updated 2/1/2011 7:45:43 PM ET 2011-02-02T00:45:43

OAK HARBOR, Wash., Feb. 1, 2011 (GLOBE NEWSWIRE) -- Washington Banking Company (Nasdaq:WBCO), the holding company for Whidbey Island Bank, today reported its core banking business generated strong operating profits in 2010 augmented by two FDIC-assisted acquisitions, which contributed an $18.9 million one-time bargain purchase gain in pretax income for the year. Before preferred dividends, net income grew to $25.3 million in 2010, compared to $6.2 million in 2009. Net income available to common shareholders was $23.6 million or $1.53 per diluted common share in 2010, compared to $4.6 million, or $0.46 per diluted common share, in 2009.

In the fourth quarter of 2010, Washington Banking earned $4.1 million, compared to $1.7 million for the same period last year. For the fourth quarter of 2010, net income available to common shareholders, after preferred dividend payments increased to $3.7 million, or $0.24 per diluted common share, compared to $1.3 million, or $0.11 per diluted common share, for the fourth quarter of 2009.

"It has been a pivotal year for our franchise," said Jack Wagner, President and Chief Executive Officer.  "The two FDIC-assisted acquisitions have proven to be strategically and financially attractive, filling out our branch network in Snohomish County and North King County.  We've added some very talented bankers to our ranks, not only from the institutions we acquired, but also from other banks, and they have been successful in bringing some terrific customer relationships to our franchise. In the short term, the acquisitions contributed a significant one-time pretax gain, added $4.9 million in goodwill to our balance sheet and greatly complicated the accounting and reporting process.  In addition, the gain and goodwill recognized are subject to future adjustment up to one year from the date of each acquisition. With all the accounting 'noise' from the acquisitions, we have included certain non-GAAP presentations that illustrate the earnings power of our franchise, which we hope will be useful to investors.

"Another item of significance is that we repaid $26.6 million to the US Treasury to redeem the preferred shares issued under the TARP Capital Purchase Program, while maintaining well-capitalized status. Since the redemption took place in January 2011, it is not reflected in the 2010 yearend statements," Wagner added.  

The core operating earnings available to common shareholders, which exclude merger related costs and the bargain purchase gain on the FDIC-assisted transactions, totaled $12.4 million, or $0.80 per diluted common share, in 2010, compared to $5.5 million, or $0.55 per diluted share in 2009. Core operating earnings and core operating earnings per share are non-GAAP financial measures; please refer to the GAAP reconciliation table in this release.

2010 Financial Highlights (December 31, 2010 compared to December 31, 2009)

  • Capital ratios exceeded all regulatory requirements for well-capitalized institutions, with Total Risk Based Capital to risk-adjusted assets of 21.05% compared to 22.15%. 
  • Tangible book value per common share increased to $9.69 compared to $8.79.
  • Deposits, including $633 million acquired through acquisitions, increased 76% year over year to $1.49 billion. Transaction account deposits in the acquired institutions increased $10.8 million since closing. 
  • Low cost demand, money market, savings and NOW accounts totaled $826 million and make up 55% of total deposits. 
  • Net non-covered loans increased $17.8 million from a year ago and totaled $815 million.   
  • The provision for non-covered loan losses was $12.2 million in 2010, a 19% increase from the $10.2 million a year ago.
  • Loan loss reserves increased to 2.25% of non-covered loans, from 1.99% a year ago.
  • A cash dividend of $0.05 per share will be paid March 1 to shareholders of record as of February 11.

Acquisition Update

Whidbey Island Bank completed two FDIC-assisted acquisitions in 2010 which include the former North County Bank, Arlington, WA and CityBank of Lynnwood, WA.  "The accounting for these transactions is complex and our year-end results include a number of accounting adjustments for both transactions," said Rick Shields, Chief Financial Officer. "These adjustments include changes to the pre-tax bargain purchase gain for both transactions, which decreased that line item for the year by approximately $347,000. In addition, we recorded approximately $4.9 million in goodwill for the CityBank acquisition. In accordance with accounting standards, we have adjusted our financial statements retrospectively." The adjusted June 30, 2010, and September 30, 2010, consolidated statements of income and balance sheets are included in this release for reference. Additionally, an analysis of actual versus expected cash flows for the City Bank acquired loan portfolio resulted in recording a covered loan provision of $1.3 million related to four of the 18 loan pools acquired. The provision was due to the timing of expected cash flows and was not credit quality driven. For the remaining pools, where the cash flows exceed day-1 valuation assumptions, Washington Banking is recognizing additional interest income and as a result is now amortizing the indemnification asset.

