SOURCE: Frontier Financial Corporation

October 29, 2009 08:30 ET

Frontier Financial Corporation Announces Third Quarter 2009 Results

EVERETT, WA--(Marketwire - October 29, 2009) - Frontier Financial Corporation (NASDAQ: FTBK) today announced results for the three and nine months ended September 30, 2009. For the three months ended September 30, 2009, the Corporation reported a net loss of $141.1 million, or ($2.99) per diluted share, compared to a net loss of $50.0 million, or ($1.06) per diluted share, for the three months ended June 30, 2009, and net loss of $17.8 million, or ($0.38) per diluted share, for the three months ended September 30, 2008. For the nine months ended September 30, 2009, the Corporation reported a net loss of $224.9 million, or ($4.77) per diluted share, compared to a net loss of $221 thousand, or ($0.00) per diluted share, for the same period a year ago.

As noted in our September 23, 2009, Form 8-K filing, we determined that, based on management's internal review, we expected to record an additional provision for loan losses of $140.0 million and loan charge-offs of $100.0 million in the third quarter of 2009. These adjustments were included in the pro forma financial information included in the Joint Proxy Statement/Prospectus for our proposed merger with SP Acquisition Holdings, Inc. ("SPAH"). Subsequent to this filing, however, we jointly announced with SPAH that we mutually agreed to terminate the Agreement and Plan of Merger, effective immediately, due to the fact that certain closing conditions contained in the merger agreement could not be met. The actual provision for loan losses and charge-offs totaled $140.0 million and $98.0 million, respectively, for the three months ended September 30, 2009.

Patrick M. Fahey, Chairman and CEO of Frontier Financial Corporation said, "While we were disappointed our merger with SPAH was terminated, the number of banks able to raise capital since we entered into the agreement with SPAH has increased dramatically. Based on the numerous discussions with investors we have had since the termination of the merger, we are optimistic we will be successful in raising additional capital."

The provision for loan losses increased $63.0 million for the three months ended September 30, 2009, compared to the linked quarter, and $97.9 million, compared to the same period a year ago. For the nine months ended September 30, 2009 and 2008, the provision for loan losses totaled $275.0 million and $75.6 million, respectively. The allowance for loan losses, as a percentage of total loans, was 4.51%, 2.89% and 2.78%, at September 30, 2009, June 30, 2009 and September 30, 2008, respectively.

The rate of growth in the amount of nonperforming assets decreased for the third consecutive quarter. On a linked quarter basis, nonperforming assets increased $93.5 million to $912.3 million. That increase compares to $143.5 million in the second quarter 2009 and $229.2 million in the first quarter 2009. Rob Robinson, Chief Credit Officer said, "We continue to be aggressive at classifying problem loans into nonaccrual status and believe, based on current market conditions, we are at or near the bottom of this challenging housing market."

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 $1.0 billion, or 43.4%, from September 30, 2008 to September 30, 2009, including undisbursed loan commitments, as defined by the FDIC.

Liquidity

We continue to closely monitor and manage our liquidity position, understanding that this is of critical importance in the current economic environment. Attracting and retaining customer deposits remains our primary source of liquidity. Noninterest bearing deposits increased $8.1 million, or 2.0%, from December 31, 2008 to September 30, 2009, and $26.3 million, or 7.0%, from a year ago.

During the third quarter 2009, we announced our continued participation in the Federal Deposit Insurance Corporation's ("FDIC") voluntary Transaction Account Guarantee ("TAG") portion of the Temporary Liquidity Guarantee Program through June 30, 2010. Under this program, noninterest bearing transaction accounts and qualified NOW checking accounts are fully guaranteed by the FDIC for an unlimited amount of coverage. The coverage under the TAG program is in addition to, and separate from, the coverage of $250,000 available under the FDIC's general deposit insurance protection.

In an effort to increase on-balance sheet liquidity, we have been focused on restructuring our balance sheet, and in particular, reducing the loan portfolio. For the nine months ended September 30, 2009, total loans decreased $627.7 million, or 16.6%, compared to December 31, 2008. Year-over-year, total loans decreased $681.0 million, or 17.8%. Additionally, we have increased our federal funds sold balances to $363.1 million at September 30, 2009, an increase of $245.3 million from December 31, 2008, and $232.7 million from a year ago, to maintain a strong liquidity position.

Capital

As previously announced, on October 5, 2009, the Corporation and SP Acquisition Holdings, Inc. ("SPAH") mutually agreed to terminate the Agreement and Plan of Merger, dated as of July 30, 2009, by and between SPAH and Frontier, as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of August 10, 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 private equity investors and have made numerous contacts with potential investors.

Review of Financial Condition

Loans

At September 30, 2009, total loans, including loans held for resale, were $3.15 billion, compared to $3.78 billion at December 31, 2008, and $3.83 billion at September 30, 2008.

