Published December 2001

Frontier Bank faces largest loan loss in its history,
CEO says

By Bryan Corliss
Herald Economy Writer

A major Frontier Bank customer has defaulted on a loan that will cost the Everett-based bank between $4 million and $7 million, Frontier’s parent company warned investors in November.

It is the largest loan loss in the bank’s 23-year history, President and Chief Executive Officer Bob Dickson said.

Dickson described it as “a major disappointment,” but added that the bank has reserves to cover the loss and is increasing its loan loss reserve.

The customer in default was not identified. Dickson described it as a company that rents heavy equipment to contractors.

According to Dickson, some irregularities with the account prompted bank officers to look into it further. “The more we dug, the more we found things we really didn’t want to find had happened.”

Some of the collateral the borrower had put up as security, he said, was either missing or fraudulently pledged, meaning the borrower listed it among assets as something owned free-and-clear, when in fact, the borrower still was making payments.

At that point, Frontier moved to start repossessing the collateral, he said.

It’s too early to tell whether the bank will take the borrower to court, Dickson said.

And it’s still not clear how big a loss it will be.

“We really haven’t got our arms around it,” Dickson said. “We’re still in the process of trying to locate equipment and repossess equipment.”

The default appears to be an isolated incident and doesn’t reflect on the quality of the rest of Frontier’s loan portfolio, he said. However, it’s an embarrassment and a blow to the bank’s image, he added.

Even with the loss, the bank will show a profit around $25 million for the year, which is good, but “not as good as it would have been,” Dickson said.

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