WSB Financial (WSFGQ) 8-K Results of Operations and Financial Condition

Exhibit 99.1

Contact: David K. Johnson
Chief Executive Officer
360-475-9374

WSB Financial Remains Well-Capitalized After Reporting Preliminary 4Q07 Profit of $1.1 Million and
3Q07 Loss of $7.8 Million after Adding $13.9 Million to Loan Reserves

Bremerton, WA — February 1, 2008 — WSB Financial Group (NASDAQ: WSFG), the parent company of Westsound Bank, today reported a loss in the third quarter of 2007, after significant additions to loan reserves, and preliminary fourth quarter 2007 profits. Based on the findings of an independent assessment of the loan portfolio, the company added $13.9 million, or $1.65 per share after tax, to total provisions for loan losses and unfunded commitments in the third quarter, generating a loss of $7.8 million, or $1.39 per share, for the third quarter of 2007. In the fourth quarter, WSB generated a preliminary profit of $1.1 million, or $0.19 per share.

For the full year, WSB Financial lost $4.2 million, or $0.75 per share. WSB remains well capitalized with total equity of $58 million and total risk-based capital of 16%, substantially above the 10% minimum regulatory standard for well capitalized institutions. Book value per share was $10.35 at December 31, 2007. All 2007 results for the third quarter, fourth quarter and full year are unaudited.

“Over the past three months, our independent consultants, The Alford-Spencer Group of Sacramento, California, completed a comprehensive review of our loan portfolio, including a significant sampling of the construction loans,” said David K. Johnson, President and CEO. “Mr. Alford, who performed the review, has more than 30 years of banking experience as an industry consultant, former bank president and regulator with the Office of the Comptroller of Currency. His review also includes recommendations to improve our underwriting, documentation and approval procedures and overall credit risk management, which we are implementing.

“When we did our initial internal review in November, we focused primarily on certain residential construction loans, and initially projected a lower addition to reserves. With the more comprehensive review across the entire loan portfolio and the build up of inventory in homes in our markets, we decided it was necessary to further increase our reserve position in the third quarter,” Johnson continued. “The loan review also considered updated estimated fair market and resale values of the collateral for our residential loans. All these factors contributed to higher levels of specific and general reserves.”

The following table reflects the make up of the company’s overall loan portfolio:

Loan Portfolio	At December 31, 2007						At September 30, 2007						At December 31, 2006						Annual
($ in thousands) (unaudited)	Amount			Percent			Amount			Percent			Amount			Percent			% Change
Real estate loans:
Construction & land development	$	253,188			61	%	$	257,272			60	%	$	194,709			57	%		32	%
Commercial real estate		72,435			17	%		90,709			21	%		67,224			20	%		35	%
Residential real estate		53,198			13	%		42,951			10	%		63,942			19	%		-33	%
Commercial & industrial loans		31,377			8	%		32,322			8	%		15,629			5	%		107	%
Consumer loans		3,719			1	%		3,758			1	%		3,235			1	%		16	%
Gross loans		413,917			100	%		427,012			100	%		344,739			100	%		24	%
Allowance for loan losses		(18,014	)					(17,852	)					(3,972	)
Deferred loan fees, net		(967	)					(1,339	)					(559	)
Net loans	$	394,936					$	407,821					$	340,208

“As we discussed previously, our construction loan portfolio is the area of most concern, particularly following the significant reduction in financing alternatives for custom home buyers in recent months,” said Charles Turner, Chief Lending Officer. “When the majority of these loans were originally underwritten, they had commitments for takeout or permanent financing from national sources. Many of those permanent financing alternatives are no longer available, and consequently the risk in these construction loans has increased. We have been fairly assertive in our approach to the loans in our construction portfolio, holding builders to their scheduled completion date and pursuing repayment of loans expeditiously.”

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WSFG 2007 Results
February 1, 2008
Page 2

Nonperforming assets (NPAs) at December 31, 2007 totaled $26.3 million, which includes $24.9 million of loans on nonaccrual status, $399,000 of accruing loans that are 90 days or more past due and $1.0 million in other real estate owned.

The allowance for loan losses was $18.0 million, or 68% of NPAs and 4.35% of gross loans at December 31, 2007. Net charge-off’s totaled $15,000 during the third quarter and $38,000 during the fourth quarter, bringing total net charge-offs for the year to $337,000, or 0.08% of gross loans at December 31, 2007.

“Based on the best judgment of our management and the recommendations of the third party report, we believe the level of general and specific reserves for the entire portfolio are adequate to cover our exposure to potential losses. In addition, these loans are secured by deeds of trust on the land and improvements,” said Turner.

