UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 2002
Commission File Number 000-15540
FRONTIER FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Washington 91-1223535
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation of Organization) Number)
332 SW Everett Mall Way
P.O. Box 2215
Everett, Washington 98203
(Address of Principal Administrative Offices) (Zip Code)
(425)-514-0700
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock (No Par Value)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X ) No ( )
This issuer has one class of common stock (no par value) with 19,210,515 shares
outstanding as of June 30, 2002.
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
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INDEX TO QUARTERLY REPORT ON FORM 10-Q
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PART I - Financial Information Page
Item 1. Financial Statements.
Consolidated Balance Sheet - June 30, 2002
and Year End 2001. 1
Consolidated Statement of Income - Three and Six Months
Ended June 30, 2002 and 2001. 2
Consolidated Statement of Cash Flows - Six Months
Ended June 30, 2002 and 2001. 3-4
Notes to the Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 9-20
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 20
PART 11 - Other Information
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to Vote by Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K. 21
Signatures 22
-i-
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands, except shares)
June 30, December 31,
ASSETS 2002 2001
---------------- -----------------
Cash & due from banks $ 68,757 $ 64,062
Federal funds sold 16,000 44,800
Securities:
Available for sale-market value 107,956 48,845
Held to maturity-amortized cost 32,871 32,925
---------------- -----------------
Total securities 140,827 81,770
Loans, net of unearned income 1,583,626 1,575,031
Less allowance for loan losses (26,762) (26,358)
---------------- -----------------
Net loans 1,556,864 1,548,673
Premises & equipment, net 26,960 27,695
Other real estate owned 2,663 769
Intangible assets 6,477 6,476
Other assets 31,062 32,495
---------------- -----------------
TOTAL ASSETS $1,849,610 $1,806,740
================ =================
LIABILITIES
Deposits:
Noninterest bearing $ 223,050 $ 238,348
Interest bearing 1,273,124 1,260,022
---------------- -----------------
Total deposits 1,496,174 1,498,370
Federal funds purchased and
securities sold under repurchase agreements 13,906 7,696
Federal Home Loan Bank advances 130,129 105,137
Other liabilities 11,399 12,007
---------------- -----------------
TOTAL LIABILITIES 1,651,608 1,623,210
---------------- -----------------
SHAREOWNERS' EQUITY
Common stock, no par value; 100,000,000 shares authorized; 19,210,515 116,376 115,158
and 19,184,879 shares issued and outstanding in 2002 and 2001
Retained earnings 79,318 67,738
Accumulated other comprehensive income (loss),
net of tax effect 2,308 634
---------------- -----------------
TOTAL SHAREOWNERS' EQUITY 198,002 183,530
---------------- -----------------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $1,849,610 $ 1,806,740
================ =================
The accompanying notes are an integral part of these financial
statements.
1
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except for Per Share Amounts) Three Months Ended Six Months Ended
-----------------------------------------------------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
----------------- ----------------------------------- -----------------
INTEREST INCOME
Interest & fees on loans $ 31,692 $ 34,904 $ 64,078 $ 68,932
Interest on investments 1,926 3,347 3,428 7,096
----------------- ----------------------------------- -----------------
Total interest income 33,618 38,251 67,506 76,028
----------------- ----------------------------------- -----------------
INTEREST EXPENSE
Interest on deposits 9,636 15,994 19,784 32,386
Interest on borrowed funds 1,640 1,604 3,189 3,180
----------------- ----------------------------------- -----------------
Total interest expense 11,276 17,598 22,973 35,566
----------------- ----------------------------------- -----------------
Net interest income 22,342 20,653 44,533 40,462
----------------- ----------------------------------- -----------------
PROVISION FOR LOAN LOSSES (1,100) (100) (1,600) (500)
----------------- ----------------------------------- -----------------
NONINTEREST INCOME
Service charges on deposit accounts 1,061 792 1,959 1,536
Other noninterest income 1,619 1,469 3,312 2,563
----------------- ----------------------------------- -----------------
Total noninterest income 2,680 2,261 5,271 4,099
----------------- ----------------------------------- -----------------
NONINTEREST EXPENSE
Salaries & employee benefits 6,005 5,748 12,249 11,408
Occupancy expense 1,522 1,624 3,096 3,327
Other noninterest expense 2,643 2,883 4,850 5,338
----------------- ----------------------------------- -----------------
Total noninterest expense 10,170 10,255 20,195 20,073
----------------- ----------------------------------- -----------------
INCOME BEFORE INCOME TAX 13,752 12,559 28,009 23,988
PROVISION FOR INCOME TAX (4,686) (4,161) (9,670) (8,236)
----------------- ----------------------------------- -----------------
NET INCOME $ 9,066 $ 8,398 $ 18,339 $ 15,752
================= =================================== =================
Weighted average number of
shares outstanding for the period 19,203,850 20,179,881 19,201,900 20,309,783
Basic earnings per share $ 0.47 $ 0.42 $ 0.96 $ 0.78
================= =================================== =================
Weighted average number of diluted shares
outstanding 19,327,290 20,318,395 19,314,122 20,448,297
Diluted earnings per share $ 0.47 $ 0.41 $ 0.95 $ 0.77
================= =================================== =================
The accompanying notes are an integral part of these financial
statements.
