| CONTACT: | Michal D. Cann - President & CEO
Rick A. Shields - SVP & CFO
360.679.3121 | CORPORATE INVESTOR RELATIONS
5333 - 15THAVENUE SOUTH, SUITE 1500
SEATTLE, WA 98108
206.762.0993
www.stockvalues.com |
NEWS RELEASE
WASHINGTON BANKING COMPANY’S NET INCOME RISES 89% IN SECOND QUARTER 2005; ROE EXCEEDS 18%
OAK HARBOR, WA – July 20, 2005 – Washington Banking Company (Nasdaq: WBCO) today reported that a sustained focus on gaining core deposits contributed to record profits and substantial net interest margin improvement in the second quarter of 2005. For the quarter ended June 30, 2005, net income increased 89% to a record $2.3 million, or $0.31 per diluted share, compared to $1.2 million, or $0.17 per diluted share a year ago. For the first six months of 2005, net income grew 88% to $4.4 million, or $0.58 per diluted share, from $2.3 million, or $0.31 per diluted share in the same period last year. All per share data has been adjusted to reflect the 4-for-3 stock split issued May 17, 2005.
Year-ago results were negatively impacted by ($0.03) per diluted share in the second quarter and ($0.05) per diluted share in the first half, due to the operating loss and closing costs associated with Washington Funding Group (WFG), a wholesale mortgage funding subsidiary that was closed in mid-2004. Excluding this discontinued operation, earnings per diluted share grew 55% for the quarter and 61% for the six-month period.
“Basic banking has really been our focal point during the past year,” stated Michal Cann, President and CEO. “Our employees have done a tremendous job in continuing to develop and strengthen new and existing customer relationships.” Cann added that the relatively low interest rates, a growing population, and a steadily improving economy helped set the stage for the Company’s growth. “Knowing our borrowers and their businesses is equally important and has helped us to maintain solid credit quality while posting record profits,” he said.
FINANCIAL HIGHLIGHTS
Second quarter 2005 highlights, compared to a year ago, include:
- Profits increased 89% to a record $2.3 million.
- Return on average equity (ROE) improved to 18.24%.
- Return on average assets (ROA) improved to 1.37%.
- Net interest margin expanded by 28 basis points to 5.32%.
- Kept funding costs down by achieving a 32% increase in noninterest-bearing deposits.
- Net charge-offs, nonperforming loans, and nonperforming assets all improved.
- Efficiency ratio improved by more than five percentage points to 59.83%.
“It was a high point for us to hit an ROE above 18% this quarter,” Cann said. “We had identified exceeding 18% as one of our long-term goals, and we are certainly making progress in that area. Our strategy was to maintain outstanding credit quality and lower our cost of funds while keeping operating expenses in check, and our success is reflected in our performance ratios.”
ROE improved to 18.24% in the second quarter of 2005, compared to 11.01% a year earlier. For the six-month period, ROE grew to 17.44% in 2005, from 10.46% in the first half of the previous year. ROA improved to 1.37% in the second quarter and 1.32% in the first half of 2005, versus 0.80% and 0.77%, respectively, in 2004. “While last year’s ROE and ROA ratios were impacted by WFG,” noted Cann, “the improvement in our ratios is significant and our numbers now exceed several of our peers.”
“Attracting low-cost deposits was set as a primary goal for 2005, and our efforts are paying off,” stated Rick Shields, Senior Vice President and Chief Financial Officer. “We increased noninterest-bearing accounts 32% and low-cost interest-bearing deposits 10%, while higher-cost time deposits increased just 6% over the last year. Expanding existing relationships with our lending customers and small businesses has helped grow core deposits substantially and contributed to our net interest margin expansion.”
Core deposits, which exclude time deposits, increased to 63% of total deposits, compared to 61% a year ago. Total deposits were $623.0 million at June 30, 2005, compared to $558.0 million a year earlier, an increase of 12%. The net interest margin, on a fully tax equivalent basis, increased to 5.32% in the second quarter of 2005, compared to 5.20% in the previous quarter and 5.04% in the second quarter of 2004.
