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 16th 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 $7.4 million in the third quarter of 2009.
Conference Call Information
Management will host a conference call on Friday, October 29 at 10:00 a.m. PDT (1:00 p.m. EDT) to discuss the quarterly and year-to-date financial results. The call will also be broadcast live via the internet. Investment professionals and all current and prospective shareholders are invited to access the live call by dialing (480) 629-9722 at 10:00 a.m. PDT for conference ID #4365056. To listen to the call online, either live or archived, visit the Investor Relations page of Whidbey Island Bank's website at www.wibank.com. Shortly after the call concludes, the replay will also be available at (303) 590-3030, using access code #4365056, where it will be archived for ninety days.
ABOUT WASHINGTON BANKING COMPANY
Washington Banking Company is a bank holding company based in Oak Harbor, Washington, that operates Whidbey Island Bank, a state-chartered full-service commercial bank. Founded in 1961, Whidbey Island Bank provides various deposit, loan and investment services to meet customers' financial needs. Whidbey Island Bank operates 30 full-service branches located in six counties in Northwestern Washington. In June 2009, Washington Banking was added to the Russell 2000 Index, a subset of the Russell 3000 Index. Both indices are widely used by professional money managers as benchmarks for investment strategies.
| CONSOLIDATED STATEMENTS OF INCOME (unaudited) | |||||
| ($ 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.