ITEM 1 - BUSINESS
Frontier Financial Corporation ("FFC" or "the Corporation") is a Washington corporation which was incorporated in 1983 and is registered as a bank holding company under the Bank Holding Company Act of 1956. As part of a plan of reorganization consummated following the close of business September 30, 1983, FFC acquired all of the stock of Frontier Bank (the Bank), issuing its common stock in an exchange for the Bank's common stock on a share-for-share basis. FFC has two subsidiaries; the Bank, which is engaged in a general banking business and in businesses related to banking, and FFP, Inc., a nonbank corporation which leases property and equipment to the Bank.
The Bank
The Bank is a state-chartered banking association with its principal office located in Everett, Snohomish County, Washington. It was founded in September, 1978 by Robert J. Dickson and local business persons. The Bank is an "insured bank" as defined in the Federal Deposit Insurance Act.
The Bank engages in general banking business, including the acceptance of demand, time and savings deposits and the making of loans. As of December 31, 1996, the Bank conducted its business operations out of 18 offices located in Snohomish, King and Skagit Counties, of which four offices are located in Everett, one office each is located in Arlington, Snohomish, Smokey Point, Lake Stevens, Marysville, Lynnwood, Mill Creek, Edmonds, Stanwood, Bothell, Woodinville, Monroe, Lake City (Seattle), and Burlington.
Banking Services
The Bank provides a full range of consumer banking services including savings accounts, checking accounts, installment and commercial lending, safe deposit facilities, time deposits and other consumer and business related financial services. In addition to consumer oriented activities, the Bank maintains a strong commercial lending program, servicing businesses headquartered in the Bank's principal market area. At the end of 1983, the Bank began to offer a discount brokerage service to its customers. In September of 1984, the Bank opened its Real Estate Division, offering a broad range of home, construction and commercial long-term financing. The Trust Department opened for business in March of 1985. This department offers a full array of trust services to its customers. In May 1988, the Bank opened a Private Banking Office to give personal service to upscale customers. In August 1989, the Bank acquired, through a merger, three banking offices of Citizens Bank of Snohomish County, and a real estate origination department. In January 1991, the Bank opened an office in Mill Creek, providing a full range of consumer banking services.
In March 1991, the Bank opened an Insurance and Investment Center which markets annuities, life insurance products, and mutual funds to Bank customers and the general public. In July 1992, the Bank opened its Stanwood Office. In November 1992, the Bank acquired through merger, Edmonds National Bank, which had one office. In July 1993, the Bank acquired through merger, The Bank of Northshore, which had two offices located in Bothell and Woodinville, King County, Washington. This merger marked the first time the Bank branched outside of Snohomish County. In June 1995, the Bank opened an office in Monroe, providing a full range of consumer banking services. In August 1996, the Bank opened the Lake City Office, (North Seattle) and in December 1996 opened its first office in Skagit county, in Burlington, named the Skagit County Office. In January 1997, the bank received approval for an office in Redmond, Washington, and this branch will open during the second quarter of 1997.
Employees
At December 31, 1996, the Bank had 302 full and part time employees. The Bank considers its relations with employees to be very good.
Competition
All phases of the Bank's activities are highly competitive. The Bank competes actively with national and state banks, mutual savings banks, savings and loan associations, finance companies, credit unions, brokerage houses, and other financial institutions operating in its service area. Some of these financial institutions have greater resources than those of the Bank. On December 31, 1996, the Bank had total assets of $802.0 million and deposits of $670.8 million.
Supervision and Regulation
FFC, as a bank holding company, is subject to regulation under the Bank Holding Company Act of 1956 (the Act), as amended, and is registered with the Board of Governors of the Federal Reserve System. FFC is required to file quarterly reports with the Federal Reserve, and is subject to their examination.
The Act requires prior approval of the Board of Governors before acquiring substantially all the assets of, or direct or indirect ownership or control of, more than 5% of the voting shares of any bank.
