BREMERTON, Wash., Oct. 29, 2008 (GLOBE NEWSWIRE) -- WSB Financial Group (Nasdaq:WSFG), the parent company of Westsound Bank, today reported that it is continuing to work through its construction loan portfolio challenges while reducing operating losses. The company continues to maintain solid capital, liquidity and loan loss provisions.
"Our regulatory safety and soundness examination was completed in September. The exam went smoothly and is a testament to the professional efforts of our team," said Terry Peterson, Chief Executive Officer. Peterson was hired as WSB Financial's President and CEO on April 15, 2008. WSB Financial posted a net loss of $4.3 million, or $0.77 per share, for the third quarter of 2008, compared to a net loss of $7.8 million, or $1.39 per share, for the third quarter of 2007. Year-to-date, WSB Financial lost $21.1 million, or $3.78 per share, compared to a loss of $5.2 million, or $0.94 per share, for the same period in 2007. All results for the third quarter and nine month periods are unaudited.
Strategic Review
"While WSB was one of the first banks to identify concerns in its construction and land development portfolio, there are now many community banks around the country dealing with similar issues," said Peterson. "While the actions by the Fed and the Treasury Department are addressing important industry concerns, we are independently making progress on executing our strategic plan. We completed our first 100-day plan in 80 days, which involved identifying all on balance sheet and off balance sheet risk. The pending resolution of the class action lawsuit is a tremendous accomplishment and removes a dark cloud over the company.
"Our second 100-day plan is focused on executing our loan collections strategies and gathering deposits in our communities. As we continue gaining momentum in our loan collections efforts, we will accelerate our local lending activities. Today, we are making strategic investments in our staff including the recent hiring of two business development officers. Additionally, we are reinvigorating our branch franchise beginning with the relocation of our new Silverdale office and a new Poulsbo branch, both of which are expected to occur in November." Peterson added.
Solid Capital and Strong Liquidity
"We are deleveraging our balance sheet as existing loans pay down and as our collections efforts bring results," said Mark Freeman, Chief Financial Officer. "During this process, we are maintaining a high level of liquidity and continuing to show solid capital ratios. At September 30, 2008, WSB Financial had a Tier 1 Capital to Average Assets of 10.63%, Tier 1 Capital to Risk Based Assets of 13.12% and Risk Based Capital/Risk Based Assets of 14.44%.
Liquidity remains high with a liquidity ratio of 20% at quarter end, (as measured by total cash and investments divided by deposits) compared to 25% in the immediate prior quarter and 11% a year ago. WSB Financial has no Fannie Mae or Freddie Mac equity securities and its investment securities are Treasury or U.S. Government Agency securities. Book value per share was $6.40 at September 30, 2008.
Balance Sheet and Credit Quality Review
"Our construction loan portfolio decreased to 40% of the total portfolio," said Charles Turner, Chief Credit Officer. "The maturity distribution of our construction loan portfolio will continue to increase NPA's in the fourth quarter. We anticipate NPA's to crest in the first half of 2009.
"As further evidence of our deleveraging strategy, the loan portfolio shrank by $16.6 million to $323.1 million, in the third quarter, and includes $7.2 million in real estate loans that moved to OREO. Over the past 12 months, the loan portfolio shrank by $104 million and includes $11.3 million in real estate loans that moved to OREO."
Nonperforming assets (NPAs) at September 30, 2008, totaled $130.1 million, which includes $119.1 million of loans on non-accrual status and $11.0 million in other real estate owned (OREO). The allowance for loan losses was $24.5 million, or 7.60% of gross loans at September 30, 2008. During the third quarter of 2008, net charge-offs totaled $3.6 million, or 1.15% of average loans. Year to date, net charge-offs were $6.2 million, or 1.78% of average loans in the first nine months of 2008.
The following table reflects the makeup of the company's overall loan portfolio by loan type.
