updated 4/28/2011 4:17:44 PM ET 2011-04-28T20:17:44

OAK HARBOR, Wash., April 28, 2011 (GLOBE NEWSWIRE) -- Washington Banking Company (Nasdaq:WBCO),the holding company for Whidbey Island Bank, today reported its core banking business, including contributions from acquisitions completed last year, generated strong profits in the first quarter 2011. Before preferred dividends, Washington Banking earned $4.1 million in the first quarter of 2011, compared to $4.4 million in the preceding quarter and $2.0 million in the first quarter a year ago. Net income available to common shareholders totaled $3.0 million or $0.19 per diluted common share in the first quarter 2011, compared to $4.0 million, or $0.26 per diluted common share in the linked quarter, and $1.6 million, or $0.10 per diluted common share, in the first quarter a year ago. The core operating earnings available to common shareholders, which exclude merger related costs, the bargain purchase gain on the FDIC-assisted transactions and the accelerated discount accretion of preferred dividends, totaled $3.9 million, or $0.25 per diluted common share for the 2011 first quarter. Core operating earnings and core operating earnings per share are non-GAAP financial measures; please refer to the GAAP reconciliation table in this release.

"The two acquisitions we made last year continue to contribute to our profitability and have definitely added to our franchise value," said Jack Wagner, President and Chief Executive Officer. "The core deposit retention rate surpassed our expectations, and we are particularly proud of the increase in core deposit balances at the former CityBank branches. The cultural fit between our legacy team and the new additions is excellent, and we believe the new entity is going to be far more productive than the sum of its parts.  

"We started the year off with not only strong profits, but also with the repayment of the entire investment, including warrants to purchase shares, made by the US Treasury under the TARP Capital Purchase Program," said Wagner. "This program provided an extra layer of capital during the worst part of the recession, and we are grateful to the taxpayers for providing this additional insurance to our capital levels. It turns out that we did not need the additional capital, and we are pleased to have been able to timely make all dividend payments to the US Treasury and return all $26.4 million in principal that the government invested in our company, along with $1.6 million for the warrant repurchase. The redemption of the investment resulted in the recognition of $1.1 million of deemed preferred dividends in the first quarter of 2011 and concludes our participation in the government program."  

2011 Financial Highlights (March 31, 2011 compared to March 31, 2010)

  • Total Risk Based Capital to risk-adjusted assets of 19.79% compared to 22.00%. The FDIC requires a 10% ratio to be considered well-capitalized.   
     
  • Tangible book value per common share increased to $9.77 compared to $8.89.   
     
  • Deposits, including $618 million acquired through acquisitions, increased 77% year-over-year to $1.49 billion. Transaction account deposits increased $21.1 million in the acquired institutions since closing.    
     
  • Low cost demand, money market, savings and NOW accounts totaled $858 million and make up 57% of total deposits.   
     
  • Net non-covered loans totaled $807.5 million, compared to $805.2 million from a year ago.   
     
  • The provision for non-covered loan losses was $3.0 million in the first quarter, compared to $3.5 million in the prior quarter and $2.2 million a year ago.   
     
  • Loan loss reserves increased to 2.33% of non-covered loans, from 2.00% a year ago.   
     
  • Washington Banking was the only 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.   
     
  • Keefe, Bruyette & Woods named Washington Banking as one of just 40 banks nationwide to be selected to the KBW 2010 Bank Honor Roll, based on WBCO's superior 10-year track record.

Acquisitions Update

"We won the bid to purchase CityBank of Lynnwood Washington from the FDIC a little over a year ago and followed up with the acquisition of the former North County Bank of Arlington, Washington in September," said Rick Shields, Chief Financial Officer. "These were the first-ever acquisitions for Whidbey Island Bank and, while the accounting for these transactions is complex, we believe the bottom line contributions are clearly evident in our first quarter results." 

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 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 are retaining the vast majority of core local deposits and are allowing most brokered and other non-core deposits to run off. Consequently, the time deposits have declined by about $295 million since these banks were integrated into our franchise," noted Shields.

