Frontier Financial Corporation (NASDAQ: FTBK) today announced
results for the three months and year ended December 31, 2008. For
the three months ended December 31, 2008, the Corporation reported
a net loss of $89.5 million, or ($1.90) per diluted share, compared
to net income of $18.0 million, or $0.40 per diluted share, for the
three months ended December 31, 2007. Contributing to the fourth
quarter 2008 net loss was a $77.1 million noncash charge related to
the impairment of goodwill and a $44.4 million provision for loan
losses. The $77.1 million goodwill impairment represents the
complete write-off of goodwill recorded in prior acquisitions. The
impairment of goodwill does not impact liquidity, operations,
tangible capital or the Corporation's capital ratios.
For the year ended December 31, 2008, net loss totaled $89.7
million, compared to net income of $73.9 million for the year ended
December 31, 2007. The decrease in net income for the period is
primarily attributable to the $108.6 million increase in the
provision for loan losses and a $77.1 million noncash goodwill
impairment charge. On a diluted per share basis, net loss for the
year ended December 31, 2008, was ($1.91) per share, compared to
net income of $1.62 per share for the year ended December 31,
2007.
The Corporation's net operating loss was $16.7 million, or
($0.35) per diluted share, for the fourth quarter 2008, which
excludes the $77.1 million noncash goodwill impairment charge and
the $3.1 million gain on sale of securities. This compared to a
$7.7 million net operating loss, or ($0.16) per diluted share, for
the third quarter 2008, excluding provision for loss on securities
and loss on sale of securities totaling $7.5 million; and net
operating income of $18.0 million, or $0.40 per diluted share, for
the fourth quarter 2007.
The increase in the provision for loan losses for the three
months and year ended December 31, 2008, is largely attributable to
deteriorating credit quality in our real estate construction and
land development portfolios. During the fourth quarter of 2008,
nonperforming real estate construction and land development loans
increased $183.0 million, to $359.0 million, compared to $176.0
million for the third quarter 2008. Management continues to
recognize loan quality deterioration on a timely basis and
aggressively address work out strategies. Net charge-offs related
to these two portfolios also increased $25.6 million during the
period. For the year ended December 31, 2008, nonperforming real
estate construction and land development loans increased $339.2
million and net charge-offs related to these portfolios increased
$43.8 million, compared to the prior year ended.
During the fourth quarter, we recorded a noncash charge of $77.1
million, or ($1.64) per diluted share, related to the impairment of
goodwill. This write down resulted from goodwill impairment testing
that was performed at the end of the fourth quarter due to the
quarterly decline in the stock price and the resulting difference
between the market capitalization and book value of the
Corporation. The results of the goodwill impairment testing
demonstrated that the estimated fair value of the Corporation, or
reporting unit, was less than the book value, resulting in full
impairment.
Patrick M. Fahey, Chairman and CEO of Frontier Financial
Corporation said, "The Board of Directors, in responding to these
challenging and unprecedented times, has taken a number of
corrective actions. The leadership of the Corporation was
restructured to enhance the effort to rebalance the Bank to a
portfolio with a much smaller concentration in real estate lending
and an increase in commercial and industrial business and consumer
loans."
In the third quarter, we announced strategies to improve asset
quality, preserve capital, reduce expenses and grow core deposits.
Our newly expanded special assets group continues to focus on
reducing nonperforming assets. Management was successful in
reducing construction and land development loans by $107.7 million
in the fourth quarter of 2008 compared to third quarter. However,
given the current economic conditions and the effects on the
housing market, this process is going to take time. At December 31,
2008, nonperforming assets totaled $446.0 million, or 10.9% of
total assets. This compares to nonperforming assets of $208.9
million, or 4.9% of total assets, at September 30, 2008, and $21.3
million, or 0.53% of total assets, at December 31, 2007.
In an effort to further preserve capital, in December of 2008
the Board of Directors voted to suspend the payment of the
quarterly cash dividend, beginning in the first quarter 2009.
Previously in July 2008, the Board of Directors decided to reduce
the quarterly cash dividend to $0.06 per share, down from $0.18 in
the previous quarter.
As part of our strategy to reduce noninterest expense, there
were no performance bonuses paid or discretionary profit sharing
contributions made to the Employee Benefit Plan for the year ended
December 31, 2008. This cost reduction measure is in addition to
the previously announced reduction in executive management
compensation and elimination of Bank Board meeting fees. On an
ongoing basis, additional cost saving measures will be put into
place.
Deposit growth continues to be a strong focus for the
Corporation. Even though our total deposit balances declined on a
linked quarter basis, total noninterest bearing deposits increased
$18.2 million, or 4.8%. We are anticipating further deposit growth
in 2009, as we recently formed our Business Banking team consisting
of 38 experienced business bankers, which are existing employees of
the Bank, to focus on generating loans and deposits with small to
medium sized businesses. In addition, management has introduced a
new incentive program based on deposit growth.
Capital
Management constantly monitors the level of capital,
considering, among other things, our present and anticipated needs,
current market conditions and other relevant factors, which may
necessitate changes in the level of capital. Total capital at
December 31, 2008, was $352.0 million, compared to $443.7 million
at September 30, 2008 and $459.6 million at December 31, 2007.
Total tangible capital at December 31, 2008, was $351.2 million,
compared to $365.8 million at September 30, 2008 and $381.5 million
at December 31, 2007.
