Mail Stop 0408
September 27, 2006
David K. Johnson
President and Chief Executive Officer
WSB Financial Group, Inc.
607 Pacific Avenue
Bremerton, Washington 98337
Re: WSB Financial Group, Inc.
Registration Statement on Form S-1
File No. 333-137038
Filed August 31, 2006
Dear Mr. Johnson:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your documents in
response to these comments. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. Please include an updated consent from your independent
accountants in subsequent pre-effective amendments.
2. Please update the financial statements under Rule 3-12 of
Regulation S-X, as applicable.
Summary, page 1
3. Please revise the section entitled "WSB Financial Group, Inc."
* revise the first paragraph to disclose the percentage of your
loans
that are related to real estate;
* disclose the percentage of shares that will be owned by
directors
and executive officers and the effective control that they will
have
over the company;
* revise the third paragraph to disclose the total growth from
2001
to 2006 or the growth each year rather than the compound annual
growth; and
* clarify the bullet point relating to net income to disclose the
12
month period for which you earned $15,000.
4. Here and throughout your filing where you have utilized the
compound annual growth rate (CAGR) measure, please revise to
include
a footnote to explain the meaning of the measure and how it is
calculated.
5. Please revise the section entitle "Our Market Area" to
summarize
the competition in your market.
6. Please summarize your recent violations of consumer laws and
your
weaknesses and failures to comply with reporting requirements. In
the MD&A, identify each of your violations, failures and
weaknesses
and briefly explain each of them. Identify the corrective
measures
that you agreed with the FDIC to undertake. Please provide us
with
the MOU and all relevant documentation.
Risk Factors, page 8
7. Please revise each risk factor to "provide the information
investors need to assess the magnitude of the risk." We refer you
to
Staff Legal Bulletin No.7 (sample comments 34 and 38). For
instance, in the first and second risk factors on page 8 you do
not
indicate the consequences of you being unable to sustain your
historical growth rates on your profits and your ability to make
loans. You also need to be more precise, in the first risk
factor
on page 9 and elsewhere than simply stating that if the risk
occurs,
it could "hurt our business and our prospects."
8. Please revise this section in compliance with Rule 421(d), Item
503(C) of Regulation S-K and Staff Legal Bulletin No.7 to make
each
risk factor concise and in plain English. For instance, please
group
the numerous risk factors relating to growth and eliminate any
duplication. In addition, consolidate the first and third risk
factors on page 10 relating to the risk you will not be able to
maintain controls if you grow. In addition, consolidate the
second
and third risk factors on page 14 which address similar risks.
9. Please add a risk factor which discusses the fact that much of
your loan portfolio is unseasoned and may not exhibit any problems
until the loans are older.
10. Please revise the first risk factor on page 9 relating to real
estate lending as follows:
* replace the characterization of your loans to real estate as
"significant contribution` to state that over 93 percent of your
loans are in real estate;
* provide more detail regarding the risks of have 52 percent of
your
loan portfolio in construction and development projects;
* discuss the extent to which a significant portion of your loans
are
concentrated among one or more borrowers;
* discuss the risk that all, or most, of your loans will suffer if
there is a decline in the real estate market;
* describe the extent to which your residential loans are single
family or multi family; and
* describe in detail potential consequences of a downturn in the
real
estate market on you, including not only how your outstanding
loans
and collateral would be affected but the extent to which you may
not
be able to generate future business.
11. Please revise the third risk factor, on page 9, relating to
the
limited geographic area as follows:
* discuss how operating in a limited geographic area could limit
your
ability to grow; and
* discuss the extent to which you are dependent on the military
and
its members for deposits or lending business.
12. Please revise the first risk factor, on page 11, relating to
FDIC
as follows:
* disclose the "weaknesses and failures` in your compliance to
which
you refer;
* disclose the "certain banking related consumer laws" that you
violated; and
* disclose more completely the regulatory actions that could be
taken
if you fail to comply with the MOU with the FDIC.
13. Please revise the third risk factor, on page 11, relating to
interest rates to disclose the following:
* the percentage of your loans that are fixed rate and the
percentage
that are variable; and
* the percentage of your loans that are short term and the
percentage
that are long term.
14. Please revise the fourth risk factor on page 11 relating to
competition to disclose the following:
* larger competitors may offer better lending and deposit rates to
customers;
* competitors may increase their competition as you become a
public
company and your growth becomes more visible; and
* larger competitors may not be as vulnerable as you to local
downturns and real estate downturns since they have a broader
geographic area and their loan portfolio is diversified.
15. Please revise the second risk factor on page 13 relating to
dividends from Westsound Bank to disclose the limits on the
amounts
of dividends.
Use of Proceeds, page 18
16. Please revise this section to include your intent to pursue
acquisitions of financial institutions which you discuss in the
risk
factors on page 12.
17. Please disclose the approximate cost for opening a new branch
and
the cost for loan production offices.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 21
Overview, page 21
18. Please provide analysis, consistent with Release No. 33-8350,
of
the opportunities, challenges, risks and uncertainties, as well as
the actions they are taking to address these opportunities,
challenges risks and uncertainties. For instance, please discuss
how
management is addressing the problems and ramifications of the
FDIC
examination and the MOU. Provide analysis of how you will grow
while complying with the MOU. In addition, please provide
analysis
of economic factors, such as interest rates, or industry-wide
factors, such as a decline in the real estate market, relevant to
the
company on which management is concerned.
19. Please comply with Instruction 3 to Item 303(a) which provides
that "the discussion and analysis shall focus specifically on
material events and uncertainties known to management that would
cause reported financial information not to be necessarily
indicative
of future operating results or of future financial condition."
