Kitsap Business and Economy

By Rachel Pritchett
rpritchett@kitsapsun.com
BREMERTON
A new government audit tracing the collapse of Westsound Bank points to exceedingly risky loans made by one executive who nonetheless was rewarded $1.2 million under a faulty compensation program.
The collapse in May of the Bremerton-based bank resulted in a $106.4 million loss to the Federal Deposit Insurance Corp., according to the audit just released by the FDIC’s Office of Inspector General. The office routinely does such audits on banks that draw on the FDIC’s fund.
Working out of one of the bank’s eight Puget Sound branches, the unnamed executive generated the vast majority of risky loans for the bank in 2005 and 2006. Many were in high-end construction, real-estate and development.
About 83 percent of those loans went bad as the economy slipped into a downturn, and became the number-one cause for the bank going under, according to the report.
The bank’s reliance on the risky loans grew from $128,000 in December 2005 to nearly $144.5 million by September 2007.
The executive was rewarded $1.2 million for his or her effort.
“A contributing factor to the losses was an inadequately designed and monitored incentive compensation program under which one bank official generated the vast majority of the poor-quality loans,” it stated.
No known criminal charges or penalties have yet been filed against the former bank’s leaders.
State and federal authorities took over the bank on May 8, and Port Orchard-based Kitsap Bank took over some assets and branches.
The report also blamed “negative publicity” after shareholders filed a lawsuit in 2007, which it states caused depositors to leav ethe bank.
Extended absences by key senior management officers contributed to the bank’s problems.
And, Westsound’s reliance on brokered deposits further weakened the bank, the report stated.
Westsound Bank opened in 1999.
From 2001 through 2007, its assets grew from $32.5 million to $489 million, much of it in 2004 and 2005 when the bank’s assets were increasing more than 80 percent a year.

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