wfbicorplogo05.jpg
FOR IMMEDIATE RELEASE
July 20, 2017

WashingtonFirst Bankshares, Inc. Reports 21% Increase in Net Income and 29% Increase in Core Net Income for the Second Quarter 2017



RESTON, VA - WashingtonFirst Bankshares, Inc. (“WashingtonFirst” or the “Company”) (NASDAQ: WFBI), the parent company of WashingtonFirst Bank, WashingtonFirst Mortgage, and 1st Portfolio Inc., reports net income of $5.3 million and $9.8 million for the three and six months ended June 30, 2017, respectively. Earnings per share were $0.40 and $0.74 per share on a fully-diluted basis for the three and six months ended June 30, 2017, respectively, resulting in 18% and 16% increases over the comparable periods last year. Loans held for investment grew by $104.2 million to $1.6 billion, and total deposits increased $222.0 million, an increase of 15%, to $1.7 billion during the first half of 2017. Net interest margin increased 14 basis points to 3.51% for the three months ended June 30, 2017 and 5 basis points to 3.49% for the six months ended June 30, 2017, compared to the same periods in 2016. On July 3, 2017, the Company paid its 15th consecutive quarterly cash dividend to its shareholders.

Core net income per diluted common share for the three and six months ended June 30, 2017, was $0.42 and $0.76, respectively, representing increases of 23.5% and 18.8%, respectively, compared to the same periods in the prior year. Core net income is calculated as net income adjusted for the after-tax impact of merger expenses.
Commenting on the Company’s second quarter performance, Shaza Andersen, the Company's President and CEO, said “Immediately following the announcement of the decision to merge with Sandy Spring Bancorp, our team began the work that will be needed to ensure a smooth and successful closing; however, we never lost sight of our commitments to deliver exceptional customer service and enhance shareholder value.  I am so pleased to report that even with the added costs and attention associated with the merger, we have been able to meet and exceed our financial performance goals.  Core net income for the second quarter were $5.7 million, or $0.42 per share on a fully diluted basis, an increase of 29% over the prior quarter." 

Return on average shareholders equity was 10.54% and 9.86% during the three and six months ended June 30, 2017, respectively, compared to 9.42% and 9.01% for the same periods last year. Management attributed this increase to the continued organic growth of the loan portfolio over the past twelve months. For the three and six months ended June 30, 2017, net interest income after provision for loan losses increased $2.6 million and $4.4 million, or 19% and 16%, over the same periods ended June 30, 2016.

Total assets reached $2.1 billion as of June 30, 2017, an increase of 12% over the last twelve months. Net loans held-for-investment and total deposits ended the first half of 2017 at $1.6 billion and $1.7 billion, respectively, representing increases of 18% and 13%, respectively, over the same period last year.
About The Company

WashingtonFirst Bankshares, Inc., headquartered in Reston, Virginia, is the holding company for WashingtonFirst Bank, which operates 19 full-service banking offices throughout the Washington, D.C. metropolitan area. In addition, the Company provides wealth management services through its subsidiary, 1st Portfolio Wealth Advisors, and mortgage banking services through the Bank's subsidiary, WashingtonFirst Mortgage Corporation. The Company's common stock is traded on the NASDAQ Stock Market under the quotation symbol "WFBI" and is included in the ABA NASDAQ Community Bank Index and the Russell 2000® index.  For more information about the Company, please visit: www.wfbi.com.



1



Cautionary Statements About Forward-Looking Information
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements of the goals, intentions, and expectations of the Company as to future trends, plans, events, results of operations and policies and regarding general economic conditions. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors which include, but are not limited to, factors discussed in our Annual Report on Form 10-K and in other documents we file with the Securities and Exchange Commission from time to time.  In some cases, forward-looking statements can be identified by use of words such as “may,” “will,” “anticipates,” “believes,” “expects,” “plans,” “estimates,” “potential,” “continue,” “should,” and similar words or phrases. These statements are based upon the beliefs of the management of the Company as to the expected outcome of future events, current and anticipated economic conditions, nationally and in the Company’s market, and their impact on the operations, assets and earnings of the Company, interest rates and interest rate policy, competitive factors, judgments about the ability of the Company to successfully integrate its operations following significant transactions including, but not limited to, mergers and acquisitions, the ability to avoid customer dislocation during the period leading up to and following such transactions, and other conditions which by their nature, are not susceptible to accurate forecast and are subject to significant uncertainty. Readers are cautioned against placing undue reliance on such forward-looking statements. The Company assumes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release.

