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Westsound Bank posts preliminary Q3 earnings

Bremerton-based WSB Financial, the parent company Westsound Bank, announced preliminary earnings for the third quarter on Oct. 24. The bank is scheduled to release final numbers on Nov. 14. It isn’t a pretty picture.

Westsound Bank President and CEO Dave Johnson also noted Chief Financial Officer Mark Freeman has been granted a leave of absence for health reasons, and the bank is seeking an interim CFO.

WSB posted earnings of $1.3 million, compared to $1.1 million in the third quarter last year, and year-to-date net income grew to $3.8 million, compared to $3.1 million a year ago. Year-to-date numbers show earnings of $0.64 per diluted share, compared to $0.99 per pre-IPO diluted share in the first nine months of 2006. WSB Financial issued 2.6 million shares in an Initial Public Offering in August of 2006.

Third quarter preliminary results show a 38 percent growth in loans and 30 percent deposit growth for an overall 24 percent increase in net interest income - before calculating loan losses. The numbers show a 15 percent increase in revenues compared to a year ago, while year-to-date net interest margin dropped 82 basis points and asset quality has declined during the quarter with both non-performing loans and assets increasing.

All numbers released by the bank are both preliminary and unaudited.

However, according to the bank’s preliminary numbers, it had $4.4 million in non-performing assets with another $3.8 million in loans 30 to 89 days past due.

While that doesn’t sound like particularly dire news, FDIC form 8K details some serious problems. “The FDIC and DFI recently indicated to the company’s management that in the opinion of the regulators, the bank violated certain banking laws and regulations which are primarily related to the origination, administration, and monitoring of construction and mortgage loans.”

The report adds, “The examiners advised that they intend to recommend that the FDIC and DFI take regulatory action against the bank with respect to such lending practices and activities, which may include a Cease and Desist Order, monetary penalties, further increases in allowances for loan losses, reserves and charge offs.” Johnson hinted at this in the press release.

But it gets worse - much worse.

“Additionally, the company has been cooperating in an investigation by the regulators pertaining to certain past activities involving former employees and third parties, including possible fraud, misconduct and other violations with respect to the application, processing and approval of certain loans previously made.”

This is primarily related to the bank unexpectedly shutting down its mortgage lending operation last month, laying off 33 people, and taking a $200,000 charge against Q3 and 4 earnings.

Johnson stated that Westsound is cooperating fully with the examiners, and remains well capitalized with an equity to assets position of 13.8 percent as of Sept. 30.

An independent audit is slated to find just how deep the red ink really flows.

More on this story can be found at www.kpbj.com, as it develops.

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