BREMERTON, Wash., Jan. 30, 2009 (GLOBE NEWSWIRE) -- WSB Financial Group (Nasdaq:WSFG), the parent company of Westsound Bank, today reported that it is continuing to execute its strategic plan to shrink its balance sheet and work through its loan portfolio challenges.
Including a $6.4 million provision for loan losses, WSB Financial posted a net loss of $11.6 million, or $2.08 per share, for the fourth quarter of 2008, compared to a net loss of $4.3 million, or $0.77 per share, for the third quarter. For the year, the total provision for loan loss was $17.6 million, resulting in a loss of $32.7 million, or $5.86 per share, compared to a loss of $5.2 million, or $0.93 per share, in 2007. All results for the fourth quarter and twelve month periods are preliminary and unaudited.
Strategic Review
"We identified the challenges in our loan portfolio roughly six months earlier than most banks," said Terry Peterson, President and CEO. "We believe this has been advantageous for our recovery process, because we are further along in our loan collection efforts than many banks. For example, we anticipated that the winter months would be very slow for selling and collecting on distressed real estate assets. Instead, our collection rate accelerated in the fourth quarter and looks to be continuing to accelerate. I credit our talented and professional bankers for the successful collection of $21million in the fourth quarter and a total of $92 million in 2008, despite the difficult local real estate markets."
"We continue to evaluate our real estate collateral with appraisals, professional real estate brokers' opinions and general market intelligence. In the fourth quarter we elected to charge $12.3 million against the loan loss reserve," Peterson continued. "Of this net charge, $5.6 million was allocated for non-performing real estate loans even though they had not been collected or transferred to OREO (Other Real Estate Owned). We believe this represents a prudent and conservative approach to our collateral valuation and loan loss reserve methodology."
"As we enter 2009, we are continuing to execute our plan to collect on our problem assets, shrink the balance sheet and position the franchise to return to health. The dramatic impact to our balance sheet and income statement is required to accomplish this goal. In 2008 we accomplished a number of key components of the plan including reducing assets by $124 million and settling the class action law suit. We also strengthened the branch franchise by relocating our Silverdale office and initiating the permitting process for our new Poulsbo branch building," Peterson added.
"As we shrink our balance sheet, we are also maintaining high levels of liquidity for our clients," said Mark Freeman, Chief Financial Officer. Liquidity as measured by cash and securities as a percent of deposits totaled 19% at year end up from 17% a year ago. At December 31, 2008, Westsound Bank had a Tier 1 Capital to Average Assets ratio of 8.16%, Tier 1 Capital to Risk Based Assets of 10.47% and Risk Based Capital/Risk Based Assets of 11.78%. Book value per share was $4.36 at December 31, 2008.
Balance Sheet and Credit Quality Review
The construction loan portfolio decreased to $91.5 million, or 32% of the total portfolio from $129 million or 40% of the portfolio at September 30, 2008, and $193 million, or 47% a year ago. "As our construction loan portfolio continues to move through its life cycle, we expect NPAs (non-performing assets) will crest in the first quarter of 2009 with NPLs (nonperforming loans) declining and OREO increasing as we execute on our collection strategy," said Charles Turner, Chief Lending Officer. At December 31, 2008, loans delinquent 30-89 days decreased to $12.8 million, down from $37.5 million as of September 30, 2008, and down from $45.2 million at year end 2007.
The loan portfolio shrank by $39 million to $284 million, in the fourth quarter, which includes $9.4 million in real estate loans that moved to OREO. Over the past 12 months, the loan portfolio shrank by $128 million which includes $19.4 million in real estate loans that moved to OREO.
"NPAs at December 31, 2008, totaled $131.9 million, which includes $112.2 million of nonperforming loans on non-accrual status and $19.6 million in other real estate owned. At September 30, NPAs were $130.1 million, NPLs were $119.1 million and OREO was $11.0 million. The allowance for loan losses was $18.6 million following the $12.3 million in net charge-offs during the quarter and totaled 6.55% of gross loans at December 31, 2008. In the 2008, net charge-offs were $18.5 million, or 5.27% of average loans. "We continue to work with our outside auditors to finalize the audited financial statements. Until the audit is complete, our provision for loan losses, OREO expenses and other factors impacting financial results may require changes to the statements we file with our Form 10-K," Freeman noted.