Loan Category Sept. 30, June 30,
2008 % of 2008 % of Quarter
Loans Loans Loans Loans Change
---------------- ------------------------
($ in thousands)
Spec Construction $ 48,609 15% $ 53,961 16% -10%
Custom Construction 80,180 25% 94,567 28% -15%
-------- ------ -------- ------ ------
Total Construction 128,789 40% 148,528 44% -13%
Vacant Land & Land
Development 43,129 13% 47,622 14% -9%
1-4 Family Mortgage 34,866 11% 34,462 10% 1%
Multifamily Mortgage 11,997 4% 11,815 3% 2%
Commercial RE 61,931 19% 66,293 20% -7%
Commercial Loans 39,285 12% 27,658 8% 42%
Consumer 3,075 1% 3,311 1% -7%
-------- ------ -------- ------ ------
Total Gross Loans $323,072 100% $339,689 100% -5%
The following table reflects the makeup of the company's total nonperforming loan portfolio:
Sept. 30, June 30,
2008 % of 2008 % of Quarter
Loan Category NPLs NPLs NPLs NPLs Change
---------------------------------- -------
($ in thousands)
Spec Construction $ 29,608 24.9% $ 23,318 23.0% 27%
Custom Construction 45,667 38.4% 45,773 45.1% 0%
-------- ----- -------- ----- -------
Total Construction 75,275 63.2% 69,091 68.1% 9%
Vacant Land & Land
Development 16,597 13.9% 14,542 14.3% 14%
1-4 Family Mortgage 9,546 8.0% 8,425 8.3% 13%
Multifamily Mortgage 2,783 2.3% 3,111 3.1% -11%
Commercial RE 2,710 2.3% 2,762 2.7% -2%
Commercial Loans 11,860 10.0% 3,399 3.4% 249%
Consumer 296 0.2% 82 0.1% 261%
-------- ----- -------- ----- -------
Total Nonperforming
Loans $119,067 100.0% $101,412 100.0% 17%
Of the nonperforming loans, 41% were in Kitsap County, 30% were in King County, 19% were in Pierce County and the remaining 10% were in other parts of Western Washington. OREO consists of 38 properties with 4 homes and 3 lots in King County, 7 homes and 2 lots in Kitsap County, 1 home and 4 lots in Mason County, 10 homes and 3 lots in Pierce County, 1 home and 2 lots in Clallam County and 1 lot in Snohomish County.
The following table reflects the makeup of the company's overall loan portfolio by location:
Loan Category
9/30/2008 Total % of Kitsap % of King % of
($ in thousands) Loans Total County Total County Total
-------------------------------------------------------------------
Spec Construction $ 48,609 15% $ 19,134 6% $ 10,684 3%
Custom Construction 80,180 25% 17,568 5% 41,154 13%
---------------- -------------------------------
Total Construction 128,789 40% 36,702 11% 51,838 16%
Vacant Land & Land
Development 43,129 13% 22,677 7% 4,239 1%
1-4 Family 34,866 11% 17,493 5% 2,716 1%
Multifamily 11,997 4% 4,964 2% -- 0%
Commercial RE 61,931 19% 43,538 13% 2,905 1%
Commercial 39,285 12% 20,319 6% 14,741 5%
Consumer 3,075 1% 2,864 1% 20 0%
---------------- -------------------------------
Totals $323,072 100% $148,557 46% $ 76,459 24%
Loan Category
9/30/2008 Pierce % of Other % of
($ in thousands) County Total Counties Total
-------------------------------------------------------------------
Spec Construction $ 10,776 3% $ 8,015 2%
Custom Construction 14,201 4% 7,257 2%
----------------------------------------
Total Construction 24,977 8% 15,272 5%
Vacant Land & Land
Development 5,428 2% 10,785 3%
1-4 Family 6,418 2% 8,239 3%
Multifamily 2,955 1% 4,078 1%
Commercial RE 3,339 1% 12,149 4%
Commercial 2,483 1% 1,742 1%
Consumer 23 0% 168 0%
----------------------------------------
Totals $ 45,623 14% $ 52,433 16%
Review of Operations
Net interest income before provision for loan losses was $569,000 in the third quarter of 2008 compared to $948,000 in the second quarter of 2008, and $5.5 million in the third quarter of 2007, reflecting lower earning assets and reversal of accrued interest on nonperforming loans. Year-to-date, net interest income before provision for loan losses totaled $3.6 million compared to $15.7 million in the nine months of 2007. The increase in non-accrual loans also impacted net interest income, as $1.5 million in interest income was reversed in the third quarter and $6.0 million was reversed in the first nine months of 2008.
