OAK HARBOR, Wash., Oct. 28, 2010 (GLOBE NEWSWIRE) -- Washington Banking Company (Nasdaq:WBCO), the holding company for Whidbey Island Bank, today reported its core banking business generated strong operating profits in the first nine months of 2010 augmented by two FDIC-assisted acquisitions, which contributed $17.5 million in pretax gains to third quarter earnings and $1.8 million to second quarter earnings. Before preferred dividends, net income grew to $13.7 million, compared to $4.6 million in the second quarter and $1.7 million for the third quarter a year ago. Net income available to common shareholders was $13.3 million or $0.86 per diluted common share in the third quarter, compared to $4.2 million, or $0.27 per diluted common share, in the second quarter, and $1.3 million, or $0.13 per diluted common share, in the third quarter a year ago.

Year-to-date, Washington Banking earned $20.3 million, compared to $4.5 million for the same period last year. For the first nine months of 2010, net income available to common shareholders, after preferred dividend payments increased to $19.0 million, or $1.23 per diluted common share, compared to $3.3 million, or $0.35 per diluted common share, for the first nine months of 2009.

"Our FDIC-assisted acquisition of North County Bank, which closed on September 24, produced a significant bargain purchase gain in the third quarter, but more importantly it is a solid geographical and cultural addition to our franchise," said Jack Wagner, President and Chief Executive Officer. "We are also pleased with the contributions that the second quarter acquisition of CityBank brought to the franchise and believe both transactions will be successful on strategic and operational levels. In addition, our core franchise continues to be profitable and healthy. With all the accounting 'noise' from the acquisitions, we have included certain non-GAAP presentations that illustrate the earnings power of our franchise, which we hope will be useful to investors."

The core operating earnings available to common shareholders, which exclude merger related costs and the bargain purchase gain on the FDIC-assisted transactions, totaled $2.5 million, or $0.16 per diluted common share, in the third quarter, compared to $3.3 million, or $0.22 per diluted common share, in the second quarter, and $1.3 million, or $0.13 per diluted common share in the third quarter a year ago. Year-to-date, core operations generated profits of $7.40 million, or $0.48 per diluted common share, up 130% from $3.3 million, or $0.35 per diluted common share in the first nine months of 2009. Core operating earnings and core operating earnings per share are non-GAAP financial measures; please refer to the GAAP reconciliation table in this release.

Third Quarter 2010 Financial Highlights (September 30, 2010 compared to September 30, 2009)
  • Capital ratios exceeded all regulatory requirements for well-capitalized institutions, with Total Risk Based Capital to risk-adjusted assets of 18.63% compared to 16.39%.
  • Tangible book value per common share increased to $9.90 compared to $8.87.
  • Deposits, excluding those acquired in both acquisitions, increased 7% year over year to $870 million. Deposits totaled $1.6 billion including the $741 million of total acquired deposits.
  • Low cost demand, money market, savings and NOW accounts totaled $806 million and account for half of total deposits.
  • Loans, excluding acquired assets, were $837 million, up $20.7 million from a year ago.
  • Asset quality, while declining in the quarter, continues to be above average, with the nonperforming non-covered assets (NPAs) at 1.40% of total assets.
  • The provision for loan losses was $4.0 million in the third quarter, an increase from the $2.6 million booked in the linked quarter and the $2.5 million provision in the third quarter a year ago.
  • Loan loss reserves increased to 2.14% of loans, from 1.95% a year ago.
  • A cash dividend of $0.05 per share will be paid November 24 to shareholders of record November 8.

Acquisition Update

Whidbey Island Bank completed its second FDIC-assisted acquisition this year with the four branch locations and substantially all of the assets and all non-brokered deposits of North County Bank, located in Arlington, Washington, on September 24, 2010. This follows the April 16 th acquisition of the eight branch locations, 60% of the assets and substantially all of the non-brokered deposits of CityBank, located in Lynnwood, Washington.  Following the acquisitions, the company filed Forms 8-K outlining the details of these transactions. "We encourage investors to carefully review the detailed disclosure for these transactions in our Forms 8-K which can be accessed by looking at the SEC Filings tab of our Investor Relations section on our website at www.wibank.com," said Rick Shields, Chief Financial Officer.

The North County Bank acquisition added four full-service locations in Snohomish County and, after fair value adjustments, assets of approximately $279 million; loans of approximately $133 million; deposits of approximately $258 million; cash and cash equivalents of approximately $67 million, and short term high quality securities of approximately $22 million. The protection from the FDIC for covered assets was 80% for losses on single-family loans below $6.6 million or above $12.3 million and 80% for losses on commercial loans below $33.8 million and above $47.8 million.  In addition, Washington Banking booked a bargain purchase gain of $17.5 million, core deposit intangible of $50,000 and an FDIC indemnification asset of $39 million for this transaction. 

