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

 

    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).

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

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).

 

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.

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.

 

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.).

(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).

 

 

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.

 

 

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.

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

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