Frontier Financial Corporation (Nasdaq:FTBK) today announced
earnings for the second quarter ended June 30, 2006. Net income for
the second quarter 2006 increased 36.0% to $17.4 million, compared
with net income of $12.8 million in 2005. This was a result of a
pre-tax increase in net interest income in 2006 of $9.5 million. On
a diluted per share basis, second quarter net income for 2006 was
$.57 per share compared with $.45 in 2005, an increase of 26.7%.
Annual return on average assets and return on average equity for
the quarter was 2.29% and 19.26%, respectively, compared to 2.11%
and 19.05%, respectively, for 2005. John J. Dickson, President and
CEO of Frontier Financial Corporation, said, "The Puget Sound
economy continues to thrive, resulting in outstanding loan and
deposit growth. Loans increased by $550.6 million, or 25.0% since
second quarter 2005. New loan originations for the second quarter
were $477.8 million compared to the second quarter of 2005 of
$348.2 million, an increase of $129.6 million, or 37.2%. Deposits
since the second quarter 2005 increased $447.2 million, or 22.6%.
Since the reorganization in the second quarter of 2003, loans have
grown by 65.2%, deposits 44.5%, and net income for 6 months is up
65.7%. Our tax equivalent net interest margin was 5.66% for the
second quarter 2006, and was 5.40% for the same period in 2005, an
expansion of 26 basis points, primarily due to Federal Reserve
Board rate increases." Highlights For the second quarter 2006: --
Second quarter earnings of $17.4 million, up 36.0% from the second
quarter 2005 of $12.8 million. -- Fully diluted second quarter
earnings per share increased 26.7% to $.57 from $.45 a year ago. --
Tax equivalent net interest margin up to 5.66% in the second
quarter from 5.40% in the second quarter of 2005. -- Efficiency
ratio continues as one of the industry's best at 37% for the second
quarter down from 40% for the second quarter 2005. -- Return on
average equity of 19.26% for the second quarter, up from 19.05% for
second quarter 2005. -- Return on average assets of 2.29% for the
second quarter, compared to 2.11% for second quarter 2005. For the
first six months ended June 30, 2006: -- Year-to-date earnings of
$32.8 million, up 38.5% from $23.7 million for the same period
2005. -- Fully diluted year-to-date earnings per share increased
31.3% to $1.09 from $.83 a year ago. -- Year-to-date tax equivalent
net interest margin up to 5.63% from 5.28% a year ago. --
Efficiency ratio continues as of the industry's best at 39% for
year-to-date 2006 and 42% for year-to-date 2005. -- Year-to-date
return on average equity of 18.87% up from 17.94% for the same time
period 2005. -- Year-to-date return on average assets of 2.23%,
compared to 2.01% a year ago. Asset Quality As of June 30, 2006,
nonperforming assets were .44% of total assets compared to .27% a
year ago, and up from .17% at March 31, 2006. Nonaccruing loans
increased to $13.6 million at June 30, 2006, up from $6.8 million
at June 30, 2005. The ratio of loans past due over 30 days was .57%
of total loans at June 30, 2006, up slightly from previous quarter
end. The increase in nonperforming assets and the delinquency ratio
is centered in two loans totaling $11.6 million. Excluding these
two nonperforming loans, the delinquency ratio would be .02% of
total loans. "Despite the increase in ratios, the quality of the
loan portfolio remains very strong," said Lyle E. Ryan, President
of Frontier Bank. During the second quarter of 2006, the
Corporation provided $1.0 million for loan losses as compared to
$1.1 million for the second quarter of 2005. The total allowance
for loan losses stood at $39.4 million, or 1.43% of total loans
outstanding compared to $32.1 million, or 1.46% of total loans
outstanding for the same time period last year. The allowance for
loan losses including the reclassified allocation for undisbursed
loans of $3.4 million, would amount to a total allowance of $42.8
million, or 1.55% of total loans outstanding as of June 30, 2006.
For the quarters ended June 30, 2006 and 2005, net loan charge offs
amounted to $290 thousand and a net recovery of $367 thousand,
respectively. Second Quarter 2006 Operating Results Operating
Results Net interest income for the second quarter of 2006 was
$40.2 million, an increase of $9.5 million, or 32.1%, compared to
$30.7 million for the prior year second quarter. Frontier's tax
equivalent net interest margin increased to 5.66% for the second
quarter 2006, compared to 5.40% for the second quarter 2005, and
increased from 5.61% at the quarter ended March 31, 2006. The yield
on earning assets increased 104 basis points to 8.65% in the second
quarter 2006 from 7.61% in the second quarter 2005, and increased
25 bps from 8.40% in the quarter ended March 31, 2006. The cost of
funds increased 99 basis points to 3.76% in the second quarter 2006
from 2.77% in the second quarter 2005, and increased 32 bps from
3.44% in the quarter ended March 31, 2006. Approximately 50.4% of
the Corporation's loans are variable rate (immediately repriceable)
and 15.5% are adjustable rate, which reprice within three months to
five years, depending on the index. Total noninterest income for
the second quarter decreased $36 thousand, down 1.0% to $3.4
million from $3.5 million, in 2005. Service charges decreased $33
thousand, or 3.0% to $1.1 million. The lack of service charge
growth on deposit accounts is due to customers' preference to
maintain larger balances and increasing earnings credit rates.
