BREMERTON, Wash., Feb. 1, 2008 (PRIME NEWSWIRE) -- WSB Financial Group (Nasdaq:WSFG), the parent company of Westsound Bank, today reported a loss in the third quarter of 2007, after significant additions to loan reserves, and preliminary fourth quarter 2007 profits. Based on the findings of an independent assessment of the loan portfolio, the company added $13.9 million, or $1.65 per share after tax, to total provisions for loan losses and unfunded commitments in the third quarter, generating a loss of $7.8 million, or $1.39 per share, for the third quarter of 2007. In the fourth quarter, WSB generated a preliminary profit of $1.1 million, or $0.19 per share.
For the full year, WSB Financial lost $4.2 million, or $0.75 per share. WSB remains well capitalized with total equity of $58 million and total risk-based capital of 16%, substantially above the 10% minimum regulatory standard for well capitalized institutions. Book value per share was $10.35 at December 31, 2007. All 2007 results for the third quarter, fourth quarter and full year are unaudited.
"Over the past three months, our independent consultants, The Alford-Spencer Group of Sacramento, California, completed a comprehensive review of our loan portfolio, including a significant sampling of the construction loans," said David K. Johnson, President and CEO. "Mr. Alford, who performed the review, has more than 30 years of banking experience as an industry consultant, former bank president and regulator with the Office of the Comptroller of Currency. His review also includes recommendations to improve our underwriting, documentation and approval procedures and overall credit risk management, which we are implementing.
"When we did our initial internal review in November, we focused primarily on certain residential construction loans, and initially projected a lower addition to reserves. With the more comprehensive review across the entire loan portfolio and the build up of inventory in homes in our markets, we decided it was necessary to further increase our reserve position in the third quarter," Johnson continued. "The loan review also considered updated estimated fair market and resale values of the collateral for our residential loans. All these factors contributed to higher levels of specific and general reserves."
The following table reflects the make up of the company's overall loan portfolio:
Loan Portfolio
At At At
December 31, September 30, December 31, Annual
($ in thousands) 2007 2007 2006 %
(unaudited) Amount Percent Amount Percent Amount Percent Change
-------------------------------------------------------
Real estate
loans:
Construction
& land
development $253,188 61% $257,272 60% $194,709 57% 32%
Commercial
real estate 72,435 17% 90,709 21% 67,224 20% 35%
Residential
real estate 53,198 13% 42,951 10% 63,942 19% -33%
Commercial &
industrial
loans 31,377 8% 32,322 8% 15,629 5% 107%
Consumer
loans 3,719 1% 3,758 1% 3,235 1% 16%
------- -------- --------
Gross loans 413,917 100% 427,012 100% 344,739 100% 24%
Allowance for
loan losses (18,014) (17,852) (3,972)
Deferred loan
fees, net (967) (1,339) (559)
-------- -------- --------
Net loans $394,936 $407,821 $340,208
"As we discussed previously, our construction loan portfolio is the area of most concern, particularly following the significant reduction in financing alternatives for custom home buyers in recent months," said Charles Turner, Chief Lending Officer. "When the majority of these loans were originally underwritten, they had commitments for takeout or permanent financing from national sources. Many of those permanent financing alternatives are no longer available, and consequently the risk in these construction loans has increased. We have been fairly assertive in our approach to the loans in our construction portfolio, holding builders to their scheduled completion date and pursuing repayment of loans expeditiously."
Nonperforming assets (NPAs) at December 31, 2007 totaled $26.3 million, which includes $24.9 million of loans on nonaccrual status, $399,000 of accruing loans that are 90 days or more past due and $1.0 million in other real estate owned.
The allowance for loan losses was $18.0 million, or 68% of NPAs and 4.35% of gross loans at December 31, 2007. Net charge-off's totaled $15,000 during the third quarter and $38,000 during the fourth quarter, bringing total net charge-offs for the year to $337,000, or 0.08% of gross loans at December 31, 2007.
"Based on the best judgment of our management and the recommendations of the third party report, we believe the level of general and specific reserves for the entire portfolio are adequate to cover our exposure to potential losses. In addition, these loans are secured by deeds of trust on the land and improvements," said Turner.
Total net loans grew 24% in 2007 to $413 million at December 31, 2007, from $333 million at the end of 2006. Deposits grew 34% to $422 million at December 31, 2007, from $315 million a year ago, with growth in time deposits accounting for most of the increase. At September 30, 2007, Westsound Bank had $419 million in loans and deposits totaled $400 million. "We expect loan growth to slow over the course of the next few quarters as we concentrate on collecting nonperforming loans and improving credit quality," Turner noted.