Covered loans 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 per generally accepted accounting principles (GAAP) requirements. Both the FDIC indemnification asset and the covered loan portfolio will decline over time, as the loans mature, payoff, or are otherwise resolved.

The following table shows the acquired deposits in both the North County and CityBank transactions. "We have kept most of the local deposits we wanted and allowed some brokered and other non-core deposits to run off. Consequently, about $273 million in time deposits ran off during the second half of the year," noted Wagner. "As you can see with the City acquisition, we have increased low-cost transaction deposits and reduced high cost certificates. At North County, most of the reduction in deposits was in high-cost time certificates. We continue to be very pleased with the deposit retention rate achieved by our new employees."

  City Bank
  April 16,

2010
December 31, 

2010
Period

Change
Acquired Deposit Composition      
Noninterest-Bearing Demand  $ 31,543  $ 43,421  $ 11,878
NOW Accounts  2,765  27,800  25,035
Money Market   96,331  67,034  (29,297)
Savings  26,703  30,616  3,913
Time Deposits  492,762  291,967  (200,795)
Total Acquired Deposits  $ 650,104  $ 460,838  $ (189,266)
       
  North County Bank
  September 30, 

2010
December 31,

2010
Period

Change
Acquired Deposit Composition      
Noninterest-Bearing Demand  $ 13,927  $ 12,800  $ (1,127)
NOW Accounts  18,116  19,931  1,815
Money Market   30,282  28,583  (1,698)
Savings  4,244  4,090  (154)
Time Deposits  178,764  106,965  (71,799)
Total Acquired Deposits  $ 245,333  $ 172,369  $ (72,964)

With a 63% increase in assets and expanding the branch network to 30 locations from 18 a year ago, the full time equivalent employees (FTEs) count has increased to 448 from 281 FTEs at the end of 2009. "Most of this growth was from the acquisitions, and we also hired a team of lenders who are working out of our new Everett Commercial Lending Center," Wagner said. "We now have three lending teams in our new region covering North King County and Snohomish County. These lending teams are doing a great job of bringing new relationships to the bank and serving our existing customers."

Credit Quality

"With the continuing high unemployment in the region, our legacy loan portfolio has performed relatively well during the year, but has shown an incremental increase in nonperforming loans," said Joe Niemer, Chief Credit Officer.  Nonperforming, non-covered loans (NPLs) increased by $4.3 million during the quarter and by $22.5 million in the year, primarily from land development projects, construction and commercial real estate. "While some of the projects are still current on their payments, we have added them to nonaccrual status due to prospective evaluation of future values and the lengthening of the sales cycle," stated Niemer.  NPL/Loans grew to 3.10% at year end from 2.57% in the prior quarter and 0.42% a year ago. NPA/Assets was 1.73% compared to 1.40% in the third quarter and 0.76% a year ago. Other real estate owned (OREO) was $4.1 million, relatively unchanged from the prior quarter and down from $4.5 million a year ago.  NPLs are concentrated primarily in the Skagit County market as shown in the following table: 

NPA by location Island

County
King

County
Skagit

County
Whatcom

County
Snohomish

County 
Total Percent of

total NPA

by loan type
(dollars in 000s)               
12/31/2010              
Commercial loans  $ 895  $ --   $ 2,409  $ --   $ --   $ 3,304 11.03%
Real estate mortgage loans:              
One-to-four family residential  435  1,759  1,347  338  --   3,879 12.94%
Multi-family and commercial  263  --   1,191  1,138  543  3,135 10.46%
Real estate construction loans:          --     
One-to-four family residential  4,387  --   10,497  139  --   15,023 50.13%
Multi-family and commercial  387  --   --   --   --   387 1.29%
Consumer loans:              
Direct  118  --   --   --   --   118 0.39%
Other Real Estate Owned  178  --   658  3,286  --   4,122 13.75%
Total  $ 6,663  $ 1,759  $ 16,102  $ 4,901  $ 543  $ 29,968 100.00%
               
Percent of total NPA by location 22.23% 5.87% 53.73% 16.35% 1.81% 100.00%  

The provision for loan losses on non-covered loans was $12.2 million, which exceeded net charge-offs by $2.6 million in 2010.  Net charge-offs in 2010 were $9.6 million, or 1.15% of average loans, compared to $6.2 million, or 0.76% of average loans in 2009.  Net charge-offs in the indirect lending portfolio improved to $954,000 in 2010, compared to $1.6 million in 2009. The reserve for loan losses increased to 2.25% of non-covered loans from 2.14% of loans at the end of September and 1.99% of loans a year ago. 