Other noninterest income for the second quarter decreased $91
thousand, down 4.7% to $1.8 million from $1.9 million in 2005.
Total noninterest expense increased $2.4 million to $16.3 million,
for the quarter ending June 30, 2006, up 17.5%, compared with the
same period last year. Salaries and benefits increased $1.3 million
or 15.1%. Of the 15.1% increase, approximately 7.6% related to
staff additions, 1.2% related to salary and incentive increase and
6.3% relate to increased benefit expenses. Other noninterest
expense increased $568 thousand or 19.4%. This increase was
primarily driven by upgrades in network infrastructure and
facilities. Balance Sheet and Capital Management At June 30, 2006,
Frontier's total assets were $3.10 billion, and deposits totaled
$2.42 billion, an increase of 23.5% and 22.6%, respectively,
compared to the prior year. Net loans of $2.71 billion and
investments of $113.6 million reflected an increase of 25.0% and a
decrease of 23.1%, respectively. Shareowners equity of the
Corporation was $368.1 million at June 30, 2006, up from $273.6
million a year ago, an increase of 34.6%. Weighted average
year-to-date diluted shares totaled 30,088,698 for 2006 versus
28,390,090 for 2005. Dickson stated, "The previously announced
third quarter 2006 cash dividend of $.18 per share, an increase of
12.5% over the third quarter 2005, representing the 27th
consecutive quarter of increased cash dividends, will be paid to
shareowners on Monday, July 24, 2006." Frontier began paying cash
dividends to shareowners in 1999. Branch Additions and Merger On
January 31, 2006, Frontier closed the merger of NorthStar Financial
Corporation. The year-over-year growth comparison includes the
NorthStar impact. Subsequent to quarter-end, Frontier entered into
a lease for our 45th office to be located in Bellevue, Washington.
Our team of bankers is currently located in our Kirkland Office and
we expect to open the Bellevue Office in the fourth quarter of this
year. Certain amounts in prior years' financial statements have
been reclassified to conform to the 2006 presentation. These
classifications have not had an effect on previously reported
income or equity. Frontier Financial Corporation is a
Washington-based financial holding company providing financial
services through its commercial bank subsidiary, Frontier Bank.
Frontier Bank offers a wide range of financial services to
businesses and individuals in its market area, including investment
and insurance products. CERTAIN FORWARD-LOOKING INFORMATION -- This
press release contains certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995
("PSLRA"). This statement is included for the express purpose of
availing Frontier of the protections of the safe harbor provisions
of the PSLRA. The forward-looking statements contained herein are
subject to factors, risks and uncertainties that may cause actual
results to differ materially from those projected. The following
items are among the factors that could cause actual results to
differ materially from the forward-looking statements: general
economic conditions, including their impact on capital
expenditures; business conditions in the banking industry; recent
world events and their impact on interest rates, businesses and
customers; the regulatory environment; new legislation; vendor
quality and efficiency; employee retention factors; rapidly
changing technology and evolving banking industry standards;
competitive standards; competitive factors, including increased
competition with community, regional and national financial
institutions; fluctuating interest rate environments; higher than
expected loan delinquencies; and similar matters. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only at the date of
this release. Frontier undertakes no obligation to publicly revise
or update these forward-looking statements to reflect events or
circumstances that arise after the date of this release. Readers
should carefully review the risk factors described in this and
other documents Frontier files from time to time with the
Securities and Exchange Commission, including Frontier's 2005 Form
10-K. -0- *T FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited) (In thousands, except
shares) ------------------------------ June 30, December 31, June
30, 2006 2005 2005 ----------- ----------- ----------- ASSETS Cash
& due from banks $ 104,532 $ 85,631 $ 88,881 Federal funds sold
35,627 733 17,559 Securities: Available for sale-fair value 109,108
104,904 140,318 Held to maturity-amortized cost 4,493 5,713 7,419
----------- ----------- ----------- Total securities 113,601
110,617 147,737 Loans receivable: Held for sale, fair value 5,623
5,711 3,820 Held for portfolio, net of unearned income 2,748,409
2,383,513 2,199,602 Less allowance for loan losses (39,407)
