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Peterson named to head troubled Westsound Bank

WSB Financial Group, the parent company of financially troubled Westsound Bank, has named Terry A. Peterson as president and CEO. His first day on the job was April 15. In addition, Peterson will also serve as president and CEO of Westsound Bank and will join the boards of both the bank and WSB Financial Group, Inc.

Mark Freeman, who had been serving as interim President of WSB Financial, has returned to his duties as CFO.

Peterson was most recently the president and COO of Bellevue-based Charter Bank, which he founded in 1998. Charter has approximately $380 million in assets, and was sold to a Boston-based private equity firm last year.

Prior to Charter Bank, Peterson was senior vice president for Key Bank, where he was in charge of small business lending for the state of Washington. Before that he spent nearly 14 years with Security Pacific Bank , which is now part of Bank of America, where he worked in all areas of commercial banking and loan administration.

Peterson replaces Dave Johnson, who resigned on March 7, amid a firestorm of regulatory controversy, and millions in loan losses, primarily related to its mortgage lending operation. Both the Federal Deposit Insurance Corp. and the Washington Department of Financial Institutions have had publicly-traded WSB under investigation for regulatory violations and possible fraud since last year.

After an investigation spanning nearly six months, regulators found the bank had a documentable history of unsafe and/or unsound banking practices, had engaged in unsatisfactory lending and collection practices; operated with inadequate management and board supervision; had less than satisfactory capital in relation to its large volume of poor quality loans with an inadequate loan valuation reserve; had inadequate provisions for liquidity, inadequate internal routine and control policies, and was in violation of various banking laws and regulations relating to internal audits and controls, real estate appraisal and lending guidelines, and responsibilities of bank directors and officers.

Under the terms of an FDIC Cease and Desist Order served upon WSB on March 10, the bank can no longer declare dividends without the prior written approval of the FDIC and the DFI, and must meet a 17-item laundry list of terms and conditions in order to remain operational. Hiring a new CEO no later that April 24, was one of the mandates of the Cease and Desist Order.

With all that hanging over WSB’s head, Peterson has stepped in not only to take the helm, but is directly investing a substantial amount of his own money in WSB stock — a minimum of $250,000 and up to $1 million — so strong is his belief he can turn WSB around.

“Terry’s success in leading a growing bank and as a no-nonsense business banker were the qualities we were looking for when we initiated the search for a new CEO,” said Lou Weir, chairman of WSB’s board. “His knowledge of business banking, finance and the economies of the Puget Sound are exceptional. The board and management are excited about the expertise and potential that Terry brings to WSB Financial.”

Peterson, who is an personable individual with an easy manner, knows he has a big job ahead of him, but is confident he can restore WSB to financial health. “I interviewed this bank harder than they did me,” he chuckled, adding that he views banking as an extremely entrepreneurial enterprise. “I came to the conclusion this was a ‘money good’ opportunity for me.”

Peterson was asked how he came to find out about WSB and why, after selling Charter and pocketing a substantial sum, he would even want to take on such a challenge. He explained he had received a phone call from an investment banker friend asking if he was interested, and shortly thereafter, one from a headhunter and another from WSB’s corporate counsel. “I thought to myself, here’s a bank that needed a little leadership — and I’m more comfortable here than in a place like Bellevue.” He said. “After all, I’m just a farm kid from Tonasket.” He added, “I view this opportunity as a chance to be an entrepreneur again.”

Peterson is realistic about the uphill battle restoring WSB to financial stability and viability represents. He’s also aware of the bank’s reputation and position in the community and the competitive situation with both other local banks, as well as with the large banks. So, what’s the plan?

“Quite frankly, this bank wasn’t a very fair competitor for a number of years,” he stated. “And the truth is, we’re going to shrink before we grow.” Asked if that meant branch closures, he clarified his statement, saying, “No, we aren’t going to be closing any branches. I was referring to shrinking the balance sheet.” He also called the regulatory mandates WSB is operating under, “…common sense practices for this bank.”

Peterson is well aware of the risks associated with construction lending — especially in today’s market — as well as knowing that’s where WSB’s loosely-controlled construction lending practices are what got it in trouble. “I expect it will take me 30 to 60 days to get my arms around the left side of the balance sheet — the loan portfolio,” he said.

He also cited standard banking processes as lacking at WSB and says restoring order to all the processes will be one of the first orders of business because they are the key to bringing WSB back.

He has also brought two past associates with him to WSB, who seemingly fulfill a couple of the Cease and Desist Order mandates. “One guy is an attorney, an experienced banker, and a hard-nosed businessman,” he said. “The other is a process guy whose specialty is credit risk management — something that has obviously been lacking here.”

In taking with Peterson, several things became quite obvious: He clearly understands the challenges in front of him and is going into this venture with his eyes wide open; he’s bringing in experienced hands with the expertise needed to fix the problems; he’s quietly confident, and perhaps the most important of all — he has enough confidence in his ability to do the job, that he’s putting his own money on the line. WSB stockholders and customers can’t realistically ask for more than that.

 
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