“We remain on track for double-digit loan growth in 2005,” stated Cann. “Construction and commercial real estate lending remain particularly strong, growing 29% and 21%, respectively, over the past year. While commercial loans are basically unchanged from a year ago, they are up slightly over the past six months and will remain a focus as we continue to emphasize relationship banking.”
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WBCO – 2Q05 Profits Up 89%
July 20, 2005
Page Two
At June 30, 2005, total loans were $610.7 million, up 13% from $540.3 million a year prior. Commercial real estate loans were 31% of total loans at quarter end, compared to 29% at the end of June 2004, and real estate construction loans grew to 19%, from 16% of total loans at the end of the second quarter last year. Commercial loans, although up slightly in dollars, declined as a percentage of total loans to 14%, compared to 16% at the halfway point last year. Consumer loans, excluding indirect auto, and single-family mortgages remained unchanged from a year ago at 13% and 7% of total loans, respectively. Indirect loans accounted for 16% of total loans at the end of the second quarter, down from 18% a year ago. As part of the strategy to diversify risk, the Company sold a portion, approximately $1.0 million, of its indirect production to another financial institution and management expects to continue the practice on an ongoing basis.
“Credit quality has improved on both a year-over-year and sequential quarter basis, reflecting our commitment to maintaining strict underwriting standards,” Shields said. “Net charge-offs have reached a remarkably low, probably unsustainable level. As a result of our excellent asset quality and nominal losses, we lowered our provision for loan losses in the quarter while still improving our coverage ratios.”
Nonperforming loans were $2.6 million, or 0.42% of total loans at the end of June 2005, compared to $4.8 million, or 0.89% of total loans a year earlier. Nonperforming assets decreased to $3.5 million, or 0.49% of total assets, from $5.3 million, or 0.83% of total assets at the end of the second quarter last year. Net charge-offs decreased to $23,000 in the most recent quarter, a substantial improvement from $329,000 a year ago. The provision for loan losses was $525,000 in the second quarter of 2005, bringing the allowance for loan losses to $8.6 million, or 1.40% of total loans, compared to $6.9 million or 1.28% of total loans at the end of the second quarter last year.
Shareholders’ equity increased 15% to $53.3 million at the end of June 2005, from $46.3 million at the end of the second quarter last year. Book value per share grew to $7.28 at quarter-end, from $6.41 at June 30, 2004.
“Controlling operating expenses resulted in an improved efficiency ratio,” Shields said. “With an efficiency ratio below 60% in the second quarter, we are making progress toward our stated long-term goal of the mid-50s despite continued Sarbanes-Oxley compliance and other operating costs.” The efficiency ratio improved to 59.83% in the second quarter compared to 65.59% in the second quarter last year. For the first half of 2005, the efficiency ratio was 61.39%, an improvement from 66.44% in the six months ended June 30, 2004.
In the second quarter of 2005, interest income and interest expense increased 19% and 29% over the previous year, respectively, reflecting the rising interest rate environment and expanding balance sheet. Net interest income increased 16% to $8.3 million in the most recent quarter, compared to $7.2 million in the second quarter last year. In the first half of 2005, net interest income grew 14% to $16.1 million, compared to $14.2 million in the first six months of 2004. Noninterest income grew 10% in the 2005 second quarter to $1.9 million, from $1.7 million in the second quarter last year, primarily attributable to gains from annuity and investment sales, Bank Owned Life Insurance, and SBA premiums, offset by a sizable decrease in gains on asset sales. For the six-month period, noninterest income increased 14% to $3.5 million, compared to $3.1 million in the like period last year.
Noninterest expense grew a nominal 4% in the 2005 second quarter to $6.2 million, compared to $5.9 million in the second quarter last year, despite expenses incurred since opening the Friday Harbor branch in January 2005. Noninterest expense for the first six months of this year was up 5% to $12.1 million, from $11.6 million in the six-month period ended June 30, 2004.