For the year ended December 31, 2008, we paid cash dividends
totaling $22.4 million, compared to $29.0 million for the year
ended December 31, 2007. For the third and fourth quarters of 2008,
the Board of Directors declared a $0.06 per share quarterly cash
dividend. This compares to quarterly cash dividends of $0.165 and
$0.17 per share for the third and fourth quarters of 2007,
respectively. The decision to reduce the quarterly cash dividend
came as a result of our concern over the continuing deterioration
in the housing market and the need to preserve capital. Beginning
in the first quarter of 2009, the Board of Directors decided to
suspend the payment of the quarterly cash dividend to further
preserve capital.
Consolidated regulatory capital ratios as of December 31, 2008,
were as follows:
Tier I Tier 2 Leverage
(Core) Capital (Total) Capital Capital
-------------- --------------- --------
Actual as of December 31, 2008 9.64% 10.91% 8.62%
============== =============== ========
Regulatory minimum for "well
capitalized" purposes 6.00% 10.00% 5.00%
============== =============== ========
Review of Financial Condition
General
At December 31, 2008, total assets were $4.10 billion and
deposits totaled $3.28 billion. This compares to total assets of
$4.24 billion and deposits of $3.40 billion at September 30, 2008,
and total assets of $4.00 billion and deposits of $2.94 billion at
December 31, 2007. Net loans of $3.67 billion at December 31, 2008,
reflect a decrease of 1.6% from September 30, 2008, and an increase
of 3.0% from December 31, 2007.
Loans
At December 31, 2008, total loans, including loans held for
resale, were $3.78 billion, compared to $3.83 billion at September
30, 2008, and $3.61 billion at December 31, 2007. The decrease in
total loans on a linked quarter basis is attributable to a decrease
in new loan originations, loan pay downs and an increase in
charge-offs for the period. With few exceptions, we have suspended
the origination of new real estate construction, land development
and completed lot loans. New loan originations for the fourth
quarter 2008, totaled $58.6 million, compared to $175.6 million for
the third quarter 2008, a decrease of $117.0 million, or 66.6%. For
the fourth quarter 2007, new loan originations totaled $209.2
million, which was $150.6 million, or 72.0%, greater than the
fourth quarter 2008.
The year over year increase in total loans is primarily
attributable to the decrease in undisbursed commitments to lend. At
December 31, 2008, total undisbursed commitments to lend were
$484.4 million, compared to $873.2 million at December 31, 2007, a
decrease of $388.8 million, or 44.5%. Total undisbursed commitments
to lend were $650.8 million at September 30, 2008.
Allowance for Loan Losses
The total allowance for loan losses was $112.6 million, or
2.98%, of total loans outstanding at December 31, 2008, compared to
$106.6 million, or 2.78%, at September 30, 2008, and $54.0 million,
or 1.49%, at December 31, 2007. The allowance for loan losses,
including the reclassified allocation for undisbursed loans of $2.1
million, would amount to a total allowance of $114.6 million, or
3.03%, of total loans outstanding as of December 31, 2008.
For the year ended December 31, 2008, the provision for loan
losses increased $108.6 million, to $120.0 million, compared to
$11.4 million for the year ended December 31, 2007. Net charge-offs
increased $62.1 million, to $63.0 million in 2008, compared to $920
thousand in 2007.
Net charge-offs totaled $39.2 million, or 1.02% of average
quarterly loans, for the quarter ended December 31, 2008. This
compares to net charge-offs of $14.3 million, or 0.37%, and $594
thousand, or 0.02%, for the quarters ended September 30, 2008, and
December 31, 2007, respectively.
Credit Quality
Nonperforming assets are summarized as follows (in
thousands):
December September June 30, March 31, December
31, 2008 30, 2008 2008 2008 31, 2007
---------- ---------- ---------- ---------- ----------
Commercial and
industrial $ 12,908 $ 1,256 $ 394 $ 18 $ 159
Real estate:
Commercial 10,937 2,986 - - -
Construction 181,905 135,419 96,526 24,950 19,842
Land development 177,139 40,602 13,450 10,594 -
Completed lots 34,005 17,949 7,872 2,525 804
Residential 1-4
family 17,686 6,985 1,010 666 93
Installment and
other 645 - 684 14 10
---------- ---------- ---------- ---------- ----------
Total nonaccruing
loans 435,225 205,197 119,936 38,767 20,908
Other real estate
owned 10,803 3,693 3,681 633 367
---------- ---------- ---------- ---------- ----------
Total
nonperforming
assets $ 446,028 $ 208,890 $ 123,617 $ 39,400 $ 21,275
========== ========== ========== ========== ==========
Restructured loans - - - - -
Total loans at end
of period(1) $3,778,733 $3,832,052 $3,807,278 $3,716,950 $3,612,122
Total assets at
end of period $4,104,445 $4,244,963 $4,156,721 $4,062,825 $3,995,689
Total nonaccruing
loans to total
loans 11.52% 5.35% 3.15% 1.04% 0.58%
Total
nonperforming
assets to total
assets 10.87% 4.92% 2.97% 0.97% 0.53%
(1) Includes loans held for resale.
The ratio of loans past due over 30 days was 14.81% of total
loans at December 31, 2008, compared to 9.91% at September 30,
2008, and 0.91% at December 31, 2007.
