Bremerton's Westsound Bank resists regulators' proposed order

Westsound Bank of Bremerton, which has been operating under a federal cease-and-desist order for more than a year, is fighting further regulatory action and says it may not be able to stay in business.

WSB Financial, which owns the small bank, said in its annual regulatory report Friday that examiners from the Federal Deposit Insurance Corp. (FDIC) believe the bank has violated a 2006 "memorandum of understanding" intended to ensure it complies with banking laws.

WSB's 10-K report, filed with the U.S. Securities and Exchange Commission, said that following an examination in August the FDIC "found other violations of consumer banking laws and regulations related primarily to consumer lending and reporting." It did not elaborate on those findings.

The FDIC "recently" asked Westsound to consent to another cease-and-desist order covering the new allegations, but the bank refused, saying that it already had taken "significant steps" to improve operations and believed it was in compliance with the memo.

The bank has stopped making new construction and development loans; is "aggressively" marketing its $19.6 million portfolio of foreclosed real estate; and has retained financial advisers to explore ways to raise new capital, sell assets or take other steps to strengthen its capital position.

WSB also said it has implemented several recommendations from an outside consultant to improve its loan-approval and loan-servicing procedures, and has retained two "experienced loan administration and workout specialists" as consultants.

Should the FDIC seek to impose a new order over WSB's objections, the company said, it will appeal.

The March 2008 order, which remains in effect, bars the bank from paying dividends without regulatory approval; prevents it from accepting new brokered deposits or renewing existing ones without FDIC approval; and requires it to strengthen its capital position.

"As a result of the FDIC order, the significant operating losses incurred in 2008 and 2007, and the resulting deterioration of our capital position, we believe there is substantial doubt about our ability to continue as a going concern," the company stated in its report.

WSB Financial lost $5.2 million in 2007 and $32.7 million last year. Westsound Bank had $365 million in assets as of year-end 2008; of its $284 million in loans, $112.2 million, or 39.5 percent, were designated as nonperforming.

No matter what happens to the bank, deposits of up to $250,000 are insured by the FDIC through 2009; in 2010, the protected amount drops to $100,000.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com