Revenues increased 14% to $10.3 million in the second quarter, from $9.0 million in the same quarter last year, with both components, net interest income and noninterest income, showing double-digit increases. For the six-month period ended June 30, revenues grew 13% to $19.8 million in 2005, versus $17.5 million the previous year.
EARNINGS CONFERENCE CALL AND WEBCAST
Management will host a conference call today, July 20, at 11:00 am PDT (2:00 pm EDT) to discuss results for the second quarter. Investment professionals and all current and prospective shareholders are invited to access the live call by dialing (303) 262-2130, or to listen to the call live from the Investor Relations page of Whidbey Island Bank’s website, www.wibank.com. Shortly after the call concludes, the replay will be archived for three weeks at (303) 590-3000, using access code 11032620#.
ABOUT WASHINGTON BANKING COMPANY
Washington Banking Company is a bank holding company based in Oak Harbor, Washington, that operates Whidbey Island Bank, a state-chartered full-service commercial bank. Founded in 1961, Whidbey Island Bank provides various deposit, loan and investment services to meet customers’ financial needs. Whidbey Island Bank operates 19 full-service branches located in five counties in Northwestern Washington.
www.wibank.com
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WBCO – 2Q05 Profits Up 89%
July 20, 2005
Page Three
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | | Three Months Ended | | Six Months Ended |
($ in thousands, except per share data) | | June 30, | | June 30, |
| | 2005 | | 2004 | | 2005 | | 2004 |
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Interest Income | | | | | | | | |
Loans | $ | 10,943 | $ | 9,091 | $ | 21,037 | $ | 17,864 |
Taxable Investment Securities | | 80 | | 79 | | 168 | | 187 |
Tax Exempt Securities | | 79 | | 139 | | 159 | | 302 |
Other | | 35 | | 52 | | 66 | | 93 |
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Total Interest Income | | 11,137 | | 9,361 | | 21,430 | | 18,446 |
| | | | | | | | |
Interest Expense | | | | | | | | |
Deposits | | 2,359 | | 1,881 | | 4,466 | | 3,649 |
Other Borrowings | | 177 | | 101 | | 346 | | 247 |
Junior Subordinated Debentures | | 260 | | 184 | | 497 | | 364 |
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Total Interest Expense | | 2,796 | | 2,166 | | 5,309 | | 4,260 |
| | | | | | | | |
Net Interest Income | | 8,341 | | 7,195 | | 16,121 | | 14,186 |
| | | | | | | | |
Provision for Loan Losses | | 525 | | 775 | | 950 | | 1,600 |
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Net Interest Income after Provision for Loan Losses | | 7,816 | | 6,420 | | 15,171 | | 12,586 |
| | | | | | | | |
Noninterest Income | | | | | | | | |
Service Charges and Fees | | 771 | | 771 | | 1,470 | | 1,517 |
(Loss) Gain on Sale of Securities | | (50) | | 144 | | (50) | | 144 |
Income from the Sale of Loans | | 212 | | 400 | | 384 | | 678 |
Other Income | | 959 | | 405 | | 1,739 | | 758 |
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Total Noninterest Income | | 1,892 | | 1,720 | | 3,543 | | 3,097 |
| | | | | | | | |
Noninterest Expense | | | | | | | | |
Compensation and Employee Benefits | | 3,802 | | 3,421 | | 7,233 | | 6,906 |
Occupancy and Equipment | | 1,096 | | 991 | | 2,053 | | 1,962 |
Office Supplies and Printing | | 171 | | 163 | | 356 | | 316 |
Data Processing | | 138 | | 126 | | 256 | | 242 |
Other | | 952 | | 1,205 | | 2,248 | | 2,185 |
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Total Noninterest Expense | | 6,159 | | 5,906 | | 12,146 | | 11,611 |
| | | | | | | | |
Income Before Income Taxes | | 3,549 | | 2,234 | | 6,568 | | 4,072 |
Provision for Income Taxes | | 1,200 | | 742 | | 2,176 | | 1,362 |