REVIEW OF OPERATIONS
Revenue (net interest income plus noninterest income) grew 15% in 2007 to $24.4 million from $21.2 million in 2006. In the fourth quarter of 2007, revenue was down 10% to $5.1 million, compared to $5.7 million in the fourth quarter of 2006, and off 21% from $6.5 million in the third quarter of 2007. Net interest income before the provision for loan losses in 2007 grew 20% to $19.9 million from $16.6 million in 2006. In the fourth quarter of 2007 net interest income was $4.2 million, compared to $4.6 million in the fourth quarter of 2006, and $5.5 million in the third quarter.
Interest income was down due to the increase in loans that moved to non-accrual status in the fourth quarter and the drop in yields from the sharp cuts in short-term rates that occurred at the end of 2007. Net interest margin in 2007 was 4.62%, down 103 basis points from 5.65% in 2006. In the fourth quarter net interest margin declined 168 basis points to 3.62%, and in the third quarter of 2007 the net interest margin dropped 88 basis points to 4.83% compared to the like periods of 2006. "Although we are relatively asset neutral, we expect further margin compression in the near term based on the recent interest rate actions taken by the Federal Reserve," said Mark D. Freeman, Chief Financial Officer.
The provision for loan losses totaled $14.4 million in 2007, including $13.4 million booked in the third quarter and $200,000 in the fourth quarter. In addition, WSB took a $548,000 provision for unfunded loan commitments in the third quarter of 2007, which was recorded in other expenses and other liabilities. In the third quarter of 2007, the after tax impact of the provision for loan losses were $8.8 million, or $1.58 per share, and $362,000, or $0.07 per share, for the unfunded loan commitments provision. In the fourth quarter, the loan loss provision of $200,000 was offset by the same amount taken as a reverse provision for unfunded loan commitments, which reflects the ongoing funding for in-process construction projects.
In 2007, net interest income after provision for loan losses was $5.5 million, compared to $15.0 million in 2006. Fourth quarter 2007 net interest income was down 7% to $4.0 million from $4.3 million for the fourth quarter of 2006.
Other operating income was down 18% in the fourth quarter of 2007 and 3% for the full year from the year ago periods reflecting the reduction in the mortgage division in the third quarter, which lowered fee income and gains from loan sales significantly in the fourth quarter. Partially offsetting this decline was the sale of a piece of land, which generated a pretax gain of $412,000 in the fourth quarter of 2007. Total other operating income was $930,000 in the fourth quarter of 2007, compared to $1.0 million in the immediate prior quarter and $1.1 million in the fourth quarter of 2006. Other operating income was $4.5 million in 2007, compared to $4.7 million in 2006.
Operating (noninterest) expenses rose 17% to $16.3 million in 2007 from $13.9 million a year ago. In addition to the provision for unfunded loan commitments, the increase is also attributed to higher consulting and professional fees. Other operating expense in the fourth quarter of 2007 was $3.3 million compared to $4.8 million in the third quarter of 2007 and $4.3 million in the fourth quarter a year ago.
The company also announced that David Johnson has resigned from the Board of Directors and that he will be stepping down as President and CEO. "Dave has agreed to continue working to effect a seamless transition. A search for a new CEO is in process and we appreciate Dave's continued service until the position can be filled," said Louis J. Weir, Chairman.
ABOUT WSB FINANCIAL GROUP, INC.