Results of Operations
Net interest income
Net interest income for the three months ended December 31,
2008, was $33.9 million, compared to $49.5 million for the three
months ended December 31, 2007, a decrease of $15.7 million, or
31.6%. Higher average loan balances contributed $3.4 million to net
interest income, while changes in interest rates decreased net
interest income by $19.1 million. For the quarter, average earning
assets increased $459.0 million, or 13.0%, and average interest
bearing liabilities increased $426.5 million, or 11.5% from the
prior year. The average quarterly yield on earning assets decreased
289 basis points to 6.04% for the fourth quarter 2008, compared to
8.93% for the fourth quarter 2007.
On a linked quarter basis, net interest income decreased $6.9
million, or 16.9%. For the quarter ended December 31, 2008, average
earning assets totaled $4.00 billion, compared to $4.06 billion for
the quarter ended September 30, 2008. For the same period, the
average yield on earning assets decreased 74 basis points to 6.04%
from 6.78%. For the quarter ended December 31, 2008, average
interest bearing liabilities totaled $3.29 billion with an average
cost of 3.21%, compared to average interest bearing liabilities of
$3.36 billion, with an average cost of 3.33%, for the quarter ended
September 30, 2008.
For the twelve months ended December 31, 2008, net interest
income totaled $166.9 million, compared to $186.6 million for
twelve months ended December 31, 2007, a decrease of $19.7 million,
or 10.6%. Higher average balances contributed $27.6 million to net
interest income, whereas rate changes decreased net interest income
by $47.3 million. For the period, average earning assets increased
$631.9 million, or 19.1%, and average interest bearing liabilities
increased $595.2 million, or 22.4%. The average yield on earning
assets decreased 197 basis points to 7.10% for the year ended
December 31, 2008, compared to 9.07% for the prior year ended.
The annualized tax equivalent net interest margin was 3.42% for
the quarter ended December 31, 2008, compared to 4.05% for the
quarter ended September 30, 2008, and 5.63% for the quarter ended
December 31, 2007. The tax equivalent net interest margin for the
year ended December 31, 2008, was 4.26%, compared to 5.67% for the
year ended December 31, 2007.
During the fourth quarter of 2008, we had $5.5 million of
interest accruals reversed as a result of loans being placed on
nonaccrual status, which lowered the tax equivalent net interest
margin by 55 basis points. Total interest accruals reversed during
the twelve months ended December 31, 2008, were $9.5 million, which
lowered the year to date tax equivalent net interest margin by 24
basis points. The remainder of the decrease in net interest margins
can be attributed to the decreases in interest rates by the Federal
Reserve, and the resulting repricing of loans at lower rates, along
with the lower loan fees as a result of reduced loan originations
that decreased 72% from fourth quarter 2007 to fourth quarter
2008.
Noninterest income
For the three months ended December 31, 2008, total noninterest
income increased $3.7 million, or 97.4%, compared to the three
months ended December 31, 2007. The increase in total noninterest
income is primarily attributable to the $3.1 million increase in
gain on sale of securities. During the fourth quarter of 2008, we
sold stock for a pre-tax gain of $2.5 million and certain agency
securities for a pre-tax gain of $532 thousand. In addition, we
also sold Fannie Mae and Freddie Mac preferred stock that we wrote
down in the third quarter of 2008 for a pre-tax gain of $68
thousand.
On a linked quarter basis, total noninterest income increased
$10.7 million. During the third quarter of 2008, we recognized a
$6.4 million pre-tax loss related to other than temporarily
impaired investments in Fannie Mae, Freddie Mac and Lehman
Brothers. We also sold one security at a pre-tax loss of $1.0
million.
For the twelve months ended December 31, 2008, total noninterest
income was $14.8 million, compared to $13.3 million for the twelve
months ended December 31, 2007, an increase of $1.5 million, or
11.4%. Excluding the nonrecurring items other noninterest income
increased $2.4 million or 17.2% over the same period.
Noninterest expense
Total noninterest expense was $17.9 million, excluding the $77.1
million noncash charge for goodwill impairment for the three months
ended December 31, 2008, compared to $20.2 million for the three
months ended December 31, 2007, a decrease of $2.3 million, or
11.7%. For the period, salaries and employee benefits decreased
$3.5 million, partially offset by an increase in other noninterest
expense of $1.5 million. We reversed approximately $2.7 million in
accruals related to annual performance bonuses and discretionary
profit sharing contributions due to the net loss for the year. The
increase in other noninterest expense primarily relates to
increases in FDIC insurance assessments resulting from a one-time
credit of approximately $1.2 million in 2007 and premium increases
in 2008 and $397 thousand related to foreclosure expense.
On a linked quarter basis, excluding the $77.1 million goodwill
impairment charge in the fourth quarter, total noninterest expense
decreased $4.2 million, or 19.0%. Salaries and employee benefits
decreased $3.0 million, or 24.3%, primarily due to reversal of the
accrual for bonuses and profit sharing contributions. In addition,
the number of FTEs decreased 3.4% on a linked quarter basis.
Other noninterest expense totaled $21.4 million for the twelve
months ended December 31, 2008, compared to $15.2 million for the
twelve months ended December 31, 2007, an increase of $6.3 million,
or 41.4%. The most significant increase related to the FDIC
insurance assessment, which increased $2.3 million for the period.
The increase in the FDIC assessment resulted from a one-time credit
of approximately $1.2 million in 2007, to offset future assessments
as required by the Federal Deposit Insurance Reform Act of 2005,
and premium increases in 2008. Consulting fees increased $1.5
million for the twelve months ended December 31, 2008, compared to
the same period for the prior year. Additionally, foreclosure
expense increased $447 thousand, legal fees increased $367 thousand
and collection expense increased $226 thousand. These increases
directly correspond to the increase in nonperforming assets over
the period. Director expense decreased $143 thousand as the
directors elected to forego their monthly meeting fee beginning in
the fourth quarter 2008.
