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UNITED STATES OF AMERICA
 
BEFORE THE
 
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
 
WASHINGTON, D.C.
 

     
 
 
Written Agreement by and between
 
FRONTIER FINANCIAL CORPORATION
Everett, Washington
 
and
 
FEDERAL RESERVE BANK OF
 SAN FRANCISCO
San Franciso, California
 
 
 
 
 
 
 
 
 
 
 
 
Docket No. 09-073-WA/RB-HC
     

 
    WHEREAS, Frontier Financial Corporation, Everett, Washington (“FFC”), a
registered bank holding company, owns and controls Frontier Bank, Everett,
Washington (the “Bank”), a state chartered nonmember bank, and various nonbank
subsidiaries;
 
    WHEREAS, it is the common goal of FFC and the Federal Reserve Bank of San
Francisco (the “Reserve Bank”) to maintain the financial soundness of FFC so
that FFC may serve as a source of strength to the Bank;
 
    WHEREAS, FFC and the Reserve Bank have mutually agreed to enter into this
Written Agreement (the “Agreement”); and
 
    WHEREAS, on June 24, 2009, the board of directors of FFC, at a duly
constituted meeting, adopted a resolution authorizing and directing Patrick M.
Fahey to enter into this Agreement on behalf of FFC and consenting to compliance
with each and every provision of this Agreement by FFC and its
institution-affiliated parties, as defined in sections 3(u) and 8(b)(3) of the
Federal Deposit Insurance Act, as amended (the “FDI Act”) (12 U.S.C. §§ 1813(U)
AND 1818(B)(3).

 
 

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NOW, THEREFORE, FFC and the Reserve Bank agree as follows:

Dividends and Distributions

1.            (a)           FFC shall not declare or pay any dividends without
the prior written approval of the Reserve Bank and the Director of the Division
of Banking Supervision and Regulation (the “Director”) of the Board of Governors
of the Federal Reserve system (the “Board of Governors”).
 
(b)           FFC shall not directly or indirectly take dividends or any other
form of payment representing a reduction in capital from the Bank without the
prior written approval of the Reserve Bank.
 
(c)           FFC and its nonbank subsidiaries shall not make any distributions
of interest, principal, or other sums on subordinated debentures or trust
preferred securities without the prior written approval of the Reserve Bank and
the Director.

(d)           All requests for prior approval shall be received by the Reserve
Bank at least 30 days prior to the proposed dividend declaration date, proposed
distribution on subordinated debentures, and required notice of deferral on
trust preferred securities.  All requests shall contain, at minimum, current and
projected information on FFC’s capital, earnings, and cash flow; the Bank’s
capital, asset quality, earnings, and allowance for loan and lease losses; and
identification of the sources of funds for the proposed payment or
distribution.  For requests to declare or pay dividends, FFC must also
demonstrate that the requested declaration or payment of dividends is consistent
with the Board of Governors’ Policy Statement on the Payment of Cash Dividends
by State Member Banks and Bank Holding Companies, dated November 14, 1985
(Federal Reserve Regulatory Service, 4-877 at page 4-323).

Debt and Stock Redemption
 
2.            (a)           FFC, and any nonbank subsidiary, shall not, directly
or indirectly, incur, increase, or guarantee any debt without the prior written
approval of the Reserve Bank.  All requests for prior written approval shall
contain, but not be limited to, a statement regarding the purpose of the debt,
the terms of the debt, and the planned source(s) for debt repayment, and an
analysis of the cash flow resources available to meet such debt repayment.
 
(b)           FFC shall not, directly or indirectly, purchase or redeem any
shares of its stock without the prior written approval of the Reserve Bank.

 
 

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Capital Plan

3.           Within 60 days of this Agreement, FFC shall submit to the Reserve
Bank an acceptable written plan to maintain sufficient capital at FFC, on a
consolidated basis, and at the Bank, as a separate legal entity on a stand-alone
basis.  The plan shall, at a minimum, address, consider, and include:
 
(a)           The consolidate organization’s and the Bank’s current and future
capital requirements, including compliance with the Capital Adequacy Guidelines
for Bank Holding Companies: Risk-Based Measure and Tier 1 Leverage Measure,
Appendices A and D of Regulation Y of the Board of Governors (12 C.F.R. Part
225, app. A and D) and the applicable capital adequacy guidelines for the Bank
issued by the Bank’s federal regulator;
 
