.
.
.
LAW OFFICES OF
KELLER ROHRBACK L.L.P.
LAURIE B. ASHTON + PP. )) (C) GLEN P. GARRISON SS. DAVID R. MAJOR AMY WILLIAMS-DERRY
IAN S. BIRK LAURA R. GERBER JOHN MELLEN (?) MICHAEL WOERNER
STEPHEN R. BOATWRIGHT + )) (C) GARY A. GOTTO + )) (C) ROBERT S. OVER o - BENSON D. WONG
KAREN E. BOXX (C) MARK A. GRIFFIN AMY PHILLIPS
JOHN H. BRIGHT AMY N.L. HANSON (( LORRAINE LEWIS PHILLIPS + ADMITTED IN ARIZONA
GRETCHEN FREEMAN CAPPIO IRENE M. HECHT ERIN M. RILEY (( ++ ALSO ADMITTED IN ARIZONA
JASON P. CHUKAS SCOTT C. HENDERSON PAUL M. ROSNER (!) ALSO ADMITTED IN CALIFORNIA
T. DAVID COPLEY ++ MICHAEL F. JOHNSON DAVID J. RUSSELL PP. ALSO ADMITTED IN COLORADO
ALICIA M. CORBETT + )) (C) TOBIAS J. KAMMER MARK D. SAMSON + )) (C) SS. ALSO ADMITTED IN IDAHO
CLAIRE CORDON RON KILGARD + )) (C) LYNN LINCOLN SARKO - (( (?) ALSO ADMITTED IN ILLINOIS
SHANE P. CRAMER ++ (C) BENJAMIN J. LANTZ FREDERICK W. SCHOEPFLIN o ALSO ADMITTED IN MARYLAND
ROB J. CRICHTON (m) HEIDI LANTZ WILLIAM C. SMART (o) ALSO ADMITTED MICHIGAN
JULI FARRIS DESPER (!) - CARI CAMPEN LAUFENBERG THOMAS A. STERKEN (n) ALSO ADMITTED IN NEW YORK
MAUREEN M. FALECKI (!) ELIZABETH A. LELAND BRITT L. TINGLUM (( (m) ALSO ADMITTED IN OREGON
RAYMOND J. FARROW TANA LIN (?) (o) - LAURENCE R. WEATHERLY - ALSO ADMITTED IN WASHINGTON, D.C.
DANIEL S. FRIEDBERG (( (C) DEREK W. LOESER MARGARET E. WETHERALD (m) (( ALSO ADMITTED IN WISCONSIN
)) NOT ADMITTED IN WASHINGTON
(C) OF COUNSEL
October 10, 2006
Mr. Todd K. Schiffman
U.S. Securities and Exchange Commission
Division of Corporate Finance, #7 Financial Services
100 F Street NE
Washington, DC 20549
Mail Stop 0408
Re: WSB Financial Group, Inc.
Amendment No. 1 to Registration Statement on Form S-1
File No. 333-137038
Dear Mr. Schiffman:
This letter accompanies the above-referenced filing and responds to
your letter, dated September 27, 2006, to David K. Johnson, President and Chief
Executive Officer of WSB Financial Group, Inc., relating to the Registration
Statement on Form S-1, File No. 333-137038.
General
1. Please include an updated consent from your independent accountants in
subsequent pre-effective amendments.
Response: The updated consents of Moss Adams LLP and Ball & Treger, LLP are
attached to Amendment No. 1, as Exhibits 23.1 and 23.2, respectively, and
updated consents will be included in subsequent pre-effective amendments.
2. Please update the financial statements under Rule 3-12 or Regulation
S-X, as applicable.
REPLY TO: 1201 THIRD AVENUE SUITE 3200 SEATTLE, WASHINGTON 98101-3052 TELEPHONE:
(206) 623-1900 FAX: (206) 623-3384
WWW.KELLERROHRBACK.COM
AFFILIATED OFFICE: KELLER ROHRBACK PLC 3101 N. CENTRAL AVENUE, SUITE 900
PHOENIX, ARIZONA 85012 (602) 248-0088 FAX (602) 248-2822
Mr. Todd K. Schiffman KELLER ROHRBACK L.L.P.