 
  North County Bank
 (dollars in 000s)  March 31,   December 31,   September 30, 
  2011 2010 2010
Acquired Deposit Composition      
 Noninterest-Bearing Demand  $ 13,351 12,800  $ 13,927
 NOW Accounts  18,427 19,931  18,116
 Money Market   27,414 28,583  30,282
 Savings  3,971 4,090  4,244
 Time Deposits  102,669 106,965  178,764
 Total Acquired Deposits  $ 165,831  $ 172,369  $ 245,333
       
       
  City Bank
   March 31,   December 31,  April 16,
  2011 2010 2010
Acquired Deposit Composition      
 Noninterest-Bearing Demand  $ 41,167  $ 43,421  $ 31,543
 NOW Accounts  31,278  27,800  2,765
 Money Market   76,577  67,034  96,331
 Savings  29,418  30,616  26,703
 Time Deposits  273,670  291,967  492,762
 Total Acquired Deposits  $ 452,110  $ 460,838  $ 650,104

Credit Quality

"While Boeing has been aggressively hiring workers for its Everett-based production line, unemployment remains stubbornly high in the area," said Joe Niemer, Chief Credit Officer. Unemployment in the company's market area in March was reported as: King County at 8.4%, Whatcom County at 9.6%, Snohomish County at 10.1%, Island County at 10.2% and Skagit County at 11.5%. "Despite 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. The collection on the FDIC-covered loans has been better than projected, allowing for no provision for timing losses on that part of the portfolio in the first quarter," added Niemer.

Nonperforming, non-covered loans (NPLs) increased by $3.7 million during the quarter and by $25.8 million from the year ago quarter, 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 3.57% at the end of the first quarter from 3.10% in the preceding quarter and from 0.45% a year ago. NPA/Assets were 2.04% compared to 1.73% in the preceding quarter and 0.83% a year ago. Other real estate owned (OREO) was $4.8 million, up 18% from the prior quarter and down from $4.9 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)               
3/31/2011              
Commercial loans  $ 737  $ --   $ 3,381  $ --   $ --   $ 4,118 11.98%
Real estate mortgage loans:              
 One-to-four family residential  435  1,759  746  338  --   3,278 9.54%
 Multi-family and commercial  263  --   1,174  838  475  2,750 8.00%
Real estate construction loans:              
 One-to-four family residential  4,035  --   9,171  5,541  --   18,747 54.55%
 Multi-family and commercial  387  --   --   --   --   387 1.13%
Consumer loans:              
 Direct  240  --   --   --   --   240 0.70%
Other Real Estate Owned  179  --   1,380  3,286  --   4,845 14.10%
 Total  $ 6,276  $ 1,759  $ 15,852  $ 10,003  $ 475  $ 34,365 100.00%
               
Percent of total NPA by location 18.26% 5.12% 46.13% 29.11% 1.38% 100.00%  

The provision for loan losses on non-covered loans was $3.0 million, which exceeded net charge-offs by $426,000 in the first quarter and brought the allowance for loan losses to $19.2 million up from $16.5 million in the first quarter a year ago.  Total net charge-offs were $2.6 million in the first quarter, or 1.26% of average loans, and $2.6 million, or 1.25% of average loans in the linked quarter, compared to $1.9 million, or 0.94% of average loans, in the first quarter a year ago.  Net charge-offs in the indirect lending portfolio totaled $212,000 in the first quarter,  compared to $359,000 in the preceding quarter and $188,000 in the year ago quarter. The reserve for loan losses increased to 2.33% of non-covered loans from 2.25% of loans at the end of December 2010 and 2.00% of loans a year ago.  

Balance Sheet

Total assets increased 61% to $1.68 billion at March 31, 2011, compared to $1.05 billion a year ago and declined slightly from $1.70 billion in the preceding quarter. Total non-covered loans declined to $826.7 million from $834.3 million at December 31, 2010, and increased slightly from $821.6 million at the end of March 31, 2010. The non-covered loan portfolio is well diversified with commercial and industrial loans making up 18% and residential mortgages accounting for 6% of the portfolio. Owner-occupied commercial real estate loans represent approximately 44% of the portfolio and non-owner occupied commercial real estate loans account for approximately 56% 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 8% and commercial construction and land development loans represent 5% of the portfolio.

Covered loans totaled $340.3 million and covered OREO totaled $28.8 million at March 31, 2011, compared to $364.8 million and $29.8 million, respectively, at year end 2010.

