BREMERTON, Wash., April 30, 2008 (PRIME NEWSWIRE) -- WSB Financial Group (Nasdaq:WSFG), the parent company of Westsound Bank, today reported a loss in the first quarter of 2008 after significant additions to loan reserves. Based on the maturing of its construction loans and continued uncertainty in the local housing market, the company added $7.7 million, or $0.91 per share after tax, to total provisions for loan losses and unfunded commitments in the first quarter. The company posted a net loss of $5.8 million, or $1.04 per share, for the first quarter of 2008. In the first quarter of 2007, WSB generated a net profit of $1.1 million, or $0.18 per share. Book value per share was $9.14 at March 31, 2008, and the ratio of Tier 1 equity capital to average assets was 11.76% at quarter end. All results for the first quarter are unaudited.
"Obviously, the past few months have been challenging for us, as we continue to work through the issues with the construction loans in our portfolio," said Terry A. Peterson, President and CEO. "We have scaled back our construction loan originations in the past few months and are concentrating on working with our borrowers to complete existing projects in a timely manner and to bring past-due loans current." Peterson was hired as WSB's President and CEO on April 15, 2008.
"During the first quarter, however, several factors contributed to higher levels of non-accrual loans. We have maturing construction and land development loans that we are choosing not to renew in order to keep all of our legal remedy options available to us. Many of these loans originated in 2006 or 2007, and as a result are reaching their contractual maturities. At 90 days past due, these loans are placed into a non-accrual status while we work with our borrowers to maximize our recovery. The majority of our remaining construction and land development loans mature in the next two quarters. Therefore, the contraction or expansion of our non-accrual loan portfolio in future periods will depend upon our ongoing collection efforts. In the first quarter we had $37 million in total loan payoffs.
"The real estate collateral valuations supporting our construction and land development loan portfolios have clearly suffered along with the recent decline in the local housing market. We are rapidly updating our real estate appraisals to help us better understand our total exposure to this loan segment. The good news is that real estate cannot disappear like other types of collateral. However, a loan made in 2006 that was within our policy guidelines may have a loan to value today that exceeds our guidelines. While we watch our real estate markets soften, it is prudent to add to our reserves for potential loan loss," Peterson said.
"In addition, we have brought in two very seasoned loan administration and workout specialists, whom I have known for ten years. One is an attorney and banker and the other has prior chief credit officer experience. Both specialize in loan collection and loan administration in Bank turnaround situations," Peterson added.
The following table reflects the make up of the company's overall loan portfolio by location:
Loan Category
March 31, 2008 Total
($ in thousands) Loans
---------
Spec Construction $ 68,735
Custom Construction 116,271
---------
Total Construction 185,006
Vacant Land & Land Development 55,720
1-4 Family Mortgage 34,636
Multifamily Mortgage 13,144
Commercial RE 66,239
Commercial Loans 29,338
Consumer 2,235
---------
Total Gross Loans $ 386,318
Loan Category
March 31, 2008 Kitsap % of King % of
($ in thousands) County Loans County Loans
-------- -------- -------- --------
Spec Construction $ 31,089 8% $ 10,649 3%
Custom Construction 28,085 7% 54,739 14%
-------- -------- -------- --------
Total Construction 59,174 15% 65,388 17%
Vacant Land & Land
Development 30,733 8% 5,215 1%
1-4 Family Mortgage 15,258 4% 3,469 1%
Multifamily Mortgage 6,057 2% -- 0%
Commercial RE 43,764 11% 4,194 1%
Commercial Loans 24,296 6% 79 0%
Consumer 1,981 1% 25 0%
-------- -------- -------- --------
Total Gross Loans $181,264 47% $ 78,370 20%
Loan Category
March 31, 2008 Pierce % of Other % of
($ in thousands) County Loans Counties Loans
-------- -------- -------- --------
Spec Construction $ 15,906 4% $ 11,091 3%
Custom Construction 21,505 6% 11,943 3%
-------- -------- -------- --------
Total Construction 37,410 10% 23,033 6%
Vacant Land & Land
Development 6,001 2% 13,771 4%
1-4 Family Mortgage 6,771 2% 9,138 2%
Multifamily Mortgage 3,271 1% 3,816 1%
Commercial RE 3,919 1% 14,362 4%
Commercial Loans 3,071 1% 1,892 0%
Consumer 17 0% 212 0%
-------- -------- -------- --------
Total Gross Loans $ 60,460 16% $ 66,225 17%
Nonperforming assets (NPAs) at March 31, 2008 totaled $72.2 million, which includes $70.3 million of loans on non-accrual status and $1.9 million in other real estate owned. The allowance for loan losses was $26.3 million, or 6.82% of gross loans at March 31, 2008. During the first quarter of 2008, net charge-off's totaled $912,000, or 0.23% of average loans at March 31, 2008. Of the non-accrual loans, 37% were in Kitsap County, 31% were in King County, 17% were in Pierce County and the remaining 15% were in other parts of Western Washington.
