19.42% -0.06% 7.44% Average assets $4,154,923 $4,248,979 $4,107,571 $4,102,034 $4,041,808 Average shareholders' equity $ 331,056 $ 349,465 $ 461,981 $ 469,727 $ 472,369 FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES SELECTED OTHER FINANCIAL INFORMATION AND RATIOS (Continued) (In thousands) (Unaudited) Quarterly Average Balances June 30, June 30, 2009 2008 $ Change % Change ----------- ----------- ----------- ----------- Assets Cash and due from banks $ 43,367 $ 50,205 $ (6,838) -13.6% Federal funds sold 239,315 1,994 237,321 11901.8% Securities available for sale 84,176 121,195 (37,019) -30.5% Securities held to maturity 3,083 2,216 867 39.1% ----------- ----------- ----------- ----------- Total securities 87,259 123,411 (36,152) -29.3% Loans held for resale 8,151 3,543 4,608 130.1% Loans Commercial and industrial 444,572 437,414 7,158 1.6% RE commercial 1,020,838 1,024,190 (3,352) -0.3% RE construction 827,641 1,080,338 (252,697) -23.4% RE land development 501,469 578,954 (77,485) -13.4% RE completed lots 292,891 241,750 51,141 21.2% RE residential 1-4 family 435,596 330,612 104,984 31.8% Installment and other 71,186 67,936 3,250 4.8% ----------- ----------- ----------- ----------- Total 3,602,344 3,764,737 (162,393) -4.3% Allowance for loan losses (116,225) (63,565) (52,660) 82.8% ----------- ----------- ----------- ----------- Net loans 3,486,119 3,701,172 (215,053) -5.8% Premises and equipment, net 50,450 51,751 (1,301) -2.5% Intangible assets 714 78,036 (77,322) -99.1% FHLB Stock 19,885 20,339 (454) -2.2% Bank owned life insurance 24,693 24,112 581 2.4% Other real estate owned 28,447 1,870 26,577 1421.2% Other assets 81,625 34,648 46,977 135.6% ----------- ----------- ----------- ----------- Total assets $ 4,061,874 $ 4,087,538 $ (25,664) -0.6% =========== =========== =========== =========== Liabilities Deposits: Noninterest bearing $ 406,910 $ 377,131 $ 29,779 7.9% Interest bearing MMA, Sweep and NOW 388,049 645,409 (257,360) -39.9% Savings 300,522 345,192 (44,670) -12.9% Time deposits 2,178,557 1,765,116 413,441 23.4% ----------- ----------- ----------- ----------- Total interest bearing 2,867,128 2,755,717 111,411 4.0% Total deposits 3,274,038 3,132,848 141,190 4.5% Fed funds purchased and repurchase agreements 18,784 118,866 (100,082) -84.2% FHLB Advances 426,288 332,297 93,991 28.3% Junior subordinated debt 5,156 5,156 - 0.0% Other liabilities 24,757 24,621 136 0.6% ----------- ----------- ----------- ----------- Total liabilities 3,749,023 3,613,788 135,235 3.7% Total shareholders' equity 312,851 473,750 (160,899) -34.0% ----------- ----------- ----------- ----------- Total liabilities and shareholders' equity $ 4,061,874 $ 4,087,538 $ (25,664) -0.6% ----------- ----------- ----------- ----------- FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES SELECTED OTHER FINANCIAL INFORMATION AND RATIOS (Continued) (In thousands) (Unaudited) Year-to-Date Average Balances June 30, June 30, 2009 2008 $ Change % Change ----------- ----------- ----------- ----------- Assets Cash and due from banks $ 45,925 $ 49,778 $ (3,853) -7.7% Federal funds sold 275,805 6,946 268,859 3870.7% Securities available for sale 82,477 127,518 (45,041) -35.3% Securities held to maturity 3,083 3,742 (659) -17.6% ----------- ----------- ----------- ----------- Total securities 85,560 131,260 (45,700) -34.8% Loans held for resale 7,259 4,174 3,085 73.9% Loans Commercial and industrial 445,482 417,279 28,203 6.8% RE commercial 1,024,583 1,020,161 4,422 0.4% RE construction 882,109 1,074,283 (192,174) -17.9% RE land development 529,754 567,163 (37,409) -6.6% RE completed lots 282,629 243,603 39,026 16.0% RE residential 1-4 family 432,973 312,065 120,908 38.7% Installment and other 69,004 67,705 1,299 1.9% ----------- ----------- ----------- ----------- Total 3,673,793 3,706,433 (32,640) -0.9% Allowance for loan losses (118,566) (59,573) (58,993) 99.0% ----------- ----------- ----------- ----------- Net loans 3,555,227 3,646,860 (91,633) -2.5% Premises and equipment, net 50,858 50,216 642 1.3% Intangible assets 741 78,085 (77,344) -99.1% FHLB Stock 19,885 19,539 346 1.8% Bank owned life insurance 24,564 23,983 581 2.4% Other real estate owned 21,640 1,268 20,372 1606.6% Other assets 74,718 33,873 40,845 120.6% ----------- ----------- ----------- ----------- Total assets $ 4,154,923 $ 4,041,808 $ 113,115 2.8% =========== =========== =========== =========== Liabilities Deposits: Noninterest bearing $ 395,358 $ 371,430 $ 23,928 6.4% Interest bearing MMA, Sweep and NOW 359,622 677,837 (318,215) -46.9% Savings 329,381 305,460 23,921 7.8% Time deposits 2,263,587 1,749,984 513,603 29.3% ----------- ----------- ----------- ----------- Total interest bearing 2,952,590 2,733,281 219,309 8.0% Total deposits 3,347,948 3,104,711 243,237 7.8% Fed funds purchased and repurchase agreements 18,850 99,645 (80,795) -81.1% FHLB Advances 427,797 331,824 95,973 28.9% Junior subordinated debt 5,156 5,156 - 0.0% Other liabilities 24,116 28,103 (3,987) -14.2% ----------- ----------- ----------- ----------- Total liabilities 3,823,867 3,569,439 254,428 7.1% Total shareholders' equity 331,056 472,369 (141,313) -29.9% ----------- ----------- ----------- ----------- Total liabilities and shareholders' equity $ 4,154,923 $ 4,041,808 $ 113,115 2.8% ----------- ----------- ----------- -----------