Total deposits remained flat from the preceding quarter and grew 77% year-over-year to $1.49 billion at March 31, 2011, compared to $846 million a year ago. Largely as a result of the acquisitions, noninterest-bearing demand deposits increased 68% year-over-year, now representing 13% of total deposits.  Year-over-year, money market accounts increased 82% and now comprise 25% of total deposits; time deposits increased 89% to $637 million and account for 43% 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 decreased 3% to $157.1 million compared to $161.2 million a year ago, reflecting the Jan. 12, 2011 redemption of the 26,380 preferred shares, as well as the redemption of the associated stock warrants, issued to the U.S. Treasury in January 2009. Tangible book value per common share was $9.77 at March 31, 2011, compared to $8.89 a year ago. 

Operating Results

Revenue for the first quarter was $23.3 million, compared to $25.1 million in the preceding quarter and $12.9 million in the first quarter a year ago. In the first quarter, net interest income, before the provision for loan losses, declined 2% to $19.3 from the linked quarter of $19.7 million and grew 76% from  $11.0 million a year ago. Interest income from covered loans contributed $8.3 million to first quarter revenues.

The accelerated collection on the covered asset portfolio generated a $1.5 million gain on disposition of those assets, which was offset almost completely by a $1.3 million change in the FDIC indemnification asset in the first quarter of 2011. In the prior quarter, noninterest income was augmented by $1.0 million in the bargain purchase gain on acquisition and $309,000 related to the change in the FDIC indemnification asset, boosting noninterest income to $5.2 million.    

Washington Banking's net interest margin was 5.42% in the first quarter, an increase of 18 basis points from the preceding quarter, and up 76 basis points from the year ago quarter.  "Our margin benefited from the contribution of the acquired loan portfolio, which had an average yield of 9.56% during the first quarter of 2011," Shields noted.

Primarily due to additional expenses related to the acquisitions, including hiring additional personnel, noninterest expense increased 81% year-over-year. Operating expenses were $14.1 million in the first quarter, compared to $14.3 million in the preceding quarter and $7.8 million in the first quarter a year ago.  

Conference Call Information

Management will host a conference call on Friday, April 29, 2011 at 10:00 a.m. Pacific Time (1:00 p.m. ET) to discuss the quarterly and year-over-year 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) 629-9770 at 10:00 a.m. PT for conference ID #4430990. 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 #4430990.

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 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. Washington Banking was the only 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. www.wibank.com

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 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) Quarter Ended Quarter Ended Three  Quarter Ended One
($ in thousands, except per share data) March 31, December 31, Month March 31, Year
  2011 2010 Change 2010 Change
Interest Income          
 Non-covered Loans 12,640  $ 13,451 -6%  $ 13,085 -3%
 Covered Loans 8,310 8,093 3%  --  100%
 Taxable Investment Securities 793 729 9% 413 92%
 Tax Exempt Securities 210 202 4% 158 33%
 Other 45 68 -34% 36 24%
 Total Interest Income  21,998  22,543 -2%  13,692 61%
           
Interest Expense          
 Deposits 2,591  2,709 -4% 2,503 4%
 Other Borrowings  --   --  0% 91 -100%
 Junior Subordinated Debentures  120 122 -2% 117 3%
 Total Interest Expense  2,711  2,831 -4%  2,711 0%
           
Net Interest Income  19,287  19,712 -2%  10,981 76%
 Provision for Loan Losses, Noncovered Loans 3,000  3,500 -14% 2,150 40%
 Provision for Loan Losses, Covered Loans  --   1,336 -100%  -- 100%
 Net Interest Income after Provision for Loan Losses  16,287  14,876 9%  8,831 84%
           
Noninterest Income          
 Service Charges and Fees  993  964 3%  735 35%
 Electronic Banking Income  556  539 3%  367 52%
 Investment Products  222  174 28%  50 346%
 Bank Owned Life Insurance Income  80  (15) -634%  82 -3%
 Income from the Sale of Loans  338  436 -23%  141 140%
 SBA Premium Income  121  200 -40%  46 162%
 Change in FDIC Indemnification Asset (1,316) 309 -526%  --  100%
 Bargain Purchase Gain on Acquisition  --  1,005 -100%  --  100%
 Gain on Disposition of Covered Assets 1,478 775 91%  --  100%
 Other Income 1,260  785 61% 322 292%
 Total Noninterest Income  3,732  5,172 -28%  1,743 114%
           