The decreases in total loans at September 30, 2009, compared to the year ended 2008 and a year ago, is attributable to decreases in new loan originations, loan pay downs and increased loan charge-offs. With few exceptions, we have suspended the origination of new real estate construction, land development and completed lot loans. New loan originations for the first nine months of 2009 totaled $100.1 million, compared to $759.3 million for the same period in 2008, a decrease of $659.2 million, or 86.8%. For the third quarter 2009, new loan originations totaled $22.4 million, compared to $54.4 million for the second quarter 2009 and $175.6 million for the third quarter 2008.

Management continues to proactively manage credit quality and loan collections and address work out strategies. Net charge-offs for the three and nine months ended September 30, 2009, totaled $96.6 million and $246.3 million, respectively, compared to $14.3 million and $23.8 million, respectively, for the same periods a year ago.

Allowance for Loan Losses

The total allowance for loan losses was $142.2 million, or 4.51%, of total loans outstanding at September 30, 2009, compared to $112.6 million, or 2.98%, at December 31, 2008, and $106.6 million, or 2.78%, at September 30, 2008. The allowance for loan losses, including the reclassified allocation for undisbursed loans of $1.1 million, would amount to a total allowance of $143.3 million, or 4.55%, of total loans outstanding at September 30, 2009.

Asset Quality

Nonperforming assets are summarized as follows (in thousands):

                 September     June        March     December    September
                 30, 2009    30, 2009    31, 2009    31, 2008    30, 2008
                ----------  ----------  ----------  ----------  ----------
Commercial and
 industrial     $   29,147  $   27,092  $   12,745  $   12,908  $    1,256
Real estate:
   Commercial       81,870      73,130      14,527      10,937       2,986
   Construction    277,146     267,102     286,342     181,905     135,419
   Land
    development    274,959     267,907     217,082     177,139      40,602
   Completed
    lots            85,341      88,072      94,438      34,005      17,949
   Residential
    1-4 family      60,669      40,433      30,521      17,686       6,985
Installment and
 other               1,388         822         718         645           -
                ----------  ----------  ----------  ----------  ----------
Total
 nonaccruing
 loans             810,520     764,558     656,373     435,225     205,197

Other real
 estate owned      101,805      54,222      18,874      10,803       3,693
                ----------  ----------  ----------  ----------  ----------
   Total
    nonperforming
    assets      $  912,325  $  818,780  $  675,247  $  446,028  $  208,890
                ==========  ==========  ==========  ==========  ==========

Restructured
 loans                   -           -           -           -           -

Total loans at
 end of period
 (1)            $3,151,004  $3,416,219  $3,659,510  $3,778,733  $3,832,052
Total assets at
 end of period  $3,772,109  $3,987,403  $4,154,267  $4,104,445  $4,244,963

Total
 nonaccruing
 loans to total
 loans               25.72%      22.38%      17.94%      11.52%       5.35%
Total
 nonperforming
 assets to
 total assets        24.19%      20.53%      16.25%      10.87%       4.92%

(1) Includes loans held for resale.

The ratio of loans past due over 90 days was 22.1% of total loans at September 30, 2009, compared to 9.0% at December 31, 2008, and 4.8% at September 30, 2008. There were no loans 90 days or more past due and still accruing interest at September 30, 2009.

Results of Operations

Net interest income

Net interest income for the three months ended September 30, 2009, was $18.9 million, compared to $21.4 million for the three months ended June 30, 2009, and $40.7 million for the three months ended September 30, 2008. Net interest income for the nine months ended September 30, 2009, totaled $64.1 million, compared to $133.0 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.

Net interest income decreased $2.6 million, or 12.0%, for the three months ended September 30, 2009, compared to the linked quarter. For the period, decreases in average earning assets and interest bearing liabilities decreased net interest income by $2.0 million and changes in interest rates decreased net interest income by $569 thousand. For the third quarter 2009, average earning assets decreased $221.4 million, or 5.6%, and average interest bearing liabilities decreased $62.2 million, or 1.9%, compared to the second quarter 2009. The average quarterly yield on earning assets decreased 21 basis points to 4.45% for the third quarter 2009, compared to 4.66% for the second quarter 2009. The average cost of funds decreased 16 basis points for the same period.

For the three months ended September 30, 2009, net interest income decreased $21.8 million, or 53.6%, 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 $8.6 million and changes in interest rates decreased net interest income by $13.3 million. For the quarter ended September 30, 2009, average net earning assets (average earning assets less average interest bearing liabilities) totaled $472.3 million, compared to $704.0 million a year ago, a decrease of $231.7 million, or 32.9%. The average yield on earning assets was 4.45% for the third quarter 2009, down 233 basis points from 6.78% for the third quarter 2008. The average cost on interest bearing liabilities was down 57 basis points for the period.

For the nine months ended September 30, 2009, net interest income decreased $68.9 million, or 51.8%, compared to the nine months ended September 30, 2008. For the period, changes in average earning assets and average interest bearing liabilities decreased net interest income by $18.9 million and changes in interest rates decreased net interest income by $50.0 million. For the period, average net earning assets decreased $107.0 million, or 15.3%. Year-over-year, the average yield on earning assets and average cost of funds decreased 277 basis points and 61 basis points, respectively.

