EXHIBIT 99.1
Washington Banking Company Reports Profitable Second Quarter
Earns $2.8 million, or $0.18 per Diluted Share
OAK HARBOR, WA – July 26, 2012 – Washington Banking Company (NASDAQ: WBCO), the holding company for Whidbey Island Bank, today reported earnings in the second quarter of 2012 were $2.8 million, or $0.18 per diluted share, compared to $4.8 million, or $0.31 per diluted share, in the first quarter of 2012, and $4.0 million, or $0.26 per diluted share in the second quarter of 2011. The Company experienced better than anticipated performance in its collection of the covered loan portfolio resulting in an additional $1.1 million FDIC-clawback liability expense. Coupled with a $400,000 Provision for Covered Loan Losses, pre-tax results were impacted by approximately $1.5 million, or $0.07 per share net of tax. In the first half of 2012, Washington Banking’s net income totaled $7.6 million, or $0.49 per diluted share, compared to $7.0 million, or $0.45 per diluted share, which included its last $1.1 million preferred dividend payment in the first half a year ago.
“In addition to the gains we recorded at the time of the two FDIC transactions in 2010, we also benefit from the strong contribution to our margin that these covered loans produce,” said Jack Wagner, President and Chief Executive Officer. “However, since our forecasted losses on this portfolio continue to decline, we recorded an increase to the clawback liability this quarter.”
“The low interest rate environment is fueling the mortgage loan pipeline to higher and higher levels,”said Bryan McDonald, Whidbey Island Bank’s President and CEO. “And our calling activities and high quality staff are showing good results in a very competitive market place. We are generating a consistently strong number of new accounts, and believe we are becoming the primary bank for more and more of our customers. This is providing higher transaction volumes and generating strong quarter-over-quarter gains in electronic banking income.”
Second quarter 2012 Financial Highlights (as of, or for the period ended June 30, 2012)
· Net interest margin (NIM) compressed 14 basis points to 5.67% from 5.81% in the preceding quarter and grew 28 basis points from 5.39% in the year ago quarter.
· On a consolidated basis, Total Risk-Based Capital to risk-adjusted assets was 19.90% compared to 19.50% a year ago. The FDIC requires a minimum of 10% Total Risk-Based Capital ratio to be considered well-capitalized.
· Nonperforming non-covered assets/total assets improved to 1.30%, compared to 1.42% in the preceding quarter and 1.83% a year ago. Classified loans declined to $84.8 million at June 30, 2012, from $97.3 million at March 31, 2012.
· Tangible book value per common share increased to $10.97, compared to $10.08 a year ago.
· Low cost demand, money market, savings and NOW accounts totaled $947.5 million and make up 65% of total deposits.
· Loan loss reserves were 2.16% of non-covered loans, and 2.34% a year ago.
· The interest income generated from the loan portfolios in the FDIC-assisted acquisitions contributed $9.4 million to second quarter revenues, up from $8.4 million in the second quarter a year ago.
· Year-to-date return on average assets was 0.92% and return on average common equity was 8.84%, annualized.
WBCO Reports 2Q12 EPS of $0.18
July 26, 2012
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· The Seattle Times’ ranked Washington Banking Company as the top financial institution in the region for the third consecutive year in their 21st annual “Best of the Northwest” listing.
Regional and Acquisitions Update
“The benefits of the acquisitions made in 2010 continue to contribute to margin and overall profitability, although expenses associated with the covered loan portfolio were up this quarter,” stated Rick Shields, Chief Financial Officer. “The FDIC indemnification asset declined 10% in the quarter, 39% year-over-year and is down 56% from its peak,” Shields continued. “In addition to the clawback adjustment of $1.1 million recorded in the second quarter of 2012, the FDIC indemnification asset was written down by $3.1 million in the second quarter of 2012, $3.0 million in the first quarter of 2012 and $1.7 million in the second quarter a year ago.”
Additionally, an analysis of actual versus expected cash flows for the acquired loan portfolio resulted in recording a covered loan provision of $398,000. The provision was due to the timing of expected cash flows and was not credit quality driven. “If you sort through all of the unusual charges in the quarter, we calculate that the acquisition-related accounting items reduced pretax earnings by approximately $1.5 million and after-tax net by $0.07 per diluted share,” noted Shields, “and as these loans pay down, both the benefits and expenses will have less impact on the income statement and balance sheet.”
Covered loans, which are loans that are subject to a loss share arrangement with the FDIC as a result of the two assisted transactions, are shown as a separate line item of the balance sheet and are not included in the net loan totals. Covered loans are also not included in any of the reported credit quality metrics, as they are accounted for separately under generally accepted accounting principles (GAAP). Both the FDIC indemnification asset and the covered loan portfolio will decline over time, as the loans mature, pay off, or are otherwise resolved.The resolution of the acquired loan portfolios continues to progress, with net covered loans down 5% for the quarter, 19% year-over-year and 39% since the peak in the third quarter of 2010.
“As we announced last quarter, we are expanding into the Eastside market with a new branch, which we expect to open during fourth quarter this year,” said McDonald. “In the meantime, we have recruited some very high quality individuals to begin building our presence in this attractive market, and they have already hit the ground running.” The Eastside is home to Microsoft, Paccar, Costco and numerous biotech, medical tech and other high tech companies.