Additional Information About the Merger and Where to Find It

In connection with the proposed merger transaction, Sandy Spring Bancorp, Inc. filed with the Securities and Exchange Commission on July 19, 2017 a Registration Statement on Form S-4 which included a Preliminary Joint Proxy Statement of Sandy Spring and the Company, and a Preliminary Prospectus of Sandy Spring, as well as other relevant documents concerning the proposed transaction. Shareholders are urged to read the Registration Statement, the Preliminary Joint Proxy Statement/Prospectus, which is available now, and the Final Joint Proxy Statement/Prospectus, when it becomes available, regarding the merger and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they contain or will contain important information about Sandy Spring, the Company and the proposed merger.

A free copy of the Joint Proxy Statement/Prospectus, as well as other filings containing information about Sandy Spring and the Company, may be obtained at the SEC’s Internet site (http://www.sec.gov). You will also be able to obtain these documents, free of charge, from Sandy Spring at www.sandyspringbank.com under the tab “Investor Relations,” and then under the heading “SEC Filings” or from the Company by accessing the Company’s website at www.wfbi.com under the tab “Investor Relations,” and then selecting “SEC Filings” under the heading “Documents and Filings.” Alternatively, these documents, when available, can be obtained free of charge from Sandy Spring upon written request to Sandy Spring Bancorp, Inc., Corporate Secretary, 17801 Georgia Avenue, Olney, Maryland 20832 or by calling (800) 399-5919, or from the Company, upon written request to WashingtonFirst Bankshares, Inc., Corporate Secretary, 11921 Freedom Drive, Suite 250, Reston, Virginia 20190 or by calling (703) 840-2410.

Participants in the Solicitation

Sandy Spring and the Company and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Sandy Spring and the Company in connection with the proposed merger. Information about the directors and executive officers of Sandy Spring is set forth in the proxy statement for Sandy Spring’s 2017 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 22, 2017. Information about the directors and executive officers of WashingtonFirst is set forth in the proxy statement for the Company’s 2017 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 14, 2017. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Preliminary Joint Proxy Statement/Prospectus and, when available, the Final Joint Proxy Statement/Prospectus regarding the proposed merger. Free copies of this document may be obtained as described in the preceding paragraph.

2



WashingtonFirst Bankshares, Inc.
Consolidated Balance Sheets
(unaudited)
 
June 30, 2017
 
December 31, 2016
 
June 30, 2016
 
($ in thousands)
Assets:
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
Cash and due from bank balances
$
4,049

 
$
3,614

 
$
3,164

Federal funds sold
25,901

 
93,659

 
96,177

Interest bearing deposits
100

 
100

 
100

Cash and cash equivalents
30,050

 
97,373

 
99,441

Investment securities, available-for-sale, at fair value
309,107

 
280,204

 
260,675

Restricted stock, at cost
10,182

 
11,726

 
4,481

Loans held for sale, at lower of cost or fair value
48,399

 
32,109

 
52,198

Loans held for investment:
 
 
 
 
 
Loans held for investment, at amortized cost
1,638,751

 
1,534,543

 
1,391,523

Allowance for loan losses
(14,074
)
 
(13,582
)
 
(12,595
)
Total loans held for investment, net of allowance
1,624,677

 
1,520,961

 
1,378,928

Premises and equipment, net
6,396

 
6,955

 
7,476

Goodwill
11,420

 
11,420

 
11,420

Identifiable intangibles
1,484

 
1,619

 
1,753

Deferred tax asset, net
7,525

 
8,944

 
6,901

Accrued interest receivable
5,778

 
5,243

 
4,546

Other real estate owned
725

 
1,428

 
2,159

Bank-owned life insurance
16,572

 
13,880

 
13,701

Other assets
10,862

 
11,049

 
9,987

Total Assets
$
2,083,177

 
$
2,002,911

 
$
1,853,666

Liabilities and Shareholders' Equity:
 
 
 
 
 
Liabilities:
 
 
 
 
 
Non-interest bearing deposits
$
515,861

 
$
381,887

 
$
418,404

Interest bearing deposits
1,228,830

 
1,140,854

 
1,130,473

Total deposits
1,744,691

 
1,522,741

 
1,548,877

Other borrowings
15,275

 
5,852

 
9,021

FHLB advances
73,103

 
232,097

 
61,589

Long-term borrowings
32,757

 
32,638

 
32,953

Accrued interest payable
1,390

 
947

 
969

Other liabilities
12,383

 
15,976

 
11,957

Total Liabilities
1,879,599

 
1,810,251

 
1,665,366

Commitments and contingent liabilities

 

 

Shareholders' Equity:
 
 
 
 
 
Common stock:
 
 
 
 
 
Common Stock Voting, $0.01 par value, 50,000,000 shares authorized, 12,334,863, 10,987,652 and 10,431,016 shares issued and outstanding, respectively
123

 
109

 
104

Common Stock Non-Voting, $0.01 par value, 10,000,000 shares authorized, 742,278, 1,908,733 and 1,817,842 shares issued and outstanding, respectively
7

 
19

 
18

Additional paid-in capital
179,915

 
177,924

 
161,679

Accumulated earnings
25,140

 
17,187

 
24,594

Accumulated other comprehensive income (loss)
(1,607
)
 