The Act also prohibits the acquisition by a bank holding company of the assets or shares of a bank located outside the state in which the principal operations of the banking subsidiaries are conducted unless such acquisition is specifically authorized by the laws of the state in which the Bank to be acquired is located. The Act does not place territorial restrictions on the activities of nonbank subsidiaries of bank holding companies.
Under the Act, FFC is prohibited, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank, and from engaging in any business other than banking, except that FFC may engage in, and may own shares of companies engaged in certain businesses determined by the Board of Governors to be so closely related to banking so "as to be a proper incident thereto". Such related businesses include, by determination of the Board of Governors, the making or acquiring of loans or extensions of credit such as would be made by a mortgage, finance, credit card or factoring company; leasing of personal property where the leasing arrangements are functionally equivalent to extensions of credit; and acting as an insurance agent or broker of insurance directly related to extensions of credit of the Bank or other closely related businesses. The Act, however, prohibits tie-in arrangements in connection with the extension of credit or provision of services.
The Bank, as a state chartered bank, is subject to supervision, examination and regulation by the State Supervisor of Banking and the Federal Deposit Insurance Corporation (the FDIC). The deposits of the Bank are insured by the FDIC to the extent provided by law.
Various requirements and restrictions under the laws of the United States and the State of Washington affect the operations of the Bank. Federal regulations include requirements to maintain reserves against deposits, restrictions on interest which may be paid on business demand deposits, limitations on the nature and the amount of loans which may be made and the interest that may be charged thereon, restrictions relating to
investments or other activities, limitations based on capital and surplus, and limitations on payments of dividends. The approval of the Supervisor is required to pay dividends which exceed the Bank's net profits for that year plus its retained net profits for the preceding two years. Federal law also restricts the amount which can be loaned to the Corporation or any of its nonbank subsidiaries to 10% of the Bank's capital stock and surplus, and restricts the total of such loans to 20% of the Bank's capital stock and surplus.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) became effective on August 9, 1989. Among other things, this far reaching legislation: 1) phased in significant increases in the FDIC insurance premiums by 1993; 2) created two deposit insurance pools within the FDIC, one to insure commercial and savings bank deposits and the other to insure savings associations deposits; 3) permitted bank holding companies to acquire healthy savings associations; 4) permitted commercial banks that meet certain housing related asset requirements to secure advances and other financial services from their local Federal Home Loan Bank; 5) created the Resolution Trust Corporation to pay the cost of resolving insolvent savings associations financed by the taxpayers and the savings associations; 6) restructured the federal regulatory agencies for savings associations; 7) required higher minimum capital levels for savings associations; and 8) has greatly enhanced the regulator's enforcement powers by removing procedural barriers, sharply increasing the civil and criminal penalties for violating statutes and regulations, and providing increased appropriations to the Justice Department to finance prosecutions for crimes against depository institutions.
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) was enacted. FDICIA substantially revises the depository institution regulatory and funding provisions in the Federal Deposit Insurance Act and makes revisions to several other federal banking statutes. Among other things, FDICIA requires the Federal Banking Regulators to take prompt corrective action in respect to depository institutions that do not meet minimum capital requirements. The FDICIA created regulations establishing five capital tiers: "Well Capitalized"; "Adequately Capitalized"; "Under-Capitalized"; "Significantly Under-Capitalized"; and "Critically Under-Capitalized". Under the regulations, a depository institution would be considered Well Capitalized if it maintains a leverage ratio of at least five percent and a risk-based Tier I capital ratio of at least six percent and a risk-based total capital ratio of at least ten percent, and is not otherwise designated to be in troubled condition. Also, a depository institution will be deemed Under-Capitalized if it fails to meet any applicable minimum capital measure; Significantly Under-Capitalized if it is significantly below such measure; and Critically Under-Capitalized if it fails to meet a level of tangible equity of two percent of total assets. If a depository institution is neither Well Capitalized nor Under-Capitalized, it will be considered Adequately Capitalized. A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating.
