Getting these bank closings past us is critical to our local market. Specifically many of the upper management employees and financial workers live on the Eastside and that will have impacts for the housing market because of the high paying job losses as a result of these bank failures. The Washington Mutual layoffs are still a big drag locally. The other factor is that the assets of these banks will be dribbled out on the market over the next couple of years. There are not a lot of homes in these assets and if there is, it is mainly new construction but there is a lot of developed lots and vacant land that will serve to keep those prices depressed.

I think Frontier is an example of how toxic TARP was to a good regional bank. The passage of TARP really only benefited the money center banks and a couple of large financial companies such as Goldman Sachs and AIG. Especially Goldman they got a double benefit. The TARP funds provided them the liquidity to hang on one hand and on the other hand allowed Goldman to collect a massive amount in payments on the Credit Default Swaps with companies like AIG. The government basically became the payee on those obligations. Those guys at Goldman definitely are smart but that doesn’t make it right. For the regional banks TARP was like a drug. The liquidity provided a high but the crash afterwards when the drug wears off was awful and the junkie just wakes up in the same rat infested room. In addition TARP was toxic to regionals. While TARP provided a platform for Goldman to funnel money into its own pocket for the regionals it was the opposite. TARP took away the usual “work-out” mechanisms used by the regionals for years. In essence transferring assets from less liquid borrowers to more liquid borrowers by making new loans. I have explained in past post how this works and why it is successful. In a nut shell it is successful because it allows the institution to receive an infusion of new capital and rebuild its equity by financing asset sales at a lower basis with an increases down payment. This method draws in a large amount of new capital from smaller wealthy individuals but the Cease and Desist orders stopped this practice.

Enough of the technical stuff. The next big hurdle for our market is to get on the backside of these bank closures. The next 90 days will let us know what the plan is at the FDIC is and how quickly they can move.

I have cut and pasted the Frontier Bank press release below:

Frontier Financial Corporation Revises Results for the Fourth
2010-03-16 21:00:00.206 GMT

Frontier Financial Corporation Revises Results for the Fourth Quarter and Year Ended December 31, 2009

EVERETT, WA — (Marketwire) — 03/16/10 — Frontier Financial Corporation (NASDAQ: FTBK) today announced revised results for the quarter and year ended December 31, 2009. For the three months and year ended December 31, 2009, the Corporation reported revised net losses of $70.2 million, or ($14.89) per diluted share, and $295.1 million, or ($62.61) per diluted share, respectively. In our press release dated January 29, 2010, we originally reported a net loss of
$33.9 million, or ($7.19) per diluted share, for the quarter ended December 31, 2009, and a net loss of $258.8 million, or ($54.91) per diluted share for the year ended December 31, 2009. The revised results for the quarter and year ended December 31, 2009, reflect an additional $30.0 million to the provision for loan losses, an additional $3.5 million valuation adjustment on other real estate owned and a $4.3 million (pre-tax) other-than-temporary impairment
(“OTTI”) loss on available for sale securities.

Subsequent to year end and the issuance of our results for the quarter and year ended December 31, 2009, dated January 29, 2010, the Federal Deposit Insurance Corporation (“FDIC”) concluded its visitation of Frontier Bank and determined that an additional provision for loan losses of $30.0 million was necessary to replenish the allowance for loan losses and an additional $3.5 million valuation adjustment was necessary to properly reflect the carrying value of other real estate owned at December 31, 2009. The FDIC, as a regular part of their examination process, periodically reviews our allowance for loan losses and has the authority to require us to recognize additions to the allowance for loan losses based on their judgment of information available to them at the time of their examination. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as conditions change.

Additionally, we sold two available for sale equity securities, which were in unrealized loss positions at December 31, 2009, at a loss subsequent to year end. In accordance with U.S. generally accepted accounting principles, due to the close proximity of the sale to year end, these securities were deemed OTTI at December 31, 2009.
Collectively, these adjustments reduced Frontier Bank’s Tier 1 capital to $59.8 million, which resulted in a Tier 1 Leverage Capital ratio of 1.65%, thus designating Frontier Bank as “critically undercapitalized” for purposes of Prompt Corrective Action (“PCA”) as of December 31, 2009.

