OAK HARBOR, Wash., Oct. 23, 2008 (GLOBE NEWSWIRE) -- Washington Banking Company (Nasdaq:WBCO), the holding company for Whidbey Island Bank, today reported continued strong capital ratios and a well-diversified loan portfolio, contributed to a profitable quarter. Washington Banking earned $1.9 million, or $0.20 per diluted share, in the third quarter ended September 30, 2008, compared to $2.8 million, or $0.30 per diluted share, in the third quarter a year ago. Third quarter and year-to-date 2008 profits were reduced by approximately $0.06 per diluted share due to a one-time charge associated with an agreement entered into with former CEO Michal Cann upon his retirement. Year-to-date, net income was $6.7 million, or $0.70 per diluted share, compared to $7.5 million, or $0.79 per diluted share, for the first nine months of 2007.
"Our financial results this year are quite respectable, particularly in light of the current disruption in the financial markets," said Jack Wagner, President and CEO. "Our solid balance sheet, strong capital position and a well-diversified loan portfolio reflect our core strengths and consistent operating practices."
Conference Call Information
Management will host a conference call today, October 23, 2008, at 9:00 AM PDT (12:00 noon EDT) to discuss the quarterly results. The live call can be accessed by dialing (303) 262-2053 or on the web at www.wibank.com. The replay, which will be available for 90 days beginning shortly after the call concludes, can be heard at (303) 590-3000 with access code 11120513#, or on the web at www.wibank.com.
Third Quarter 2008 Financial Highlights (September 30, 2008, compared to September 30, 2007)
* Capital ratios remained well above the regulatory requirements for well-capitalized institutions, with Tier 1 Capital to risk-adjusted assets of 11.81% compared to 11.08%. * Continued good asset quality with nonperforming loans to total loans at 0.47% from 0.17%. * Total net loans increased 5% to $812 million from $771 million. * Book value per share increased 9% to $8.32 compared to $7.63. * Payment of cash dividends of $0.19 year to date generated an annualized yield of 3.25% at recent share prices.
Balance Sheet
"This market provides some excellent opportunities for us to establish new customer relationships and recruit talented banking professionals," stated Wagner. "Because of the turmoil in the regional banking sector, customers are seeking a safe and sound place for their deposits and a reliable source of credit for their business and personal needs. We believe we are well positioned to meet those needs and to gain market share over the next several quarters."
Total deposits were up 7% to $784 million at September 30, 2008, compared to $733 million for the previous quarter and up 2% from $766 million a year ago. Money market accounts increased 28% from the end of the linked quarter and grew 7% year-over-year.
At September 30, 2008, total assets increased 5% to $912 million compared to $867 million a year ago. Total net loans grew 5% to $812 million from $771 million a year ago, although declined slightly from $813 million at the end of the second quarter 2008.
Credit Quality
"Given the current market conditions, our asset quality remained reasonably good," said Joe Niemer, Chief Credit Officer. Nonperforming assets totaled $4.6 million, or 0.50% of total assets at September 30, 2008, compared to $3.7 million, or 0.41% of total assets at June 30, 2008, and $2.7 million, or 0.31% of total assets a year ago. "We believe that our loan portfolio remains well diversified by borrowers, loan type and geography within our operating area in Northwest Washington, and our NPAs are limited to just a handful of relationships," Niemer added. Nonperforming assets consist of nonaccrual loans, accruing loans 90 days or more past due, restructured loans and OREO. Nonperforming loans increased to $3.9 million, or 0.47% of loans, up from $2.5 million or 0.30% at the end of the linked quarter, and from $1.3 million, or 0.17% of total loans at the end of the third quarter 2007.
Allowance for loan losses increased to $11.5 million, or 1.40% of total loans at quarter end, compared to $10.8 million or 1.38% at September 30, 2007, in part, reflecting growth in the loan portfolio.
Net charge-offs in the third quarter were $1.2 million, or 57 basis points of average loans, compared to $571,000, or 29 basis points of average loans for the same period a year ago. Year-to-date, net charge-offs were $2.8 million, or 46 basis points, compared to $1.5 million, or 27 basis points from a year earlier. Net charge-offs in the indirect lending portfolio increased to $527,000 in the third quarter and $932,000 year-to-date, reflecting the softening in the local economy. "Our practice is to charge off any loan from the indirect program when it becomes 90 days past due," said Rick Shields, Chief Financial Officer. "Indirect loans account for approximately 15% of the total portfolio and we expect to continue to be near that level going forward."