The following table reflects the make up of the company's total loan portfolio by non-accrual status:
Loan Category % of
March 31, 2008 % of Non- Non-
-------------- Loans Loans Accruals Accruals
----------------------------------------
($ in thousands)
Spec Construction $ 68,735 18% $ 15,724 22%
Custom Construction 116,271 30% 37,000 53%
-------- -------- -------- --------
Total Construction 185,006 48% 52,724 75%
Vacant Land & Land
Development 55,720 14% 10,949 16%
1-4 Family Mortgage 34,636 9% 4,781 7%
Multifamily Mortgage 13,144 3% -- 0%
Commercial RE 66,239 17% 1,125 2%
Commercial Loans 29,338 8% 710 1%
Consumer 2,235 1% 24 0%
-------- -------- -------- --------
Total Gross Loans $386,318 100% $ 70,313 100%*
*rounding brings it to 101%
"The increase in non-accrual loans also impacted net interest income, as $1.6 million in interest income was reversed in the first quarter," said Peterson. "In addition, we are maintaining a high level of liquidity using higher cost wholesale funding sources and have more than half of our deposits in time certificates. As we collect our construction loans and development loans we should be able to deleverage the balance sheet over the next few quarters. As we do this our yields and cost of funds should return to more normal levels, although I anticipate this will be a gradual process."
These factors, combined with the significant reduction in fee income from new loan originations, contributed to significant margin compression in the quarter. Net interest margin in the first quarter dropped to 1.65% from 3.62% in the fourth quarter of 2007 and 5.06% in the first quarter a year ago. Net interest income, before the loan loss provision, was $2.0 million in the first quarter, compared to $4.3 million in the same quarter last year. Following the provision, the first quarter net interest income was negative $5.6 million compared to $4.3 million a year ago.
Primarily because of closing its wholesale mortgage operation last fall, WSB Financial's noninterest income declined to $236,000 in the first quarter, compared to $1.3 million in the first quarter a year ago. The decline was offset somewhat by the drop in noninterest expense, which fell to $3.9 million in the quarter from $4.1 million in the first quarter of 2007.
At March 31, 2008, gross loans grew 3% year-over year to $386 million from $376 million at March 31, 2007, and fell 7% from $413 million at December 31, 2007. Deposits grew 22% to $441 million at March 31, 2008, from $362 million a year ago, with growth in time deposits accounting for most of the increase.
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) 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 BALANCE SHEETS
---------------------------------
(Unaudited) March 31, December 31, March 31,
(in thousands except share data) 2008 2007 2007
--------------------------------------------------------------------
ASSETS
Cash and due from banks $ 10,390 $ 10,026 $ 11,747
Fed funds sold 102,500 56,900 24,200
--------------------------------------------------------------------
Total cash and cash equivalents 112,890 66,926 35,947
Investment securities available
for sale, at fair value 7,691 8,832 7,928
Federal Home Loan Bank stock, at
cost 319 319 234
Loans held for sale -- -- 5,797
Loans receivable 385,679 412,950 375,694
Less: allowance for loan losses (26,292) (19,514) (4,407)
--------------------------------------------------------------------
Loans, net 359,387 393,436 371,287
Premises and equipment, net 8,689 8,760 8,802
Accrued interest receivable 2,176 2,541 2,037
Other real estate owned 1,883 983 1,310
Deferred tax asset 9,074 6,496 829
Other assets 1,425 1,040 1,461
--------------------------------------------------------------------
TOTAL ASSETS $ 503,534 $ 489,333 $ 435,632
====================================================================
LIABILITIES
Deposits:
Noninterest-bearing $ 23,043 $ 24,711 $ 27,514
Interest-bearing 418,504 396,734 334,173
--------------------------------------------------------------------
Total deposits 441,547 421,445 361,687
Accrued interest payable 2,232 1,955 1,452
Allowance for unfunded credit
losses 145 465 110
Other liabilities 382 500 1,336
Junior subordinated debentures 8,248 8,248 8,248
--------------------------------------------------------------------
TOTAL LIABILITIES 452,554 432,613 372,833
STOCKHOLDERS' EQUITY
Common Stock, $ 1 par value;
15,357,250 shares authorized;
5,574,853 shares issued and
outstanding March 31, 2008,
5,574,853 and 5,556,421 shares
issued and outstanding at
December 31, 2007 and March
31, 2007 respectively 5,575 5,575 5,556
Additional paid-in capital 48,230 48,223 48,141
(Accumulated Deficit) Retained
earnings (2,965) 2,854 9,136
Accumulated other comprehensive
income (loss) 140 68 (34)
--------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 50,980 56,720 62,799
--------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 503,534 $ 489,333 $ 435,632
====================================================================