Credit Quality
Nonperforming, non-covered loans (NPLs) declined $5.2 million during the second quarter to $17.2 million and decreased by $10.8 million from the year ago quarter, with residential construction loans accounting for 46% of the nonperforming loan portfolio. The ratio of NPLs/total non-covered loans fell to 2.11% at the end of the second quarter from 2.73% at the end of the first quarter and 3.37% a year ago. Nonperforming, non-covered assets (NPA)/total assets improved to 1.30% compared to 1.42% in the preceding quarter and 1.83% a year ago. Non-covered other real estate owned (OREO) was $4.4 million, up $2.6 million from the preceding quarter and $1.7 million from a year ago. Distribution of nonperforming, non-covered assets is shown in the following table:
WBCO Reports 2Q12 EPS of $0.18
July 26, 2012
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| Non-Covered NPA by Location | | Island County | King County | San Juan County | Skagit County | Snohomish County | Whatcom County | Total | Percent of Total Non- Covered NPA by Loan Type | |
| (dollars in 000s) | | | | | | | | | | |
| 6/30/2012 | | | | | | | | | | |
| Commercial | | $ - | $ - | $ 285 | $ 727 | $ 854 | $ 304 | $ 2,170 | 10.06% | |
| Real Estate Mortgages | | | | | | | | | | |
| One-to-Four Family Residential | | 103 | - | - | 164 | - | 794 | 1,061 | 4.92% | |
| Commercial | | 902 | 456 | 676 | 1,103 | 248 | 92 | 3,477 | 16.11% | |
| Real Estate Construction | | | | | | | | | | |
| One-to-Four Family Residential | | 1,679 | - | - | 5,524 | - | 2,702 | 9,905 | 45.90% | |
| Commercial | | 25 | - | - | - | 98 | - | 123 | 0.56% | |
| Consumer | | | | | | | | | | |
| Direct | | 199 | - | - | 230 | - | - | 429 | 1.99% | |
| Other Real Estate Owned | | 1,088 | 933 | - | 1,649 | 475 | 269 | 4,414 | 20.46% | |
| Total | | $ 3,996 | $1,389 | $ 961 | $ 9,397 | $ 1,675 | $ 4,161 | $21,579 | 100.00% | |
| | | | | | | | | | | |
| Percent of Total Non-Covered NPA by Location | | 18.52% | 6.44% | 4.45% | 43.55% | 7.76% | 19.28% | 100.00% | | |
“We increased the provision for loan losses to $2.4 million in the second quarter, up from $2.0 million the first quarter of 2012 and down from $3.0 million in the second quarter a year ago,” said Shields. The allowance for loan losses was $17.6 million, or 2.16% of non-covered loans. Total net charge-offs in the second quarter were $2.8 million, or 1.37% of average total loans on an annualized basis, compared to $2.0 million, or 1.01% of average loans in the preceding quarter and $2.8 million, or 1.37% of average loans, in the second quarter a year ago.
Balance Sheet
Total assets were $1.66 billion at June 30, 2012, down from $1.70 billion in the preceding quarter and $1.68 billion a year ago. Total non-covered loans were $814.8 million compared to $818.7 million at March 31, 2012, and $830.0 million at June 30, 2011. “Commercial and commercial real estate loans, as well as the commercial loan pipeline all continued to grow during the quarter and are up at an annualized pace of 10%, 6% and 26%, respectively, versus year end 2011 levels,” said McDonald. “The overall decrease in the total balance of non-covered loans was from the sharp decline in construction loan balances, which also contributed to improving credit quality with a 13% decline in classified assets.”
The non-covered loan portfolio is well diversified with commercial and industrial loans making up 19% and residential mortgages accounting for 5% of the portfolio. Owner-occupied commercial real estate loans represent approximately 25% of the portfolio and non-owner occupied commercial real estate loans account for approximately 22% of loans. Indirect consumer loans account for 10% of the portfolio and other consumer loans account for 9%. Construction and land development loans for residential properties represent 6% and commercial construction and land development loans represent 4% of the portfolio.
Net covered loans totaled $241.7 million and covered OREO totaled $23.0 million at June 30, 2012, compared to $255.0 million and $26.0 million, respectively, three months earlier, as resolution of the covered portfolio continues to progress.
The mix of total deposits continued to improve while the level of total deposits was relatively stable at $1.45 billion at June 30, 2012. Noninterest-bearing demand deposits decreased 3% in the quarter and increased 19% year-over-year, representing 16% of total deposits. Year-over-year, money market accounts were down 16% at $297.3 million, comprising 21% of total deposits; time deposits declined 18% to $502.4 million and accounted for 35% of total deposits. Core deposits, excluding time deposits over $100,000, represented 85% of all deposits.
Shareholders’ equity increased 1% in the quarter and 9% year-over-year, due to the strong earnings generated during the past twelve months. Tangible shareholder equity totaled $169.5 million, or $10.97 per share at June 30, 2012, compared to $10.08 a year ago.
Operating Results
WBCO Reports 2Q12 EPS of $0.18
July 26, 2012
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In the second quarter of 2012, net interest income, before the provision for loan losses, decreased 2% to $20.9 million from the linked quarter of $21.3 million but grew 7% from $19.5 million a year ago. Year-to-date, net interest income increased 9% to $42.2 million from $38.8 million in the first six months of 2011.
Net interest income after the provision for loan losses was $18.1 million in the second quarter compared to $19.3 million in the first quarter and $16.8 million in the second quarter a year ago. Year-to-date net interest income after provision for loan losses was $37.4 million, up 13% from $33.1 million in the first half of 2011.
Noninterest income was impacted in the second quarter by the accounting for the FDIC assisted acquisitions, with total noninterest income down 24% in the quarter and 62% year-over-year. Total second quarter noninterest income was $988,000 compared to $1.3 million in the previous quarter and $2.6 million a year ago. Collections on the covered asset portfolio generated $556,000 in gains on disposition of those assets, which was more than offset by a $3.1 million change in the FDIC indemnification asset in the second quarter of 2012. In the preceding quarter, noninterest income was augmented by $629,000 in the gain on disposition of covered assets and offset by $3.0 million related to the change in the FDIC indemnification asset. In addition, gain on sale of loans contributed $776,000 to second quarter revenues, compared to $705,000 in the preceding quarter and $204,000 a year ago. Gains on sale of investment securities did not contribute to either the second quarter of 2012 or 2011, but added $342,000 in the first quarter this year. Electronic banking income continues to grow, increasing 13% in the second quarter and 23% year-over year to $1.0 million.