After the fair value adjustments, the acquisition of CityBank brought $323.8 million in loans which are covered by a straight 80/20 loss sharing agreement with the FDIC. In addition, the company booked a bargain purchase gain of $1.8 million and an $84.1 million FDIC indemnification asset. 

The covered loans are shown as a separate line item of the balance sheet and are not included in the net loans totals. Covered loans are also not included in any of the reported credit quality metrics, as they are accounted for separately per generally accepted accounting principles (GAAP) requirements. Both indemnification asset and the covered loan portfolio will decline over time, as the loans mature, payoff, or are otherwise resolved.

The following table shows the acquired deposits in both the North County and CityBank transactions. "Immediately following the acquisition of both banks, we adjusted rates on deposit accounts to reflect current yields being paid at our other Whidbey branches," noted Wagner. "We anticipated that the repricing of certificates of deposits would result in some runoff of the deposit portfolio. Customers who chose not to accept the new rates on time deposits did not incur any prepayment penalties. As you can see with the City acquisition, we have substantially reduced the amount of time deposits, but have actually increased low-cost transaction deposits slightly.  We are very pleased with the deposit retention rate achieved by our new employees and believe that the cultural fit of both acquisitions are excellent for Whidbey Island Bank."
     
  North County Bank CityBank
($ in thousands)  September 30,  April 16,  September 30,  Period
  2010 2010 2010 Change
Acquired Deposit Composition      
       
 Noninterest-Bearing Demand  $ 13,927  $ 31,543  $ 43,234  $ 11,691
 NOW Accounts  18,116  2,765  25,708  22,943
 Money Market   30,282  96,331  62,391  (33,940)
 Savings  4,244  26,703  26,856  153
 Time Deposits  178,764  492,762  337,571  (155,191)
 Total Acquired Deposits  $ 245,333  $ 650,104  $ 495,760  $ (154,344)

North County Bank had 46 employees in September, and 39 of these banking professionals were offered positions with Whidbey Island Bank following the closing weekend.  "When we evaluate potential acquisitions we look at the entire organization, and the people and culture of these banks are as important as the tangible assets," Wagner noted. "While the transactions are immediately accretive to earnings, we recognize that we are going to have to expend a great deal of time and energy to integrate the organizations, to account for the FDIC guarantees, and to work out the problem assets. Our approach is long-term, strategic and pragmatic. The North County branches provide excellent 'in-fill' for our network footprint in the desirable Snohomish County market."

Credit Quality - Non-covered Loans

"We have cautioned in past quarters that our credit metrics in our non-covered loan portfolio could decline without improvement in the regional economy," said Joe Niemer, Chief Credit Officer.  "As the low-level of economic activity persists, we have continued to see deterioration in the loan portfolio.   We increased our nonperforming loans (NPLs) by $15.9 million, and most of these represent land development projects. It's important to add that these are loans that have been in our portfolio, and some of the projects are still current on their payments.  Nevertheless, because market conditions have continued to deteriorate and the sell out of these projects during the spring and summer did not meet expectations, they are now classified as nonperforming loans." As a result, nonperforming loans increased in the quarter by $15.9 million to $21.5 million, or 2.57% of loans, which brought nonperforming assets to $25.6 million, or 1.40% of total assets at September 30, 2010. Other real estate owned (OREO) declined to $4.1 million from $5.0 million at the end of both the preceding and year ago quarters.  NPLs are concentrated primarily in construction and development with most in the Skagit County market as shown in the following table: 
Non-covered Loans              
              Percent of total
NPA by County Location Island King Skagit Whatcom Other Total NPA by loan type 
($ in thousands)               
9/30/2010              
Commercial loans  $ 369  $ --   $ 2,201  $ --   $ 102  $ 2,672 10.43%
Real estate mortgages  1,090  2,109  1,363  884  --   5,446 21.26%
Real estate construction loans  5,483  --   6,944  825  --   13,252 51.74%
Consumer loans  148  --   --   --   --   148 0.58%
Other Real Estate Owned  434  --   1,075  2,586  --   4,095 15.99%
Total  $ 7,524  $ 2,109  $ 11,583  $ 4,295  $ 102  $ 25,613 100.00%
               
Percent of total NPA by location 29.38% 8.23% 45.22% 16.77% 0.40% 100.00%  
               

The provision for loan losses was $4.0 million, which exceeded net charge-offs by $1.0 million.  Net charge-offs in the third quarter were $3.0 million, or 1.42% of average loans annualized, compared to $2.0 million, or 0.99% of average loans the preceding quarter and $1.4 million, or 67 basis points of average loans for the third quarter a year ago.  Net charge-offs in the indirect lending portfolio were $184,000 in the third quarter, compared to $224,000 in the preceding quarter, and $449,000 in the third quarter a year ago.   The reserve for loan losses increased to 2.14% of total loans from 2.04% of loans at the end of June and 1.95% of loans a year ago.  

