State regulators seized Westsound Bank in Bremerton, Wash., late Friday, bringing the number of failures this year to 33.
The Federal Deposit Insurance Corp. said Kitsap Bank in Port Orchard would reopen Westsound's nine branches Monday.
Westsound — which had been struggling for more than a year because of trouble with its residential construction loans — had $304.5 million of deposits and $334.6 million of assets.
The $815 million-asset Kitsap, a unit of Olympic Bancorp Inc., agreed to assume all the deposits, except for the $9.4 million from brokers.
Kitsap also agreed to buy $49.3 million of Westsound's assets, which include cash, cash equivalents, marketable securities and loans secured by deposits. The FDIC said it would retain the remaining assets for later disposition.
The agency estimated the failure would cost the Deposit Insurance Fund $108 million. That equates to 32.3% of the Westsound's assets.
Westsound is the second bank in Washington to be closed this year. Regulators shut the Bank of Clark County in Vancouver on Jan. 16.
At the end of the first quarter Westsound's capital ratios were above the typical minimums required for a bank to be considered well capitalized, according to its call report.
Nonetheless loan trouble has been mounting. For example, in the fourth quarter, Westsound charged off 16.2% of its loans, and 39.5% of its remaining loans were not current.
Last month Westsound's parent company WSB Financial Group Inc., warned of a possible failure. WSB said at the time that it had hired an adviser to help raise capital and explore strategic alternatives.
Westsound had been operating under a regulatory order for more than a year.
After examiners detected problems with its residential construction loans, the state regulator and the FDIC issued a cease-and-desist order in March of last year that required appointing a new CEO, developing a plan to maintain strong capital, setting aside higher provisions for loan losses, and hiring an outside consultant to review its loans, among other things.
WSB said at the time that the problem loans — which involved possible fraud — had been originated by "one or two" Westsound lenders who were fired as a result.