The annualized tax equivalent net interest margin was 2.04% for the three months ended September 30, 2009, compared to 4.05% for the three months ended September 30, 2008, a decrease of 201 basis points. For the three months ended September 30, 2009, the reversal of $3.5 million of interest accruals lowered the tax equivalent net interest margin by approximately 38 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 2.21% for the nine months ended September 30, 2009, compared to 4.55% for the nine months ended September 30, 2008, a decrease of 234 basis points. For the nine months ended September 30, 2009, the reversal of $15.3 million of interest income on nonaccrual loans lowered the tax equivalent net interest margin by approximately 52 basis points. The year-over-year decrease in the tax equivalent net interest margin can also be attributed to the increase in total nonaccruing loans, as well as, decreases in interest rates by the Federal Reserve, and the resulting repricing of variable rate loans at lower rates. At September 30, 2009, the Federal Funds rate was 0.25%, down 175 basis points from 2.00% at September 30, 2008. In addition, loan originations for the nine months ended September 30, 2009, decreased 86.8%, 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 nine months ended September 30, 2009, compared to the same periods in 2008, was the change in mix of earning assets. As previously mentioned, in an effort to increase on-balance sheet liquidity, we have increased federal funds sold balances. For the third quarter of 2009, average federal funds sold accounted for approximately 8.2% of total average earning assets, compared to 1.4% for the third quarter of 2008. For the nine months ended September 30, 2009 and 2008, average federal funds sold accounted for approximately 7.3% and 0.6% 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 September 30, 2009, total noninterest income was $2.9 million, compared to $3.6 million for the three months ended June 30, 2009, and a loss of $3.2 million for the three months ended September 30, 2008. For the nine months ended September 30, 2009, total noninterest income was $10.8 million, compared to $7.3 million for the same period a year ago.

Total noninterest income decreased $712 thousand, or 19.8%, for the three months ended September 30, 2009, compared to the linked quarter, and was primarily attributable to the increase in net loss on sale of other real estate owned. During the third quarter 2009, we recognized a net loss of $1.1 million, as the result of an $820 thousand valuation adjustment and a loss on sale of $248 thousand. Comparatively, for the second quarter 2009, we recognized a net loss of $451 thousand related to other real estate owned, resulting from a $3.8 million valuation adjustment, partially offset by a $3.3 million gain on sale. The valuation adjustments on other real estate owned, for the second and third quarters of 2009, were the result of declines in the market value of these properties subsequent to foreclosure.

Total noninterest income increased $6.1 million for the three months ended September 30, 2009, compared to the same period in 2008. During the third quarter 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. For the same period, we also recognized a $1.0 million loss on the sale of a security. There were no other than temporarily impaired securities or sales of securities in the third quarter 2009.

For the nine months ended September 30, 2009, total noninterest income increased $3.5 million, or 47.2%, compared to the nine months ended September 30, 2008. As previously noted, we recognized a $6.4 million pre-tax loss related to other than temporarily impaired investments in Fannie Mae, Freddie Mac and Lehman Brothers during the third quarter 2008. There was no such impairment charge during the nine months ended September 30, 2009. Partially offsetting this increase in total noninterest income, however, were losses on the sale of securities and net losses on the sale of other real estate owned. For the nine months ended September 30, 2009, we recognized a loss on sale of securities of $102 thousand, compared to a $1.4 million gain a year ago when we sold our stock in Skagit State Bank for a gain of $2.0 million. Additionally, for the nine months ended September 30, 2009, we recognized a net loss on sale of other real estate owned of $1.5 million, primarily due to valuation adjustments resulting from declines in the market value of these properties subsequent to foreclosure. For the nine months ended September 30, 2008, we recognized a $93 thousand net gain on sale of other real estate owned.

Noninterest expense

For the three months ended September 30, 2009, total noninterest expense was $24.8 million, compared to $25.4 million for the three months ended June 30, 2009, and $22.1 million for the three months ended September 30, 2008. For the nine months ended September 30, 2009, total noninterest expense was $73.5 million, compared to $65.1 million for the same period a year ago.

For the three months ended September 30, 2009, total noninterest expense decreased $573 thousand, or 2.3%, compared to the linked quarter. The decrease in total noninterest expense was primarily attributable to the $2.5 million decrease in FDIC insurance and the $927 thousand decrease in salaries and employee benefits, partially offset by the $2.8 million increase in other noninterest expense. For the three months ended June 30, 2009, we recognized a FDIC special assessment of $1.9 million that was paid in the third quarter 2009. The decrease in salaries and employee benefits, on a linked quarter basis, was primarily attributable to a reduction in force. At September 30, 2009, full time equivalents ("FTE") were down 2.2% from June 30, 2009. The increase in other noninterest expense for the period was primarily attributable to the $1.4 million increase in consulting fees, which related to the proposed merger with SPAH, the $762 thousand increase in collection and foreclosure expenses and the $646 thousand increase in legal expenses. The rising collection, foreclosure and legal expenses are primarily due to the increase in nonperforming assets for the period.

