Washington Banking Company 3Q12 Profits Increase 28% to $4.6 Million; EPS Up 25% to $0.30 from $0.24
Washington Banking Company 3Q12 Profits Increase 28% to $4.6 Million; EPS Up 25% to $0.30 from $0.24 in 3Q11
OAK HARBOR, Wash.--(BUSINESS WIRE)-- Washington Banking Company
"Our third quarter profits show the improving market conditions in the Pacific Northwest, and we remain guardedly optimistic about the economic recovery in the area," said Jack Wagner, President and Chief Executive Officer. "Demand for commercial loans continues to grow, and residential mortgage refinancing activity remains robust."
"We are still on track to open our new branch in Woodinville before the end of the year, and we see this market as an attractive addition to our franchise," said Bryan McDonald, Whidbey Island Bank's President and CEO. "The expanded workforce in the aerospace industry, fueled by Boeing's strength, along with strong in-migrations and a rebound in our housing markets, are all contributing to an improving regional economy."
Third quarter 2012 Financial Highlights (as of, or for the period ended September 30, 2012)
- Net interest margin (NIM) compressed 19 basis points to 5.48% from 5.67% in the preceding quarter, but increased 5 basis points from 5.43% in the year ago quarter.
- On a consolidated basis, Total Risk-Based Capital to risk-adjusted assets was 19.65% compared to 19.43% a year ago. The FDIC requires a minimum of 10% Total Risk-Based Capital ratio to be considered well-capitalized.
- Nonperforming non-covered assets/total assets improved to 1.29%, compared to 1.30% in the preceding quarter and 1.75% a year ago. Classified loans declined to $78.2 million at September 30, 2012, from $84.8 million at June 30, 2012.
- Tangible book value per common share increased to $11.31, compared to $10.33 a year ago.
- Low cost demand, money market, savings and NOW accounts totaled $986.5 million and make up 68% of total deposits.
- Loan loss reserves were 2.01% of non-covered loans, and 2.30% a year ago.
- The interest income generated from the loan portfolios in the FDIC-assisted acquisitions contributed $9.0 million to third quarter revenues, up from $8.6 million in the third quarter a year ago.
- Return on average assets was 1.10% and return on average common equity was 10.43%, annualized.
- The Seattle Times' ranked Washington Banking Company as the top financial institution in the region for the third consecutive year in their 21st annual "Best of the Northwest" listing.
Regional and Acquisitions Update
"Our acquisitions made in 2010 expanded our branch footprint, particularly in North King County, which is one of the best performing localities in the region," stated Rick Shields, Chief Financial Officer. "While the costs associated with accounting for the FDIC guarantees are high and contribute to volatility in our quarterly results, the benefits of these acquisitions are clearly visible in our financial results.
The FDIC indemnification asset declined 19% in the quarter, 43% year-over-year and is down 64% from its peak in the third quarter of 2010," Shields continued. "In addition, the clawback adjustment year-to-date was $1.4 million of which $1.1 million was recorded in the second quarter of 2012. The FDIC indemnification asset was written down by $2.8 million in the third quarter of 2012, $3.1 million in the second quarter of 2012 and $2.6 million in the third quarter a year ago."
Covered loans, which are loans that are subject to a loss share arrangement with the FDIC as a result of the two assisted transactions, are shown as a separate line item of the balance sheet and are not included in the net loan totals. Covered loans are also not included in any of the reported credit quality metrics, as they are accounted for separately under generally accepted accounting principles (GAAP). Both the FDIC indemnification asset and the covered loan portfolio will decline over time, as the loans mature, pay off, or are otherwise resolved. The resolution of the acquired loan portfolios continues to progress, with net covered loans down 4% for the quarter, 16% year-over-year and 41% since the peak in the third quarter of 2010.
"Overall asset quality continues to be solid, with a small uptick in nonaccrual loans in the quarter and a significant improvement from a year ago," said Dan Kuenzi, Chief Credit Officer. "Additions to nonperforming loans totaled $3.6 million in the quarter while reductions totaled $3.2 million, which included balances that moved into OREO or were otherwise resolved."
Nonperforming, non-covered loans (NPLs) increased during the third quarter to $17.6 million from $17.2 million in the second quarter and decreased from $26.9 million in the year ago quarter, with residential construction loans accounting for 45% of the nonperforming loan portfolio. The ratio of NPLs/total non-covered loans was 2.14% at the end of the third quarter compared to 2.11% at the end of the second quarter and 3.27% a year ago. Nonperforming, non-covered assets (NPA)/total assets improved to 1.29% compared to 1.30% in the preceding quarter and 1.75% a year ago. Non-covered other real estate owned (OREO) was $4.1 million, compared $4.4 million in the preceding quarter and $2.5 million from a year ago.
