OAK HARBOR, Wash., April 24, 2008 (PRIME NEWSWIRE) -- Washington Banking Company (Nasdaq:WBCO), the holding company for Whidbey Island Bank, today reported that solid credit quality, strong loan growth and improved efficiency contributed to first quarter 2008 profits rising 3% over first quarter a year ago. In the 2008 first quarter, Washington Banking earned $2.3 million, or $0.25 per diluted share, compared to $2.3 million, or $0.24 per diluted share, in the first quarter a year ago. In the fourth quarter of 2007 Washington Banking earned $1.9 million or $0.23 per diluted share.
"Our consistent credit culture, which is reinforced by a compensation policy that rewards long-term credit quality, has allowed us to avoid most of the turmoil in the market, thus far," said Michal Cann, President and CEO. "We are targeting commercial and industrial lending and gaining market share in this important business segment."
"While shareholders have approved our merger into Frontier Financial (Nasdaq:FTBK), the merger remains subject to regulatory approval. We are moving ahead as an independent bank until the merger is completed," Cann added.
FIRST QUARTER 2008 FINANCIAL HIGHLIGHTS
First quarter 2008 highlights, compared to the like period last year, include:
-- Loans receivable increased 11% to $815 million.
-- Commercial and industrial loans increased 19%.
-- Nonperforming assets as a percentage of total assets improved to
0.37%.
-- The allowance for loan losses held steady at a strong 1.40% of
total loans.
-- Net interest margin decreased 28 basis points to 4.69%.
-- Efficiency ratio improved 331 basis points to 59.98%.
At March 31, 2008, total assets increased 9% to $893 million from $816 million a year ago. Total loans grew 11% to $815 million from $732 million at March 31, 2007.
At the end of March 2008, Washington Banking had reduced its exposure to construction loans, which accounted for 18% of its loan portfolio, down from 20% a year earlier. Commercial loans accounted for 13% of total loans, compared to 12% at the end of the first quarter last year. Commercial real estate loans were 38% of total loans, compared to 34% a year earlier. Single-family home mortgages accounted for 7% of the loan portfolio at the end of March, compared to 7% last March. Consumer loans represented 24% of total loans.
"Nonperforming loans and nonperforming assets have both improved since year-end," said Rick Shields, Executive Vice President and CFO. "As we said last quarter, our lending focus is on the regional business community, and we are working hard to maintain our strong asset quality." Nonperforming assets improved to $3.3 million at March 31, 2008, compared to $4.3 million at December 31, 2007 and $3.6 million at the end of the first quarter a year ago. Nonperforming assets were 0.37% of total assets at the end of this year's first quarter, compared to 0.49% at year-end 2007 and 0.44% a year ago. The allowance for loan losses was $11.4 million, or 831% of nonperforming loans and 1.40% of total loans as of March 31, 2008.
"Deposits grew 3% over the past year, reflecting the continuing strong competition in the Pacific Northwest banking market. As a result, we are utilizing borrowed funds to help supplement our funding needs," Shields noted.
The rapid cuts in interest rates at the Federal Reserve negatively impacted net interest margin in the first quarter of 2008. First quarter net interest margin was only 2 basis points below that of the fourth quarter, and it was down 28 basis points from the first quarter a year ago. On a fully tax-equivalent basis, the net interest margin was 4.69% in the first quarter, compared to 4.71% in the preceding quarter and 4.97% in the first quarter of 2007.
"About one third of our loan portfolio is tied to the prime rate, so the recent interest rate cuts have certainly impacted that portion of our portfolio. About another one third adjusts more slowly, and that, combined with the one third of our loan portfolio that is fixed-rate, should mitigate declines of our net interest margin," Shields added.
In the first quarter, the yield on earning assets was 7.61%, down from 7.92% at the end of December and 8.07% for the first quarter of 2007. The cost of interest-bearing liabilities was 3.39% in the quarter, 3.77% in the immediate prior quarter and 3.68% in the first quarter a year ago.
