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Frontier Financial Corporation Announces Exceptional 2005 Record Year -- Earnings Up 20% and Fourth Quarter 2005 Earnings Up 25%

Posted on: Monday, 23 January 2006, 18:00 CST

Frontier Financial Corporation (NASDAQ: FTBK) today announced earnings for the fourth quarter and the year ending December 31, 2005. Fourth quarter 2005 net income increased 24.8% to $14.3 million, compared with net income of $11.5 million in 2004, as a result of an increase in net interest income in 2005. On a diluted per share basis, fourth quarter net income for 2005 was $.50 per share compared with $.41 in 2004, an increase of 22.0%, adjusted for the 3-for-2 stock split as of May 16, 2005. Annual return on average assets and return on average equity for 2005 was 2.20% and 19.69%, respectively, compared to 2.03% and 18.54%, respectively, for 2004.

John J. Dickson, President and CEO of Frontier Financial Corporation, said, "We achieved outstanding 2005 earnings and loan growth. Loans increased by $411.2 million, or 20.8% since year-end 2004. The robust loan growth in 2005 was driven by the residential real estate construction and land development market in the Puget Sound area. Our tax equivalent net interest margin expanded to 5.48% for the year, due to five Federal Reserve Board rate increases, and was 5.14% for 2004, an expansion of 34 basis points."

Highlights

For the full year 2005:

 --  Earnings for the year of $51.6 million, up 19.8% from $43.0 million     for the same period 2004. --  Diluted earnings per share for the year increased 18.3% to $1.81     from $1.53 a year ago, split adjusted. --  Nonperforming assets were .19% of total assets at December 31,     2005, compared to .63% at December 31, 2004. --  Delinquent loans at year-end were .06% of total loans, down from     .16% compared to a year ago. --  Year-to-date tax equivalent net interest margin up to 5.48% from     5.14% a year ago. --  Efficiency ratio continues as one of the industry's best at 41% for     year-to-date 2005 and 42% for year-to-date 2004. --  Year-to-date return on average equity of 18.75%, compared to 18.35%     for the same time period 2004. --  Year-to-date return on average assets of 2.09%, compared to 1.98% a     year ago. --  Reserve for loan loss remained strong at 1.55% of total loans. --  Total loans increased by 20.8% to $2.39 billion compared to $1.98     billion at the prior year-end. --  Noninterest bearing deposits up $82.6 million or 26.4% compared     with the prior year-end.      

For the fourth quarter 2005:

 --  Fourth quarter earnings of $14.3 million, up 24.8% from the fourth     quarter 2004 of $11.5 million. --  Fully diluted fourth quarter earnings per share increased 22.0% to     $.50 from $.41 a year ago. --  Tax equivalent net interest margin up to 5.80% in the fourth     quarter from 5.32% for the fourth quarter of 2004. --  Efficiency ratio continues as one of the industry's best at 41% for     the fourth quarter down from 44% for the fourth quarter 2004. --  Return on average equity of 19.69% for the fourth quarter, up from     18.54% for fourth quarter 2004. --  Return on average assets of 2.20% for the fourth quarter, compared     to 2.03% for fourth quarter 2004.      

Asset Quality

As of December 31, 2005 nonperforming assets were .19% of total assets compared to .63% a year ago. Nonaccruing loans decreased to $4.9 million at December 31, 2005, down from $14.1 million at December 31, 2004. The ratio of loans past due over 30 days was .06% of total loans at December 31, 2005, an all time low. "We are again very pleased with our strong credit quality at year-end," said Lyle E. Ryan, President of Frontier Bank.

During the fourth quarter of 2005, the Corporation provided $900 thousand for loan losses as compared to $1.0 million for the fourth quarter of 2004. The total allowance for loan losses stood at $37.1 million, or 1.55% of total loans outstanding compared to $32.7 million, or 1.65% of total loans outstanding for the same time period last year. For the years ended December 31, 2005 and 2004, net loan charge-offs amounted to a net recovery of $146 thousand, and net charge-offs of $328 thousand, respectively.

Year 2005 Operating Results

Operating Results

Net interest income for the year was $127.2 million, an increase of $21.9 million, or 20.8%, compared to $105.3 million for the prior year-end.