Total net loans grew 24% in 2007 to $413 million at December 31, 2007, from $333 million at the end of 2006. Deposits grew 34% to $422 million at December 31, 2007, from $315 million a year ago, with growth in time deposits accounting for most of the increase. At September 30, 2007, Westsound Bank had $419 million in loans and deposits totaled $400 million. “We expect loan growth to slow over the course of the next few quarters as we concentrate on collecting nonperforming loans and improving credit quality,” Turner noted.

REVIEW OF OPERATIONS

Revenue (net interest income plus noninterest income) grew 15% in 2007 to $24.4 million from $21.2 million in 2006. In the fourth quarter of 2007, revenue was down 10% to $5.1 million, compared to $5.7 million in the fourth quarter of 2006, and off 21% from $6.5 million in the third quarter of 2007. Net interest income before the provision for loan losses in 2007 grew 20% to $19.9 million from $16.6 million in 2006. In the fourth quarter of 2007 net interest income was $4.2 million, compared to $4.6 million in the fourth quarter of 2006, and $5.5 million in the third quarter.

Interest income was down due to the increase in loans that moved to non-accrual status in the fourth quarter and the drop in yields from the sharp cuts in short-term rates that occurred at the end of 2007. Net interest margin in 2007 was 4.62%, down 103 basis points from 5.65% in 2006. In the fourth quarter net interest margin declined 168 basis points to 3.62%, and in the third quarter of 2007 the net interest margin dropped 88 basis points to 4.83% compared to the like periods of 2006. “Although we are relatively asset neutral, we expect further margin compression in the near term based on the recent interest rate actions taken by the Federal Reserve,” said Mark D. Freeman, Chief Financial Officer.

The provision for loan losses totaled $14.4 million in 2007, including $13.4 million booked in the third quarter and $200,000 in the fourth quarter. In addition, WSB took a $548,000 provision for unfunded loan commitments in the third quarter of 2007, which was recorded in other expenses and other liabilities. In the third quarter of 2007, the after tax impact of the provision for loan losses were $8.8 million, or $1.58 per share, and $362,000, or $0.07 per share, for the unfunded loan commitments provision. In the fourth quarter, the loan loss provision of $200,000 was offset by the same amount taken as a reverse provision for unfunded loan commitments, which reflects the ongoing funding for in-process construction projects.

In 2007, net interest income after provision for loan losses was $5.5 million, compared to $15.0 million in 2006. Fourth quarter 2007 net interest income was down 7% to $4.0 million from $4.3 million for the fourth quarter of 2006.

Other operating income was down 18% in the fourth quarter of 2007 and 3% for the full year from the year ago periods reflecting the reduction in the mortgage division in the third quarter, which lowered fee income and gains from loan sales significantly in the fourth quarter. Partially offsetting this decline was the sale of a piece of land, which generated a pretax gain of $412,000 in the fourth quarter of 2007. Total other operating income was $930,000 in the fourth quarter of 2007, compared to $1.0 million in the immediate prior quarter and $1.1 million in the fourth quarter of 2006. Other operating income was $4.5 million in 2007, compared to $4.7 million in 2006.

Operating (noninterest) expenses rose 17% to $16.3 million in 2007 from $13.9 million a year ago. In addition to the provision for unfunded loan commitments, the increase is also attributed to higher consulting and professional fees. Other operating expense in the fourth quarter of 2007 was $3.3 million compared to $4.8 million in the third quarter of 2007 and $4.3 million in the fourth quarter a year ago.

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WSFG 2007 Results
February 1, 2008
Page 3

The company also announced that David Johnson has resigned from the Board of Directors and that he will be stepping down as President and CEO. “Dave has agreed to continue working to effect a seamless transition. A search for a new CEO is in process and we appreciate Dave’s continued service until the position can be filled,” said Louis J. Weir, Chairman.

ABOUT WSB FINANCIAL GROUP, INC.

WSB Financial Group, Inc., based out of Bremerton, Washington, is the holding company for Westsound Bank and Mortgage. The company was founded in 1999, and currently operates nine full service offices located within 6 contiguous counties within Western Washington. Our website is http://www.westsoundbank.com.