Balance Sheet

Total assets increased 63% to $1.71 billion at December 31, 2010, compared to $1.05 billion a year ago. Total non-covered loans increased to $834.3 million from $813.9 million at the end of 2009. The non-covered loan portfolio is well diversified with commercial and industrial loans making up 17% and residential mortgages accounting for 6% of the portfolio. Owner-occupied commercial real estate loans represent approximately 20% of the portfolio and non-owner occupied commercial real estate loans account for approximately 22% of loans. Indirect consumer loans account for 11% of the portfolio and other consumer loans account for 10%. Construction and land development loans for residential properties represent 9% and commercial construction and land development loans represent 5% of the portfolio. 

Covered loans totaled $367.8 million and covered OREO totaled $28.8 million, and the FDIC indemnification asset totaled $107.0 million at December 31, 2010.

Total deposits grew 76% year-over-year to $1.49 billion at December 31, 2010, compared to $847 million a year ago. Largely as a result of the acquisitions, noninterest-bearing demand deposits increased 77% year-over-year, now representing 12% of total deposits.  Year-over-year, money market accounts increased 69% and now comprise 23% of total deposits; time deposits increased 90% to $666 million and account for 45% of total deposits.  Core deposits, excluding time deposits over $100,000, represent 82% of all deposits. "We continue to have no brokered certificates of deposits other than the CDARS (Certificate of Deposit Account Registry Service) program, which provides additional sources of insurance for local customers," said Shields.  "Because we only take CDARS from customers in our existing footprint, we consider them as part of our core deposit base."

Shareholders' equity increased to $181.3 million compared to $159.5 million a year ago. Included in shareholders' equity is the $25.3 million from the preferred shares issued to the U.S. Treasury in January of 2009 and recently repaid on January 12, 2011. Retained earnings increased 44% to $71.0 million, bringing tangible book value per common share to $9.69 at December 31, 2010, compared to $8.79 a year ago. 

Operating Results

Revenue for 2010 was $98.2 million, compared to $48.7 million a year ago. Net interest income, before the provision for loan losses, increased 64% to $66.1 million in 2010 compared to $40.4 million a year ago. Interest income from covered loans contributed $21.2 million to 2010 revenues.

Noninterest income totaled $31.7 million in 2010, which included $18.9 million in the bargain purchase gain on acquisition and $1.1 million related to the change in the FDIC indemnification asset. 

Washington Banking's net interest margin was 5.76% in the fourth quarter, an increase of 71 basis points from the preceding quarter, and 107 basis points from the year ago quarter. For 2010, net interest margin was 5.01% up from 4.63% in 2009.  "Our margin benefited from the contribution of the acquired loan portfolio, which had an average yield of 9.3% during 2010," Shields noted.

Noninterest expense increased 63% year-over-year primarily due to additional expenses related to the acquisitions.  Operating expenses were $46.8 million in 2010 compared to $28.7 million in 2009.

Conference Call Information

Management will host a conference call on Wednesday, February 2 at 10:00 a.m. PST (1:00 p.m. EST) to discuss the quarterly and year-to-date financial results. The call will also be broadcast live via the internet.  Investment professionals and all current and prospective shareholders are invited to access the live call by dialing (480) 629-9722 at 10:00 a.m. PT for conference ID #4400199. To listen to the call online, either live or archived, visit the Investor Relations page of Whidbey Island Bank's website at www.wibank.com . Shortly after the call concludes, the replay will also be available at (303) 590-3030, using access code #4400199.

ABOUT WASHINGTON BANKING COMPANY

Washington Banking Company is a bank holding company based in Oak Harbor, Washington, that operates Whidbey Island Bank, a state-chartered full-service commercial bank.  Founded in 1961, Whidbey Island Bank provides various deposit, loan and investment services to meet customers' financial needs.  Whidbey Island Bank operates 30 full-service branches located in six counties in Northwestern Washington. In June 2009, Washington Banking was added to the Russell 2000 Index, a subset of the Russell 3000 Index. Both indices are widely used by professional money managers as benchmarks for investment strategies.