"Due to substantial additions to our allowance for loan losses earlier this year, combined with the outcome of our regulatory examination, we did not take additional provision for loan losses this quarter," said Peterson. Year-to-date, the provision for loan losses totaled $11.2 million compared to $14.2 million for the first nine months of 2007. Net interest income after no loan loss provision was $569,000 in the third quarter of 2008, compared to a net interest loss, after loan loss provision of $2.6 million for the preceding quarter, and a net interest loss, after loan loss provision of $7.9 million, in the third quarter of 2007. In the first nine months of 2008, net interest income after loan loss provision was a loss of $7.7 million, compared to a net interest income of $1.5 million, after the $14.2 million provision for loan loss, in the same period a year ago.
Noninterest income in the quarter was $194,000, up from $161,000 in the preceding quarter, but down from the $1.0 million it earned in the third quarter a year ago. WSB has had no gain on sale of loans in 2008, due to the closure of the mortgage operation in 2007. In the third quarter a year ago, the company recognized $737,000 in gain on sale of loans and $2.6 million for the first nine months a year ago.
Noninterest expense in the third quarter was $5.1 million compared to $4.3 million in the second quarter of 2008 and $4.8 million in the third quarter of 2007, with lower compensation costs offset by increased consulting, accounting, legal, loan collection and appraisal expenses. Third quarter expenses included approximately $800,000 in legal costs associated with the settlement of the class action lawsuit. Year-to-date, noninterest expense totaled $12.7 million, down from $13.0 million in the first nine months of 2007.
ABOUT WSB FINANCIAL GROUP, INC. WSB Financial Group, Inc., based out of Bremerton, Washington, is the holding company for Westsound Bank. The company was founded in 1999, and currently operates nine full service offices located within 5 contiguous counties within Western Washington. Our website is http://www.westsoundbank.com.
This news release may contain "forward-looking statements" that are subject to risks and uncertainties. These forward-looking statements describe management's expectations regarding future events and developments such as future operating results, growth in loans and deposits, net interest margin, credit quality loan losses and efficiency ratio, and success of the Company's business plan. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. The words "should," "anticipate," "expect," "will," "believe," and words of similar meaning are intended, in part, to help identify forward-looking statements. Future events are difficult to predict, and the expectations described above are subject to risks and uncertainties that may cause actual results to differ materially. In addition to discussions about risks and uncertainties set forth from time to time in the Company's filings with the Securities and Exchange Commission, factors that may cause actual results to differ materially from those contemplated in these forward-looking statements include, among others: (1) local and national general and economic conditions; (2) changes in interest rates and their impact on net interest margin; (3) competition among financial institutions; (4) legislative or regulatory requirements; (5) pending litigation; (6) reductions in loan demand or deposit levels; and (7) changes in loan collectibility, defaults and charge-off rates. WSB Financial Group, Inc. does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made. Any such statements are made in reliance on the safe harbor protections provided under the Securities Exchange Act of 1934, as amended.
CONSOLIDATED
STATEMENTS
OF INCOME
--------------
(Unaudited) Quarter Ended Year to Date
(in thousands ------------- ------------
except share Sept. 30, Jun. 30, Sept. 30, Sept. 30, Sept. 30,
data) 2008 2008 2007 2008 2007
------------------------------- --------------------
Interest Income
Interest and
fees on