Under the Federal Deposit Insurance Act’s (“FDI Act”) PCA capital requirements (12 U.S.C. Section 1831o), depository institutions that are “critically undercapitalized”, in addition to being subject to a number of additional restrictions, must be placed into conservatorship or receivership within 90 days of becoming critically undercapitalized, unless the institution’s primary Federal regulatory authority (here, the FDIC) determines and documents that “other action” would better achieve the purposes of PCA. If Frontier Bank is placed into conservatorship or receivership, the Corporation would suffer a complete loss of the value of its ownership interest in Frontier Bank. These events raise substantial doubt about our ability to continue as a going concern.

The accompanying revised consolidated statement of operations, consolidated balance sheet and selected other financial information and ratios have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future, and do not include any adjustments to reflect the possible future effects on the recoverability or classification of assets, and the amounts or classification of liabilities that may result from the outcome of any regulatory action, which would affect our ability to continue as a going concern.

Certain amounts in prior years’ financial statements have been reclassified to conform to the 2009 presentation. These classifications have not had an effect on previously reported income
(loss) or total 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. Readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. The words “should,” “anticipate,” “expect,” “will,” “believe,” and words of similar meaning are intended, in part, to help identify forward-looking statements. Future events are difficult to predict, and the expectations described above are subject to risks and uncertainties that may cause actual results to differ materially.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. In addition to discussions about risks and uncertainties set forth from time to time in the Company’s filings with the Securities and Exchange Commission, factors that may cause actual results to differ materially from those contemplated in these forward-looking statements include, among others: (1) the extent and duration of continued economic and market disruptions and governmental actions to address these disruptions; (2) the risk of new and changing legislation, regulation and/or regulatory actions; (3) pending litigation and regulatory actions; (4) local and national general and economic conditions; (5) changes in interest rates; (6) reductions in loan demand or deposit levels; and (7) changes in loan collectibility, defaults and charge-off rates.

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 2008 Form 10-K and Frontier’s Form 10-Q for the quarter ending September 30, 2009.

*T

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS – REVISED
(In thousands, except for shares and per share amounts)
(Unaudited)

Three Months Ended
————————————-
December 31, September 30, December 31,
2009 2009 2008
———– ———– ———– INTEREST INCOME
Interest and fees on loans $ 39,207 $ 40,595 $ 59,343
Interest on investments 764 895 1,049
———– ———– ———–
Total interest income 39,971 41,490 60,392
———– ———– ———– INTEREST EXPENSE
Interest on deposits 16,175 18,703 22,715
Interest on borrowed funds 3,806 3,909 3,822
———– ———– ———–
Total interest expense 19,981 22,612 26,537
———– ———– ———–

Net interest income 19,990 18,878 33,855
PROVISION FOR LOAN LOSSES 100,000 140,000 44,400
———– ———– ———– Net interest loss after provision
for loan losses (80,010) (121,122) (10,545)
———– ———– ———– NONINTEREST INCOME
Other-than-temporary impairment
loss on securities (4,289) – -
Gain on sale of securities – – 3,129
Gain on sale of secondary mortgage
loans 229 232 247
Net gain (loss) on sale of other
real estate owned (5,535) (1,068) 4
Service charges on deposit
accounts 1,558 1,611 1,291
Other noninterest income 2,161 2,103 2,831
———– ———– ———–
Total noninterest income (loss) (5,876) 2,878 7,502
———– ———– ———–

NONINTEREST EXPENSE
Salaries and employee benefits 11,058 11,290 9,398
Occupancy expense 2,689 2,694 2,406
State business taxes 324 239 370
FDIC insurance 4,800 2,682 730
Other noninterest expense 7,370 7,909 4,960
———– ———– ———–
26,241 24,814 17,864
———– ———– ———–
Goodwill impairment – – 77,073
———– ———– ———–
Total noninterest expense 26,241 24,814 94,937
———– ———– ———–

LOSS BEFORE BENEFIT FOR
INCOME TAXES (112,127) (143,058) (97,980)
BENEFIT FOR INCOME TAXES (41,926) (1,970) (8,464)
———– ———– ———–
NET LOSS $ (70,201) $ (141,088) $ (89,516)
=========== =========== =========== Weighted average number of
shares outstanding for the period 4,715,370 4,713,185 4,703,840
Basic losses per share $ (14.89) $ (29.93) $ (19.03)
=========== =========== =========== Weighted average number of diluted
shares outstanding for period 4,715,370 4,713,185 4,703,840
Diluted losses per share $ (14.89) $ (29.93) $ (19.03)
=========== =========== ===========

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS – REVISED (Continued)
(In thousands, except for shares and per share amounts)
(Unaudited)

