SOURCE: Frontier Financial Corporation

April 22, 2008 08:30 ET

Frontier Financial Corporation Announces First Quarter 2008 Earnings Results

EVERETT, WA--(Marketwire - April 22, 2008) - Frontier Financial Corporation (NASDAQ: FTBK) today announced earnings for the first quarter 2008. First quarter 2008 net income decreased $2.0 million, or 11.5%, to $15.5 million, compared to net income of $17.5 million for the first quarter 2007. This was a result of an increase in net interest income of $4.7 million and a $2.3 million gain on sale of securities, offset by a $7.5 million increase in the provision for loan losses. On a diluted per share basis, first quarter net income for 2008 was $0.33 per share, compared to $0.38 per share for the first quarter 2007.

John J. Dickson, President and CEO of Frontier Financial Corporation, said, "First quarter earnings were impacted by net interest margin pressure created by the unprecedented drop in rates by the Federal Reserve. This was magnified by the large portion of variable rate loans with floors, which matured or renewed in the first quarter, resulting in loans repricing downward."

For the quarter ended March 31, 2008, gross loans, including loans held for resale, increased $698.7 million, or 23.1%, compared to the quarter ended March 31, 2007. On a linked quarter basis, loans increased $104.8 million, or 2.9%. New loan originations for the first quarter 2008, were $287.1 million, compared to $489.6 million for the first quarter 2007, representing a 41.4% decrease. On a linked quarter basis, first quarter 2008 new loan originations were up $32.4 million, or 12.7%

Lyle E. Ryan, President of Frontier Bank, stated, "We were pleased with our diversified loan growth, despite the softer housing markets. This growth is indicative of the strength of the overall economy and low unemployment in the Puget Sound Region. Our loan growth for the first quarter of 2008 was more evenly balanced over all product lines compared to prior periods."

1st Quarter Highlights

--  Nonperforming assets increased to 0.97% of total assets at March 31,
    2008, compared to 0.53% at December 31, 2007 and 0.35% at March 31, 2007.
--  Provision for loan losses of $9.0 million for the first quarter 2008,
    compared to $1.5 million for the first quarter 2007.  Net charge-offs for
    the first quarter 2008 were $3.0 million.
--  First quarter earnings of $15.5 million, down $2.0 million, or 11.5%,
    from the first quarter 2007 earnings of $17.5 million.
--  Fully diluted first quarter earnings per share of $0.33, compared to
    $0.38 for the first quarter 2007.
--  Annualized tax equivalent net interest margin of 5.01% for the first
    quarter 2008, compared to 5.59% a year ago.
--  Efficiency ratio continues as one of the industry's best at 42% for
    the first quarter 2008 and 38% for the first quarter 2007.
--  Annualized return on average equity of 13.36% for the first quarter
    2008, down from 17.80% for the first quarter 2007.
--  Annualized return on average assets of 1.55% for the first quarter
    2008, compared to 2.15% for the first quarter 2007.
--  Increased first quarter 2008 cash dividend to $0.175 per share, an
    increase of 12.9% over the first quarter 2007 cash dividend of $0.155 per
    share.
    

Asset Quality

As of March 31, 2008, nonperforming assets were 0.97% of total assets, compared to 0.53% at December 31, 2007, and 0.35% at March 31, 2007. Nonaccruing loans were $38.8 million at March 31, 2008, up from $20.9 million at December 31, 2007, and up from $11.7 million at March 31, 2007. The ratio of loans past due over 30 days was 1.67% of total loans at March 31, 2008, compared to 0.91% at December 31, 2007, and 0.54% at March 31, 2007. "While we experienced an increase in our nonperforming assets and delinquency ratios at quarter-end, we believe our strong underwriting, adequate loan loss reserve and experienced management team will continue to see us through this credit cycle," said Rob Robinson, Chief Credit Officer of Frontier Bank.