loans $ 3,754 $ 4,710 $ 9,826 $ 14,800 $ 27,493
Taxable
investment
securities 146 105 88 330 232
Tax exempt
securities 14 (1) 18 32 56
Federal
funds sold 268 468 171 1,291 584
Other
interest
income 44 36 39 105 133
------------------------------- --------------------
Total
interest
income 4,226 5,318 10,142 16,558 28,498
Interest
Expense
Deposits 3,567 4,244 4,514 12,646 12,358
Other
borrowings -- -- -- -- 1
Junior
subordinated
debentures 90 126 152 360 448
------------------------------- --------------------
Total
interest
expense 3,657 4,370 4,666 13,006 12,807
Net Interest
Income 569 948 5,476 3,552 15,691
Provision for
loan losses -- 3,545 13,362 11,235 14,179
------------------------------- --------------------
Net interest
income
(loss)
after
provision
for loan
losses 569 (2,597) (7,886) (7,683) 1,512
Noninterest
Income
Service
charges on
deposit
accounts 97 73 95 248 275
Other
customer
fees 86 141 198 320 677
Net gain on
sale of
loans -- -- 737 -- 2,602
Other income
(loss) 11 (53) (5) 23 47
------------------------------- --------------------
Total
noninterest
income 194 161 1,025 591 3,601
Noninterest
Expense
Salaries and
employee
benefits 1,533 1,711 2,510 4,770 7,753
Premises
lease 72 83 80 232 252
Depreciation
expense 198 212 206 612 603
Occupancy and
equipment 163 149 150 471 459
Data and item
processing 175 186 167 545 490
Advertising
expense 62 38 59 142 155
Office expense 90 101 107 291 351
Legal fees 872 313 34 1,491 143
Professional
services 275 567 148 1,245 407
Business and
occupation
taxes 37 52 83 146 240
OREO loses
and expense,
net 413 145 170 584 207
Provision
(benefit)
for
unfunded
credit
losses (44) (66) 548 (430) 561
Insurance
expense 362 233 73 708 158
Loan
collection
expense 514 126 6 762 15
Other
expenses 339 420 427 1,155 1,183
------------------------------- --------------------
Total
noninterest
expense 5,061 4,270 4,768 12,724 12,977
Loss before
provision
(benefit)
for income
taxes (4,298) (6,706) (11,629) (19,816) (7,864)
Provision
(benefit) for
income taxes
(1) -- 4,255 (3,877) 1,261 (2,624)
------------------------------- --------------------
Net Loss $ (4,298) $ (10,961) $ (7,752) $ (21,077) $ (5,240)
=============================== ====================
Diluted Loss
per Common
Share from
Operations
(1) $ (0.77) $ (0.80) $ (1.39) $ (2.61) $ (0.94)
Basic Loss
per Common
Share $ (0.77) $ (1.97) $ (1.39) $ (3.78) $ (0.94)
Diluted Loss
per Common
Share $ (0.77) $ (1.97) $ (1.39) $ (3.78) $ (0.94)
=============================== ====================
Average Number
of Common
Shares
Outstanding 5,574,853 5,574,853 5,573,089 5,574,853 5,561,844
Fully Diluted
Average
Common
Shares
Outstanding 5,574,853 5,574,853 5,573,089 5,574,853 5,561,844
(1) Excludes adjustment for deferred tax asset one-time accounting
charge of $6.5 million during quarter ended June 30, 2008.
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
(in thousands except Sept 30, June 30, Dec 31, Sept 30,
share data) 2008 2008 2007 2007
-------------------------------------------------------------------
ASSETS
Cash and due from banks $ 11,954 $ 12,557 $ 10,026 $ 8,538
Fed funds sold 43,800 66,000 56,900 21,825
-------------------------------------------------------------------
Total cash and cash
equivalents 55,754 78,557 66,926 30,363
Investment securities
available for sale, at
fair value 16,166 17,593 8,832 8,700
Federal Home Loan Bank
stock, at cost 319 319 319 319
Loans held for sale -- -- -- 6,650
Loans receivable 322,666 339,233 412,950 419,023
Less: allowance for loan
losses (24,536) (28,140) (19,514) (17,852)
-------------------------------------------------------------------
Loans, net 298,130 311,093 393,436 401,171
Premises and equipment,
net 7,872 8,485 8,760 9,496
Accrued interest
receivable 1,346 1,505 2,541 2,537
Other real estate owned 10,984 4,394 983 1,647
Deferred tax asset 6,532 6,536 6,496 5,687
Less: valuation
allowance deferred
taxes (6,532) (6,532) -- --
-------------------------------------------------------------------
Deferred tax asset, net -- 4 6,496 5,687
Other assets 6,500 7,052 1,040 1,479
-------------------------------------------------------------------
