<PAGE> 1
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, 2000
Commission File Number 0-15540
FRONTIER FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
Washington 91-1223535
------------------------------- ----------------------------
<S> <C>
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation of Organization) Number)
</TABLE>
332 SW Everett Mall Way
P.O. Box 2215
Everett, Washington 98203
(Address of Principal Administrative Offices) (Zip Code)
(425)-514-0700
(Registrants 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 17,461,101 shares
outstanding as of June 30, 2000.
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
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INDEX TO QUARTERLY REPORT ON FORM 10-Q
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<TABLE>
<CAPTION>
PART I - Financial Information Page
------------------------------ ----
<S> <C>
Item 1. Financial Statements
Independent Accountant's Report 1
Condensed Consolidated Balance Sheet - June 30, 2000,
and December 31, 1999 2
Condensed Consolidated Statement of Income - Three and Six Months
Ended June 30, 2000 and 1999 3
Condensed Consolidated Statement of Cash Flows - Six Months
Ended June 30, 2000 and 1999 4-5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 9-18
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 19
PART 11 - Other Information
Item 1. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
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INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors and Shareowners
Frontier Financial Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
Frontier Financial Corporation and subsidiaries as of June 30, 2000, and the
related condensed consolidated statements of the income and cash flows for the
three and six months ended June 30, 2000. These financial statements are the
responsibility of Frontier Financial Corporation's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Frontier Financial Corporation and
subsidiaries as of December 31, 1999, and the related consolidated statements of
income, shareowners' equity and cash flows for the year then ended (which are
not presented herein), and in our report dated January 18, 2000, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1999, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Moss Adams LLP
Everett, Washington
August 1, 2000
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEET
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(In thousands, except shares)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------------ ------------
<S> <C> <C>
Cash & Balances Due from Depository Institutions $ 50,311 $ 44,858
Securities:
Available for Sale-Market Value 103,815 103,467
Held to Maturity-Amortized Cost
(Fair Value 6-30-00: $28,173; 12-31-99: $28,408) 27,847 28,047
------------ ------------
Total Securities 131,662 131,514
Federal Funds Sold 12,355 --
Loans:
Loans, Net of Unearned Income 1,207,454 1,053,214
Less: Allowance for Loan Losses (20,426) (19,651)
------------ ------------
Net Loans 1,187,028 1,033,563
Premises & Equipment, Net 18,611 18,290
Other Real Estate Owned 481 736
Intangible Assets 1,201 1,264
Other Assets 16,847 15,391
------------ ------------
TOTAL ASSETS $ 1,418,496 $ 1,245,616
============ ============
LIABILITIES
Deposits:
Non-Interest Bearing $ 154,475 $ 145,565
Interest Bearing 941,920 821,215
------------ ------------
Total Deposits 1,096,395 966,780
Federal funds Purchased 33,108 6,660
Securities sold under repurchase agreements 19,357 21,892
Federal Home Loan Bank advances 100,176 95,189
Other Liabilities 12,917 7,726
------------ ------------
TOTAL LIABILITIES 1,261,953 1,098,247
------------ ------------
SHAREOWNERS' EQUITY
Common Stock 91,355 91,302
Retained Earnings 68,647 59,360
Accumulated other comprehensive income (loss),
net of tax effect (3,459) (3,293)
------------ ------------
TOTAL SHAREOWNERS' EQUITY 156,543 147,369
------------ ------------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 1,418,496 $ 1,245,616
============ ============
Shares outstanding at the end of the period 17,461,101 17,545,587
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENT OF INCOME
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(In Thousands, Except for Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- --------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest & Fees on Loans $ 29,122 $ 22,718 $ 55,505 $ 44,317
Interest on Investments 2,319 2,464 4,859 5,180
------------ ------------ ------------ ------------
Total Interest Income 31,441 25,182 60,364 49,497
INTEREST EXPENSE
Interest on Deposits 11,497 8,589 22,040 17,151
Interest on Borrowed Funds 2,284 1,225 4,198 2,336
------------ ------------ ------------ ------------
Total Interest Expense 13,781 9,814 26,238 19,487
------------ ------------ ------------ ------------
Net Interest Income 17,660 15,368 34,126 30,010
------------ ------------ ------------ ------------
PROVISION FOR LOAN LOSSES (200) (200) (400) (500)
------------ ------------ ------------ ------------
NONINTEREST INCOME
Service Charges on Deposit Accounts 577 581 1,150 1,114
Other Noninterest Income 719 769 1,379 1,473
------------ ------------ ------------ ------------
