Frontier Financial Corp. in Everett, Wash., said Tuesday that regulators had ordered its bank unit to boost its capital.
Under a cease-and-desist order with the Federal Deposit Insurance Corp. and the Washington State Department of Financial Institutions, the $4.1 billion-asset Frontier Bank also agreed to strengthen its management, change its lending policies, increase board oversight and improve the loan portfolio.
The company said it has been working with an investment adviser to identify new sources of capital. "Frontier, like many banks that concentrated on residential construction and development lending, has been heavily impacted by the sharp downturn in the economy and the Northwest housing market," it said in a press release.
Frontier Bank agreed to raise its leverage ratio to 10%. At the end of December the ratio was 8.53%, which is above the typical regulatory minimum for being considered well capitalized. The order did not specify a deadline for raising the ratio, the company said.
In January, Frontier Financial posted a fourth-quarter loss of $89.5 million, compared with a profit of $18 million a year earlier, and suspended its dividend to preserve capital. The loss was attributed largely to a $77 million goodwill impairment charge and a $44.4 million loan-loss provision for the construction and development portfolio.
The nonperforming asset rate more than doubled from the third quarter and rose more than twentyfold from a year earlier, to 9.64%.
In December the company announced a shake-up of its management team and said it would diversify its loan portfolio away from construction and development. Pat Fahey, a director, became the chairman and chief executive of the holding company and the chairman of the bank.