Balance Sheet

Total assets increased 91% to $1.83 billion at September 30, 2010, compared to $959.7 million a year ago. Total non-covered loans increased to $837.0 million from $832.7 million at the end of the second quarter of 2010 and $816.3 million at the end of the third quarter of 2009. The non-covered loan portfolio is well diversified with commercial and industrial loans making up 18% of total loans and residential mortgages accounting for 6% of the portfolio. Owner-occupied commercial real estate loans represent approximately 21% of the portfolio and non-owner occupied commercial real estate account for approximately 21% of loans. Indirect consumer loans account for 11% of the portfolio and other consumer loans account for 10%. Construction and land development loans for residential properties represent 8% of loans and commercial construction and land development loans represent 5% of the portfolio. 

Covered loans increased to $393.3 million and covered OREO totaled $27.3 million, and the FDIC indemnification asset increased to $124.7 million at September 30, 2010.

Total deposits grew 16% in the quarter and 98% year-over-year to $1.61 billion at September 30, 2010, compared to $1.38 billion at the end of June and $812 million a year ago. As a result of the acquisitions, noninterest-bearing demand deposits increased 79% year-over-year, now representing 12% of total deposits.  Year-over-year, money market accounts increased 115% and now comprise 21% of total deposits; time deposits increased 118% in the quarter to $805 million and accounted for 50% of total deposits.  Core deposits, excluding time deposits over $100,000 represent 79% of all deposits, up from 76% a year ago. "We continue to have no brokered certificates of deposits other than the CDARS (Certificate of Deposit Account Registry Service) program, which provides additional sources of insurance for local customers," said Shields.  "Because we only take CDARS from customers in our existing footprint, we consider them as part of our core deposit base."

Shareholders' equity increased 64% to $179.7 million compared to $109.6 million a year ago. The increase in shareholders' equity is primarily due to the $49.0 million secondary common stock offering completed in November 2009. Included in shareholders' equity is the $25.2 million from the preferred shares issued to the U.S. Treasury in January of 2009. As a result of the equity offering in November 2009, one half of the warrants issued with the preferred shares were cancelled. Retained earnings increased 39% to $67.2 million, bringing tangible book value per common share to $9.90 at September 30, 2010, compared to $8.87 a year ago. 

Operating Results

Revenue for the third quarter of 2010 was $37.8 million, compared to $21.2 million in the preceding quarter and $12.5 million a year ago. Net interest income, before the provision for loan losses, increased 4% to $16.7 million in the third quarter compared to $16.0 million in the linked quarter and grew 60% from $10.4 million in the third quarter a year ago. Interest income from covered loans contributed $5.5 million to 2010 third quarter revenues.

Noninterest income totaled $20.8 million in the third quarter, which included $17.5 million in the bargain purchase gain on acquisition and $812,000 related to the change in the FDIC indemnification asset. 

Washington Banking's net interest margin was 4.68% in the third quarter, an increase of one basis point from the preceding quarter, and down four basis points from the year ago quarter.  "Our margin has been stable over the past year reflecting strong yields on earning assets and lower cost of liabilities," Shields noted.

Third quarter noninterest expense increased 8% in the quarter and 74% year-over-year primarily due to additional expenses related to the two FDIC assisted acquisitions. The credit for OREO expenses in the third quarter is related to an adjustment of the prior quarter's OREO expenses recoverable from the FDIC. Operating expenses were $12.8 million in the third quarter compared to $11.9 million in the preceding quarter and $7.4 million in the third quarter of 2009.

Conference Call Information

Management will host a conference call on Friday, October 29 at 10:00 a.m. PDT (1:00 p.m. EDT) to discuss the quarterly and year-to-date financial results. The call will also be broadcast live via the internet.  Investment professionals and all current and prospective shareholders are invited to access the live call by dialing (480) 629-9722 at 10:00 a.m. PDT for conference ID #4365056. To listen to the call online, either live or archived, visit the Investor Relations page of Whidbey Island Bank's website at www.wibank.com. Shortly after the call concludes, the replay will also be available at (303) 590-3030, using access code #4365056, where it will be archived for ninety days.