Noninterest Expense          
Compensation and Employee Benefits 6,819  6,055 13% 4,329 58%
Occupancy and Equipment 1,667  1,589 5% 1,027 62%
Office Supplies and Printing 330  380 -13% 210 57%
Data Processing 470  423 11% 211 123%
Consulting and Professional Fees 444  400 11% 268 66%
Intangible Amortization 157 247 -37%  --  100%
Merger Related Expenses 119 460 -74%  --  100%
FDIC Premiums 589  541 9% 252 134%
Non-covered OREO & Repossession Expenses 300  504 -41% 193 55%
Covered OREO & Repossession Expense 770  929 -17%  -- 100%
Other 2,391  2,722 -12% 1,285 86%
 Total Noninterest Expense  14,056  14,250 -1%  7,775 81%
           
Income Before Income Taxes  5,963  5,798 3%  2,799 113%
Provision for Income Taxes 1,887  1,413 34% 804 135%
Net Income  4,076  4,385 -7%  1,995 104%
Preferred Dividends  1,084  415 161%  414 162%
Net Income Available to Common Shareholders  $ 2,992  $ 3,970 -25%  $ 1,581 89%
Earnings per Common Share           
Net Income per Share, Basic  $ 0.20  $ 0.26 -25%  $ 0.10 89%
           
Net Income per Share, Diluted  $ 0.19  $ 0.26 -25%  $ 0.10 89%
           
Average Number of Common Shares Outstanding   15,329,000  15,316,708    15,297,000  
Fully Diluted Average Common and Equivalent Shares Outstanding   15,467,000  15,490,503    15,430,000  
 
 
CONSOLIDATED BALANCE SHEETS (unaudited)     Three   One
($ in thousands except per share data) March 31, December 31, Month March 31, Year
  2011 2010 Change 2010 Change
Assets          
Cash and Due from Banks  $ 24,349  $ 19,766 23%  $ 15,040 62%
Interest-Bearing Deposits with Banks 102,237 61,186 67% 64,203 59%
Fed Funds Sold  1,100  735 50%  --  100%
 Total Cash and Cash Equivalents  127,686  81,687 56%  79,243 61%
Investment Securities Available for Sale 183,378 199,556 -8% 96,217 91%
FHLB Stock 7,576 7,576 0% 2,430 212%
Loans Held for Sale 3,455 10,976 -69% 3,297 5%
Loans Receivable 826,736 834,293 -1% 821,617 1%
 Less: Allowance for Loan Losses (19,238) (18,812) 2% (16,464) 17%
Non-covered Loans, Net   807,498  815,481 -1%  805,153 0%
Covered Loans, Net Allowance for Loan Losses 340,290 364,817 -7%  --  100%
Premises and Equipment, Net 37,715 37,847 0% 25,672 47%
Bank Owned Life Insurance 17,282 17,202 0% 17,058 1%
Goodwill and Other Intangible Assets, net 7,383  7,540 -2%  --  100%
Other Real Estate Owned 4,845 4,122 18% 4,937 -2%
Covered Other Real Estate Owned 28,826  29,766 -3%  --  100%
FDIC Indemnification Asset 96,863  107,896 -10%  --  100%
Other Assets 20,590 20,021 3% 12,648 63%
Total Assets  $ 1,683,387  $ 1,704,487 -1%  $ 1,046,655 61%
           
Liabilities and Shareholders' Equity          
Deposits:          
 Noninterest-Bearing Demand  $ 188,583  $ 184,098 2%  $ 112,338 68%
 NOW Accounts 204,836 206,717 -1% 140,794 45%
 Money Market  367,940 341,211 8% 202,665 82%
 Savings 96,389 94,235 2% 53,364 81%
 Time Deposits 636,765 665,959 -4% 336,479 89%
 Total Deposits  1,494,513  1,492,220 0%  845,640 77%
           