The FDICIA generally prohibits a depository institution from making any capital distribution, including the payment of dividends or payment of any management fee to its holding company, if the depository institution would thereafter be Under-Capitalized. Under-Capitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition, Under-Capitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. A depository institution holding company must guarantee the capital plan up to the amount equal to the lesser of five percent of the depository institution's assets at the time it becomes Under-Capitalized or the amount of the capital
deficiency when the institution fails to comply with the plan. The Federal Banking Agencies may not accept a capital plan without determining, among other things, if the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. If a depository institution fails to submit an acceptable plan, it is treated as if it is Significantly Under-Capitalized.
Significantly Under-Capitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become Adequately Capitalized, requirements to reduce total assets, and the cessation of receipt of deposits from correspondent banks. Critically Under-Capitalized depository institutions are subject to employment of a receiver or a conservator.
The FDICIA also required the FDIC to revise its risk-based capital guidelines by June 19, 1993 to take into account interest rate risk, concentration of credit risk, and risk associated with nontraditional activities. It also required the guidelines to reflect the actual performance and expected risk of loss of multi-family mortgages. These provisions affect the capital standing of all institutions, and may result in a need for increased capital.
As of December 31, 1996, the Bank was Well Capitalized, and maintained a leverage ratio of 9.95%, a risk-based Tier I capital ratio of 11.94%, and a risk-based total capital ratio of 13.20%.
The Corporation's common stock is registered under Section 12(g) of the Securities Exchange Act of 1934 and the Corporation is subject to the periodic reporting and proxy solicitation requirements, as well as other requirements of federal and state securities law.
Effect of Governmental Policies
The Bank is affected not only by general economic conditions, but also by the monetary and fiscal policies of the United States Government and various agencies, particularly the Federal Reserve System. In its role of implementing its monetary policy, the Federal Reserve Board has the power to regulate the national supply of bank credit through such methods as open market operations in the United States Government securities markets, control of the discount rate on member bank borrowings, and establishment of reserve requirements against bank deposits. These means are used in varying combinations and have an influence over the growth of bank loans, investments, and deposits. They may also affect interest rates charged on loans or paid on deposits.
The nature and timing of future changes in monetary policies and their impact on the Bank are not predictable. As a consequence of extensive regulation of commercial banking activities in the United States, the Bank's business is particularly susceptible to being affected by Federal legislation and regulations which may have the effect of increasing the cost of doing business or limiting permissible activities.
FFP, Inc.
On April 4, 1988, the Corporation formed a new subsidiary corporation called FFP, Inc. The purpose of this corporation is to purchase and lease property and equipment to the Bank. The reason for this approach was to preclude placing nonearning assets on the books of the Bank or the Corporation.
It is intended that future purchases of fixed assets will be made by FFP, Inc. The assets of FFP, Inc. as of December 31, 1996 are the land and buildings of the Bank's Drive-Up, Lynnwood, Stanwood, Administrative, Monroe, Smokey Point, Snohomish, Seattle (Lake City), Woodinville and Redmond Offices. At this time, it is not anticipated that FFP, Inc. will engage in any other type of business.
Washington Banking Company
In April 1996, the Corporation purchased 4.99% of the common stock of Whidbey Island Bank, located approximately 15 miles west of Everett. Shortly thereafter, the bank converted to the holding company structure and is now called Washington Banking Company. Subsequent to the initial investment, the Corporation made application to the Board of Governors of the Federal Reserve System to purchase up to 10.0% ownership in the company. Approval was received, and the Corporation has since purchased an additional .4% ownership, to total 5.4%. The bank has eight offices, and is well managed.
STATISTICAL DISCLOSURE INDEX
The schedules listed below set forth the statistical information relating to Frontier Financial Corporation and subsidiaries (unless otherwise stated) in accordance with Guide 3. This information should be read in conjunction with the consolidated financial statements.