Liquidity
We continue to closely monitor and manage our liquidity position
understanding that this is of critical importance in today's tight
market. Attracting and retaining customer deposits remains our
primary source of liquidity. Management has the ability to access
additional sources of liquidity, such as the sale of available for
sale securities and additional borrowings from the FHLB. At
December 31, 2008, we had $1.15 billion of total liquidity
available. We have a policy that the minimum liquidity to total
assets ratio remain at 12.5%. At December 31, 2008, liquidity to
total assets was 28.0%.
Merger Activity
Washington Banking Company
As previously announced, on May 29, 2008, we received a notice
from Washington Banking Company ("WBCO") purporting to terminate
our merger agreement dated September 26, 2007. For the year ended
December 31, 2008, $729 thousand, pre-tax, of costs and expenses
incurred in connection with the transaction were expensed.
Bank of Salem
On November 30, 2007, we closed our merger with Bank of Salem.
At the time of closing, Bank of Salem had approximately $199.8
million in loans, $169.5 million in deposits and $27.0 million in
capital. The annual growth comparisons include the impact of the
Bank of Salem merger.
Certain amounts in prior years' financial statements have been
reclassified to conform to the 2008 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.
NONGAAP FINANCIAL MEASURES -- This news release contains certain
nonGAAP financial measures in addition to results presented in
accordance with Generally Accepted Accounting Principles ("GAAP").
These measures should not be construed as a substitute for GAAP
measures; they should be read and used in conjunction with
Frontier's GAAP financial information. A reconciliation of the
included nonGAAP financial measures to GAAP measures is included
elsewhere in this release.
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 2007 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
----------------------------------------
December 31, September 30, December 31,
2008 2008 2007
------------ ------------ ------------
INTEREST INCOME
Interest and fees on loans $ 59,343 $ 67,161 $ 77,914
Interest on investments 1,049 1,660 1,490
------------ ------------ ------------
Total interest income 60,392 68,821 79,404
------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits 22,715 24,390 25,601
Interest on borrowed funds 3,822 3,705 4,282
------------ ------------ ------------
Total interest expense 26,537 28,095 29,883
------------ ------------ ------------
Net interest income 33,855 40,726 49,521
PROVISION FOR LOAN LOSSES 44,400 42,100 6,000
------------ ------------ ------------
Net interest income (loss) after
provision for loan losses (10,545) (1,374) 43,521
------------ ------------ ------------
NONINTEREST INCOME
Provision for loss on
securities - (6,431) -
Gain (loss) on sale of
securities 3,129 (1,026) -
Gain on sale of secondary
mortgage loans 247 308 375
Gain on sale of other real
estate owned 4 81 -
Service charges on deposit
accounts 1,291 1,384 1,318
Other noninterest income 2,831 2,511 2,107
------------ ------------ ------------
Total noninterest income 7,502 (3,173) 3,800
------------ ------------ ------------
NONINTEREST EXPENSE
Salaries and employee benefits 9,398 12,420 12,891
Occupancy expense 2,406 3,161 2,543
State business taxes 370 498 565
Other noninterest expense 5,690 5,978 4,227
------------ ------------ ------------
17,864 22,057 20,226
------------ ------------ ------------
Goodwill impairment 77,073 - -
------------ ------------ ------------
Total noninterest expense 94,937 22,057 20,226
------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (97,980) (26,604) 27,095
PROVISION (BENEFIT) FOR INCOME
TAXES (8,464) (8,808) 9,080
------------ ------------ ------------
NET INCOME (LOSS) $ (89,516) $ (17,796) $ 18,015
============ ============ ============
Weighted average number of
shares outstanding for the
period 47,038,400 47,010,944 44,645,895
Basic earnings (losses) per share $ (1.90) $ (0.38) $ 0.40
============ ============ ============
Weighted average number of
diluted shares outstanding for
period 47,038,400 47,010,944 44,871,141
Diluted earnings (losses) per
share $ (1.90) $ (0.38) $ 0.40
============ ============ ============
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
(In thousands, except for shares and per share amounts)
(Unaudited)
PRO FORMA DISCLOSURES EXCLUDING THE EFFECTS OF THE (GAIN) LOSS ON
SECURITIES AND THE GOODWILL IMPAIRMENT
Three Months Ended
----------------------------------
December September December
31, 30, 31,
2008 2008 2007
---------- ---------- -----------
NET INCOME (LOSS) $ (89,516) $ (17,796) $ 18,015
ADJUSTMENTS
Provision for loss on securities - 6,431 -
(Gain) loss on sale of securities (3,129) 1,026 -
Goodwill impairment 77,073 - -
---------- ---------- -----------
