WASHINGTON — WSB Financial Group Inc. will need approval from the Federal Reserve Bank of San Francisco before it can take dividends, according to a written agreement the Federal Reserve Board announced Tuesday.
WSB and the Federal Reserve Bank of San Francisco said they entered the agreement "in recognition of their common goal to maintain the financial soundness of WSB Financial Group, Inc."
WSB owns Westsound Bank. Based in Bremerton, Wash., WSB would not be able to take dividends "or any other form of payment representing a reduction in capital" from the bank without receiving approval beforehand from the Federal Reserve Bank of San Francisco, the agreement says.
Additionally, it says WSB shall not, directly or indirectly, incur or increase any debt without the prior written approval of the reserve bank.
WSB also cannot purchase or redeem any shares of its stock without prior approval.
The agreement makes clear that requests for approval "shall be received by the reserve bank at least 30 days prior to the proposed dividend declaration date, proposed distribution on subordinated debentures, and required notice of deferral on trust preferred securities."
Last month, WSB Financial said Westsound entered a cease-and-desist agreement with the Federal Deposit Insurance Corp. and the Washington Department of Finance related to the bank's past lending practices.
As part of a plan to achieve full regulatory compliance, the Bremerton, Wash., financial services company named Mark D. Freeman interim chief executive to replace David K. Johnson, who resigned.
Also in response to FDIC orders, WSB added $13.9 million to its third-quarter provision for loan losses and plans to boost fourth-quarter reserves by $1.5 million to $2.5 million. WSB neither admitted nor denied any allegations of unsafe or unsound banking practices or any legal or regulatory violations.
WSB Financial reported a third-quarter net loss of $7.75 million, or $1.39 a share, swinging from net income of $1.16 million, or 36 cents a share, for the year-ago period. According to the company's quarterly report filed with the Securities and Exchange Commission, total interest income for the quarter ended Sept. 30 was $10.14 million, up from $7.69 million for 2006.
Westsound generates commercial, mortgage and consumer loans, and receives deposits from customers located primarily in Bremerton. It provides banking services throughout its primary market area to real estate developers, contractors and small to medium-sized businesses in its market.
"In the early 1990s, when there was a credit crunch, the FDIC restricted some banks from paying out dividends to build up their capital," JP Morgan economist Michael Feroli said. "I haven't been aware of this happening lately."