For the first six months of 2012, noninterest income was down 64% to $2.3 million from $6.4 million in the first half of 2011. For the first six months of 2012, gains on disposition of covered assets contributed $1.2 million compared to $3.0 million in the year ago period. The change in the FDIC indemnification asset reduced first half revenues by $6.1 million compared to $3.0 million in the first half of 2011. Gains on sale of loans contributed $1.5 million to first half revenues compared to $542,000 to the first half of last year. For the first half of 2012, electronic banking income increased 26% to $1.9 million from $1.5 million in the year ago period.
Washington Banking’s net interest margin decreased 14 basis points from the preceding quarter to 5.67% from 5.81% and expanded 28 basis points from 5.39% in the year ago quarter. Year-to-date, net interest margin improved 33 basis points to 5.74% from 5.41% in the first half of 2011. “Our net interest margin has benefited greatly from the contributions from the acquired loan portfolios over the past two years, however, we expect our net interest margin to compress over the next few years as covered loans pay down and new loans are booked at current market rates,” Shields noted.
Second quarter operating expenses increased to $15.1 million, reflecting the $1.1 million non-cash charge for the FDIC clawback liability and higher costs for managing both covered and non-covered foreclosed real estate. Total operating expenses increased 11% to $15.1 million compared to $13.7 million in both the first quarter of 2012 and the second quarter of 2011. For the first six months of 2012, operating expenses increased 4% to $28.8 million from $27.7 million.
In a separate release today, Washington Banking announced it will pay a quarterly cash dividend of $0.09 per common share. “In keeping with our new two-tiered approach in determining our dividend payouts each quarter, we are paying $0.06 per share in a basic dividend and $0.03 per share in the variable dividend, which results in the total dividend at 50% of earnings,” Wagner noted. “Our board will continue to evaluate dividends each quarter based on capital requirements, market opportunities and other operating considerations.”
Conference Call Information
Management will host a conference call on Friday, July 27, at 10:00 a.m. Pacific time (1:00 p.m. ET) to discuss the results. This 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 480-629-9645 at 10:00 a.m. Pacific Time for conference ID #4549453. 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.
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. With its two FDIC-assisted acquisitions in 2010, Whidbey Island Bank currently operates 30 full-service branches located in six counties in Northwestern Washington. In 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. Washington Banking was the only
WBCO Reports 2Q12 EPS of $0.18
July 26, 2012
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company in the Pacific Northwest that ranked in the top 100 best performing community banks between $500 million and $5 billion in assets by SNL Financial in 2010, and joined the Keefe, Bruyette &Woods 2010 Bank Honor Roll, based on its superior 10-year track record.
FORWARD-LOOKING STATEMENTS
This news release contains 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, dividends and dividend payout ratios, covered loan trends, availability of acquisition opportunities, growth in loans and deposits, credit quality and loan losses, opening of new branches 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 ability to open new locations. 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.
www.wibank.com
WBCO Reports 2Q12 EPS of $0.18
July 26, 2012
Page 6
| CONSOLIDATED STATEMENTS OF INCOME (unaudited) | | Quarter Ended | | Quarter Ended | | Three | | Quarter Ended | | One | |
| ($ in thousands, except per share data) | | June 30, | | March 31, | | Month | | June 30, | | Year | |
| | | 2012 | | 2012 | | Change | | 2011 | | Change | |
| Interest Income | | | | | | | | | | | |
| Non-Covered Loans | | $ 11,613 | | $ 11,753 | | -1% | | $ 12,577 | | -8% | |
| Covered Loans | | 9,382 | | 9,868 | | -5% | | 8,487 | | 11% | |
| Taxable Investment Securities | | 1,387 | | 1,356 | | 2% | | 808 | | 72% | |
| Tax Exempt Securities | | 276 | | 255 | | 8% | | 219 | | 26% | |
| Other | | 68 | | 51 | | 33% | | 66 | | 3% | |
| Total Interest Income | | 22,726 | | 23,283 | | -2% | | 22,157 | | 3% | |
| | | | | | | | | | | | |
| Interest Expense | | | | | | | | | | | |