Book Value per Share $ 9.14 $ 10.17 $ 11.30
CONSOLIDATED STATEMENTS OF
OPERATIONS Quarter Ended
---------------------------------- -------------
(Unaudited) Mar. 31, Dec. 31, Mar. 31,
(in thousands except share data) 2008 2007 2007
---------------------------------------------------------------------
Interest Income
Interest and fees on loans $ 6,336 $ 8,465 $ 8,343
Taxable investment securities 79 84 73
Tax exempt securities 19 20 19
Federal funds sold 555 295 156
Other interest income 25 34 50
---------------------------------------------------------------------
Total interest income 7,014 8,898 8,641
Interest Expense
Deposits 4,835 4,552 3,662
Other borrowings -- -- 1
Junior subordinated debentures 144 155 146
---------------------------------------------------------------------
Total interest expense 4,979 4,707 3,809
Net Interest Income 2,035 4,191 4,832
Provision for loan losses 7,690 1,700 491
---------------------------------------------------------------------
Net interest income (loss) after
provision for loan losses (5,655) 2,491 4,341
Noninterest Income
Service charges on deposit
accounts 78 106 84
Other customer fees 93 113 246
Net gain on sale of loans 64 243 979
Other income 1 468 36
---------------------------------------------------------------------
Total noninterest income 236 930 1,345
Noninterest Expense
Salaries and employee benefits 1,526 1,733 2,667
Premises lease 77 77 90
Depreciation expense 202 221 193
Occupancy and equipment 159 155 168
Data and item processing 184 208 151
Advertising expense 42 25 54
Printing, stationary and supplies 42 48 60
Telephone expense 23 28 29
Postage and courier 35 30 39
Legal fees 306 158 38
Director fees 109 128 57
Business and occupation taxes 57 104 73
Accounting and audit fees 158 131 49
Consultant fees 136 125 13
OREO loses and expense, net 26 59 8
Provision for unfunded credit
losses (320) (200) --
Other expenses 631 487 370
---------------------------------------------------------------------
Total noninterest expense 3,393 3,517 4,059
Income (loss) before provision
(benefit) for income taxes (8,812) (96) 1,627
Provision (benefit) for income
taxes (2,994) (136) 545
---------------------------------------------------------------------
Net Income (Loss) $ (5,818) $ 40 $ 1,082
=====================================================================
Basic Earnings (loss) per Common
Share $ (1.04) $ 0.01 $ 0.20
Diluted Earnings (loss) per Common
Share $ (1.04) $ 0.01 $ 0.18
=====================================================================
Average Number of Common Shares
Outstanding 5,574,853 5,574,853 5,548,283
Fully Diluted Average Common
Shares Outstanding 5,574,853 5,650,715 6,109,233
Financial Statistics Quarter Ended
---------------------------------- -------------
(Unaudited) Mar. 31, Dec. 31, Mar. 31,
(in thousands except share data) 2008 2007 2007
---------------------------------------------------------------------
Revenues
(Net interest income plus non-
interest income) $ 2,271 $ 5,121 $ 6,177
Averages
Total Assets $502,694 $466,126 $400,327
Loans and Loans Held for Sale $404,498 $421,141 $363,296
Interest Earning Assets $496,006 $458,795 $387,429
Deposits $434,596 $369,761 $327,944
Stockholders' Equity $ 56,704 $ 57,621 $ 62,296
Financial Ratios
---------------------------------------------------------------------
Return on Average Assets -4.66% 0.03% 1.10%
Return on Average Equity -41.27% 0.28% 7.04%
Net Interest Margin 1.65% 3.62% 5.06%
Efficiency Ratio 137.3% 66.7% 65.7%
Non-performing Assets to Total
Assets 14.34% 5.38% 0.43%
Asset Quality Quarter Ended
---------------------------------- -------------
(Unaudited) Mar. 31, Dec. 31, Mar. 31,
(dollars in thousands) 2008 2007 2007
---------------------------------------------------------------------
Allowance for Loan Losses Activity:
Balance of Beginning of Period $ 19,514 $ 17,852 $ 3,972
Charge-offs (916) (40) (50)
Recoveries 4 2 --
---------------------------------------------------------------------
Net Loan Charge-offs (912) (38) (50)
Reclassification of unfunded
credit commitments -- -- (6)
Provision for Loan Losses 7,690 1,700 491
---------------------------------------------------------------------
Balance at End of Period $ 26,292 $ 19,514 $ 4,407
=====================================================================
Selected Ratios:
Net Charge-offs to average loans 0.23% 0.01% 0.01%
Provision for loan losses to
average loans 1.90% 0.40% 0.14%
Allowance for loan losses to
total loans 6.82% 4.71% 1.15%
Nonperforming Assets:
Non-Accrual loans $ 70,313 $ 24,923 $ 209
Accruing Loans past due 90 days
or more -- 399 343
---------------------------------------------------------------------
Total non-performing loans
(NPLs) $ 70,313 $ 25,322 $ 552
Other real estate owned 1,883 983 1,310
---------------------------------------------------------------------
Total non-performing assets
(NPAs) $ 72,196 $ 26,305 $ 1,862
Selected Ratios:
NPLs to total loans 18.20% 6.12% 0.14%
NPAs to total assets 14.34% 5.38% 0.43%