The following table reflects the makeup of the company's overall loan portfolio by loan type:
Loan Category Dec. 31, Sept. 30,
2008 % of 2008 % of Quarter
Loans Loans Loans Loans Change
-------------- -----------------------
($ in thousands)
Spec Construction $ 35,314 12% $ 48,609 15% -27%
Custom Construction 56,160 20% 80,180 25% -30%
-------- ------ -------- ------ ------
Total Construction 91,474 32% 128,789 40% -29%
Vacant Land & Land Development 45,961 16% 43,129 13% 7%
1-4 Family Mortgage 33,937 12% 34,866 11% -3%
Multifamily Mortgage 12,611 4% 11,997 4% 5%
Commercial RE 61,057 21% 61,931 19% -1%
Commercial Loans 36,775 13% 39,285 12% -6%
Consumer 2,811 1% 3,075 1% -9%
-------- ----- -------- ----- ------
Total Gross Loans $284,626 100% $323,072 100% -12%
The following table reflects the makeup of the company's total nonperforming loan portfolio:
Dec. 31, Sept. 30,
2008 % of 2008 % of Quarter
Loan Category NPLs NPLs NPLs NPLs Change
----------------------------------- -------
($ in thousands)
Spec Construction $ 25,150 22.4% $ 29,608 24.9% -15%
Custom Construction 40,802 36.4% 45,667 38.4% -11%
-------- ------ -------- ------ -------
Total Construction 65,952 58.8% 75,275 63.2% -12%
Vacant Land & Land
Development 16,169 14.4% 16,597 13.9% -3%
1-4 Family Mortgage 11,733 10.5% 9,546 8.0% 23%
Multifamily Mortgage 3,447 3.1% 2,783 2.3% 24%
Commercial RE 2,712 2.4% 2,710 2.3% 0%
Commercial Loans 11,793 10.5% 11,860 10.0% -1%
Consumer 426 0.4% 296 0.2% 44%
-------- ------ -------- ------ -------
Total Nonperforming Loans $112,232 100.0% $119,067 100.0% -6%
The following table reflects the makeup of the company's overall loan portfolio by location:
Loan Category 12/31/2008 Total % of Kitsap % of King % of
($ in thousands) Loans Total County Total County Total
----------------------------------------------
Spec Construction 35,314 12% 13,408 5% $ 8,035 3%
Custom Construction 56,160 20% 10,880 4% 27,859 10%
Total Construction $ 91,474 32% $ 24,288 9% $ 35,894 13%
Vacant Land & Land
Development 45,961 16% 27,209 10% 2,821 1%
1-4 Family 33,937 12% 17,464 6% 3,115 1%
Multifamily 12,611 4% 6,468 2% -- 0%
Commercial RE 61,057 21% 42,615 15% 2,897 1%
Commercial 36,775 13% 19,028 7% 13,705 5%
Consumer 2,811 1% 2,148 1% 21 0%
----------------------------------------------
Totals $284,626 100% $139,220 49% $ 58,453 21%
Loan Category 12/31/2008 Pierce % of Other % of
($ in thousands) County Total Counties Total
-------------------------------
Spec Construction $ 7,141 3% $ 6,730 2%
Custom Construction 11,775 4% 5,646 2%
Total Construction $ 18,916 7% 12,376 4%
Vacant Land & Land Development 5,469 2% 10,462 4%
1-4 Family 5,384 2% 7,974 3%
Multifamily 2,955 1% 3,188 1%
Commercial RE 3,001 1% 12,544 4%
Commercial 2,405 1% 1,637 1%
Consumer 81 0% 561 0%
-------------------------------
Totals $ 38,211 13% $ 48,742 17%
Review of Operations
Net interest income before provision for loan losses was $291,000 in the fourth quarter of 2008 compared to $569,000 in the third quarter, and $4.2 million in the fourth 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 $3.8 million compared to $19.9 million in 2007. The increase in non-accrual loans also impacted net interest income, as $1.8 million in interest income was reversed in the fourth quarter and $7.8 million was reversed in 2008.