2
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Six Months Ended
June 30, 2002 June 30, 2001
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 18,339 $ 15,752
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,852 1,393
Provision for loan losses 1,600 500
FHLB stock dividends (409) (429)
Deferred taxes (9) 733
Increase in income taxes payable 1,458 111
Increase in interest receivable (467) (1,077)
Increase in interest payable (1,838) 932
Loss on sale of fixed assets 9 12
Loans originated for sale (33,178) (17,797)
Proceeds from sale of loans 34,657 15,230
Other operating activities (1,545) 590
----------------- ----------------
Net cash provided by operating activities 20,469 15,950
----------------- ----------------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Net cash flows from Fed Funds Sold 28,800 (29,170)
Proceeds from maturities of AFS & HTM securities 11,144 51,645
Purchase of AFS securities (67,585) (33,987)
Net cash flows from loan activities (13,300) (153,199)
Purchases of premises and equipment (721) (3,558)
Cash invested on ORE 131 -
Other investing activities 1,070 6,094
----------------- ----------------
Net cash used by investing activities (40,461) (162,175)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in core deposits 82,777 91,002
Net change in certificates of deposit (84,973) 46,644
Proceeds from issuance of stock 747 1,251
Purchase of common shares (969) (4,656)
Cash dividends paid (5,665) (5,402)
Advances from FHLB 25,000 10,000
Repayment of FHLB advances (8) (5,013)
Net change in Federal Funds purchased and securities
sold under repurchase agreements 6,285 5,689
Other financing activities 1,493 259
----------------- ----------------
Net cash provided by financing activities 24,687 139,774
----------------- ----------------
(Continued on next page)
The accompanying notes are an integral part of these financial
statements.
3
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS $ 4,695 $ (6,451)
CASH AND DUE FROM BANKS AT BEGINNING
OF YEAR 64,062 69,709
----------------- ----------------
CASH AND DUE FROM BANKS AT END
OF PERIOD $ 68,757 $ 63,258
================= ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 24,830 $ 34,674
Cash paid during the period for income taxes 8,100 8,246
Real estate taken as settlement for loan obligations 2,024 (154)
The accompanying notes are an integral part of these financial
statements.
4
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1. PRINCIPLES OF CONSOLIDATION - RESULTS OF OPERATIONS
The consolidated financial statements of Frontier Financial Corporation include
the accounts of Frontier Financial Corporation and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated. The
consolidated financial statements have been prepared substantially consistent
with the accounting principles applied in the 2001 Annual Report on Form 10-K
for the year ended December 31, 2001. In the opinion of management, the
consolidated financial statements reflect all adjustments necessary for a fair
statement of the results for the interim periods presented. Operating results
for the six months ended June 30, 2002 are not necessarily indicative of the
results that may be expected for year-end December 31, 2002.
The bank subsidiary of Frontier Financial Corporation is Frontier Bank.
NOTE 2. INVESTMENT SECURITIES
The investment portfolio of the Corporation is classified in one of two groups:
1) securities Held-to-Maturity (HTM), and 2) securities Available-For-Sale
(AFS).
Securities that are classified as HTM, are carried at cost, adjusted for
amortization of premiums and accretion of discounts which are recognized as
adjustments to income.
Securities that are classified as AFS, are carried at fair value, adjusted for
amortization of premiums and accretion of discounts which are recognized as
adjustments to income. Unrealized gains and losses are excluded from earnings
and reported as a separate component of equity capital. AFS securities may be
sold at any time.
Gains and losses on both HTM and AFS securities that are disposed of prior to
maturity, are based on the net proceeds and the adjusted carrying amount of the
specific security sold.
5
NOTE 2 - (Continued)
The tables below display the characteristics of the AFS and HTM portfolios as of
June 30, 2002:
AGGREGATE FAIR VALUE AND AMORTIZED COST OF INVESTMENTS
(In thousands)
Gross Gross
Amortized Unrealized Unrealized Aggregate
Cost Gains Losses Fair Value
---------------------------------------------------------------------
AFS SECURITIES
Equities $ 17,665 $ 3,030 $ (23) $ 20,672
U.S. Treasuries 251 44 - 295
U.S. Agencies 874 23 - 897
Corporate securities 85,566 1,286 (810) 86,042
Municipal securities 50 - - 50
---------------------------------------------------------------------
Totals 104,406 4,383 (833) 107,956
---------------------------------------------------------------------
HTM SECURITIES
Municipal securities 23,382 1,033 - 24,415
Corporate Securities 1,489 - (86) 1,403
Certificates of deposit 8,000 - - 8,000
---------------------------------------------------------------------
Totals 32,871 1,033 (86) 33,818
---------------------------------------------------------------------
Totals $ 137,277 $ 5,416 $ (919) $ 141,774
=====================================================================
MATURITY SCHEDULE OF SECURITIES
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
MATURITY Cost Value Cost Value
--------
---------------------------------------------------------------------
0-1 Yr $ 40,226 $ 43,526 $ 8,635 $ 8,647
1-5 Yrs 62,091 62,332 20,115 20,954
5-10 Yrs 158 163 2,632 2,814
Over 10 Yrs 1,931 1,935 1,489 1,403
---------------------------------------------------------------------
$ 104,406 $ 107,956 $ 32,871 $ 33,818
=====================================================================
6
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------------------
NOTE 2 - (Continued)
CHANGES IN AFS AND HTM SECURITIES
For the Quarter Ended June 30, 2002
AFS SECURITIES
Proceeds From Sales $0
Gross Realized Gains -
Gross Realized Losses -
Gross Gains & Losses Included In Earnings
Transfers To the Trading Category -
Net Change In Unrealized Holding Gains Or
Losses Included In The Separate
Components of Shareowners' Equity $1,674
HTM SECURITIES
Sale Or Transfers From This Category $0
NOTE 3. LOANS
The following is an analysis of the loan portfolio by major type
of loans:
June 30, 2002 December 31, 2001
------------- -----------------
Commercial $ 296,544 $ 317,284
Real Estate:
Commercial 718,536 660,890
Construction 407,886 416,545
Residential 123,655 138,854
Installment 44,546 47,741
----------------- ------------------
1,591,167 1,581,314
Unearned Fee Income (7,541) (6,283)
----------------- ------------------
Total Loans $ 1,583,626 $ 1,575,031
================= ==================
NOTE 4. Please see Item 5, page 21 for dividend information.