In the first quarter of 2008, interest income increased 6% while interest expense increased 5% compared to the first quarter of 2007. Consequently, net interest income increased 6% to $9.5 million from $9.0 million in the first quarter of 2007. First quarter noninterest income was $1.8 million, basically unchanged from the fourth quarter of 2007 as well as the first quarter a year ago.
Noninterest expense declined 12% to $6.9 million in the first quarter of 2008 compared to $7.9 million in the immediate prior quarter and 1% from $6.9 million in the first quarter of 2007. "Because of our pending merger, we are keeping a tight lid on compensation and benefits costs, which contributed to overall lower noninterest expenses in the first quarter," said Cann. Washington Banking's efficiency ratio improved to 59.98% in the 2008 first quarter compared to 68.61% in the preceding quarter and 63.29% in the first quarter a year ago.
On March 27, 2008 shareholders approved the merger of Washington Banking into Frontier Financial. The closing of the merger is subject to the approval of the Federal Deposit Insurance Corporation (FDIC), final board approval and other closing conditions. Frontier has not received FDIC approval and no assurances can be given as to when or whether the FDIC will approve the application. At this time the closing cannot be assured and the closing date of the transaction cannot be determined.
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. 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 Frontier Financial Corporation and Washington Banking Company's respective 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) successful completion of the merger, the closing of which remains subject to customary closing conditions. Neither Frontier Financial Corporation nor Washington Banking Company 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)
-------------------------------------------------
Quarter Quarter Quarter
($ in thousands, except Ended Ended Three Ended One
per share data) March 31, Dec. 31 Month March 31, Year
2008 2007 Change 2007 Change
---------------------------------------------------------------------
Interest Income
Loans $ 15,360 $ 15,812 -3% $ 14,428 6%
Taxable Investment
Securities 110 135 -19% 133 -17%
Tax Exempt Securities 51 59 -14% 71 -28%
Other 5 21 -76% 32 -84%
---------------------------------------------------------------------
Total Interest Income 15,526 16,028 -3% 14,664 6%
Interest Expense
Deposits 5,295 6,017 -12% 5,323 -1%
Other Borrowings 304 62 393% 34 783%
Junior Subordinated
Debentures 405 471 -14% 338 20%
---------------------------------------------------------------------
Total Interest Expense 6,004 6,550 -8% 5,695 5%
Net Interest Income 9,522 9,478 0% 8,969 6%
Provision for Loan Losses 1,025 800 28% 550 86%
---------------------------------------------------------------------
Net Interest Income
after Provision for
Loan Losses 8,497 8,678 -2% 8,419 1%
Noninterest Income
Service Charges and Fees 726 772 -6% 816 -11%
Income from the Sale of
Loans 90 109 -17% 155 -42%
Other Income 979 927 6% 833 18%
---------------------------------------------------------------------
Total Noninterest Income 1,795 1,808 -1% 1,804 -1%
Noninterest Expense
Compensation and Employee
Benefits 3,990 4,373 -9% 4,411 -10%
Occupancy and Equipment 949 938 1% 956 -1%
Office Supplies and
Printing 119 103 15% 130 -8%
Data Processing 161 170 -5% 141 14%
Merger Related Expense 81 513 -84% -- 100%
Consulting and
Professional Fees 215 294 -27% 171 26%
Other 1,364 1,460 -7% 1,115 22%
---------------------------------------------------------------------
Total Noninterest Expense 6,879 7,851 -12% 6,924 -1%
Income Before Income Taxes 3,413 2,636 29% 3,299 3%
Provision for Income Taxes 1,076 785 37% 1,032 4%
---------------------------------------------------------------------
Net Income $ 2,337 $ 1,851 26% $ 2,267 3%
=====================================================================
Earnings per Common Share
---------------------------------------------------------------------
Net Income per Share,
Basic(1) $ 0.25 $ 0.23 9% $ 0.24 4%
=====================================================================
---------------------------------------------------------------------
Net Income per Share,
Diluted $ 0.25 $ 0.23 9% $ 0.24 4%
=====================================================================
Average Number of Common
Shares Outstanding 9,432,000 9,365,000 9,389,000
Fully Diluted Average
Common and Equivalent
Shares Outstanding 9,514,000 9,500,000 9,558,000
(1) Earnings information excluding the merger related expense
represent non-GAAP (Generally Accepted Accounting Principles)
financial measures. Management has presented these non-GAAP
financial measures in this earnings release because it believes
that they provide more useful and comparative information to
assess trends in the Company's core operations reflected in the
current quarter and year-to-date results. Where applicable, the
Company has also presented comparable earnings information using
GAAP financial measures.