Noninterest income in the quarter was $205,000, up from $194,000 in the preceding quarter, but down from the $930,000 earned in the fourth 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.
Noninterest expense in the fourth quarter was $5.7 million compared to $5.1 million in the third quarter of 2008 and $3.5 million in the fourth quarter of 2007, with lower compensation costs offset by increased consulting, accounting, legal, loan collection and appraisal expenses. Fourth quarter expenses included approximately $1.4 million in OREO losses and $2.0 million in OREO losses for the year. In 2008, noninterest expense totaled $18.5 million compared to $16.5 million in 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 five 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 Quarter Ended
---------------------------------- -------------
(Unaudited) Dec. 30, Sept. 30, Dec. 30,
(in thousands except share data) 2008 2008 2007
--------------------------------------------------------------------
Interest Income
Interest and fees on loans $ 3,525 $ 3,754 $ 8,465
Taxable investment securities 157 146 84
Tax exempt securities 14 14 20
Federal funds sold 92 268 295
Other interest income 38 44 34
--------------------------------------------------------------------
Total interest income 3,826 4,226 8,898
Interest Expense
Deposits 3,445 3,567 4,552
Other borrowings -- -- --
Junior subordinated debentures 90 90 155
--------------------------------------------------------------------
Total interest expense 3,535 3,657 4,707
Net Interest Income 291 569 4,191
Provision for loan losses 6,354 -- 1,700
--------------------------------------------------------------------
Net interest income (loss) after
provision for loan losses (6,063) 569 2,491
Noninterest Income
Service charges on deposit
accounts 109 97 106
Other customer fees 83 86 113
Net gain on sale of loans -- -- 243
Other income (loss) 13 11 468
--------------------------------------------------------------------
Total noninterest income 205 194 930
Noninterest Expense
Salaries and employee benefits 1,505 1,533 1,733
Premises lease 82 72 77
Depreciation expense 200 198 221
Occupancy and equipment 169 163 155
Data and item processing 212 175 208
Advertising expense 139 62 25
Office expense 106 90 106
Legal fees 215 872 158
Professional services 446 275 384
Business and occupation taxes 35 37 104
OREO loses and expense, net 1,403 413 59
Provision (benefit) for unfunded
credit losses (14) (44) (200)
Insurance expense 618 362 83
Loan collection expense 299 514 43
Other expenses 319 339 361
--------------------------------------------------------------------
Total noninterest expense 5,734 5,061 3,517
Loss before provision (benefit)
for income taxes (11,592) (4,298) (96)
Provision (benefit) for income
taxes (1) -- -- (136)
--------------------------------------------------------------------
Net Loss $ (11,592) $ (4,298) $ 40
====================================================================
Diluted Loss per Common Share
from Operations (1) $ (2.08) $ (0.77) $ 0.01
Basic Loss per Common Share $ (2.08) $ (0.77) $ 0.01
Diluted Loss per Common Share $ (2.08) $ (0.77) $ 0.01
====================================================================
Average Number of Common Shares
Outstanding 5,574,853 5,574,853 5,574,853
Fully Diluted Average Common
Shares Outstanding 5,574,853 5,574,853 5,650,715
CONSOLIDATED STATEMENTS OF INCOME Year to Date
----------------------------------------------- ------------
(Unaudited) Dec. 31, Dec. 31,
(in thousands except share data) 2008 2007
----------------------------------------------- --------------------
Interest Income
Interest and fees on loans $ 18,325 $ 35,958
Taxable investment securities 487 316
Tax exempt securities 46 76
