Mail Stop 0408
October 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.
Amendment Number One to Registration Statement on Form S-1
File No. 333-137038
Filed October 11, 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.
WSB Financial Group, Inc., page 1
1. As we requested in comment 6 of our letter to you dated
September
27, 2006, please revise this section as follows:
* revise the first paragraph to supplement your disclosure of net
loans to disclose the percentage of your net loans that are
related
to real estate and that all of the real estate is located in West
Puget Sound area of Washington State;
* disclose the percentage of shares that will be beneficially
owned
by directors and executive officers and the effective control that
they will have over the company; and
* revise the third paragraph to disclose the total growth from
2001
to 2006 or the growth each year rather than the compound annual
growth rate.
2. Please disclose that an independent valuation of your shares as
of
July 31, 2006, determined that the value of each share was $13.15.
Disclose that this valuation was conducted in connection with a
stock
split in August 2006 that increased the number of shares owned by
the
shareholders at that time by 5.1 per share. If this value differs
from the offering price, please explain the reasons for the
difference in valuation.
3. Please provide an overview of your loan portfolio including the
fact that 54 percent of your loans are interest only and that most
of
these are for construction and land development in your local
area.
4. Thank you for providing the information we requested in comment
6
of our letter to you dated September 27, 2006. Please provide us
with a copy of the CRA Performance Evaluation.
Risk Factors, page 8
5. We note your response, on pages 9 and 10, to comment 10 of our
letter to you dated September 27, 2006. Please revise the risk
factor addressing the risk from almost all of your loans being
real
estate related as follows:
* revise in the caption, the characterization of your loans to
real
estate as "a large percentage` to state that over 93 percent of
your
loans are for construction and development projects and for
residential and commercial real estate;
* discuss the fact that the a downturn in the real estate market
would increase delinquencies, defaults and foreclosures on loans;
* as we requested, discuss the risk that many of your loans,
particularly the 52 percent of your loans that are construction
and
development loans, may default and require foreclosure if there is
a
significant decline in the real estate market and/or an increase
in
interest rates; and
* discuss the risks of your lack of diversification of your loan
portfolio in that almost all of your loans are in real estate and
all
are concentrated in your local area and that therefore a downturn
in
the local real estate market could have severe consequences for
both
your ability to make a profit and your financial viability.
6. We note your response, on pages 9 and 10, to comment 10 of our
letter to you dated September 27, 2006. Please revise the risk
factor addressing the risk from more than half of your loans being
for real estate construction and development as follows:
* revise in the caption, the characterization of your loans to
real
estate construction and development projects "a significant
percentage` to state that over half of your loans are for these
purposes;
* disclose that all of these loans relate to real estate in the
west
Puget sound area; and
* discuss the extent to which these loans are not traditional and
therefore carry higher risks of default.
7. We note your response, on page 11, to comment 11 of our letter
to
you dated September 27, 2006. Please discuss the risks of your
lack
of geographical diversification if for instance there is a
downturn
in the local economy or in the real estate market.
8. We note the risk factor on page 11 relating to managing your
growth. Please discuss the risks associated with not maintaining
effective controls, including controls on extending credit, making
adequate allowances for losses and compliance with regulatory
accounting requirements, as you grow.
9. We note your response, on page 12, to comment 12 of our letter
to
you dated September 27, 2006. Please revise as follows:
* revise the caption to state that the FDIC found that you
committed
violations of various banking laws and the FDIC penalized you and
required that your board enter into the MOU;
* clarify, on the seventh line, that the FDIC imposed the
penalties
on you for violations that they characterized as "significant" and
repeated; and
* clarify in the eighth line that the FDIC required your Board
enter
into the MOU to correct both the violations of law and the
deficiencies in internal controls.
10. We note your response, on pages 13, to comment 13 of our
letter
to you dated September 27, 2006. Please revise to disclose the
following:
* the percentage of your loans that are non traditional loans such
as
interest only loans and payment option ARMS;
* disclose the extent to which your loans are prime or subprime;
and
* the particular risks, type and magnitude, to you associated with
these loans given recent increases in interest rates and possible
additional increases as well as declines in values of homes.