Analysis of Investment Securities
The Aggregate amortized recorded values of investment securities at December 31 are as follows:
Maturity Distribution of Investment Securities
The following table sets forth the maturities of investment securities at December 31, 1996. Taxable equivalent values are used in calculating yields assuming a tax rate of 35%.
Types of Loans
Major classifications of loans, net of deferred loan fees, at December 31 are as follows:
Loan Maturities and Sensitivity to Changes in Interest Rates
The following table shows the amounts and maturity analysis of loans outstanding as of December 31, 1996. Also, the amounts are classified as to fixed and variable rate sensitivity for amounts due after one year.
Loans maturing after one year with:
It is not uncommon to rollover loans at the maturity period, provided that the rate and terms of the loan conform to the current policy.
Loan Administration
The Bank provides revolving lines of credit to many of its borrowers. Such lines are approved by the Director's Loan Committee ("Loan Committee") or other administrative level committee or person if the amount exceeds the lending units authorized loan limit.
Credit Review personnel, under the direction of the Credit Administrator, examine the loan portfolio regularly. Reports are made by the Senior Vice-President/Credit Administrator to senior management and the Loan Committee, and follow-up corrective action is monitored. Problem loan reports are prepared for management review on a regular basis.
Certain problem loans are placed on a nonaccrual basis in conformance with defined policy. The Loan Committee and other administrative personnel regularly review information reports on classified and delinquent loans. Comparative summaries of delinquent loans are also provided on a regular basis to senior management and to the Board of Directors.
Management closely monitors the adequacy of the loan loss reserve and an analysis is performed four times a year. The allowance is maintained at a level deemed sufficient to meet potential losses.
The reviews, examinations and actions described above are in addition to the periodic examinations by federal and state regulatory agencies, as well as the Bank's internal audit department and the Bank's outside public accounting firm.
Risk Elements - Impaired Assets
Loans are placed in a nonaccrual status when, in the opinion of management, the collection of additional interest is doubtful, or when the loan becomes ninety (90) days past due in principal or interest. When a loan is placed on a nonaccrual status, all interest previously accrued but not collected is reversed and charged against interest income. Income on nonaccrual loans is then recognized only to the extent cash is received and where the future collection of principal is probable. Accruals are resumed only when the loan is brought current, or when, in the opinion of management, the borrower has demonstrated the ability to resume payments of principal and interest on a regular basis. As a consequence, some of these loans are current in their payments at this time.
The dollar amount of loans placed in nonaccrual or past due 90 days or more as a percentage of total loans was .60%, .87%, and .57% for year-end 1996, 1995 and 1994, respectively. These loans have a variety of situations, some of which may lead to foreclosure or involve a bankruptcy case. Others may continue payment as the borrower's financial situation improves. A very small amount represents federally insured loans. The rise at year-end 1995 occurred primarily as a result of two particular borrowers which, together, constituted $4.0 million, or 91% of total nonaccruing loans. Although these loans were adequately secured by real estate, it was nonetheless felt prudent to place them in nonaccrual. At year-end 1996, two particular borrowers comprise 72% of the totals, the majority of which is real estate secured.
Management monitors these loans on a frequent basis and conducts aggressive collection efforts, unless constraints are placed on the Bank by the bankruptcy courts. These efforts are directed toward the best long-term results for the Bank, and to the extent reasonable, to the borrower as well. If, in the
opinion of management, it is felt, or if it can be determined, that full collection of these loans or their payment streams will not occur, then they are charged off against the loan loss reserve.
Loans past due 90 days or more and nonaccruing loans on which the accrual of interest has been discontinued as of December 31st are as follows:
(In thousands)
There are certain amounts of interest collected on the above loans and included in income, and amounts that have not been accrued which are indicated in the table below:
Restructured loans are those loans that had problems in the past, and a concession was made in the interest rate, principal amount, and/or the repayment schedule has been modified to the extent that there has been tangible impairment of value. These loans are monitored on a regular basis for performance.