Total noninterest expense increased $2.8 million, or 12.5%, for the three months ended September 30, 2009, compared to the same period a year ago. The increase in total noninterest expense was attributable to increases in other noninterest expense and FDIC insurance, partially offset by reductions in salaries and employee benefits. For the three months ended September 30, 2009, other noninterest expense totaled $7.9 million, compared to $4.7 million for the three months ended September 30, 2008, an increase of $3.2 million, or 66.8%. The increase in other noninterest expense was primarily attributable to the $2.0 million increase in collection and foreclosure expenses, the $1.0 million increase in consulting fees, which related to the proposed merger with SPAH, and the $948 thousand increase in legal expenses. The increase to collection and foreclosure expense for the period was primarily attributable to the increase in nonperforming assets. The increase in legal expense was attributable to both an increase in nonperforming assets and the proposed merger. The increases in other noninterest expense, however, were partially offset by decreases in other miscellaneous other noninterest expense accounts as part of our continuing efforts to cut costs.

FDIC insurance premiums increased $1.4 million for the three months ended September 30, 2009, compared to the three months ended September 30, 2008. For the same period, salaries and employee benefits decreased $1.1 million, or 9.1%, and was primarily attributable to the elimination of bonus and incentive pay, a reduction in executive compensation, a moratorium on hiring and a reduction in force.

For the nine months ended September 30, 2009, total noninterest expense increased $8.4 million, or 12.8%, and was primarily attributable to increases in FDIC insurance and other noninterest expense, partially offset by the decrease in salaries and employee benefits. For the period, FDIC insurance increased $9.2 million and was attributable to an increase in premiums and the recognition of a special assessment of $1.9 million, paid in the third quarter of 2009. Year-over-year, other noninterest expense increased $3.6 million, or 25.8%. This increase was primarily attributable to the $4.1 million increase in collection and foreclosure expenses, resulting from an increase in nonperforming assets.

For the nine months ended September 30, 2009, salaries and employee benefits decreased $3.1 million, or 7.9%, compared to the same period in 2008, and 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. At September 30, 2009, full time equivalent employees totaled 698, down from 827 at September 30, 2008, a decrease of 15.6%. In addition, the Board of Directors voted to suspend the Corporation's matching of employee 401(K) Plan contributions, effective May 1, 2009.

Certain amounts in prior years' financial statements have been reclassified to conform to the 2009 presentation. These classifications have not had an effect on previously reported income or total equity.

Frontier Financial Corporation is a Washington-based financial holding company providing financial services through its commercial bank subsidiary, Frontier Bank. Frontier Bank offers a wide range of financial services to businesses and individuals in its market area, including investment and insurance products.

CERTAIN FORWARD-LOOKING INFORMATION -- This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). This statement is included for the express purpose of availing Frontier of the protections of the safe harbor provisions of the PSLRA. The forward-looking statements contained herein are subject to factors, risks and uncertainties that may cause actual results to differ materially from those projected. The following items are among the factors that could cause actual results to differ materially from the forward-looking statements: general economic conditions, including their impact on capital expenditures; business conditions in the banking industry; recent world events and their impact on interest rates, businesses and customers; the regulatory environment; new legislation; vendor quality and efficiency; employee retention factors; rapidly changing technology and evolving banking industry standards; competitive standards; including increased competition with community, regional and national financial institutions; fluctuating interest rate environments; higher than expected loan delinquencies; and similar matters. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only at the date of this release.

Frontier undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this release. Readers should carefully review the risk factors described in this and other documents Frontier files from time to time with the Securities and Exchange Commission, including Frontier's 2008 Form 10-K.

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


                                           Three Months Ended
                               -------------------------------------------
                               September 30,     June 30,    September 30,
                                   2009           2009           2008
                               -------------  -------------  -------------
INTEREST INCOME
  Interest and fees on loans   $      40,595  $      44,732  $      67,161
  Interest on investments                895            849          1,660
                               -------------  -------------  -------------
    Total interest income             41,490         45,581         68,821
                               -------------  -------------  -------------
INTEREST EXPENSE
  Interest on deposits                18,703         20,148         24,390
  Interest on borrowed funds           3,909          3,984          3,705
                               -------------  -------------  -------------
    Total interest expense            22,612         24,132         28,095
                               -------------  -------------  -------------
Net interest income                   18,878         21,449         40,726
PROVISION FOR LOAN LOSSES            140,000         77,000         42,100
                               -------------  -------------  -------------
Net interest loss after
 provision for loan losses          (121,122)       (55,551)        (1,374)
                               -------------  -------------  -------------

NONINTEREST INCOME
  Provision for loss on
   securities                              -              -         (6,431)
  Loss on sale of securities               -           (149)        (1,026)
  Gain on sale of secondary
   mortgage loans                        232            630            308
  Net gain (loss) on sale of
   other real estate owned            (1,068)          (451)            81
  Service charges on deposit
   accounts                            1,611          1,539          1,384
  Other noninterest income             2,103          2,021          2,511
                               -------------  -------------  -------------
    Total noninterest income
     (loss)                            2,878          3,590         (3,173)
                               -------------  -------------  -------------