(b)           the adequacy of the Bank’s capital, taking into account the volume
of classified credits, concentrations of credit, allowance for loan and lease
losses, current and projected asset growth, and projected retained earnings;
 
(c)           the source and timing of additional funds necessary to fulfill the
consolidated organization’s and the Bank’s future capital requirements;
 
(d)           supervisory requests for additional capital at the Bank or the
requirements of any supervisory action imposed on the Bank by its federal
regulator; and
 
(e)           the requirements of section 225.4(a) of Regulation Y of the Board
of Governors (12 C.F.R. § 225.4(a) that FFC serve as a source of strength to the
Bank

4.           FFC shall notify the Reserve Bank, in writing, no more than 30 days
after the end of any quarter in which any of FFC’s or the Bank’s capital ratios
(total risk-based, Tier 1 risk-based, or leverage) fall below the plan’s minimum
ratios. Together with the notification, FFC shall submit an acceptable written
plan that details the steps that FFC and the Bank will take to increase FFC’s or
the Bank’s capital ratios to or above the plan’s minimums.

Compliance with Laws and Regulations
 
5.            (a)           In appointing any new director or senior executive
officer, or changing the responsibilities of any senior executive officer so
that the officer would assume a different senior executive officer position, FFC
shall comply with the notice provisions of section 32 of the FDI Act (12 U.S.C.
§ 183li) and Subpart H of Regulation Y of the Board of Governors
(12 C.F.R. §§ 225.71 et seq.).

 
 

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(b)           FFC shall comply with the restrictions on indemnification and
severance payments of section 18(k) of the FDI Act (12 U.S.C. § 1828(k) and Part
359 of the Federal Deposit Insurance Corporation’s regulations (12 C.F.R. Part
359).
 
Progress Reports
 
6.           Within 30 days after the end of each calendar quarter following the
date of this Agreement, the board of directors shall submit to the Reserve Bank
written progress reports detailing the form and manner of all actions taken to
secure compliance with the provisions of this Agreement and the results thereof,
and a parent company only balance sheet, income statement, and as applicable,
report of changes in stockholders’ equity.
 
Approval and Implementation of Plan
 
7.            (a)           FFC shall submit a written capital plan that is
acceptable to the Reserve Bank within the applicable time period set forth in
paragraph 3 of this Agreement.

(b)           With 10 days of approval by the Reserve Bank, FFC shall adopt the
approved capital plan.  Upon adoption, FFC shall promptly implement the approved
plan, and thereafter fully comply with it.

(c)           During the term of this Agreement, the approved capital plan shall
not be amended or rescinded without the prior written approval of the Reserve
Bank.

Communications

8.           All communications regarding this Agreement shall be sent to:

(a)           Mr. Kevin Zerbe
Vice President
Banking Supervision & Regulation
Federal Reserve Bank of San Francisco
101 Market Street, Mail Stop 920
San Francisco, California 94105

(b)           Mr. Patrick M. Fahey
Chairman of the Board and Chief Executive Officer
Frontier Financial Corporation
332 Southwest Everett Mall Way
Everett, Washington 98204

 
 

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Miscellaneous

9.           Notwithstanding any provision of this Agreement, the Reserve Bank
may, in its sole discretion, grant written extensions of time to FFC to comply
with any provision of this Agreement.

10.           The provisions of this Agreement shall be binding upon FFC and its
institution-affiliated parties, in their capacities as such, and their
successors and assigns.

11.           Each provision of this Agreement shall remain effective and
enforceable until stayed. Modified, terminated, or suspended in writing by the
Reserve Bank.

12.           The provisions of this Agreement shall not bar, estop, or
otherwise prevent the Board of Governors, the Reserve Bank, or any other federal
or state agency from taking any other action affecting FFC, the Bank, any
nonbank subsidiary of FFC, or any of their current or former
institution-affiliated parties and their successors and assigns.

13.           Pursuant to section 50 of the FDI Act (12 U.S.C. § 1831aa), this
Agreement is enforceable by the Board of Governors under section 8 of the FDI
Act (12 U.S.C. § 1818).

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the 2nd day of July, 2009.
 
 

 FRONTIER FINANCIAL CORPORATION    FEDERAL RESERVE BANK       OF SAN FRANCISCO  
     By: /s/ Patrick M. Fahey    By: /s/ Kevin M. Zerbe               Patrick M.
Fahey                      Kevin M. Zerbe               Chairman & CEO  
              Vice President

 
 
 
 

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