SOURCE: Frontier Financial Corporation

January 29, 2010 08:30 ET

Frontier Financial Corporation Announces Improved Operating Results for the Fourth Quarter 2009

EVERETT, WA--(Marketwire - January 29, 2010) - Frontier Financial Corporation (NASDAQ: FTBK) today announced results for the quarter and year ended December 31, 2009. For the three months ended December 31, 2009, the Corporation reported a net loss of $33.9 million, or ($7.19) per diluted share, compared to a net loss of $141.1 million, or ($29.93) per diluted share, for the three months ended September 30, 2009, and net loss of $89.5 million, or ($19.03) per diluted share, for the three months ended December 31, 2008. For the year ended December 31, 2009, the Corporation reported a net loss of $258.8 million, or ($54.91) per diluted share, compared to a net loss of $89.7, or ($19.10) per diluted share, a year ago. All results reflect the one-for-ten reverse stock split, which was effective November 24, 2009.

Highlights for the fourth quarter and year ended December 31, 2009 include:

--  Net loss decreased $107.2 million, or 76.0%, for the fourth quarter
    2009, compared to the previous quarter;
    
--  Annualized tax equivalent net interest margin increased 26 basis
    point to 2.30% at December 31, 2009, compared to 2.04% at September 30, 
    2009;
    
--  Nonperforming loans decreased $105.3 million, or 13.0%, for the
    fourth quarter 2009, compared to the previous quarter;
    
--  Nonperforming assets decreased $34.0 million, or 3.7%, for the fourth
    quarter 2009, compared to the previous quarter;
    
--  The ratio of loans past due 30 to 89 days to total loans improved to
    4.3% at December 31, 2009, compared to 7.3% at September 30, 2009;
    
--  Total deposits, excluding brokered deposits, increased $29.1 million
    for the fourth quarter 2009, compared to the previous quarter; and
    
--  Total liquidity, as a percentage of total assets, improved to 13.5%
    at December 31, 2009, compared to 12.1% at September 30, 2009.
    

The results for the fourth quarter and year ended December 31, 2009, also reflect a $40.4 million and $89.2 million income tax benefit primarily related to newly enacted legislation that allows banks, such as Frontier Bank, that had not received government assistance in the form of TARP, to carryback losses incurred in 2008 or 2009 for a period of five years. We expect to receive an income tax refund of approximately $82.4 million in 2010.

Despite these challenging times, the Board of Directors and management continue to take important steps to strengthen the Corporation. We continue to reduce our concentrations in real estate construction and land development loans and have successfully reduced these portfolios by $1.39 billion, or 57.3%, from June 30, 2008 to December 31, 2009, including undisbursed loan commitments, as defined by the FDIC.

Patrick M. Fahey, Chairman and CEO of Frontier Financial Corporation said, "It is gratifying to see improving trends due to the tremendous efforts and sacrifices of our staff during these very difficult times. Our progress and improved liquidity are very much a result of the loyalty of our customers and the strong support of the communities we serve, for which we are very grateful."

Liquidity

We continue to closely monitor and manage our liquidity position, understanding that this is of critical importance in the current economic environment. At December 31, 2009, total liquidity, as a percentage of assets, was at its highest level for 2009, totaling 13.5%

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 and increasing core deposits. As a result, we have increased our federal funds sold balances to $333.8 million at December 31, 2009, an increase of $216.1 million from a year ago, to maintain a strong liquidity position. For the quarter ended December 31, 2009, total loans decreased $281.5 million, or 8.9%, compared to the previous quarter. Year-over-year, total loans decreased $909.2 million, or 24.1%.

For the quarter ended December 31, 2009, total deposits decreased $103.1 million to $3.12 billion. During the quarter, $132.2 million of non-core brokered deposits matured, resulting in a net increase in deposits, excluding brokered deposits, of $29.1 million. Similarly, since March 31, 2009, we have reduced our brokered deposit balances by $367.3 million, resulting in a net increase in total deposits, excluding brokered deposits, of $136.1 million, over the past nine months.

Capital

On January 20, 2010, we held a special shareholder meeting in which shareholders approved an increase in the total number of shares of common stock that we are authorized to issue from 10 million to 200 million shares. The availability of these additional shares of common stock will allow us the capability and flexibility to issue new shares for a variety of purposes, including raising additional capital and increasing our regulatory capital ratios.

As previously announced, on October 5, 2009, the Corporation and SP Acquisition Holdings, Inc. ("SPAH") mutually agreed to terminate their Agreement and Plan of Merger, dated as of July 30, 2009, effective immediately, due to the fact that certain closing conditions contained in the merger agreement could not be met. Since the termination of the transaction, we have continued to seek out equity investors and have made numerous contacts with potential investors.

Review of Financial Condition

Loans

At December 31, 2009, total loans, including loans held for resale, were $2.87 billion, compared to $3.15 billion at September 30, 2009, and $3.78 billion a year ago.