TOTAL ASSETS $ 397,071 $ 429,002 $ 489,333 $ 468,049
===================================================================
LIABILITIES
Deposits:
Noninterest-bearing $ 19,409 $ 21,503 $ 24,711 $ 27,658
Interest-bearing 331,093 356,858 396,734 372,152
-------------------------------------------------------------------
Total deposits 350,502 378,361 421,445 399,810
Accrued interest payable 2,057 2,044 1,955 1,764
Allowance for unfunded
credit losses 35 79 465 665
Other liabilities 557 381 500 978
Junior subordinated
debentures 8,248 8,248 8,248 8,248
-------------------------------------------------------------------
TOTAL LIABILITIES 361,399 389,113 432,613 411,465
STOCKHOLDERS' EQUITY
Common Stock, $ 1 par
value; 15,357,250
shares authorized;
5,574,853 shares issued
and outstanding at
September 30, 2008, June
30, 2008, December 31,
2007 and September 30,
2007 5,575 5,575 5,575 5,575
Additional paid-in
capital 48,263 48,247 48,223 48,217
Retained earnings
(accumulated deficit) (18,223) (13,926) 2,854 2,814
Accumulated other
comprehensive gain
(loss) 57 (7) 68 (22)
-------------------------------------------------------------------
TOTAL STOCKHOLDERS'
EQUITY 35,672 39,889 56,720 56,584
-------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 397,071 $ 429,002 $ 489,333 $ 468,049
===================================================================
Book Value per Share 6.40 7.16 10.17 10.16
Financial
Statistics
-------------------
(Unaudited) Quarter Ended Year to Date
(in thousands ------------ ------------
except share Sept. 30, Jun. 30, Sept. 30, Sept. 30, Sept. 30,
data) 2008 2008 2007 2008 2007
------------------------------------------------ -------------------
Revenues
(Net interest
income plus
non-interest
income) $ 763 $ 1,109 $ 6,501 $ 4,143 $ 19,292
Averages
Total Assets $412,664 $482,528 $464,602 $465,962 $435,427
Loans and Loans
Held for Sale $313,995 $356,417 $424,407 $348,332 $394,448
Interest Earning
Assets $300,399 $473,911 $449,343 $386,222 $421,274
Deposits $363,429 $421,456 $388,079 $406,513 $360,866
Stockholders'
Equity $ 38,355 $ 49,923 $ 65,319 $ 48,327 $ 63,798
Financial Ratios
------------------------------------------------ -------------------
Return on
Average Assets -4.14% -9.14% -6.62% -6.04% -1.61%
Return on
Average Equity -44.58% -88.31% -47.10% -58.26% -11.00%
Net Interest
Margin 0.75% 0.80% 4.83% 1.23% 4.98%
Efficiency Ratio 662.9% 384.9% 73.4% 307.1% 67.3%
Non-performing
Assets to
Total Assets 32.75% 24.66% 0.92% 32.75% 0.92%
Asset Quality
------------------- Quarter Ended Year to Date
(Unaudited) ------------- ------------
(dollars in Sept. 30, Jun. 30, Sept. 30, Sept. 30, Sept. 30,
thousands) 2008 2008 2007 2008 2007
----------------------------------------------- ------------------
Allowance for Loan
Losses Activity:
Balance of
Beginning of
Period $ 28,140 $ 26,292 $ 4,492 $ 19,514 $ 3,972
Charge-offs (3,624) (1,697) (15) (6,237) (299)
Recoveries 20 -- -- 24 --
----------------------------------------------- ------------------
Net Loan Charge-
offs (3,604) (1,697) (15) (6,213) (299)
Reclassification
of unfunded
credit
commitments -- -- 13 -- --
Provision for Loan
Losses -- 3,545 13,362 11,235 14,179
----------------------------------------------- ------------------
Balance at End of
Period $ 24,536 $ 28,140 $ 17,852 $ 24,536 $ 17,852
=============================================== ==================
Selected Ratios:
Net Charge-offs
to average loans 1.15% 0.48% 0.00% 1.78% 0.08%
Provision for
loan losses to
average loans 0.00% 0.99% 3.15% 3.23% 3.59%
Allowance for
loan losses to
total loans 7.60% 8.30% 4.18% 7.60% 4.18%
Nonperforming
Assets:
Non-Accrual loans $119,067 $101,412 $ 2,395
Accruing Loans
past due 90 days
or more -- -- 282
------------------------------------------------
Total non-
performing loans
(NPLs) $119,067 $101,412 $ 2,677
Other real estate
owned 10,984 4,394 1,647
------------------------------------------------
Total non-
performing
assets (NPAs) $130,051 $105,806 $ 4,324
Selected Ratios:
NPLs to total
loans 36.85% 29.85% 0.63%
NPAs to total
assets 32.75% 24.66% 0.91%