Washington Banking Company 2012 Profits Increase 13% to $16.8 Million;

Fueled by Solid Loan Growth and Improving Asset Quality

OAK HARBOR, WA – January 31, 2013 – Washington Banking Company (NASDAQ: WBCO)

, the holding company for Whidbey Island Bank, today reported 2012 earnings increased 13% to $16.8 million, or $1.09 per diluted share, compared to $14.9 million, or $0.97 per diluted share in 2011, which included $1.1 million for its final preferred dividend payment. Accelerating loan growth, strong mortgage banking income, and improving credit quality contributed to 2012 profitability. For the fourth quarter of 2012, Washington Banking’s net income was $4.6 million, or $0.30 per diluted share, nearly even with the preceding quarter and up 8% compared to $4.2 million, or $0.28 per diluted share, in the fourth quarter of 2011.

“Profits continue to grow as loan demand from both commercial and residential borrowers is coming back,” said Jack Wagner, President and Chief Executive Officer. “Our fourth quarter loan production was one of the best periods we have seen for a number of years, with the loan portfolio growing 3.5% in the quarter and 5% year-over-year. Mortgage banking revenues more than doubled in 2012, reflecting historically low interest rates and accelerating new home sales.”

“Our new Woodinville branch opened on schedule in December and the early response is encouraging,” said Bryan McDonald, Whidbey Island Bank’s President and CEO. “Located in the northeast quadrant of King County, this location serves the technology corridor, aviation suppliers and a large number of professional service businesses to support the growing population. The demographics of this market are a natural fit for Whidbey Island Bank’s style and we are eager to develop relationships with new clientele.”

2012 Financial Highlights (as of, or for the periods ended December 31, 2012)

·           Return on average assets was 1.01% and return on average common equity was 9.56% in 2012.
·           On a consolidated basis, Total Risk-Based Capital to risk-adjusted assets was 19.39% compared to 19.73% in 2011. 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 1.10%, compared to 1.29% in the preceding quarter and 1.44% a year ago. Classified loans declined to $77.3 million at December 31, 2012, from $78.2 million at September 30, 2012.
·           The $2.2 million provision for covered loan losses in the fourth quarter was more than offset by the reduction in expenses for the change in the FDIC indemnification asset. While the cash flows associated with several acquired hospitality loans have deteriorated, the Bank remains fully covered by the FDIC loss-share agreement for these assets.
·           Tangible book value per common share increased to $11.41, compared to $10.67 a year ago.
·           Low-cost demand, money market, savings and NOW accounts were $1.02 billion, or 69% of total deposits.
·           Loan loss reserves were 2.01% of non-covered loans, and 2.22% a year ago.
·           The interest income generated from the loan portfolios in the FDIC-assisted acquisitions contributed $8.2 million to fourth quarter revenues, and $36.4 million to full year revenues.
·           Net interest margin (NIM) expanded 7 basis points to 5.54% in 2012 from 5.47% in 2011.  In the fourth quarter, NIM fell 25 basis points to 5.23% compared to 5.48% in the preceding quarter, and fell 40 basis points from 5.63% in the year ago quarter, reflecting the anticipated reduction in higher yielding loans from the FDIC acquisitions made in 2010.

The following information was filed by Washington Banking Co (WBCO) on Thursday, January 31, 2013 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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