(2,579
)
 
1,905

Total Shareholders' Equity
203,578

 
192,660

 
188,300

Total Liabilities and Shareholders' Equity
$
2,083,177

 
$
2,002,911

 
$
1,853,666






3



WashingtonFirst Bankshares, Inc.
Consolidated Statements of Income
(unaudited)
 
For the Three Months Ended
 
For the Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
 
($ in thousands)
Interest and dividend income:
 
 
 
 
 
 
 
Interest and fees on loans
$
19,872

 
$
16,836

 
$
38,651

 
$
33,227

Interest and dividends on investments:
 
 
 
 
 
 
 
Taxable
1,354

 
1,178

 
2,619

 
2,170

Tax-exempt
61

 
19

 
126

 
41

Dividends on other equity securities
161

 
81

 
357

 
152

Interest on Federal funds sold and other short-term investments
81

 
68

 
155

 
136

Total interest and dividend income
21,529

 
18,182

 
41,908

 
35,726

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
2,902

 
2,200

 
5,319

 
4,195

Interest on borrowings
1,052

 
981

 
2,277

 
1,977

Total interest expense
3,954

 
3,181

 
7,596

 
6,172

Net interest income
17,575

 
15,001

 
34,312

 
29,554

Provision for loan losses
925

 
980

 
1,940

 
1,605

Net interest income after provision for loan losses
16,650

 
14,021

 
32,372

 
27,949

Non-interest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
40

 
81

 
88

 
160

Earnings on bank-owned life insurance
107

 
90

 
192

 
180

Gain on sale of loans, net
4,601

 
5,287

 
7,250

 
8,029

Mortgage banking activities
925

 
1,358

 
1,869

 
2,557

Wealth management income
519

 
443

 
1,019

 
871

Gain on sale of available-for-sale investment securities, net

 
1,077

 

 
1,152

Gain on debt extinguishment

 

 
301

 

Other operating income
372

 
154

 
678

 
322

Total non-interest income
6,564

 
8,490

 
11,397

 
13,271

Non-interest expense:
 
 
 
 
 
 
 
Compensation and employee benefits
7,134

 
7,251

 
14,568

 
13,949

Mortgage commission
2,140

 
2,102

 
3,410

 
3,208

Premises and equipment
1,849

 
1,863

 
3,563

 
3,680

Data processing
1,164

 
1,121

 
2,170

 
2,125

Professional fees
194

 
350

 
465

 
669

Merger expenses
532

 

 
532

 

Mortgage loan processing expenses
318

 
354

 
517

 
550

Debt extinguishment

 
1,044

 

 
1,044

Other operating expenses
1,737

 
1,450

 
3,539

 
2,811

Total non-interest expense
15,068

 
15,535

 
28,764

 
28,036

Income before provision for income taxes
8,146

 
6,976

 
15,005

 
13,184

Provision for income taxes
2,809

 
2,578

 
5,232

 
4,862

Net income
$
5,337

 
$
4,398

 
$
9,773

 
$
8,322

 
 
 
 
 
 
 
 
Earnings per common share: (1)
 
 
 
 
 
 
 
Basic earnings per common share
$
0.41

 
$
0.34

 
$
0.75

 
$
0.65

Diluted earnings per common share
$
0.40

 
$
0.34

 
$
0.74

 
$
0.64

(1) Prior periods adjusted for 5% stock dividend issued in December 2016

4



 
For the Three Months Ended
 
For the Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
 
($ in thousands, except per share data)
Performance Ratios:
 
 
 
 
 
 
 
Return on average assets
1.05
%
 
0.98
%
 
0.98
%
 
0.96
%
Return on average shareholders' equity
10.54
%
 
9.42
%
 
9.86
%
 
9.01
%
Yield on average interest-earning assets
4.31
%
 
4.10
%
 
4.27
%
 
4.17
%
Rate on average interest-earning liabilities
1.16
%
 
1.02
%
 
1.11
%
 
1.02
%
Net interest spread
3.15
%
 
3.08
%
 
3.16
%
 
3.15
%
Net interest margin
3.51
%
 
3.37
%
 
3.49
%
 
3.44
%
Efficiency ratio (1)
62.42
%
 
64.65
%
 
63.35
%
 
64.77
%
Net charge-offs to average loans held for investment (2)
0.34
%
 
0.21
%
 
0.18
%
 
0.19
%
 
 
 
 
 
 
 
 
Mortgage origination volume
$
200,006

 
$
216,927

 
$
314,345

 
$
339,563

 
 
 
 
 
 
 
 
Assets under management
$
313,811

 
$
245,074

 
$
313,811

 
$
245,074

 
 
 
 
 
 
 
 
Per Share Data: (3)
 
 
 
 
 
 
 