October 10, 2006
Page 2
Response: The company's financial statements as of and for the third
quarter and as of and for the nine months ended September 30, 2006 will be
reflected in the pre-effective amendment expected to be filed in late October.
Summary, page 1
3. Please revise the section entitled "WSB Financial Group, Inc."
o revise the first paragraph to disclose the percentage
of your loans that are related to real estate;
o 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;
o 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
o clarify the bullet point relating to net income to
disclose the 12 month period for which you earned
$15,000.
Response: We have added a new section, captioned "Business Risks," on
page 4 of the Summary, to address your comments in bullet points one and two
above and to otherwise highlight in the Summary section certain of the material
business risks associated with our business and operations.
We have retained the reference to compound annual growth rate in
paragraph three of the Summary. We respectfully submit that use of this measure
is appropriate and not misleading, because the company's annual growth rate
during the past five years has been relatively constant (we are supplementally
providing to you information relating to the company's annual growth during this
period). We also note that several recent filings, including Omni Financial,
Nexity Financial Corp. and Valley Bancorp, use CAGR in the summary section.
We have revised the bullet point relating to net income growth to
disclose the 12 month period for which we 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.
Response: We have inserted a definition of CAGR in the text of MD&A at
page 24 of the Amendment.
5. Please revise the section entitled "Our Market Area" to summarize
the competition in your market.
Mr. Todd K. Schiffman KELLER ROHRBACK L.L.P.
October 10, 2006
Page 3
Response: This information has been included in the new "Business
Risks" section on page 4 of the Amendment.
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.
Response: These revisions have been made to page 12 of the Amendment.
Copies of the MOU and all relevant documentation which has been marked
"confidential" are being provided supplementally for your review, along with our
formal confidentiality request letter. We are also sending a copy of the
confidentiality request to the Office of Freedom of Information and Privacy Act
Operations, SEC Operations Center, as required. These materials are required by
federal banking laws to be kept confidential, and therefore we are requesting
confidential treatment of these materials pursuant to Rule 83 (17 CFR 200.83) of
the Commission. The FDIC would not allow us to provide you with a copy of its
Report of Examination, so that is not included. If you have any questions, feel
free to contact the FDIC attorney, Ivan Cintron at (415) 808-8171.
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 your being unable to
sustain your historical growth rates on your profit 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."
Response: We have made these revisions throughout the "Risk Factors"
section, and specifically to the risk factors identified in your comment.
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.
Response: We have substantially revised this section and made all
changes as requested, at pages 9 through 17 of the Amendment.
9. Please add a risk factor which discuses the fact that much of your
loan portfolio is unseasoned and may not exhibit any problems until the loans
are older.
Mr. Todd K. Schiffman KELLER ROHRBACK L.L.P.
October 10, 2006
Page 4
Response: We have added this risk factor to page 10 of the Amendment.
10. Please revise the first risk factor on page 9 relating to real
estate lending as follows:
o 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;
o provide more detail regarding the risks of having 52
percent of your loan portfolio in construction and
development projects;
o discuss the extent to which a significant portion of
your loans are concentrated among one or more
borrowers;
o discuss the risk that all, or most, of your loans
will suffer if there is a decline in the real estate
market;
o describe the extent to which your residential loans
are single family or multi family; and
o 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.
Response: We have made all requested changes and provided the
additional information in pages 9 and 10 of the Amendment, with the exception of
the third bullet point as the company does not have any material single borrower
concentrations, as stated at page 69 of the Amendment.
11. Please revise the third risk factor, on page 9, relating to the
limited geographic area as follows:
o discuss how operating in a limited geographic area
could limit your ability to grow; and
o discuss the extent to which you are dependent on the
military and its members for deposits or lending
business.
Response: We do not believe operating in a limited geographic area
limits the company's ability to grow and therefore, we have not made any changes
in response to this comment. The company is only seven years old and has a
relatively small deposit market share (under 7%) in west Puget Sound, and is
close to attractive, larger markets where it can expand. We have added the
discussion called for in the second bullet point at page 10 of the Amendment.