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Income from Continuing Operations | | 2,349 | | 1,492 | | 4,392 | | 2,710 |
Loss from Discontinued Operations, Net of Tax | | — | | (247) | | — | | (370) |
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Net Income | $ | 2,349 | $ | 1,245 | $ | 4,392 | $ | 2,340 |
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Earnings per Common Share (1) | | | | | | | | |
Basic | | | | | | | | |
Continuing Operations | $ | 0.32 | $ | 0.21 | $ | 0.60 | $ | 0.38 |
Discontinued Operations | | — | | (0.03) | | — | | (0.05) |
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Net Income | $ | 0.32 | $ | 0.18 | $ | 0.60 | $ | 0.33 |
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Diluted | | | | | | | | |
Continuing Operations | $ | 0.31 | $ | 0.20 | $ | 0.58 | $ | 0.36 |
Discontinued Operations | | — | | (0.03) | | — | | (0.05) |
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Net Income | $ | 0.31 | $ | 0.17 | $ | 0.58 | $ | 0.31 |
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Average Number of Common Shares Outstanding (1) | | 7,301,519 | | 7,213,313 | | 7,275,511 | | 7,199,175 |
Fully Diluted Average Common and Common Equivalent Shares Outstanding (1) | | 7,573,462 | | 7,483,280 | | 7,546,323 | | 7,471,755 |
| | | | | | | | |
(1) Prior periods re-stated for 4-for-3 stock split distributed on May 17, 2005. | | | | | | | | |
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WBCO – 2Q05 Profits Up 89%
July 20, 2005
Page Four
CONSOLIDATED BALANCE SHEETS (unaudited) |
($ in thousands except per share data) | | | June 30, | | December 31, | | June 30, |
| | | 2005 | | 2004 | | 2004 |
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Assets | | | | | | | |
Cash and Due from Banks | | $ | 18,644 | $ | 16,814 | $ | 19,832 |
Interest-Bearing Deposits with Banks | | | 795 | | 1,119 | | 210 |
Fed Funds Sold | | | 12,775 | | — | | 5,510 |
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Total Cash and Cash Equivalents | | | 32,214 | | 17,933 | | 25,552 |
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Investment Securities Available for Sale | | | 18,224 | | 19,304 | | 19,259 |
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Subsidiary Investment in the Trust | | | 271 | | 295 | | 320 |
FHLB Stock | | | 1,984 | | 1,976 | | 2,325 |
| | | | | | | |
Loans Held for Sale | | | 11,339 | | 8,311 | | 15,859 |
Loans Receivable | | | 610,698 | | 579,980 | | 540,336 |
Less: Allowance for Loan Losses | | | (8,554) | | (7,903) | | (6,926) |
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Loans, Net | | | 602,144 | | 572,077 | | 533,410 |
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Premises and Equipment, Net | | | 20,882 | | 20,375 | | 20,496 |
Bank Owned Life Insurance | | | 10,385 | | 10,217 | | 10,010 |
Other Real Estate Owned | | | 870 | | 1,222 | | 426 |
Other Assets | | | 7,280 | | 6,014 | | 5,814 |
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Total Assets | | $ | 705,593 | $ | 657,724 | $ | 633,471 |
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Liabilities and Shareholders’ Equity | | | | | | | |
Deposits: | | | | | | | |
Noninterest-Bearing Demand | | $ | 99,780 | $ | 77,820 | $ | 75,560 |
NOW Accounts | | | 65,490 | | 52,019 | | 55,855 |
Money Market | | | 173,279 | | 167,238 | | 164,295 |
Savings | | | 55,618 | | 55,742 | | 47,274 |
Time Deposits | | | 228,849 | | 210,182 | | 215,028 |
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Total Deposits | | | 623,016 | | 563,001 | | 558,012 |
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FHLB Overnight Borrowings | | | — | | 22,000 | | 4,000 |
Other Borrowed Funds | | | 10,000 | | 5,000 | | 7,500 |
Junior Subordinated Debentures | | | 15,007 | | 15,007 | | 15,007 |
Other Liabilities | | | 4,246 | | 3,125 | | 2,680 |