(33,805) (32,137) ----------- ----------- ----------- Net loans
2,714,625 2,355,419 2,171,285 Premises & equipment, net 28,726
29,769 28,889 Intangible assets 40,611 6,476 6,476 Federal Home
Loan Bank stock 15,030 14,154 14,154 Bank owned life insurance
21,746 18,136 17,763 Other assets 25,002 19,340 16,337 -----------
----------- ----------- TOTAL ASSETS $ 3,099,500 $ 2,640,275 $
2,509,081 =========== =========== =========== LIABILITIES Deposits:
Noninterest bearing $ 395,893 $ 395,852 $ 343,316 Interest bearing
2,027,447 1,665,528 1,632,874 ----------- ----------- -----------
Total deposits 2,423,340 2,061,380 1,976,190 Federal funds
purchased and securities sold under repurchase agreements 13,119
20,813 14,118 Federal Home Loan Bank advances 264,053 240,000
230,079 Junior subordinated debt 5,156 - - Other liabilities 25,686
21,985 15,142 ----------- ----------- ----------- TOTAL LIABILITIES
2,731,354 2,344,178 2,235,529 ----------- ----------- -----------
SHAREOWNERS' EQUITY Common stock, no par value; 100,000,000 shares
authorized 181,187 131,695 128,241 Retained earnings 182,135
159,978 141,424 Accumulated other comprehensive income, net of tax
effect 4,824 4,424 3,887 ----------- ----------- ----------- TOTAL
SHAREOWNERS' EQUITY 368,146 296,097 273,552 ----------- -----------
----------- TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 3,099,500 $
2,640,275 $ 2,509,081 =========== =========== =========== Shares
outstanding at end of period 30,163,046 28,438,150 28,289,906 Book
value 12.21 10.41 $ 9.67 Tangible book value 10.86 10.18 9.44
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF INCOME (Unaudited) (In thousands, except for per share
amounts) Three Months Ended Six Months Ended ---------------
------------------------ ------------------------- June 30, June
30, June 30, June 30, 2006 2005 2006 2005 ----------- -----------
----------- ----------- INTEREST INCOME Interest and fees on loans
$ 59,857 $ 41,957 $ 113,977 $ 78,911 Interest on investments 1,489
1,247 2,589 2,643 ----------- ----------- ----------- -----------
Total interest income 61,346 43,204 116,566 81,554 -----------
----------- ----------- ----------- INTEREST EXPENSE Interest on
deposits 17,974 9,742 32,556 17,827 Interest on borrowed funds
3,192 2,755 6,526 5,194 ----------- ----------- -----------
----------- Total interest expense 21,166 12,497 39,082 23,021
----------- ----------- ----------- ----------- Net interest income
40,180 30,707 77,484 58,533 ----------- ----------- -----------
----------- PROVISION FOR LOAN LOSSES (1,000) (1,050) (3,500)
(1,900) ----------- ----------- ----------- ----------- Net
interest income after provision for loan losses 39,180 29,657
73,984 56,633 ----------- ----------- ----------- -----------
NONINTEREST INCOME Provision for loss on equity investment - (56) -
(208) Gain on sale of secondary mortgage loans 374 339 669 556
Service charges on deposit accounts 1,069 1,102 2,126 2,237 Gain on
sale of premise and equipment 152 155 2,224 155 Other noninterest
income 1,843 1,934 3,735 3,876 ----------- ----------- -----------
----------- Total noninterest income 3,438 3,474 8,754 6,616
----------- ----------- ----------- ----------- NONINTEREST EXPENSE
Salaries and employee benefits 9,920 8,618 20,567 17,239 Occupancy
expense 2,341 1,819 4,491 3,640 State business taxes 519 490 1,174
946 Other noninterest expense 3,489 2,921 6,805 5,696 -----------
----------- ----------- ----------- Total noninterest expense
16,269 13,848 33,037 27,521 ----------- ----------- -----------
----------- INCOME BEFORE INCOME TAX 26,349 19,283 49,701 35,728
PROVISION FOR INCOME TAX (8,944) (6,485) (16,868) (12,023)
----------- ----------- ----------- ----------- NET INCOME $ 17,405
$ 12,798 $ 32,833 $ 23,705 =========== =========== ===========
=========== Weighted average number of shares outstanding for the
period 30,134,873 28,276,831 29,807,763 28,241,365 Basic earnings
per share $ 0.58 $ 0.45 $ 1.10 $ 0.84 =========== ===========
=========== =========== Weighted average number of diluted shares
outstanding for period 30,382,389 28,416,730 30,088,698 28,390,090
Diluted earnings per share $ 0.57 $ 0.45 $ 1.09 $ 0.83 ===========
=========== =========== =========== Efficiency ratio 37% 40% 39%
42% Return on average assets 2.29% 2.11% 2.23% 2.01% Return on
average equity 19.26% 19.05% 18.87% 17.94% Net interest margin
5.62% 5.37% 5.60% 5.24% TE Effect 0.04% 0.03% 0.03% 0.04%
----------- ----------- ----------- ----------- (a)TE Net interest
margin 5.66% 5.40% 5.63% 5.28% =========== =========== ===========
=========== (a) Tax equivalent is a nonGAAP performance measurement
used by management in operating the business. Management believes
this provides investors with a more accurate picture of the net
interest margin for comparative purposes. *T
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