Twelve Months Ended
————————
December 31, December 31,
2009 2008
———– ———– INTEREST INCOME
Interest and fees on loans $ 173,934 $ 273,392
Interest on investments 3,599 5,663
———– ———–
Total interest income 177,533 279,055
———– ———– INTEREST EXPENSE
Interest on deposits 77,661 96,091
Interest on borrowed funds 15,801 16,094
———– ———–
Total interest expense 93,462 112,185
———– ———–

Net interest income 84,071 166,870
PROVISION FOR LOAN LOSSES 375,000 120,000
———– ———– Net interest income (loss) after
provision for loan losses (290,929) 46,870
———– ———– NONINTEREST INCOME
Other-than-temporary impairment loss on
securities (4,289) (6,430)
Gain (loss) on sale of securities (102) 4,570
Gain on sale of secondary mortgage loans 1,675 1,321
Gain on sale of premises and equipment 136 30
Net gain (loss) on sale of other real estate
owned (7,054) 97
Service charges on deposit accounts 6,154 5,421
Other noninterest income 8,394 9,821
———– ———–
Total noninterest income 4,914 14,830
———– ———–

NONINTEREST EXPENSE
Salaries and employee benefits 46,985 48,403
Occupancy expense 10,953 11,148
State business taxes 1,068 2,013
FDIC insurance 15,962 2,650
Other noninterest expense 24,766 18,785
———– ———–
99,734 82,999
———– ———–
Goodwill impairment – 77,073
———– ———–
Total noninterest expense 99,734 160,072
———– ———–

LOSS BEFORE BENEFIT FOR INCOME TAXES (385,749) (98,372)
BENEFIT FOR INCOME TAXES (90,655) (8,635)
———– ———–
NET LOSS $ (295,094) $ (89,737)
=========== =========== Weighted average number of shares outstanding
for the period 4,713,219 4,699,163
Basic losses per share $ (62.61) $ (19.10)
=========== =========== Weighted average number of diluted shares
outstanding for period 4,713,219 4,699,163
Diluted losses per share $ (62.61) $ (19.10)
=========== ===========

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET – REVISED
(In thousands, except for shares and per share amounts)
(Unaudited)

December 31, September 30, December 31,
2009 2009 2008
———– ———– ———– ASSETS
Cash and due from banks $ 93,761 $ 36,921 $ 52,022
Federal funds sold 333,819 363,081 117,740
Securities
Available for sale, at fair value 85,092 73,834 90,606
Held to maturity, at amortized cost 2,102 3,079 3,085
———– ———– ———–
Total securities 87,194 76,913 93,691

Loans held for resale 3,221 3,464 6,678
Loans 2,866,277 3,147,540 3,772,055
Allowance for loan losses (151,349) (142,229) (112,556)
———– ———– ———–
Net loans 2,718,149 3,008,775 3,666,177

Premises and equipment, net 47,704 48,826 51,502
Intangible assets 581 634 794
Federal Home Loan Bank (FHLB) stock 19,885 19,885 19,885
Bank owned life insurance 25,385 25,116 24,321
Other real estate owned 169,674 101,805 10,803
Other assets 98,832 90,153 67,510
———– ———– ———–
Total assets $ 3,594,984 $ 3,772,109 $ 4,104,445
=========== =========== ===========

LIABILITIES
Deposits
Noninterest bearing $ 377,258 $ 403,534 $ 395,451
Interest bearing 2,745,218 2,822,087 2,879,714
———– ———– ———–
Total deposits 3,122,476 3,225,621 3,275,165

Federal funds purchased and
securities sold under repurchase
agreements 11,107 15,584 21,616
Federal Home Loan Bank advances 375,479 375,752 429,417
Junior subordinated debt 5,156 5,156 5,156
Other liabilities 19,280 20,329 21,048
———– ———– ———–
Total liabilities 3,533,498 3,642,442 3,752,402
———– ———– ———–

SHAREOWNERS’ EQUITY
Common stock, no par value;
100,000,000 shares authorized 258,202 258,425 256,137
Retained earnings (accumulated
deficit) (197,083) (126,873) 98,020
Accumulated other comprehensive
income (loss), net of tax 367 (1,885) (2,114)
———– ———– ———–
Total shareowners’ equity 61,486 129,667 352,043
———– ———– ———–
Total liabilities and
shareowners’ equity $ 3,594,984 $ 3,772,109 $ 4,104,445
=========== =========== ===========