The decreases in total loans at December 31, 2009, compared to the previous quarter and a year ago, are 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. For the fourth quarter 2009, new loan originations totaled $26.2 million, compared to $22.4 million in the third quarter 2009, and $74.2 million in the fourth quarter 2008. New loan originations for the twelve months ended December 31, 2009, totaled $126.3 million, compared to $833.5 million for the same period a year ago, a decrease of $707.2 million, or 84.8%.

Management continues to proactively manage credit quality and loan collections and address workout strategies. Net charge-offs for the three months ended December 31, 2009, totaled $91.0 million, compared to $96.6 million for the three months ended September 30, 2009, and $39.2 for the three months ended December 31, 2008. Net charge-offs for the twelve months ended December 31, 2009 and 2008, totaled $337.3 million and $63.0 million, respectively.

Allowance for Loan Losses

The total allowance for loan losses was $121.3 million, or 4.23%, of total loans outstanding at December 31, 2009, compared to $142.2 million, or 4.51%, at September 30, 2009, and $112.6 million, or 2.98%, at December 31, 2008. The allowance for loan losses, including the reclassified allocation for undisbursed loans of $991 thousand, would amount to a total allowance of $122.3 million, or 4.26%, of total loans outstanding at December 31, 2009.

Asset Quality

Nonperforming assets are summarized as follows (in thousands):

                 December   September                            December
                    31,         30,      June 30,    March 31,      31,
                   2009        2009        2009        2009        2008
                ----------  ----------  ----------  ----------  ----------
Commercial and
 industrial     $   31,401  $   29,147  $   27,092  $   12,745  $   12,908
Real estate:
   Commercial       89,708      81,870      73,130      14,527      10,937
   Construction    192,215     277,146     267,102     286,342     181,905
   Land
    development    234,627     274,959     267,907     217,082     177,139
   Completed
    lots            87,632      85,341      88,072      94,438      34,005
   Residential
    1-4 family      68,178      60,669      40,433      30,521      17,686
Installment and
 other               1,432       1,388         822         718         645
                ----------  ----------  ----------  ----------  ----------
Total
 nonaccruing
 loans             705,193     810,520     764,558     656,373     435,225

Other real
 estate owned      173,162     101,805      54,222      18,874      10,803
                ----------  ----------  ----------  ----------  ----------
   Total
    nonperform-
    ing assets  $  878,355  $  912,325  $  818,780  $  675,247  $  446,028
                ==========  ==========  ==========  ==========  ==========

Total loans at
 end of period
 (1)            $2,869,498  $3,151,004  $3,416,219  $3,659,510  $3,778,733
Total assets at
 end of period  $3,628,472  $3,772,109  $3,987,403  $4,154,267  $4,104,445

Total
 nonaccruing
 loans to total
 loans               24.58%      25.72%      22.38%      17.94%      11.52%
Total
 nonperforming
 assets to
 total assets        24.21%      24.19%      20.53%      16.25%      10.87%

(1) Includes loans held for resale.

The ratio of loans past due 30 to 89 days was 4.3% of total loans at December 31, 2009, compared to 7.3% at September 30, 2009, 6.2% at June 30, 2009, 9.7% at March 31, 2009 and 5.9% at December 31, 2008. There were no loans 90 days or more past due and still accruing interest at December 31, 2009.

Results of Operations

Net interest income

Net interest income for the three months ended December 31, 2009, totaled $20.0 million, compared to $18.9 million for the three months ended September 30, 2009, and $33.9 million for the three months ended December 31, 2008. Net interest income for the twelve months ended December 31, 2009, totaled $84.1 million, compared to $166.9 million for the same period a year ago. For all periods, the decrease in net interest income was primarily attributable to increases in net loan charge-offs and nonperforming loans placed on nonaccrual status.

For the fourth quarter 2009, net interest income increased $1.1 million, or 5.9%, compared to the previous quarter. For the period, changes in average earning assets and liabilities decreased net interest income by $1.1 million, whereas changes in interest rates increased net interest income by $2.2 million. For the period, the average quarterly yield on earning assets increased 12 basis points to 4.57% and the average cost of funds decreased 24 basis points to 2.52%.

For the three months ended December 31, 2009, net interest income decreased $13.9 million, or 41.0%, compared to the same period a year ago. For the period, changes in average earning assets and average interest bearing liabilities decreased net interest income by $9.2 million and changes in interest rates decreased net interest income by $4.7 million. For the quarter ended December 31, 2009, average net earning assets (average earning assets less average interest bearing liabilities) totaled $359.9 million, compared to $710.8 million a year ago, a decrease of $350.9 million, or 49.4%. The average yield on earning assets was 4.57% for the fourth quarter 2009, down 147 basis points from 6.04% for the fourth quarter 2008. The average cost on interest bearing liabilities was down 69 basis points for the period.

