Exhibit 99.1
     
 
         
CONTACT: Michal D. Cann
Rick A. Shields
360.679.312
President & CEO
SVP & CFO
  CORPORATE INVESTOR RELATIONS
5333 — 15TH AVENUE SOUTH, SUITE 1500
SEATTLE, WA 98108
206.762.0993
www.stockvalues.com
NEWS RELEASE
 
 
WASHINGTON BANKING COMPANY INCREASES NET INCOME 53% IN 2005;
NET INTEREST MARGIN EXPANSION AND IMPROVED CREDIT QUALITY CONTINUES
OAK HARBOR, WA – February 1, 2006 – Washington Banking Company (Nasdaq: WBCO) today reported record net income for the fourth quarter and full year 2005. For the quarter ended December 31, 2005, net income increased 21% to $2.4 million, or $0.32 per diluted share, compared to $2.0 million, or $0.26 per diluted share in the fourth quarter a year ago. All per share data has been adjusted to reflect the 4-for-3 stock split issued May 17, 2005.
For the year 2005, net income grew 53% to $9.5 million, or $1.26 per diluted share, from $6.2 million, or $0.83 per diluted share in the preceding year. Results for 2004 were negatively impacted by $0.05 per diluted share due to the operating loss and closing costs associated with Washington Funding Group, a wholesale mortgage funding subsidiary that was closed in mid-2004.
“We posted record profits in 2005 by focusing on basic banking: building a high-quality loan portfolio and using core deposits as a primary funding source,” stated Michal Cann, President and CEO. “We have also benefited from a strong local economy, a growing population, and relatively low long-term interest rates. This environment, combined with our focus on relationship banking, has allowed us to expand our net interest margin while maintaining exceptional credit quality.”
FINANCIAL HIGHLIGHTS
2005 highlights, compared to the preceding year, include:
  Profits increased 53% to a record $9.5 million.
  Net interest margin expanded in each of the last three quarters and was 5.36% for the year.
  Noninterest-bearing demand deposits increased by 35%.
  Nonperforming assets decreased to 0.30% of total assets at year-end.
  Return on average equity (ROE) improved to 17.87% from 13.37%.
  Return on average assets (ROA) improved to 1.37% from 0.98%.
  The efficiency ratio improved by more than 3 percent to 60.37%.
On a fully tax-equivalent basis, the net interest margin improved to 5.36% in 2005, compared to 5.15% in 2004. In the fourth quarter of 2005, the net interest margin was 5.60%, compared to 5.30% in the preceding quarter and 5.21% in the fourth quarter a year ago.
“The consistency of our net interest margin is a reflection of our ability to manage our deposit costs despite the rising interest rate environment,” stated Rick Shields, Senior Vice President and Chief Financial Officer. “Additionally, we had two non-recurring events in the fourth quarter that contributed to the 22 basis points margin expansion, but even without the one-time items, our margin has consistently been above the 5% mark.”
An interest recovery and an adjustment in the amortization schedule of prepaid fees contributed $140,000 and $215,000, respectively, to interest income in the fourth quarter 2005. For the full year, interest income increased by $7.3 million, while interest expense was up by $2.7 million over 2004, resulting in a 16% increase in net interest income to $34.2 million in 2005, compared to $29.6 million in 2004. In the fourth quarter, interest income grew by $2.4 million while interest expense increased by $953,000 over the fourth quarter in 2004. Net interest income was $9.3 million, up 19% from $7.8 million in the fourth quarter in the previous year.
Noninterest income grew 9% to $7.3 million, versus $6.7 million in 2004, due in part to increased annuity sales, Bank Owned Life Insurance income, and SBA premiums. Noninterest expense increased 8% to $25.2 million, from $23.3 million last year. For the quarter, noninterest income was $1.8 million, versus $1.9 million in the final quarter of 2004, reflecting a decline in the gain on sale of loans and a reduction in interchange fees. Noninterest expense was up 15% to $6.7 million, compared to $5.9 million in the fourth quarter of 2004.
“The increase in operating expenses reflects the overall costs associated with a growing organization,” Shields said. “We opened our Friday Harbor branch in January of 2005 and our 2006 plan includes the expected opening of our fourth Bellingham location around mid-year. I anticipate some continued increases in noninterest expense in 2006 as we add more lenders throughout our market.”
(more)


The following information was filed by Washington Banking Co (WBCO) on Friday, February 3, 2006 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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