The Federal Deposit Insurance Corp. seized the small bank and said its nine branches and nearly all of its deposits will be taken over by Kitsap Bank of Port Orchard, Wash.
Westsound Bank is the second bank based in the state of Washington to collapse this year, after the Bank of Clark County in January.
Westsound, which served the Puget Sound area, was hit hard by losses in construction loans.
It had total assets of $334.6 million as of March 31, and total deposits of $304.5 million.
Kitsap Bank will assume Westsound's deposits, except for the roughly $9.4 million managed by brokers. The FDIC said customers who placed money with brokers should contact the brokers directly.
Kitsap will also buy $49.3 million of Westsound's assets. The FDIC will keep the remaining assets to sell later. The cost to the U.S. deposit insurance fund will be $108 million.
The country's wave of bank closures - particularly the expensive collapse of California's IndyMac Bank
- reduced the deposit insurance fund to $18.9 billion as of Dec. 31. That is the lowest level in nearly 25 years, and down 64 percent from $52.4 billion at the end of 2007.
Over the next five years, the FDIC expects bank failures to cost the insurance fund around $65 billion. The fund is paid for by insured financial institutions.