Basic earnings per common share
$
0.41

 
$
0.34

 
$
0.75

 
$
0.65

Fully diluted earnings per common share
$
0.40

 
$
0.34

 
$
0.74

 
$
0.64

Weighted average basic shares outstanding
13,024,517

 
12,851,828

 
12,972,120

 
12,836,294

Weighted average diluted shares outstanding
13,334,847

 
13,075,908

 
13,292,573

 
13,064,628

(1) The efficiency ratio is calculated as total non-interest expense (less debt extinguishment costs) divided by the sum of net interest income and total non-interest income (less gain on sale of AFS securities and gain on debt extinguishment). This non-GAAP financial measure is presented to facilitate an understanding of the Company's performance.
(2) Annualized
(3) 2016 amounts have been adjusted to reflect the 5% stock dividend issued in December 2016

 
June 30, 2017
 
December 31, 2016
 
June 30, 2016
Capital Ratios:
 
 
 
 
 
Total risk-based capital ratio
13.65
%
 
13.99
%
 
14.52
%
Tier 1 risk-based capital ratio
11.40
%
 
11.61
%
 
12.02
%
Common equity tier 1 risk-based capital ratio
10.95
%
 
11.15
%
 
11.49
%
Tier 1 leverage ratio
9.89
%
 
10.14
%
 
10.07
%
Tangible common equity to tangible assets (1)
9.21
%
 
9.03
%
 
9.52
%
 
 
 
 
 
 
Per Share Capital Data: (2)
 
 
 
 
 
Book value per common share
$
15.57

 
$
14.94

 
$
14.64

Tangible book value per common share
$
14.58

 
$
13.93

 
$
13.62

Common shares outstanding
13,077,141

 
12,896,385

 
12,860,836

(1) This is a non-GAAP financial measure. Refer to the table below outlining the reconciliation of tangible common equity to tangible assets.
(2) June 30, 2016, amounts have been adjusted to reflect the 5% stock dividend issued in December 2016






5



Average Balances, Interest Income and Expense and Average Yield and Rates (QTD)
 
For the Three Months Ended
 
June 30, 2017
 
June 30, 2016
 
Average
Balance
 
Income/
Expense
 
Yield/
Rate
(6)
 
Average
Balance
 
Income/
Expense
 
Yield/
Rate
(6)
 
($ in thousands)
Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale
$
33,778

 
$
348

 
4.08
%
 
$
45,638

 
$
438

 
3.79
%
Loans held for investment (1)
1,593,774

 
19,524

 
4.85
%
 
1,366,656

 
16,398

 
4.75
%
Investment securities - taxable
287,861

 
1,354

 
1.86
%
 
278,690

 
1,178

 
1.67
%
Investment securities - tax-exempt (2)
14,346

 
91

 
2.52
%
 
3,822

 
29

 
3.01
%
Other equity securities
12,454

 
161

 
5.16
%
 
6,636

 
81

 
4.89
%
Interest-bearing balances
100

 

 
1.02
%
 
100

 

 
0.60
%
Federal funds sold
38,976

 
81

 
0.82
%
 
55,722

 
68

 
0.49
%
Total interest earning assets
1,981,289

 
21,559

 
4.31
%
 
1,757,264

 
18,192

 
4.10
%
Non-interest earning assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
3,168

 
 
 
 
 
2,712

 
 
 
 
Premises and equipment
6,655

 
 
 
 
 
7,713

 
 
 
 
Other real estate owned
794

 
 
 
 
 
2,044

 
 
 
 
Other assets (3)
53,062

 
 
 
 
 
45,829

 
 
 
 
Less: allowance for loan losses
(14,578
)
 
 
 
 
 
(12,153
)
 
 
 
 
Total non-interest earning assets
49,101

 
 
 
 
 
46,145

 
 
 
 
Total Assets
$
2,030,390

 
 
 
 
 
$
1,803,409

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand deposits
$
144,326

 
$
114

 
0.32
%
 
$
124,079

 
$
90

 
0.29
%
Money market deposit accounts
276,650

 
636

 
0.92
%
 
265,727

 
393

 
0.59
%
Savings accounts
202,785

 
359

 
0.71
%
 
215,544

 
382

 
0.71
%
Time deposits
574,495

 
1,793

 
1.25
%
 
485,482

 
1,335

 
1.11
%
Total interest-bearing deposits
1,198,256

 
2,902

 
0.97
%
 
1,090,832

 
2,200

 
0.81
%
FHLB advances
128,519

 
503

 
1.55
%
 
114,435

 
445

 
1.54
%
Other borrowings and long-term borrowings
39,668

 
549

 
5.54
%
 
39,372

 
536

 
5.45
%
Total interest-bearing liabilities
1,366,443

 
3,954

 
1.16
%
 
1,244,639

 
3,181

 
1.02
%
Non-interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
448,835

 
 