www.wibank.com

This news release may contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements describe management's expectations regarding future events and developments such as the transition of CityBank and/or North County Bank operations, employees and customers,  future operating results, availability of acquisition opportunities, growth in loans and deposits, credit quality and loan losses, and continued success of the Company's business plan. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. The words "anticipate," "expect," "will," "believe," and words of similar meaning are intended, in part, to help identify forward-looking statements. Future events are difficult to predict, and the expectations described above are subject to risk and uncertainty that may cause actual results to differ materially. In addition to discussions about risks and uncertainties set forth from time to time in the Company's filings with the Securities and Exchange Commission, factors that may cause actual results to differ materially from those contemplated in these forward-looking statements include, among others: (1) local and national general and economic condition; (2) changes in interest rates and their impact on net interest margin; (3) competition among financial institutions; (4) legislation or regulatory requirements; (5) the ability to realize the efficiencies expected from investment in personnel and infrastructure; and (6) the inability to retain CityBank and/or North County Bank customers or employees and expenses associated with the integration of acquired bank operations. Washington Banking Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made. Any such statements are made in reliance on the safe harbor protections provided under the Securities Exchange Act of 1934, as amended.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)            
($ in thousands, except per share data)            
  Quarter Ended

December 31,

2010
Quarter Ended

September 30,

2010
Three

Month

Change
Quarter Ended

June 30,

2010
Quarter Ended

December 31,

2009
One

Year

Change
Interest Income            
Non-covered Loans  $ 13,451  $ 13,536 -1%  $ 13,342  $ 13,345 1%
Covered Loans 10,101 6,719 50% 4,361  --  100%
Taxable Investment Securities 729 699 4% 507 319 128%
Tax Exempt Securities 202 187 8% 170 132 53%
Other 68 99 -31% 94 25 174%
Total Interest Income  24,551  21,240 16%  18,474  13,821 78%
             
Interest Expense            
Deposits  2,709  3,075 -12%  2,805 2,813 -4%
Other Borrowings  -- 59 -100% 93 94 -100%
Junior Subordinated Debentures  122 135 -10% 121 122 0%
Total Interest Expense  2,831  3,269 -13%  3,019  3,029 -7%
             
Net Interest Income  21,720  17,971 21%  15,455  10,792 101%
Provision for Loan Losses, Noncovered Loans  3,500  3,950 -11%  2,550 2,250 56%
Provision for Loan Losses, Covered Loans  1,336  -- 100%  --  -- 100%
Net Interest Income after Provision for Loan Losses  16,884  14,021 20%  12,905  8,542 98%
             
Noninterest Income            
Service Charges and Fees  964  907 6%  856  806 20%
Electronic Banking Income  539  511 5%  447  363 48%
Investment Products  174  120 45%  178  164 6%
Bank Owned Life Insurance Income  (15)  61 N/A  98  (158) N/A
Income from the Sale of Loans  436  352 24%  204  157 179%
SBA Premium Income  200  126 59%  206  98 105%
Change in FDIC Indemnification Asset  (455) 790 N/A 786  --  100%
Bargain Purchase Gain on Acquisition  --  18,920 N/A  --   --  100%
Gain on Disposition of Covered Loans  779 332 135%  733  --  100%
Other Income  695  449 55%  540 307 127%
Total Noninterest Income  3,317  22,568 -85%  4,048  1,737 91%
             
Noninterest Expense            
Compensation and Employee Benefits  6,055  6,615 -8%  6,528 3,875 56%
Occupancy and Equipment  1,589  1,677 -5%  1,338 1,041 53%
Office Supplies and Printing  380  299 27%  311 223 71%
Data Processing  423  403 5%  397 137 209%
Consulting and Professional Fees  400  92 335%  131 246 63%
Intangible Amortization 247 234 6% 191  --  100%
Merger Related Expenses 460 978 -53% 675  --  100%
FDIC Premiums  541  562 -4%  254 268 102%
OREO & Repossession Expenses  1,450  (23) N/A  471 549 164%
Other  2,725  2,008 36%  1,631 1,283 112%
Total Noninterest Expense  14,270  12,845 11%  11,927  7,622 87%
             
Income Before Income Taxes  5,931  23,744 -75%  5,026  2,657 123%
Provision for Income Taxes  1,846  8,049 -77%  1,531 921 100%
Net Income  4,085  15,695 -74%  3,495  1,736 135%
Preferred dividends  415  415 0%  415  414 0%
Net Income available to common shareholders  $ 3,670  $ 15,280 -76%  $ 3,080  $ 1,322 178%
Earnings per Common Share             
Net Income per Share, Basic  $ 0.24  $ 1.00 -76%  $ 0.20  $ 0.12 108%
             