| Deposits | | 1,704 | | 1,845 | | -8% | | 2,548 | | -33% | |
| Junior Subordinated Debentures | | 133 | | 136 | | -2% | | 121 | | 10% | |
| Total Interest Expense | | 1,837 | | 1,981 | | -7% | | 2,669 | | -31% | |
| | | | | | | | | | | | |
| Net Interest Income | | 20,889 | | 21,302 | | -2% | | 19,488 | | 7% | |
| Provision for Loan Losses, Non-Covered Loans | | 2,350 | | 2,000 | | 18% | | 3,000 | | -22% | |
| Provision (Recovery) for Loan Losses, Covered Loans | | 398 | | - | | NA | | (318) | | -225% | |
| Net Interest Income after Provision for Loan Losses | | 18,141 | | 19,302 | | -6% | | 16,806 | | 8% | |
| | | | | | | | | | | | |
| Noninterest Income | | | | | | | | | | | |
| Service Charges and Fees | | 921 | | 893 | | 3% | | 965 | | -5% | |
| Electronic Banking Income | | 1,012 | | 896 | | 13% | | 824 | | 23% | |
| Investment Products | | 367 | | 362 | | 1% | | 383 | | -4% | |
| Gain on Sale of Investment Securities, Net | | - | | 342 | | -100% | | - | | NA | |
| Bank Owned Life Insurance Income | | 55 | | 60 | | -8% | | 81 | | -32% | |
| Income from the Sale of Loans | | 776 | | 705 | | 10% | | 204 | | 280% | |
| SBA Premium Income | | 105 | | 87 | | 21% | | 151 | | -30% | |
| Change in FDIC Indemnification Asset | | (3,145) | | (2,991) | | 5% | | (1,728) | | 82% | |
| Gain on Disposition of Covered Assets | | 556 | | 629 | | -12% | | 767 | | -28% | |
| Other Income | | 341 | | 314 | | 9% | | 975 | | -65% | |
| Total Noninterest Income | | 988 | | 1,297 | | -24% | | 2,622 | | -62% | |
| | | | | | | | | | | | |
| Noninterest Expense | | | | | | | | | | | |
| Compensation and Employee Benefits | | 7,242 | | 7,334 | | -1% | | 6,909 | | 5% | |
| Occupancy and Equipment | | 1,659 | | 1,729 | | -4% | | 1,571 | | 6% | |
| Office Supplies and Printing | | 425 | | 413 | | 3% | | 470 | | -10% | |
| Data Processing | | 536 | | 528 | | 2% | | 502 | | 7% | |
| Consulting and Professional Fees | | 273 | | 243 | | 12% | | 201 | | 36% | |
| Intangible Amortization | | 128 | | 126 | | 2% | | 158 | | -19% | |
| Merger Related Expenses | | - | | - | | NA | | 135 | | -100% | |
| FDIC Premiums | | 317 | | 336 | | -6% | | 561 | | -43% | |
| FDIC Clawback Liability | | 1,098 | | 40 | | 2645% | | - | | NA | |
| Non-Covered OREO & Repossession Expenses | | 739 | | 374 | | 98% | | 341 | | 117% | |
| Covered OREO & Repossession Expenses | | 578 | | 574 | | 1% | | 349 | | 66% | |
| Other | | 2,114 | | 1,958 | | 8% | | 2,474 | | -15% | |
| Total Noninterest Expense | | 15,109 | | 13,655 | | 11% | | 13,671 | | 11% | |
| | | | | | | | | | | | |
| Income Before Provision for Income Tax | | 4,020 | | 6,944 | | -42% | | 5,757 | | -30% | |
| Provision for Income Tax | | 1,173 | | 2,171 | | -46% | | 1,745 | | -33% | |
| Net Income Available to Common Shareholders | | 2,847 | | 4,773 | | -40% | | 4,012 | | -29% | |
| Earnings per Common Share | | | | | | | | | | | |
| Net Income per Share, Basic | | $ 0.18 | | $ 0.31 | | -42% | | $ 0.26 | | -31% | |
| | | | | | | | | | | | |
| Net Income per Share, Diluted | | $ 0.18 | | $ �� 0.31 | | -42% | | $ 0.26 | | -31% | |
| | | | | | | | | | | | |
| Average Number of Common Shares Outstanding | | 15,411,000 | | 15,409,000 | | | | 15,334,000 | | | |
| Fully Diluted Average Common and Equivalent Shares Outstanding | | 15,446,000 | | 15,441,000 | | | | 15,404,000 | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
WBCO Reports 2Q12 EPS of $0.18
July 26, 2012
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| CONSOLIDATED STATEMENTS OF INCOME (unaudited) | | For the Six Months Ended | | One | |
| ($ in thousands, except per share data) | | June 30, | | Year | |
| | | 2012 | | 2011 | | Change | |
| Interest Income | | | | | | | |
| Non-Covered Loans | | $ 23,366 | | $ 25,206 | | -7% | |
| Covered Loans | | 19,250 | | 16,808 | | 15% | |
| Taxable Investment Securities | | 2,743 | | 1,601 | | 71% | |
| Tax Exempt Securities | | 531 | | 429 | | 24% | |
| Other | | 119 | | 111 | | 7% | |
| Total Interest Income | | 46,009 | | 44,155 | | 4% | |
| | | | | | | | |
| Interest Expense | | | | | | | |
| Deposits | | 3,549 | | 5,139 | | -31% | |
| Junior Subordinated Debentures | | 269 | | 241 | | 12% | |
| Total Interest Expense | | 3,818 | | 5,380 | | -29% | |
| | | | | | | | |
| Net Interest Income | | 42,191 | | 38,775 | | 9% | |
| Provision for Loan Losses, Non-Covered Loans | | 4,350 | | 6,000 | | -28% | |
| Provision (Recovery) for Loan Losses, Covered Loans | | 398 | | (318) | | -225% | |
| Net Interest Income after Provision for Loan Losses | | 37,443 | | 33,093 | | 13% | |