Shares outstanding at end of period 4,725,076 4,713,185 4,709,510

Book value $ 13.01 $ 27.51 $ 74.75
Tangible book value $ 12.89 $ 27.38 $ 74.58

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARY
SELECTED OTHER FINANCIAL INFORMATION AND RATIOS – REVISED
(In thousands)
(Unaudited)

For the Period Ended (Year-to-Date)
———————————————————-
December 31, September 30, June 30, March 31, December 31,
2009 2009 2009 2009 2008
———- ———- ———- ———- ———- Loans by Type (including loans held for resale) Commercial and
industrial $ 388,548 $ 405,405 $ 425,221 $ 444,681 $ 457,215
Real Estate:
Commercial 965,150 988,004 1,017,204 1,020,530 1,044,833
Construction 448,063 587,594 713,571 870,201 949,909
Land development 319,311 405,400 476,562 512,804 580,453
Completed lots 252,475 257,057 272,824 297,702 249,685
Residential
1-4 family 426,211 436,744 433,884 443,361 431,170
Installment and
other loans 69,740 70,800 76,953 70,231 65,468
———- ———- ———- ———- ———-
Total loans $2,869,498 $3,151,004 $3,416,219 $3,659,510 $3,778,733
========== ========== ========== ========== ==========

Allowance for
Loan Losses
Balance at
beginning of
period $ 114,638 $ 114,638 $ 114,638 $ 114,638 $ 57,658
———- ———- ———- ———- ———- Provision for
loan losses 375,000 275,000 135,000 58,000 120,000
———- ———- ———- ———- ———- Loans charged-off Commercial and
industrial (39,044) (26,494) (18,891) (5,355) (3,101)
Real Estate:
Commercial (10,477) (9,212) (1,176) (149) (1,264)
Construction (117,258) (90,431) (62,036) (29,448) (31,968)
Land
development (109,651) (74,231) (38,015) (19,057) (12,165)
Completed lots (44,031) (35,525) (19,286) (3,504) (13,839)
Residential
1-4 family (18,708) (11,596) (10,771) (2,127) (846)
Installment and
other loans (2,362) (1,795) (1,089) (205) (343)
———- ———- ———- ———- ———- Total charged-off
loans (341,531) (249,284) (151,264) (59,845) (63,526)
———- ———- ———- ———- ———- Recoveries Commercial and
industrial 715 616 496 211 308
Real Estate:
Commercial 2 – – – -
Construction 2,705 2,048 863 51 161
Land
development 12 57 57 57 -
Completed lots 665 148 66 16 9
Residential
1-4 family 62 59 27 – -
Installment and
other loans 72 47 4 2 28
———- ———- ———- ———- ———-
Total recoveries 4,233 2,975 1,513 337 506
———- ———- ———- ———- ———- Net (charge-offs)
recoveries (337,298) (246,309) (149,751) (59,508) (63,020)
———- ———- ———- ———- ———- Balance before portion identified for undisbursed
loans 152,340 143,329 99,887 113,130 114,638
Portion of
reserve
identified for
undisbursed
loans (991) (1,100) (1,304) (1,646) (2,082)
———- ———- ———- ———- ———- Balance at end
of period $ 151,349 $ 142,229 $ 98,583 $ 111,484 $ 112,556
========== ========== ========== ========== ==========

Allowance for
loan losses as
a percentage of
total loans,
including loans
held for resale 5.27% 4.51% 2.89% 3.05% 2.98%
========== ========== ========== ========== ==========

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARY
SELECTED OTHER FINANCIAL INFORMATION AND RATIOS – REVISED (Continued)
(In thousands)
(Unaudited)

For the Period Ended (Year-to-Date)
———————————————————-
December 31, September 30, June 30, March 31, December 31,
2009 2009 2009 2009 2008
———- ———- ———- ———- ———- Nonperforming Assets (NPA) Nonaccruing
loans $ 705,193 $ 810,520 $ 764,558 $ 656,373 $ 435,225
Other real
estate owned 169,674 101,805 54,222 18,874 10,803
———- ———- ———- ———- ———- Total
nonperforming
assets 874,867 912,325 818,780 675,247 446,028
———- ———- ———- ———- ———-

Total nonaccruing
loans to total
loans 24.58% 25.72% 22.38% 17.94% 11.52%
Total NPA to
total assets 24.34% 24.19% 20.53% 16.25% 10.87%