Net Income per Share, Diluted  $ 0.24  $ 0.99 -76%  $ 0.20  $ 0.11 109%
             
Average Number of Common Shares Outstanding   15,316,708  15,309,000    15,305,000  11,481,000  
Fully Diluted Average Common and Equivalent Shares Outstanding   15,490,503  15,473,000    15,466,000  11,673,000  
     
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)    
($ in thousands, except per share data) For the Year Ended

December 31,
One

Year
  2010 2009  Change
Interest Income      
Non-covered Loans 53,414 53,128 1%
Covered Loans 21,181  --  100%
Taxable Investment Securities 2,348 809 190%
Tax Exempt Securities 716 402 78%
Other 298 53 462%
Total Interest Income  77,957  54,392 43%
       
Interest Expense      
Deposits 11,091 12,920 -14%
Other Borrowings 243 434 -44%
Junior Subordinated Debentures  496 665 -25%
Total Interest Expense  11,830  14,019 -16%
       
Net Interest Income  66,127  40,373 64%
       
Provision for Loan Losses, Noncovered Loans 12,150 10,200 19%
Provision for Loan Losses, Covered Loans 1,336  --   100%
Net Interest Income after Provision for Loan Losses  52,641  30,173 74%
       
Noninterest Income      
Service Charges and Fees  3,462 3,426 1%
Electronic Banking Income  1,864 1,397 33%
Investment Products  522 532 -2%
Bank Owned Life Insurance Income  226 154 47%
Income from the Sale of Loans  1,134 865 31%
SBA Premium Income  578 180 220%
Change in FDIC Indemnification Asset 1,121  --  100%
Bargain Purchase Gain on Acquisition 18,920  --  100%
Gain on Disposition of Covered Loans 1,844  --  100%
Other Income 2,004 1,107 81%
Total Noninterest Income  31,675  7,661 313%
       
Noninterest Expense      
Compensation and Employee Benefits 23,527 14,374 64%
Occupancy and Equipment 5,631 4,244 33%
Office Supplies and Printing 1,200 799 50%
Data Processing 1,434 555 158%
Consulting and Professional Fees 891 811 10%
Intangible Amortization 672  --  100%
Merger Related Expenses 2,113  --  100%
FDIC Premiums 1,609 1,374 17%
OREO & Repossession Expenses 2,091 1,531 37%
Other 7,648 5,046 52%
Total Noninterest Expense  46,816  28,734 63%
       
Income Before Income Taxes  37,500  9,100 312%
Provision for Income Taxes 12,230 2,886 324%
Net Income  25,270  6,214 307%
Preferred dividends  1,659  1,600 4%
Net income available to common shareholders  $ 23,611  $ 4,614 412%
Earnings per Common Share      
Net Income per Share, Basic  $ 1.54  $ 0.46 235%
       
Net Income per Share, Diluted  $ 1.53  $ 0.46 234%
       
Average Number of Common Shares Outstanding   15,307,000  10,011,000  
Fully Diluted Average Common and Equivalent Shares Outstanding   15,465,000  10,079,000  
       
CONSOLIDATED BALANCE SHEETS (unaudited)            
($ in thousands except per share data)            
  December 31, 2010 September 30, 2010 Three Month Change June 30, 2010 December 31, 2009 One Year Change
Assets            
Cash and Due from Banks  $ 19,766  $ 24,572 -20%  $ 19,474  $ 14,950 32%
Interest-Bearing Deposits with Banks 61,186 141,630 -57% 135,746 86,891 -30%
Fed Funds Sold  735  4,963 -85%  8,000  --  100%
Total Cash and Cash Equivalents  81,687  171,165 -52%  163,220  101,841 -20%
             
Investment Securities Available for Sale 199,556 200,448 0% 156,065 80,833 147%
             
FHLB Stock 7,576 7,576 0% 7,174 2,430 212%
             
Loans Held for Sale 10,976 7,785 41% 4,295 3,232 240%
             
Loans Receivable 834,293 837,017 0% 832,739 813,852 3%
Less: Allowance for Loan Losses  (18,812)  (17,936)  5%  (16,975)  (16,212) 16%
Non-covered Loans, Net   815,481  819,081 0%  815,764  797,640 2%
             