Total Noninterest Income 1,296 1,350 2,529 2,587
------------ ------------ ------------ ------------
NONINTEREST EXPENSE
Salaries & Employee Benefits 4,476 3,905 8,802 7,783
Occupancy Expense 1,091 800 1,938 1,686
Other Noninterest Expense 2,526 2,173 3,718 3,712
------------ ------------ ------------ ------------
Total Noninterest Expense 8,093 6,878 14,458 13,181
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAX 10,663 9,640 21,797 18,916
PROVISION FOR INCOME TAX (3,567) (3,266) (7,363) (6,548)
------------ ------------ ------------ ------------
NET INCOME $ 7,096 $ 6,374 $ 14,434 $ 12,368
============ ============ ============ ============
Average Number of Shares Outstanding
for the Period 17,490,372 17,520,204 17,490,372 17,520,204
Basic earnings per share $ 0.41 $ 0.36 $ 0.83 $ 0.71
============ ============ ============ ============
Diluted shares 17,543,859 17,618,937 17,543,859 17,618,937
Diluted earnings per share $ 0.40 $ 0.36 $ 0.82 $ 0.70
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
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(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------------
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 14,434 $ 12,368
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 603 809
Provision for loan losses 400 500
FHLB stock dividends (356) --
Deferred taxes 204 --
Increase in income taxes payable 1,271 (302)
Decrease in interest receivable (1,246) (325)
Increase (Decrease) in interest payable 3,220 (70)
Loss on sale of fixed assets -- 70
Loans originated for sale (6,026) (13,430)
Proceeds from sale of loans 6,026 14,169
Other operating activities 492 500
--------- ---------
Net cash provided by operating activities 19,022 14,289
--------- ---------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Net cash flows from Fed Funds Sold (12,355) 38,234
Proceeds from maturities of AFS & HTM securities 1,453 20,691
Purchase of AFS securities (1,500) (10,175)
Purchase of HTM securities -- (9,900)
Cash dividends paid (3,326) (4,379)
Net cash flows from loan activities (153,660) (76,375)
Purchases of premises and equipment (949) (623)
Proceeds from the sale of other real estate owned 256 (350)
Purchase of treasury stock (1,841) --
Other investing activities -- --
--------- ---------
Net cash used by investing activities (171,922) (42,877)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in noninterest bearing deposits 2,281 12,840
Net change in interest bearing deposit 127,335 4,316
Proceeds from issuance of stock 72 676
Principal payments on long term debt -- (96)
Advances from FHLB 165,000 25,000
Repayment of FHLB advances (160,013) (20,013)
Net change in Federal Funds purchased 23,913 7,850
Other financing activities (235) 24
--------- ---------
Net cash provided by financing activities 158,353 30,597
--------- ---------
</TABLE>
(Continued on next page)
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
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<TABLE>
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS $ 5,453 $ 2,009
CASH AND DUE FROM BANKS AT BEGINNING
OF YEAR 44,858 44,233
------- -------
CASH AND DUE FROM BANKS AT END
OF PERIOD $50,311 $46,242
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $23,027 $19,567
Cash paid during the period for income taxes 6,204 6,850
Real estate taken as settlement for loan obligations -- 350
Real estate taken as settlement for loan obligations - Financed by Bank -- --
</TABLE>
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1. PRINCIPLES OF CONSOLIDATION - RESULTS OF OPERATIONS
The condensed consolidated financial statements of Frontier Financial
Corporation include the accounts of Frontier Financial Corporation and its
subsidiaries (the "Corporation"). All significant intercompany accounts and
transactions have been eliminated. The condensed consolidated financial
statements have not been audited and have been prepared substantially consistent
with the accounting principles applied in the 1999 Annual Report on Form 10-K
for the year ended December 31, 1999. In the opinion of management, the
condensed consolidated financial statements reflect all adjustments necessary to
a fair statement of the results for the interim periods presented. Operating
results for the six months ended June 30, 2000 are not necessarily indicative of
the results that may be expected for year-end December 31, 2000.
Certain reclassifications of 1999 amounts were made in order to conform to the
2000 presentation, none of which affect previously reported net income.
The bank subsidiary of Frontier Financial Corporation is Frontier Bank.
NOTE 2. ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 137 entitled Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of SFAS Statement No. 133. The statement amends SFAS No. 133 to defer its
effective date to all fiscal quarters of all fiscal years beginning after June
15, 2000. Management does not believe the adoption of this statement will have a
material effect on its financial condition or results of operation.
NOTE 3. 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. With some exceptions, securities classified as HTM may
only be sold within three months of maturity.
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.