Please revise the caption to more accurately reflect the risks
described in the text.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 22
Overview, page 22
11. We note your response, on page 22, to comments 18 and 19 of
our
letter to you dated September 27, 2006. Please revise the third
paragraph as follows:
* revise the fourth sentence regarding building permits to
disclose
that it declined by 8.8 percent and your statement regarding
sales
activity to disclose that it declined by 2.4 percent compared to
the
second quarter of 2005; and
* disclose, before the last sentence, that the FDIC report on
Washington state (which you quote from extensively) states that
"recent declines in permit and sales activity [in Washington
state]
point to slower residential construction activity in the months
ahead
with possible adverse implications for overall job growth and the
demand for construction financing."
12. As we requested in comment 20 of our letter to you dated
September 27, 2006, please revise your statement in the second
sentence of the third paragraph that you "provide a variety of
loans
to our customers" to reflect that almost all your loans are for
the
purchase and development of real estate.
13. We note your response, in the first paragraph on page 23, to
comments 18 and 19 of our letter to you dated September 27, 2006.
Please discuss how the recent increase in interest rates could
affect
you given that over half of your loans are ARMs. Discuss the
various
types of non traditional loans you have issued and the percentage
of
your loan portfolio for each. Provide analysis of how each type
of
loan will be affected by recent increases in interest rates and
decreases in real estate values including the effect on your
interest
income and defaults.
14. We note your response, in the third and fourth paragraph on
page
23, to comment 19 of our letter to you dated September 27, 2006.
As
we requested, please include in this section analysis of the
anticipated impact of the costs of being a public company
including
estimate of those costs and the extent that they will affect you.
Regulatory Compliance, page 27
15. Please revise the caption of this section to reflect the fact
that you were not in compliance with laws and regulations and that
the FDIC found in 2006 that you had committed numerous violations
of
the law for which you were penalized and found numerous
deficiencies
in your internal controls.
16. Please revise the first paragraph as follows:
* revise the first sentence to disclose that you committed
violations
of various banking laws that the FDIC characterized as
"significant
violations" and required that you pay a penalty for the violations
and required that your board enter into the MOU;
* disclose that these violations included your submitting to the
Federal Reserve Board what the FDIC characterized as a "high level
of
inaccurate data" relating to your loans;
* disclose that you failed to cure these violations despite their
being repeatedly cited by the FDIC in their examination reports;
and
* revise the last sentence to replace the word "deficiencies" with
the word "violations."
17. Please describe the findings by the Federal Deposit Insurance
Corporation in January 2006 that you suffer from the following
problems:
* weak oversight of the compliance function;
* lack of adequate compliance procedures;
* deficient compliance training;
* insufficient monitoring procedures for all regulations; and
* weak audit program.
18. Please revise the second paragraph as follows:
* revise the first sentence to describe in detail, using bullet
points, each of the seven provisions of the agreement with the
FDIC
noting that each of the provisions requires your Board of
Directors
to take action; and
* revise your description of the reports to state that your Board
of
Directors is required to submit such reports.
Concentrations, page 42
19. We note your response, on page 42, to comment 22 of our letter
to
you dated September 27, 2006. Please revise your statement that
"loans within this concentration have no more than normal risk of
collectability" to reflect the risks inherent in interest only
loans.
Moreover, address the risks to you that over half of your loans
are
interest only during a period of rising interest rates and
declining
real estate values.
Director Compensation, page 79
20. We note your response, on pages 82, to comment 27 of our
letter
to you dated September 27, 2006. As we requested, please
explain,
in this section, why you paid the directors with stock in 2006 for
services they rendered as early as 2003. Please disclose the
nature
and source of the valuation.
Recent Sales of Unregistered Securities, page II-1
21. We note your response, on page II-2, to comment 29 of our
letter
to you dated September 27, 2006. Please disclose the respective
value per share calculated on a post stock split basis. Please
clarify whether you issued the stock to the directors each year or
in
the aggregate in July 2006.
* * * * * * * * * * * * *
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. Thomas A. Sterken, Esquire
Keller Rohrback, L.L.P.
Suite 3200
1201 Third Avenue
Seattle, Washington 98101
David K. Johnson
WSB Financial Group, Inc.
October 27, 2006
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