This news release may contain “forward-looking statements’’ that are subject to risks and uncertainties. These forward-looking statements describe management’s expectations regarding future events and developments such as future operating results, growth in loans and deposits, maintenance of the net interest margin, credit quality and loan losses, the efficiency ratio and continued success of the Company’s business plan. Readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. The words “should,’’ “anticipate,’’ ‘expect,’’ will,’’ “believe,’’ and words of similar meaning are intended, in part, to help identify forward-looking statements. Future events are difficult to predict, and the expectations described above are subject to risk and uncertainty that may cause actual results to differ materially. In addition to discussions about risks and uncertainties set forth from time to time in the Company’s filing with the Securities and Exchange Commission, factors that may cause actual results to differ materially from those contemplated in these forward-looking statements include, among others: (1) local and national general and economic condition; (2) changes in interest rates and their impact on net interest margin; (3) competition among financial institutions; (4) legislation or regulatory requirements; (5) pending litigation; (6) reductions in loan demand or deposit levels; and (7) changes in loan collectibility, default and charge-off rates. WSB Financial Group, Inc. does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made. Any such statements are made in reliance on the safe harbor protections provided under the Securities Exchange Act of 1934, as amended.

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WSFG 2007 Results
February 1, 2008
Page 4

CONSOLIDATED STATEMENTS OF INCOME	Quarter Ended								Year to Date
(Unaudited)	Dec. 31,			Sept. 30,			Dec. 31,		Dec. 31,			Dec. 31,
(in thousands except share data)	2007			2007			2006		2007			2006
Interest Income
Interest and fees on loans	$	8,465		$	9,826		$	8,095	$	35,958		$	27,634
Taxable investment securities		84			88			66		316			265
Tax exempt securities		20			18			19		76			76
Federal funds sold		295			171			53		879			282
Other interest income		34			39			18		167			85
Total interest income		8,898			10,142			8,251		37,396			28,342
Interest Expense
Deposits		4,552			4,514			3,494		16,910			11,144
Other borrowings		—			—			44		1			75
Junior subordinated debentures		155			152			149		603			566
Total interest expense		4,707			4,666			3,687		17,514			11,785
Net Interest Income		4,191			5,476			4,564		19,882			16,557
Provision for loan losses		200			13,362			256		14,379			1,523
Net interest income (loss) after provision for loan losses		3,991			(7,886	)		4,308		5,503			15,034
Noninterest Income
Service charges on deposit accounts		106			95			75		381			256
Other customer fees		113			198			266		790			878
Net gain on sale of loans		243			737			784		2,845			3,483
Other income		468			(5	)		3		515			55
Total noninterest income		930			1,025			1,128		4,531			4,672
Noninterest Expense
Salaries and employee benefits		1,708			2,510			3,012		9,461			9,258
Premises lease		77			80			89		329			338
Depreciation expense		221			206			183		824			612
Occupancy and equipment		155			150			144		614			512
Data and item processing		186			167			137		676			512
Advertising expense		25			59			41		180			215
Printing, stationary and supplies		48			38			60		191			219
Telephone expense		28			26			27		111			111
Postage and courier		30			43			34		155			132
Legal fees		146			34			12		289			45
Director fees		93			70			72		286			303
Business and occupation taxes		91			83			70		331			274
Accounting and audit fees		85			37			18		208			77
Consultant fees		119			41			14		210			64
OREO loses and expense, net		20			170			—		227			—
Provision for unfunded credit losses		(200	)		548			—		361			—
Other expenses		487			506			339		1,843			1,182
Total noninterest expense		3,319			4,768			4,252		16,296			13,854
Income (loss) before provision for income taxes		1,602			(11,629	)		1,184		(6,262	)		5,852
Provision for income taxes		533			(3,877	)		406		(2,091	)		1,967
Net Income (Loss)	$	1,069		$	(7,752	)	$	778	$	(4,171	)	$	3,885
Basic Earnings (loss) per Common Share	$	0.19		$	(1.39	)	$	0.24	$	(0.75	)	$	1.35
Diluted Earnings (loss) per Common Share	$	0.19		$	(1.39	)	$	0.21	$	(0.75	)	$	1.18
Average Number of Common Shares Outstanding		5,574,853			5,573,089			3,259,489		5,565,123			2,870,222
Fully Diluted Average Common Shares Outstanding		5,574,853			5,573,089			3,693,464		5,565,123			3,285,622

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WSFG 2007 Results
February 1, 2008
Page 5