 
 
 
361,191

 
 
 
 
Other liabilities
11,974

 
 
 
 
 
9,786

 
 
 
 
Total non-interest-bearing liabilities
460,809

 
 
 
 
 
370,977

 
 
 
 
Total Liabilities
1,827,252

 
 
 
 
 
1,615,616

 
 
 
 
Shareholders’ Equity
203,138

 
 
 
 
 
187,793

 
 
 
 
Total Liabilities and Shareholders’ Equity
$
2,030,390

 
 
 
 
 
$
1,803,409

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Spread (4)
 
 
$
17,605

 
3.15
%
 
 
 
$
15,011

 
3.08
%
Net Interest Margin (2)(5)
 
 


 
3.51
%
 
 
 


 
3.37
%

(1) 
Includes loans placed on non-accrual status.
(2) 
Yield and income presented on a fully taxable equivalent basis using a federal statutory rate of 35 percent.
(3) 
Includes intangibles, deferred tax asset, accrued interest receivable, bank-owned life insurance and other assets.
(4) 
Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities.
(5) 
Net interest margin is net interest income, expressed as a percentage of average earning assets.
(6) 
Annualized income/expense is used for the yield/rate.




6



Average Balances, Interest Income and Expense and Average Yield and Rates (YTD)
 
For the Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
Average
Balance
 
Income/
Expense
 
Yield/
Rate
(6)
 
Average
Balance
 
Income/
Expense
 
Yield/
Rate
(6)
 
($ in thousands)
Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale
$
27,817

 
$
573

 
4.09
%
 
$
37,326

 
$
728

 
3.86
%
Loans held for investment (1)
$
1,580,216

 
$
38,078

 
4.79
%
 
$
1,349,597

 
$
32,499

 
4.76
%
Investment securities - taxable
279,218

 
2,619

 
1.87
%
 
250,511

 
2,170

 
1.71
%
Investment securities - tax-exempt (2)
14,486

 
187

 
2.58
%
 
3,955

 
61

 
3.03
%
Other equity securities
14,069

 
357

 
5.11
%
 
6,429

 
152

 
4.77
%
Interest-bearing balances
100

 

 
0.79
%
 
71

 
1

 
2.96
%
Federal funds sold
39,195

 
155

 
0.79
%
 
48,656

 
135

 
0.56
%
Total interest earning assets
1,955,101

 
41,969

 
4.27
%
 
1,696,545

 
35,746

 
4.17
%
Non-interest earning assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
3,283

 
 
 
 
 
2,346

 
 
 
 
Premises and equipment
6,799

 
 
 
 
 
7,672

 
 
 
 
Other real estate owned
938

 
 
 
 
 
1,238

 
 
 
 
Other assets (3)
51,510

 
 
 
 
 
47,376

 
 
 
 
Less: allowance for loan losses
(14,259
)
 
 
 
 
 
(12,283
)
 
 
 
 
Total non-interest earning assets
48,271

 
 
 
 
 
46,349

 
 
 
 
Total Assets
$
2,003,372

 
 
 
 
 
$
1,742,894

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand deposits
$
136,926

 
$
223

 
0.33
%
 
$
119,396

 
$
176

 
0.30
%
Money market deposit accounts
267,431

 
1,088

 
0.82
%
 
281,590

 
831

 
0.59
%
Savings accounts
205,081

 
721

 
0.71
%
 
193,493

 
681

 
0.71
%
Time deposits
554,373

 
3,287

 
1.20
%
 
462,137

 
2,507

 
1.09
%
Total interest-bearing deposits
1,163,811

 
5,319

 
0.92
%
 
1,056,616

 
4,195

 
0.80
%
FHLB advances
174,646

 
1,185

 
1.35
%
 
113,072

 
899

 
1.57
%
Other borrowings and long-term borrowings
39,417

 
1,092

 
5.57
%
 
39,485

 
1,078

 
5.47
%
Total interest-bearing liabilities
1,377,874

 
7,596

 
1.11
%
 
1,209,173

 
6,172

 
1.02
%
Non-interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
413,091

 
 
 
 
 
335,292

 
 
 
 
Other liabilities
12,554

 
 
 
 
 
12,787

 
 
 
 
Total non-interest-bearing liabilities
425,645

 
 
 
 
 
348,079

 
 
 
 
Total Liabilities
1,803,519

 
 
 
 
 
1,557,252

 
 
 
 
Shareholders’ Equity
199,853

 
 
 
 
 
185,642

 
 
 
 
Total Liabilities and Shareholders’ Equity
$
2,003,372

 
 
 
 
 
$
1,742,894

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Spread (4)
 
 
$
34,373

 
3.16
%
 
 
 
$
29,574

 
3.15
%
Net Interest Margin (2)(5)
 
 


 
3.49
%
 
 
 


 
3.44
%

(1) 
Includes loans placed on non-accrual status.
(2) 
Yield and income presented on a fully taxable equivalent basis using a federal statutory rate of 35 percent.
(3) 
Includes intangibles, deferred tax asset, accrued interest receivable, bank-owned life insurance and other assets.
(4) 
Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities.
(5) 
Net interest margin is net interest income, expressed as a percentage of average earning assets.
(6) 
Annualized income/expense is used for the yield/rate.