7
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 5. IMPACT OF NEW ACCOUNTING STANDARD
During the year 2002 the Corporation adopted the following accounting standard:
Statement of Financial Standard (SFAS) No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No 13, and Technical Corrections.
This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from
extinguishments of Debt, and an amendment of that Statement, FASB Statement No
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement also rescinds FASB Statement No 44, Accounting for Intangible Assets
of Motor Carriers. This Statement amends FASB Statement No 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The Corporation
implemented this statement effective April 1, 2002. Implementation of this
statement did not result in a material impact on its financial position or
results of operations.
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8
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
HIGHLIGHTS
Consolidated net income of Frontier Financial Corporation ("the Corporation")
for the second quarter of 2002 was $9.1 million versus $8.4 million for the
second quarter of 2002, or up 8.0%. The main reasons for the record quarter was
an increase in the net interest margin of $1.7 million, or 8.2%, coupled with an
increase in other noninterest income of $.4 million, or 18.5%. The reasons for
the increase will be discussed in this report. In the discussion below,
comparison is with the second quarter of 2002 and 2001, unless otherwise stated.
Annualized return on average assets (ROA) was 2.01% in 2002, and 1.83% in 2001.
Annualized return on average shareowners' equity (ROE) in 2002 was 18.57%, as
compared to 15.56% in 2001. Diluted earnings per share were $.47 for 2002, and
$.41 for 2001.
FINANCIAL REVIEW
MARKET AREA
Frontier Financial Corporation headquartered in Everett, Washington, is the
parent of Frontier Bank, which operates thirty-nine banking offices in Clallam,
Jefferson, King, Kitsap, Pierce, Snohomish, Skagit and Whatcom counties. The
last merger completed was with Interbancorp, Inc. (IB) and was consummated on
February 2, 2001. This added three branch offices to the Corporation's
franchise. These eight counties are considered the market or service area of the
Corporation. The Boeing airplane manufacturing plant for 747's and 777's is
located in the city of Everett. Microsoft, the world's largest software company,
is located in Redmond, Washington, 25 miles from Everett. The Bank also has a
branch office in Redmond.
BALANCE SHEET - June 30, 2002/December 31, 2001
In the first six months of 2002, investment securities increased $59.1 million,
or 72.2%. This is a reversal of prior year's trend. Due to slower loan growth
caused by more conservative underwriting and a slugish local economy, management
began purchasing securities in the fourth quarter of 2001, and added $43.2
million to the portfolio in the first quarter of 2002. During the remainder of
2002 future growth will depend on loan demand.
Federal funds sold declined since year-end 2001 mainly due to the purchase of
investment securities.
Loans, net of unearned income, increased $8.6 million or .5%. The increase in
2002 is short of expectations and is attributable to more conservative
underwriting and a sluggish local economy. The loan-to-deposit ratio at the end
of the first six months of 2002 increased to 105.8% from 105.1% at year-end
2001. Going forward, management will emphasize stronger loan growth consistent
with safe and sound practices.
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9
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Balance Sheet - (Continued)
- -------------------------------------------------------------------------------
The table below indicates the changes in the mix of the loan portfolio from last
year-end to the end of the current period, net of deferred loan fees:
(In thousands) June 30, 2002 December 31, 2001
------------------------------------- ----------------------------------
Amount % of total Amount % of total
----------------- ----------------- ------------------ --------------
Installment $ 44,652 2.8% $ 47,833 3.0%
Commercial 296,093 18.7% 316,947 20.1%
Real estate commercial 716,219 45.2% 659,982 41.9%
Real estate construction 403,853 25.5% 412,501 26.3%
Real estate residential 122,809 7.8% 137,768 8.7%
----------------- ----------------- ------------------ --------------
Total $ 1,583,626 100.0% $1,575,031 100.0%
================= ================= ================== ==============
All sections of the loan portfolio declined over the last six months except for
real estate commercial. During the fourth quarter of 2001 and the first quarter
of 2002, total loans declined possibly due to the shock of 9/11. This lowered
the level of activity in new projects and endeavors which resulted in declining
development, construction and commercial loan activity. However, since the end
of the first quarter, loan activity has been climbing, with consecutive monthly
increases. The demand for real estate commercial loans, which are longer term
loans, have continued to increase mainly due to the lower interest rate
environment.
Please see Page 17 of this report for a discussion regarding credit
concentrations.
The liability side of the balance sheet reflects a decline in deposits for the
period. Noninterest bearing deposits declined $15.3 million, or 6.4% and
interest bearing deposits increased $13.1 million, or 1.0%. CD's declined $85.0
million or 12.1% during the first six months. Asset and liability yields and
costs were the lowest they have been in several years. Please see "Net Interest
Income" on page 12.
10
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Balance Sheet - (Continued)
- --------------------------------------------------------------------------------
BALANCE SHEET - June 30, 2002/June 30, 2001
Below are abbreviated balance sheets at the end of the respective quarters which
indicates the changes that have occurred in the major portfolios of the
Corporation over the past year:
2002 2001 $ Change % Change
----------------- ----------------- ------------------ --------------
Loans $ 1,583,626 $ 1,534,507 $ 49,119 3.2%
Investments 140,827 128,930 11,897 9.2%
Federal Funds Sold 16,000 105,775 (89,775) -84.9%
----------------- ----------------- ------------------ --------------
Total Earning Assets $ 1,740,453 $ 1,769,212 $ (28,759) -1.6%
================= ================= ================== ==============
Total Assets $ 1,849,610 $ 1,866,657 $ (17,047) -0.9%
================= ================= ================== ==============
Noninterest bearing deposits $ 223,050 $ 211,203 $ 11,847 5.6%
Interest bearing deposits 1,273,124 1,301,905 (28,781) -2.2%
----------------- ----------------- ------------------ --------------
Total deposits $ 1,496,174 $ 1,513,108 $ (16,934) -1.1%
================= ================= ================== ==============
Federal Funds purchased and Securities
Sold under Repurchase Agreements 13,906 15,776 (1,870) -11.9%
FHLB borrowings 130,129 105,150 24,979 23.8%
Capital $ 198,002 $ 216,446 $ (18,444) -8.5%
At quarter end 2002, loans were up $49.1 million, or 3.2% over the previous
year. Since the fourth quarter of 2001, loans had been on the decline.