The recorded value of restructured loans at year-end for the last five years was insignificant, and therefore not shown.
The Bank originates commercial, commercial real estate, residential mortgage and installment loans primarily in Snohomish, north King and Skagit Counties. Loan growth in 1996 was much stronger than in 1995. Total loans as of December 31, 1996 and 1995 were $600.4 and $505.0 million, respectively. The percent of the growth in loans for year-end 1996 was 18.9%, or an addition of $95.4 million in net loans during 1996.
The area's economy is diversified with trade, high-tech, military and service industries. Military personnel assigned to the new Everett Naval facility began arriving in the later part of 1995, and it is expected that continuing increases in personnel will serve to further diversify and stabilize the local economy. While management estimates that the loan portfolio is reasonably diversified, the quality of the portfolio is significantly related to the strength and stability of real estate values which are controlled by the local economy.
The Boeing Company continues to be one of the major employers in Snohomish County. It would appear that concerns over the past (1994-1995) downsizing at Boeing were somewhat mitigated by the increased diversification of the local economy. Boeing is now showing significant net employment growth. However, concern still persists regarding the employment stability of Boeing, and, accordingly, management will continue to exercise caution in the execution of the Bank's lending activities.
A concern on the national level is the continued negotiations on balancing the federal budget and policies going forward. Changes in the monetary and fiscal policies, as well as military base locations, may have adverse effects on the credit and equity markets, which could affect consumer and business confidence locally.
Other Real Estate Owned
As of December 31, 1996, the Bank had three parcels of other real estate owned (OREO) on its books, which totaled $.4 million. One residential parcel is under a contingent earnest money agreement to purchase. The remaining two parcels are commercial land. No losses are expected on sales of OREO which are recorded at the lower of cost or fair value, less estimated costs to sell. The current levels are felt to be nominal, and no particular trends are noted at this time.
The table below shows the carrying value of OREO at December 31st:
Summary of Loan Loss Experience
The following table provides an analysis of net losses by loan type for the last five years at December 31st:
It is the policy of Frontier Financial Corporation and its subsidiary to charge-off any loan or portion of a loan that is deemed uncollectible in the ordinary course of business. The entire allowance for possible loan losses is available to absorb such charge-offs.
In the opinion of management, if a loan represents a long-term liquidation project, particularly when the liquidation is under the control of the bankruptcy courts, a decision may be made to write off the asset. Many charge-offs will ultimately have recoveries in full or a significant part, and some are currently under repayment programs.
For fiscal year-end 1996, net loan losses were $609 thousand, or .11% of average loans outstanding. Although somewhat larger than the negligible loan loss in 1995, it is well below 1994 and other years in recent history.
As indicated by the previous chart, the Bank has recovered a significant portion of its charged-off loans for fiscal years 1996 and 1995. The chart also indicates that the Bank's net charge-offs for fiscal years 1992 and 1993 were substantially higher. The higher level for those fiscal years is primarily attributed to loans acquired through acquisition.
Charged-off loans that continue to be actively pursued for collection as of fiscal year-end 1996, total $2.9 million. While additional recoveries are expected, the amounts and timing cannot be determined with certainty.
Based on certain characteristics of the portfolio, potential losses can be anticipated for major loan categories. In the following table, the allowance for possible loan losses at year-end, for the last five years, has been allocated among major loan categories based primarily on their historical net charge-off experience, along with consideration of factors such as quality, volume, anticipated economic conditions, and other business considerations.