7



Composition of Loans Held for Investment
 
June 30, 2017
 
December 31, 2016
 
June 30, 2016
 
($ in thousands)
Construction and development
$
285,277

 
$
288,193

 
$
270,476

Commercial real estate- owner occupied
264,358

 
231,414

 
226,949

Commercial real estate- non-owner occupied
607,206

 
557,846

 
465,445

Residential real estate
307,575

 
287,250

 
254,520

Real estate loans
1,464,416

 
1,364,703

 
1,217,390

Commercial and industrial
170,260

 
165,172

 
166,941

Consumer
4,075

 
4,668

 
7,192

Total loans
1,638,751

 
1,534,543

 
1,391,523

Less: allowance for loan losses
14,074

 
13,582

 
12,595

Net loans
$
1,624,677

 
$
1,520,961

 
$
1,378,928


Composition of Deposits
 
June 30, 2017
 
December 31, 2016
 
June 30, 2016
 
($ in thousands)
Demand deposit accounts
$
515,861

 
$
381,887

 
$
418,404

NOW accounts
189,903

 
134,938

 
153,261

Money market accounts
278,148

 
270,794

 
253,207

Savings accounts
194,551

 
209,961

 
231,934

Time deposits up to $250,000
408,919

 
386,095

 
349,306

Time deposits over $250,000
157,309

 
139,066

 
142,765

Total deposits
$
1,744,691

 
$
1,522,741

 
$
1,548,877


Allowance and Asset Quality Ratios
 
June 30, 2017
 
December 31, 2016
 
June 30, 2016
Allowance for loan losses to loans held for investment
0.86
%
 
0.89
%
 
0.91
%
Adjusted allowance for loan losses to loans held for investment (1)
1.05
%
 
1.11
%
 
1.22
%
Allowance for loan losses to non-accrual loans
348.11
%
 
236.37
%
 
169.81
%
Allowance for loan losses to non-performing assets
73.77
%
 
159.10
%
 
95.38
%
Non-performing assets to total assets
0.92
%
 
0.43
%
 
0.71
%
(1) This is a non-GAAP financial measure. Refer to the table below outlining the reconciliation of GAAP Allowance Ratio to Adjusted Allowance Ratio.

Non-Performing Assets
 
 
 
 
 
 
June 30, 2017
 
December 31, 2016
 
June 30, 2016
 
($ in thousands)
Non-accrual loans
$
4,043

 
$
5,746

 
$
7,417

90+ days still accruing
13,057

 
2

 
13

Trouble debt restructurings still accruing
1,252

 
1,361

 
3,616

Other real estate owned
725

 
1,428

 
2,159

Total non-performing assets
$
19,077

 
$
8,537

 
$
13,205





8



Reconciliation of Net Income to Core Net Income (1)
 
For the Three Months Ended
 
For the Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
 
($ in thousands)
Net Income
$
5,337

 
$
4,398

 
$
9,773

 
8,322

Add: Merger Expenses
532

 

 
532

 

Less: Tax effect
(212
)
 

 
(212
)
 

Core Net Income
5,657

 
4,398

 
10,093

 
8,322

(1) Core net income is calculated as net income adjusted for the after-tax impact of merger expenses and is a non-GAAP financial measure that is presented to facilitate a comparison of the Company's earnings without merger expenses. This table provides a reconciliation between GAAP Net Income amounts and this non-GAAP financial measure.

Reconciliation of Tangible Common Equity to Tangible Assets Ratio (1)
 
June 30, 2017
 
December 31, 2016
 
June 30, 2016
 
($ in thousands)
Tangible Common Equity:
 
 
 
 
 
Common Stock Voting
$
123

 
$
109

 
$
104

Common Stock Non-Voting
7

 
19

 
18

Additional paid-in capital - common
179,915

 
177,924

 
161,679

Accumulated earnings
25,140

 
17,187

 
24,594

Accumulated other comprehensive income/(loss)
(1,607
)
 
(2,579
)
 
1,905

Total Common Equity
$
203,578

 
$
192,660

 
$
188,300

 
 
 
 
 
 
Less Intangibles:
 
 
 
 
 
Goodwill
$
11,420

 
$
11,420

 
$
11,420

Identifiable intangibles
1,484

 
1,619

 
1,753

Total Intangibles
$
12,904

 
$
13,039

 
$
13,173

 
 
 
 
 
 
Tangible Common Equity
$
190,674

 
$
179,621

 
$
175,127

 
 