| | | | | | | | |
| Noninterest Income | | | | | | | |
| Service Charges and Fees | | 1,814 | | 1,928 | | -6% | |
| Electronic Banking Income | | 1,908 | | 1,517 | | 26% | |
| Investment Products | | 729 | | 605 | | 20% | |
| Gain on Sale of Investment Securities, Net | | 342 | | - | | NA | |
| Bank Owned Life Insurance Income | | 115 | | 161 | | -29% | |
| Income from the Sale of Loans | | 1,481 | | 542 | | 173% | |
| SBA Premium Income | | 192 | | 272 | | -29% | |
| Change in FDIC Indemnification Asset | | (6,136) | | (3,044) | | 102% | |
| Gain on Disposition of Covered Assets | | 1,185 | | 2,985 | | -60% | |
| Other Income | | 655 | | 1,388 | | -53% | |
| Total Noninterest Income | | 2,285 | | 6,354 | | -64% | |
| | | | | | | | |
| Noninterest Expense | | | | | | | |
| Compensation and Employee Benefits | | 14,576 | | 13,728 | | 6% | |
| Occupancy and Equipment | | 3,388 | | 3,238 | | 5% | |
| Office Supplies and Printing | | 838 | | 902 | | -7% | |
| Data Processing | | 1,064 | | 972 | | 9% | |
| Consulting and Professional Fees | | 516 | | 645 | | -20% | |
| Intangible Amortization | | 254 | | 315 | | -19% | |
| Merger Related Expenses | | - | | 254 | | -100% | |
| FDIC Premiums | | 653 | | 1,150 | | -43% | |
| FDIC Clawback Liability | | 1,138 | | - | | NA | |
| Non-Covered OREO & Repossession Expenses | | 1,113 | | 641 | | 74% | |
| Covered OREO & Repossession Expenses | | 1,152 | | 1,119 | | 3% | |
| Other | | 4,072 | | 4,763 | | -15% | |
| Total Noninterest Expense | | 28,764 | | 27,727 | | 4% | |
| | | | | | | | |
| Income Before Provision for Income Tax | | 10,964 | | 11,720 | | -6% | |
| Provision for Income Tax | | 3,344 | | 3,632 | | -8% | |
| Net Income | | 7,620 | | 8,088 | | -6% | |
| Preferred Dividends | | - | | 1,084 | | -100% | |
| Net Income Available to Common Shareholders | | $ 7,620 | | $ 7,004 | | 9% | |
| Earnings per Common Share | | | | | | | |
| Net Income per Share, Basic | �� | $ 0.49 | | $ 0.46 | | 7% | |
| | | | | | | | |
| Net Income per Share, Diluted | | $ 0.49 | | $ 0.45 | | 9% | |
| | | | | | | | |
| Average Number of Common Shares Outstanding | | 15,414,000 | | 15,332,000 | | | |
| Fully Diluted Average Common and Equivalent Shares Outstanding | | 15,449,000 | | 15,435,000 | | | |
| | | | | | | | |
WBCO Reports 2Q12 EPS of $0.18
July 26, 2012
Page 8
| CONSOLIDATED BALANCE SHEETS (unaudited) | | | | | | Three | | | | | One | |
| ($ in thousands except per share data) | | June 30, | | March 31, | | Month | | | June 30, | | Year | |
| | | 2012 | | 2012 | | Change | | | 2011 | | Change | |
| Assets | | | | | | | | | | | | |
| Cash and Due from Banks | | $ 22,871 | | $ 22,010 | | 4% | | | $ 22,739 | | 1% | |
| Interest-Bearing Deposits with Banks | | 95,111 | | 109,154 | | -13% | | | 140,505 | | -32% | |
| Total Cash and Cash Equivalents | | 117,982 | | 131,164 | | -10% | | | 163,244 | | -28% | |
| | | | | | | | | | | | | |
| Investment Securities Available for Sale | | 322,677 | | 320,694 | | 1% | | | 185,150 | | 74% | |
| | | | | | | | | | | | | |
| FHLB Stock | | 7,576 | | 7,576 | | 0% | | | 7,576 | | 0% | |
| | | | | | | | | | | | | |
| Loans Held for Sale | | 12,521 | | 10,011 | | 25% | | | 2,991 | | 319% | |
| | | | | | | | | | | | | |
| Loans Receivable | | 814,826 | | 818,650 | | 0% | | | 830,038 | | -2% | |
| Less: Allowance for Loan Losses | | (17,565) | | (17,993) | | -2% | | | (19,407) | | -9% | |
| Non-Covered Loans, Net | | 797,261 | | 800,657 | | 0% | | | 810,631 | | -2% | |
| | | | | | | | | | | | | |
| Covered Loans, Net Allowance for Loan Losses | | 241,717 | | 255,020 | | -5% | | | 298,478 | | -19% | |
| Premises and Equipment, Net | | 37,106 | | 37,426 | | -1% | | | 37,403 | | -1% | |
| Bank Owned Life Insurance | | 17,628 | | 17,573 | | 0% | | | 17,362 | | 2% | |
| Goodwill and Other Intangible Assets, Net | | 6,285 | | 6,413 | | -2% | | | 6,846 | | -8% | |
| Other Real Estate Owned | | 4,414 | | 1,830 | | 141% | | | 2,671 | | 65% | |
| Covered Other Real Estate Owned | | 23,000 | | 25,973 | | -11% | | | 32,690 | | -30% | |
| FDIC Indemnification Asset | | 54,867 | | 60,898 | | -10% | | | 89,906 | | -39% | |
| Other Assets | | 20,846 | | 21,319 | | -2% | | | 22,621 | | -8% | |
| Total Assets | | $ 1,663,880 | | $ 1,696,554 | | -2% | | | $ 1,677,569 | | -1% | |
| | | | | | | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | | | | | |
| Deposits: | | | | | | | | | | | | |
| Noninterest-Bearing Demand | | $ 235,486 | | $ 242,568 | | -3% | | | $ 198,465 | | 19% | |