CONSOLIDATED BALANCE SHEETS
(Unaudited)	December 31,			September 30,			December 31,
(in thousands except share data)	2007			2007			2006
ASSETS
Cash and due from banks	$	10,026		$	8,538		$	9,048
Fed funds sold		56,900			21,825			17,150
Total cash and cash equivalents		66,926			30,363			26,198
Investment securities available for sale, at fair value		8,789			8,700			8,244
Federal Home Loan Bank stock, at cost		319			319			234
Loans held for sale		—			6,650			11,007
Loans receivable		412,950			419,023			333,173
Less: allowance for loan losses		(18,014	)		(17,852	)		(3,972	)
Loans, net		394,936			401,171			329,201
Premises and equipment, net		8,760			9,496			7,846
Accrued interest receivable		2,541			2,537			1,980
Other real estate owned		1,022			1,647			—
Deferred tax asset		5,655			5,687			811
Other assets		1,344			1,479			1,233
TOTAL ASSETS	$	490,292		$	468,049		$	386,754
LIABILITIES
Deposits:
Noninterest-bearing	$	24,711		$	27,657		$	26,864
Interest-bearing		396,851			372,152			288,158
Total deposits		421,562			399,809			315,022
Accrued interest payable		1,955			1,764			1,109
Allowance for unfunded credit losses		465			665			104
Other liabilities		341			979			614
Junior subordinated debentures		8,248			8,248			8,248
TOTAL LIABILITIES		432,571			411,465			325,097
STOCKHOLDERS’ EQUITY
Common Stock, $1 par value; 15,357,250 shares authorized; 5,574,853 shares issued and outstanding December 31, 2007, 5,545,673 shares issued and outstanding at December 31, 2006, respectively		5,575			5,575			5,546
Additional paid-in capital		48,224			48,217			48,089
Retained earnings		3,883			2,814			8,054
Accumulated other comprehensive loss		39			(22	)		(32	)
TOTAL STOCKHOLDERS’ EQUITY		57,721			56,584			61,657
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	490,292		$	468,049		$	386,754
Book value per share	$	10.35		$	10.15			11.12

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WSFG 2007 Results
February 1, 2008
Page 6

Financial Statistics	Quarter Ended									Year to Date
(Unaudited)	Dec. 31,			Sept. 30,			Dec. 31,			Dec. 31,			Dec. 31,
(in thousands except share data)	2007			2007			2006			2007			2006
Revenues
(Net interest income plus non-interest income)	$	5,121		$	6,501		$	5,692		$	24,413		$	21,229
Averages
Total Assets	$	466,126		$	464,602		$	353,126		$	443,102		$	304,116
Loans and Loans Held for Sale	$	421,141		$	424,407		$	328,140		$	401,198		$	276,865
Interest Earning Assets	$	458,795		$	449,343		$	341,617		$	430,654		$	292,842
Deposits	$	369,761		$	388,079		$	313,828		$	369,761		$	247,453
Stockholders’ Equity	$	57,621		$	65,319		$	26,175		$	62,254		$	19,830
Financial Ratios
Return on Average Assets		0.91	%		-6.62	%		0.87	%		-0.94	%		1.28	%
Return on Average Equity		7.36	%		-47.10	%		11.78			% -6.70	%		19.60	%
Net Interest Margin		3.62	%		4.83	%		5.30	%		4.62	%		5.65	%
Efficiency Ratio		64.8	%		73.4	%		74.7	%		66.8	%		65.3	%
Non-performing Assets to Total Assets		5.37	%		0.92	%		0.06	%		5.37	%		0.06	%

Asset Quality	Quarter Ended									Year to Date
(Unaudited)	Dec. 31,			Sept. 30,			Dec. 31,			Dec. 31,			Dec. 31,
(dollars in thousands)	2007			2007			2006			2007			2006
Allowance for Loan Losses Activity:
Balance of Beginning of Period	$	17,852		$	4,492		$	3,725		$	3,972		$	2,520
Charge-offs		(40	)		(15	)		(5	)		(339	)		(25	)
Recoveries		2			—			2			2			2
Net Loan Charge-offs		(38	)		(15	)		(3	)		(337	)		(23	)
Reclassification of unfunded credit commitments		—			13			(6	)		—			(48	)
Provision for Loan Losses		200			13,362			256			14,379			1,523
Balance at End of Period	$	18,014		$	17,852		$	3,972		$	18,014		$	3,972
Selected Ratios:
Net Charge-offs to average loans		0.01	%		0.00	%		0.00	%		0.08	%		0.01	%
Provision for loan losses to average loans		0.05	%		3.15	%		0.08	%		3.58	%		0.55	%
Allowance for loan losses to total loans		4.35	%		4.18	%		1.15	%		4.35	%		1.15	%
Nonperforming Assets:
Non-Accrual loans	$	24,923		$	2,395		$	219
Accruing Loans past due 90 days or more		399			282			—
Total non-performing loans (NPLs)	$	25,322		$	2,677		$	219
Other real estate owned		1,022			1,647			—
Total non-performing assets (NPAs)	$	26,344		$	4,324		$	219
Selected Ratios:
NPLs to total loans		6.36	%		0.63	%		0.06	%
NPAs to total assets		5.37	%		0.92	%		0.06	%

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NOTE: Transmitted on Prime Newswire on February 1, 2008