 
 
 
 
Tangible Assets:
 
 
 
 
 
Total Assets
$
2,083,177

 
$
2,002,911

 
$
1,853,666

 
 
 
 
 
 
Less Intangibles:
 
 
 
 
 
Goodwill
$
11,420

 
$
11,420

 
$
11,420

Identifiable intangibles
1,484

 
1,619

 
1,753

Total Intangibles
$
12,904

 
$
13,039

 
$
13,173

 
 
 
 
 
 
Tangible Assets
$
2,070,273

 
$
1,989,872

 
$
1,840,493

 
 
 
 
 
 
Tangible Common Equity to Tangible Assets (1)
9.21
%
 
9.03
%
 
9.52
%
(1)  Tangible common equity to tangible assets ratio is a non-GAAP financial measure that is presented to facilitate an understanding of the Company's capital structure. This table provides a reconciliation between certain GAAP amounts and this non-GAAP financial measure.


9



Reconciliation of GAAP Allowance Ratio to Adjusted Allowance Ratio (1)
 
June 30, 2017
 
December 31, 2016
 
June 30, 2016
 
($ in thousands)
GAAP allowance for loan losses
$
14,074

 
$
13,582

 
$
12,595

GAAP loans held for investment, at amortized cost
1,638,751

 
1,534,543

 
1,391,523

 
 
 
 
 
 
GAAP allowance for loan losses to total loans held for investment
0.86
%
 
0.89
%
 
0.91
%
 
 
 
 
 
 
GAAP allowance for loan losses
$
14,074

 
$
13,582

 
$
12,595

Plus: Credit purchase accounting marks
3,138

 
3,537

 
4,383

Adjusted allowance for loan losses
$
17,212

 
$
17,119

 
$
16,978

 
 
 
 
 
 
GAAP loans held for investment, at amortized cost
$
1,638,751

 
$
1,534,543

 
$
1,391,523

Plus: Credit purchase accounting marks
3,138

 
3,537

 
4,383

Adjusted loans held for investment, at amortized cost
$
1,641,889

 
$
1,538,080

 
$
1,395,906

 
 
 
 
 
 
Adjusted allowance for loan losses to total loans held for investment (1)
1.05
%
 
1.11
%
 
1.22
%
(1) This is a non-GAAP financial measure. Credit purchase accounting marks are GAAP marks under purchase accounting guidance.


Segment Reporting - 2017 (QTD)
 
For the Three Months Ended June 30, 2017
 
Commercial Bank
 
Mortgage Bank
 
Wealth Management
 
Other (1)
 
Consolidated Totals
 
($ in thousands)
Interest and dividend income
21,180

 
349

 

 

 
21,529

Interest expense
3,408

 

 

 
546

 
3,954

Net interest income
17,772

 
349

 

 
(546
)
 
17,575

Provision for loan losses
925

 

 

 

 
925

Net interest income after provision for loan losses
16,847

 
349

 

 
(546
)
 
16,650

 
 
 
 
 
 
 
 
 

Non-interest income
482

 
5,525

 
519

 
38

 
6,564

Compensation and employee benefits
4,912

 
1,722

 
243

 
257

 
7,134

Mortgage commission

 
2,140

 

 

 
2,140

Premises and equipment
1,611

 
165

 
32

 
41

 
1,849

Data processing
1,087

 
61

 
16

 

 
1,164

Professional fees
101

 
7

 
2

 
84

 
194

Merger expenses
14

 

 

 
518

 
532

Mortgage loan processing expenses

 
318

 

 

 
318

Other operating expenses
1,381

 
237

 
67

 
52

 
1,737

Income/(loss) before provision for income taxes
8,223

 
1,224

 
159

 
(1,460
)
 
8,146

 
 
 
 
 
 
 
 
 

Total assets
2,017,556

 
60,759

 
3,904

 
958

 
2,083,177

(1) Includes parent company and intercompany eliminations



10



Segment Reporting - 2017 (YTD)
 
For the Six Months Ended June 30, 2017
 
Commercial Bank
 
Mortgage Bank
 
Wealth Management
 
Other (1)
 
Consolidated Totals
 
($ in thousands)
Interest and dividend income
41,335

 
573

 

 

 
41,908

Interest expense
6,511

 

 

 
1,085

 
7,596

Net interest income
34,824

 
573

 

 
(1,085
)
 
34,312

Provision for loan losses
1,940

 

 

 

 
1,940

Net interest income after provision for loan losses
32,884

 
573

 

 
(1,085
)
 
32,372

 
 
 
 
 
 
 
 
 
 
Non-interest income
1,222

 
9,118

 
1,019

 
38

 
11,397

Compensation and employee benefits
10,159

 
3,369

 
546

 
494

 
14,568

Mortgage commission

 
3,410

 

 