Covered Loans, Net Allowance for Loan Losses 367,756 386,440 -5% 281,149  --  100%
Premises and Equipment, Net 37,847 37,462 1% 25,676 25,495 48%
Bank Owned Life Insurance 17,202 17,217 0% 17,156 16,976 1%
Goodwill and Other Intangible Assets, net 7,540  7,787 -3%  7,971  --  100%
Other Real Estate Owned 4,122 4,095 1% 4,984 4,549 -9%
Covered Other Real Estate Owned 28,755  27,250 6%  14,178  --  100%
FDIC Indemnification Asset 106,989  124,969 -14%  85,178  --  100%
Other Assets 20,129 18,870 7% 16,941 12,875 56%
Total Assets  $ 1,705,616  $ 1,830,145 -7%  $ 1,599,751  $ 1,045,871 63%
             
Liabilities and Shareholders' Equity            
Deposits:            
Noninterest-Bearing Demand  $ 184,098  $ 187,009 -2%  $ 165,962  $ 104,070 77%
NOW Accounts 206,717 194,370 6% 164,859 141,121 46%
Money Market  341,211 336,329 1% 271,524 202,144 69%
Savings 94,235 88,085 7% 81,251 49,003 92%
Time Deposits 665,959 805,471 -17% 700,143 350,333 90%
Total Deposits  1,492,220  1,611,264 -7%  1,383,739  846,671 76%
Other Borrowed Funds  --   --  0%  10,000  10,000 -100%
Junior Subordinated Debentures 25,774 25,774 0% 25,774 25,774 0%
Other Liabilities 6,276 12,441 -50% 15,516 3,905 61%
Total Liabilities  1,524,270  1,649,479 -8%  1,435,029  886,350 72%
             
Shareholders' Equity:            
Preferred Stock, no par value, 26,380 shares authorized Series A (Liquidation preference $1,000 per shares); issued and outstanding 26,380 at 12/31/10, 9/30/10, 6/30/2010 and 12/31/2009 25,334 25,249 0% 25,164  24,995 1%
             
Common Stock (no par value)            
Authorized 35,000,000 Shares:            
Issued and Outstanding 15,321,227 at 12/31/2010, 15,310,893 at 9/30/10, 15,309,318 at 6/30/10 and 15,297,801 at 12/31/09 85,264 85,123 0% 84,972 84,814 1%
Retained Earnings 71,007 68,105 4% 53,284 49,463 44%
Other Comprehensive Income (Loss) (259) 2,189 -112% 1,302 249 204%
Total Shareholders' Equity  181,346  180,666 0%  164,722  159,521 14%
Total Liabilities and Shareholders' Equity  $ 1,705,616  $ 1,830,145 -7%  $ 1,599,751  $ 1,045,871 63%
         
ASSET QUALITY (unaudited)        
($ in thousands, except per share data)  Quarter Ended  Quarter Ended  Quarter Ended Year Ended

December 31,
  December 31, 2010 September 30, 2010 December 31, 2009 2010 2009
Allowance for Loan Losses Activity:          
Balance at Beginning of Period  $ 17,936  $ 16,975  $ 15,882  $ 16,212  $ 12,250
Indirect Loans:          
Charge-offs  (541)  (352)  (635)  (1,691)  (2,416)
Recoveries  182  168  182  737  842
Indirect Net Charge-offs  (359)  (184)  (453)  (954)  (1,574)
           
Other Loans:          
Charge-offs  (2,384)  (2,863)  (1,673)  (9,088)  (5,854)
Recoveries  119  58  206  492  1,190
Other Net charge-offs  (2,265)  (2,805)  (1,467)  (8,596)  (4,664)
           
Total Net Charge-offs  (2,624)  (2,989)  (1,920)  (9,550)  (6,238)
Provision for loan losses  3,500  3,950  2,250  12,150  10,200
Balance at End of Period  $ 18,812  $ 17,936  $ 16,212  $ 18,812  $ 16,212
           
Net Charge-offs to Average Loans:          
Indirect Loans Net Charge-Offs, to Avg Indirect Loans, Annualized (1) 1.55% 0.74% 1.71% 0.77% 1.50%
Other Loans Net Charge-Offs, to Avg Other Loans, Annualized  (1) 1.21% 1.51% 0.82% 1.18% 0.65%
Net Charge-offs to Average Total Loans (1)  1.25% 1.42% 0.94% 1.15% 0.76%
           
