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Originally published Tuesday, March 23, 2010 at 11:53 AM

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Frontier Bank gets ultimatum from FDIC

Frontier Bank has until April 15 to either raise more capital or sell itself to the highest bidder, according to a regulatory order.

Seattle Times business reporter

Frontier Bank of Everett, which has struggled for more than a year in a morass of soured real-estate loans, has until April 15 to either raise more capital or sell itself to the highest bidder.

The bank, owned by Everett-based Frontier Financial, becomes the latest local financial institution to get such an ultimatum from the Federal Deposit Insurance Corp (FDIC). The order, known as a supervisory prompt corrective action directive, often represents a bank's last chance to fix itself before regulators step in and take it over.

The directive was dated March 16 but made public only Tuesday. It also reiterates several restrictions Frontier has operated under for the past year on brokered deposits, dividends and the rates it pays on deposits.

Last week, Frontier restated its 2009 financial results, increasing its loss to $295.1 million from the $258.8 million it initially reported. The higher loss occurred mainly because the FDIC ordered Frontier Bank to put aside an additional $30 million to cover the expected future cost of bad loans.

Frontier, the fifth-largest state-based bank, with $3.6 billion in assets, now is considered "critically undercapitalized," as the cost of dealing with its pile of problem loans has eaten away its capital base.

As of the end of 2009, Frontier had $962.7 million in past-due loans and foreclosed real estate, representing more than a quarter of its assets. It charged off a total of $249.3 million in bad loans last year, which helped shrink its core capital from $343.2 million at the end of 2008 to $59.8 million at year-end 2009.

Frontier's announcement comes a week after City Bank of Lynnwood said it, too, had received a corrective action directive from the FDIC. AmericanWest Bank of Spokane received a similar directive last month.

Such directives are considered the most stringent level of regulatory oversight. Should a troubled bank fail to either recapitalize or find a buyer — and both have been extremely hard to do in the current environment — it is liable to be taken over by regulators.

Of the four Washington-based banks that have been closed so far this year, all had previously received corrective action directives.

Frontier Financial shares closed down 10 cents, or 3.5 percent, at $2.75 Tuesday.

Drew DeSilver: 206-464-3145 or

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