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Originally published June 9, 2014 at 8:01 PM | Page modified June 10, 2014 at 9:43 AM

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Profitable Washington Banking a solid investment for shareholders

Washington Banking, which is No. 5 in The Seattle Times’ 23rd annual ranking of publicly traded Northwest companies, paid out a record 54 cents a share in dividends and agreed to be acquired last year.

Seattle Times business reporter

Washington Banking at a glance

Headquarters: Oak Harbor

CEO: John Wagner

Employees in 2013: 464

What it did: Held deposits and made loans through its subsidiary Whidbey Island Bank

What sets it apart: A strong community bank that consistently booked profit and paid dividends each quarter. It agreed to merge with another community bank to compete in a more difficult economic climate for local banks.

2013 cash flow: $62.8 million

2013 sales: $86.5 million

Years in ranking: 14

Highest ranking: 5th (for 2013)

Source: SEC filings, Bloomberg


Golden geese are rare in the universe of stocks.

Washington Banking, until it merged on May 1 with Olympia-based Heritage Financial, was that rare breed of stock that quarter after quarter always reported a profit and had paid dividends regularly for more than 15 years — even during the worst downturn since the Great Depression.

Shareholders benefitted from stock appreciation, too: In 2013, an investment in Washington Banking would have yielded a 35 percent return with dividends reinvested.

And if you were among the lucky who bought stock in Washington Banking when it went public in 1998, your investment more than tripled.

Last fall, Wall Street cheered when Heritage Financial announced plans to acquire the Oak Harbor-based company in a marriage of equals: Investors bid up both banks’ stocks in anticipation of forming the third-largest Washington-based bank by deposits.

Washington Banking ranks fifth in this year’s Seattle Times Best of the Northwest report for its performance, capping a year in which it paid out a record 54 cents a share in dividends and agreed to be acquired, a situation analysts say is fairly unique among banks today.

“They looked like they were in good shape to go on a stand-alone basis,” said Jeff Rulis, senior vice president at financial-services brokerage D.A. Davidson. “It’s rare to have companies look at themselves in the mirror, saying ‘Are we better off pairing with another company?’ ”

Ultimately, Washington Banking’s management leveraged the company’s strong position into a nice return for shareholders, Rulis said. “As a shareholder, that’s exactly what you’d wish for.”

Before the merger, Washington Banking’s Whidbey Island Bank had a history dating back to 1961.

After an initial public offering in 1998, the company’s stock languished for a few years before it joined the long bull run from 2002 to 2007.

In September 2007, the stock reached an all-time high of $20.10 two days after Washington Banking and Everett-based Frontier Financial announced plans to merge.

Even though Washington Banking shareholders approved the merger in March 2008, the Federal Deposit Insurance Corp. had concerns about Frontier and blocked the deal — a blessing in disguise for Washington Banking’s shareholders.

By that November, in the aftermath of regulators seizing Washington Mutual and Lehman Brothers’ bankruptcy, the two state bank-holding companies nixed their merger plans; in April 2010, struggling with soaring defaults in its construction and commercial real-estate loans and rapid outflow of brokered deposits, Frontier Bank failed at an estimated $1.37 billion cost to the federal deposit insurance fund.

By contrast, Whidbey Island Bank wasn’t as exposed.

“During a very dangerous time to make loans, it was a bank that was strategically looking at different options and wasn’t as exposed on the construction side as their peers,” Rulis said. “The foot wasn’t on the gas.”

During the wave of bank failures from 2009 to 2011 — when 17 Washington-based institutions were seized by regulators — Whidbey Island Bank expanded its footprint by acquiring two banks in 2010 through government-assisted deals: City Bank in Lynnwood and North County Bank in Arlington.

Last year, the bank operated 31 branches from Bellingham to North Seattle — a footprint that appealed to Heritage Bank, which had 42 branches from Portland to Seattle.

Whidbey Island Bank also had a robust mortgage and consumer-lending operation, something Heritage wanted to offer its customers.

“We were able to take two almost identical companies in size and culture and put them together into a nearly $3.5 billion organization,” said Brian Vance, Heritage’s CEO. “The beauty of it is the complementary footprints of the two banks.”

When Washington Banking reported its 2013 earnings in January, its interest income dropped sharply over the year mainly because a huge number of loans it acquired in government-assisted deals were liquidated or paid off, said Bryan McDonald, Whidbey Island Bank’s former CEO and now Heritage Bank’s senior vice president and chief lending officer.

But the abnormally low interest-rate environment and sluggish economy also has made it tough for even healthy community banks to grow.

The bulk of their income tends to come from the spread between banks’ borrowing costs and interest rates at which they lend.

“The bank continued to be profitable, but with the slow recovery, generating significant loan growth was challenging,” McDonald said.

Sanjay Bhatt: 206-464-3103 or On Twitter @sbhatt

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