Decreasing $24 million in the fourth quarter of 2001 and $34 million in the
first quarter of 2002. The second quarter of 2002 indicates a reversal in that
trend, and management is optimistic regarding future growth, while maintaining
credit quality.
Investments increased $11.9 million, or 9.2% for the period. For several years
prior to the fourth quarter 2001, this trend in runoff has been planned by
management to use maturity cash flows from the investment portfolio to fund loan
portfolio growth. This plan to change the mix of assets was due to the higher
yields available in loans rather than investments. However, the investment
portfolio has increased since the beginning of the year due to higher
underwriting standards and slowing loan demand. Federal funds sold decreased
over the prior period mainly due to an unusually high fed funds balance in 2001
and the purchase of investment securities.
Noninterest bearing deposits increased $11.8 million, or 5.6%. Growth was
attributable to an increase in business checking account balances. This growth
could be attributable to the low earning credit paid on demand accounts since
the beginning of the year which would influence higher account balances to
offset service charges. Interest bearing deposits decreased $28.8 million, or
2.2%, with most of the decrease attributable to time deposits due to the low
interest rate environment.
At June 30, 2002, NOW, Money Market and Sweep accounts made up 23.0% of total
interest bearing deposits. At June 30, 2001 those deposits made up 22.8%. In
2002, savings deposits made up 28.7% of total interest bearing deposits versus
14.9% in 2001, and time deposits made up 48.3% in 2002 versus 62.3% in 2001.
11
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Balance Sheet - (continued)
- --------------------------------------------------------------------------------
Over the last year, NOW, Money Market and Sweep deposits decreased $4.2 million,
or 1.4%; savings deposits increased $171.5 million, or 88.3%, and time deposits
decreased $196.0 million or 24.2%. The reason for the significant change in the
mix over the last year was due mainly to much lower rates being paid on cd's as
compared to savings accounts.
FHLB borrowings increased $25.0 million, or 23.8% over the year to take
advantage of the low interest rate environment by extending liability
maturities.
Capital has declined $18.4 million over the past year, or 8.5%. Since
quarter-end June 30 2001, the Corporation repurchased $32.2 million in stock in
the open market, representing 1,195,400 shares. Also during the same period, the
Corporation paid $11.2 million in cash dividends.
NET INTEREST INCOME
Net interest income is the difference between total interest income and total
interest expense. Several factors contribute to changes in net interest income.
These include the effects of changes in average balances, changes in rates on
earning assets and rates paid for interest bearing liabilities, the level of
noninterest bearing deposits, shareowners' equity, and the level of nonaccrual
loans.
The earnings from certain assets are exempt from federal income tax, and it is
customary in the financial services industry to analyze changes in net interest
income on a "tax equivalent" ("TE") or fully taxable basis. Under this method,
nontaxable income from loans and investments is adjusted to an amount which
would have been earned if such income were subject to federal income tax. The
discussion below presents an analysis based on TE amounts at a 35% tax rate.
(However, there are no tax equivalent additions to interest expense or
noninterest income and expense amounts discussed below.) Abbreviated quarterly
average balance sheets and net interest income data for the periods are shown
below:
(In thousands)
For quarter ended June 30, 2002 2001 $ Change % Change
- ---------------------------
----------------- ----------------- ------------------ --------------
Loans $ 1,556,775 $ 1,498,341 $ 58,434 3.9%
Investments* 132,738 132,323 415 0.3%
Federal funds sold 17,770 116,296 (98,526) -84.7%
----------------- ----------------- ------------------ --------------
Total earning assets 1,707,283 1,746,960 (39,677) -2.3%
================= ================= ================== ==============
Total assets $ 1,806,909 $ 1,834,250 $ (27,341) -1.5%
================= ================= ================== ==============
Noninterest bearing deposits $ 231,986 $ 208,293 $ 23,693 11.4%
Interest bearing deposits 1,238,769 1,277,879 (39,110) -3.1%
----------------- ----------------- ------------------ --------------
Total deposits $ 1,470,755 $ 1,486,172 $ (15,417) -1.0%
================= ================= ================== ==============
Federal funds purchased
and repurchase agreements $ 11,986 $ 12,020 $ (34) -0.3%
FHLB borrowings 115,954 105,152 10,802 10.3%
Capital* $ 195,304 $ 215,895 $ (20,591) -9.5%
================= ================= ================== ==============
Total interest income (TE) $ 33,893 $ 38,571 $ (4,678) -12.1%
Total interest expense 11,276 17,598 (6,322) -35.9%
----------------- ----------------- ------------------ --------------
Net interest income $ 22,617 $ 20,973 $ 1,644 7.8%
================= ================= ================== ==============
*Shown at amortized cost, or adjusted for unrealized gain/(loss).
12
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Net Interest Income
- -------------------------------------------------------------------------------
In 2002, average total earning assets as a percent of average total assets were
94.5%, and 95.2% in 2001. This ratio indicates how efficiently assets are being
utilized. Average loans were 86.2% and 81.7%, respectively and investments were
7.3% and 7.2%, for the same periods. Average federal funds sold were .98% and
6.3% over the period. Average total loan-to-deposits were 105.8% and 100.8%. Not
shown in the table are the components of interest bearing deposits. Average NOW
and Money Market accounts decreased $4.9 million or 1.7%; savings accounts
increased $174.8 million, or 105.7%, and time cd's decreased $209.0 million, or
25.1%. Average FHLB borrowings increased $10.8 million, or 10.3%. Tax equivalent
net interest income increased $1.6 million, or 7.8%.