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Total Liabilities | | | 652,269 | | 608,133 | | 587,199 |
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Shareholders’ Equity: | | | | | | | |
Preferred Stock (no par value) | | | | | | | |
Authorized 20,000 Shares: | | | | | | | |
None Outstanding | | | — | | — | | — |
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Common Stock (no par value) | | | | | | | |
Authorized 11,822,706 Shares: | | | | | | | |
Issued and Outstanding 7,321,587 at 6/30/05, | | | | | | |
7,239,052 at 12/31/04, 7,213,332 at 6/30/04 (1) | 31,779 | | 31,516 | | 31,291 |
Retained Earnings | | | 21,520 | | 17,928 | | 14,878 |
Unrealized Gain on Securities Available for Sale, Net of Tax | 25 | | 147 | | 103 |
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Total Shareholders’ Equity | | | 53,324 | | 49,591 | | 46,272 |
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Total Liabilities and Shareholders’ Equity | | $ | 705,593 | $ | 657,724 | $ | 633,471 |
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(1) Prior periods re-stated for 4-for-3 stock split distributed on 5/17/05. |
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WBCO – 2Q05 Profits Up 89%
July 20, 2005
Page Five
ASSET QUALITY | | | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands, except per share data) | | | 2005 | | 2004 | | 2005 | | 2004 |
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Allowance for Loan Losses Activity: | | | | | | | | | |
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Balance at Beginning of Period | | $ | 8,052 | $ | 6,480 | $ | 7,903 | $ | 6,116 |
Indirect Loans: | | | | | | | | | |
Charge-offs | | | (116) | | (290) | | (434) | | (697) |
Recoveries | | | 120 | | 46 | | 201 | | 163 |
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Indirect Net Charge-offs | | | 4 | | (244) | | (233) | | (534) |
Other Loans: | | | | | | | | | |
Charge-offs | | | (88) | | (211) | | (352) | | (467) |
Recoveries | | | 61 | | 126 | | 286 | | 211 |
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Other Net Charge-offs | | | (27) | | (85) | | (66) | | (256) |
Total Net Charge-offs | | | (23) | | (329) | | (299) | | (790) |
Provision for loan losses | | | 525 | | 775 | | 950 | | 1,600 |
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Balance at End of Period | | $ | 8,554 | $ | 6,926 | $ | 8,554 | $ | 6,926 |
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Net Charge-offs to Average Loans: | | | | | | | | | |
Indirect Loans Net Charge-offs, to Avg Indirect Loans, Annualized (1) | -0.02% | | 0.91% | | 0.48% | | 1.00% |
Other Loans Net Charge-offs, to Avg Other Loans, Annualized (1) | 0.02% | | 0.08% | | 0.03% | | 0.12% |
Net Charge-offs to Average Total Loans, Annualized (1) | 0.02% | | 0.25% | | 0.10% | | 0.30% |
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| | | | | June 30, | | December 31, | June 30, |
| | | | | 2005 | | 2004 | 2004 |
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Nonperforming Assets | | | | | | | | | |
Nonperforming Loans (2) | | | | $ | 2,585 | $ | 2,812 | $ | 4,829 |
Other Real Estate Owned | | | | | 870 | | 1,222 | | 426 |
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Total Nonperforming Assets | | | | $ | 3,455 | $ | 4,034 | $ | 5,255 |
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Nonperforming Loans to Loans (1) | | | | | 0.42% | | 0.48% | | 0.89% |
Nonperforming Assets to Assets | | | | | 0.49% | | 0.61% | | 0.83% |
Allowance for Loan Losses to Nonperforming Loans | 330.91% | | 281.05% | | 143.43% |
Allowance for Loan Losses to Nonperforming Assets | 247.58% | | 195.91% | | 131.80% |
Allowance for Loan Losses to Loans (1) | | | | | 1.40% | | 1.36% | | 1.28% |
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Loan Composition | | | | | | | | | |