Mr. Todd K. Schiffman KELLER ROHRBACK L.L.P.
October 10, 2006
Page 5
12. Please revise the first risk factor, on page 11, relating to FDIC
as follows:
o disclose the "weaknesses and failures" in your
compliance to which you refer;
o disclose the "certain banking related consumer laws"
that you violated; and
o disclose more completely the regulatory actions that
could be taken if you fail to comply with the MOU
with the FDIC.
Response: We have added these disclosures at page 12 of the Amendment.
13. Please revise the third risk factor, on page 11, relating to
interest rates to disclose the following:
o the percentage of your loans that are fixed rate and
the percentage that are variable; and
o the percentage of your loans that are short term and
the percentage that are long term.
Response: We have included this information on page 13 of the
Amendment.
14. Please revise the fourth risk factor on page 11 relating to
competition to disclose the following:
o larger competitors may offer better lending and
deposit rates to customers;
o competitors may increase their competition as you
become a public company and your growth becomes more
visible; and
o 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.
Response: We have included these additional disclosures in page 13 of
the Amendment.
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.
Response: We have revised this risk factor as requested, at page 15 of
the Amendment.
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.
Mr. Todd K. Schiffman KELLER ROHRBACK L.L.P.
October 10, 2006
Page 6
Response: We added a sentence with this information on page 19 of the
Amendment.
17. Please disclose the approximate cost for opening a new branch and
the cost for loan production offices.
Response: We added a sentence with this information on page 19 of the
Amendment.
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.
Response: We have provided this analysis as requested, at pages 23 and
27 of the Amendment.
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:
o costs of being a public company; and
o 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.
Response: We have provided this analysis as requested, at page 24 of
the Amendment.
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.
Response: We made this revision at pages 22 and 23 of the Amendment.
Mr. Todd K. Schiffman KELLER ROHRBACK L.L.P.
October 10, 2006
Page 7
Key Factors in Evaluating Financial Condition and Results of Operations, page 22
21. Please revise this section as follows:
o 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
o 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.
Response: We have provided the analysis of net interest margin at page
25 of the Amendment and deleted the reference at page 24 that suggests we
compare our ROA to industry standards.
Loans, page 39
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.
Response: We have added a paragraph with this information on page 42 of
the Amendment. Information about the terms of these loans is provided on page 63
of the Amendment in response to comment 25.
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.
Response: We have described the company's methodology at page 45 of the
Amendment.
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.
Response: We have included this information on page 47 of the
Amendment. The third-party valuation used was in accordance with the company's
prior practice, under which a
Mr. Todd K. Schiffman KELLER ROHRBACK L.L.P.
October 10, 2006
Page 8
valuation was done each year and updated quarterly for purposes of stock option
grants and director compensation. We have not yet negotiated the public offering
filing range with the underwriter, but in preliminary discussions with the
underwriter we have discussed an offering price of $13 to $16 per share. The
third party valuation was made on a closely held company basis and included a
discount for lack of marketability.
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.
Response: We have added a discussion of the company's pre-leasing
criteria at page 63 of the Amendment.
Our Competition, page 65
26. Please revise this section to provide more detail consistent with
Item 101(c)(l)(x) including, but not limited to, the following:
o an estimate of the number of competitors in your
market;
o an estimate of your competitive position in your
market;
o identification of one or a small number of
competitors who are dominant in the industry in your
market; and
o more detail regarding the positive and negative
factors pertaining to your competitive position.
Response: We have revised this section to include the additional
information, to the extent available, at page 69.
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 79 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.
Response: We have included this information on page 82 of the
Amendment. The difference between the number of shares on page 82 and in page
II-2 is because in the latter, the numbers of share prices are not adjusted for
the 6.1429:1 stock split.
Mr. Todd K. Schiffman KELLER ROHRBACK L.L.P.
October 10, 2006
Page 9
Experts, page 95
28. Please revise to include Exhibit 16, which is required by Item 601
of Regulation S-K.