| NOW Accounts | | 311,856 | | 293,819 | | 6% | | | 224,567 | | 39% | |
| Money Market | | 297,345 | | 323,645 | | -8% | | | 354,111 | | -16% | |
| Savings | | 102,803 | | 103,462 | | -1% | | | 95,483 | | 8% | |
| Time Deposits | | 502,420 | | 522,531 | | -4% | | | 610,286 | | -18% | |
| Total Deposits | | 1,449,910 | | 1,486,025 | | -2% | | | 1,482,912 | | -2% | |
| | | | | | | | | | | | | |
| Junior Subordinated Debentures | | 25,774 | | 25,774 | | 0% | | | 25,774 | | 0% | |
| Other Liabilities | | 12,443 | | 11,040 | | 13% | | | 7,312 | | 70% | |
| Total Liabilities | | 1,488,127 | | 1,522,839 | | -2% | | | 1,515,998 | | -2% | |
| Shareholders' Equity: | | | | | | | | | | | | |
| Common Stock (no par value) | | | | | | | | | | | | |
| Authorized 35,000,000 Shares: | | | | | | | | | | | | |
| Issued and Outstanding 15,446,221 at 6/30/12, | | | | | | | | | | | | |
| 15,419,472 at 3/31/12 and 15,343,760 at 6/30/11 | | 85,101 | | 84,853 | | 0% | | | 83,982 | | 1% | |
| Retained Earnings | | 86,718 | | 86,031 | | 1% | | | 76,780 | | 13% | |
| Accumulated Other Comprehensive Income | | 3,934 | | 2,831 | | 39% | | | 809 | | 386% | |
| Total Shareholders' Equity | | 175,753 | | 173,715 | | 1% | | | 161,571 | | 9% | |
| Total Liabilities and Shareholders' Equity | | $ 1,663,880 | | $ 1,696,554 | | -2% | | | $ 1,677,569 | | -1% | |
| | | | | | | | | | | | | |
WBCO Reports 2Q12 EPS of $0.18
July 26, 2012
Page 9
| FINANCIAL STATISTICS (unaudited) | | | Quarter Ended | | Quarter Ended | | Quarter Ended | | Quarter Ended | | Six Month Ended | |
| ($ in thousands, except per share data) | | | June 30, | | March 31, | | December 31, | | June 30, | | June 30, | |
| | | | 2012 | | 2012 | | 2011 | | 2011 | | 2012 | | 2011 | |
| | | | | | | | | | | | | | | |
| Averages | | | | | | | | | | | | | | |
| Total Assets | | | $ 1,671,825 | | $ 1,665,597 | | $ 1,670,572 | | $ 1,680,799 | | $ 1,668,711 | | $1,684,046 | |
| Non-Covered Loans and Loans Held for Sale | | | 825,779 | | 826,528 | | 830,519 | | 833,562 | | 826,153 | | 834,593 | |
| Covered Loans | | | 248,079 | | 262,580 | | 274,463 | | 319,839 | | 255,329 | | 336,606 | |
| Interest Earning Assets | | | 1,501,373 | | 1,493,322 | | 1,488,674 | | 1,468,594 | | 1,497,348 | | 1,465,539 | |
| Deposits | | | 1,460,266 | | 1,459,296 | | 1,472,059 | | 1,490,227 | | 1,459,781 | | 1,493,299 | |
| Common Shareholders' Equity | | | 174,565 | | 171,975 | | 166,933 | | 158,604 | | 173,270 | | 158,868 | |
| | | | | | | | | | | | | | | |
| Financial Ratios | | | | | | | | | | | | | | |
| Return on Average Assets, Annualized | | | 0.68% | | 1.15% | | 1.01% | | 0.96% | | 0.92% | | 0.97% | |
| Return on Average Common Equity, Annualized(1) | | | 6.56% | | 11.16% | | 10.07% | | 10.15% | | 8.84% | | 8.89% | |
| Efficiency Ratio(2) | | | 68.20% | | 59.72% | | 63.35% | | 61.13% | | 63.89% | | 60.76% | |
| Yield on Earning Assets(2) | | | 6.16% | | 6.34% | | 6.21% | | 6.12% | | 6.25% | | 6.15% | |
| Cost of Interest Bearing Liabilities | | | 0.60% | | 0.63% | | 0.67% | | 0.81% | | 0.61% | | 0.82% | |
| Net Interest Spread | | | 5.56% | | 5.71% | | 5.54% | | 5.31% | | 5.64% | | 5.33% | |
| Net Interest Margin(2) | | | 5.67% | | 5.81% | | 5.63% | | 5.39% | | 5.74% | | 5.41% | |
| | | | | | | | | | | | | | | |
| Tangible Book Value Per Share(3) | | | $ 10.97 | | $ 10.85 | | $ 10.67 | | $ 10.08 | | $ 10.97 | | $ 10.08 | |
| Tangible Common Equity(3) | | | 10.22% | | 9.90% | | 9.87% | | 9.26% | | 10.22% | | 9.26% | |
| | | | | | | | | | | | | | | |
| | | | June 30, | | March 31, | | December 31, | | June 30, | | Regulatory Requirements | |
| | | | 2012 | | 2012 | | 2011 | | 2011 | | Adequately- capitalized | | Well- capitalized | |
| Period End | | | | | | | | | | | | | | |
| Total Risk-Based Capital Ratio - Consolidated(4) | | | 19.90% | | 19.94% | | 19.73% | | 19.50% | | 8.00% | | NA | |
| Tier 1 Risk-Based Capital Ratio - Consolidated (4) | | | 18.64% | | 18.69% | | 18.47% | | 18.24% | | 4.00% | | NA | |
| Tier 1 Leverage Ratio - Consolidated(4) | | | 11.46% | | 11.49% | | 11.16% | | 10.67% | | 4.00% | | NA | |
| Total Risk-Based Capital Ratio - Whidbey Island Bank(4) | | | 19.16% | | 19.32% | | 19.09% | | 18.90% | | 8.00% | | 10.00% | |
| Tier 1 Risk-Based Capital Ratio - Whidbey Island Bank(4) | | | 17.91% | | 18.07% | | 17.84% | | 17.65% | | 4.00% | | 6.00% | |
| Tier 1 Leverage Ratio - Whidbey Island Bank (4) | | | 11.04% | | 11.10% | | 10.77% | | 10.31% | | 4.00% | | 5.00% | |
| | | | | | | | | | | | | | | |
(1) Return on average common equity is adjusted for preferred stock dividends.