Commercial | | | | $ | 84,403 | $ | 80,927 | $ | 84,098 |
Real Estate Mortgages | | | | | | | | | |
One-to-Four Family Residential (1) | | | | | 42,741 | | 46,242 | | 37,135 |
Commercial | | | | | 192,127 | | 173,280 | | 159,344 |
Real Estate Construction | | | | | 113,391 | | 105,940 | | 87,611 |
Consumer | | | | | | | | | |
Indirect (1) | | | | | 95,996 | | 97,856 | | 99,032 |
Direct | | | | | 81,771 | | 75,360 | | 72,685 |
Deferred Fees | | | | | 269 | | 375 | | 431 |
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Total Loans | | | | $ | 610,698 | $ | 579,980 | $ | 540,336 |
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(1) Excludes Loans Held for Sale. | | | | | | | | | |
(2) Nonperforming loans includes nonaccrual loans plus accruing loans 90 or more days past due |
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WBCO – 2Q05 Profits Up 89%
July 20, 2005
Page Six
| Three Months Ended June 30, | Six Months Ended June 30, |
|---|
FINANCIAL STATISTICS (unaudited)
($ in thousands, except per share data)
| 2005
| 2004
| 2005
| 2004
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|---|
| Revenues(1) | | | $ | 10,295 | | $ | 9,004 | | $ | 19,786 | | $ | 17,475 | |
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| Averages | | |
| Total Assets | | | $ | 686,098 | | $ | 623,615 | | $ | 672,946 | | $ | 607,772 | |
| Loans and Loans Held for Sale | | | $ | 609,066 | | $ | 545,394 | | $ | 597,573 | | $ | 530,563 | |
| Interest Earning Assets | | | $ | 633,887 | | $ | 581,390 | | $ | 622,094 | | $ | 567,348 | |
| Deposits | | | $ | 595,701 | | $ | 549,622 | | $ | 582,437 | | $ | 530,676 | |
| Shareholders’ Equity | | | $ | 51,666 | | $ | 45,481 | | $ | 50,784 | | $ | 44,985 | |
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| Financial Ratios | | |
| Return on Average Assets, Annualized | | | | 1.37 | % | | 0.80 | % | | 1.32 | % | | 0.77 | % |
| Return on Average Equity, Annualized | | | | 18.24 | % | | 11.01 | % | | 17.44 | % | | 10.46 | % |
| Average Equity to Average Assets | | | | 7.53 | % | | 7.29 | % | | 7.55 | % | | 7.40 | % |
| Efficiency Ratio(2) (3) | | | | 59.83 | % | | 65.59 | % | | 61.39 | % | | 66.44 | % |
| Yield on Earning Assets(3) | | | | 7.09 | % | | 6.54 | % | | 6.99 | % | | 6.61 | % |
| Cost of Interest Bearing Liabilities | | | | 2.09 | % | | 1.76 | % | | 2.02 | % | | 1.79 | % |
| Net Interest Spread | | | | 5.00 | % | | 4.78 | % | | 4.97 | % | | 4.82 | % |
| Net Interest Margin(3) | | | | 5.32 | % | | 5.04 | % | | 5.27 | % | | 5.10 | % |
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| | | | | June 30, 2005 | | December 31, 2004 | June 30, 2004 |
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Period End | | | | | | | | | |
Book Value Per Share (4) | | | | | $ 7.28 | | $ 6.85 | | $ 6.41 |
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(1) Revenues is the fully tax-equivalent net interest income before provision for loan losses plus noninterest income. |
(2) Efficiency ratio is noninterest expense divided by the sum of fully tax equivalent net interest income and noninterest income. |
(3) Fully tax-equivalent is a nonGAAP 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. | | | | |
(4) Prior periods adjusted for the 4-for-3 stock split distributed on May 17,2005. | | | | |
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, maintenance of the net interest margin, credit quality and loan losses, the efficiency ratio 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 “should,” “probably,” “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) success of the Company’s expansion efforts. 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.
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NOTE: Transmitted on Business Wire at 3:30 a.m. PDT, July 20, 2005.