WSB Financial Group, Inc., based out of Bremerton, Washington, is the holding company for Westsound Bank and Mortgage. The company was founded in 1999, and currently operates nine full service offices located within 6 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, maintenance of the net interest margin, credit quality and loan losses, the efficiency ratio and continued 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 risk and uncertainty 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 filing 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 condition; (2) changes in interest rates and their impact on net interest margin; (3) competition among financial institutions; (4) legislation or regulatory requirements; (5) pending litigation; (6) reductions in loan demand or deposit levels; and (7) changes in loan collectibility, default 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)
(in Quarter Ended Year to Date
thousands ------------- ------------
except Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
share data) 2007 2007 2006 2007 2006
--------------------------------------------- ----------------------
Interest
Income
Interest
and fees
on loans $ 8,465 $ 9,826 $ 8,095 $ 35,958 $ 27,634
Taxable
investment
securities 84 88 66 316 265
Tax exempt
securities 20 18 19 76 76
Federal
funds
sold 295 171 53 879 282
Other
interest
income 34 39 18 167 85
--------------------------------------------- ----------------------
Total
interest
income 8,898 10,142 8,251 37,396 28,342
Interest
Expense
Deposits 4,552 4,514 3,494 16,910 11,144
Other
borrowings -- -- 44 1 75
Junior
subordinated
debentures 155 152 149 603 566
--------------------------------------------- ----------------------
Total
interest
expense 4,707 4,666 3,687 17,514 11,785
Net Interest
Income 4,191 5,476 4,564 19,882 16,557
Provision
for loan
losses 200 13,362 256 14,379 1,523
--------------------------------------------- ----------------------
Net
interest
income
(loss)
after
provision
for loan
losses 3,991 (7,886) 4,308 5,503 15,034
Noninterest
Income
Service
charges on
deposit
accounts 106 95 75 381 256
Other
customer
fees 113 198 266 790 878
Net gain
on sale
of loans 243 737 784 2,845 3,483
Other
income 468 (5) 3 515 55
--------------------------------------------- ----------------------
Total
noninterest
income 930 1,025 1,128 4,531 4,672
Noninterest
Expense
Salaries
and
employee
benefits 1,708 2,510 3,012 9,461 9,258
Premises
lease 77 80 89 329 338
Depreciation
expense 221 206 183 824 612
Occupancy
and
equipment 155 150 144 614 512
Data and
item
processing 186 167 137 676 512
Advertising
expense 25 59 41 180 215
Printing,
stationary
and supplies 48 38 60 191 219
Telephone
expense 28 26 27 111 111
Postage and
courier 30 43 34 155 132
Legal fees 146 34 12 289 45
Director
fees 93 70 72 286 303
Business
and
occupation
taxes 91 83 70 331 274
Accounting
and
audit fees 85 37 18 208 77
Consultant
fees 119 41 14 210 64
OREO loses
and
expense,
net 20 170 -- 227 --
Provision
for
unfunded
credit
losses (200) 548 -- 361 --
Other
expenses 487 506 339 1,843 1,182
--------------------------------------------- ----------------------
Total
noninterest
expense 3,319 4,768 4,252 16,296 13,854
Income (loss)
before
provision
for
income
taxes 1,602 (11,629) 1,184 (6,262) 5,852
Provision
for
income
taxes 533 (3,877) 406 (2,091) 1,967
--------------------------------------------- ----------------------
Net Income
(Loss) $ 1,069 $ (7,752) $ 778 $ (4,171) $ 3,885
============================================= ======================
Basic
Earnings
(loss) per
Common
Share $ 0.19 $ (1.39) $ 0.24 $ (0.75) $ 1.35
Diluted
Earnings
(loss) per
Common
Share $ 0.19 $ (1.39) $ 0.21 $ (0.75) $ 1.18
============================================= ======================
Average
Number
of Common
Shares
Outstand-
ing 5,574,853 5,573,089 3,259,489 5,565,123 2,870,222
Fully
Diluted
Average
Common
Shares
Outstand-
ing 5,574,853 5,573,089 3,693,464 5,565,123 3,285,622
CONSOLIDATED BALANCE SHEETS
----------------------------
(Unaudited)
(in thousands except share December 31, September 30, December 31,
data) 2007 2007 2006
--------------------------------------- ---------- ----------
ASSETS
Cash and due from banks $ 10,026 $ 8,538 $ 9,048
Fed funds sold 56,900 21,825 17,150
--------------------------------------- ---------- ----------
Total cash and cash
equivalents 66,926 30,363 26,198
Investment securities
available for sale, at fair
value 8,789 8,700 8,244