NONINTEREST EXPENSE
  Salaries and employee
   benefits                           11,290         12,217         12,420
  Occupancy expense                    2,694          2,732          3,161
  State business taxes                   239            179            498
  FDIC insurance                       2,682          5,196          1,236
  Other noninterest expense            7,909          5,063          4,742
                               -------------  -------------  -------------
    Total noninterest expense         24,814         25,387         22,057
                               -------------  -------------  -------------
LOSS BEFORE BENEFIT FOR
 INCOME TAXES                       (143,058)       (77,348)       (26,604)
BENEFIT FOR INCOME TAXES              (1,970)       (27,354)        (8,808)
                               -------------  -------------  -------------
    NET LOSS                   $    (141,088) $     (49,994) $     (17,796)
                               =============  =============  =============
Weighted average number of
 shares outstanding for the
 period                           47,131,853     47,131,853     47,010,944
Basic loss per share           $       (2.99) $       (1.06) $       (0.38)
                               =============  =============  =============
Weighted average number of
 diluted shares outstanding
 for period                       47,131,853     47,131,853     47,010,944
Diluted loss per share         $       (2.99) $       (1.06) $       (0.38)
                               =============  =============  =============




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


                                    Nine Months Ended
                               ----------------------------
                               September 30,  September 30,
                                   2009           2008
                               -------------  -------------
INTEREST INCOME
  Interest and fees on loans   $     134,727  $     214,049
  Interest on investments              2,835          4,614
                               -------------  -------------
    Total interest income            137,562        218,663
                               -------------  -------------
INTEREST EXPENSE
  Interest on deposits                61,486         73,376
  Interest on borrowed funds          11,995         12,272
                               -------------  -------------
    Total interest expense            73,481         85,648
                               -------------  -------------
Net interest income                   64,081        133,015
PROVISION FOR LOAN LOSSES            275,000         75,600
                               -------------  -------------
Net interest income (loss)
 after provision for loan
 losses                             (210,919)        57,415
                               -------------  -------------

NONINTEREST INCOME
  Provision for loss on
   securities                              -         (6,431)
  Gain (loss) on sale of
   securities                           (102)         1,442
  Gain on sale of secondary
   mortgage loans                      1,446          1,074
  Net gain (loss) on sale of
   other real estate owned            (1,519)            93
  Service charges on deposit
   accounts                            4,596          4,130
  Other noninterest income             6,369          7,020
                               -------------  -------------
    Total noninterest income          10,790          7,328
                               -------------  -------------

NONINTEREST EXPENSE
  Salaries and employee
   benefits                           35,927         39,005
  Occupancy expense                    8,264          8,742
  State business taxes                   744          1,643
  FDIC insurance                      11,162          1,920
  Other noninterest expense           17,396         13,825
                               -------------  -------------
    Total noninterest expense         73,493         65,135
                               -------------  -------------
LOSS BEFORE BENEFIT FOR
 INCOME TAXES                       (273,622)          (392)
BENEFIT FOR INCOME TAXES             (48,729)          (171)
                               -------------  -------------
    NET LOSS                   $    (224,893) $        (221)
                               =============  =============
Weighted average number of
 shares outstanding for the
 period                            47,126,801     46,987,948
Basic loss per share            $       (4.77) $       (0.00)
                                =============  =============
Weighted average number of
 diluted shares outstanding
 for period                        47,126,801     46,987,948
Diluted loss per share          $       (4.77) $       (0.00)
                                =============  =============




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


                               September 30,  December 31,   September 30,
                                   2009           2008           2008
                               -------------  -------------  -------------
ASSETS
Cash and due from banks        $      36,921  $      52,022  $      56,707
Federal funds sold                   363,081        117,740        130,334
Securities
  Available for sale, at fair
   value                              73,834         90,606         98,095
  Held to maturity, at
   amortized cost                      3,079          3,085          3,737
                               -------------  -------------  -------------
      Total securities                76,913         93,691        101,832

Loans held for resale                  3,464          6,678          3,104
Loans                              3,147,540      3,772,055      3,828,948
Allowance for loan losses           (142,229)      (112,556)      (106,635)
                               -------------  -------------  -------------
      Net loans                    3,008,775      3,666,177      3,725,417

Premises and equipment, net           48,826         51,502         51,823
Intangible assets                        634            794         77,938
Federal Home Loan Bank (FHLB)
 stock                                19,885         19,885         15,622
Bank owned life insurance             25,116         24,321         24,056
Other real estate owned              101,805         10,803          3,693
Other assets                          90,153         67,510         57,541
                               -------------  -------------  -------------
  Total assets                 $   3,772,109  $   4,104,445  $   4,244,963
                               =============  =============  =============

LIABILITIES
Deposits
  Noninterest bearing          $     403,534  $     395,451  $     377,279
  Interest bearing                 2,822,087      2,879,714      3,026,715
                               -------------  -------------  -------------
      Total deposits               3,225,621      3,275,165      3,403,994