For the twelve months ended December 31, 2009, net interest income decreased $82.8 million, or 49.6%, compared to the same period a year ago. For the period, changes in average earning assets and average interest bearing liabilities decreased net interest income by $30.3 million and changes in interest rates decreased net interest income by $52.6 million. For the period, average net earning assets decreased $168.4 million, or 24.0%. Year-over-year, the average yield on earning assets and average cost of funds decreased 243 basis points and 62 basis points, respectively.

The annualized tax equivalent net interest margin increased 26 basis points for the three months ended December 31, 2009, compared to the previous quarter. The increase in the annualized tax equivalent net interest margin was primarily attributable to a decrease in the amount of interest income reversed as the result of loans going into nonaccrual status. For the three months ended December 31, 2009, we reversed $1.7 million of interest income, compared to $3.5 million for the three months ended September 30, 2009.

The annualized tax equivalent net interest margin was 2.30% for the three months ended December 31 2009, compared to 3.42% for the same period a year ago, a decrease of 112 basis points. Of that decrease the reversal of $1.7 million of interest accruals lowered the tax equivalent net interest margin by approximately 19 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 2.23% for the twelve months ended December 31, 2009, compared to 4.26% for the twelve months ended December 31, 2008, a decrease of 203 basis points. For the twelve months ended December 31, 2009, the reversal of $17.0 million of interest income on nonaccrual loans lowered the tax equivalent net interest margin by approximately 43 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 and a decrease in new loan originations. For the year ended December 31, 2009, new loan originations decreased 84.8%, 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 twelve months ended December 31, 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 fourth quarter of 2009, average federal funds sold accounted for approximately 9.8% of total average earning assets, compared to 1.1% for the fourth quarter of 2008. For the years ended December 31, 2009 and 2008, average federal funds sold accounted for approximately 7.8% and 0.7% of total average 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 December 31, 2009, total noninterest income was $1.9 million, compared to $2.9 million for the three months ended September 30, 2009, and $7.5 million for the three months ended December 31, 2008. For the twelve months ended December 31, 2009, total noninterest income was $12.7 million, compared to $14.8 million for the same period a year ago.

Total noninterest income decreased $977 thousand, or 33.9%, for the three months ended December 31, 2009, compared to the previous quarter, and was primarily attributable to the increase in net loss on sale of other real estate owned. During the fourth quarter 2009, we recognized a net loss of $2.0 million, as the result of a $1.6 million valuation adjustment and a loss on sale of $476 thousand. Comparatively, for the third quarter 2009, we recognized a net loss of $1.1 million related to other real estate owned, resulting from an $820 thousand valuation adjustment and a $248 thousand loss on sale. The valuation adjustments on other real estate owned, for the third and fourth quarters of 2009, were the result of declines in the estimated market value of these properties subsequent to foreclosure.

Total noninterest income decreased $5.6 million for the three months ended December 31, 2009, compared to the same period in 2008. During the fourth quarter 2008, we recognized a $3.1 million pre-tax gain on sale of securities. There were no security sales in the fourth quarter 2009. Additionally, the net loss on sale of other real estate owned increased $2.1 million for the three months ended December 31, 2009, compared to the same period a year ago. The continued slowdown in the local housing market, which has adversely affected our real estate construction, land development and completed lot loans, has led to an increase in foreclosures and the movement of real estate properties into OREO. At December 31, 2009, OREO totaled $173.2 million, compared to $10.8 million at December 31, 2008. Declines in the market values of these properties after foreclosure resulted in valuation adjustments totaling $1.6 million for the three months ended December 31, 2009. No valuation adjustments were deemed necessary for the three months ended December 31, 2008.

For the twelve months ended December 31, 2009, total noninterest income decreased $2.1 million, or 14.4%, compared to the same period a year ago. 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. There was no such impairment charge for 2009. The 2008 impairment charges were partially offset by a net gain on the sale of securities of $4.6 million. Additionally, for the twelve months ended December 31, 2009, we recognized a net loss on sale of other real estate owned of $3.6 million, primarily due to valuation adjustments resulting from declines in the market value of these properties subsequent to foreclosure. For the same period a year ago, we recognized a $97 thousand net gain on sale of other real estate owned. Excluding the impact of securities and other real estate owned activities; noninterest income decreased $234 thousand to $16.4 million for 2009, primarily as a result of a decrease in revenues from our Insurance and Investment Center.

Noninterest expense

For the three months ended December 31, 2009, total noninterest expense was $26.2 million, compared to $24.8 million and $94.9 million for the three months ended September 30, 2009 and December 31, 2008, respectively. For the twelve months ended December 31, 2009, total noninterest expense was $99.7 million, compared to $160.1 million for the same period a year ago. Included in the quarter ended December 31, 2008 was a $77.1 million charge for the impairment of goodwill.

