Westsound Bank told to correct its lending practices

WSB Financial Group of Bremerton said its Westsound Bank subsidiary was ordered by the Federal Deposit Insurance Corp. (FDIC) to correct its lending practices.

WSB said Mark Freeman was appointed interim chief executive officer, replacing David Johnson, who resigned March 7, according to a statement Wednesday.

The so-called cease-and-desist order from the FDIC and state Department of Finance addressed past actions, said the company, adding it neither admitted nor denied "any allegations of unsafe or unsound banking practices."

The bank said last fall that regulators were looking into possible misconduct in its real-estate lending.

The FDIC order led the Federal Reserve Bank of San Francisco to label the condition of WSB and Westsound "troubled."

The bank also said it will face increased costs to borrow from the Federal Reserve and other lenders, as well as for its premiums to the FDIC, because the two agencies reclassified it to "adequately capitalized" from "well capitalized."

The bank is adding up to $2.5 million to its loan loss reserves for 2007, after bolstering the reserves by $13.3 million in the third quarter.

WSB stock has lost 74 percent of its value in the past 12 months. It closed up 13 cents, or 2.8 percent, at $4.86 Wednesday, before the order was announced.