Federal funds purchased and
 securities sold under
 repurchase agreements                15,584         21,616         34,701
Federal Home Loan Bank advances      375,752        429,417        329,833
Junior subordinated debentures         5,156          5,156          5,156
Other liabilities                     20,329         21,048         27,548
                               -------------  -------------  -------------
  Total liabilities                3,642,442      3,752,402      3,801,232
                               -------------  -------------  -------------

SHAREHOLDERS' EQUITY
Preferred stock, no par value;
 10,000,000 shares authorized              -              -              -
Common stock, no par value;
 100,000,000 shares authorized       258,425        256,137        255,575
Retained earnings (deficit)         (126,873)        98,020        187,591
Accumulated other
 comprehensive income (loss),
 net of tax                           (1,885)        (2,114)           565
                               -------------  -------------  -------------
  Total shareholders' equity         129,667        352,043        443,731
                               -------------  -------------  -------------
  Total liabilities and
   shareholders' equity        $   3,772,109  $   4,104,445  $   4,244,963
                               =============  =============  =============

Shares outstanding at end of
 period                           47,131,853     47,095,103     47,023,716

Book value                     $        2.75  $        7.48  $        9.44
Tangible book value            $        2.74  $        7.46  $        7.78




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


                            For the Period Ended (Year-to-Date)
                ----------------------------------------------------------
                 September     June        March     December    September
                 30, 2009    30, 2009    31, 2009    31, 2008    30, 2008
                ----------  ----------  ----------  ----------  ----------
Loans by Type
 (including loans
 held for resale)
Commercial and
 industrial     $  405,405  $  425,221  $  444,681  $  457,215  $  452,286
Real Estate:
  Commercial       988,004   1,017,204   1,020,530   1,044,833   1,049,939
  Construction     587,594     713,571     870,201     949,909   1,030,591
  Land
   development     405,400     476,562     512,804     580,453     607,501
  Completed lots   257,057     272,824     297,702     249,685     242,234
  Residential
   1-4 family      436,744     433,884     443,361     431,170     379,485
Installment and
 other loans        70,800      76,953      70,231      65,468      70,016
                ----------  ----------  ----------  ----------  ----------
  Total loans   $3,151,004  $3,416,219  $3,659,510  $3,778,733  $3,832,052
                ==========  ==========  ==========  ==========  ==========

Allowance for
 Loan Losses
Balance at
 beginning of
 period         $  114,638  $  114,638  $  114,638  $   57,658  $   57,658
                ----------  ----------  ----------  ----------  ----------
Provision for
 loan losses       275,000     135,000      58,000     120,000      75,600
                ----------  ----------  ----------  ----------  ----------
Loans charged-off
  Commercial and
   industrial      (26,494)    (18,891)     (5,355)     (3,101)     (1,167)
  Real Estate:
    Commercial      (9,212)     (1,176)       (149)     (1,264)          -
    Construction   (90,431)    (62,036)    (29,448)    (31,968)    (17,316)
    Land
     development   (74,231)    (38,015)    (19,057)    (12,165)     (1,050)
    Completed
     lots          (35,525)    (19,286)     (3,504)    (13,839)     (4,031)
    Residential
     1-4 family    (11,596)    (10,771)     (2,127)       (846)       (250)
  Installment
   and other
   loans            (1,795)     (1,089)       (205)       (343)       (246)
                ----------  ----------  ----------  ----------  ----------
Total
 charged-off
 loans            (249,284)   (151,264)    (59,845)    (63,526)    (24,060)
                ----------  ----------  ----------  ----------  ----------
Recoveries
  Commercial and
   industrial          616         496         211         308         237
  Real Estate:
    Commercial           -           -           -           -           -
    Construction     2,048         863          51         161           9
    Land
     development        57          57          57           -           -
    Completed
     lots              148          66          16           9           5
    Residential
     1-4 family         59          27           -           -           -
  Installment
   and other
   loans                47           4           2          28          23
                ----------  ----------  ----------  ----------  ----------
Total
 recoveries          2,975       1,513         337         506         274
                ----------  ----------  ----------  ----------  ----------
Net (charge-offs)
 recoveries       (246,309)   (149,751)    (59,508)    (63,020)    (23,786)
                ----------  ----------  ----------  ----------  ----------
Balance before
 portion
 identified
 for undisbursed
 loans             143,329      99,887     113,130     114,638     109,472
Portion of
 reserve
 identified for
 undisbursed
 loans              (1,100)     (1,304)     (1,646)     (2,082)     (2,837)
                ----------  ----------  ----------  ----------  ----------
Balance at end
 of period      $  142,229  $   98,583  $  111,484  $  112,556  $  106,635
                ==========  ==========  ==========  ==========  ==========

Allowance for
 loan losses as
 a percentage of
 total loans,
 including
 loans held
 for resale           4.51%       2.89%       3.05%       2.98%       2.78%
                ==========  ==========  ==========  ==========  ==========