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 3 - (Continued)
The tables below display the characteristics of the AFS and HTM portfolios as of
June 30, 2000:
AGGREGATE FAIR VALUE AND AMORTIZED COST OF INVESTMENTS
(In thousands)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Aggregate
Cost Gains Losses Fair Value
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AFS SECURITIES
Equities $ 14,878 $ 100 $ -- $ 14,978
U.S. Treasuries 252 22 -- 274
U.S. Agencies 70,183 5 (5,062) 65,126
Corporate securities 23,773 31 (413) 23,391
Municipal securities 50 (4) 46
----------------------------------------------------------------------------
Totals 109,136 158 (5,479) 103,815
----------------------------------------------------------------------------
HTM SECURITIES
Municipal securities 27,347 373 (47) 27,673
Corporate Securities 500 -- -- 500
----------------------------------------------------------------------------
Totals 27,847 373 (47) 28,173
----------------------------------------------------------------------------
Totals $136,983 $ 531 $ (5,526) $131,988
============================================================================
</TABLE>
MATURITY SCHEDULE OF SECURITIES
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
MATURITY Cost Value Cost Value
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0-1 Yr $ 18,595 $ 18,706 $ 155 $ 156
1-5 Yrs 22,157 21,645 7,288 7,387
5-10 Yrs 62,453 57,749 19,363 19,596
Over 10 Yrs 5,931 5,715 1,041 1,034
--------------------------------------------------------------------------
$109,136 $103,815 $ 27,847 $ 28,173
==========================================================================
</TABLE>
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 3 - (Continued)
CHANGES IN AFS AND HTM SECURITIES
For the Quarter Ended June 30, 2000
<TABLE>
<S> <C>
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 $139
HTM SECURITIES
Sale Or Transfers From This Category $ 0
</TABLE>
NOTE 4. LOANS
The following is an analysis of the loan portfolio by major type of
loans:
<TABLE>
<CAPTION>
June 30, 2000 Dec 31, 1999
------------- ------------
<S> <C> <C>
Commercial $ 250,896 $ 210,327
Real Estate:
Commercial 485,319 445,009
Construction 327,662 266,969
Residential 112,890 103,661
Installment 37,719 33,370
----------- -----------
1,214,486 1,059,336
Unearned Fee Income (7,032) (6,122)
----------- -----------
Total Loans $ 1,207,454 $ 1,053,214
=========== ===========
</TABLE>
NOTE 5. EQUITY
In 2000 the Board of Directors declared a first quarter cash dividend of $.09
per share payable on February 11, 2000, and a second quarter cash dividend of
$.10 per share payable on May 15, 2000. A two-for-one stock split and a $.25 per
share, post-split annual cash dividend was paid on March 19, 1999. Please see
Item 5, page 20.
In July of 2000, the Corporation declared an $.11 per share dividend to
shareowners of record July 31, 2000 and payable on August 14, 2000.
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<PAGE> 11
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
--------------------------------------------------------------------------------
NOTE 6. SUBSEQUENT EVENTS
On July 20, 2000 the Corporation completed its merger with Liberty Bay
Financial Corporation (Liberty) of Poulsbo, Washington and its wholly owned
subsidiary, North Sound Bank. The Corporation accounted for the transaction as a
pooling-of-interests. Shareowners of Liberty received 10.5 shares of the
Corporation's common stock for each share of Liberty stock outstanding. At June
30, 2000 Liberty had total assets of approximately $185 million, $146 million in
loans, $159 million in deposits, $22 million in equity, $6 million in net
interest and noninterest income and $1.4 million in net income. Approximately 23
million shares of the Corporation common stock were issued to complete the
transactions.
HIGHLIGHTS
Consolidated net income of Frontier Financial Corporation ("the Corporation")
for the second quarter of 2000 was $7.1 million versus $6.4 million for the
second quarter of 1999, or up 11.3%. The reason for the increase in net income
in 2000 was due to an increase in net interest income of $2.3 million, or 14.9%.
This marks the sixty-sixth consecutive quarter in which Frontier's earnings
exceeded the prior years' comparable quarter. In the discussion below,
comparison is with the second quarter of 2000 and 1999, unless otherwise
indicated.
Annualized return on average assets (ROA) was 2.04% in 2000 and 2.17% in 1999.
Annualized return on average stockholder's equity (ROE) in 2000 was 17.94%, as
compared to 18.81% in 1999. Diluted earnings per share were $.40 for 2000, and
$.36 for 1999.
FINANCIAL REVIEW
MARKET AREA
Frontier Financial Corporation headquartered in Everett, Washington, is the
parent of Frontier Bank, which operates twenty-six banking offices in King,
Pierce, Snohomish, Skagit and Whatcom counties. A merger between the corporation
and Liberty Bay Financial Corporation was consummated on July 20, 2000, and will
add eight branch offices to the Corporation franchise. These offices are located
in Clallam, Jefferson, and Kitsap counties. These eight counties will be
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, as is
the headquarters of the Corporation. 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, 2000/December 31, 1999
During the first six months of 2000 investment securities increased slightly.
