The Turnaround Artist

After a long and successful career in banking, Pat Fahey is taking on his most vexing challenge: bringing Frontier Bank back from the brink.

Few would fault Pat Fahey if, at age 67 and with a
noteworthy career in Washington banking already on his resume, he chose to sit
out the industrys ugliest financial mess in decades.

Instead, though, Fahey has taken on what may be the toughest
assignment in his banking lifegetting Everett-based Frontier Financial Corp.,
the parent company of Frontier Bank, through the downturn.

Frontier is, in the words of McAdams Wright Ragen banking
analyst Sara Hasan, in a precarious spot. Frontier lost $33.8 million in this
years first quarter. Non-performing loans jumped to more than 16 percent of
total assets, compared with less than 1 percent a year ago. The stock, which as
recently as late 2007 traded above $30 a share, fell below $2 a share Jan. 30
and has only rarely nudged above it, and not for long. The dividend is gone.
And federal and state regulators have slapped Frontier with a cease-and-desist
order requiring the bank to come up with a plan for returning to profitability.

Its the toughest thing Ive ever been involved
incertainly not the way I intended to have the final act in my career play
out, Fahey says. But were going to give it a heck of a go, and were making
progress.

So why is he doing it? As a banker, Pat has always been a
builder of banks and businesses, says Phyllis Campbell, who worked with Fahey
when both were with Spokane-based Old National Bank. (Campbell later became
president of US Bank in Washington and now has her own challenging assignment,
running the Northwest regional office of JPMorgan Chase, the new owner of
Washington Mutual.)

Hes doing it because he really believes in the greater
good, Campbell adds. He believes if he can pull what was a good institution
through to the other side; he probably owes it to the community to do it.

Faheys also doing it because he was asked. After leaving
Old National and its successor, US Bank, he started Pacific Northwest Bank in
Seattle, building it into a $3-billion institution before selling it to Wells
Fargo in 2003. He joined Frontiers board in 2006and almost immediately began
voicing concern about how the banks balance sheet was structured.

Frontier had built itself into a regional bank with more
than $4 billion in assets and 51 branches, largely on the strength of
residential real estate construction and development lending. In late 2007,
Bank Director magazine called Frontier the best performing among the nations
150 largest banks in the United States.

That model had actually worked very well for the company
since its inception more than 30 years ago, Fahey says. There werent signs of
a downturn looming, but if past is prologue, you could assume that at some
point theres going to be a downturn. While Frontier had made it through
earlier real estate slumps in decent shape, it just seemed prudent in my mind
to begin shifting the banks orientation.

As it turned out, the current slump not only hit more
deeplyNo ones seen one like this, Fahey saysbut also more quickly than
Frontier could get out of its way. With Frontiers financial results unraveling
and regulators unhappy, the board asked Fahey to take over.

It was nothing I was seeking to do, he notes, believe me
it wasnt.

But its his job now. Since being named chairman and chief
executive of Frontier in December, Frontier and Fahey have been cutting
expenses, trying to reduce problem real estate loans while building a book of
business lending to help diversify the portfolio and looking for additional
capital.

We must, must change the business model of this bank,
Fahey explains. Its going to take some fairly radical changes in the
organization and the structure and policies and the way we do things. Its
change or else.

An important element of Faheys job is to keep communicating
with customers, employees and shareholders. Hell get the facts out on the
table, Campbell says. He doesnt shirk from challenges and he doesnt shirk
from full disclosure and hitting things head-on. I do think that personality
trait will serve him well.

Faheys track record as a banker, including previous
turnaround situations, may provide some reassurance to crucial audiences. Says
Hasan, Hes very well respected, not only by bankers but by the regulatory
bodies.

Still, she adds, Frontiers situation is going to be kind
of a nail biter. Notes Campbell, I wish him well but I worry that this is the
kind of assignment that even a walk-on-water individual, which he is, is going
to have a tough time navigating….

But if anyone can do it, Pats going to be the one to pull
it off.

Fahey says he feels up to the challenge,
however long it takes. I told the board I would stick with this until Id done what I could to right the
ship. Its not going to be overnight.