Interest Bearing
Deposits
Money market,
sweep and NOW $ 497,952 $ 428,704 $ 409,606 $ 365,807 $ 325,554
Savings 241,261 276,989 285,725 334,076 365,114
Time deposits 2,006,005 2,116,394 2,148,970 2,243,362 2,189,046
———- ———- ———- ———- ———- Total interest
bearing
deposits $2,745,218 $2,822,087 $2,844,301 $2,943,245 $2,879,714
========== ========== ========== ========== ==========

For the Three Months Ended
———————————————————-
December 31, September 30, June 30, March 31, December 31,
Performance 2009 2009 2009 2009 2008
Ratios ———- ———- ———- ———- ———-
ROA (annualized) -3.66% -14.39% -4.92% -3.18% -8.68%
ROE (annualized) -110.87% -234.71% -63.92% -38.70% -81.58%

Average assets $3,677,366 $3,922,015 $4,061,874 $4,248,979 $4,125,319 Average shareholders’
equity $ 121,400 $ 240,448 $ 312,851 $ 349,465 $ 438,908

For the Period Ended (Year-to-Date)
———————————————————-
December 31, September 30, June 30, March 31, December 31,
Performance 2009 2009 2009 2009 2008
Ratios ———- ———- ———- ———- ———-
ROA (annualized) -6.51% -7.38% -4.03% -3.18% -2.18%
ROE (annualized) -101.36% -100.06% -50.63% -38.70% -19.42%

Average assets $3,975,914 $4,076,476 $4,154,923 $4,248,979 $4,107,571 Average shareholders’
equity $ 255,357 $ 300,498 $ 331,056 $ 349,465 $ 461,981

For the Period Ended (Year-to-Date)
———————————————————-
December 31, September 30, June 30, March 31, December 31,
2009 2009 2009 2009 2008
———- ———- ———- ———- ———- Capital Ratios
– Consolidated
Tier 1 leverage
ratio 1.80% 3.40% 6.74% 7.60% 8.62%
Tier 1 risk-based
capital ratio 2.29% 4.33% 8.15% 9.13% 9.64%
Total risk-based
capital ratio 3.58% 5.62% 9.42% 10.40% 10.91%

Capital Ratios
– Frontier Bank
Tier 1 leverage
ratio 1.65% 3.19% 6.49% 7.37% 8.53%
Tier 1 risk-based
capital ratio 2.09% 4.06% 7.86% 8.85% 9.27%
Total risk-based
capital ratio 3.38% 5.35% 9.13% 10.13% 10.55%

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARY
SELECTED OTHER FINANCIAL INFORMATION AND RATIOS – REVISED (Continued)
(In thousands)
(Unaudited)

Quarterly Average Balances

December 31, September 30, December 31,
2009 2009 2008
———– ———– ———– ASSETS
Cash and due from banks $ 43,592 $ 43,317 $ 48,279
Federal funds sold 343,273 306,772 44,246
Securities
Available for sale, at fair value 70,297 79,425 97,124
Held to maturity, at amortized cost 2,750 3,076 3,517
———– ———– ———–
Total securities 73,047 82,501 100,641

Loans held for resale 2,840 4,118 2,414
Loans
Commercial and industrial 402,635 423,953 456,594
RE commercial 982,957 1,003,786 1,051,625
RE construction 530,202 661,786 1,022,043
RE land development 382,081 455,623 602,838
RE completed lots 263,499 271,602 249,849
RE residential 1-4 family 430,892 426,531 385,218
Installment and other 70,500 70,868 69,656
———– ———– ———–
Total 3,065,606 3,318,267 3,840,237
Allowance for loan losses (137,893) (108,254) (121,289)
———– ———– ———–
Net loans 2,927,713 3,210,013 3,718,948

Premises and equipment, net 48,501 49,344 51,819
Intangible assets 609 662 77,905
FHLB Stock 19,885 19,885 18,084
Bank owned life insurance 25,240 24,968 24,185
Other real estate owned 120,561 66,843 3,468
Other assets 74,945 117,710 37,744
———– ———– ———–
Total assets $ 3,677,366 $ 3,922,015 $ 4,125,319
=========== =========== ===========

LIABILITIES
Deposits
Noninterest bearing $ 394,358 $ 404,988 $ 389,127
Interest bearing
MMA, Sweep and NOW 447,971 416,738 407,758
Savings 253,663 282,065 392,845
Time deposits 2,048,046 2,137,770 2,065,873
———– ———– ———–
Total interest bearing 2,749,680 2,836,573 2,866,476
Total deposits 3,144,038 3,241,561 3,255,603