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

                            For the Period Ended (Year-to-Date)
                ----------------------------------------------------------
                 September     June        March     December    September
                 30, 2009    30, 2009    31, 2009    31, 2008    30, 2008
                ----------  ----------  ----------  ----------  ----------
Nonperforming
 Assets (NPA)
Nonaccruing
 loans          $  810,520  $  764,558  $  656,373  $  435,225  $  205,197
Other real
 estate owned      101,805      54,222      18,874      10,803       3,693
                ----------  ----------  ----------  ----------  ----------
  Total
   nonperforming
   assets          912,325     818,780     675,247     446,028     208,890
                ----------  ----------  ----------  ----------  ----------

Restructured
 loans                   -           -           -           -           -
                ----------  ----------  ----------  ----------  ----------
Total impaired
 assets         $  912,325  $  818,780  $  675,247  $  446,028  $  208,890
                ==========  ==========  ==========  ==========  ==========

Total
 nonaccruing
 loans to
 total loans         25.72%      22.38%      17.94%      11.52%       5.35%
Total NPA to
 total assets        24.19%      20.53%      16.25%      10.87%       4.92%

Interest
 Bearing
 Deposits
Money market,
 sweep and NOW  $  428,704  $  409,606  $  365,807  $  325,554  $  557,323
Savings            276,989     285,725     334,076     365,114     418,535
Time deposits    2,116,394   2,148,970   2,243,362   2,189,046   2,050,857
                ----------  ----------  ----------  ----------  ----------
  Total interest
   bearing
   deposits     $2,822,087  $2,844,301  $2,943,245  $2,879,714  $3,026,715
                ==========  ==========  ==========  ==========  ==========

Capital Ratios
Tier 1 leverage
 ratio                3.40%       6.74%       7.60%       8.62%       8.88%
Tier 1
 risk-based
 capital ratio        4.33%       8.15%       9.13%       9.64%       9.48%
Total
 risk-based
 capital ratio        5.62%       9.42%      10.40%      10.91%      10.75%



                                 For the Three Months Ended
                ----------------------------------------------------------
Performance      September     June        March     December    September
 Ratios          30, 2009    30, 2009    31, 2009    31, 2008    30, 2008
                ----------  ----------  ----------  ----------  ----------
ROA (annualized)    -14.39%      -4.92%      -3.18%      -8.68%      -1.69%
ROE (annualized)   -234.71%     -63.92%     -38.70%     -81.58%     -15.32%

Average assets  $3,922,015  $4,061,874  $4,248,979  $4,125,319  $4,221,730
Average
 shareholders'
 equity         $  240,448  $  312,851  $  349,465  $  438,908  $  464,500





                            For the Period Ended (Year-to-Date)
                ----------------------------------------------------------
Performance      September     June        March     December    September
 Ratios          30, 2009    30, 2009    31, 2009    31, 2008    30, 2008
                ----------  ----------  ----------  ----------  ----------
ROA (annualized)     -7.38%      -4.03%      -3.18%      -2.18%      -0.01%
ROE (annualized)   -100.06%     -50.63%     -38.70%     -19.42%      -0.06%

Average assets  $4,076,476  $4,154,923  $4,248,979  $4,107,571  $4,102,034
Average
 shareholders'
 equity         $  300,498  $  331,056  $  349,465  $  461,981  $  469,727




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

Quarterly Average Balances

                       September 30, September 30,
                            2009         2008       $ Change     % Change
                        -----------  -----------  -----------  -----------
ASSETS
Cash and due from banks $    43,317  $    53,789  $   (10,472)       -19.5%
Federal funds sold          306,772       58,168      248,604        427.4%
Securities
  Available for sale,
   at fair value             79,425      137,945      (58,520)       -42.4%
  Held to maturity, at
   amortized cost             3,076        3,739         (663)       -17.7%
                        -----------  -----------  -----------  -----------
    Total securities         82,501      141,684      (59,183)       -41.8%

Loans held for resale         4,118        2,822        1,296         45.9%
Loans
  Commercial and
   industrial               423,953      458,330      (34,377)        -7.5%
  RE commercial           1,003,786    1,055,207      (51,421)        -4.9%
  RE construction           661,786    1,051,884     (390,098)       -37.1%
  RE land development       455,623      602,436     (146,813)       -24.4%
  RE completed lots         271,602      241,036       30,566         12.7%
  RE residential 1-4
   family                   426,531      362,543       63,988         17.6%
  Installment and other      70,868       69,163        1,705          2.5%
                        -----------  -----------  -----------  -----------
    Total                 3,318,267    3,843,421     (525,154)       -13.7%
Allowance for loan
 losses                    (108,254)     (87,365)     (20,889)        23.9%
                        -----------  -----------  -----------  -----------
    Net loans             3,210,013    3,756,056     (546,043)       -14.5%