Earning Assets
Using a 365-day base, the yield on total earning assets decreased .90% in the
second quarter of 2002 to 7.96% compared to 8.86%. This was due to a decrease in
interest rates as the result of nine Base (Prime) lending rate decreases over
the period, brought about by the FRB. During 2001, this made it difficult to
manage the net interest margin (NIM) as approximately 43% of the Corporation's
loan portfolio is tied to the Base rate, which changes overnight, while the
majority of funding for loans are cd's. The TE NIM increased .50% from the
second quarter of 2001 to the second quarter of 2002 to 5.30%.
On a TE basis, net interest income was $22.6 million in 2002, versus $21.0
million in 2001, for an increase in net interest income of $1.6 million. Total
interest income decreased $4.7 million, and total interest expense decreased
$6.3 million, for an increase in net interest income of $1.6 million.
The decrease of $39.7 million in the average balance of earning assets increased
interest income by $.3 million (the decrease in the volume increased interest
income due to a change in the mix of assets), and a decrease in interest rates
decreased interest income by $5.0 million, for a net increase of $4.7 million.
The annualized yield on total loans decreased from 9.38% in 2001 to 8.19% in
2002. Commercial loans decreased from 9.13% to 7.60%; real estate commercial
loans decreased in yield from 9.20% to 8.41%; real estate construction loans
decreased in yield from 9.92% to 7.93%; real estate residential loans decreased
from 9.14% to 8.96%, and installment loans decreased from 9.90% to 9.22%.
The yield on investments decreased from 6.84% in 2001 to 6.10% in 2002 and the
yield on federal funds sold decreased from 4.41% in 2001 to 1.69% in 2002.
Interest Bearing Liabilities
The cost of total interest bearing liabilities decreased 1.75% from 5.06% in
2001 to 3.31% in 2002.
The decrease in the average balance of interest bearing deposits of $39.1
million decreased interest expense by $1.7 million, and the rate paid on
interest bearing deposits decreased interest expense by $4.6 million.
The cost of NOW, Money Market and Sweep accounts decreased from 2.70% in 2001,
to 1.64% in 2002. Savings account costs were 3.41% in 2001, and 2.73% in 2002.
Time cd's decreased in cost from 6.12% in 2001 to 3.99% in 2002. Short-term
borrowings decreased from 3.90% to 1.41%, and FHLB borrowings decreased from
5.67% in 2001 to 5.53% in 2002.
13
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Net Interest Income
- -------------------------------------------------------------------------------
The increase in the average balance of other borrowings increased interest
expense by $153 thousand, and the rates paid on these borrowings decreased
interest expense by $117 thousand.
NONINTEREST INCOME AND EXPENSE - June 30, 2002/June 30, 2001
- ------------------------------------------------------------
Total noninterest income increased $419 thousand in the second quarter of 2002,
or 18.5% from a year ago. Service charges increased from $792 thousand to $1.1
million, or 34%. The increase in service charges was due to increased NSF/OD
charges of $150 thousand. This increase was due in part to a new account feature
introduced in the first quarter. Also, a lower earning credit on business DDA
accounts increased service charge income $40 thousand in 2002.
Other noninterest income increased $150 thousand, or 10.2% in the current
quarter. The increase was due to dividends on BOLI (Bank Owned Life Insurance)
of $216 thousand which was not in place during the same period last year.
(Please see Note 6 of the December 31, 2001 financial statements.)
The market value of trust assets at quarter-end June 2002 was $223.8 million, as
compared to $235.0 million in 2001, a decrease of $11.2 million, or 4.8%. This
decline is due to falling stock market prices in the current period. Trust
department income for the second quarter of 2002 was $316 thousand, up $19
thousand, or 6.4%.
Total noninterest expenses decreased $85 thousand, or .8% for the period.
Salaries and benefits increased $257 thousand, or 4.5% mainly due to expenses
incurred in the second quarter of 2001 relating to the merger with Interbancorp,
Inc. There were 575 FTE employees at June 30, 2002.
Total occupancy expense decreased $102 thousand, or 6.3%. This result was
expected due to expenses related to the merger in the second quarter of 2001 and
the expenses associated with information technology enhancements last year.
Other noninterest expense decreased $240 thousand, or 8.3%. This decrease was
due to elimination of goodwill amortization expense of $150 thousand and a
reduction of data processing services of $121 thousand.
Banks and bank holding companies use a computation called the "efficiency ratio"
to measure overhead. This ratio is then compared to others in the industry. The
ratio is calculated by dividing total noninterest expense, less intangible
amortization expense and other nonrecurring charges, by the sum of net interest
income on a taxable equivalent basis, and other noninterest income, less any
non-recurring items. The lower the number, the more efficient the organization.
The Corporation's efficiency ratio for the second quarter was 40% for 2002 and
43% for 2001. The Corporation's ratio places it among the performance leaders in
the industry.
14
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Impaired Assets
- -------------------------------------------------------------------------------
LOANS
IMPAIRED ASSETS
Nonperforming loans and impaired assets
are summarized as follows: (In thousands)
Ending June 30, 2002 2001
- --------------- ---- ----
Non-accruing loans:
Commercial $ 938 $ 445
Agriculture 731 651
Real Estate 16,026 3,233
Installment and other 236 130
----------------- -----------------
Total nonaccruing loans 17,931 4,459
Other real estate 2,663 410
----------------- -----------------
Total nonperforming assets $ 20,594 $ 4,869
================= =================
Restructured and/or otherwise impaired $ 6,178 $ -
----------------- -----------------
Total loans at end of period $1,583,626 $1,534,507
=================
Total assets at end of period $1,849,610 $1,866,657
================= =================
Total nonperforming assets to total loans 1.30% 0.32%
Total nonperforming assets to total assets 1.11% 0.26%
Delinquent and problem loans are a part of any lending enterprise. When a
borrower fails to make payments, the Bank implements collection activities
commencing with simple past due notices. This then progresses to phone calls and
letters, followed by legal activity when and if necessary. At one month past
due, the loan is tracked and reported as a delinquency.