(In thousands, except percents)
Historical net charge-offs are not necessarily accurate indicators of future losses since net charge-offs vary from period to period due to economic conditions and other factors that cannot be accurately predicted. Thus, an evaluation based on historical loss experience of individual loan categories is only one of many factors considered by management in evaluating the adequacy of the overall allocation, and in determining the amount of the provision for possible loan losses. Other factors are the continuing level of nonperforming loans, credit concentrations, and uncertain economic conditions. At December 31, 1996, based on current economic conditions, the total of the allocation for possible loan losses is, in management's opinion, adequate to provide for future losses. However, a worsening of the economy in the Bank's market area could negatively affect loan performance and underlying collateral values. The full impact of such a trend on the condition of the Bank cannot be estimated.
Credit Concentrations
At year-end 1996, 19.7% of the Bank's loan portfolio was in residential and commercial construction and land development projects centered in Snohomish, King and Skagit Counties. Management has established a Real Estate Review Committee which meets periodically to monitor local economic conditions, and the performance of borrowers in this industry. The chart below indicates the amount of those loans, and as a percent of total loans for the period:
Deposits
For the average amount of deposits and rates paid on such deposits for years ended December 31, 1996, 1995, and 1994 please refer to page 35 of Annual Report to Shareholders.
Maturities of time certificates of deposit $100,000 and over at year end 1996, are shown below:
Significant Financial Ratios
Ratios for the years ended December 31, 1996, 1995 and 1994 are as follows:
Borrowings
For information regarding average balances and yields, please refer to page 35 of 1996 Annual Report to Shareholders.
Long-Term Debt
For detailed information relating to long term debt, please refer to Note 9, page 15, of 1996 Annual Report to Shareholders.
ITEM 2
ITEM 2 - PROPERTIES
The Bank's Evergreen Way Office (previously the Main Office) is a two story building constructed in 1979, and owned by the Bank. This building has approximately 13,000 square feet, and is fully utilized by the Bank.
The Bank's first branch, the Downtown Everett Office, opened in 1980 in rented facilities at 2831 Wetmore Ave, was relocated in 1994 one block from its previous location to 2831 Colby Ave, in downtown Everett. FFP, Inc. has entered into a long term lease on the property which is subleased to the Bank. In this same building, is the Bank's Trust Department, and Private Banking Office. The Bank utilizes 12,000 square feet, which is all of the main floor of the building.
The Bank owns the Arlington Office premises which consists of a single story building with approximately 3,000 square feet. Contiguous to the Arlington Office is a parcel of land on which five apartments are located. The Bank owns these apartments. The Arlington Office was acquired through merger with The Bank of Arlington in August, 1982. The Bank of Arlington had one office.
In September 1985, a drive-up facility was constructed at 2612 Wetmore Ave., Everett, to service the Bank's downtown community. This facility has approximately 600 square feet, three drive-up lanes, and a card-access-control merchant reception room. This property is owned by FFP, Inc.
FFP owns the Bank's Snohomish Office property in Snohomish, on which a new permanent facility was completed in 1996. The new facility has 3,500 square feet and is fully occupied by the Bank. Previously, this office was operating out of a double-wide mobile facility, and there were eight apartments sharing the property. The apartments have been removed to make way for the new branch office. This office originally opened in April 1987.
FFP, Inc. owns the property in Lynnwood, which is rented by the Bank for its Lynnwood Office. The office opened for business in June 1988, has approximately 3,200 square feet, and is fully utilized by the Bank.
The Bank acquired the Marysville Office by merger with Citizens Bank of Snohomish County in August 1989. This building has approximately 5,000 square feet, and is fully utilized by the Bank. On the same property are two buildings, which are presently rented to other business concerns. The Bank owns the land and the buildings.
The Smokey Point Office was added to the branch network by the same merger in August 1989. This office was relocated within a few blocks of the original site in June 1995. FFP owns the land and building and leases it to the Bank. The office has 3,500 square feet and is fully utilized by the Bank.
The Bank acquired its Lake Stevens Office by the same merger. The Bank owns the building, but leases the land from nonaffiliates. The building is a mobile facility type construction, and has 1,800 square feet, which is fully utilized by the Bank.