Response: We have included Exhibit 16 with our filing of the Amendment
and this exhibit is now referenced on page II-6.
Recent Sales of Unregistered Securities, page II -2
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, WSB Financial Group Trust I.
Response: We have added this information to page II-2 of the Amendment.
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).
Response: We have included on page F-11 of the Amendment, revised
disclosure that includes the tabular presentation of the information that was
required by paragraph 45 of Statement 123.
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.
Response: We have added this information to Note 11 on page F-35 of the
Amendment.
Note 1: Summary of Significant Accounting Policies
General
32. Please revise to include your accounting policy for recognition of
lease income and expense.
Response: We have added this information to Note 1 of the Amendment at
pages F-12 and F-27.
Mr. Todd K. Schiffman KELLER ROHRBACK L.L.P.
October 10, 2006
Page 10
Loan 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.
Response: We respectfully advise the Staff that the amount of allowance
related to loan commitments and standby letters of credit is not material. In
future periods if amounts related to loan commitments and standby letters of
credit are material, we will present these amounts separately as a liability in
accordance with paragraph 8(e) of SOP 01-6. We have added disclosure at pages
F-9 and F-24 that the related amounts are not material.
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.
Response: We respectfully advise the Staff that the related tax benefit
of $6,594 in 2003 is not material.
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 patent company has fully and unconditionally guaranteed the securities.
Please refer to Item 3.10(b)(4) of Regulation S-X.
Response: We have added this disclosure to page F-31 of the Amendment.
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.
Response: Note 12 regarding the method for determining the fair value
of available for sale securities has been revised at page F-37 of the Amendment,
to reference the matrix pricing model, which is one of the pricing models
discussed in paragraph 11 of FAS 107.
We are filing Amendment No. 1 today on Edgar in response to these
comments. Four marked copies of Amendment No. 1 are enclosed to expedite your
review.
Mr. Todd K. Schiffman KELLER ROHRBACK L.L.P.
October 10, 2006
Page 11
The required statement from the company acknowledging its
responsibility for disclosure in the filing and the status of staff comments, is
also enclosed.
Please call the undersigned at (206) 224-7585 (direct) with any
questions.
Very truly yours,
/s/ Thomas A. Sterken
Thomas A. Sterken
TAS:sjm
Encs.: Information relating to WSB Growth 1999-2005
as referenced in Response to Comment 3
Company Acknowledgement
Marked copy of Amendment No. 1
Request for Confidential Treatment w/MOU Materials
cc w/ encs.: Jonathan E. Gottlieb
Margaret B. Fitzgerald
cc w/o encs.: David K. Johnson
C.J. Voss
COMPANY ACKNOWLEDGEMENT
The registrant, WSB Financial Group, Inc. ("Company"), hereby
acknowledges to the U.S. Securities and Exchange Commission ("Commission"), with
respect to the Company's Registration Statement on Form S-1, File No.
333-137038, filed August 31, 2006, and amendments thereto, as follows:
1. The Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
2. 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
3. The Company 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.
DATED this 10th day of October, 2006.
WSB FINANCIAL GROUP, INC.
By: /s/ David K. Johnson
-------------------------------------
David K. Johnson
President and Chief Executive Officer
-1-
WSB GROWTH SUMMARY
2001 2002 2003 2004 2005 6/30/2006 CAGR
---- ---- ---- ---- ---- --------- ----
Assets 32,453 52,760 75,999 137,381 249,943 301,107 64.1%
% growth 62.6% 44.0% 80.8% 81.9% 40.9%
Loans 25,254 39,764 58,209 117,588 207,117 274,676 70.0%
% growth 57.5% 46.4% 102.0% 76.1% 65.2%
Deposits 28,112 48,017 68,003 123,593 224,167 274,011 65.9%
% growth 70.8% 41.6% 81.7% 81.4% 44.5%
LTM Net Income 15 286 631 1,340 2,412 3,206 NM
% growth NM 120.6% 112.4% 80.0% 65.8%