During the first quarter of 2008, we provided $9.0 million for loan losses as compared to $6.0 million for the fourth quarter of 2007, and $1.5 million for the first quarter of 2007. The total allowance for loan losses was $60.3 million, or 1.62%, of total loans outstanding at March 31, 2008, compared to $54.0 million, or 1.49%, at December 31, 2007, and $41.8 million, or 1.38%, at March 31, 2007. The allowance for loan losses, including the reclassified allocation for undisbursed loans of $3.4 million, would amount to a total allowance of $63.7 million, or 1.71%, of total loans outstanding as of March 31, 2008. For the quarter ended March 31, 2008, net loan charge-offs were $3.0 million, or 0.08%, of average loans. This compares to net loan charge-offs of $593 thousand, or 0.02%, of average loans for the quarter ended December 31, 2007, and $33 thousand, or 0.001%, of average loans for the quarter ended March 31, 2007. Robinson continued, "With the continued slowdown of the housing market, Management again determined it was prudent to increase the reserves for future potential loan losses and focus energy toward continued close monitoring and collection of our outstanding loans. Our loan loss reserve is very strong at 1.71% of our total loans, including the reserve for undisbursed, and with a leverage ratio of 9.94%, our loan loss reserve and capital are higher than our peers and position us for future market uncertainties."

Operating Results

Net interest income for the quarter ended March 31, 2008, was $47.4 million, an increase of $4.7 million, or 11.0%, compared to $42.7 million for the quarter ended March 31, 2007. On a linked quarter basis, net interest income decreased $2.1 million, or 4.3%. This decrease on a linked quarter basis is primarily attributable to three Federal Reserve rate reductions in the first quarter of 2008 totaling a 200 basis point decrease.

Our tax equivalent net interest margin was 5.01% for the quarter ended March 31, 2008, compared to 5.63% for the quarter ended December 31, 2007, and 5.59% for the quarter ended March 31, 2007. At March 31, 2008, approximately 56.1% of our loans are variable rate (immediately repriceable) and 14.0% are adjustable rate, which reprice within three months to five years, depending on the index. However, of the variable rate loans which are immediately repriceable, $1.9 billion, or 90.6%, had reached their floors at quarter end as a result of the rate cuts by the Federal Reserve Board. The yield on earning assets decreased 85 basis points to 8.22% for the first quarter 2008, compared to 9.07% for the first quarter 2007. For the same period, the cost of funds decreased 40 basis points to 3.87% from 4.27%.

During the first quarter of 2008, the Bank had $480 thousand of interest accruals reversed as a result of loans being placed in a nonaccrual status which lowered the tax equivalent net interest margin by 5 basis points. Also contributing to the tax equivalent net interest margin compression was $767.5 million in variable rate loans that had matured or renewed during the first quarter of 2008, most of which had reached their floors.

Total noninterest income for the first quarter 2008, increased $2.9 million, or 85.0%, to $6.3 million compared to $3.4 million for the first quarter 2007. The major component of this increase was the $2.3 million gain on sale of securities. During the first quarter of 2008, we sold our interest in Skagit State Bank stock for a gain of $2.0 million. In addition, we recorded a one time gain of $274 thousand related to the required liquidation in our stake in Visa, Inc., which went public in March 2008. Service charges increased $250 thousand, or 23.3%, to $1.3 million for the first quarter 2008, compared to $1.1 million for the first quarter 2007. Other noninterest income increased $396 thousand, up 21.3%, to $2.3 million for the first quarter 2008, compared to $1.9 million for the first quarter 2007, as a result of an increase in debit card and ATM fees.

Total noninterest expense increased $3.4 million, or 18.7%, to $21.5 million for the first quarter 2008, compared to $18.1 million for the first quarter 2007. Salaries and benefits increased $2.3 million, or 19.2%, over the same period. Of this increase, approximately 11.6% related to staff additions and 7.6% related to salary and incentive increases, including an additional $312 thousand related to FAS 123(R) stock-based compensation expense. At March 31, 2008, full time equivalent (FTE) employees totaled 835, up from 748 at March 31, 2007. Other noninterest expense increased $1.1 million, or 35.3%, to $4.4 million as of March 31, 2008, compared to $3.3 million as of March 31, 2007. For the period, consulting fees increased $280 thousand, data processing fees increased $146 thousand, marketing expense increased $133 thousand, internet banking increased $65 thousand and telephone expense increased $52 thousand. The majority of the increase to other noninterest expense can be attributed to branch expansion. During the second half of 2007, we added six branches, including three branches acquired in the Bank of Salem merger, and one loan production office.

Balance Sheet and Capital Management

At March 31, 2008, total assets were $4.06 billion and deposits totaled $3.16 billion. This compares to total assets of $4.00 billion and deposits of $2.94 billion at December 31, 2007, and total assets of $3.32 billion and deposits of $2.57 billion at March 31, 2007. Net loans of $3.66 billion at March 31, 2008, reflect an increase of 2.8% from December 31, 2007, and an increase of 22.9% from March 31, 2007.