Capital
Washington Banking's Tier 1 capital ratio was 11.81% at September 30, 2008, compared with 11.54% from the linked quarter and 11.08% at September 30, 2007. The total risk-based ratio was 13.06% at September 30, 2008, compared with 12.79% from the previous quarter and 12.46% at September 30, 2007. All regulatory ratios continue to exceed the "well-capitalized" requirements established by regulators.
Total shareholders' equity improved to $79 million at September 30, 2008, compared with $78 million at June 30, 2008, and $72 million in the third quarter of 2007. Book value per share increased 9% to $8.32 from $7.63 one year ago. On August 20, 2008, the company paid a quarterly cash dividend of $0.065 per common share to shareholders of record August 5, 2008. Washington Banking has paid a quarterly cash dividend since its 1998 initial public offering, and has increased the cash payout each year. "Because of the solid performance of our balance sheet, we are able to continue rewarding shareholders with quarterly cash dividends," Wagner noted.
"Credit risk associated with investments has been limited by primarily purchasing U.S. Agency and municipal securities," said Shields. "We have only one mortgage-backed security in our investment portfolio, which is worth $53,000. Given our high liquidity and our short duration investments, we believe that we are adequately positioned to meet the needs of our customers."
Operating Results
Revenue was $11.6 million in the third quarter of 2008, compared to $11.1 million for the second quarter and $11.8 million in the third quarter of 2007. Net interest income, before the provision for loan losses, grew 3% to $9.6 million in the third quarter of 2008 from $9.3 million in the previous quarter and declined 2% compared to $9.8 million in the third quarter a year ago. Year-to-date, revenue was down slightly at $34.1 million compared to $34.3 million in the same period a year ago. Net interest income, before provision for loan losses, increased modestly to $28.5 million for the first nine months of 2008 compared to $28.1 million for the first nine months of 2007.
Net interest margin was 4.62% in the third quarter of 2008, up 8 basis points from the linked quarter of 4.54%, and down 32 basis points from 4.94% in the same quarter a year ago. Year-to-date, net interest margin stood at 4.60% compared to 4.95% for the first nine months of 2007.
Noninterest expense for the third quarter increased 11% to $7.6 million compared with $6.8 million in the same quarter of 2007. "We curtailed our growth earlier in the year in anticipation of the merger with Frontier Financial," stated Wagner. "Since terminating the merger late in the second quarter and remaining independent, it was necessary to increase some expenses to regain our foothold in the marketplace." In addition, the cost associated with the agreement for Cann's retirement in the third quarter added $800,000 to noninterest expense. Even with the expense for the agreement, noninterest expenses for the first nine months of 2008 were basically flat at $20.8 million compared to $20.6 million a year ago.
The efficiency ratio during the third quarter of 2008 was 65.26%, compared to 56.88% reported in the linked quarter, and 57.65% at September 30, 2007. In the first nine months of this year, the efficiency ratio was 60.94% compared to 60.20% for the first nine months of 2007. Return on average assets and return on average equity were 0.85% and 9.70%, respectively, for the third quarter of 2008 and 1.00% and 11.68%, respectively, year-to-date.
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 19 full-service branches located in five counties in Northwestern Washington.