For the last few years management has been allowing the securities held by the
bank to run off for the purpose of funding loan growth. However, in order to
reduce the excessive capital of the bank, dividends were paid to the holding
company for purchase of investment securities. These purchases at the holding
company level offset the runoff that the bank experienced during this period.
During the second half of this year it is expected that the investment
securities will remain flat or decline somewhat.
Federal funds sold were accumulated during the first half of the year, mainly to
either fund growth of the loan portfolio or to pay down borrowings. The timing
of the debt reduction did not occur prior to quarter end.
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<PAGE> 12
The loan portfolio had exceptionally strong growth in the first half of 2000.
Loans, net of unearned income, rose $154.2 million or 14.6%. This compares to a
first six months growth in loans in 1999 of $75.5 million, or 8.4%. The increase
in 2000 is attributable to strong local economy and business development
efforts. The loan-to-deposit ratio at the end of the first six months of 2000
increased to 110.1% from 108.9% at year-end 1999.
The table below indicates the changes in the mix of the loan portfolio from
beginning to the end of the period, net of deferred loan fees:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
---------------------------------- ----------------------------------
Amount % of total Amount % of total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Installment $ 37,745 3.1% $ 33,393 3.2%
Commercial 250,274 20.7% 209,915 19.9%
Real estate commercial 484,354 40.1% 441,882 42.0%
Real estate construction 323,350 26.8% 265,092 25.1%
Real estate residential 111,731 9.3% 102,932 9.8%
---------- ----- ---------- -----
Total $1,207,454 100.0% $1,053,214 100.0%
</TABLE>
As a percent, commercial loans increased from 19.9% to 20.7%. This increase was
due to management's recognition that commercial loans should receive more
emphasis than the real estate portion of the portfolio. However, it should be
noted that numerous loans classified as real estate are commercial loans secured
by real estate.
The decrease in real estate commercial loans was offset by an increase in real
estate construction, reflecting the strong market for continued building in the
area, notwithstanding the layoffs by the Boeing Company over the last few years.
Funding of asset growth during the first six months was accomplished by
increased interest bearing deposits of $120.7 million, or 14.7%, and increased
borrowings of $28.9 million. The cost of funding asset growth reduced the
taxable equivalent (TE) net interest margin (NIM) to 5.35%, a decrease from
5.57% in the same period of 1999. However, the TE NIM increased between the
first and second quarters of 2000. It is expected that the Corporation will
continue to rely on certificates of deposit (cd's) for the majority of funding
going forward.
BALANCE SHEET - June 30, 2000/June 30, 1999
Below, are abbreviated balance sheets at the end of the respective quarters
which indicated the changes that have occurred in the major portfolios of the
Corporation over the past year:
<TABLE>
<CAPTION>
At June 30, 2000 1999 $ Change % Change
-------------------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Loans $1,207,454 $ 973,652 $ 233,802 24.0%
Investments 131,662 141,806 $ (10,144) -7.2%
Federal Funds Sold 12,355 7,620 $ 4,735 62.1%
---------- ---------- ---------- ----
Total Earning Assets $1,351,471 $1,123,078 $ 228,393 20.3%
---------- ---------- ---------- ----
Total Assets $1,418,496 $1,183,662 $ 234,834 19.8%
</TABLE>
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------
Balance Sheet - (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At June 30, 2000 1999 $ Change % Change
----------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Noninterest bearing deposits $ 154,475 $ 145,079 $ 9,396 6.5%
Interest bearing deposits 941,920 798,761 143,159 17.9%
---------- ---------- ---------- ----
Total deposits 1,096,395 943,840 152,555 16.2%
========== ========== ========== ====
Federal Funds purchased
and Repurchase Agreements 52,465 39,708 12,757 32.1%
FHLB borrowings 100,176 55,202 44,974 81.5%
---------- ---------- ---------- ----
Capital $ 156,543 $ 135,919 $ 20,624 15.2%
========== ========== ========== ====
</TABLE>
At quarter end 2000, loans were up $233.8 million, or 24.0% over the previous
year. This increase in loans over the last year was due, for the most part, to
the economic growth of the region, expansion by the Corporation and continued
emphasis on loan development. The annualized growth rate for the first six
months of 2000 versus the same period in 1999, was 29.2% versus 16.8%
respectively.
Investments decreased $10.1 million, or 7.2% for the period. This continuing
trend in the 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 is due to the higher yields available in loans rather than
investments. Federal funds sold increased over the prior period mainly due to
timing and liquidity purposes.