ABOUT WASHINGTON BANKING COMPANY

Washington Banking Company is a bank holding company based in Oak Harbor, Washington, that operates Whidbey Island Bank, a state-chartered full-service commercial bank.  Founded in 1961, Whidbey Island Bank provides various deposit, loan and investment services to meet customers' financial needs.  Whidbey Island Bank operates 30 full-service branches located in six counties in Northwestern Washington. In June 2009, Washington Banking was added to the Russell 2000 Index, a subset of the Russell 3000 Index. Both indices are widely used by professional money managers as benchmarks for investment strategies.

www.wibank.com
           
CONSOLIDATED STATEMENTS OF INCOME (unaudited)          
($ in thousands, except per share data)          
  Quarter Ended September 30, 2010 Quarter Ended June 30, 2010 Three  Month Change Quarter Ended September 30, 2009 One Year Change
Interest Income          
Non-covered Loans  $ 13,536  $ 13,342 1%  $ 13,538 0%
Covered Loans 5,479 4,927 11%  --  NA
Taxable Investment Securities 699 507 38% 191 266%
Tax Exempt Securities 187 170 10% 130 43%
Other 99 95 5% 18 455%
Total Interest Income  20,000  19,041 5%  13,877 44%
Interest Expense          
Deposits  3,075  2,805 10% 3,201 -4%
Other Borrowings 59 93 -36% 94 -37%
Junior Subordinated Debentures  135 121 12% 139 -3%
Total Interest Expense  3,269  3,019 8%  3,434 -5%
Net Interest Income  16,731  16,022 4%  10,443 60%
Provision for Loan Losses  3,950  2,550 55% 2,500 58%
Net Interest Income after Provision for Loan Losses  12,781  13,472 -5%  7,943 61%
Noninterest Income          
Service Charges and Fees  907  856 6%  909 0%
Electronic Banking Income  511  447 14%  376 36%
Investment Products  120  178 -33%  38 218%
Bank Owned Life Insurance Income  61  98 -38%  106 -43%
Income from the Sale of Loans  352  204 73%  138 155%
SBA Premium Income  126  206 -39%  49 155%
Change in FDIC Indemnification Asset 812 785 3%  --  NA
Bargain Purchase Gain on Acquisition 17,511 1,757 897%  --  NA
Other Income  448  540 -17% 232 94%
Total Noninterest Income  20,848  5,071 311%  1,848 1028%
Noninterest Expense          
Compensation and Employee Benefits  6,615  6,528 1% 3,638 82%
Occupancy and Equipment  1,677  1,338 25% 1,099 53%
Office Supplies and Printing  299  311 -4% 198 51%
Data Processing  403  397 2% 141 186%
Consulting and Professional Fees  92  131 -30% 184 -50%
Intangible Amortization 234 191 23%  --  NA
Merger Related Expenses 978 676 45%  --  NA
FDIC Premiums  562  254 121% 283 98%
OREO & Repossession Expenses  (23)  471 NA 389 NA
Other  2,007  1,630 23% 1,446 39%
Total Noninterest Expense  12,844  11,927 8%  7,378 74%
Income Before Income Taxes  20,785  6,616 214%  2,413 761%
Provision for Income Taxes  7,085  2,049 246% 740 858%
Net Income  13,700  4,567 200%  1,673 719%
Preferred dividends  415  415 0%  414 0%
Net Income available to common shareholders  $ 13,285  $ 4,152 220%  $ 1,259 955%
Earnings per Common Share           
Net Income per Share, Basic  $ 0.87  $ 0.27 220%  $ 0.13 557%
Net Income per Share, Diluted  $ 0.86  $ 0.27 220%  $ 0.13 552%
Average Number of Common Shares Outstanding   15,309,000  15,305,000    9,532,000  
Fully Diluted Average Common and Equivalent Shares Outstanding   15,473,000  15,466,000    9,554,000  
CONSOLIDATED STATEMENTS OF INCOME (unaudited)        
($ in thousands, except per share data)   Nine Months Ended September 30, One Year 
    2010 2009 Change
Interest Income        
Non-covered Loans   39,962 39,782 0%
Covered Loans   10,406  --  NA
Taxable Investment Securities   1,620 468 246%
Tax Exempt Securities   514 292 76%
Other   231 28 725%
Total Interest Income    52,733  40,570 30%
         