The Bank's Mill Creek Office is located approximately five miles east of Lynnwood, Washington. The office was opened in January 1991, and has 2,600 square feet, all being utilized by the Bank. The property and building are leased from nonaffiliates.
In July 1992, the Bank opened its Stanwood Office in leased quarters. In 1994, FFP constructed a new facility in the immediate area, on land purchased. The building has 3,500 square feet, and is fully utilized by the Bank.
In November 1992, the Bank acquired its Edmonds Office by merger with Edmonds National Bank. This building has approximately 11,300 square feet and is fully utilized by the Bank. The land is being leased by the Bank from nonaffiliates, but the Bank owns the building.
In May 1993, FFP completed construction of an Administration/Financial Center in south Everett. This facility houses the Main Office of the Bank and the Executive Offices of the Corporation. The three story building has approximately 42,100 square feet and is fully utilized by the Bank and Corporation. The building houses all of the operation functions of the Bank, including the data processing center and the real estate loan center.
In July 1993, the Bank acquired the Bothell Office through merger with The Bank of Northshore. This office, previously the Main Office of the Bank of Northshore, has approximately 1,800 square feet, and is fully utilized by the Bank. Both the land and building are owned by the Bank.
The Bank acquired its Woodinville Office through the same merger. This office has approximately 1,300 square feet, and is one of three suites in an office building. The Bank is renting the office from nonaffiliates. FFP has purchased land for construction of a new facility which is expected to be occupied in the third quarter of 1997.
In 1994, FFP purchased property for the Bank's Monroe office. This office opened in June 1995. The building has 3,500 square feet, and is fully utilized by the Bank.
In May 1996, FFP purchased property for the Bank's Lake City Office, located in North Seattle. The property has 5,000 square feet, is two story construction, and was previously a branch office of a larger regional bank which had to divest itself of the office as a condition to merger. This office opened for business in August 1996.
Also in May 1996, the Bank entered into a lease agreement, with nonaffiliates, for the Bank's Skagit County Office, located in Burlington. This office has 1,600 square feet, and is fully utilized by the Bank. This office opened for business in December 1996.
In June 1996, FFP purchased property for the Bank's Redmond Office, located in Redmond, which is approximately 15 miles east of Seattle. The office has 5,000 square feet, and will be fully utilized by the Bank. This office was also purchased from a larger regional bank which had to divest itself of the office as a condition to merger.
As of December 31, 1996, the Bank had eighteen branch offices, including the Main Office.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
There are no material legal proceedings.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders during the fourth quarter of 1996.
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Please see 1996 Annual Report to Shareholders, page 34.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA (In thousands, except per share data)
FINANCIAL HIGHLIGHTS
NM=Not Meaningful
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Please see 1996 Annual Report to Shareholders, pages 26 through 36.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF FRONTIER FINANCIAL CORPORATION
Please see pages 2 thru 6 of 1997 Proxy Statement.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
Please see pages 5 thru 8 1997 Proxy Statement.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Please see page 4 of 1997 Proxy Statement.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Please see page 7 of 1997 Proxy Statement; and, Note 13, page 20 of 1996 Annual Report to Shareholders; and, Page 22 of this Form 10-K report.
PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of the report:
1. Financial Statements.
Financial statements required by Item 8 of this report are incorporated by reference, from the Annual Report to Shareholders, attached hereto as an exhibit.
2. Financial Statement Schedules.
Additional financial statement schedules filed with this report are included in Item 14(d) and are as follows:
Schedule I - Amounts Receivable from Certain Persons
Schedules other than those listed above are omitted because of the absence of the condition under which they are required or because the information called for is included in the financial statements or notes thereto.
3. Exhibits.
(3) Articles of Incorporation and By-Laws are incorporated herein by reference to Exhibits 3(a) and 3(b) to Registration on Form S-14, File No. 2-82420.