Noninterest bearing deposits grew at a 6.5% rate to $154.5 million. Interest
bearing deposits increased $143.2 million or 17.9%, with all of the growth being
attributable to time deposits.
At June 30, 2000, NOW and money Market accounts made up 17.0% of total interest
bearing deposits. At June 30, 1999 those deposits made up 17.9%. Savings
deposits, a year ago, made up 24.3% of interest bearing deposits, and 17.7% in
2000. Time deposits were 57.8% of total interest bearing deposits in 1999, and
65.3% in 2000.
Over the last year, NOW and Money Market deposits increased $17.3 million, or
12.1%; savings deposits decreased $27.4 million, or 14.1%, and time deposits
increased $153.2 million or 33.2%. The reason for the significant change in the
mix over the last year was due mainly to a CD promotion the Bank had in January
of 2000 which increased those type of deposits approximately $93.0 million. A
good majority of which came from other deposit accounts. This increased the cost
of funds for the Corporation, but it is felt that a good portion of these
clients will remain depositors of the Bank.
The increase of $12.8 million, or 32.1% in federal funds purchased and
securities sold under agreements to repurchase (repo's) for the period, was due
to asset funding requirements. FHLB borrowings also increased substantially over
the year for the same reason. $75 million of the FHLB borrowings have options
whereby the FHLB can request return of the funds at any time on pre-determined
put dates. Such contingencies have been planned for by management.
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------
Balance Sheet - (Continued)
--------------------------------------------------------------------------------
Capital has grown $20.6 million over the past year, or 15.2%. Over the last five
years management has been aware that the capital of the Corporation has been
larger than necessary. As part of a plan to better manage capital growth, on
March 19, 1999 the Corporation paid its first annual cash dividend of $.25 per
share. Unrelated to capital management, but designed to create interest in the
stock, the Board of Directors concurrently declared a two-for-one stock split.
In the first quarter of 2000, the Corporation paid it first quarterly dividend
of $.09 per share. Also during the first quarter of 2000, the Corporation began
a stock repurchase program, purchasing 94,400 shares in the public market at a
cost of more than $1.8 million. The program was suspended when the Corporation
announced that an agreement to merge with Liberty Bay Financial Corporation had
been signed. In the second quarter the Corporation has declared a $.10 per share
dividend. During the past year, the total reduction of capital by dividends and
the repurchase program was $5.1 million. In July of 2000, the Corporation
declared an $.11 per share dividend to shareowners of record July 31, 2000 and
payable on August 14, 2000. Management will continue to review options for the
best use of capital.
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, stockholder's 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 "taxable equivalent" 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:
<TABLE>
<CAPTION>
For quarter ended June 30, 2000 1999 $ Change % Change
-------------------------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Loans $1,178,056 $ 956,806 $ 221,250 23.1%
Investments(*) 137,199 145,458 (8,259) -5.7%
Federal funds sold 10,910 16,096 (5,186) -32.2%
---------- ---------- ---------- ----
Total earning assets 1,326,165 1,118,360 207,805 18.6%
========== ========== ========== ====
Total assets 1,388,325 1,174,095 170,084 14.5%
========== ========== ========== ====
Noninterest bearing deposits $ 157,296 $ 147,213 $ 10,083 6.8%
Interest bearing deposits 909,095 780,193 128,902 16.5%
---------- ---------- ---------- ----
Total deposits $1,066,391 $ 927,406 $ 138,985 15.0%
========== ========== ========== ====
Federal funds purchased
and repurchase agreements $ 41,703 $ 36,921 $ 4,782 13.0%
FHLB borrowings 108,750 63,721 45,029 70.7%
---------- ---------- ---------- ----
Capital(*) 158,188 135,570 22,618 16.7%
========== ========== ========== ====
Total interest income (TE) $ 31,441 $ 25,182 $ 6,259 24.9%
Total interest expense 13,781 9,814 3,967 40.4%
---------- ---------- ---------- ----
Net interest income $ 17,660 $ 15,368 $ 2,292 14.9%
========== ========== ========== ====
</TABLE>
(*)Shown at amortized cost, or adjusted for unrealized gain/(loss).
-12-
<PAGE> 15
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------
Net Interest Income - (Continued)
--------------------------------------------------------------------------------
In 2000, average total earning assets as a percent of average total assets were
95.5%, and 95.3% in 1999. This ratio indicates how efficiently assets are being
utilized. Average loans were 84.9% and 81.5%, respectively and investments were
9.9% and 12.4%, for the same periods. Average federal funds sold were .8% and
1.4% over the period. Average total deposits to loans were 110.5% and 103.2%.
Not shown in the table above are the components of interest bearing deposits.
Average NOW and Money Market accounts increased $8.5 million or 6.2%; savings
accounts decreased $20.2 million, or 10.7%, and time cd's increased $140.5
million or, 30.9%.