Interest Expense        
Deposits   8,383 10,106 -17%
Other Borrowings   243 341 -29%
Junior Subordinated Debentures    374 543 -31%
Total Interest Expense    9,000  10,990 -18%
         
Net Interest Income    43,733  29,580 48%
Provision for Loan Losses   8,650 7,950 9%
Net Interest Income after Provision for Loan Losses    35,083  21,630 62%
         
Noninterest Income        
Service Charges and Fees    2,498 2,620 -5%
Electronic Banking Income    1,325 1,034 28%
Investment Products    348 368 -5%
Bank Owned Life Insurance Income    241 312 -23%
Income from the Sale of Loans    697 708 -2%
SBA Premium Income    378 83 358%
Change in FDIC Indemnification Asset   1,596  --  NA
Bargain Purchase Gain on Acquisition   19,268  --  NA
Other Income   1,310 800 64%
Total Noninterest Income    27,661  5,925 367%
         
Noninterest Expense        
Compensation and Employee Benefits   17,471 10,499 66%
Occupancy and Equipment   4,042 3,203 26%
Office Supplies and Printing   820 577 42%
Data Processing   1,011 418 142%
Consulting and Professional Fees   490 564 -13%
Intangible Amortization   425  --  NA
Merger Related Expenses   1,654  --  NA
FDIC Premiums   1,068 1,106 -3%
OREO & Repossession Expenses   641 982 -35%
Other   4,924 3,763 31%
Total Noninterest Expense    32,546  21,112 54%
         
Income Before Income Taxes    30,198  6,443 369%
Provision for Income Taxes   9,937 1,965 406%
Net Income    20,261  4,478 352%
Preferred dividends    1,244  1,185 5%
Net income available to common shareholders    $ 19,017  $ 3,293 477%
Earnings per Common Share        
Net Income per Share, Basic    $ 1.24  $ 0.35 259%
         
Net Income per Share, Diluted    $ 1.23  $ 0.35 257%
         
Average Number of Common Shares Outstanding     15,303,000  9,519,000  
Fully Diluted Average Common and Equivalent Shares Outstanding     15,452,000  9,541,000  
CONSOLIDATED BALANCE SHEETS (unaudited)          
($ in thousands except per share data) September 30, June 30, Three Month September 30, One Year
  2010 2010 Change 2009 Change
Assets              
Cash and Due from Banks      $ 24,572  $ 19,474 26%  $ 16,651 48%
Interest-Bearing Deposits with Banks     141,630 135,746 4% 180 NA
Fed Funds Sold  4,963  8,000 -38%  25,365 -80%
Total Cash and Cash Equivalents      171,165  163,220 5%  42,196 306%
Investment Securities Available for Sale     200,448 156,065 28% 56,204 257%
FHLB Stock     7,576 7,174 6% 2,430 212%
Loans Held for Sale     7,785 4,295 81% 2,951 164%
Loans Receivable     837,017 832,739 1% 816,316 3%
Less: Allowance for Loan Losses (17,936) (16,975) 6% (15,882) 13%
Non-covered Loans, Net       819,081  815,764 0%  800,434 2%
Covered Loans     393,347  288,055 37%  --  NA
Premises and Equipment, Net     37,462 25,676 46% 25,649 46%
Bank Owned Life Insurance     17,217 17,156 0% 17,134 0%
Other Intangible Assets, net     2,919  3,103 -6%  --  NA
Other Real Estate Owned     4,095 4,984 -18% 5,012 -18%
Covered Other Real Estate Owned     27,250  14,178 92%  --  NA
FDIC Indemnification Asset     124,709  84,897 47%  --  NA
Other Assets 17,130 16,775 2% 7,656 124%
Total Assets  $ 1,830,184  $ 1,601,342 14%  $ 959,666 91%
               
Liabilities and Shareholders' Equity              
Deposits:              
Noninterest-Bearing Demand      $ 187,009  $ 165,962 13%  $ 104,761 79%
NOW Accounts     194,370 164,859 18% 134,190 45%
Money Market      336,329 271,524 24% 156,582 115%
Savings     88,085 81,252 8% 47,172 87%
Time Deposits 805,471 700,142 15% 369,313 118%
Total Deposits      1,611,264  1,383,739 16%  812,018 98%
FHLB Overnight Borrowings      --   --  NA  --  NA
Other Borrowed Funds      --   10,000 NA  10,000 NA
Junior Subordinated Debentures     25,774 25,774 0% 25,774 0%
Other Liabilities 13,404 16,037 -16% 2,282 487%
Total Liabilities      1,650,442  1,435,550 15%  850,074 94%
Shareholders' Equity:              
Preferred Stock, no par value, 26,380 shares authorized Series A (Liquidation preference $1,000 per shares); issued and outstanding 26,380 at 9/30/10, 6/30/10 and 9/30/2009 25,249 25,164 0%  24,911 1%
               