For the three months ended December 31, 2009, total noninterest expense increased $1.4 million, or 5.8%, compared to the previous quarter. The increase in total noninterest expense was primarily attributable to the $2.1 million increase in FDIC insurance premiums. The $539 thousand decrease in other noninterest expense relates to decreases in collection and foreclosure expense, as well as, a decrease in consulting fees.

Total noninterest expense decreased $68.7 million, or 72.3%, for the three months ended December 31, 2009, compared to the same period a year ago. Excluding the $77.1 million goodwill impairment charge during the fourth quarter 2008, total noninterest expense increased $8.4 million, or 46.9%, for the period. The increase in total noninterest expense was attributable to increases in salaries and employee benefits, FDIC insurance and other noninterest expense. For the period, salaries and employee benefits increased $1.7 million, or 17.7%, and was primarily attributable to the decrease in deferred loan costs resulting from the reduction in new loan originations. FDIC insurance premiums increased $4.1 million due to an increase in assessments. The $2.4 million, or 48.6%, increase in other noninterest expense was primarily due to the increase in nonperforming assets for the period, which resulted in a $1.9 million increase in foreclosure expense and a $609 thousand increase in legal expense.

Excluding the fourth quarter 2008 goodwill impairment charge, total noninterest expense increased $16.7 million, or 20.2%, for the twelve months ended December 31, 2009, compared to the same period in 2008. The increase in total noninterest expense was primarily attributable to the $13.3 million increase in FDIC insurance and the $6.0 million increase in other noninterest expense, partially offset by the $1.4 million decrease in salaries and employee benefits. The decrease in salaries and employee benefits for the twelve months ended December 31, 2009, compared to the same period a year ago, was primarily the result of the elimination of bonus and incentive pay, a reduction in executive compensation, a moratorium on hiring and a reduction in force, partially offset by a reduction in deferred loan costs. At December 31, 2009, full time equivalent employees totaled 703, down from 799 at December 31, 2008, a decrease of 12.0%. In addition, the Board of Directors voted to suspend the Corporation's matching of employee 401(K) Plan contributions, effective May 1, 2009. Excluding the impact of the lower deferred loan costs in 2009, resulting from lower loan originations, the reduction in salaries and benefits would have been $6.2 million. The increase in other noninterest expense is primarily attributable to increases in collection expense, foreclosure expense and legal fees resulting from an increase in nonperforming assets for the period. Despite these increases, however, management has been successful in reducing other targeted noninterest expenses. Management set a goal of reducing those targeted noninterest expense categories by $8.5 million for 2009. The cost containment efforts resulted in a reduction of those targeted expense categories by $10.2 million in 2009. Those categories included salaries and benefits, consulting, marketing, advertising, director fees and expenses related to furniture and equipment.

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. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. The words "should," "anticipate," "expect," "will," "believe," and words of similar meaning are intended, in part, to help identify forward-looking statements. Future events are difficult to predict, and the expectations described above are subject to risks and uncertainties that may cause actual results to differ materially. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. In addition to discussions about risks and uncertainties set forth from time to time in the Company's filings with the Securities and Exchange Commission, factors that may cause actual results to differ materially from those contemplated in these forward-looking statements include, among others: (1) the extent and duration of continued economic and market disruptions and governmental actions to address these disruptions; (2) the risk of new and changing legislation, regulation and/or regulatory actions; (3) pending litigation and regulatory actions; (4) local and national general and economic conditions; (5) changes in interest rates; (6) reductions in loan demand or deposit levels; and (7) changes in loan collectibility, defaults and charge-off rates.

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 and Frontier's Form 10-Q for the quarter ending September 30, 2009.

                 FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
             (In thousands, except for shares and per share amounts)
                                  (Unaudited)


                                                Three Months Ended
                                        ----------------------------------
                                         December   September    December
                                            31,         30,         31,
                                           2009        2009        2008
                                        ----------  ----------  ----------
INTEREST INCOME
  Interest and fees on loans            $   39,207  $   40,595  $   59,343
  Interest on investments                      764         895       1,049
                                        ----------  ----------  ----------
    Total interest income                   39,971      41,490      60,392
                                        ----------  ----------  ----------
INTEREST EXPENSE
  Interest on deposits                      16,175      18,703      22,715
  Interest on borrowed funds                 3,806       3,909       3,822
                                        ----------  ----------  ----------
    Total interest expense                  19,981      22,612      26,537
                                        ----------  ----------  ----------

Net interest income                         19,990      18,878      33,855
PROVISION FOR LOAN LOSSES                   70,000     140,000      44,400
                                        ----------  ----------  ----------
Net interest loss after provision for
 loan losses                               (50,010)   (121,122)    (10,545)
                                        ----------  ----------  ----------
NONINTEREST INCOME
  Gain on sale of securities                     -           -       3,129
  Gain on sale of secondary mortgage
   loans                                       229         232         247
  Net gain (loss) on sale of other real
   estate owned                             (2,047)     (1,068)          4
  Service charges on deposit accounts        1,558       1,611       1,291
  Other noninterest income                   2,161       2,103       2,831
                                        ----------  ----------  ----------
    Total noninterest income                 1,901       2,878       7,502
                                        ----------  ----------  ----------