  December 31,

2010
September 30,

2010
December 31,

2009
   
Nonperforming Non-Covered Assets          
Nonperforming Non-Covered Loans (2)  $ 25,846  $ 21,518  $ 3,395    
Other Real Estate Owned  4,122  4,095  4,549    
Total Nonperforming Non-Covered Assets  $ 29,968  $ 25,613  $ 7,944    
Nonperforming Non-Covered Loans to Loans (1) 3.10% 2.57% 0.42%    
Nonperforming Non-Covered Assets to Assets 1.73% 1.40% 0.76%    
Allowance for Loan Losses to Nonperforming Non-Covered Loans 72.78% 83.35% 477.51%    
Allowance for Loan Losses to Non-Covered Loans  2.25% 2.14% 1.99%    
           
Non-Covered Loan Composition          
Commercial $ 145,319  $ 146,997  $ 93,295    
Real Estate Mortgages          
One-to-Four Family Residential   46,717  47,723  53,313    
Commercial  348,548  351,560  360,745    
Real Estate Construction          
One-to-Four Family Residential   72,945  69,341  76,046    
Commercial  42,664  38,943  34,231    
Consumer          
Indirect   90,231  93,356  100,697    
Direct  85,665  86,844  93,051    
Deferred Fees  2,204  2,253  2,474    
Total Non-Covered Loans  $ 834,293  $ 837,017  $ 813,852    
           
Time Deposit Composition          
Time Deposits $100,000 and more  268,862  321,224  151,018    
All other time deposits  387,891  466,904  170,399    
Brokered Deposits          
CDARS (Certificate of Deposit Account Registry Service)  9,206  17,343  21,416    
Non-CDARS  --   --   7,500    
Total Time Deposits  $ 665,959  $ 805,471  $ 350,333    
           
(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 Ended Quarter Ended Quarter Ended Quarter Ended Year Ended December 30,
  December 31, 2010 September 30, 2010 June 30, 2010 December 31, 2009 2010 2009
Revenues (1) (2)  $ 25,284  $ 40,779  $ 19,725  $ 12,723  $ 98,240  $ 48,692
             
Averages            
 Total Assets  $ 1,750,119  $ 1,611,163  $ 1,532,238  $ 983,955  $ 1,483,084  $ 941,171
 Non-covered Loans and Loans Held for Sale  845,794  842,709  829,226  816,218  834,668  823,438
 Covered Loans  371,112  280,337  252,592  --  226,852  --
 Interest Earning Assets  1,512,109  1,431,996  1,388,406  929,287  1,327,871  887,070
 Deposits  1,532,872  1,393,329  1,322,384  818,880  1,272,296  785,705
 Common Shareholders' Equity  $ 154,377  $ 140,858  $ 137,217  $ 102,037  $ 141,726  $ 87,369
             
Financial Ratios            
 Return on Average Assets, Annualized 0.93% 3.86% 0.91% 0.70% 1.70% 0.66%
 Return on Average Common Equity, Annualized(3) 9.43% 43.04% 9.00% 5.14% 16.66% 5.28%
 Efficiency Ratio (2)  56.43% 31.50% 60.47% 59.90% 47.65% 59.01%
 Yield on Earning Assets (2) 6.51% 5.95% 5.40% 5.99% 5.90% 6.21%
 Cost of Interest Bearing Liabilities 0.82% 1.04% 1.01% 1.61% 1.03% 1.93%
 Net Interest Spread 5.69% 4.91% 4.39% 4.38% 4.87% 4.27%
 Net Interest Margin (2) 5.76% 5.05% 4.53% 4.69% 5.01% 4.63%
             
Tangible Book Value Per Share (4)   $ 9.69  $ 9.64  $ 8.60  $ 8.79  $ 9.69  $ 8.79
Tangible Common Equity (4) 8.74% 8.10% 8.27% 12.86% 8.74% 12.86%
             
          Regulatory Requirements
  December 31,

2010
September 30,

2010
June 30,

2010
December 31,

2009
Adequately- capitalized Well- capitalized
Period End            
Total Risk-Based Capital Ratio - Consolidated 21.05%(5) 18.88% 20.47% 22.15% 8.00% N/A
Tier 1 Risk-Based Capital Ratio - Consolidated 19.78%(5) 17.63% 19.21% 20.89% 4.00% N/A
Tier 1 Leverage Ratio - Consolidated 11.34%(5) 12.40% 11.38% 18.73% 4.00% N/A
Total Risk-Based Capital Ratio - Whidbey Island Bank 20.78%(5) 18.61% 20.05% 21.55% 8.00% 10.00%
Tier 1 Risk-Based Capital Ratio - Whidbey Island Bank 19.52%(5) 17.35% 18.78% 20.29% 4.00% 6.00%
Tier 1 Leverage Ratio - Whidbey Island Bank 11.30%(5) 12.20% 11.13% 18.17% 4.00% 5.00%
             