Distribution of nonperforming, non-covered assets is shown in the following table:
|Non-Covered NPA by Location|
Percent of Total
NPA by Loan
|(dollars in 000s)|
|Real Estate Mortgages|
|One-to-Four Family Residential||102||-||-||308||-||774||1,184||5.45||%|
|Real Estate Construction|
|One-to-Four Family Residential||1,651||-||-||5,389||-||2,686||9,726||44.77||%|
|Other Real Estate Owned||1,120||933||-||1,283||475||269||4,080||18.78||%|
|Percent of Total Non-Covered NPA by Location||18.37||%||6.39||%||4.97||%||41.03||%||8.57||%||20.67||%||100.00||%|
The provision for loan losses was $1.3 million in the third quarter, down from $2.4 million in the second quarter of 2012 and $2.5 million in the third quarter a year ago. The allowance for loan losses totaled $16.6 million, or 2.01% of non-covered loans. Total net charge-offs in the third quarter were $2.2 million, or 1.09% of average total loans on an annualized basis, compared to $2.8 million, or 1.37% of average loans in the preceding quarter and $3.0 million, or 1.43% of average loans, in the third quarter a year ago.
Total assets were $1.68 billion at September 30, 2012, up slightly from $1.66 billion in the preceding quarter and $1.68 billion a year ago. Total non-covered loans were $824.6 million compared to $814.8 million at June 30, 2012, and $821.6 million at September 30, 2011. "We closed $39.7 million in commercial and commercial real estate loans in the third quarter, bringing total new commercial and CRE loan volumes to $124.2 in the first nine months of the year," said McDonald. "Despite a $25.2 million decline in construction balances and a decrease of $7.6 million in consumer loans over the past year, our total loan portfolio is up $3 million in the same timeframe, reflecting solid growth in our commercial lending."
The non-covered loan portfolio is well diversified with commercial and industrial loans making up 19% and residential mortgages accounting for 5% of the portfolio. Owner-occupied commercial real estate loans represent approximately 25% of the portfolio and non-owner occupied commercial real estate loans account for approximately 23% of loans. Indirect consumer loans account for 10% of the portfolio and other consumer loans account for 9%. Construction and land development loans for residential properties represent 5% and commercial construction and land development loans represent 4% of the portfolio.
Net covered loans totaled $231.5 million and covered OREO totaled $18.8 million at September 30, 2012, compared to $241.7 million and $23.0 million, respectively, three months earlier, as resolution of the covered portfolio progresses.
The mix of total deposits continued to improve while the level of total deposits was relatively stable at $1.46 billion at September 30, 2012. Noninterest-bearing demand deposits increased 7% in the quarter and 19% year-over-year, representing 17% of total deposits. Year-over-year, money market accounts were down 13% at $292.7 million, comprising 20% of total deposits; time deposits declined 18% to $471.8 million and accounted for 32% of total deposits. Core deposits, excluding time deposits over $100,000, represented 86% of all deposits.
Shareholders' equity increased 3% in the quarter and 8% year-over-year, due to the strong earnings generated during the past twelve months. Tangible shareholder equity totaled $174.8 million, or $11.31 per share at September 30, 2012, compared to $10.33 a year ago.
In the third quarter of 2012, net interest income decreased 2% to $20.6 million from the linked quarter of $20.9 million, but grew 2% from $20.1 million a year ago. Year-to-date, net interest income increased 7% to $62.7 million from $58.9 million in the first nine months of 2011.
Costs associated with the FDIC-assisted acquisitions declined substantially in the third quarter compared to the second quarter of 2012, and as a result, total third quarter noninterest income was $1.4 million compared to $988,000 in the previous quarter and $1.4 million a year ago. Collections on the covered asset portfolio generated $125,000 in gains on disposition of those assets, which was more than offset by a $2.8 million change in the FDIC indemnification asset in the third quarter of 2012. In the preceding quarter, noninterest income was augmented by $556,000 in the gain on disposition of covered assets and offset by $3.1 million related to the change in the FDIC indemnification asset.
In addition, gain on sale of loans contributed $1.1 million to third quarter revenues, compared to $776,000 in the preceding quarter and $215,000 a year ago. Gains on sale of investment securities contributed $345,000 compared to no gains in either the second quarter of 2012 or third quarter of 2011.
For the first nine months of 2012, noninterest income was down 53% to $3.6 million from $7.8 million in the first nine months of 2011. For the first nine months of 2012, gains on disposition of covered assets contributed $1.3 million compared to $4.1 million in the year ago period. The change in the FDIC indemnification asset reduced first nine months revenues by $8.9 million compared to $5.6 million in the first nine months of 2011. Gains on sale of loans contributed $2.6 million to first nine months revenues compared to $757,000 to the first nine months of 2011. For the first nine months of 2012, electronic banking income increased 16% to $2.7 million from $2.4 million in the year ago period.