Total adjustments 73,944 7,457 -
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (15,572) (10,339) 18,015
INCOME TAX PROVISION (BENEFIT)
RELATED TO ADJUSTMENTS 1,095 (2,610) -
---------- ---------- -----------
NET INCOME (LOSS) FROM RECURRING
OPERATIONS $ (16,667) $ (7,729) $ 18,015
========== ========== ===========
Weighted average number of
shares outstanding for the period 47,038,400 47,010,944 44,645,895
Basic earnings (losses) per share
EXCLUDING the effects of (gain)
loss on securities and goodwill
impairment $ (0.35) $ (0.16) $ 0.40
========== ========== ===========
Weighted average number of diluted
shares outstanding for period 47,038,400 47,010,944 44,871,141
Diluted earnings (losses) per share
EXCLUDING the effects of (gain)
loss on securities and goodwill
impairment $ (0.35) $ (0.16) $ 0.40
========== ========== ===========
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Continued)
(In thousands, except for shares and per share amounts)
(Unaudited)
Twelve Months Ended
------------------------
December 31, December 31,
2008 2007
----------- -----------
INTEREST INCOME
Interest and fees on loans $ 273,392 $ 294,099
Interest on investments 5,663 5,573
----------- -----------
Total interest income 279,055 299,672
----------- -----------
INTEREST EXPENSE
Interest on deposits 96,091 97,080
Interest on borrowed funds 16,094 15,961
----------- -----------
Total interest expense 112,185 113,041
----------- -----------
Net interest income 166,870 186,631
PROVISION FOR LOAN LOSSES 120,000 11,400
----------- -----------
Net interest income after provision for loan
losses 46,870 175,231
----------- -----------
NONINTEREST INCOME
Provision for loss on securities (6,430) -
Gain (loss) on sale of securities 4,570 (937)
Gain on sale of secondary mortgage loans 1,321 1,586
Gain on sale of premises and equipment 30 24
Gain on sale of other real estate owned 97 -
Service charges on deposit accounts 5,421 4,721
Other noninterest income 9,821 7,915
----------- -----------
Total noninterest income 14,830 13,309
----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits 48,403 48,297
Occupancy expense 11,148 9,956
State business taxes 2,013 2,066
FHLB prepayment penalty - 1,534
Other noninterest expense 21,435 15,163
----------- -----------
82,999 77,016
----------- -----------
Goodwill impairment 77,073 -
----------- -----------
Total noninterest expense 160,072 77,016
----------- -----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (98,372) 111,524
PROVISION (BENEFIT) FOR INCOME TAXES (8,635) 37,586
----------- -----------
NET INCOME (LOSS) $ (89,737) $ 73,938
=========== ===========
Weighted average number of shares outstanding for
the period 46,991,625 45,265,723
Basic earnings (losses) per share $ (1.91) $ 1.63
=========== ===========
Weighted average number of diluted shares
outstanding for period 46,991,625 45,601,066
Diluted earnings (losses) per share $ (1.91) $ 1.62
=========== ===========
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
(In thousands, except for shares and per share amounts)
(Unaudited)
PRO FORMA DISCLOSURES EXCLUDING THE EFFECTS OF THE (GAIN) LOSS ON
SECURITIES AND THE GOODWILL IMPAIRMENT
Twelve Months Ended
------------------------
December 31, December 31,
2008 2007
----------- ------------
NET INCOME (LOSS) $ (89,737) $ 73,938
ADJUSTMENTS
Provision for loss on securities 6,430 -
(Gain) loss on sale of securities (4,570) -
Goodwill impairment 77,073 -
----------- ------------
Total adjustments 78,933 -
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES (10,804) 73,938
INCOME TAX PROVISION (BENEFIT) RELATED TO
ADJUSTMENTS (651) -
----------- ------------
NET INCOME (LOSS) FROM RECURRING OPERATIONS $ (10,153) $ 73,938
=========== ============
Weighted average number of shares outstanding
for the period 46,991,625 45,265,723
Basic earnings (losses) per share
EXCLUDING the effects of (gain) loss on
securities and goodwill impairment $ (0.22) $ 1.63
=========== ============
Weighted average number of diluted shares
outstanding for period 46,991,625 45,601,066
Diluted earnings (losses) per share
EXCLUDING the effects of (gain) loss on
securities and goodwill impairment $ (0.22) $ 1.62
=========== ============
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except for shares and per share amounts)
(Unaudited)
December 31, September 30, December 31,
2008 2008 2007
----------- ----------- -----------
ASSETS
Cash and due from banks $ 52,022 $ 56,707 $ 99,102
Federal funds sold 117,740 130,334 5
Securities
Available for sale, at fair
value 90,606 98,095 131,378
Held to maturity, at amortized
cost 3,085 3,737 3,743
----------- ----------- -----------
Total securities 93,691 101,832 135,121
Loans held for resale 6,678 3,104 6,227
Loans 3,772,055 3,828,948 3,605,895
Allowance for loan losses (112,556) (106,635) (53,995)
----------- ----------- -----------
Net loans 3,666,177 3,725,417 3,558,127