 
3,410

Premises and equipment
3,083

 
333

 
65

 
82

 
3,563

Data processing
2,026

 
121

 
23

 

 
2,170

Professional fees
270

 
18

 
3

 
174

 
465

Merger expenses
14

 

 

 
518

 
532

Mortgage loan processing expenses

 
517

 

 

 
517

Other operating expenses
2,761

 
522

 
141

 
115

 
3,539

Income/(loss) before provision for income taxes
15,793

 
1,401

 
241

 
(2,430
)
 
15,005

 
 
 
 
 
 
 
 
 
 
Total assets
2,017,556

 
60,759

 
3,904

 
958

 
2,083,177

(1) Includes parent company and intercompany eliminations



































11



Additional Discussion and Analysis

Consolidated net income for the three and six months ended June 30, 2017, was $5.3 million and $9.8 million, respectively, representing increases of $0.9 million and $1.5 million, or 21% and 17%, respectively, over the $4.4 million and $8.3 million earned during the three and six months ended June 30, 2016, respectively. Net income per diluted common share for the three and six months ended June 30, 2017 was $0.40 and $0.74, respectively, representing increases of 18% and 16%, respectively, over the $0.34 and $0.64 per diluted common share earning during the three and six months ended June 30, 2016, respectively.
As of June 30, 2017, total assets were $2.1 billion, compared to $2.0 billion as of December 31, 2016, and $1.9 billion as of June 30, 2016. During the six months ended June 30, 2017, total loans held for investment increased $104.2 million or 6.8% to $1.6 billion. This increase is attributable to organic loan growth from our existing lending team. During the six months ended June 30, 2017, total deposits increased $222.0 million or 14.6% to $1.7 billion. The increase in deposits is primarily attributable to deposit growth in our branch network and commercial customers.
The net interest margin was 3.51% and 3.49% for the three and six months ended June 30, 2017, respectively, compared to 3.37% and 3.44% for the same periods in 2016. This increase is primarily attributable to increases in market rates. On a linked quarter basis, our net interest margin increased from 3.47% for the three months ended March 31, 2017, to 3.51% for the three months ended June 30, 2017. The Company remains focused on its pricing discipline on both sides of the balance sheet and on all factors contributing to net income.
The adjusted allowance for loan losses to adjusted total loans held for investment, which includes credit purchase accounting marks, was 1.05% as of June 30, 2017, compared to 1.22% as of June 30, 2016. This decrease is attributable to net charge-offs of $1.4 million, which had been substantially reserved for previously, and credit mark accretion during the quarter ended June 30, 2017. A reconciliation of the allowance for loan losses and related ratios to the adjusted allowance for loan losses and related ratios is included herein. Non-performing assets increased by $10.5 million during the quarter ended June 30, 2017, primarily due to the default of two commercial real estate loans, related to a common guarantor, totaling $13.1 million. The Company is pursuing collection efforts on these loans and believes the collateral to be of sufficient value to protect the Company against loss with tenant rent payments sufficient to service the loans. As a result of these payment defaults, the ratio of non-performing assets to total assets increased to 0.92% as of June 30, 2017, compared to 0.71% as of June 30, 2016.
Non-interest income for the three and six months ended June 30, 2017, was $6.6 million and $11.4 million, respectively, each representing a decrease of $1.9 million compared to the $8.5 million and $13.3 million of non-interest income for the three and six month periods ended June 30, 2016, respectively. Non-interest income was negatively impacted by higher interest rates which resulted in lower mortgage origination volume during the first half of 2017, compared to the same period last year. During the three and six months ended June 30, 2017, the mortgage subsidiary originated $200.0 million and $314.3 million in total mortgage loan volume, a slight decrease from the $216.9 million and $339.6 million in total mortgage volume originated during the three and six months ended June 30, 2016, respectively. As of June 30, 2017, the Company's wealth management business unit had $313.8 million in assets under management, an increase of 28.0% over the same period last year. The Company did not sell any investment securities during 2017; however, during the three and six months ended June 30, 2016, the Company sold investment securities resulting in $1.1 million and $1.2 million, respectively, of gains on the sale of investments.
Non-interest expense decreased during the three months ended June 30, 2017, by $0.5 million, and increased during the six months ended June 30, 2017, by $0.7 million compared to the same periods ended June 30, 2016, primarily as a result of $0.5 million in merger expenses incurred during the second quarter of 2017 and a one-time $1.0 million debt termination expense incurred during the second quarter of 2016.
During the six months ended June 30, 2017, total shareholders’ equity increased $10.9 million, or 5.7%, to $203.6 million due primarily to earnings and additional paid in capital from the exercise of stock options offset by dividends of $1.8 million and changes in accumulated other comprehensive loss. Tangible book value per common share increased to $14.58 as of June 30, 2017, compared to $13.62 as of June 30, 2016. The Company remains "well-capitalized" under the regulatory framework.


12

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