Washington Banking's net interest margin decreased 19 basis points from the preceding quarter to 5.48% from 5.67% and increased 5 basis points from 5.43% in the year ago quarter. Year-to-date, net interest margin improved 23 basis points to 5.65% from 5.42% in the first nine months of 2011. "Strong contributions from the acquired loan portfolios over the past two years have benefited our net interest margin; however, we are seeing margin compression and as covered loans pay down and new loans are booked at current market rates, the net interest margin will continue to decline," Shields noted.
Third quarter operating expense decreased 10% to $13.7 million, reflecting a lower non-cash charge for the FDIC clawback liability and reduced costs for managing both covered and non-covered foreclosed real estate. Total operating expenses were $15.1 million in the second quarter of 2012 and $13.8 million in the third quarter of 2011. For the first nine months of 2012, operating expenses increased 2% to $42.4 million compared to $41.5 million in the nine month period last year.
In a separate release today, Washington Banking announced it will pay a quarterly cash dividend of $0.15 per common share. "In keeping with our two-tiered approach in determining our dividend payouts each quarter, we are paying $0.06 per share in a basic dividend and $0.09 per share in the variable dividend, which results in the total dividend at 50% of earnings," Wagner noted. "Our board will continue to evaluate dividends each quarter based on capital requirements, market opportunities and other operating considerations."
Conference Call Information
Management will host a conference call on Friday, October 26, at 10:00 a.m. Pacific time (1:00 p.m. ET) to discuss the results. This call will also be broadcast live via the internet. Investment professionals and all current and prospective shareholders are invited to access the live call by dialing (480) 629-9835 at 10:00 a.m. Pacific Time for conference ID #4566468. To listen to the call online, either live or archived, visit the Investor Relations page of Whidbey Island Bank's website at www.wibank.com.
ABOUT WASHINGTON BANKING COMPANY
Washington Banking Company is a bank holding company based in Oak Harbor, Washington, that operates Whidbey Island Bank, a state-chartered full-service commercial bank. Founded in 1961, Whidbey Island Bank provides various deposit, loan and investment services to meet customers' financial needs. With its two FDIC-assisted acquisitions in 2010, Whidbey Island Bank currently operates 30 full-service branches located in six counties in Northwestern Washington. In 2009, Washington Banking was added to the Russell 2000 Index, a subset of the Russell 3000 Index. Both indices are widely used by professional money managers as benchmarks for investment strategies.
This news release contains forward-looking statements that are subject to risks and uncertainties.These forward-looking statements describe management's expectations regarding future events and developments such as future operating results, regional economic trends, dividends and dividend payout ratios, covered loan trends, availability of acquisition opportunities, growth in loans and deposits, credit quality and loan losses, opening of new branches and continued success of the Company's business plan.Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof.The words "anticipate," "expect," "will," "believe," and words of similar meaning are intended, in part, to help identify forward-looking statements.Future events are difficult to predict, and the expectations described above are subject to risk and uncertainty that may cause actual results to differ materially.In addition to discussions about risks and uncertainties set forth from time to time in the Company's filings with the Securities and Exchange Commission, factors that may cause actual results to differ materially from those contemplated in these forward-looking statements include, among others:(1) local and national general and economic condition; (2) changes in interest rates and their impact on net interest margin; (3) competition among financial institutions; (4) legislation or regulatory requirements; (5) the ability to realize the efficiencies expected from investment in personnel and infrastructure; and (6) the ability to open new locations.Washington Banking Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made.Any such statements are made in reliance on the safe harbor protections provided under the Securities Exchange Act of 1934, as amended.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
($ in thousands, except per share data)
|Taxable Investment Securities||1,238||1,387||-11||%||1,123||10||%|
|Tax Exempt Securities||311||276||13||%||220||41||%|
|Total Interest Income||22,262||22,726||-2||%||22,512||-1||%|
|Junior Subordinated Debentures||135||133||2||%||120||13||%|
|Total Interest Expense||1,710||1,837||-7||%||2,430||-30||%|
|Net Interest Income||20,552||20,889||-2||%||20,082||2||%|
|Provision for Loan Losses, Non-Covered Loans||1,250||2,350||-47||%||2,500||-50||%|
|Provision for Loan Losses, Covered Loans||-||398||-100||%||-||NA|
|Net Interest Income after Provision for Loan Losses||19,302||18,141||6||%||17,582||10||%|
|Service Charges and Fees||886||921||-4||%||956||-7||%|
|Electronic Banking Income||820||1,012||-19||%||838||-2||%|
|Gain on Sale of Investment Securities, Net||345||-||NA||-||NA|
|Bank Owned Life Insurance Income||43||55||-22||%||84||-49||%|
|Income from the Sale of Loans||1,146||776||48||%||215||433||%|
|SBA Premium Income||126||105||20||%||103||22||%|
|Change in FDIC Indemnification Asset||(2,762||)||(3,145||)||-12||%||(2,586||)||7||%|
|Gain on Disposition of Covered Assets||125||556||-78||%||1,119||-89||%|
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