Common Stock (no par value) Authorized 35,000,000 Shares: Issued and Outstanding 15,310,893 at 9/30/2010, 15,309,318 at 6/30/10 and 9,547,946 at 9/30/09 85,123 84,972 0% 35,753 138%
Retained Earnings     67,181 54,354 24% 48,381 39%
Other Comprehensive Income 2,189 1,302 68% 547 -300%
Total Shareholders' Equity  179,742  165,792 8%  109,592 64%
Total Liabilities and Shareholders' Equity  $ 1,830,184  $ 1,601,342 14%  $ 959,666 91%
FINANCIAL STATISTICS (unaudited) Quarter Ended   Quarter Ended Quarter Ended Nine Months Ended
($ in thousands, except per share data) September 30,   June 30, September 30, September 30,
  2010   2010 2009 2010 2009
Revenues (1) (2)      $ 37,814    $ 21,222  $ 12,462  $ 72,063  $ 35,969
                 
Averages                
Total Assets      $ 1,612,912    $ 1,533,530  $ 946,723  $ 1,394,675  $ 926,747
Non-covered Loans and Loans Held for Sale      842,709    829,226  821,375  830,919  825,871
Covered Loans      287,169    258,360  --  182,895  --
Interest Earning Assets      1,438,828    1,394,174  892,106  1,270,456  872,843
Deposits      1,393,329    1,322,384  799,179  1,185,059  774,518
Common Shareholders' Equity      $ 142,000    $ 137,995  $ 83,988  $ 138,139  $ 82,427
                 
Financial Ratios                
Return on Average Assets, Annualized     3.37%   1.12% 0.70% 1.94% 0.65%
Return on Average Common Equity, Annualized (3)     37.12%   12.08% 5.95% 18.41% 5.34%
Efficiency Ratio (2)      33.97%   55.87% 59.20% 45.16% 58.69%
Yield on Earning Assets (2)     5.58%   5.54% 6.25% 5.62% 6.29%
Cost of Interest Bearing Liabilities     1.04%   1.01% 1.87% 1.12% 2.05%
Net Interest Spread     4.54%   4.53% 4.38% 4.50% 4.24%
Net Interest Margin (2)     4.68%   4.67% 4.72% 4.67% 4.60%
                 
Tangible Book Value Per Share (4)       $ 9.90    $ 8.98  $ 8.87    
Tangible Common Equity (4)     8.30%   8.60% 8.82%    
                 
      September 30,   June 30, September 30, Regulatory Requirements
  2010   2010 2009 Adequately- capitalized Well- capitalized
Period End                
Total Risk-Based Capital Ratio - Consolidated      18.63%  (5)  20.47% 16.39% 8.00% N/A
Tier 1 Risk-Based Capital Ratio - Consolidated      17.40%  (5)  19.21% 15.14% 4.00% N/A
Tier 1 Leverage Ratio - Consolidated  12.38%  (5)  11.38% 14.16% 4.00% N/A
Total Risk-Based Capital Ratio - Whidbey Island Bank      18.61%  (5)  20.05% 16.26% 8.00% 10.00%
Tier 1 Risk-Based Capital Ratio - Whidbey Island Bank      17.35%  (5)  18.79% 15.00% 4.00% 6.00%
Tier 1 Leverage Ratio - Whidbey Island Bank  12.20%  (5)  11.13% 14.04% 4.00% 5.00%
                 
(1) Revenues is the fully tax-equivalent net interest income before provision for loan losses plus noninterest income.
(2) Fully tax-equivalent is a non-GAAP performance measurement that management believes provides investors with a more accurate picture of the net interest margin, revenues and efficiency ratio for comparative purposes. The calculation involves grossing up interest income on tax-exempt loans and investments by an amount that makes it comparable to taxable income.
(3) Return on average common equity is adjusted for preferred stock dividends.
(4) Please see the reconciliations of shareholders' equity to tangible common equity and total assets to tangible assets, and the related measures that appear elsewhere in this release.
(5) Capital ratios for the most recent period are an estimate pending filing of the Company's regulatory reports.
ASSET QUALITY (unaudited) Quarter Ended Quarter Ended Quarter Ended Nine Months Ended
($ in thousands, except per share data) September 30, June 30, September 30, September 30,
  2010 2010 2009 2010 2009
Allowance for Loan Losses Activity:              
Balance at Beginning of Period      $ 16,975  $ 16,464  $ 14,770  $ 16,212  $ 12,250
Indirect Loans:              
Charge-offs      (352)  (393)  (650)  (1,150)  (1,781)
Recoveries  168  169  201  554  660
Indirect Net Charge-offs      (184)  (224)  (449)  (596)  (1,121)
               