It is the Bank's practice to discontinue accruing interest on virtually all
loans that are delinquent in excess of 90 days regardless of risk of loss,
collateral, etc. Some problem loans which are less than 90 days delinquent are
also placed into nonaccrual status if the success of collecting full principal
and interest in a timely manner is in doubt and some loans will remain in
nonaccrual even after improved performance until a consistent timely payment
pattern is exhibited and/or timely performance is considered to be reliable.
Nonaccrual loans consist of some 53 loans ranging in size from $4.2 million to
nominal amounts, most of which are subject to some form of ongoing legal
collection activity. Some 35% of the nonperforming assets are from loans
originated by the Bank's most recent acquisition. 87% of the nonaccrual loans
are secured by real estate and, while there is always some risk of loss present,
it is felt that it is not substantial as a proportion of the amount of such
loans. Nonetheless, some are subject to bankruptcy and other forms of legal
processes which will take time to resolve and during which payment performance
is unlikely. While some of these loans appear to be nearing favorable
resolutions, other loans may deteriorate at a future date.
15
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Impaired Assets
- --------------------------------------------------------------------------------
The Bank has experienced an increase in nonperforming assets from .68% at
year-end 2001 to the current level of 1.11%. The numbers of loans in such status
have not increased as much as the dollar amounts with five particular assets of
over $1 million each, currently representing some $12.1 million or 58.7% of
nonperforming assets. This places great importance on efforts to favorably
resolve these assets in a timely manner. Of these, one is an OREO which is under
a near term agreement for sale and three others are currently scheduled for
foreclosure in the third quarter. In turn, two of these three are in bankruptcy
with relief from stay having been obtained. One other of these five loans is in
bankruptcy also with legal negotiations now occurring regarding implementation
of a turn-around plan of operation, which will likely be a more protracted
scenario than those others mentioned above.
The Bank's loan loss reserve is 130% of nonperforming loans and 1.69% of total
loans at June 30, 2002, compared to 230% and 1.67% at December 31, 2001.
Restructured and impaired loans are those that had problems in the past, and
that have been restructured in such a way that some modification of debt such as
a lower interest rate, in order to ease debt service burdens prior to a
scheduled maturity date, or other terms have occurred.
Such loans are not included in nonaccrual or nonperforming assets unless they
are nonperforming.
Subsequent to June 30, 2002, the Bank had a loan relationship of approximately
$1.2 million that was transferred to a nonaccrual status. Management does not
anticipate any loss associated on the loans, which are secured by commercial and
residential real estate. In addition, the Bank received proceeds from the sale
of Other Real Estate Owned (OREO) totaling $1.3 million subsequent to June 30,
2002. There was no gain or loss on the sale as a result of the transaction.
OTHER REAL ESTATE OWNED
The amount of Other Real Estate Owned (OREO) has increased from a very nominal
..04% on March 31, 2002 to .14% of total assets on June 30, 2002. While the
current level is felt to be relatively modest, the increase does reflect the
transition of troubled loans through the legal collection process and to that
extent it is viewed as progress to have them arrive in this status. The total
currently consists of six locations which comprise one completed new house and
five residential land locations. One such location contains 17 recorded house
lots; one other contains 12 residential lots. Both of these are under agreements
to sell and are expected to close within the third quarter of 2002. (One of
these sales was also mentioned above in the nonperforming assets discussion.)
Other loans in nonaccrual are in the process of foreclosure and there is a
likelihood these foreclosures will be completed and the loans will then become
OREO. This is viewed as an ordinary part of the collection process and efforts
are constantly under way to reduce and minimize such nonperforming assets.
OREO is carried at the lesser of book value or market value. The costs related
to completion, repair, maintenance, or other costs of such properties, are
generally expensed with any gains or inadvertent shortfalls from the ultimate
sale of OREO being shown as other income or expense.
16
- -------------------------------------------------------------------------------
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Credit Concentrations
- -------------------------------------------------------------------------------
CREDIT CONCENTRATIONS
There is a concentration of credit in the loan portfolio comprised of real
estate construction and land development loans. These loans totaled $349.1
million in 2002, or 22.0% of total loans and $323.5 million in 2001, or 21.1% of
total loans. Many years ago, management established a real estate loan committee
which meets periodically to review the economic conditions and building industry
trends. As a result of these and other efforts, there have been very limited
losses on these types of loans. The Bank's trade area has generally enjoyed a
consistent real estate market, and while cognizant of the impacts of slowing
levels of activity, management is cautiously optimistic as to the stability of
the real estate market in the months ahead. The main strength of the real estate
market has been centered in residential houses and land with the office building
market now appearing to be the weakest segment in the area. Washington State has
the Growth Management Act which significantly narrows the areas in which
development is possible, that in turn serves to limit and help control the
volume of development.
At June 30, 2002 and 2001, the Corporation had an immaterial amount of foreign
loans and no loans related to highly leveraged transactions.
ALLOWANCE FOR POSSIBLE LOAN LOSSES - QUALITATIVE FACTORS
For the six months ending June 30, 2002, the reserve for possible loan losses
increased to $26.8 million, or 1.69% of total loans, from $26.4 million, or
1.67% of total loans at year-end 2001. Year-to-date net loan losses were $1.2
million.