Premises and equipment,
 net                         49,344       52,581       (3,237)        -6.2%
Intangible assets               662       77,977      (77,315)       -99.2%
FHLB Stock                   19,885       17,207        2,678         15.6%
Bank owned life
 insurance                   24,968       24,321          647          2.7%
Other real estate owned      66,843        3,179       63,664       2002.6%
Other assets                117,710       36,768       80,942        220.1%
                        -----------  -----------  -----------  -----------
  Total assets          $ 3,922,015  $ 4,221,730  $  (299,715)        -7.1%
                        ===========  ===========  ===========  ===========

LIABILITIES
Deposits
  Noninterest bearing   $   404,988  $   386,896  $    18,092          4.7%
  Interest bearing
    MMA, Sweep and NOW      416,738      586,319     (169,581)       -28.9%
    Savings                 282,065      392,552     (110,487)       -28.1%
    Time deposits         2,137,770    2,008,838      128,932          6.4%
                        -----------  -----------  -----------  -----------
  Total interest
   bearing                2,836,573    2,987,709     (151,136)        -5.1%
    Total deposits        3,241,561    3,374,605     (133,044)        -3.9%

Fed funds purchased and
 repurchase agreements       15,806       33,631      (17,825)       -53.0%
FHLB advances               397,578      329,985       67,593         20.5%
Junior subordinated
 debentures                   5,156        5,156            -          0.0%
Other liabilities            21,466       13,853        7,613         55.0%
                        -----------  -----------  -----------  -----------
  Total liabilities       3,681,567    3,757,230      (75,663)        -2.0%
  Total shareholders'
   equity                   240,448      464,500     (224,052)       -48.2%
                        -----------  -----------  -----------  -----------
  Total liabilities and
   shareholders' equity $ 3,922,015  $ 4,221,730  $  (299,715)        -7.1%
                        ===========  ===========  ===========  ===========



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

Year-to-Date Average Balances

                       September 30, September 30,
                            2009         2008       $ Change     % Change
                        -----------  -----------  -----------  -----------
ASSETS
Cash and due from banks $    45,047  $    51,125  $    (6,078)       -11.9%
Federal funds sold          286,241       24,145      262,096       1085.5%
Securities
  Available for sale,
   at fair value             81,448      131,019      (49,571)       -37.8%
  Held to maturity, at
   amortized cost             3,081        3,741         (660)       -17.6%
                        -----------  -----------  -----------  -----------
     Total securities        84,529      134,760      (50,231)       -37.3%

Loans held for resale         6,200        3,720        2,480         66.7%
Loans
  Commercial and
   industrial               438,227      431,062        7,165          1.7%
  RE commercial           1,017,262    1,031,928      (14,666)        -1.4%
  RE construction           808,002    1,066,762     (258,760)       -24.3%
  RE land development       505,012      579,007      (73,995)       -12.8%
  RE completed lots         278,892      242,741       36,151         14.9%
  RE residential 1-4
   family                   430,755      329,014      101,741         30.9%
  Installment and
   other                     69,632       68,195        1,437          2.1%
                        -----------  -----------  -----------  -----------
     Total                3,553,982    3,752,429     (198,447)        -5.3%
Allowance for loan
 losses                    (115,060)     (69,091)     (45,969)        66.5%
                        -----------  -----------  -----------  -----------
     Net loans            3,438,922    3,683,338     (244,416)        -6.6%

Premises and equipment,
 net                         50,348       51,010         (662)        -1.3%
Intangible assets               714       78,050      (77,336)       -99.1%
FHLB Stock                   19,885       18,756        1,129          6.0%
Bank owned life
 insurance                   24,700       24,096          604          2.5%
Other real estate owned      36,873        1,909       34,964       1831.5%
Other assets                 89,217       34,845       54,372        156.0%
                        -----------  -----------  -----------  -----------
   Total assets         $ 4,076,476  $ 4,102,034  $   (25,558)        -0.6%
                        ===========  ===========  ===========  ===========

LIABILITIES
Deposits
  Noninterest bearing   $   398,604  $   376,623  $    21,981          5.8%
  Interest bearing
     MMA, Sweep and NOW     378,870      647,108     (268,238)       -41.5%
     Savings                313,436      334,703      (21,267)        -6.4%
     Time deposits        2,221,187    1,836,898      384,289         20.9%
                        -----------  -----------  -----------  -----------
  Total interest
   bearing                2,913,493    2,818,709       94,784          3.4%
     Total deposits       3,312,097    3,195,332      116,765          3.7%

Fed funds purchased and
 repurchase agreements       17,824       77,480      (59,656)       -77.0%
FHLB advances               417,614      331,207       86,407         26.1%
Junior subordinated
 debentures                   5,156        5,156            -          0.0%
Other liabilities            23,287       23,132          155          0.7%
                        -----------  -----------  -----------  -----------
  Total liabilities       3,775,978    3,632,307      143,671          4.0%
  Total shareholders'
   equity                   300,498      469,727     (169,229)       -36.0%
                        -----------  -----------  -----------  -----------
  Total liabilities
   and shareholders'
   equity               $ 4,076,476  $ 4,102,034  $   (25,558)        -0.6%
                        ===========  ===========  ===========  ===========

Contact Information

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

    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