NONINTEREST EXPENSE
  Salaries and employee benefits            11,058      11,290       9,398
  Occupancy expense                          2,689       2,694       2,406
  State business taxes                         324         239         370
  FDIC insurance                             4,800       2,682         730
  Other noninterest expense                  7,370       7,909       4,960
                                        ----------  ----------  ----------
                                            26,241      24,814      17,864
                                        ----------  ----------  ----------
  Goodwill impairment                            -           -      77,073
                                        ----------  ----------  ----------
    Total noninterest expense               26,241      24,814      94,937
                                        ----------  ----------  ----------

LOSS BEFORE BENEFIT FOR
 INCOME TAXES                              (74,350)   (143,058)    (97,980)
BENEFIT FOR INCOME TAXES                   (40,425)     (1,970)     (8,464)
                                        ----------  ----------  ----------
    NET LOSS                            $  (33,925) $ (141,088) $  (89,516)
                                        ==========  ==========  ==========
Weighted average number of
 shares outstanding for the period       4,715,370   4,713,185   4,703,840
Basic losses per share                  $    (7.19) $   (29.93) $   (19.03)
                                        ==========  ==========  ==========
Weighted average number of diluted
 shares outstanding for period           4,715,370   4,713,185   4,703,840
Diluted losses per share                $    (7.19) $   (29.93) $   (19.03)
                                        ==========  ==========  ==========




                 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,
                                                    2009          2008
                                                ------------  ------------
INTEREST INCOME
  Interest and fees on loans                    $    173,934  $    273,392
  Interest on investments                              3,599         5,663
                                                ------------  ------------
    Total interest income                            177,533       279,055
                                                ------------  ------------
INTEREST EXPENSE
  Interest on deposits                                77,661        96,091
  Interest on borrowed funds                          15,801        16,094
                                                ------------  ------------
    Total interest expense                            93,462       112,185
                                                ------------  ------------

Net interest income                                   84,071       166,870
PROVISION FOR LOAN LOSSES                            345,000       120,000
                                                ------------  ------------
Net interest income (loss) after
 provision for loan losses                          (260,929)       46,870
                                                ------------  ------------
NONINTEREST INCOME
  Provision for loss on securities                         -        (6,430)
  Gain (loss) on sale of securities                     (102)        4,570
  Gain on sale of secondary mortgage loans             1,675         1,321
  Gain on sale of premises and equipment                 136            30
  Net gain (loss) on sale of other real estate
   owned                                              (3,566)           97
  Service charges on deposit accounts                  6,154         5,421
  Other noninterest income                             8,394         9,821
                                                ------------  ------------
    Total noninterest income                          12,691        14,830
                                                ------------  ------------

NONINTEREST EXPENSE
  Salaries and employee benefits                      46,985        48,403
  Occupancy expense                                   10,953        11,148
  State business taxes                                 1,068         2,013
  FDIC insurance                                      15,962         2,650
  Other noninterest expense                           24,766        18,785
                                                ------------  ------------
                                                      99,734        82,999
                                                ------------  ------------
  Goodwill impairment                                      -        77,073
                                                ------------  ------------
    Total noninterest expense                         99,734       160,072
                                                ------------  ------------

LOSS BEFORE BENEFIT FOR INCOME TAXES                (347,972)      (98,372)
BENEFIT FOR INCOME TAXES                             (89,154)       (8,635)
                                                ------------  ------------
    NET LOSS                                    $   (258,818) $    (89,737)
                                                ============  ============
Weighted average number of
 shares outstanding for the period                 4,713,219     4,699,163
Basic losses per share                          $     (54.91) $     (19.10)
                                                ============  ============
Weighted average number of diluted
 shares outstanding for period                     4,713,219     4,699,163
Diluted losses per share                        $     (54.91) $     (19.10)
                                                ============  ============




                 FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEET
             (In thousands, except for shares and per share amounts)
                                  (Unaudited)


                                       December    September     December
                                          31,          30,          31,
                                         2009         2009         2008
                                     -----------  -----------  -----------
ASSETS
Cash and due from banks              $    93,761  $    36,921  $    52,022
Federal funds sold                       333,819      363,081      117,740
Securities
   Available for sale, at fair value      85,092       73,834       90,606
   Held to maturity, at amortized
    cost                                   2,102        3,079        3,085
                                     -----------  -----------  -----------
          Total securities                87,194       76,913       93,691

Loans held for resale                      3,221        3,464        6,678
Loans                                  2,866,277    3,147,540    3,772,055
Allowance for loan losses               (121,349)    (142,229)    (112,556)
                                     -----------  -----------  -----------
          Net loans                    2,748,149    3,008,775    3,666,177