Premises and equipment, net 51,502 51,823 47,293
Intangible assets 794 77,938 78,150
Federal Home Loan Bank (FHLB) stock 19,885 15,622 18,738
Bank owned life insurance 24,321 24,056 23,734
Other real estate owned 10,803 3,693 367
Other assets 67,510 57,541 35,052
----------- ----------- -----------
Total assets $ 4,104,445 $ 4,244,963 $ 3,995,689
=========== =========== ===========
LIABILITIES
Deposits
Noninterest bearing $ 395,451 $ 377,279 $ 390,526
Interest bearing 2,879,714 3,026,715 2,552,710
----------- ----------- -----------
Total deposits 3,275,165 3,403,994 2,943,236
Federal funds purchased and
securities sold under repurchase
agreements 21,616 34,701 258,145
Federal Home Loan Bank advances 429,417 329,833 298,636
Junior subordinated debt 5,156 5,156 5,156
Other liabilities 21,048 27,548 30,904
----------- ----------- -----------
Total liabilities 3,752,402 3,801,232 3,536,077
----------- ----------- -----------
SHAREOWNERS' EQUITY
Common stock, no par value;
100,000,000 shares authorized 256,137 255,575 252,016
Retained earnings 98,020 187,591 202,729
Accumulated other comprehensive
income (loss), net of tax (2,114) 565 4,867
----------- ----------- -----------
Total shareowners' equity 352,043 443,731 459,612
----------- ----------- -----------
Total liabilities and
shareowners' equity $ 4,104,445 $ 4,244,963 $ 3,995,689
=========== =========== ===========
Shares outstanding at end of period 47,095,103 47,023,716 46,950,878
Book value $ 7.48 $ 9.44 $ 9.79
Tangible book value $ 7.46 $ 7.78 $ 8.12
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED OTHER FINANCIAL INFORMATION AND RATIOS
(In thousands)
(Unaudited)
For the Period Ended
----------------------------------------------------------
December 31, September 30, June 30, March 31, December 31,
2008 2008 2008 2008 2007
---------- ---------- ---------- ---------- ----------
Loans by Type
(including
loans held
for resale)
Commercial and
industrial $ 457,215 $ 452,286 $ 448,360 $ 416,154 $ 402,569
Real Estate:
Commercial 1,044,833 1,049,939 1,048,321 1,025,047 1,003,916
Construction 949,909 1,030,591 1,048,552 1,084,264 1,062,662
Land
development 580,453 607,501 598,931 565,690 537,410
Completed lots 249,685 242,234 236,004 245,500 249,573
Residential
1-4 family 431,170 379,485 357,650 312,545 288,571
Installment and
other loans 65,468 70,016 69,460 67,750 67,421
---------- ---------- ---------- ---------- ----------
Total loans $3,778,733 $3,832,052 $3,807,278 $3,716,950 $3,612,122
========== ========== ========== ========== ==========
Allowance for
Loan Losses
Balance at
beginning of
period $ 57,658 $ 57,658 $ 57,658 $ 57,658 $ 44,195
---------- ---------- ---------- ---------- ----------
Provision for
loan losses 120,000 75,600 33,500 9,000 11,400
---------- ---------- ---------- ---------- ----------
Loans
charged-off
Commercial and
industrial (3,101) (1,167) (381) (138) (1,183)
Real Estate:
Commercial (1,264) - - - -
Construction (31,968) (17,316) (9,275) (2,652) (201)
Land
development (12,165) (1,050) - (250) -
Completed
lots (13,839) (4,031) - (26) -
Residential
1-4 family (846) (250) - - (300)
Installment
and other
loans (343) (246) (106) (24) (222)
---------- ---------- ---------- ---------- ----------
Total charged-
off loans (63,526) (24,060) (9,762) (3,090) (1,906)
---------- ---------- ---------- ---------- ----------
Recoveries
Commercial and
industrial 308 237 226 94 845
Real Estate:
Commercial - - - - -
Construction 161 9 10 7 -
Land
development - - - - -
Completed
lots 9 5 - - -
Residential
1-4 family - - - - -
Installment
and other
loans 28 23 11 7 141
---------- ---------- ---------- ---------- ----------
Total
recoveries 506 274 247 108 986
---------- ---------- ---------- ---------- ----------
Net
(charge-offs)
recoveries (63,020) (23,786) (9,515) (2,982) (920)
---------- ---------- ---------- ---------- ----------
Balance before
portion
identified
for undisbursed
loans 114,638 109,472 81,643 63,676 54,675
Reserve acquired
in merger - - - - 2,983
Portion of
reserve
identified for
undisbursed
loans (2,082) (2,837) (2,921) (3,399) (3,663)
---------- ---------- ---------- ---------- ----------
Balance at end
of period $ 112,556 $ 106,635 $ 78,722 $ 60,277 $ 53,995
========== ========== ========== ========== ==========
Allowance for
loan losses as
a percentage
of total loans,
including loans
held for resale 2.98% 2.78% 2.07% 1.62% 1.49%
========== ========== ========== ========== ==========
For the Period Ended
----------------------------------------------------------
December 31, September 30, June 30, March 31, December 31,
2008 2008 2008 2008 2007
---------- ---------- ---------- ---------- ----------
Nonperforming
Assets
Nonaccruing
loans $ 435,225 $ 205,197 $ 119,936 $ 38,767 $ 20,908
Other real
estate owned 10,803 3,693 3,681 633 367
---------- ---------- ---------- ---------- ----------
Total
nonperforming
assets 446,028 208,890 123,617 39,400 21,275
