FTBK Frontier Finl Corp Wash (MM)

Frontier Financial Corporation (Nasdaq:FTBK) today announced earnings for the second quarter ended June 30, 2006. Net income for the second quarter 2006 increased 36.0% to $17.4 million, compared with net income of $12.8 million in 2005. This was a result of a pre-tax increase in net interest income in 2006 of $9.5 million. On a diluted per share basis, second quarter net income for 2006 was $.57 per share compared with $.45 in 2005, an increase of 26.7%. Annual return on average assets and return on average equity for the quarter was 2.29% and 19.26%, respectively, compared to 2.11% and 19.05%, respectively, for 2005. John J. Dickson, President and CEO of Frontier Financial Corporation, said, "The Puget Sound economy continues to thrive, resulting in outstanding loan and deposit growth. Loans increased by $550.6 million, or 25.0% since second quarter 2005. New loan originations for the second quarter were $477.8 million compared to the second quarter of 2005 of $348.2 million, an increase of $129.6 million, or 37.2%. Deposits since the second quarter 2005 increased $447.2 million, or 22.6%. Since the reorganization in the second quarter of 2003, loans have grown by 65.2%, deposits 44.5%, and net income for 6 months is up 65.7%. Our tax equivalent net interest margin was 5.66% for the second quarter 2006, and was 5.40% for the same period in 2005, an expansion of 26 basis points, primarily due to Federal Reserve Board rate increases." Highlights For the second quarter 2006: -- Second quarter earnings of $17.4 million, up 36.0% from the second quarter 2005 of $12.8 million. -- Fully diluted second quarter earnings per share increased 26.7% to $.57 from $.45 a year ago. -- Tax equivalent net interest margin up to 5.66% in the second quarter from 5.40% in the second quarter of 2005. -- Efficiency ratio continues as one of the industry's best at 37% for the second quarter down from 40% for the second quarter 2005. -- Return on average equity of 19.26% for the second quarter, up from 19.05% for second quarter 2005. -- Return on average assets of 2.29% for the second quarter, compared to 2.11% for second quarter 2005. For the first six months ended June 30, 2006: -- Year-to-date earnings of $32.8 million, up 38.5% from $23.7 million for the same period 2005. -- Fully diluted year-to-date earnings per share increased 31.3% to $1.09 from $.83 a year ago. -- Year-to-date tax equivalent net interest margin up to 5.63% from 5.28% a year ago. -- Efficiency ratio continues as of the industry's best at 39% for year-to-date 2006 and 42% for year-to-date 2005. -- Year-to-date return on average equity of 18.87% up from 17.94% for the same time period 2005. -- Year-to-date return on average assets of 2.23%, compared to 2.01% a year ago. Asset Quality As of June 30, 2006, nonperforming assets were .44% of total assets compared to .27% a year ago, and up from .17% at March 31, 2006. Nonaccruing loans increased to $13.6 million at June 30, 2006, up from $6.8 million at June 30, 2005. The ratio of loans past due over 30 days was .57% of total loans at June 30, 2006, up slightly from previous quarter end. The increase in nonperforming assets and the delinquency ratio is centered in two loans totaling $11.6 million. Excluding these two nonperforming loans, the delinquency ratio would be .02% of total loans. "Despite the increase in ratios, the quality of the loan portfolio remains very strong," said Lyle E. Ryan, President of Frontier Bank. During the second quarter of 2006, the Corporation provided $1.0 million for loan losses as compared to $1.1 million for the second quarter of 2005. The total allowance for loan losses stood at $39.4 million, or 1.43% of total loans outstanding compared to $32.1 million, or 1.46% of total loans outstanding for the same time period last year. The allowance for loan losses including the reclassified allocation for undisbursed loans of $3.4 million, would amount to a total allowance of $42.8 million, or 1.55% of total loans outstanding as of June 30, 2006. For the quarters ended June 30, 2006 and 2005, net loan charge offs amounted to $290 thousand and a net recovery of $367 thousand, respectively. Second Quarter 2006 Operating Results Operating Results Net interest income for the second quarter of 2006 was $40.2 million, an