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 future operating results, 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; and (5) the ability to realize the efficiencies expected from investment in personnel and infrastructure. 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.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
-------------------------------------------------
($ in thousands, except per share data)
Quarter Quarter Quarter
Ended Ended Three Ended One
Sept. 30, June 30, Month Sept. 30, Year
2008 2008 Change 2007 Change
----------------------------------------------------------------------
Interest Income
Loans $ 14,432 $ 14,383 0% $ 15,959 -10%
Taxable Investment
Securities 88 96 -8% 143 -38%
Tax Exempt Securities 51 51 0% 65 -22%
Other 6 4 61% 54 -89%
----------------------------------------------------------------------
Total Interest Income 14,577 14,534 0% 16,221 -10%
Interest Expense
Deposits 4,411 4,542 -3% 5,849 -25%
Other Borrowings 276 359 -23% 147 88%
Junior Subordinated
Debentures 286 284 1% 469 -39%
----------------------------------------------------------------------
Total Interest Expense 4,973 5,185 -4% 6,465 -23%
Net Interest Income 9,604 9,348 3% 9,756 -2%
Provision for Loan Losses 1,075 1,050 2% 800 34%
----------------------------------------------------------------------
Net Interest Income after
Provision for Loan
Losses 8,529 8,298 3% 8,956 -5%
Noninterest Income
Service Charges and Fees 708 711 -1% 749 -5%
Income from the Sale of
Loans 36 51 -30% 192 -81%
Other Income 1,131 876 29% 982 15%
----------------------------------------------------------------------
Total Noninterest Income 1,875 1,638 14% 1,923 -3%
Noninterest Expense
Compensation and Employee
Benefits 3,940 3,798 4% 4,166 -5%
Occupancy and Equipment 944 902 5% 932 1%
Office Supplies and
Printing 162 120 35% 146 11%
Data Processing 155 153 1% 185 -16%
Consulting and
Professional Fees 107 147 -27% 172 -38%
Other 2,270 1,208 88% 1,226 85%
----------------------------------------------------------------------
Total Noninterest Expense 7,578 6,328 20% 6,827 11%
Income Before Income Taxes 2,825 3,608 -22% 4,052 -30%
Provision for Income Taxes 921 1,187 -22% 1,232 -25%
----------------------------------------------------------------------
Net Income $ 1,904 $ 2,421 -21% $ 2,820 -32%
======================================================================
Earnings per Common Share
----------------------------------------------------------------------
Net Income per Share,
Basic $ 0.20 $ 0.25 -20% $ 0.30 -33%
======================================================================
----------------------------------------------------------------------
Net Income per Share,
Diluted $ 0.20 $ 0.25 -20% $ 0.30 -33%
======================================================================
Average Number of Common
Shares Outstanding 9,473,000 9,464,000 9,323,000
Fully Diluted Average
Common and Equivalent
Shares Outstanding 9,518,000 9,519,000 9,435,000
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
-------------------------------------------------
($ in thousands, except per share data)
Nine Months Ended One
September 30, Year
2008 2007 Change
---------------------------------------------------------------------
Interest Income
Loans $ 44,176 $ 45,573 -3%
Taxable Investment Securities 294 412 -29%
Tax Exempt Securities 153 204 -25%
Other 14 153 -91%
---------------------------------------------------------------------
Total Interest Income 44,637 46,342 -4%
Interest Expense
Deposits 14,247 16,652 -14%
Other Borrowings 939 317 196%
Junior Subordinated Debentures 975 1,291 -24%
---------------------------------------------------------------------
Total Interest Expense 16,161 18,260 -11%
Net Interest Income 28,476 28,082 1%
Provision for Loan Losses 3,150 2,200 43%
---------------------------------------------------------------------
Net Interest Income after Provision for
Loan Losses 25,326 25,882 -2%
Noninterest Income
Service Charges and Fees 2,145 2,362 -9%
Income from the Sale of Loans 177 558 -68%
Other Income 2,985 2,760 8%
---------------------------------------------------------------------
Total Noninterest Income 5,307 5,680 -7%
Noninterest Expense