---------- ---------- ---------- ---------- ----------
Restructured
loans - - - - -
---------- ---------- ---------- ---------- ----------
Total impaired
assets $ 446,028 $ 208,890 $ 123,617 $ 39,400 $ 21,275
========== ========== ========== ========== ==========
Total
nonaccruing
loans to
total loans 11.52% 5.35% 3.15% 1.04% 0.58%
Total NPA to
total assets 10.87% 4.92% 2.97% 0.99% 0.53%
Interest
Bearing
Deposits
Money market,
sweep and NOW $ 325,554 $ 557,323 $ 600,023 $ 733,551 $ 745,780
Savings 365,114 418,535 367,731 305,982 254,722
Time deposits 2,189,046 2,050,857 1,939,297 1,750,346 1,552,208
---------- ---------- ---------- ---------- ----------
Total interest
bearing
deposits $2,879,714 $3,026,715 $2,907,051 $2,789,879 $2,552,710
========== ========== ========== ========== ==========
Capital Ratios
Tier 1 leverage
ratio 8.62% 8.88% 9.69% 9.94% 10.55%
Tier 1
risk-based
capital ratio 9.64% 9.48% 9.96% 10.13% 10.13%
Total
risk-based
capital ratio 10.91% 10.75% 11.22% 11.38% 11.38%
For the Three Months Ended
----------------------------------------------------------
Performance December 31, September 30, June 30, March 31, December 31,
Ratios 2008 2008 2008 2008 2007
---------- ---------- ---------- ---------- ----------
ROA (annualized) -8.68% -1.69% 0.20% 1.55% 1.95%
ROE (annualized) -81.58% -15.32% 1.75% 13.36% 17.21%
Efficiency
ratio 50% 49% 43% 42% 37%
Average assets $4,125,319 $4,221,730 $4,087,538 $3,989,829 $3,698,795
Average
shareowners'
equity $ 438,908 $ 464,500 $ 473,750 $ 464,248 $ 418,696
For the Period Ended
----------------------------------------------------------
December 31, September 30, June 30, March 31, December 31,
2008 2008 2008 2008 2007
---------- ---------- ---------- ---------- ----------
ROA (annualized) -2.18% -0.01% 0.87% 1.55% 2.13%
ROE (annualized) -19.42% -0.06% 7.44% 13.36% 18.76%
Efficiency
ratio 45% 44% 42% 42% 37%
Average assets $4,107,571 $4,102,034 $4,041,808 $3,989,829 $3,470,564
Average
shareowners'
equity $ 461,981 $ 469,727 $ 472,369 $ 464,248 $ 394,176
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED OTHER FINANCIAL INFORMATION AND RATIOS (Continued)
(In thousands)
(Unaudited)
Quarterly Average
Balances
December 31, December 31,
2008 2007 $ Change % Change
------------ ------------ --------- ---------
Assets
Cash and due from banks $ 48,279 $ 52,813 $ (4,534) -8.6%
Federal funds sold 44,246 4,133 40,113 970.6%
Securities available for
sale 97,124 99,893 (2,769) -2.8%
Securities held to
maturity 3,517 4,270 (753) -17.6%
------------ ------------ --------- ---------
Total securities 100,641 104,163 (3,522) -3.4%
Loans held for sale 2,414 4,135 (1,721) -41.6%
Loans
Commercial and
industrial 456,594 380,063 76,531 20.1%
RE commercial 1,051,625 960,009 91,616 9.5%
RE construction 1,022,043 998,104 23,939 2.4%
RE land development 602,838 514,209 88,629 17.2%
RE completed lots 249,849 215,846 34,003 15.8%
RE mortgage 385,218 283,953 101,265 35.7%
Installment and other 69,656 64,313 5,343 8.3%
------------ ------------ --------- ---------
Total 3,840,237 3,420,632 419,605 12.3%
Allowance for credit
losses (121,288) (48,245) (73,043) 151.4%
------------ ------------ --------- ---------
Net loans 3,718,949 3,372,387 346,562 10.3%
Premises and equipment 51,819 43,093 8,726 20.2%
Intangible assets 77,905 54,264 23,641 43.6%
FHLB Stock 18,084 15,263 2,821 18.5%
BOLI 24,185 23,203 982 4.2%
Other real estate owned 3,468 1,154 2,314 200.5%
Other assets 37,743 28,322 9,421 33.3%
------------ ------------ --------- ---------
Total assets $ 4,125,319 $ 3,698,795 $ 426,524 11.5%
============ ============ ========= =========
Liabilities
Deposits:
Noninterest bearing $ 389,127 $ 402,403 $ (13,276) -3.3%
Interest bearing
MMA, Sweep and NOW 407,758 740,578 (332,820) -44.9%
Savings 392,845 247,535 145,310 58.7%
Time deposits 2,065,873 1,480,371 585,502 39.6%
------------ ------------ --------- ---------
Total interest
bearing 2,866,476 2,468,484 397,992 16.1%
Total deposits 3,255,603 2,870,887 384,716 13.4%
Fed funds purchased and
repurchase agreements 61,487 70,850 (9,363) -13.2%
FHLB Advances 359,296 301,868 57,428 19.0%
Junior subordinated debt 5,156 5,156 - 0.0%
Other liabilities 4,869 31,338 (26,469) -84.5%
------------ ------------ --------- ---------
Total liabilities 3,686,411 3,280,099 406,312 12.4%
Total stockholders'
equity 438,908 418,696 20,212 4.8%
------------ ------------ --------- ---------
Total liabilities and
stockholders' equity $ 4,125,319 $ 3,698,795 $ 426,524 11.5%
============ ============ ========= =========
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED OTHER FINANCIAL INFORMATION AND RATIOS (Continued)
(In thousands)
(Unaudited)
Quarterly Average
Balances
December 31, September 30,
2008 2008 $ Change % Change
------------ ------------ --------- ---------
Assets
Cash and due from banks $ 48,279 $ 53,789 $ (5,510) -10.2%
Federal funds sold 44,246 58,168 (13,922) -23.9%