CONSOLIDATED BALANCE SHEETS (unaudited)
---------------------------------------
($ in thousands except Three One
per share data) March 31, Dec. 31, Month March 31, Year
2008 2007 Change 2007 Change
---------------------------------------------------------------------
Assets
Cash and Due from
Banks $ 21,377 $ 18,795 14% $ 21,516 -1%
Interest-Bearing
Deposits with Banks 404 257 57% 783 -48%
Fed Funds Sold 2,415 -- 100% 4,640 -48%
---------------------------------------------------------------------
Total Cash and Cash
Equivalents 24,196 19,052 27% 26,939 -10%
Investment Securities
Available for Sale 12,494 13,832 -10% 16,748 -25%
FHLB Stock 1,984 1,984 0% 1,984 0%
Loans Held for Sale 453 2,347 -81% 4,717 -90%
Loans Receivable 814,993 805,862 1% 731,895 11%
Less: Allowance for
Loan Losses (11,404) (11,126) 3% (10,212) 12%
---------------------------------------------------------------------
Loans, Net 803,589 794,736 1% 721,684 11%
Premises and
Equipment, Net 24,906 25,138 -1% 23,235 7%
Bank Owned Life
Insurance 16,618 16,517 1% 11,017 51%
Other Real Estate
Owned 1,890 1,440 31% -- 100%
Other Assets 6,878 7,244 -5% 9,566 -28%
---------------------------------------------------------------------
Total Assets $893,009 $882,289 1% $815,889 9%
=====================================================================
Liabilities and
Shareholders' Equity
Deposits:
Noninterest-Bearing
Demand $ 98,003 $101,539 -3% $101,222 -3%
NOW Accounts 140,568 140,145 0% 155,997 -10%
Money Market 130,044 133,265 -2% 109,918 18%
Savings 42,682 41,888 2% 49,282 -13%
Time Deposits 334,449 341,517 -2% 309,954 8%
---------------------------------------------------------------------
Total Deposits 745,746 758,354 -2% 726,373 3%
FHLB Overnight
Borrowings 11,500 20,500 -44% -- 100%
Other Borrowed Funds 30,000 -- 100% -- 100%
Junior Subordinated
Debentures 25,774 25,774 0% 15,007 72%
Other Liabilities 4,278 4,091 5% 5,728 -25%
---------------------------------------------------------------------
Total Liabilities 817,297 808,719 1% 747,108 9%
Shareholders' Equity:
Common Stock (no par
value) Authorized
13,679,757 Shares:
Issued and Outstanding
9,476,360 at 3/31/08
9,453,767 at 12/31/07
and 9,445,867 at
3/31/07 33,077 32,812 1% 33,952 -3%
Retained Earnings 42,421 40,652 4% 34,852 22%
Other Comprehensive
Income 214 106 101% (23) 561%
---------------------------------------------------------------------
Total Shareholders'
Equity 75,712 73,570 3% 68,781 10%
---------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $893,009 $882,289 1% $815,889 9%
---------------------------------------------------------------------
---------------------------------------------------------------------
ASSET QUALITY (unaudited)
------------------------- Quarter Quarter Quarter
($ in thousands, except Ended Ended Ended
per share data) March 31, Dec. 31, March 31,
2008 2007 2007
---------------------------------------------------------------------
Allowance for Loan Losses Activity:
Balance at Beginning of Period $ 11,126 $ 10,755 $ 10,048
Indirect Loans:
Charge-offs (363) (423) (135)
Recoveries 171 144 54
---------------------------------------------------------------------
Indirect Net Charge-offs (192) (279) (81)
Other Loans:
Charge-offs (659) (288) (458)
Recoveries 104 138 153