Frontier's tax equivalent net interest margin was 5.48% in 2005, compared to 5.14% in 2004. The tax equivalent net interest margin during 2005 was 5.12% for the first quarter, 5.40% for the second quarter, 5.56% for the third quarter and 5.80% for the fourth quarter. Approximately 50% of the Corporation's loans are variable rate (immediately repriceable) and 14% are adjustable rate, which reprice within three months to five years, depending on the index. The yield on earning assets increased 114 basis points to 8.17% in the fourth quarter 2005 from 7.03% in the fourth quarter 2004, and the cost of funds increased 90 basis points to 3.13% in the fourth quarter 2005 from 2.23% in the fourth quarter 2004. "It is probable that we are nearing the end of the Federal Reserve Board rate increase cycle the cost of funds will continue to increase going forward which could temper the margin expansion," stated Dickson.

Total noninterest income for the year decreased $869, down 6.2% to $13.1 million from $13.9 million, in 2004. The major components of this decrease were a decrease of $520 thousand in NSF/OD fees and a decrease of $362 in other noninterest income, due to a gain on sale of bank assets of $94 thousand and a gain on sale of other real estate owned of $610 thousand in the fourth quarter of 2004.

Total noninterest expense increased $7.4 million to $58.1 million, for the year ending December 31, 2005, up 14.6%, compared with the same period last year. Salaries and benefits increased $4.6 million or 14.5% as a result of various staff and branch additions over the past year.

Balance Sheet and Capital Management

At December 31, 2005 Frontier's total assets were $2.64 billion, and deposits totaled $2.06 billion, an increase of 17.5% and 14.8%, respectively, compared to the prior year. Net loans of $2.35 billion and investments of $110.6 million reflected an increase of 20.9% and a decrease of 27.9%, respectively.

The capital of the Corporation was $296.1 million at December 31, 2005, up from $254.2 million a year ago, an increase of 16.5%. Weighted average year-to-date diluted shares totaled 28,495,034 for 2005 versus 28,137,089 for 2004.

Dickson stated, "The previously announced first quarter 2006 cash dividend of $.17 per share, an increase of 24.1% over the first quarter 2005, representing the 25th consecutive quarter of increased cash dividends, will be paid to shareowners on Tuesday, January 24, 2006." Frontier began paying cash dividends to shareowners in 1999.

Branch Additions

On September 12, 2005 Frontier announced the signing of a definitive agreement for the merger of NorthStar Financial Corporation with Frontier. All regulatory approvals have been received and the shareowners of NorthStar will meet on January 24, 2006 to vote on the merger. It is anticipated that this transaction will close on or about January 31, 2006 and will open as the 42nd and 43rd offices of Frontier in the communities of Ballard and Fremont on February 1, 2006.

Frontier will be opening a new office in University Place, Pierce County, in February and a Bellevue office in 2006. These additional branch sites will be the 44th and the 45th offices for Frontier.

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 2004 Form 10-K.

*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.

