Westsound Bank’s Failure Will Cost $106.4 Million
December 10th, 2009 by Rachel PritchettBy 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.
Scripps Interactive Newspapers Group
December 10th, 2009 at 1:03 pm
I believe the FDIC is funded entirely by participating banks – it does not collect tax payer dollars.
December 10th, 2009 at 1:07 pm
Right you are, my friend, and they’re not happy about it. Rachel
December 10th, 2009 at 2:37 pm
Doesn’t DA Davidson & Co share some of the blame for this? I don’t see where they are mentioned by name in the audit or in either of your stories, but they are the investment bank that handled the IPO in 2006.
December 10th, 2009 at 2:46 pm
Karen,
My hands are tied until if and when charges are filed in court or other penalties are handed down from the government overseers. If it were a fine, though, it would have happened by now. I’m told that any more serious process takes quite a while, sometimes a year. Until that happens, it would be dangerous speculation.
Rachel Pritchett
December 10th, 2009 at 5:07 pm
http://securities.stanford.edu/1038/WSFG_01/2007118_o01c_0705618.pdf