Other Loans:              
Charge-offs      (2,863)  (1,926)  (1,540)  (6,703)  (4,180)
Recoveries  58  111  601  373  983
Other Net Charge-offs      (2,805)  (1,815)  (939)  (6,330)  (3,197)
               
Total Net Charge-offs      (2,989)  (2,039)  (1,388)  (6,926)  (4,318)
Provision for loan losses  3,950  2,550  2,500  8,650  7,950
Balance at End of Period  $ 17,936  $ 16,975  $ 15,882  $ 17,936  $ 15,882
               
Net Charge-offs to Average Loans:              
Indirect Loans Net Charge-offs, to Avg Indirect Loans, Annualized (1)     0.74% 0.91% 1.69% 0.77% 1.41%
Other Loans Net Charge-offs, to Avg Other Loans, Annualized  (1)     1.51% 1.00% 0.52% 1.17% 0.60%
Net Charge-offs to Average Total Loans (1)      1.42% 0.99% 0.67% 1.12% 0.70%
           
  September 30, 2010 June 30, 2010 September 30, 2009    
Nonperforming Non-covered Assets              
Nonperforming Loans (2)      $ 21,518  $ 5,581  $ 3,179    
Other Real Estate Owned  4,095  4,984  5,012    
Total Nonperforming Assets  $ 25,613  $ 10,565  $ 8,191    
Nonperforming Non-covered Loans to Loans (1)     2.57% 0.67% 0.39%    
Nonperforming Non-covered Assets to Assets     1.40% 0.66% 0.85%    
Allowance for Loan Losses to Nonperforming Non-covered Loans     83.35% 304.18% 499.60%    
Allowance for Loan Losses to Non-covered Loans      2.14% 2.04% 1.95%    
               
Non-covered Loan Composition              
Commercial     146,997  $ 139,780  $ 90,919    
Real Estate Mortgages              
One-to-Four Family Residential       47,723  48,135  55,914    
Commercial      351,560  350,837  354,449    
Real Estate Construction              
One-to-Four Family Residential       69,341  70,020  73,409    
Commercial      38,943  39,941  38,226    
 Consumer              
Indirect       93,356  93,663  105,358    
Direct      86,844  88,083  95,449    
Deferred Fees  2,253  2,280  2,592    
Total Non-covered Loans  $ 837,017  $ 832,739  $ 816,316    
               
Time Deposit Composition              
Time Deposits $100,000 and more      321,224  270,420  157,071    
All other time deposits      466,904  409,249  175,299    
 Brokered Deposits              
CDARS (Certificate of Deposit Account Registry Service)      17,343  20,473  29,443    
Non-CDARS  --   --   7,500    
Total Time Deposits  $ 805,471  $ 700,142  $ 369,313    
               
(1)  Excludes Loans Held for Sale.    
(2)  Nonperforming loans includes nonaccrual loans plus accruing loans 90 or more days past due.    

Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP) this press release presents certain non-GAAP financial measures. Management believes that certain non-GAAP financial measures provide investors with information useful in understanding the Company's financial performance; however, readers of this report are urged to review these non-GAAP measures in conjunction with the GAAP results as reported.

Operating earnings are not a measure of performance calculated in accordance with GAAP. However, management believes that operating earnings are an important indication of our ability to generate earnings through the Company's fundamental banking business. Since operating earnings exclude the effects of certain items that are unusual and/or difficult to predict, management believes that operating earnings provide useful supplemental information to both management and investors in evaluating the Company's financial results.

Operating earnings should not be considered in isolation or as a substitute for net income. cash flows from operating activities, or other income or cash flow statement data calculated in accordance with GAAP. Moreover, the manner in which the Company calculates operating earnings may differ from that of other companies reporting measures with similar names.