                  FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES                         CONSOLIDATED STATEMENT OF INCOME                                  (Unaudited) (In thousands, except for  per share amounts)      Three Months Ended         For the Years Ended                      December 31,  December 31,  December 31,  December 31,                          2005          2004          2005          2004 INTEREST INCOME      -----------   -----------   -----------   -----------   Interest and fees    on loans          $    49,383   $    36,026   $   173,753   $   133,232   Interest on    investments             1,186         1,550         5,133         6,996                      -----------   -----------   -----------   -----------      Total interest       income              50,569        37,576       178,886       140,228                      -----------   -----------   -----------   ----------- INTEREST EXPENSE   Interest on    deposits               12,095         7,205        40,714        26,418   Interest on    borrowed funds          2,987         2,174        11,022         8,521                      -----------   -----------   -----------   -----------      Total interest       expense             15,082         9,379        51,736        34,939                      -----------   -----------   -----------   ----------- Net interest income       35,487        28,197       127,150       105,289                      -----------   -----------   -----------   ----------- PROVISION FOR LOAN  LOSSES                     (900)       (1,000)       (4,200)       (3,500)                      -----------   -----------   -----------   ----------- Net interest income  after provision for  loan losses              34,587        27,197       122,950       101,789                      -----------   -----------   -----------   ----------- NONINTEREST INCOME   Provision for loss    on equity investment       (1)            -          (211)            -   Gain (loss) on sale    of securities               -           (71)            -           (44)   Gain on sale of    mortgage loans            329           292         1,249         1,028   Service charges on    deposit accounts        1,035         1,155         4,365         4,926   Other noninterest    income                  1,679         2,620         7,672         8,034                      -----------   -----------   -----------   -----------      Total noninterest       income               3,042         3,996        13,075        13,944                      -----------   -----------   -----------   ----------- NONINTEREST EXPENSE   Salaries and    employee benefits      10,048         8,449        36,543        31,912   Occupancy expense        2,147         1,805         7,654         7,035   State business taxes       307           447         1,798         1,751   Other noninterest    expense                 3,518         3,284        12,117        10,027                      -----------   -----------   -----------   -----------      Total noninterest       expense             16,020        13,985        58,112        50,725                      -----------   -----------   -----------   ----------- INCOME BEFORE  INCOME TAX               21,609        17,208        77,913        65,008 PROVISION FOR  INCOME TAX               (7,308)       (5,749)      (26,329)      (21,963)                      -----------   -----------   -----------   -----------      NET INCOME      $    14,301   $    11,459   $    51,584   $    43,045                      ===========   ===========   ===========   =========== Weighted average  number of shares  outstanding for  the period           28,426,408    28,021,938    28,321,096    27,951,083 Basic earnings  per share           $      0.50   $      0.41   $      1.82   $      1.54                      ===========   ===========   ===========   =========== Weighted average  number of diluted  shares outstanding  for period           28,640,296    28,252,613    28,495,034    28,137,089 Diluted earnings  per share           $      0.50   $      0.41   $      1.81   $      1.53                      ===========   ===========   ===========   =========== Efficiency ratio             41%           44%           41%           42% Return on average  assets                    2.20%         2.03%         2.09%         1.98% Return on average  equity                   19.69%        18.54%        18.75%        18.35% Net interest margin        5.75%         5.27%         5.45%         5.10% TE Effect                  0.05%         0.05%         0.03%         0.04%                      -----------   -----------   -----------   ----------- *TE Net interest  margin                    5.80%         5.32%         5.48%         5.14%                      ===========   ===========   ===========   ===========                FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES                          CONSOLIDATED BALANCE SHEET                                 (Unaudited) (In thousands, except shares)                                     December 31, September 30, December 31, ASSETS                                   2005         2005         2004                                       ----------   ----------   ---------- Cash & due from banks                 $   85,631   $   97,912   $   70,851 Federal funds sold                           733        3,004        5,946 Securities:    Available for sale-fair value         104,904      111,460      145,917    Held to maturity-amortized cost         5,713        7,416        7,534                                       ----------   ----------   ----------       Total securities                   110,617      118,876      153,451 Loans receivable:   Held for sale, fair value $5,804,    $5,887, and $3,904                      5,711        5,793        3,813   Held for portfolio, net of    unearned income                     2,383,513    2,304,378    1,974,239   Less allowance for loan losses         (37,075)     (36,384)     (32,728)                                       ----------   ----------   ----------       Net loans                        2,352,149    2,273,787    1,945,324 Premises & equipment, net                 29,769       29,814       29,226 Intangible assets                          6,476        6,476        6,476 Federal Home Loan Bank stock              14,154       14,154            - Bank owned life insurance                 18,136       17,948       17,400 Other assets                              19,340       15,751       14,722                                       ----------   ----------   ----------    TOTAL ASSETS                       $2,637,005   $2,577,722   $2,243,396                                       ==========   ==========   ========== LIABILITIES Deposits:   Noninterest bearing                 $  395,852   $  388,241   $  313,275   Interest bearing                     1,665,528    1,635,629    1,482,567                                       ----------   ----------   ----------    Total deposits                      2,061,380    2,023,870    1,795,842 Federal funds purchased and   securities sold under repurchase   agreements                              20,813       14,597       10,205 Federal Home Loan Bank advances          240,000      240,075      175,088 Other liabilities                         18,715       13,192        8,031                                       ----------   ----------   ----------    TOTAL LIABILITIES                   2,340,908    2,291,734    1,989,166                                       ----------   ----------   ---------- SHAREOWNERS' EQUITY Common stock, no par value;  100,000,000 shares authorized           131,695      131,296      124,617 Retained earnings                        159,978      150,514      126,216 Accumulated other comprehensive  income, net of tax effect                 4,424        4,178        3,397                                       ----------   ----------   ----------    TOTAL SHAREOWNERS' EQUITY             296,097      285,988      254,230                                       ----------   ----------   ---------- TOTAL LIABILITIES AND SHAREOWNERS'  EQUITY                               $2,637,005   $2,577,722   $2,243,396                                       ==========   ==========   ========== Shares outstanding at end of period   28,438,150   28,414,845   28,117,778 Book value                                 10.41        10.06         9.04 Tangible book value                        10.18         9.84         8.81 

 Contact: John J. Dickson Frontier Financial Corporation President & CEO 425-514-0700  FRONTIER FINANCIAL CORPORATION 332 SW Everett Mall Way Everett, Washington 98204  

SOURCE: Frontier Financial Corporation

Source: MARKET WIRE

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