(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, revenue 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) 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.
(4) Capital ratios for the most recent period are an estimate pending filing of the Company's regulatory reports.
WBCO Reports 2Q12 EPS of $0.18
July 26, 2012
Page 10
| NON-COVERED ASSET QUALITY (unaudited) | | | Quarter Ended | | Quarter Ended | | Quarter Ended | | Six Months Ended | |
| ($ in thousands, except per share data) | | | June 30, | | March 31, | | June 30, | | June 30, | |
| | | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| Allowance for Non-Covered Loan Losses Activity: | | | | | | | | | | | | |
| Balance at Beginning of Period | | | $ 17,993 | | $ 18,032 | | $ 19,238 | | $ 18,032 | | $ 18,812 | |
| Indirect Loans: | | | | | | | | | | | | |
| Charge-offs | | | (135) | | (291) | | (277) | | (426) | | (625) | |
| Recoveries | | | 109 | | 135 | | 246 | | 244 | | 382 | |
| Indirect Net Charge-offs | | | (26) | | (156) | | (31) | | (182) | | (243) | |
| | | | | | | | | | | | | |
| Other Loans: | | | | | | | | | | | | |
| Charge-offs | | | (2,820) | | (1,942) | | (2,992) | | (4,762) | | (5,543) | |
| Recoveries | | | 68 | | 59 | | 192 | | 127 | | 381 | |
| Other Net Charge-offs | | | (2,752) | | (1,883) | | (2,800) | | (4,635) | | (5,162) | |
| | | | | | | | | | | | | |
| Total Net Charge-offs | | | (2,778) | | (2,039) | | (2,831) | | (4,817) | | (5,405) | |
| Provision for Loan Losses, Non-Covered Loans | | | 2,350 | | 2,000 | | 3,000 | | 4,350 | | 6,000 | |
| Balance at End of Period | | | $ 17,565 | | $ 17,993 | | $ 19,407 | | $ 17,565 | | $ 19,407 | |
| | | | | | | | | | | | | |
| Net Charge-offs to Average Loans: | | | | | | | | | | | | |
| Indirect Loans Net Charge-Offs, to Avg Indirect Loans, Annualized(1) | | | 0.13% | | 0.77% | | 0.14% | | 0.45% | | 0.54% | |
| Other Loans Net Charge-Offs, to Avg Other Loans, Annualized (1) | | | 1.50% | | 1.04% | | 1.51% | | 1.27% | | 1.41% | |
| Net Charge-offs to Average Total Loans(1) | | | 1.37% | | 1.01% | | 1.37% | | 1.19% | | 1.31% | |
| | | | | | | | | | | | | |
| | | | June 30, | | March 31, | | June 30, | | | | | |
| | | | 2012 | | 2012 | | 2011 | | | | | |
| Nonperforming Non-Covered Assets | | | | | | | | | | | | |
| Nonperforming Non-Covered Loans(2) | | | $ 17,165 | | $ 22,340 | | $ 27,952 | | | | | |
| Non-Covered Other Real Estate Owned | | | 4,414 | | 1,830 | | 2,671 | | | | | |
| Total Nonperforming Non-Covered Assets | | | $ 21,579 | | $ 24,170 | | $ 30,623 | | | | | |
| Nonperforming Non-Covered Loans to Total Non-Covered Loans(1) | | | 2.11% | | 2.73% | | 3.37% | | | | | |
| Nonperforming Non-Covered Assets to Total Assets | | | 1.30% | | 1.42% | | 1.83% | | | | | |
| Allowance for Loan Losses to Nonperforming Non-Covered Loans | | | 102.33% | | 80.54% | | 69.43% | | | | | |
| Allowance for Loan Losses to Non-Covered Loans | | | 2.16% | | 2.20% | | 2.34% | | | | | |
| | | | | | | | | | | | | |
| Non-Covered Loan Composition | | | | | | | | | | | | |
| Commercial | | | $ 158,087 | | $ 156,594 | | $ 153,775 | | | | | |
| Real Estate Mortgages | | | | | | | | | | | | |
| One-to-Four Family Residential | | | 37,700 | | 38,987 | | 44,255 | | | | | |
| Commercial | | | 382,502 | | 378,355 | | 358,748 | | | | | |
| Real Estate Construction | | | | | | | | | | | | |
| One-to-Four Family Residential | | | 49,678 | | 56,963 | | 66,201 | | | | | |
| Commercial | | | 29,904 | | 31,236 | | 35,832 | | | | | |
| Consumer | | | | | | | | | | | | |
| Indirect | | | 78,699 | | 78,809 | | 85,900 | | | | | |
| Direct | | | 76,390 | | 75,838 | | 83,210 | | | | | |
| Deferred Costs | | | 1,866 | | 1,868 | | 2,117 | | | | | |
| Total Non-Covered Loans | | | $ 814,826 | | $ 818,650 | | $ 830,038 | | | | | |
| | | | | | | | | | | | | |
| Time Deposit Composition | | | | | | | | | | | | |
| Time Deposits $100,000 and more | | | $ 211,726 | | $ 217,422 | | $ 253,606 | | | | | |
| All Other Time Deposits | | | 277,468 | | 291,886 | | 348,528 | | | | | |
| Brokered Deposits | | | | | | | | | | | | |
| CDARS (Certificate of Deposit Account Registry Service) | | | 13,226 | | 13,223 | | 8,152 | | | | | |
| Total Time Deposits | | | $ 502,420 | | $ 522,531 | | $ 610,286 | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
(1) Excludes Loans Held for Sale.