---------------------------------------------------------------------
Other Net charge-offs (555) (150) (305)
Total Net Charge-offs (747) (429) (386)
Provision for loan losses 1,025 800 550
---------------------------------------------------------------------
Balance at End of Period $ 11,404 $ 11,126 $ 10,212
=====================================================================
Net Charge-offs to Average Loans:
Indirect Loans Net Charge-Offs, to
Avg Indirect Loans, Annualized(1) 0.67% 0.99% 0.31%
Other Loans Net Charge-Offs, to Avg
Other Loans, Annualized(1) 0.32% 0.09% 0.20%
Net Charge-offs to Average Total
Loans(1) 0.37% 0.21% 0.21%
March 31, Dec. 31, March 31,
2008 2007 2007
---------------------------------------------------------------------
Nonperforming Assets
--------------------
Nonperforming Loans(2) $ 1,373 $ 2,839 $ 3,609
Other Real Estate Owned 1,890 1,440 --
---------------------------------------------------------------------
Total Nonperforming Assets $ 3,263 $ 4,279 $ 3,609
=====================================================================
Nonperforming Loans to Loans(1) 0.17% 0.35% 0.49%
Nonperforming Assets to Assets 0.37% 0.49% 0.44%
Allowance for Loan Losses to
Nonperforming Loans 830.59% 395.41% 282.95%
Allowance for Loan Losses to
Nonperforming Assets 349.49% 262.34% 282.95%
Allowance for Loan Losses to Loans 1.40% 1.38% 1.40%
Loan Composition
Commercial 105,641 $102,284 $ 88,781
Real Estate Mortgages
One-to-Four Family Residential 55,129 56,636 54,045
Commercial 311,188 296,901 250,399
Real Estate Construction
One-to-Four Family Residential 102,742 101,912 96,627
Commercial 41,335 44,735 47,849
Consumer
Indirect 112,351 114,271 109,466
Direct 84,054 86,716 82,510
Deferred Fees 2,555 2,405 2,218
---------------------------------------------------------------------
Total Loans $814,993 $805,862 $731,895
=====================================================================
(1) Excludes Loans Held for Sale.
(2) Nonperforming loans includes nonaccrual loans plus accruing loans
90 or more days past due.
FINANCIAL STATISTICS (unaudited)
Quarter Quarter Quarter
($ in thousands, except Ended Ended Ended
per share data) March 31, Dec. 31, March 31,
2008 2007 2007
---------------------------------------------------------------------
Revenues(1)(2) $ 11,470 $ 11,443 $ 10,939
--------
Averages
--------
Total Assets $880,282 $867,357 $797,778
Loans and Loans Held for Sale 811,128 791,546 723,735
Interest-Earning Assets 826,659 810,783 745,467
Deposits 742,678 759,676 707,395
Shareholders' Equity $ 74,264 $ 72,439 $ 67,164
Financial Ratios
----------------
Return on Average Assets,
Annualized 1.06% 0.85% 1.15%
Return on Average Equity,
Annualized 12.62% 10.14% 13.69%
Average Equity to Average Assets 8.44% 8.35% 8.42%
Efficiency Ratio (2) 59.98% 68.61% 63.29%
Yield on Earning Assets (2) 7.61% 7.92% 8.07%
Cost of Interest Bearing
Liabilities 3.39% 3.77% 3.68%
Net Interest Spread 4.22% 4.15% 4.39%
Net Interest Margin (2) 4.69% 4.71% 4.97%
March 31, Dec. 31, March 31,
2008 2007 2007
---------------------------------------------------------------------
Period End
Book Value Per Share $ 7.99 $ 7.78 $ 7.28
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(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.