(11) Statement Regarding Computation of Earnings Per Share.
(13) Annual Report to Shareholders for the year ended December 31, 1996. (Pages 1 to 36).
(21) Subsidiaries of Registrant is incorporated by reference from Part I, page 1 thru 5 of this report.
(27) Financial Data Schedule (This exhibit is included only in the electronic EDGAR filing version of this Form 10-K. The Financial Data Schedule is not a separate financial statement, but a schedule that summarizes certain standard financial information extracted directly from the financial statements in this filing.)
(b) Reports on Form 8-K:
No Form 8-K's were filed, nor required to be filed for any event during the fourth quarter ended December 31, 1996.
(c) Exhibits - See list of exhibits set forth above at Item 14 (a)3.
(d) Financial Statement Schedules:
Schedules required to be filed in response to this portion of Item 14 are listed above in Item 14 (a)1 and 2. The report of independent public accountants covering these items is included on page 23 of this Form 10-K.
SCHEDULE I
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM CERTAIN PERSONS
(In thousands)
[MOSS-ADAMS LLP LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders Frontier Financial Corporation
We have audited the consolidated financial statements and related financial statement schedule of Frontier Financial Corporation and subsidiaries listed in item 14(a)1 and 2 of the Annual Report on Form 10-K of Frontier Financial Corporation for the year ended December 31, 1996. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Frontier Financial Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly the information required to be included therein.
/s/ MOSS ADAMS LLP
Everett, Washington January 21, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FRONTIER FINANCIAL CORPORATION
March 19, 1997 /s/ Robert J. Dickson - ---------------- ------------------------------------------ Date Robert J. Dickson President & Chief Executive Officer
March 19, 1997 /s/ James F. Felicetty - ---------------- ------------------------------------------ Date James F. Felicetty Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
March 19, 1997 /s/ Robert J. Dickson - ---------------- ------------------------------------------ Robert J. Dickson, Director
March 19, 1997 /s/ David A. Dujardin - ---------------- ------------------------------------------ David A. Dujardin
March 19, 1997 /s/ Edward D. Hansen - ---------------- ------------------------------------------ Edward D. Hansen, Director
March 19, 1997 /s/ William H. Lucas - ---------------- ------------------------------------------ William H. Lucas, Director
March 19, 1997 /s/ James H. Mulligan - ---------------- ------------------------------------------ James H. Mulligan, Director
March 19, 1997 /s/ Edward J. Novack - ---------------- ------------------------------------------ Edward J. Novack, Secretary of the Board
March 19, 1997 /s/ J. Donald Regan - ---------------- ------------------------------------------ J. Donald Regan, Director
March 19, 1997 /s/ Roger L. Rice - ---------------- ------------------------------------------ Roger L. Rice, Director
March 19, 1997 /s/ Roy A. Robinson - ---------------- ------------------------------------------ Roy A. Robinson, Director
March 19, 1997 /s/ William J. Robinson - ---------------- ------------------------------------------ William J. Robinson, Chairman of the Board
March 19, 1997 /s/ Edward C. Rubatino - ---------------- ------------------------------------------ Edward C. Rubatino, Director
Exhibit Index
(3) Articles of Incorporation and By-Laws are incorporated herein by reference to Exhibits 3(a) and 3(b) to Registration on Form S-14, File No. 2-82420.
(11) Statement Regarding Computation of Earnings Per Share.
(13) Annual Report to Shareholders for the year ended December 31, 1996. (Pages 1 to 36)
(21) Subsidiaries of Registrant is incorporated by reference from Part I, page 1 thru 5 of this report.
(27) Financial Data Schedule (This exhibit is included only in the electronic EDGAR filing version of this Form 10-K. The Financial Data Schedule is not a separate financial statement, but a schedule that summarizes certain standard financial information extracted directly from the financial statements in this filing.)