Premises and equipment, net               47,704       48,826       51,502
Intangible assets                            581          634          794
Federal Home Loan Bank (FHLB) stock       19,885       19,885       19,885
Bank owned life insurance                 25,385       25,116       24,321
Other real estate owned                  173,162      101,805       10,803
Other assets                              98,832       90,153       67,510
                                     -----------  -----------  -----------
    Total assets                     $ 3,628,472  $ 3,772,109  $ 4,104,445
                                     ===========  ===========  ===========

LIABILITIES
Deposits
  Noninterest bearing                $   377,258  $   403,534  $   395,451
  Interest bearing                     2,745,218    2,822,087    2,879,714
                                     -----------  -----------  -----------
    Total deposits                     3,122,476    3,225,621    3,275,165

Federal funds purchased and
 securities sold under repurchase
 agreements                               11,107       15,584       21,616
Federal Home Loan Bank advances          375,479      375,752      429,417
Junior subordinated debt                   5,156        5,156        5,156
Other liabilities                         19,280       20,329       21,048
                                     -----------  -----------  -----------
   Total liabilities                   3,533,498    3,642,442    3,752,402
                                     -----------  -----------  -----------

SHAREOWNERS' EQUITY
Common stock, no par value;
 100,000,000 shares authorized           258,202      258,425      256,137
Retained earnings (accumulated
 deficit)                               (160,807)    (126,873)      98,020
Accumulated other comprehensive
 loss, net of tax                         (2,421)      (1,885)      (2,114)
                                     -----------  -----------  -----------
   Total shareowners' equity              94,974      129,667      352,043
                                     -----------  -----------  -----------
   Total liabilities and
    shareowners' equity              $ 3,628,472  $ 3,772,109  $ 4,104,445
                                     ===========  ===========  ===========

Shares outstanding at end of period    4,725,076    4,713,185    4,709,510

Book value                           $     20.10  $     27.51  $     74.75
Tangible book value                  $     19.98  $     27.38  $     74.58




                 FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
                 SELECTED OTHER FINANCIAL INFORMATION AND RATIOS
                                (In thousands)
                                 (Unaudited)


                            For the Period Ended (Year-to-Date)
                ----------------------------------------------------------
                 December   September                            December
                    31,         30,      June 30,    March 31,      31,
                   2009        2009        2009        2009        2008
                ----------  ----------  ----------  ----------  ----------
Loans by Type
 (including
 loans held
 for resale)
Commercial and
 industrial     $  388,548  $  405,405  $  425,221  $  444,681  $  457,215
Real Estate:
  Commercial       965,150     988,004   1,017,204   1,020,530   1,044,833
  Construction     448,063     587,594     713,571     870,201     949,909
  Land
   development     319,311     405,400     476,562     512,804     580,453
  Completed lots   252,475     257,057     272,824     297,702     249,685
  Residential
   1-4 family      426,211     436,744     433,884     443,361     431,170
Installment and
 other loans        69,740      70,800      76,953      70,231      65,468
                ----------  ----------  ----------  ----------  ----------
  Total loans   $2,869,498  $3,151,004  $3,416,219  $3,659,510  $3,778,733
                ==========  ==========  ==========  ==========  ==========

Allowance for
 Loan Losses
Balance at
 beginning of
 period         $  114,638  $  114,638  $  114,638  $  114,638  $   57,658
                ----------  ----------  ----------  ----------  ----------
Provision for
 loan losses       345,000     275,000     135,000      58,000     120,000
                ----------  ----------  ----------  ----------  ----------
Loans charged-off
  Commercial and
   industrial      (37,044)    (26,494)    (18,891)     (5,355)     (3,101)
  Real Estate:
    Commercial     (12,477)     (9,212)     (1,176)       (149)     (1,264)
    Construction  (117,258)    (90,431)    (62,036)    (29,448)    (31,968)
    Land
     development  (109,651)    (74,231)    (38,015)    (19,057)    (12,165)
    Completed
     lots          (44,031)    (35,525)    (19,286)     (3,504)    (13,839)
    Residential
     1-4 family    (18,708)    (11,596)    (10,771)     (2,127)       (846)
  Installment
   and other
   loans            (2,362)     (1,795)     (1,089)       (205)       (343)
                ----------  ----------  ----------  ----------  ----------
Total charged-off
 loans            (341,531)   (249,284)   (151,264)    (59,845)    (63,526)
                ----------  ----------  ----------  ----------  ----------
Recoveries
  Commercial and
   industrial          715         616         496         211         308
  Real Estate:
    Commercial           2           -           -           -           -
    Construction     2,705       2,048         863          51         161
    Land
     development        12          57          57          57           -
    Completed
     lots              665         148          66          16           9
    Residential
     1-4 family         62          59          27           -           -
  Installment
   and other
   loans                72          47           4           2          28
                ----------  ----------  ----------  ----------  ----------
Total recoveries     4,233       2,975       1,513         337         506
                ----------  ----------  ----------  ----------  ----------
Net (charge-offs)
 recoveries       (337,298)   (246,309)   (149,751)    (59,508)    (63,020)
                ----------  ----------  ----------  ----------  ----------
Balance before
 portion
 identified
 for undisbursed
 loans             122,340     143,329      99,887     113,130     114,638
Portion of
 reserve
 identified for
 undisbursed
 loans                (991)     (1,100)     (1,304)     (1,646)     (2,082)
                ----------  ----------  ----------  ----------  ----------
Balance at end
 of period      $  121,349  $  142,229  $   98,583  $  111,484  $  112,556
                ==========  ==========  ==========  ==========  ==========