Federal Home Loan Bank
stock, at cost 319 319 234
Loans held for sale -- 6,650 11,007
Loans receivable 412,950 419,023 333,173
Less: allowance for loan
losses (18,014) (17,852) (3,972)
--------------------------------------- ---------- ----------
Loans, net 394,936 401,171 329,201
Premises and equipment, net 8,760 9,496 7,846
Accrued interest receivable 2,541 2,537 1,980
Other real estate owned 1,022 1,647 --
Deferred tax asset 5,655 5,687 811
Other assets 1,344 1,479 1,233
--------------------------------------- ---------- ----------
TOTAL ASSETS $ 490,292 $ 468,049 $ 386,754
======================================= ========== ==========
LIABILITIES
Deposits:
Noninterest-bearing $ 24,711 $ 27,657 $ 26,864
Interest-bearing 396,851 372,152 288,158
--------------------------------------- ---------- ----------
Total deposits 421,562 399,809 315,022
Accrued interest payable 1,955 1,764 1,109
Allowance for unfunded
credit losses 465 665 104
Other liabilities 341 979 614
Junior subordinated
debentures 8,248 8,248 8,248
--------------------------------------- ---------- ----------
TOTAL LIABILITIES 432,571 411,465 325,097
STOCKHOLDERS' EQUITY
Common Stock, $ 1 par
value; 15,357,250 shares
authorized; 5,574,853
shares issued and
outstanding December 31,
2007, 5,545,673 shares
issued and outstanding
at December 31, 2006,
respectively 5,575 5,575 5,546
Additional paid-in capital 48,224 48,217 48,089
Retained earnings 3,883 2,814 8,054
Accumulated other
comprehensive loss 39 (22) (32)
--------------------------------------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 57,721 56,584 61,657
--------------------------------------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 490,292 $ 468,049 $ 386,754
======================================= ========== ==========
Book value per share $ 10.35 $ 10.15 $ 11.12
Financial Statistics Quarter Ended Year to Date
-------------------- ------------- ------------
(Unaudited)
(in thousands Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
except share data) 2007 2007 2006 2007 2006
------------------------------------------------ -------------------
Revenues
(Net interest
income plus
non-interest
income) $ 5,121 $ 6,501 $ 5,692 $ 24,413 $ 21,229
Averages
Total Assets $466,126 $464,602 $353,126 $443,102 $304,116
Loans and Loans
Held for Sale $421,141 $424,407 $328,140 $401,198 $276,865
Interest
Earning Assets $458,795 $449,343 $341,617 $430,654 $292,842
Deposits $369,761 $388,079 $313,828 $369,761 $247,453
Stockholders'
Equity $ 57,621 $ 65,319 $ 26,175 $ 62,254 $ 19,830
Financial Ratios
------------------------------------------------ -------------------
Return on Average
Assets 0.91% -6.62% 0.87% -0.94% 1.28%
Return on Average
Equity 7.36% -47.10% 11.78% -6.70% 19.60%
Net Interest
Margin 3.62% 4.83% 5.30% 4.62% 5.65%
Efficiency Ratio 64.8% 73.4% 74.7% 66.8% 65.3%
Non-performing
Assets to Total
Assets 5.37% 0.92% 0.06% 5.37% 0.06%
Asset Quality Quarter Ended Year to Date
------------------- ------------- -----------
(Unaudited)
(dollars in Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
thousands) 2007 2007 2006 2007 2006
------------------------------------------------- ------------------
Allowance for Loan
Losses Activity:
Balance of
Beginning of
Period $ 17,852 $ 4,492 $ 3,725 $ 3,972 $ 2,520
Charge-offs (40) (15) (5) (339) (25)
Recoveries 2 -- 2 2 2
------------------------------------------------- ------------------
Net Loan Charge-offs (38) (15) (3) (337) (23)
Reclassification of
unfunded credit
commitments -- 13 (6) -- (48)
Provision for Loan
Losses 200 13,362 256 14,379 1,523
------------------------------------------------- ------------------
Balance at End of
Period $ 18,014 $ 17,852 $ 3,972 $ 18,014 $ 3,972
================================================= ==================
Selected Ratios:
Net Charge-offs to
average loans 0.01% 0.00% 0.00% 0.08% 0.01%
Provision for loan
losses to average
loans 0.05% 3.15% 0.08% 3.58% 0.55%
Allowance for loan
losses to total
loans 4.35% 4.18% 1.15% 4.35% 1.15%
Nonperforming Assets:
Non-Accrual loans $ 24,923 $ 2,395 $ 219
Accruing Loans past
due 90 days or more 399 282 --
-------------------------------------------------
Total non-performing
loans (NPLs) $ 25,322 $ 2,677 $ 219
Other real estate
owned 1,022 1,647 --
-------------------------------------------------
Total non-
performing
assets (NPAs) $ 26,344 $ 4,324 $ 219
Selected Ratios:
NPLs to total
loans 6.36% 0.63% 0.06%
NPAs to total
assets 5.37% 0.92% 0.06%