Compensation and Employee Benefits 11,729 12,709 -8%
Occupancy and Equipment 2,796 2,867 -2%
Office Supplies and Printing 402 455 -12%
Data Processing 469 493 -5%
Consulting and Professional Fees 469 441 6%
Other 4,923 3,655 35%
---------------------------------------------------------------------
Total Noninterest Expense 20,788 20,620 1%
Income Before Income Taxes 9,845 10,942 -10%
Provision for Income Taxes 3,183 3,394 -6%
---------------------------------------------------------------------
Net Income $ 6,662 $ 7,548 -12%
=====================================================================
Earnings per Common Share
---------------------------------------------------------------------
Net Income per Share, Basic $ 0.70 $ 0.80 -13%
=====================================================================
---------------------------------------------------------------------
Net Income per Share, Diluted $ 0.70 $ 0.79 -11%
=====================================================================
Average Number of Common
Shares Outstanding 9,457,000 9,392,000
Fully Diluted Average Common and
Equivalent Shares Outstanding 9,514,000 9,525,000
CONSOLIDATED BALANCE SHEETS (unaudited)
---------------------------------------
($ in thousands except per share data)
Three One
Sept. 30, June 30, Month Sept. 30, Year
2008 2008 Change 2007 Change
----------------------------------------------------------------------
Assets
Cash and Due from Banks $ 19,202 $ 22,783 -16% $ 20,984 -8%
Interest-Bearing Deposits
with Banks 451 515 -13% 278 62%
Fed Funds Sold 17,410 3,280 431% 4,600 278%
----------------------------------------------------------------------
Total Cash and Cash
Equivalents 37,063 26,578 39% 25,862 43%
Investment Securities
Available for Sale 10,781 11,310 -5% 16,908 -36%
FHLB Stock 2,880 2,880 0% 1,984 45%
Loans Held for Sale 995 562 77% 1,504 -34%
Loans Receivable 823,089 824,600 0% 782,095 5%
Less: Allowance for Loan
Losses (11,488) (11,585) -1% (10,755) 7%
----------------------------------------------------------------------
Loans, Net 811,601 813,015 0% 771,341 5%
Premises and Equipment, Net 24,476 24,662 -1% 24,586 0%
Bank Owned Life Insurance 16,750 16,739 0% 16,363 2%
Other Real Estate Owned 669 1,198 -44% 1,332 -50%
Other Assets 7,247 6,933 5% 7,533 -4%
----------------------------------------------------------------------
Total Assets $912,462 $903,877 1% $867,413 5%
======================================================================
Liabilities and
Shareholders' Equity
Deposits:
Noninterest-Bearing Demand $ 90,183 $ 91,764 -2% $107,648 -16%
NOW Accounts 121,503 126,307 -4% 140,854 -14%
Money Market 157,614 122,724 28% 147,195 7%
Savings 41,645 41,406 1% 44,335 -6%
Time Deposits 372,796 350,667 6% 326,276 14%
----------------------------------------------------------------------
Total Deposits 783,741 732,868 7% 766,308 2%
FHLB Overnight Borrowings -- 34,000 -100% -- 0%
Other Borrowed Funds 20,000 30,000 -33% -- 100%
Junior Subordinated
Debentures 25,774 25,774 0% 25,774 0%
Other Liabilities 3,964 3,699 7% 3,608 10%
----------------------------------------------------------------------
Total Liabilities 833,479 826,341 1% 795,691 5%
Shareholders' Equity:
Common Stock (no par value)
Authorized 13,679,757
Shares:
Issued and Outstanding at
9,488,101 9/30/08
9,487,560 6/30/08 and
9,396,875 at 9/30/07 33,384 33,208 1% 32,335 3%
Retained Earnings 45,513 44,226 3% 39,365 16%
Other Comprehensive Income 86 102 -16% 22 287%
----------------------------------------------------------------------
Total Shareholders' Equity 78,983 77,536 2% 71,722 10%
----------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $912,462 $903,877 1% $867,413 5%
======================================================================
---------------------------------------------------------------------
ASSET QUALITY (unaudited)
-------------------------
($ in thousands, except per share data)
Quarter Quarter Quarter
Ended Ended Ended Nine Months Ended
Sept. 30, June 30, Sept. 30, September 30,
2008 2008 2007 2008 2007
---------------------------------------------------------------------
Allowance for Loan
Losses Activity:
Balance at Beginning
of Period $ 11,585 $ 11,404 $ 10,526 $ 11,126 $ 10,048
