EVERETT — Former executives of defunct Frontier Bank agreed to pay $1 million to settle a professional liability lawsuit brought by the Federal Deposit Insurance Corp.
The settlement also calls for their insurer to pay another $9 million.
An FDIC spokesman said in an email that the settlement was finalized Feb. 1 and all money has been paid to the FDIC.
Juli Farris, the Seattle lawyer representing seven of the 12 defendants, declined to comment on the settlement. An attorney representing the others did not return phone calls.
Frontier Bank was headquartered in Everett and had 47 branches in Washington and Oregon. The bank was one of several local community banks that failed after lending too much to real estate developers during the recession.
The state Department of Financial Institutions closed the bank April 30, 2010. Its assets were seized by the FDIC and sold to Union Bank of San Francisco.
In 2013, the FDIC filed a lawsuit in U.S. District Court in Seattle seeking $46 million in damages, alleging that 12 former officers and directors of Frontier Bank breached fiduciary duties and were negligent in issuing 11 poorly vetted real estate loans in 2007 and 2008.
The lawsuit said Frontier was the biggest commercial bank headquartered in Western Washington at the time of its failure, with $3.6 billion in assets and $3.1 billion in deposits.
The FDIC alleged that the bad loans led the bank to become critically undercapitalized.
The executives named in the lawsuit included Frontier Financial Corp. founder and longtime executive Robert J. Dickson, of Everett, who was chairman of the board at the time the 11 loans were made. Also named were Dickson’s son, John J. Dickson, also of Everett, who was at times chief executive officer and president.
Other Frontier Bank defendants were former executives Michael J. Clementz, of Indianola; Randy E. Deklyen, of Bothell; David A. Dorsey, of Everett; James W. Ries, of Everett; Robert W. Robinson, of Bainbridge Island; and Lyle E. Ryan, of Everett.
Also named were former members of the board Lucille M. DeYoung, of Woodinville; William H. Lucas, of Everett; Darrell J. Storkson, of Mukilteo; and Mark O. Zenger, of Edmonds.
Frontier had adopted an aggressive growth plan that focused on what is known as ADC lending — loans for acquisition of property, development and construction. From 2005 to 2007, Frontier’s real estate loans increased by more than 58 percent — by $1.2 billion, according to the lawsuit.
The bank pursued this strategy despite recognition and discussion by board members and executives of an increasingly precarious housing market and limited capital for lending.
In 2007 and 2008, the FDIC alleged, the bank issued 11 multimillion-dollar loans to various borrowers who later defaulted, including a $22 million loan to a borrower whose liabilities to Frontier would then exceed $53.8 million.
Another loan involved a complicated $5.5 million deal to support development of Streamline Tower in Las Vegas, a later-troubled 21-story luxury condominium project.
In the settlement, the defendants said that it is in their best interest to enter the agreement to “avoid the uncertainty and expense of further litigation.”
“The settling defendants expressly deny each and every claim made against them, individually and collectively, but enter into this agreement solely for the purpose of resolving the disputed claims, without the necessity of further litigation and expense, and without admission of liability,” according to the settlement agreement.
The professional liability lawsuit was scheduled for trial this spring, but the settlement terms were reached in October.
Last year, the FDIC reached a roughly $6.4 million settlement with two executives with City Bank of Lynnwood, founder and Chief Executive Officer Conrad D. Hanson, of Clyde Hill; and a senior vice president who oversaw construction loans, Christopher B. Sheehan, of Lake Forest Park.
The City Bank settlement called for the full amount to be paid by the bank’s insurer.
Jim Davis: jdavis@heraldnet.com; 425-339-3097.
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