Please include in this section analysis of the anticipated impact
of
the following:
* costs of being a public company; and
* the national decline in sales of existing homes and in the
median
price for an existing home over the past 12 months and the recent
drop in construction of new homes and apartments.
20. Please revise your statement in the third paragraph that you
"provide a variety of loans to our customers" to disclose the
concentration of your loans in real estate.
Key Factors in Evaluating Financial Condition and Results of
Operations, page 22
21. Please revise this section as follows:
* address analysis of the net interest margin which you identify,
on
page 21, as a key performance measure but do not discuss in this
section; and
* provide analysis of each of the performance measures in
comparison
to industry standards as you suggest you do with regard to return
on
average assets.
Loans, page 37
22. We note your disclosure on page F-29 that $140 million of your
loans as of December 31, 2005, were interest only loans. Please
revise to discuss this as an additional loan concentration,
describe
how you monitor such loans for collectibility, and disclose the
terms
of such loans, including option ARMs, and negative amortization
features, if any. Please consider presenting a breakdown of your
interest only loans in a tabular format in order to identify the
major subcategories.
Allowance for Loan Losses, page 40
23. Please revise to describe your methodology for determining the
unallocated portion of your allowance. Refer to SAB Topic 6.
Shareholders` Equity, page 44
24. Please revise to describe how you determined the payment of
the
stock dividends, in August 2006, should be based upon a share
price
of $13.15. If this value differs from your intended offering
price,
please provide an analysis of events which occurred from the
payment
of the dividend to the filing of your registration statement, to
support your valuation.
Credit Policies, page 60
25. In the first paragraph, clarify whether you ever lend to
developers who do not have leases for the properties. In addition
state whether you "seek" to have an entire building leased or the
required percentage before you will lend.
Our Competition, page 65
26. Please revise this section to provide more detail consistent
with
Item 101(c)(1)(x) including, but not limited to, the following:
* an estimate of the number of competitors in your market;
* an estimate of your competitive position in your market;
* identification of one or a small number of competitors who are
dominant in the industry in your market; and
* more detail regarding the positive and negative factors
pertaining
to your competitive position.
Director Compensation, page 79
27. Please disclose the value per share that you attributed to the
stock that you gave the directors in August 2006 as compensation.
Please reconcile your statement on page 70 that you gave the
directors the stock in August 2006 with your statements on page
II-2
that you paid them in stock in 2003, 2004, 2005 and 2006.
Experts, page 95
28. Please revise to include Exhibit 16, which is required by Item
601 of Regulation S-K.
Recent Sales of Unregistered Securities, page II-1
29. Please disclose the respective value per share that you
attributed to the stock in each year 2003, 2004, 2005 and 2006 in
which you gave stock to directors as compensation. Please add
disclosure of securities sales by your subsidiary SB Financial
Group
Trust.
Unaudited Financial Statements for the Quarter Ended June 30, 2006
Note 1: Summary of Significant Accounting Policies
Stock Option Plans, page F-10
30. Please revise to include the disclosures required by paragraph
84
of SFAS 123(R).
Audited Financial Statements for Fiscal Year Ended December 31,
2005
Consolidated Statement of Changes in Stockholders` Equity, page F-
20
31. Given the absence of an active market for your shares, please
revise to disclose how you valued the shares of stock issued for
directors` fees.
Note 1: Summary of Significant Accounting Policies
General
32. Please revise to include your accounting policy for
recognition
of lease income and expense.
Loans and allowances for loan losses, page F-23
33. We note that your allowance for loan loss provides for
potential
loan, loan commitment and standby letters of credit. Please
revise
your financial statements to present your estimate for the losses
associated with off-balance sheet commitments as a liability
separate
from your allowance for loan loss. Refer to paragraph 8(e) of SOP
01-6.
Comprehensive Income, page F-26
34. Please revise to disclose why no tax benefit, related to your
unrealized loss from available-for-sale securities, was recognized
in
2003.
Note 6: Advances and Junior Subordinated Debentures Payable, page
F-
30
35. We note that your subsidiary, WSB Financial Group Trust I, was
created for the issuance of the trust preferred securities.
Please
revise to disclose, if true, that the subsidiary is 100% owned by
the
parent company and that the parent company has fully and
unconditionally guaranteed the securities. Please refer to Item
3.10(b)(4) of Regulation S-X.
Note 12: Fair Value of Financial Instruments, page F-35
36. We note your assumptions for the estimate of the fair value of
investment securities available for sale. Please tell us how you
determined your assumptions and methodology are consistent with
the
guidance of paragraph 11 of SFAS 107. Revise your financial
statements accordingly.
* * * * * * * * * * * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company and each filing person
acknowledging that:
* the company or filing person is responsible for the adequacy and
accuracy of the disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company or filing person may not assert staff comments as a
defense in any proceeding initiated by the Commission or any
person
under the federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Margaret Fitzgerald at (202) 551-3556 or
Kevin
L. Vaughn at 202-551-3494 if you have questions regarding comments
on
the financial statements and related matters. Please contact
either
Jonathan E. Gottlieb at (202) 551-3416 or me at (202) 551-3491
with
any other questions.
Sincerely,
Todd K. Schiffman
Assistant Director
cc. Glen P. Garrison, Esquire
Keller Rohrback, L.L.P.
Suite 3200
1201 Third Avenue
Seattle, Washington 98101
David K. Johnson
WSB Financial Group, Inc.
September 27, 2006
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