Earning Assets
Using a 365 day base (previous reports used a 360 day base), the yield on total
earning assets increased .48% in the second quarter 2000 to 9.60% from 9.12%.
This was due to an increase in loan yields as the result of six Prime lending
rate increases over the period. The cost of total interest bearing liabilities
increased .75%, from 4.47% in 1999 to 5.22% in 2000. At the end of current
quarter, the NIM dropped to 5.42% from 5.59% a year earlier. However, the NIM
improved .14% from the first quarter to the second quarter of 2000. Management
has expected this decline in the net interest margin which is due to competitive
factors.
On a TE basis, net interest income was $18.0 million in 2000, versus $15.6
million in 1999, for an increase in net interest income of $2.4 million. Total
interest income increased $6.3 million, and total interest expense increased
$3.9 million, for an increase in net interest income of $2.4 million.
The increase of $207.8 million in the average balance of earning assets
increased interest income by $5.3 million, and a increase in interest rates
increased interest income by $1.0 million, for a net increase of $6.3 million.
The annualized yield on total loans increased from 9.56% in 1999 to 9.95% in
2000. Business loans increased from 9.09% to 9.91%; real estate commercial loans
decreased in yield from 9.19% to 8.91%; real estate construction loans increased
in yield from 10.87% to 11.38%; real estate mortgage loans increased from 9.15%
to 10.42%, and installment loans increased from 9.27% to 9.98%.
The yield on investments increased from 6.73% in 1999 to 6.89% in 2000, and the
yield on federal funds sold increased from 4.85% in 1999 to 6.12% in 2000.
Interest Bearing Liabilities
The increase of $178.7 million in average balance of total interest bearing
liabilities increased interest expense by $2.3 million, and the rates paid on
interest bearing liabilities increased interest expense $1.6 million for a net
change of $3.9 million.
The cost of NOW and money market accounts increased from 2.53% in 1999, to 2.92%
in 2000. Savings accounts costs were 3.60% in 1999, and 3.82% in 2000. Time cd's
increased in cost from 5.32% in 1999 to 5.95% in 2000. Short-term borrowings
increased from 4.40% to 5.92%, and FHLB borrowings increased from 5.16% in 1999
to 6.15% in 2000.
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<PAGE> 16
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
Management's Discussion of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
Noninterest Income and Expense
--------------------------------------------------------------------------------
NONINTEREST INCOME AND EXPENSE
Total noninterest income decreased $54 thousand in 2000, or 4.0% from a year
ago. Service charges decreased from $581 thousand to $577 thousand, or .7%.
Although the number of accounts susceptible to service charges has increased by
619 accounts over the past year, higher average balances are being maintained
which reduces income from this source.
Other income for the period was down by $50 thousand, or 6.5%. There was a gain
on the sale of ORE in 2000 totaling $29 thousand, but no gain during the 1999
period. Therefore, other income is down $79 thousand for the current period.
This decrease is attributable to a decline in loan servicing fees of $39
thousand, broker loan fees of $23 thousand, and a decline in loan collection
fees of $74 thousand. Insurance and financial service fee income was flat for
the period at $94 thousand and trust fees were up $6 thousand. Loan servicing
fees and broker loan fees are two fees that are generated by the real estate
division of the Bank. Management expected these activities to decrease due to
higher interest rates.
The market value of trust assets at quarter end 2000 was $199.5 million, as
compared to $189.2 million in 1999, an increase of $10.3 million, or 5.4%.
Total noninterest expenses increased $1.2 million, or 17.7% for the period.
Salaries and benefits increased $571 thousand, or 14.6%. Salaries themselves
increased $308 thousand, or 11.2%. 3.6% of the increase was due to an increase
in staff, and 7.6% was attributable to merit raises and bonuses. There were 400
FTE employees at June 30, 2000. Benefits increased $263 thousand, or 23.0%. The
increase was due to increased profit sharing reserves of $75 thousand and
increased medical premium cost of $179 thousand.
Total occupancy expense increased $291 thousand, or 36.4%. 29.0% or $316
thousand of occupancy expense was depreciation in 2000, and $350 thousand, or
43.8% was depreciation in 1999. Excluding depreciation, occupancy expense
increased $325 thousand, or 72.2% in 2000. The increase was due to increased
furniture, equipment and maintenance agreements expense of $165 thousand
relating to the new Kent Branch and schedule maintenance and repairs. Rental
expense for the period increased $38 thousand. With the closing of the Liberty
Bay Financial Corporation merger, it is expected that higher than normal
occupancy expenses will continue through the remainder of the year.