(2) Nonperforming loans includes nonaccrual loans plus accruing loans 90 or more days past due.
WBCO Reports 2Q12 EPS of $0.18
July 26, 2012
Page 11
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 | For the Six Months Ended | |
| | | | June 30, | | March 31, | | June 30, | | June 30, | |
| | | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | | | | | | | | | | | | |
| GAAP Earnings Available to Common Shareholders | | | $ 2,847 | | $ 4,773 | | $ 4,012 | | $ 7,620 | | $ 7,004 | |
| Provision for Income Taxes | | | 1,173 | | 2,171 | | 1,745 | | 3,344 | | 3,632 | |
| GAAP Earnings Available to Common Shareholders before Provision for Income Taxes | | | 4,020 | | 6,944 | | 5,757 | | 10,964 | | 10,636 | |
| Adjustments to GAAP Earnings Available to Common Shareholders | | | | | | | | | | | | |
| Acquisition-Related Costs | | | - | | - | | 135 | | - | | 254 | |
| Accelerated Accretion of Remaining Preferred Stock Discount | | | - | | - | | - | | - | | 1,046 | |
| Operating Earnings Before Taxes | | | 4,020 | | 6,944 | | 5,892 | | 10,964 | | 11,936 | |
| Provision for Income Taxes | | | 1,173 | | 2,171 | | 1,792 | | 3,344 | | 3,721 | |
| Net Operating Earnings | | | $ 2,847 | | $ 4,773 | | $ 4,100 | | $ 7,620 | | $ 8,215 | |
| | | | | | | | | | | | | |
| Diluted GAAP Earnings per Common Share | | | $ 0.18 | | $ 0.31 | | $ 0.26 | | $ 0.49 | | $ 0.45 | |
| Diluted Operating Earnings per Common Share | | | $ 0.18 | | $ 0.31 | | $ 0.27 | | $ 0.49 | | $ 0.53 | |
| | | | | | | | | | | | | |
Non-GAAP Financial Measures
Fully tax-equivalent net interest income and fully tax-equivalent net interest margin are non-GAAP performance measurements that management believes provides investors with a more accurate picture of the Company's operational performance and is consistent with industry practice. The calculation involves grossing up interest income on tax-exempt loans and investments by an amount that makes it comparable to taxable income.
The following table provides the reconciliation of the Company's net interest income and net interest margin (GAAP) to a fully tax-equivalent net interest income and fully tax-equivalent net interest margin (non-GAAP) for the periods presented:
| | | | Quarter Ended | For the Six Months Ended | |
| | | | June 30, | | March 31, | | June 30, | | June 30, | |
| | | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | | | | | | | | | | | | |
| Net Interest Income | | | $ 20,889 | | $ 21,302 | | $ 19,488 | | $ 42,191 | | $ 38,775 | |
| Tax-Equivalent Adjustment | | | 277 | | 265 | | 255 | | 542 | | 506 | |
| Tax-Equivalent Net Interest Income | | | 21,166 | | 21,567 | | 19,743 | | 42,733 | | 39,281 | |
| | | | | | | | | | | | | |
| Average Interest Earning Assets | | | 1,501,373 | | 1,493,322 | | 1,468,594 | | 1,497,348 | | 1,465,539 | |
| | | | | | | | | | | | | |
| Net Interest Margin | | | 5.60% | | 5.74% | | 5.32% | | 5.67% | | 5.34% | |
| Tax-Equivalent Net Interest Margin | | | 5.67% | | 5.81% | | 5.39% | | 5.74% | | 5.41% | |
| | | | | | | | | | | | | |
Non-GAAP Financial Measures
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.
WBCO Reports 2Q12 EPS of $0.18
July 26, 2012
Page 12
Neither tangible common equity, tangible assets and tangible book value per common share should be considered in isolation or as a substitute for common shareholders' equity or book value per common share or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Company calculates tangible common equity, tangible assets and tangible book value per share may differ from that of other companies reporting measures with similar names.
The following table provides the reconciliation of the Company's shareholders' equity (GAAP) to tangible common equity (non-GAAP) and total assets (GAAP) to tangible assets (non-GAAP) for the periods presented:
| | | | June 30, | | March 31, | | June 30, | |
| ($ in thousands, except per share data) | | | 2012 | | 2012 | | 2011 | |
| | | | | | | | | |
| Total Shareholders' Equity | | | $ 175,753 | | $ 173,715 | | $ 161,571 | |
| Adjustments to Shareholders' Equity | | | | | | | | |
| Goodwill and Other Intangible Assets, Net(1) | | | (6,285) | | (6,413) | | (6,846) | |
| Tangible Common Equity | | | 169,468 | | 167,302 | | 154,725 | |
| | | | | | | | | |
| Total Assets | | | $ 1,663,880 | | $ 1,696,554 | | $ 1,677,569 | |
| Adjustments to Total Assets | | | | | | | | |
| Goodwill and Other Intangible Assets, Net(1) | | | (6,285) | | (6,413) | | (6,846) | |
| Tangible Assets | | | 1,657,595 | | 1,690,141 | | 1,670,723 | |
| | | | | | | | | |
| Common Shares Outstanding at Period End | | | 15,446,221 | | 15,419,472 | | 15,343,760 | |
| | | | | | | | | |
| Tangible Common Equity | | | 10.22% | | 9.90% | | 9.26% | |
| Tangible Book Value per Common Share | | | $ 10.97 | | $ 10.85 | | $ 10.08 | |
| | | | | | | | | |
(1) Goodwill and Other Intangible Assets, Net excludes mortgage servicing rights
-0-
Note: Transmitted on Business Wire on July 26, 2012, at 1:00 p.m. PT.