Shareowners' equity was $467.9 million at March 31, 2008, up from $459.6 million at December 31, 2007, and $390.8 million at March 31, 2007. Weighted average diluted shares for the first quarter 2008, were 47,098,645, compared to 44,871,141 for the fourth quarter 2007 and 45,624,490 for the first quarter 2007.

Dickson stated, "The previously announced second quarter 2008 cash dividend of $0.18 per share, an increase of 12.5% over the second quarter 2007, represents the 34th consecutive quarter of increased cash dividends was paid to shareowners on Monday, April 21, 2008." Frontier began paying cash dividends to shareowners in 1999.

Merger Activity

Our previously announced merger with Washington Banking Company (WBCO), and subsidiary, Whidbey Island Bank, is pending regulatory approval.

On November 30, 2007, we closed our merger with Bank of Salem. The linked quarter and annual growth comparisons include the impact of the Bank of Salem merger.

Certain amounts in prior years' financial statements have been reclassified to conform to the 2008 presentation. These classifications have not had an effect on previously reported income or total equity.

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

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; competitive factors, including increased competition with community, regional and national financial institutions; fluctuating interest rate environments; higher than expected loan delinquencies; and similar matters. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only at the date of this release.

Frontier undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this release. Readers should carefully review the risk factors described in this and other documents Frontier files from time to time with the Securities and Exchange Commission, including Frontier's 2007 Form 10-K.


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


                                     (Unaudited)
                                  Three Months Ended
                        -------------------------------------  Year Ended
                         March 31,   December 31,  March 31,   December 31,
                           2008         2007         2007         2007
                        -----------  -----------  -----------  -----------
INTEREST INCOME
  Interest and fees on
   loans                $    75,918  $    77,914  $    67,562  $   294,099
  Interest on federal
   funds sold                    93           46           51          958
  Interest on
   investments                1,489        1,444          910        4,615
                        -----------  -----------  -----------  -----------
    Total interest
     income                  77,500       79,404       68,523      299,672
                        -----------  -----------  -----------  -----------
INTEREST EXPENSE
  Interest on deposits       25,725       25,601       21,724       97,080
  Interest on borrowed
   funds                      4,377        4,282        4,080       15,961
                        -----------  -----------  -----------  -----------
    Total interest
     expense                 30,102       29,883       25,804      113,041
                        -----------  -----------  -----------  -----------
Net interest income          47,398       49,521       42,719      186,631
PROVISION FOR LOAN
 LOSSES                       9,000        6,000        1,450       11,400
                        -----------  -----------  -----------  -----------
Net interest income
 after provison for
 loan losses                 38,398       43,521       41,269      175,231
                        -----------  -----------  -----------  -----------

NONINTEREST INCOME
  Gain (loss) on sale
   of securities              2,324            -            -         (937)
  Gain on sale of
   secondary mortgage
   loans                        389          375          475        1,586
  Gain on sale of
   premises and
   equipment                      -            2            -           24
  Gain on sale of other
   real estate owned             12            -            -            -
  Service charges on
   deposit accounts           1,325        1,318        1,075        4,721
  Other noninterest
   income                     2,253        2,107        1,857        7,915
                        -----------  -----------  -----------  -----------
    Total noninterest
     income                   6,303        3,802        3,407       13,309
                        -----------  -----------  -----------  -----------

NONINTEREST EXPENSE
  Salaries and employee
   benefits                  13,993       12,891       11,741       48,297
  Occupancy expense           2,590        2,543        2,646        9,956
  State business taxes          551          565          500        2,066
  FHLB prepayment
   penalty                        -            -            -        1,534
  Other noninterest
   expense                    4,411        4,227        3,260       15,163
                        -----------  -----------  -----------  -----------
    Total noninterest
     expense                 21,545       20,226       18,147       77,016
                        -----------  -----------  -----------  -----------
INCOME BEFORE PROVISION
 FOR INCOME TAXES            23,156       27,097       26,529      111,524
PROVISION FOR INCOME
 TAXES                        7,655        9,080        9,006       37,586
                        -----------  -----------  -----------  -----------
    NET INCOME          $    15,501  $    18,017  $    17,523  $    73,938
                        ===========  ===========  ===========  ===========
Weighted average number
 of shares outstanding
 for the period          46,985,320   44,645,895   45,176,326   45,265,723
Basic earnings per
 share                  $      0.33  $      0.40  $      0.39  $      1.63
                        ===========  ===========  ===========  ===========
Weighted average number
 of diluted shares
 outstanding for
 period                  47,098,645   44,871,141   45,624,490   45,601,066
Diluted earnings per
 share                  $      0.33  $      0.40  $      0.38  $      1.62
                        ===========  ===========  ===========  ===========