Other expense increased $353 thousand, or 16.2%. This increase was due to a loss
on ORE of $38 thousand; an fraud loss of $164 thousand; and increased
professional fees, related to the merger, of $99 thousand.
Banks and bank holding companies use a computation call the "efficiency ratio"
to measure overhead. This ratio is then compared to others in the industry. The
ratio is computed by dividing total noninterest expense, less intangible
amortization expense and other non-recurring 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 41% and 40% for
1999. The Corporation's ratio places it among the performance leaders in the
industry.
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<PAGE> 17
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------
Loans - Impaired Assets
--------------------------------------------------------------------------------
LOANS
IMPAIRED ASSETS
Impaired assets are summarized as follows: (In thousands)
<TABLE>
<CAPTION>
Period ended June 30, 2000 1999
--------------------- ---------- ----------
<S> <C> <C>
Non-accruing loans $ 2,490 $ 4,535
Loans past due 90 days or more and still accruing -- --
Restructured loans(*) -- --
Other real estate owned 481 1,597
---------- ----------
Total non-performing loans $ 2,971 $ 6,132
========== ==========
Total assets at end of period $1,418,496 $1,183,662
---------- ----------
As a percent of assets outstanding 0.21% 0.52%
========== ==========
</TABLE>
(*)Not included unless past due. The Corporation has only one restructured loan
for under $100,000.
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. No particular trends in
the levels of delinquent loans are noted at this time.
It is the bank's practice to discontinue accruing interest on loans that are
delinquent in excess of 90 days. Some problem loans which are less than 90 days
delinquent are also placed into non-accrual status if the success of collecting
full principal and interest, in a timely manner, is in doubt. No particular
trends in the levels of non-accrual loans or other real estate owned are noted
at this time.
Restructured loans are those loans that had problems in the past, and that have
been restructured in such a way that some forgiveness of debt or other terms
have occurred.
Management works diligently on the collection or liquidation of non-performing
assets. The overall level of non-accruing loans declined in the second quarter
due to the resolution of some impaired loans. Other real estate owned at the end
of the second quarter of 2000 consisted of four residential lots which are
pending permits, one house which is up for sale and one residential lot which is
for sale. One of the properties is currently under a sale agreement.
CREDIT CONCENTRATIONS
There is a concentration of credit in the loan portfolio comprised of real
estate construction and land development loans. These loans totaled $284.3
million in 2000, or 25.5% of total loans, and $204.6 million in 1999, or 21.0%
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
enjoyed a consistent real estate market, and while cognizant of the possible
impacts of higher interest rates, etc. in slowing levels of activity, management
is cautiously optimistic as to the real estate markets prospects in the months
ahead.
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<PAGE> 18
--------------------------------------------------------------------------------
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------
Credit Concentrations - (Continued)
--------------------------------------------------------------------------------
At June 30, 2000 and 1999, 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, 2000, the allowance for possible loan losses
increased to $20.4 million, or 1.69% of total loans, from $19.7 million, or
1.87% of total loans at year end 1999. Year-to-date net loan losses were net
recoveries of $375 thousand.
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 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 Boeing company is a strong force in
the local economy, so it is important that this analysis recognizes Boeing's
current and anticipated personnel strength, and the possible effect on Boeing's
suppliers.
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.
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.
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<PAGE> 19
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------
Liquidity
--------------------------------------------------------------------------------
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 4 and 5 of this report provides information
on the sources and uses of cash for the respective year-to-date periods ending
June 30, 2000 and 1999. This discussion addresses those periods of time.
Net cash provided by operating activities in 2000 totaled $19.0 million, as
compared to $14.3 million in 1999. The largest component providing net cash was
net income of $14.4 million in 2000 and $12.4 million in 1999. Net loans
originated and sold in the real estate secondary market for the second quarter
of 2000 were 57.5% lower than 1999 due to a slowing in refinances. This slowdown
had been expected by management.
Investing activities in 2000 and 1999, were centered in the loan area, which had
a net funding requirement of $153.7 million in 2000, and $76.4 million in 1999.
Few investments matured in the second quarter of 2000, and AFS purchases were
$1.5 million. In 1999, proceeds from maturing securities were rolled over. Fed
Fund cash flows declined substantially from the 1999 period, as liquidity has
been necessary due to the growth of the loan portfolio.
Financing the investment activities in 2000 was mainly a combination of cd's of
$127.3 million and $5.0 million in net advances from the FHLB. In 1999,
financing the investment activities was mainly a combination of core deposits
(including NOW, Money Market and Savings accounts) of $12.8 and $7.8 million in
Fed funds purchased.
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.
-17-
<PAGE> 20
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------
Interest Rate Risk
--------------------------------------------------------------------------------
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.