The following table provides the reconciliation of the Company's GAAP earnings to operating earnings (non-GAAP) for the periods presented:
      Quarter Ended Nine Months Ended 
      September 30, June 30, September 30,  September 30,
  2010 2010 2009 2010 2009
               
GAAP Earnings Available to Common Shareholders      $ 13,285  $ 4,152  $ 1,259  $ 19,017  $ 3,293
Provision for Income Taxes      7,085  2,049  740  9,937  1,965
GAAP Earnings Available to Common Shareholders before Provision for Income Taxes    20,370  6,201  1,999  28,954  5,258
Adjustments to GAAP Earnings Available to Common Shareholders              
Gain on Acqusitions     (17,511)  (1,757)  --  (19,268)  -- 
Acquisition-Related Costs  978  676  --   1,654  -- 
Operating Earnings Before Taxes      3,837  5,120  1,999  11,340  5,258
Provision for Income Taxes  (1,343)  (1,792)  (740)  (3,969)  (1,965)
Net Operating Earnings  $ 2,494  $ 3,328  $ 1,259  $ 7,371  $ 3,293
               
Diluted GAAP Earnings per Common Share      $ 0.86  $ 0.27  $ 0.13  $ 1.23  $ 0.35
Diluted Operating Earnings per Common Share      $ 0.16  $ 0.22  $ 0.13  $ 0.48  $ 0.35

Tangible common equity, tangible assets and tangible book value per common share are not measures that are calculated in accordance with GAAP. However, management uses these non-GAAP measures in their analysis of the Company's performance. Management believes that these non-GAAP measures are an important indication of the Company's ability to grow both organically and through business combinations, and, with respect to tangible common equity, the Company's ability to pay dividends and to engage in various capital management strategies.

Neither tangible common equity, tangible assets and tangible book value per common share should be considered in isolation or as a substitute for common shareholders' equity or book value per common share or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Company calculates tangible common equity, tangible assets and tangible book value per share may differ from that of other companies reporting measures with similar names.

The following table provides the reconciliation of the Company's shareholders' equity (GAAP) to tangible common equity (non-GAAP) and total assets (GAAP) to tangible assets (non-GAAP) for the periods presented:
      September 30, June 30, September 30,
($ in thousands, except per share data) 2010 2010 2009
           
Total Shareholders' Equity      $ 179,742  $ 165,792  $ 109,592
Adjustments to Shareholders' Equity          
Preferred Stock     (25,249) (25,164) (24,911)
Other Intangible Assets, net (1) (2,919) (3,103)  -- 
Tangible Common Equity      151,574  137,525  84,681
           
Total Assets      $ 1,830,184  $ 1,601,342  $ 959,666
Adjustments to Total Assets          
Other Intangible Assets, net (1) (2,919) (3,103)  -- 
Tangible Assets      1,827,265  1,598,239  959,666
           
Common Shares Outstanding at Period End      15,310,893  15,309,318  9,547,946
           
Tangible Common Equity     8.30% 8.60% 8.82%
Tangible Book Value per Common Share      $ 9.90  $ 8.98  $ 8.87
           
(1) Other intangible assets, net excludes mortgage servicing rights          

This news release may contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements describe management's expectations regarding future events and developments such as the transition of North County Bank operations, employees and customers,  future operating results, availability of acquisition opportunities, growth in loans and deposits, credit quality and loan losses, and continued success of the Company's business plan. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. The words "anticipate," "expect," "will," "believe," and words of similar meaning are intended, in part, to help identify forward-looking statements. Future events are difficult to predict, and the expectations described above are subject to risk and uncertainty that may cause actual results to differ materially. In addition to discussions about risks and uncertainties set forth from time to time in the Company's filings with the Securities and Exchange Commission, factors that may cause actual results to differ materially from those contemplated in these forward-looking statements include, among others: (1) local and national general and economic condition; (2) changes in interest rates and their impact on net interest margin; (3) competition among financial institutions; (4) legislation or regulatory requirements; (5) the ability to realize the efficiencies expected from investment in personnel and infrastructure; and (6) the inability to retain CityBank and/or North County Bank customers or employees and expenses associated with the integration of acquired bank operations. Washington Banking Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made. Any such statements are made in reliance on the safe harbor protections provided under the Securities Exchange Act of 1934, as amended.
CONTACT:  Washington Banking Company          Jack Wagner - President & CEO          Rick A. Shields - EVP & Chief Financial Officer          360.679.3121

More from Press Releases

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

21st Century Fox Scoops Up Local News Stations

21st Century Fox Scoops Up Local News Stations

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Three-Part FREE Webinar Series

Three-Part FREE Webinar Series

March 24 Full-Day Course Offering: Professional Approach to Trading SPX

March 24 Full-Day Course Offering: Professional Approach to Trading SPX