Efficiency ratio                 42%          37%          38%          37%
Return on average
 assets (annualized)           1.55%        1.95%        2.15%        2.13%
Return on average
 equity (annualized)          13.36%       17.21%       17.80%       18.76%
Net interest margin
 (annualized)                  4.98%        5.59%        5.56%        5.63%
TE Effect                      0.03%        0.04%        0.03%        0.04%
                        -----------  -----------  -----------  -----------
*TE Net interest margin
 (annualized)                  5.01%        5.63%        5.59%        5.67%
                        ===========  ===========  ===========  ===========

*Tax equivalent is a nonGAAP performance measurement used by management in
operating the business. Management believes this provides investors with a
more accurate picture of the net interest margin for comparative purposes.



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


                                   (Unaudited)                 (Unaudited)
                                    March 31,   December 31,    March 31,
                                      2008          2007          2007
                                  ------------  ------------  ------------
ASSETS
Cash and due from banks           $     70,010  $     99,102  $     96,074
Federal funds sold                           5             5         5,084
Securities
   Available for sale, at fair
    value                              124,862       131,378       104,470
   Held to maturity, at amortized
    cost                                 3,742         3,743         3,599
                                  ------------  ------------  ------------
        Total securities               128,604       135,121       108,069

Loans held for resale                    6,592         6,227         5,417
Loans                                3,710,358     3,605,895     3,012,846
Allowance for loan losses              (60,277)      (53,995)      (41,755)
                                  ------------  ------------  ------------
        Net loans                    3,656,673     3,558,127     2,976,508

Premises and equipment, net             50,831        47,293        31,218
Intangible assets                       78,080        78,150        41,164
Federal Home Loan Bank (FHLB)
 stock                                  18,738        18,738        15,030
Bank owned life insurance               24,002        23,734        22,434
Other real estate owned                    633           367             -
Other assets                            35,249        35,052        27,352
                                  ------------  ------------  ------------
   Total assets                   $  4,062,825  $  3,995,689  $  3,322,933
                                  ============  ============  ============

LIABILITIES
Deposits
   Noninterest bearing            $    373,268  $    390,526  $    409,321
   Interest bearing                  2,789,879     2,552,710     2,160,420
                                  ------------  ------------  ------------
        Total deposits               3,163,147     2,943,236     2,569,741

Federal funds purchased and
 securities sold under repurchase
 agreements                             67,984       258,145        36,315
Federal Home Loan Bank advances        318,165       298,636       286,079
Junior subordinated debentures           5,156         5,156         5,156
Other liabilities                       40,451        30,904        34,880
                                  ------------  ------------  ------------
   Total liabilities                 3,594,903     3,536,077     2,932,171
                                  ------------  ------------  ------------

SHAREOWNERS' EQUITY
Preferred stock, no par value;
 10,000,000 shares authorized                -             -             -
Common stock, no par value;
 100,000,000 shares authorized         253,824       252,016       185,558
Retained earnings                      208,793       202,729       199,398
Accumulated other comprehensive
 income, net of tax                      5,305         4,867         5,806
                                  ------------  ------------  ------------
   Total shareowners' equity           467,922       459,612       390,762
                                  ------------  ------------  ------------
   Total liabilities and
    shareowners' equity           $  4,062,825  $  3,995,689  $  3,322,933
                                  ============  ============  ============

Shares outstanding at end of
 period                             46,998,802    46,950,878    44,816,174

Book value                        $       9.96  $       9.79  $       8.72
Tangible book value               $       8.29  $       8.12  $       7.80

Contact Information

  • Contact:
    John J. Dickson
    Frontier Financial Corporation
    President and CEO
    425-514-0700

    Lyle E. Ryan
    Frontier Bank
    President and CBO
    425-514-0700

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