Failed Banks: Westsound Bank
There was one more failed bank this week on May 8 – Westsound Bank, Bremerton, Washington. 2009 has now seen 8 more failed banks than occurred for all of 2008. The FDIC closure of Westsound Bank brings total banking failures for 2009 to 33 banks. The FDIC estimates that the closure of Westsound Bank will cost the Deposit Insurance Fund (DIF) approximately $108 million.
Westsound Bank – Bremerton, Washington
Depositors were protected by having Kitsap Bank, Port Orchard, Washington, assume all of Westsound’s deposits except for brokered deposits. The FDIC will pay the brokered depositors off directly by paying the brokers who will in turn pay off their customers.
Westsound Bank had total assets of $334.6 million and deposits totalling $304.5 million. Although Kitsap Bank will assume Westsound’s deposits (except for brokered deposits of $9.4 million), Kitsap is only purchasing $49.3 million of Westsound’s assets. The remaining assets of $285.3 million are being retained by the FDIC and will be disposed of.
Based on the FDIC’s estimated cost of closure for Westsound of $103 million, this implies that the assets carried on Westsounds books are worth only 64 cents on the dollar. Based on this low recovery rate and the small amount of Westsound’s assets that Kitsap was willing to purchase implies a very low loan quality at Westsound Bank. Poor loan quality and huge losses will not be unique to Westsound Bank due to the very high unemployment rate and weak property markets in Washington State
Washington State’s unemployment rate has skyrocketed from approximately 4.5% in 2008 to 9.7%, one of the highest in the nation and above the national average of 8.9%. Already weak property markets in Washington State are likely to continue declining with such high unemployment. Continued declines in property values will cause further losses for Washington State banks’ loan portfolios as foreclosures and defaults increase. Expect to see further failed banks in Washington State as the year progresses.