Frontier taps $7.3 million in bailout money
January 30, 2009
Frontier Bank in December received $7.3 million in bailout money from the Treasury Department, a bank executive acknowledged this week, an infusion of taxpayer money that better positions the locally based institution to continue lending and, potentially, expand its reach.
The bank applied for and received the maximum amount it was eligible for from the Troubled Asset Relief Program, or TARP, according to Marc Estabrook, the president and chief operating officer of Frontier. The federal government created the program last fall in response to the faltering financial industry.
Estabrook said the Treasury Department essentially purchased what amount to preferred shares in Frontier’s holding company as part of the deal. The federal government will be repaid through dividends from its investment, he said, adding that boosting Frontier’s ability to continue loaning also benefits Washington. Frontier could buy back the shares later.
He said Frontier was not in financial trouble when executives pursued the money. He said there was "a lot of debate" within the bank prior to seeking the bailout money, but Frontier wanted to remain competitive with other banks that sought funds. There was little interest in requesting money during the early talks at the bank, he said.
"It was not a matter of taking it out of necessity," Estabrook said.
The bank is able to increase its lending capacity with the money, including through providing mortgages. It also strengthens Frontier’s balance sheet should it pursue a merger with another bank or an acquisition of another one. He said there are no deals imminent, however.
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Estabrook said none of the money from Washington will be used to pay salaries or bonuses, labeling that sort of strategy "outrageous behavior."
He does not expect Frontier will request additional bailout money. He said bank customers likely will not notice the infusion of money.
Before receiving the federal assistance, Estabrook said, the net worth of the bank’s holding company was approximately $20 million. The $7.3 million addition increases the net worth by approximately 36.5 percent. The Frontier money went to Western Community Bancshares, Inc., the Palm Desert, Calif., holding company, on Dec. 23.
Frontier is a privately held bank with two locations in Utah and three in Southern California. The Park City location is on Short Line Road, and it serves approximately 1,000 customers.
According to the Federal Deposit Insurance Corp., on Sept. 30, 2008, the most recent figure available, Frontier had approximately $323.4 million in total assets, up just less than 11 percent from the same date the year before.
The FDIC reported Frontier had 76 employees on Sept. 30, down slightly from the 81 at the same time the year before. Approximately 18 of them work in Park City, Estabrook said.
The bank opened in Park City in 1998.