Allowance for
 loan losses as
 a percentage of
 total loans,
 including
 loans held
 for resale           4.23%       4.51%       2.89%       3.05%       2.98%
                ==========  ==========  ==========  ==========  ==========




                 FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
           SELECTED OTHER FINANCIAL INFORMATION AND RATIOS (Continued)
                                (In thousands)
                                 (Unaudited)


                            For the Period Ended (Year-to-Date)
                ----------------------------------------------------------
                 December   September                            December
                    31,         30,      June 30,    March 31,      31,
                   2009        2009        2009        2009        2008
                ----------  ----------  ----------  ----------  ----------
Nonperforming
 Assets (NPA)
Nonaccruing
 loans          $  705,193  $  810,520  $  764,558  $  656,373  $  435,225
Other real
 estate owned      173,162     101,805      54,222      18,874      10,803
                ----------  ----------  ----------  ----------  ----------
  Total
   nonperforming
   assets          878,355     912,325     818,780     675,247     446,028
                ----------  ----------  ----------  ----------  ----------

Total nonaccruing
 loans to
 total loans         24.58%      25.72%      22.38%      17.94%      11.52%
Total NPA to
 total assets        24.21%      24.19%      20.53%      16.25%      10.87%

Interest
 Bearing
 Deposits
Money market,
 sweep and NOW  $  497,952  $  428,704  $  409,606  $  365,807  $  325,554
Savings            241,261     276,989     285,725     334,076     365,114
Time deposits    2,006,005   2,116,394   2,148,970   2,243,362   2,189,046
                ----------  ----------  ----------  ----------  ----------
  Total interest
   bearing
   deposits     $2,745,218  $2,822,087  $2,844,301  $2,943,245  $2,879,714
                ==========  ==========  ==========  ==========  ==========

Capital Ratios
Tier 1 leverage
 ratio                2.69%       3.40%       6.74%       7.60%       8.62%
Tier 1
 risk-based
 capital ratio        3.42%       4.33%       8.15%       9.13%       9.64%
Total
 risk-based
 capital ratio        4.70%       5.62%       9.42%      10.40%      10.91%


                                For the Three Months Ended
                ----------------------------------------------------------
                 December   September                            December
Performance         31,         30,      June 30,    March 31,      31,
 Ratios            2009        2009        2009        2009        2008
                ----------  ----------  ----------  ----------  ----------
ROA (annualized)     -3.66%     -14.39%      -4.92%      -3.18%      -8.68%
ROE (annualized)   -110.87%    -234.71%     -63.92%     -38.70%     -81.58%

Average assets  $3,677,366  $3,922,015  $4,061,874  $4,248,979  $4,125,319
Average
 shareholders'
 equity         $  121,400  $  240,448  $  312,851  $  349,465  $  438,908


                            For the Period Ended (Year-to-Date)
                ----------------------------------------------------------
                 December   September                            December
Performance         31,         30,      June 30,    March 31,      31,
 Ratios            2009        2009        2009        2009        2008
                ----------  ----------  ----------  ----------  ----------
ROA (annualized)     -6.51%      -7.38%      -4.03%      -3.18%      -2.18%
ROE (annualized)   -101.36%    -100.06%     -50.63%     -38.70%     -19.42%

Average assets  $3,975,914  $4,076,476  $4,154,923  $4,248,979  $4,107,571
Average
 shareholders'
 equity         $  255,357  $  300,498  $  331,056  $  349,465  $  461,981




                 FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
           SELECTED OTHER FINANCIAL INFORMATION AND RATIOS (Continued)
                                (In thousands)
                                 (Unaudited)


Quarterly Average Balances


                                  December 31,  September 30, December 31,
                                      2009          2009          2008
                                  ------------  ------------  ------------
ASSETS
Cash and due from banks           $     43,592  $     43,317  $     48,279
Federal funds sold                     343,273       306,772        44,246
Securities
  Available for sale, at fair
   value                                70,297        79,425        97,124
  Held to maturity, at amortized
   cost                                  2,750         3,076         3,517
                                  ------------  ------------  ------------
    Total securities                    73,047        82,501       100,641