Management and the Board review policies and procedures annually, or more often,
and changes are made to reflect the current operating environment integrated
with regulatory requirements. Partly out of these policies has evolved an
internal credit risk review process. During this process the quality grade of
loans is reviewed and loans are assigned a dollar value of the loan loss reserve
by degree of risk. This analysis is performed quarterly and reviewed by senior
management who makes the determination if the risk is reasonable, and if the
reserve is adequate.
Taken into consideration when the analysis is performed is the national and
local economic trends and conditions. The analysis also takes into consideration
the level of, or trends in, delinquencies and nonaccruing loans. Management
monitors delinquencies monthly and reports are prepared for the Board of
Directors to review. Delinquencies for commercial, personal and real estate
loans are charted separately by their types and by portfolio geographic
locations.
Another consideration is the volume and terms of loans. Management reviews the
growth and terms of loans so that the allowance can be adjusted for current and
anticipated future needs.
Conclusion of Qualitative Factors
The allowance for loan losses is the amount which, in the opinion of management,
is necessary to absorb loan losses. Management's evaluation of the adequacy of
the allowance is based on the market area served, local and national economic
conditions, the growth and composition of the loan portfolio and the related
risk characteristics, by continual review by management of the quality of the
portfolio.
17
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity
- -------------------------------------------------------------------------------
In addition, regulatory agencies, as an integral part of their examination
process, periodically review the estimated losses on loans. Such agencies may
require the Corporation to change the allowance based on their judgment about
information available to them at the time of their examination. It is the
Corporation's policy to be in compliance with all accounting and regulatory
standards related to loan loss reserves and all accounting policies promulgated
by GAAP.
LIQUIDITY AND INTEREST RATE RISK
LIQUIDITY
The primary function of asset/liability management is to ensure adequate
liquidity and maintain an appropriate balance between interest sensitive earning
assets and liabilities. Liquidity management involves the ability to meet the
cash flow requirements of customers who may be either depositors wanting to
withdraw funds, or depositors who have credit needs.
The statement of cash flows on pages 3 and 4 of this report provides information
on the sources and uses of cash for the respective year-to-date periods ending
June 30, 2002 and 2001. This discussion addresses those periods of time.
Net cash provided by operating activities in 2002 totaled $20.5 million, as
compared to $16.0 million in 2001. The largest component providing net cash was
net income of $18.3 million in 2002 and $15.8 million in 2001.
Loans originated and sold in the real estate secondary market for the first six
months were $15.4 million higher than 2001. This trend began in the second
quarter of 2001, mainly attributable to low long-term interest rates.
Investing activities in 2002 were different than 2001. In 2001, loan growth
required $153.2 million in funding from proceeds of maturing securities, core
deposits and cd's. In 2002, most funding was needed for investment securities.
In 2001, core deposits and cd's helped to fund loan growth, and in 2002, while
increased core deposits helped to fund growth, cd's declined about the same
amount, requiring liquidity from other sources.
Management has many sources of liquidity, such as the sale of AFS securities,
additional borrowings from the FHLB, participations in the Treasury department's
short-term note program, borrowings from the Federal Reserve Bank, or additional
borrowings at correspondent banks. In addition to AFS securities, treasury and
agency securities in the HTM securities portfolio are also subject to sale under
repurchase agreements. The Corporation has a policy that liquidity of 12.5% of
total assets be maintained as a minimum and has done so.
INTEREST RATE RISK
Interest rate risk refers to the exposure of earnings and capital arising from
changes in interest rates. Management's objectives are to control interest rate
risk and to ensure predictable and consistent growth of earnings and capital.
Interest rate risk management focuses on fluctuations in net interest income
identified through computer simulations to evaluate volatility under varying
interest rate, spread and volume assumptions. The risk is quantified and
compared against tolerance levels.
18
- --------------------------------------------------------------------------------
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Interest Rate Risk
- --------------------------------------------------------------------------------
The Corporation uses a simulation model to estimate the impact of changing
interest rates on the Corporation's earnings and capital. The model calculates
the change in net interest income and net income under various rate shocks. The
model predicts that net interest income would decline if rates fell, and
increase if rates rise. In 2001, rates fell 4.75% and the NIM declined about 6%.
As of March 31, 2002 the model predicted that net interest income would increase
about 2.4% if rates increased 1%, and decline .9% if rates fell 1%. If rates
increased 2% net interest income would increase 6.7% and if rates decreased 2%
net interest income would decline 1.8%. This is considered low interest rate
risk. The actual change in earnings would be dependent upon the dynamic changes
that occur when rates change. Many of these changes are predictable (for
example, if rates fell, loans refinancing would increase), but the exact amount
is difficult to predict. The Corporation manages interest rate risk primarily
with the securities portfolio (for example, if rates are low the Corporation may
increase fed funds sold to increase the benefit if rates rise) and the
prepricing options with borrowings (for example, if rates are falling short-term
rate sensitive borrowings may be increased to reduce the exposure to declining
rates).
It is the policy of the Corporation that capital be maintained above the point
where, for regulatory purposes, it would continue to be classified as "well
capitalized".
Management does not use interest rate risk management products such as interest
rate swaps, options, hedges, or derivatives, nor does management currently have
any intention to use such products in the future.
CAPITAL
Consolidated capital of the Corporation for financial statement purposes at
second quarter end 2002 was $198.0 million. This amount compares to $183.5
million at December 31, 2001, an increase of $14.5 million, or 7.9%. Almost all
of the increase came from the retained earnings of the Bank.
Under regulatory capital rules, the minimum "leverage" ratio (primary capital
ratio) of core capital that the most highly rated holding companies must
maintain is 4 percent. At June 30, 2002, the Corporation's leverage ratio was
10.51%, compared to 11.26% at quarter-end 2001. In addition, regulatory capital
requires a minimum of Tier I capital of 4% of risk-adjusted assets and total
capital (combined Tier I and Tier II) of 8%. The Corporation's Tier I and
combined Tier II capital ratios were 11.02% and 12.28% at June 30, 2002, and
10.75% and 12.00% at December 31, 2001.