increase of $9.5 million, or 32.1%, compared to $30.7 million for the prior year second quarter. Frontier's tax equivalent net interest margin increased to 5.66% for the second quarter 2006, compared to 5.40% for the second quarter 2005, and increased from 5.61% at the quarter ended March 31, 2006. The yield on earning assets increased 104 basis points to 8.65% in the second quarter 2006 from 7.61% in the second quarter 2005, and increased 25 bps from 8.40% in the quarter ended March 31, 2006. The cost of funds increased 99 basis points to 3.76% in the second quarter 2006 from 2.77% in the second quarter 2005, and increased 32 bps from 3.44% in the quarter ended March 31, 2006. Approximately 50.4% of the Corporation's loans are variable rate (immediately repriceable) and 15.5% are adjustable rate, which reprice within three months to five years, depending on the index. Total noninterest income for the second quarter decreased $36 thousand, down 1.0% to $3.4 million from $3.5 million, in 2005. Service charges decreased $33 thousand, or 3.0% to $1.1 million. The lack of service charge growth on deposit accounts is due to customers' preference to maintain larger balances and increasing earnings credit rates. Other noninterest income for the second quarter decreased $91 thousand, down 4.7% to $1.8 million from $1.9 million in 2005. Total noninterest expense increased $2.4 million to $16.3 million, for the quarter ending June 30, 2006, up 17.5%, compared with the same period last year. Salaries and benefits increased $1.3 million or 15.1%. Of the 15.1% increase, approximately 7.6% related to staff additions, 1.2% related to salary and incentive increase and 6.3% relate to increased benefit expenses. Other noninterest expense increased $568 thousand or 19.4%. This increase was primarily driven by upgrades in network infrastructure and facilities. Balance Sheet and Capital Management At June 30, 2006, Frontier's total assets were $3.10 billion, and deposits totaled $2.42 billion, an increase of 23.5% and 22.6%, respectively, compared to the prior year. Net loans of $2.71 billion and investments of $113.6 million reflected an increase of 25.0% and a decrease of 23.1%, respectively. Shareowners equity of the Corporation was $368.1 million at June 30, 2006, up from $273.6 million a year ago, an increase of 34.6%. Weighted average year-to-date diluted shares totaled 30,088,698 for 2006 versus 28,390,090 for 2005. Dickson stated, "The previously announced third quarter 2006 cash dividend of $.18 per share, an increase of 12.5% over the third quarter 2005, representing the 27th consecutive quarter of increased cash dividends, will be paid to shareowners on Monday, July 24, 2006." Frontier began paying cash dividends to shareowners in 1999. Branch Additions and Merger On January 31, 2006, Frontier closed the merger of NorthStar Financial Corporation. The year-over-year growth comparison includes the NorthStar impact. Subsequent to quarter-end, Frontier entered into a lease for our 45th office to be located in Bellevue, Washington. Our team of bankers is currently located in our Kirkland Office and we expect to open the Bellevue Office in the fourth quarter of this year. Certain amounts in prior years' financial statements have been reclassified to conform to the 2006 presentation. These classifications have not had an effect on previously reported income or 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 2005 Form 10-K. -0- *T FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited) (In thousands, except shares) ------------------------------ June 30, December 31, June 30, 2006 2005 2005 ----------- ----------- ----------- ASSETS Cash & due from banks $ 104,532 $ 85,631 $ 88,881 Federal funds sold 35,627 733 17,559 Securities: Available for sale-fair value 109,108 104,904 140,318 Held to maturity-amortized cost 4,493 5,713 7,419 ----------- ----------- ----------- Total securities 113,601 110,617 147,737 Loans receivable: Held for sale, fair value 5,623 5,711 3,820 Held for portfolio, net of unearned income 2,748,409 2,383,513 2,199,602 Less allowance for loan losses (39,407) (33,805) (32,137) ----------- ----------- ----------- Net loans 2,714,625 2,355,419 2,171,285 Premises & equipment, net 28,726 29,769 28,889 Intangible assets 40,611 6,476 6,476 Federal Home Loan Bank