Loans held for resale                    2,840         4,118         2,414
Loans
  Commercial and industrial            402,635       423,953       456,594
  RE commercial                        982,957     1,003,786     1,051,625
  RE construction                      530,202       661,786     1,022,043
  RE land development                  382,081       455,623       602,838
  RE completed lots                    263,499       271,602       249,849
  RE residential 1-4 family            430,892       426,531       385,218
  Installment and other                 70,500        70,868        69,656
                                  ------------  ------------  ------------
    Total                            3,065,606     3,318,267     3,840,237
Allowance for loan losses             (137,893)     (108,254)     (121,289)
                                  ------------  ------------  ------------
    Net loans                        2,927,713     3,210,013     3,718,948

Premises and equipment, net             48,501        49,344        51,819
Intangible assets                          609           662        77,905
FHLB Stock                              19,885        19,885        18,084
Bank owned life insurance               25,240        24,968        24,185
Other real estate owned                120,561        66,843         3,468
Other assets                            74,945       117,710        37,744
                                  ------------  ------------  ------------
  Total assets                    $  3,677,366  $  3,922,015  $  4,125,319
                                  ============  ============  ============

LIABILITIES
Deposits
  Noninterest bearing             $    394,358  $    404,988  $    389,127
  Interest bearing
    MMA, Sweep and NOW                 447,971       416,738       407,758
    Savings                            253,663       282,065       392,845
    Time deposits                    2,048,046     2,137,770     2,065,873
                                  ------------  ------------  ------------
  Total interest bearing             2,749,680     2,836,573     2,866,476
    Total deposits                   3,144,038     3,241,561     3,255,603

Fed funds purchased and
 repurchase agreements                  11,484        15,806        61,487
FHLB advances                          375,564       397,578       359,296
Junior subordinated debentures           5,156         5,156         5,156
Other liabilities                       19,724        21,466         4,869
                                  ------------  ------------  ------------
  Total liabilities                  3,555,966     3,681,567     3,686,411
  Total shareholders' equity           121,400       240,448       438,908
                                  ------------  ------------  ------------
  Total liabilities and
   shareholders' equity           $  3,677,366  $  3,922,015  $  4,125,319
                                  ============  ============  ============




                 FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
           SELECTED OTHER FINANCIAL INFORMATION AND RATIOS (Continued)
                                (In thousands)
                                 (Unaudited)


Year-to-Date Average Balances

                                                December 31,  December 31,
                                                    2009          2008
                                                ------------  ------------
ASSETS
Cash and due from banks                         $     44,680  $     50,410
Federal funds sold                                   300,617        29,197
Securities
   Available for sale, at fair value                  78,637       122,499
   Held to maturity, at amortized cost                 2,997         3,685
                                                ------------  ------------
      Total securities                                81,634       126,184

Loans held for resale                                  5,353         3,391
Loans
   Commercial and industrial                         429,256       437,481
   RE commercial                                   1,008,493     1,036,171
   RE construction                                   738,100     1,056,159
   RE land development                               474,046       585,508
   RE completed lots                                 275,010       244,575
   RE residential 1-4 family                         430,776       342,654
   Installment and other                              69,851        68,562
                                                ------------  ------------
      Total                                        3,430,885     3,774,501
Allowance for loan losses                           (120,733)      (82,529)
                                                ------------  ------------
      Net loans                                    3,310,152     3,691,972

Premises and equipment, net                           49,882        51,214
Intangible assets                                        688        78,013
FHLB Stock                                            19,885        18,587
Bank owned life insurance                             24,836        24,118
Other real estate owned                               57,967         2,301
Other assets                                          85,573        35,575
                                                ------------  ------------
   Total assets                                 $  3,975,914  $  4,107,571
                                                ============  ============

LIABILITIES
Deposits
   Noninterest bearing                          $    397,533  $    379,766
   Interest bearing
      MMA, Sweep and NOW                             396,287       586,943
      Savings                                        298,370       349,318
      Time deposits                                2,177,546     1,894,455
                                                ------------  ------------
   Total interest bearing                          2,872,203     2,830,716
      Total deposits                               3,269,736     3,210,482

Fed funds purchased and
  repurchase agreements                               16,226        73,460
FHLB advances                                        407,015       338,268
Junior subordinated debentures                         5,156         5,156
Other liabilities                                     22,424        18,224
                                                ------------  ------------
   Total liabilities                               3,720,557     3,645,590
   Total shareholders' equity                        255,357       461,981
                                                ------------  ------------
   Total liabilities and shareholders' equity   $  3,975,914  $  4,107,571
                                                ============  ============

Contact Information

  • Contact:

    Patrick M. Fahey
    Frontier Financial Corporation
    Chairman and CEO
    425-423-7250

    John J. Dickson
    Frontier Bank
    President
    425-514-0700

    FRONTIER FINANCIAL CORPORATION
    332 SW Everett Mall Way
    Everett, Washington 98204