Management constantly monitors the level of capital of the Corporation,
considering, among other things, the present and anticipated needs of the
Corporation, current market conditions, and other relevant factors, including
regulatory requirements which may necessitate changes in the level of capital.
19
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
Management considers interest rate risk to be a market risk that could have a
significant effect on the financial condition of the Corporation. There have
been no material changes in the reported market risks faced by the Corporation
since the end of the most recent fiscal year-end that have not been included in
this discussion.
FORWARD-LOOKING INFORMATION
Except for historical financial information contained herein, the matters
discussed in this report of the Corporation may be considered "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1993, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended and
subject to the safe harbor created by the Private Securities Litigation Reform
Act of 1995. Forward-looking statements are subject to risks and uncertainties
that may cause actual future results to differ materially. Sentences containing
words such as "may", "will", "expect", "anticipate", "believe", "estimate",
"should", "projected", or similar words may constitute forward-looking
statements. The Corporation may have used these statements to describe
expectations and estimates in various areas, including, but not limited to:
changes in the economy of the markets in which it operates; interest rate
movements; future acquisition and growth strategies; system conversions and
integration activities; the impact of competitive products, services and
pricing; and legislative, regulatory and accounting changes affecting the
banking and financial service industry. Actual results could vary materially
from the future results covered in forward-looking statements. Factors such as
interest rate trends and loan delinquency rates, as well as the general state of
the economy in Washington state and the United States as a whole, could also
cause actual results to vary materially from the future results anticipated in
such forward-looking statements. These factors should be considered in
evaluating the forward-looking statements and undue reliance should not be
placed on such statements. The Corporation shall not be responsible to update
any such forward-looking statements.
20
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings
The Corporation is involved in ordinary routine litigation arising in
the normal course of business. In the opinion of management,
liabilities (if any) arising from such claims will not have a
material effect on the business, results of operations or financial
condition of the Corporation.
Item 4. Submission of Matters to a Vote of Security Holders
On April 18, 2002 the annual shareowners' meeting was held in Everett,
Washington. The only matter voted upon was the election of a class of
Directors to a term expiring in 2005. Those incumbent Directors were
elected by more than a majority of the shareowners as follows:
Michael J. Corliss Robert J. Dickson Edward D. Hansen William H. Lucas Darrell J. Storkson
----------------- ----------------- ----------------- --------------------------------------------
Votes for 15,644,465 15,260,450 15,598,148 15,546,406 15,624,056
Votes against/withheld 33,721 417,736 80,038 131,780 54,130
The terms of Directors Lucy Deyoung, J. Donald Regan, William J. Robinson,
Edward C. Rubatino, George E Barber, Michael J. Clementz, David A. Dujardin,
James H. Mulligan and Roger L. Rice DDS, continued after the meeting.
Item 5. Other Information
(a) On December 19, 2001, the Board of Directors of the Corporation declared a
$.145 per share first quarter 2002 dividend to shareowners of record as of
January 7, 2002 and payable January 22, 2002.
(b) On March 20, 2002, the Board of Directors of the Corporation declared a
$.15 per share second quarter 2002 dividend to shareowners of record as of
April 15, 2002 and payable April 29, 2002.
(c) On June 19, 2002, the Board of Directors of the Corporation declared a
$.155 per share third quarter cash dividend to shareowners of record as of
July 8, 2002 and payable July 22, 2002.
(d) On June 1, 2002, the Corporation made available to shareowners a Dividend
Reinvestment Plan. A copy of which was filed with Form 10Q on May 3, 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) THE FOLLOWING EXHIBITS ARE FILED AS A PART OF THIS QUARTERLY
REPORT ON FORM 10-Q.
(11) Computation of basic and diluted earnings per share is
attached as Exhibit 11.
(b) REPORTS ON FORM 8-K
None
21
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
SIGNATURE
- -------------------------------------------------------------------------------
Pursuant to the requirements 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
Date: July 31, 2002 /s/ James F. Felicetty
---------------- -------------------------------
James F Felicetty
Secretary / Treasurer
CERTIFICATION
To my knowledge, this report on Form 10-Q for the quarter ended June 30,
2002, fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, and the information contained in this Report
fairly presents, in all material respects, the financial condition and the
results of operation of Frontier Financial Corporation.
By: /s/ Robert J. Dickson
-------------------------------
Robert J. Dickson, Chief Executive Officer
By: /s/ James F. Felicetty
-------------------------------
James F. Felicetty, Secretary/Treasurer
(Chief Financial Officer)
22
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES EXHIBIT 11
- -------------------------------------------------------------------------------
COMPUTATION OF EARNINGS PER SHARE
- -------------------------------------------------------------------------------
(In Thousands) For Six Months Ended June 30,
2002 2001
------------------- --------------------
Net Income $ 18,339 $ 15,752
=================== ====================
Computation of average
shares outstanding
Shares outstanding at
beginning of year 19,185 19,768
Shares issued pursuant
to Interbancorp, Inc. merger - 568
Shares purchased under stock
repurchase program (31) (103)
Shares issued under stock
compensation plans (averaged) 18 18
Shares issued during the
year times average time
outstanding during the year 30 59
------------------- --------------------
Average basic shares outstanding 19,202 20,310
------------------- --------------------
Dilutive shares 112 138
------------------- --------------------
Average diluted shares outstanding 19,314 20,448
------------------- --------------------
Basic earnings per share $ 0.96 $ 0.78
=================== ====================
Diluted earnings per share $ 0.95 $ 0.77
=================== ====================
23