Other Borrowed Funds  --   --  100%  10,000 -100%
Junior Subordinated Debentures 25,774 25,774 0% 25,774 0%
Other Liabilities 5,975 4,847 23% 4,049 48%
 Total Liabilities  1,526,262  1,522,841 0%  885,463 72%
Shareholders' Equity:          
Preferred Stock, no par value, 26,380 shares authorized          
Series A (Liquidation preference $1,000 per shares); zero issued and outstanding at 3/31/11 and 26,380 at 12/31/10 and 3/31/10  --  25,334 -100%  25,080 -100%
Common Stock (no par value)          
Authorized 35,000,000 Shares: Issued and Outstanding 15,333,073 at 3/31/11, 15,321,277 at 12/31/10 and 15,303,124 at 3/31/10 83,869 85,264 -2% 84,894 -1%
Retained Earnings 73,533 71,307 3% 50,662 45%
Other Comprehensive Income (277) (259) -7% 556 -150%
 Total Shareholders' Equity  157,125  181,646 -13%  161,192 -3%
Total Liabilities and Shareholders' Equity  $ 1,683,387  $ 1,704,487 -1%  $ 1,046,655 61%
 
 
NON-COVERED ASSET QUALITY (unaudited) Quarter Ended Quarter Ended Quarter Ended
($ in thousands, except per share data) March 31, December 31, March 31,
  2011 2010 2010
Allowance for Non-Covered Loan Losses Activity:      
Balance at Beginning of Period  $ 18,812  $ 17,936  $ 16,212
 Indirect Loans:      
 Charge-offs  (348)  (541)  (406)
 Recoveries  136  182  218
 Indirect Net Charge-offs  (212)  (359)  (188)
       
 Other Loans:      
 Charge-offs  (2,551)  (2,384)  (1,914)
 Recoveries  189  119  204
 Other Net charge-offs  (2,362)  (2,265)  (1,710)
       
 Total Net Charge-offs  (2,574)  (2,624)  (1,898)
Provision for loan losses, non-covered loans  3,000  3,500  2,150
Balance at End of Period  $ 19,238  $ 18,812  $ 16,464
       
Net Charge-offs to Average Loans:      
Indirect Loans Net Charge-Offs, to Avg Indirect Loans, Annualized (1) 0.93% 1.55% 0.77%
Other Loans Net Charge-Offs, to Avg Other Loans, Annualized  (1) 1.30% 1.21% 0.97%
Net Charge-offs to Average Total Loans (1)  1.26% 1.25% 0.94%
       
  March 31, December 31, March 31,
  2011 2010 2010
Nonperforming Non-Covered Assets      
 Nonperforming Non-Covered Loans (2)  $ 29,520  $ 25,846  $ 3,692
 Non-Covered Other Real Estate Owned  4,845  4,122  4,937
 Total Nonperforming Non-Covered Assets  $ 34,365  $ 29,968  $ 8,629
Nonperforming Non-Covered Loans to Total Non-Covered Loans (1) 3.57% 3.10% 0.45%
Nonperforming Non-Covered Assets to Assets 2.04% 1.73% 0.83%
Allowance for Loan Losses to Nonperforming Non-Covered Loans 65.17% 72.78% 445.92%
Allowance for Loan Losses to Non-Covered Loans  2.33% 2.25% 2.00%
       
Non-Covered Loan Composition      
 Commercial 147,436  $ 145,319  $ 132,569
 Real Estate Mortgages      
 One-to-Four Family Residential   46,764  46,717  51,605
 Commercial  350,817  348,548  345,925
 Real Estate Construction      
 One-to-Four Family Residential   68,877  72,945  71,665
 Commercial  38,568  42,664  34,459
 Consumer      
 Indirect   88,413  90,231  96,569
 Direct  83,662  85,665  86,432
Deferred Fees  2,199  2,204  2,393
Total Non-Covered Loans  $ 826,736  $ 834,293  $ 821,617
 (1)  Excludes Loans Held for Sale.      
       
Time Deposit Composition      
Time Deposits $100,000 and more  262,783  268,862  144,768
All other time deposits  365,841  387,891  169,146
 Brokered Deposits      
 CDARS (Certificate of Deposit Account Registry Service)  8,141  9,206  22,565
 Non-CDARS  --   --   -- 
Total Time Deposits  $ 636,765  $ 665,959  $ 336,479
       
(1)  Excludes Loans Held for Sale.
(2)  Nonperforming loans includes nonaccrual loans plus accruing loans 90 or more days past due.
(4) Prior periods adjusted for the 4-for-3 stock split distributed on May 17, 2005.
 