Indirect Loans:
Charge-offs (638) (331) (200) (1,332) (598)
Recoveries 111 117 83 399 200
---------------------------------------------------------------------
Indirect Net
Charge-offs (527) (214) (117) (932) (398)
Other Loans:
Charge-offs (798) (773) (573) (2,231) (1,475)
Recoveries 153 118 119 375 379
---------------------------------------------------------------------
Other Net
Charge-offs (645) (655) (454) (1,856) (1,096)
Total Net
Charge-offs (1,172) (869) (571) (2,788) (1,493)
Provision for Loan
Losses 1,075 1,050 800 3,150 2,200
---------------------------------------------------------------------
Balance at End of
Period $ 11,488 $ 11,585 $ 10,755 $ 11,488 $ 10,755
=====================================================================
Net Charge-offs to
Average Loans:
Indirect Loans Net
Charge-Offs, to Avg
Indirect Loans,
Annualized(1) 1.89% 0.77% 0.42% 1.12% 0.49%
Other Loans Net
Charge-Offs, to Avg
Other Loans,
Annualized(1) 0.36% 0.37% 0.27% 0.35% 0.23%
Net Charge-offs to
Average Total
Loans(1) 0.57% 0.42% 0.29% 0.46% 0.27%
Sept. 30, June 30, Sept. 30,
2008 2008 2007
---------------------------------------------------------------------
Nonperforming Assets
--------------------
Nonperforming Loans(2) $ 3,888 $ 2,515 $ 1,324
Other Real Estate Owned 669 1,198 1,332
---------------------------------------------------------------------
Total Nonperforming Assets $ 4,557 $ 3,713 $ 2,656
=====================================================================
Nonperforming Loans to Loans(1) 0.47% 0.30% 0.17%
Nonperforming Assets to Assets 0.50% 0.41% 0.31%
Allowance for Loan Losses to
Nonperforming Loans 295.46% 460.64% 812.27%
Allowance for Loan Losses to
Nonperforming Assets 252.09% 312.01% 404.91%
Allowance for Loan Losses to Loans 1.40% 1.40% 1.38%
Loan Composition
----------------
Commercial $ 93,821 $ 97,572 $103,004
Real Estate Mortgages
One-to-Four Family Residential 55,984 56,796 53,543
Commercial 325,314 322,943 276,244
Real Estate Construction
One-to-Four Family Residential 104,505 104,597 97,287
Commercial 45,147 45,359 44,464
Consumer
Indirect 110,239 109,167 117,384
Direct 85,321 85,603 87,439
Deferred Fees 2,758 2,563 2,730
---------------------------------------------------------------------
Total Loans $823,089 $824,600 $782,095
=====================================================================
(1) Excludes Loans Held for Sale.
(2) Nonperforming loans includes nonaccrual loans plus accruing loans
90 or more days past due.
FINANCIAL STATISTICS (unaudited)
--------------------------------
($ in thousands, except per share data)
Quarter Quarter Quarter
Ended Ended Ended Nine Months Ended
Sept. 30, June 30, Sept. 30, September 30,
2008 2008 2007 2008 2007
---------------------------------------------------------------------
Revenues(1)(2) $ 11,613 $ 11,126 $ 11,840 $ 34,109 $ 34,255
Averages
--------
Total Assets $889,483 $890,997 $853,908 $886,930 $826,420
Loans and Loans
Held for Sale 820,425 823,052 773,145 818,210 748,356
Interest Earning
Assets 835,704 838,140 796,246 833,509 771,359
Deposits 748,375 736,991 743,842 742,702 722,817
Shareholders'
Equity $ 78,084 $ 76,203 $ 69,908 $ 76,191 $ 68,493
Financial Ratios
----------------
Return on Average
Assets, Annualized 0.85% 1.09% 1.32% 1.00% 1.22%
Return on Average
Equity, Annualized 9.70% 12.78% 16.18% 11.68% 14.74%
Average Equity to
Average Assets 8.78% 8.55% 8.19% 8.59% 8.29%
Efficiency Ratio(2) 65.26% 56.88% 57.65% 60.94% 60.20%
Yield on Earning
Assets(2) 6.98% 7.02% 8.16% 7.19% 8.12%
Cost of Interest
Bearing Liabilities 2.76% 2.90% 3.80% 3.01% 3.75%
Net Interest Spread 4.23% 4.12% 4.36% 4.17% 4.37%
Net Interest
Margin(2) 4.62% 4.54% 4.94% 4.60% 4.95%
Sept. 30, June 30, Sept.30,
2008 2008 2007
---------------------------------------------------------------------
Period End
Book Value Per Share $ 8.32 $ 8.17 $ 7.63
Total Risk-Based Capital Ratio 13.06%(3) 12.79% 12.46%
Tier 1 Risk-Based Capital Ratio 11.81%(3) 11.54% 11.08%
Tier 1 Leverage Ratio 11.68%(3) 11.50% 11.19%
------------------------------------------------- ------------------
(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) Capital ratios for the most recent period are an estimate pending
filing of the Company's regulatory reports.