Peninsula Daily News News Services
EVERETT — The Federal Reserve has tightened its oversight of the parent company of Frontier Bank, restricting Frontier Financial Corp. from making large-scale financial decision without approval from the agency’s board of governors.
According to an agreement released by the Federal Reserve Board of Governors last week, Frontier has 60 days to submit a plan detailing projected growth and the bank’s plan for maintaining sufficient capital.
In the meantime, Everett-based Frontier Financial can’t pay dividends or make high-level personnel decisions without the approval of the Federal Reserve’s board of governors.
Frontier Bank is already operating under a cease-and-desist order from local and federal regulators.
The cease-and-desist order also forces Frontier to come up with a turnaround plan for the bank’s capital position and places similar restrictions on bank activity.
Pat Fahey, the chairman and chief executive of Frontier Financial, called the Federal Reserve’s move “routine” in the face of the earlier regulatory action.
“It doesn’t add any new requirements,” for the bank, Fahey said.
Frontier Bank, with 50 branches in Washington and Oregon — including branch banks in Port Angeles, Port Townsend and Sequim — has been struggling through the housing market’s meltdown.
The bank has been dealing with an increase in bad loans as developers default on construction loans.
Most recently, the bank said it is cutting 6 percent of its 760-employee workforce, saving the company $2.5 million a year.
Seattle Bank
On Friday, Seattle Bank announced that it had agreed with state and federal regulators to reduce its problem loans and raise its capital ratios.
The Seattle-based bank joins Frontier Bank and about a dozen other banks in Washington state that are operating under tightened regulatory scrutiny.
In an interview, President and CEO Ellen Sas told The Seattle Times that “we can actually get our ratios in order” by shrinking the bank’s lending portfolio and resolving problem loans.
But Seattle Bank is also exploring ways to raise new capital, looking at amounts from “zero to $30 million . . . which would allow us to grow,” she said.
The agreement with the Federal Deposit Insurance Corp. and the state Department of
Financial Institutions calls for the bank to reach a 10 percent Tier 1 capital ratio and 12 percent risk-based capital ratio, she said.
As of March 31, the bank’s actual ratios were 7.72 percent and 11.85 percent, respectively.
Seattle Bank’s problem loans came mainly from its heavy focus on residential construction and development, which accounted for more than half its business as of spring 2008.