stock 15,030 14,154 14,154 Bank owned life insurance 21,746 18,136 17,763 Other assets 25,002 19,340 16,337 ----------- ----------- ----------- TOTAL ASSETS $ 3,099,500 $ 2,640,275 $ 2,509,081 =========== =========== =========== LIABILITIES Deposits: Noninterest bearing $ 395,893 $ 395,852 $ 343,316 Interest bearing 2,027,447 1,665,528 1,632,874 ----------- ----------- ----------- Total deposits 2,423,340 2,061,380 1,976,190 Federal funds purchased and securities sold under repurchase agreements 13,119 20,813 14,118 Federal Home Loan Bank advances 264,053 240,000 230,079 Junior subordinated debt 5,156 - - Other liabilities 25,686 21,985 15,142 ----------- ----------- ----------- TOTAL LIABILITIES 2,731,354 2,344,178 2,235,529 ----------- ----------- ----------- SHAREOWNERS' EQUITY Common stock, no par value; 100,000,000 shares authorized 181,187 131,695 128,241 Retained earnings 182,135 159,978 141,424 Accumulated other comprehensive income, net of tax effect 4,824 4,424 3,887 ----------- ----------- ----------- TOTAL SHAREOWNERS' EQUITY 368,146 296,097 273,552 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 3,099,500 $ 2,640,275 $ 2,509,081 =========== =========== =========== Shares outstanding at end of period 30,163,046 28,438,150 28,289,906 Book value 12.21 10.41 $ 9.67 Tangible book value 10.86 10.18 9.44 FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Unaudited) (In thousands, except for per share amounts) Three Months Ended Six Months Ended --------------- ------------------------ ------------------------- June 30, June 30, June 30, June 30, 2006 2005 2006 2005 ----------- ----------- ----------- ----------- INTEREST INCOME Interest and fees on loans $ 59,857 $ 41,957 $ 113,977 $ 78,911 Interest on investments 1,489 1,247 2,589 2,643 ----------- ----------- ----------- ----------- Total interest income 61,346 43,204 116,566 81,554 ----------- ----------- ----------- ----------- INTEREST EXPENSE Interest on deposits 17,974 9,742 32,556 17,827 Interest on borrowed funds 3,192 2,755 6,526 5,194 ----------- ----------- ----------- ----------- Total interest expense 21,166 12,497 39,082 23,021 ----------- ----------- ----------- ----------- Net interest income 40,180 30,707 77,484 58,533 ----------- ----------- ----------- ----------- PROVISION FOR LOAN LOSSES (1,000) (1,050) (3,500) (1,900) ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 39,180 29,657 73,984 56,633 ----------- ----------- ----------- ----------- NONINTEREST INCOME Provision for loss on equity investment - (56) - (208) Gain on sale of secondary mortgage loans 374 339 669 556 Service charges on deposit accounts 1,069 1,102 2,126 2,237 Gain on sale of premise and equipment 152 155 2,224 155 Other noninterest income 1,843 1,934 3,735 3,876 ----------- ----------- ----------- ----------- Total noninterest income 3,438 3,474 8,754 6,616 ----------- ----------- ----------- ----------- NONINTEREST EXPENSE Salaries and employee benefits 9,920 8,618 20,567 17,239 Occupancy expense 2,341 1,819 4,491 3,640 State business taxes 519 490 1,174 946 Other noninterest expense 3,489 2,921 6,805 5,696 ----------- ----------- ----------- ----------- Total noninterest expense 16,269 13,848 33,037 27,521 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAX 26,349 19,283 49,701 35,728 PROVISION FOR INCOME TAX (8,944) (6,485) (16,868) (12,023) ----------- ----------- ----------- ----------- NET INCOME $ 17,405 $ 12,798 $ 32,833 $ 23,705 =========== =========== =========== =========== Weighted average number of shares outstanding for the period 30,134,873 28,276,831 29,807,763 28,241,365 Basic earnings per share $ 0.58 $ 0.45 $ 1.10 $ 0.84 =========== =========== =========== =========== Weighted average number of diluted shares outstanding for period 30,382,389 28,416,730 30,088,698 28,390,090 Diluted earnings per share $ 0.57 $ 0.45 $ 1.09 $ 0.83 =========== =========== =========== =========== Efficiency ratio 37% 40% 39% 42% Return on average assets 2.29% 2.11% 2.23% 2.01% Return on average equity 19.26% 19.05% 18.87% 17.94% Net interest margin 5.62% 5.37% 5.60% 5.24% TE Effect 0.04% 0.03% 0.03% 0.04% ----------- ----------- ----------- ----------- (a)TE Net interest margin 5.66% 5.40% 5.63% 5.28% =========== =========== =========== =========== (a) 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. *T