Federal funds sold 1,383 879
Other interest income 143 167
----------------------------------------------- --------------------
Total interest income 20,384 37,396
Interest Expense
Deposits 16,091 16,910
Other borrowings -- 1
Junior subordinated debentures 450 603
----------------------------------------------- --------------------
Total interest expense 16,541 17,514
Net Interest Income 3,843 19,882
Provision for loan losses 17,589 15,879
----------------------------------------------- --------------------
Net interest income (loss) after provision
for loan losses (13,746) 4,003
Noninterest Income
Service charges on deposit accounts 357 381
Other customer fees 403 790
Net gain on sale of loans -- 2,845
Other income (loss) 36 515
----------------------------------------------- --------------------
Total noninterest income 796 4,531
Noninterest Expense
Salaries and employee benefits 6,275 9,486
Premises lease 314 329
Depreciation expense 812 824
Occupancy and equipment 640 614
Data and item processing 757 698
Advertising expense 281 180
Office expense 397 457
Legal fees 1,706 301
Professional services 1,691 791
Business and occupation taxes 181 344
OREO loses and expense, net 1,987 266
Provision (benefit) for unfunded credit losses (444) 361
Insurance expense 1,326 241
Loan collection expense 1,061 58
Other expenses 1,474 1,544
----------------------------------------------- --------------------
Total noninterest expense 18,458 16,494
Loss before provision (benefit) for income taxes (31,408) (7,960)
Provision (benefit) for income taxes (1) 1,261 (2,760)
----------------------------------------------- --------------------
Net Loss $ (32,669) $ (5,200)
=============================================== ====================
Diluted Loss per Common Share from Operations
(1) $ (4.69) $ (0.93)
Basic Loss per Common Share $ (5.86) $ (0.93)
Diluted Loss per Common Share $ (5.86) $ (0.93)
=============================================== ====================
Average Number of Common Shares Outstanding 5,574,853 5,565,123
Fully Diluted Average Common Shares Outstanding 5,574,853 5,565,123
(1) Excludes adjusted 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 share Dec 31, Sept 30, June 30, Dec 31,
data) 2008 2008 2008 2007
-------------------------------------------------------------------
ASSETS
Cash and due from banks $ 13,515 $ 11,954 $ 12,557 $ 10,026
Fed funds sold 32,500 43,800 66,000 56,900
-------------------------------------------------------------------
Total cash and cash
equivalents 46,015 55,754 78,557 66,926
Investment securities
available for sale, at
fair value 18,443 16,166 17,593 8,832
Federal Home Loan Bank
stock, at cost 319 319 319 319
Loans held for sale -- -- -- --
Loans receivable 284,191 322,666 339,233 412,950
Less: allowance for loan
losses (18,621) (24,536) (28,140) (19,514)
-------------------------------------------------------------------
Loans, net 265,570 298,130 311,093 393,436
Premises and equipment, net 7,905 7,872 8,485 8,760
Accrued interest receivable 983 1,346 1,505 2,541
Other real estate owned 19,629 10,984 4,394 983
Deferred tax asset 7,993 6,532 6,536 6,496
Less: valuation allowance
deferred taxes (7,993) (6,532) (6,532) --
-------------------------------------------------------------------
Deferred tax asset, net -- -- 4 6,496
Other assets 6,464 6,500 7,052 1,040
-------------------------------------------------------------------
TOTAL ASSETS $365,328 $397,071 $429,002 $489,333
===================================================================
LIABILITIES
Deposits:
Noninterest-bearing $ 16,965 $ 19,409 $ 21,503 $ 24,711
Interest-bearing 313,066 331,093 356,858 396,734
-------------------------------------------------------------------
Total deposits 330,031 350,502 378,361 421,445