FINANCIAL STATISTICS (unaudited) Quarter Ended Quarter Ended Quarter Ended Quarter Ended
($ in thousands, except per share data) March 31, December 31, September 30, March 31,
  2011 2010 2010 2010
Revenues (1) (2)  $ 23,270    $ 25,132  $ 40,779  $ 12,932
           
Averages          
 Total Assets  $ 1,687,670    $ 1,750,119  $ 1,611,163  $ 1,031,197
 Non-covered Loans and Loans Held for Sale  835,122    845,794  842,709  820,578
 Covered Loans  352,663    371,112  280,337  --
 Interest Earning Assets  1,461,034    1,512,109  1,431,996  973,250
 Deposits  1,496,404    1,532,872  1,393,329  833,314
 Common Shareholders' Equity  $ 156,362    $ 154,377  $ 140,858  $ 134,340
           
Financial Ratios          
 Return on Average Assets, Annualized 0.98%   0.99% 3.91% 0.78%
 Return on Average Common Equity, Annualized(3) 7.76%   10.20% 43.51% 4.77%
 Efficiency Ratio (2)  60.40%   56.70% 31.50% 60.11%
 Yield on Earning Assets (2) 6.18%   5.98% 6.48% 5.79%
 Cost of Interest Bearing Liabilities 0.82%   0.82% 0.82% 1.44%
 Net Interest Spread 5.35%   5.16% 5.66% 4.35%
 Net Interest Margin (2) 5.42%   5.24% 5.74% 4.66%
           
Tangible Book Value Per Share (4)   $ 9.77    $ 9.71  $ 9.64  $ 8.89
Tangible Common Equity (4) 8.93%   8.77% 8.10% 13.00%
           
  March 31, December 31, September 30, March 31,
  2011 2010 2010 2010
Period End          
Total Risk-Based Capital Ratio - Consolidated 19.79%  (5)  20.96% 18.88% 22.00%
Tier 1 Risk-Based Capital Ratio - Consolidated 17.83%  (5)  19.70% 17.63% 20.74%
Tier 1 Leverage Ratio - Consolidated 10.38%  (5)  11.42% 12.40% 18.00%
Total Risk-Based Capital Ratio - Whidbey Island Bank 18.44%  (5)  20.78% 18.61% 21.48%
Tier 1 Risk-Based Capital Ratio - Whidbey Island Bank 17.18%  (5)  19.52% 17.35% 20.22%
Tier 1 Leverage Ratio - Whidbey Island Bank 10.10%  (5)  11.30% 12.20% 17.55%
           
(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:

 
  Quarter Ended
  March 31, December 31, March 31,
  2011 2010 2010
       
GAAP Earnings Available to Common Shareholders  $ 2,992  $ 3,970  $ 1,581
Provision for Income Taxes  1,887  1,413  804
GAAP Earnings Available to Common Shareholders before Provision for Income Taxes  4,879  5,383  2,385
Adjustments to GAAP Earnings Available to Common Shareholders      
Gain on Acquisitions  --  (1,005)  -- 
Acquisition-Related Costs  119 460  -- 
Accelerated Accretion of Remaining Preferred Stock Discount   1,046  --   -- 
Operating Earnings Before Taxes  6,044  4,838  2,385
Provision for Income Taxes  (2,115)  (1,693)  (835)
Net Operating Earnings  $ 3,929  $ 3,145  $ 1,550
       
Diluted GAAP Earnings per Common Share  $ 0.19  $ 0.26  $ 0.10
Diluted Operating Earnings per Common Share  $ 0.25  $ 0.20  $ 0.10

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:

 
  March 31, December 31, March 31,
($ in thousands, except per share data) 2011 2010 2010
       
Total Shareholders' Equity  $ 157,125  $ 181,646  $ 161,192
Adjustments to Shareholders' Equity      
Preferred Stock  --  (25,334) (25,080)
Other Intangible Assets, net (1) (7,383) (7,540)  -- 
Tangible Common Equity  149,742  148,772  136,112
       
Total Assets  $ 1,683,387  $ 1,704,487  $ 1,046,655
Adjustments to Total Assets      
Other Intangible Assets, net (1) (7,383) (7,540)  -- 
Tangible Assets  $ 1,676,004  $ 1,696,947  $ 1,046,655
       
Common Shares Outstanding at Period End  15,333,073  15,321,277  15,303,124
       
Tangible Common Equity 8.93% 8.77% 13.00%
Tangible Book Value per Common Share  $ 9.77  $ 9.71  $ 8.89
       
(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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