(1) Revenues is the fully tax-equivalent net interest income before provision for loan losses plus noninterest income.        
(2) Fully tax-equivalent is a non-GAAP performance measurement that management believes provides investors with a more accurate picture of the net interest margin, revenues and efficiency ratio for comparative purposes. The calculation involves grossing up interest income on tax-exempt loans and investments by an amount that makes it comparable to taxable income.    
(3) Return on average common equity is adjusted for preferred stock dividends.          
(4) Please see the reconciliations of shareholders' equity to tangible common equity and total assets to tangible assets, and the related measures that appear elsewhere in this release.
(5) Capital ratios for the most recent period are an estimate pending filing of the Company's regulatory reports.        

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:

    For the Year Ended
      Quarter Ended   December 31,
  December 31, 2010 September 30, 2010 June 30, 2010 December 31, 2009 2010 2009
             
GAAP Earnings Available to Common Shareholders  $ 3,670  $ 15,280  $ 3,080  $ 1,322  $ 23,611  $ 4,614
Provision for Income Taxes  1,846  8,049  1,531  921  12,230  2,886
GAAP Earnings Available to Common Shareholders before Provision for Income Taxes  5,516  23,329  4,611  2,243  35,841  7,500
Adjustments to GAAP Earnings Available to Common Shareholders            
Gain on Acquisitions  --   (18,920)  --   --   (18,920)  -- 
Acquisition-Related Costs  460 978 675  --   2,113  -- 
Operating Earnings Before Taxes  5,976  5,387  5,286  2,243  19,034  7,500
Provision for Income Taxes  (2,092)  (1,885)  (1,850)  (740)  (6,662)  (1,965)
Net Operating Earnings  $ 3,884  $ 3,502  $ 3,436  $ 1,503  $ 12,372  $ 5,535
             
Diluted GAAP Earnings per Common Share  $ 0.24  $ 0.99  $ 0.20  $ 0.11  $ 1.53  $ 0.46
Diluted Operating Earnings per Common Share  $ 0.25  $ 0.23  $ 0.22  $ 0.13  $ 0.80  $ 0.55

Tangible common equity, tangible assets and tangible book value per common share are not measures that are calculated in accordance with GAAP. However, management uses these non-GAAP measures in their analysis of the Company's performance. Management believes that these non-GAAP measures are an important indication of the Company's ability to grow both organically and through business combinations, and, with respect to tangible common equity, the Company's ability to pay dividends and to engage in various capital management strategies.

Neither tangible common equity, tangible assets and tangible book value per common share should be considered in isolation or as a substitute for common shareholders' equity or book value per common share or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Company calculates tangible common equity, tangible assets and tangible book value per share may differ from that of other companies reporting measures with similar names.

The following table provides the reconciliation of the Company's shareholders' equity (GAAP) to tangible common equity (non-GAAP) and total assets (GAAP) to tangible assets (non-GAAP) for the periods presented:

         
($ in thousands, except per share data) December 31,

2010
September 30,

2010
June 30,

2010
December 31,

2009
         
Total Shareholders' Equity  $ 181,346  $ 180,666  $ 164,722  $ 159,521
Adjustments to Shareholders' Equity        
Preferred Stock  (25,334)  (25,249)  (25,164)  (24,995)
Other Intangible Assets, net (1)  (7,540)  (7,787)  (7,971)  -- 
Tangible Common Equity  148,472  147,630  131,587  134,526
         
Total Assets  $ 1,705,616  $ 1,830,145  $ 1,599,751  $ 1,045,871
Adjustments to Total Assets        
Other Intangible Assets, net (1)  (7,540)  (7,787)  (7,971)  -- 
Tangible Assets  1,698,076  1,822,358  1,591,780  1,045,871
         
Common Shares Outstanding at Period End  15,321,227  15,310,893  15,309,318  15,297,801
         
Tangible Common Equity 8.74% 8.10% 8.27% 12.86%
Tangible Book Value per Common Share  $ 9.69  $ 9.64  $ 8.60  $ 8.79
         
(1) Other intangible assets, net excludes mortgage servicing rights        
CONTACT: Jack Wagner - President & CEO
         Rick A. Shields - EVP & Chief Financial Officer
         360.679.3121

© Copyright 2012, GlobeNewswire, Inc. All Rights Reserved

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