Securities available for
sale 97,124 137,945 (40,821) -29.6%
Securities held to
maturity 3,517 3,739 (222) -5.9%
------------ ------------ --------- ---------
Total securities 100,641 141,684 (41,043) -29.0%
Loans held for sale 2,414 2,822 (408) -14.5%
Loans
Commercial and
industrial 456,594 458,330 (1,736) -0.4%
RE commercial 1,051,625 1,055,207 (3,582) -0.3%
RE construction 1,022,043 1,051,884 (29,841) -2.8%
RE land development 602,838 602,436 402 0.1%
RE completed lots 249,849 241,036 8,813 3.7%
RE mortgage 385,218 362,543 22,675 6.3%
Installment and other 69,656 69,163 493 0.7%
------------ ------------ --------- ---------
Total 3,840,237 3,843,421 (3,184) -0.1%
Allowance for credit
losses (121,288) (87,365) (33,923) 38.8%
------------ ------------ --------- ---------
Net loans 3,718,949 3,756,056 (37,107) -1.0%
Premises and equipment 51,819 52,581 (762) -1.4%
Intangible assets 77,905 77,977 (72) -0.1%
FHLB Stock 18,084 17,207 877 5.1%
BOLI 24,185 24,321 (136) -0.6%
Other real estate owned 3,468 3,179 289 9.1%
Other assets 37,743 36,768 975 2.7%
------------ ------------ --------- ---------
Total assets $ 4,125,319 $ 4,221,730 $ (96,411) -2.3%
============ ============ ========= =========
Liabilities
Deposits:
Noninterest bearing $ 389,127 $ 386,896 $ 2,231 0.6%
Interest bearing
MMA, Sweep and NOW 407,758 586,319 (178,561) -30.5%
Savings 392,845 392,552 293 0.1%
Time deposits 2,065,873 2,008,838 57,035 2.8%
------------ ------------ --------- ---------
Total interest
bearing 2,866,476 2,987,709 (121,233) -4.1%
Total deposits 3,255,603 3,374,605 (119,002) -3.5%
Fed funds purchased and
repurchase agreements 61,487 33,631 27,856 82.8%
FHLB Advances 359,296 329,985 29,311 8.9%
Junior subordinated debt 5,156 5,156 - 0.0%
Other liabilities 4,869 13,853 (8,984) -64.9%
------------ ------------ --------- ---------
Total liabilities 3,686,411 3,757,230 (70,819) -1.9%
Total stockholders'
equity 438,908 464,500 (25,592) -5.5%
------------ ------------ --------- ---------
Total liabilities and
stockholders' equity $ 4,125,319 $ 4,221,730 $ (96,411) -2.3%
============ ============ ========= =========
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED OTHER FINANCIAL INFORMATION AND RATIOS (Continued)
(In thousands)
(Unaudited)
Year-to-Date Average
Balances
December 31, December 31,
2008 2007 $ Change % Change
------------ ------------ --------- ---------
Assets
Cash and due from banks $ 50,410 $ 68,285 $ (17,875) -26.2%
Federal funds sold 29,197 18,405 10,792 58.6%
Securities available for
sale 122,499 93,582 28,917 30.9%
Securities held to
maturity 3,685 3,751 (66) -1.8%
------------ ------------ --------- ---------
Total securities 126,184 97,333 28,851 29.6%
Loans held for sale 3,392 4,774 (1,382) -28.9%
Loans
Commercial and
industrial 437,481 383,242 54,239 14.2%
RE commercial 1,036,171 919,028 117,143 12.7%
RE construction 1,056,159 890,404 165,755 18.6%
RE land development 585,508 457,116 128,392 28.1%
RE completed lots 244,575 209,916 34,659 16.5%
RE mortgage 342,653 258,430 84,223 32.6%
Installment and other 68,562 62,841 5,721 9.1%
------------ ------------ --------- ---------
Total 3,774,501 3,185,751 588,750 18.5%
Allowance for credit
losses (82,528) (43,972) (38,556) 87.7%
------------ ------------ --------- ---------
Net loans 3,691,973 3,141,779 550,194 17.5%
Premises and equipment 51,214 35,944 15,270 42.5%
Intangible assets 78,013 41,224 36,789 89.2%
FHLB Stock 18,587 15,088 3,499 23.2%
BOLI 24,118 22,709 1,409 6.2%
Other real estate owned 2,301 395 1,906 482.5%
Other assets 35,574 29,402 6,172 21.0%
------------ ------------ --------- ---------
Total assets $ 4,107,571 $ 3,470,564 $ 637,007 18.4%
============ ============ ========= =========
Liabilities
Deposits:
Noninterest bearing $ 379,766 $ 396,293 $ (16,527) -4.2%
Interest bearing
MMA, Sweep and NOW 586,943 716,777 (129,834) -18.1%
Savings 349,318 268,017 81,301 30.3%
Time deposits 1,894,455 1,325,777 568,678 42.9%
------------ ------------ --------- ---------
Total interest
bearing 2,830,716 2,310,571 520,145 22.5%
Total deposits 3,210,482 2,706,864 503,618 18.6%
Fed funds purchased and
repurchase agreements 73,460 42,542 30,918 72.7%
FHLB Advances 338,268 294,169 44,099 15.0%
Junior subordinated debt 5,156 5,156 - 0.0%
Other liabilities 18,224 27,657 (9,433) -34.1%
------------ ------------ --------- ---------
Total liabilities 3,645,590 3,076,388 569,202 18.5%
Total stockholders'
equity 461,981 394,176 67,805 17.2%
------------ ------------ --------- ---------
Total liabilities and
stockholders' equity $ 4,107,571 $ 3,470,564 $ 637,007 18.4%
============ ============ ========= =========
Contact: Patrick M. Fahey Frontier Financial Corporation
Chairman and CEO 425-423-7250 Michael Clementz Frontier Financial
Corporation President 425-514-0717 John J. Dickson Frontier Bank
President 425-514-0700
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