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Westsound Bank finally bites the dust

At the close of business on Friday, May 8, Kitsap Bank announced that it had entered into an agreement with the Federal Deposit Insurance Corporation to assume all of the deposits and banking operations of Bremerton-based Westsound Bank . The FDIC became the receiver of Westsound Bank’s deposits, after the State of Washington Department of Financial Institutions came in and closed up WSB, citing inadequate capital and liquidity. The DFI immediately appointed the FDIC as receiver, and it moved quickly to protect all non-brokered depositors through the agreement with Kitsap Bank. The ink barely had time to dry according to Jim Carmichael, president and CEO of Kitsap Bank, before the FDIC had moved into take control of WSB.

By 6 p.m. on the night of the closure, there were 129 FDIC agents inside the nine WSB branches, with the doors being secured by troopers from the Washington State Patrol. When the FDIC arrived at Westsound’s main branch at 6th and Pacific in Bremerton just before the close of business, WSB President Terry Peterson, was informed of what was happening, and immediately escorted to the door.

Peterson had been brought in to clean up the mess WSB was in after the FDIC had issued a Cease and Desist order in March of 2008. However, WSB’s red ink proved to be just too deep, with its problems exacerbated by the current recession. Westsound is the 33rd bank to fail this year and the second in Washington seized by the government. The Bank of Clark County was closed down in January.

Trading in the company’s common stock was halted by the NASDAQ Stock Market on May 11, and the company was notified that the its stock would be delisted from NASDAQ as of May 21.

The takeover didn’t come as a real surprise to almost anyone in the banking industry. Because of its overly aggressive real estate and development lending policies, Westsound lost $33 million in 2008, and had earned the dubious distinction of having the third highest bad loan ratio of any bank in the nation. It wasn’t a case of if the regulators would step in, but when. According to Carmichael, the deal with the FDIC went together at supersonic speed for a bank takeover. “The normal process usually takes 90 days of more,” said Carmichael. “This took less than a week.”

The Business Journal originally broke the story about Westsound’s problems in 2007, after investigating why 33 employees of the mortgage division were abruptly laid off, and why Brett Green, a major stockholder in WSB at the time and head of its mortgage division, resigned unexpectedly as well.

As WSB’s problems continued coming to light, former president Dave Johnson was forced out and Port Orchard accountant Don Cox brought in to head up a restructured board. That board, under a mandate from the FDIC, brought in Peterson, an experienced community banker from Bellevue.

Kitsap Bank has been one of the few to whether the nationwide banking crisis relatively unscathed, and Carmichael moved immediately to reassure Westsound customers that their deposits — including those in excess of the FDIC’s $250,000 insured limit — were indeed safe and secure with the 100 year-old local bank.

Jim Carmichael
Kitsap Bank “The FDIC requested we come in and assume all of the deposits, so there’s no danger to Westsound Bank customers or members of the community,” explained Carmichael.

He stressed that it would be “business as usual” the following Monday, which it was. The only service not available to WSB customers over the transitional weekend was online banking.

According to the agreement, Kitsap Bank assumed not only the FDIC insured deposits, as is common in bank closures, but also all accounts over the FDIC insurance limits, other than ‘brokered’ or Internet deposits. “What this means,” said Carmichael, “is that Kitsap Bank took all of the deposits, so that no one in our communities will be negatively impacted.”

While Kitsap Bank is taking over all of Westsound’s deposits, Carmichael was adamant that customers of both banks understand that the bank did not take over any of Westsound’s bad loans. “We did accept loans secured by savings or time CD’s,” he explained, since that’s cash in the bank. “But we didn’t take any commercial loans, consumer loans or credit card accounts.” He also stressed that Westsound loan customers need to make their payments as if WSB was still operating, but that those customers also had the option of finding another lender.

With the agreement in place, Kitsap Bank’s assets, which were in excess of $820 million before the agreement, have climbed to over $1.1 billion. “That means we are stronger here in our home area than either Bank of America or WaMu/Chase,” stated an obviously buoyed Carmichael. The agreement also puts Kitsap Bank into the top 600 of banks nationwide in terms of size. The bank’s market share will now total 23 percent in Kitsap County and 17 percent on the Kitsap/Olympic Peninsula, making it the largest bank on the Peninsula.

All nine former Westsound Bank branches opened for business on Monday, May 11 as Kitsap Bank. Customers had full access to their accounts, and although online banking services were not available over the transitional weekend, both consumer and corporate online banking resumed at 9 a.m. that morning.

Until WSB’s computer systems can be converted over to Kitsap Bank — which is expected to take 90 to 120 days — former Westsound customers will continue doing business as usual at one of the Westsound Bank locations. Carmichael said, “As we complete the conversion in a few months, our Westsound customers will enjoy enhanced banking services, with the added convenience of a larger network of locations.”

At a press conference the day after the seizure, which included Linda Beavers, the Regional Ombudsman for the FDIC along with Tony George, Kitsap Bank’s Executive Vice President and CEO, Steve Politakis, Executive Vice President and Chief Credit Officer, and Marketing Director and Vice President Shannon Childs, Carmichael was asked about the status of Westsound employees and how the transition would impact the staffs of both institutions. He answered, “It will challenge us because this is the biggest transaction we have ever done, and with nine new offices we’ll need people in all of those places.”

The former WSB branches will continue to be staffed for the time being by Westsound employees. Kitsap Bank will decide over time which ones to hire permanently, Carmichael stated. “Ultimately, we’ll have significant openings on our staff for some of those people.”

He added that some of Westsound’s 93 employees — mostly in the credit side of the bank — will be working under contract with the FDIC on loans it assumed from WSB. “The FDIC will take them because we didn’t take the loans,” Carmichael said.

Kitsap Bank has about 90 days to decide which Westsound offices it wants to keep. The two banks had branches located in close proximity to each other in several places such as downtown Bremerton where they are actually within sight of each other, as well as in Port Orchard and Silverdale.

“We will be making the determination over the next several weeks, which branches to keep, and which employees to retain,” Carmichael said. “We will try to keep as many as we can.”

He added that Kitsap Bank is interested in purchasing Westsound’s corporate office in Bremerton, and its branch office in Sequim.

“We were going to build a new building in East Bremerton, something around 25,000 square feet, to house a lot of administrative and IT functions. The main Westsound office could save us from having to do that,” Carmichael noted.

Beavers responded to a question concerning the possibility of Green and Johnson, as well as other former WSB board members possibly being subject to criminal charges, by saying the FDIC routinely investigates officers and board members of failed banks. “With any failure there is an investigation conducted. We will decide after that if any criminal activity took place.”

Since then, it has been confirmed by an FDIC source who asked not to be indentified, that at least eight people are working on an investigation of some of WSB’s past board members and employees, but declined to give specifics or names.

The FDIC toll-free information line for this bank closure is 830-4735. Other information is available at www.fdic.gov.

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