Fed funds purchased and repurchase
agreements 11,484 15,806 61,487
FHLB advances 375,564 397,578 359,296
Junior subordinated debentures 5,156 5,156 5,156
Other liabilities 19,724 21,466 4,869
———– ———– ———–
Total liabilities 3,555,966 3,681,567 3,686,411
Total shareholders’ equity 121,400 240,448 438,908
———– ———– ———–
Total liabilities and
shareholders’ equity $ 3,677,366 $ 3,922,015 $ 4,125,319
=========== =========== ===========

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARY
SELECTED OTHER FINANCIAL INFORMATION AND RATIOS – REVISED (Continued)
(In thousands)
(Unaudited)

Year-to-Date Average Balances

December 31, December 31,
2009 2008
———– ———– ASSETS
Cash and due from banks $ 44,680 $ 50,410
Federal funds sold 300,617 29,197
Securities
Available for sale, at fair value 78,637 122,499
Held to maturity, at amortized cost 2,997 3,685
———– ———–
Total securities 81,634 126,184

Loans held for resale 5,353 3,391
Loans
Commercial and industrial 429,256 437,481
RE commercial 1,008,493 1,036,171
RE construction 738,100 1,056,159
RE land development 474,046 585,508
RE completed lots 275,010 244,575
RE residential 1-4 family 430,776 342,654
Installment and other 69,851 68,562
———– ———–
Total 3,430,885 3,774,501
Allowance for loan losses (120,733) (82,529)
———– ———–
Net loans 3,310,152 3,691,972

Premises and equipment, net 49,882 51,214
Intangible assets 688 78,013
FHLB Stock 19,885 18,587
Bank owned life insurance 24,836 24,118
Other real estate owned 57,967 2,301
Other assets 85,573 35,575
———– ———–
Total assets $ 3,975,914 $ 4,107,571
=========== ===========

LIABILITIES
Deposits
Noninterest bearing $ 397,533 $ 379,766
Interest bearing
MMA, Sweep and NOW 396,287 586,943
Savings 298,370 349,318
Time deposits 2,177,546 1,894,455
———– ———–
Total interest bearing 2,872,203 2,830,716
Total deposits 3,269,736 3,210,482

Fed funds purchased and
repurchase agreements 16,226 73,460
FHLB advances 407,015 338,268
Junior subordinated debentures 5,156 5,156
Other liabilities 22,424 18,224
———– ———–
Total liabilities 3,720,557 3,645,590
Total shareholders’ equity 255,357 461,981
———– ———–
Total liabilities and shareholders’ equity $ 3,975,914 $ 4,107,571
=========== =========== *T

Our local new construction market is different from the rest of the country. For example go to the Phoenix area and you see the publicly held large national builders such as KB Homes, DR Horton and Centex as the ones who are building the most houses. These companies raise their money to purchase land and build houses by doing a combination of public bond offerings and corporate lines of credit with large banks such as Chase and Bank of America. In Washington State it is much different. 90% of the builders in our state build less than a 100 homes a year and are privately held. Some of the larger builders get their financing from large money center banks; mainly Wells Fargo, BofA and US Bank. However the bulk of the lending for new construction homes and condos was done by Frontier, Homestreet, Horizon, Sterling, Seattle Bank, etc. It is mainly due to these construction and development loans that has caused these banks problems. The value of these assets has declined so dramatically that a once healthy bank like Frontier that was on paper one of the strongest and most profitable in the nation is in such a bind. The other fall out from the potential failure of these banks is that they are also did a lot of local lending to small businesses such as small retail and service companies. These companies are struggling but are able to meet their obligations unlike a lot of the builders and if this credit disappears they have no where to turn. They can go to Chase and get a credit card with a high limit and an 800 number and a 24% interest rate as their alternative, not really what they need.

The irony here is that the Federal Reserve bailed out the money center banks and brokerages that created the mess with the CDOs and invented the sub-prime mortgages but the collateral damage that it caused with the regional banks is just looking to be flushed. As a matter of fact it gets even worse. Since the regulators failed so miserably with the money center banks they now have decided to get tough on the regionals. In fact they are going to the regionals and saying to them they want them to get out of community based lending but they have no where else to go to make money. They are basically real estate asset based lenders. They are not competitive on car loans, they can’t do large corporate based lending and they have no other sources of income so what do they do? On the other hand the money center banks are in a position to consolidate their market share. So what do you do? I would suggest buying stock in Chase (JPM) and hope Jamie Dimon is merciful to our local lending needs. .

The second issue regarding regulatory changes will be addressed in another post.