The simulation model used by the Corporation combines the significant factors
that affect interest rate sensitivity into a comprehensive earnings simulation.
Earning assets and interest-bearing liabilities with longer lives may be subject
to more volatility than those with shorter lives. The model accounts for these
differences in its simulations. At June 30, 2000, the simulation modeled the
impact of assumptions that interest rates would increase or decrease 200 basis
points. Results indicated that the Corporation was positioned such that equity
would not drop below that point where the Corporation, for regulatory purposes,
would continue to be classified "well capitalized". It should be emphasized that
the model is static in nature and does not take into consideration possible
management actions to minimize the impact on equity. Management also matches
assets and liabilities on a static "gap" report monthly to assist in interest
rate sensitivity measurements.
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 2000 was $156.5 million (including unrealized losses on
securities). This amount compares to $147.4 million at December 31, 1999, an
increase of $9.1 million, or 6.2%. 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, 2000, the Corporation's leverage ratio was
11.45%, compared to 11.86% at year end 1999. 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 12.59% and 13.84% at June 30, 2000, and
13.69% and 14.94% at December 31, 1999.
Management constantly monitors the level of capital of the Corporation, and
believes that capital is currently larger than necessary to meet present needs,
considering, among other things, the present and anticipated needs of the
Corporation, current market conditions, and other relevant factors, including
regulatory requirements.
-18-
<PAGE> 21
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------
Impact on Year 2000 Issues
--------------------------------------------------------------------------------
IMPACT ON YEAR 2000 ISSUES
There were no Corporation Y2K problems that arose during the second quarter of
2000. However, the Corporation continues to be vigilant in monitoring its loan
portfolio and customer base for potential problems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management considers interest rate risk to be a market risk that could have a
significant affect of 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 quarterly report on Form 10Q may be considered
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, 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, and may be identified by the use of such words as
"believe", "expect", "anticipate", "should", "planned", "estimated" or
"potential" to name a few. Forward-looking statements are subject to risks and
uncertainties that may cause actual future results to differ materially. Such
risks and uncertainties with respect to Frontier Financial Corporation include
those related to the economic environment, particularly in the areas in which
Frontier operates, competitive products and pricing, fiscal and monetary
policies of the U.S. government, changes in governmental regulations affecting
financial institutions, including regulatory fees and capital requirements,
changes in prevailing interest rates, acquisitions and the integration of
acquired businesses, credit risk management and asset/liability management, the
financial and securities markets, and the availability of and costs associated
with sources of liquidity.
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<PAGE> 22
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FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------
Item 1. Legal Proceedings
No material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
On April 20, 2000 the Annual Shareowner's Meeting was held in Everett,
Washington. The only item to be voted upon was election of Class II
Directors to a term expiring in 2003. Those incumbent Directors were
voted by more than a majority of the shareowners as follows:
<TABLE>
<CAPTION>
Lucy J. Donald William J. Edward C.
DeYoung Regan Robinson Rubatino
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Votes for 13,500,579 13,561,087 13,531,413 13,560,421
Votes against/withheld 88,898 28,390 58,064 29,056
</TABLE>
Item 5. Other Information
(a) In May 2000, the Corporation opened it 26th banking office in
Kent, Washington.
(b) On July 20, 2000, the merger between the Corporation and Liberty
Bay Financial Corporation was consummated.
(c) On January 20, 2000, the Board of Directors of the Corporation
declared a $.09 per share first quarter cash dividend payable to
shareowners of record of January 28, 2000 and payable February
11, 2000.
(d) On April 20, 2000, the Board of Directors of the Corporation
declared a $.10 per share second quarter cash dividend payable
to shareowners of record as of May 1, 2000, and payable on May
15, 2000.
(e) On July 19, 2000, the Board of Directors of the Corporation
declared an $.11 per share third quarter cash dividend payable
to shareowners of record as of July 31, 2000, and payable on
August 14, 2000.
Item 6. Exhibits and Reports on Form 8-K
(b)(11) Computation of basic and diluted earnings per share is attached
as Exhibit 11.
(b)(20) On March 17, 2000 Form 8-K was filed announcing an Agreement and
Plan of Mergers dated March 15, 2000 between Frontier Financial
Corporation ("Frontier") and Frontier Bank and Liberty Bay
Financial Corporation and North Sound Bank wherein Frontier will
be the resultant Corporation. The transaction will be accounted
for using the pooling of interests method of accounting and is
subject to several conditions, including regulatory approval.
(b)(27) Financial Data Schedule - This exhibit is included only in the
electronic EDGAR filing version of this Form 10Q. 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.
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<PAGE> 23
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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: August 8, 2000 /s/ James F. Felicetty
------------------------------------
James F. Felicetty
Secretary/Treasurer
-21-