Accrued interest payable 1,974 2,057 2,044 1,955
Allowance for unfunded
credit losses 21 35 79 465
Other liabilities 754 557 381 500
Junior subordinated
debentures 8,248 8,248 8,248 8,248
-------------------------------------------------------------------
TOTAL LIABILITIES 341,028 361,399 389,113 432,613
STOCKHOLDERS' EQUITY
Common Stock, $ 1 par
value; 15,357,250
shares authorized;
5,574,853 shares
issued and outstanding
at December 31, 2008
September 30, 2008,
June 30, 2008 and
December 31, 2007 5,575 5,575 5,575 5,575
Additional paid-in capital 48,279 48,263 48,247 48,223
Retained earnings
(accumulated deficit) (29,815) (18,223) (13,926) 2,854
Accumulated other
comprehensive gain (loss) 261 57 (7) 68
-------------------------------------------------------------------
TOTAL STOCKHOLDERS'
EQUITY 24,300 35,672 39,889 56,720
-------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $365,328 $397,071 $429,002 $489,333
===================================================================
Book Value per Share 4.36 6.40 7.16 10.17
Financial Statistics
--------------------- Quarter Ended Year to Date
(Unaudited) ------------- ------------
(in thousands Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
except share data) 2008 2008 2007 2008 2007
-------------------------------------------------- ------------------
Revenues
(Net interest income
plus non-interest
income) $ 496 $ 763 $ 5,121 $ 4,639 $ 24,413
Averages
Total Assets $396,633 $412,664 $466,126 $448,630 $443,102
Loans and Loans
Held for Sale $305,640 $330,277 $421,141 $350,943 $401,198
Interest Earning
Assets $263,216 $300,399 $454,722 $355,470 $429,220
Deposits $352,123 $363,429 $396,414 $392,901 $369,761
Stockholders'
Equity $ 33,605 $ 38,355 $ 57,621 $ 44,647 $ 62,254
Financial Ratios
------------------------------------------------- ------------------
Return on Average
Assets -11.63% -4.14% 0.03% -7.28% -1.17%
Return on Average
Equity -137.23% -44.58% 0.28% -73.17% -8.35%
Net Interest Margin 0.11% 0.75% 3.62% 1.08% 4.63%
Efficiency Ratio 1156.0% 662.9% 66.7% 397.9% 67.6%
Non-performing
Assets to Total
Assets 36.09% 32.75% 5.38% 36.09% 5.38%
Asset Quality
--------------------- Quarter Ended Year to Date
(Unaudited) ------------- ------------
(dollars in Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
thousands) 2008 2008 2007 2008 2007
------------------------------------------------- ------------------
Allowance for Loan
Losses Activity:
Balance of Beginning
of Period $ 24,536 $ 28,140 $ 17,852 $ 19,514 $ 3,972
Charge-offs (12,284) (3,624) (40) (18,521) (339)
Recoveries 15 20 2 39 2
------------------------------------------------- ------------------
Net Loan Charge-offs (12,269) (3,604) (38) (18,482) (337)
Reclassification of
unfunded credit
commitments -- -- -- -- --
Provision for Loan
Losses 6,354 -- 1,700 17,589 15,879
------------------------------------------------- ------------------
Balance at End of
Period $ 18,621 $ 24,536 $ 19,514 $ 18,621 $ 19,514
================================================= ==================
Selected Ratios:
Net Charge-offs to
average loans 4.01% 1.09% 0.01% 5.27% 0.08%
Provision for loan
losses to average
loans 2.08% 0.00% 0.40% 5.01% 3.96%
Allowance for loan
losses to total
loans 6.55% 7.60% 4.71% 6.55% 4.71%
Nonperforming Assets:
Non-Accrual loans $112,232 $119,067 $ 24,923
Accruing Loans past
due 90 days or more -- -- 399
-------------------------------------------------
Total non-performing
loans (NPLs) $112,232 $119,067 $ 25,322
Other real estate
owned 19,629 10,984 983
-------------------------------------------------
Total non-performing
assets (NPAs) $131,861 $130,051 $ 26,305
Selected Ratios:
NPLs to total loans 39.43% 36.85% 6.12%
NPAs to total
assets 36.09% 32.75% 5.38%