Everett-based Frontier Financial Corp. revised its 2009 loss totals, saying it's now considered “critically undercapitalized” by Federal Deposit Insurance Corp. standards. That means regulators could assume control if the bank's situation doesn't improve in 90 days.
In a similar move, City Bank of Lynnwood revealed Tuesday that the FDIC will force the sale of the bank if it hasn't raised more capital by April 10.
“Our whole team is focused on raising capital and we will continue to sell our houses,” said Martin Heimbigner, president and CEO of City Bank.
City Bank had been developing its lots and selling the finished houses because they're more valuable. “Clearly, getting housing built takes time,” he said.
Heimbigner said the bank will now focus on selling the lots to a national home builder to provide quick capital.
Frontier Financial, the parent company of Frontier Bank, more than doubled its previously announced fourth-quarter losses Tuesday. The announcement, brought on by an order from the FDIC, brought the bank's yearly losses up to $295 million in 2009 instead of $259 million.
Frontier's status as ‘critically undercapitalized” makes it more likely that government regulators will take control of the bank.
The institution could be placed into “conservatorship or receivership” after 90 days, unless the FDIC determines another action is warranted.
“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,” according to a statement from Frontier.
Frontier's fourth-quarter loss revision stemmed from an FDIC order to set aside an additional $30 million to make up for bad real estate loans. An FDIC review took place after Frontier released its fourth-quarter earnings in January, and regulators determined the provisions Frontier made for loan losses were insufficient.
“This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as conditions change,” wrote Frontier officials in a statement.
The federal agency also told Frontier to revise its totals for real-estate holdings, saying the bank has about $3.5 million less in foreclosures than reported earlier this year.
City Bank, which like Frontier was heavily invested in local real estate, was given about a month to raise more capital by selling shares or assets. If that doesn't work, the bank will be sold, the FDIC directed.
Heimbigner, who assumed his position in January after founder and CEO Conrad Hanson retired, said the bank has engaged an investment banking firm and is trying to sell its assets to real estate investors. He said he couldn't mention details, but that talks are ongoing. “We have relationships with large homebuilders already,” he said.
Heimbigner said the bank owns 2,400 building lots. By Feb. 28 he had sold homes representing about $48 million in construction loans, he said.
To comply with the FDIC directive, City Bank needs to get a minimum of $30 million in investment and reduce its land base and other assets to $1 billion by March 31, Heimbigner said. He said the bank's business strategy is to reduce assets again to $900 million by June 30 and to $800 million by year's end.
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