WSB Financial (WSFGQ) 8-K WSB Financial Reports Lower Losses in 3Q08 and Maintains Solid Capital Position

Exhibit 99.1

Contact: Terry A. Peterson
Chief Executive Officer
360-475-9374

WSB Financial Reports Lower Losses in 3Q08 and Maintains Solid Capital Position

Bremerton, WA – October  , 2008 – WSB Financial Group (NASDAQ: WSFG), the parent company of Westsound Bank, today reported that it is continuing to work through its construction loan portfolio challenges while reducing operating losses. The company continues to maintain solid capital, liquidity and loan loss provisions.

“Our regulatory safety and soundness examination was completed in September. We believe the exam went smoothly and is a testament to the professional efforts of our team,” said Terry Peterson, Chief Executive Officer. Peterson was hired as WSB Financial’s President and CEO on April 15, 2008. WSB Financial posted a net loss of $4.3 million, or $0.77 per share, for the third quarter of 2008, compared to a net loss of $7.8 million, or $1.39 per share, for the third quarter of 2007. Year-to-date, WSB Financial lost $21.1 million, or $3.78 per share, compared to a loss of $5.2 million, or $0.94 per share, for the same period in 2007. All results for the third quarter and nine month periods are unaudited.

Strategic Review

“While WSB was one of the first banks to be faced with concerns in its construction and land development portfolio, there are now many community banks around the country dealing with similar issues,” said Peterson. “While the actions by the Fed and the Treasury Department are addressing important industry concerns, we are independently making progress on executing our strategic plan. We completed our first 100-day plan in 80 days, which involved identifying all on balance sheet and off balance sheet risk. The pending resolution of the class action lawsuit is a tremendous accomplishment and removes a dark cloud over the company.

“Our second 100-day plan is focused on executing our loan collection strategies and gathering deposits in our communities. As we continue gaining momentum in our loan collections efforts, we will accelerate our local lending activities. Today, we are making strategic investments in our staff including the recent hiring of two business development officers. Additionally, we are reinvigorating our branch franchise beginning with the relocation of our new Silverdale office and a new Poulsbo branch, both of which are expected to occur in November.” Peterson added.

Solid Capital and Strong Liquidity

“We are deleveraging our balance sheet as existing loans pay down and as our collection efforts bring results,” said Mark Freeman, Chief Financial Officer. “During this process, we are maintaining a high level of liquidity and continuing to show solid capital ratios. At September 30, 2008, WSB Financial had a Tier 1 Capital to Average Assets of 10.63%, Tier 1 Capital to Risk Based Assets of 13.12% and Risk Based Capital/Risk Based Assets of 14.44%.

Liquidity remains high with a liquidity ratio of 20% at third quarter end (as measured by total cash and investments divided by deposits), compared to 25% in the second quarter and 11% a year ago. WSB Financial has no Fannie Mae or Freddie Mac equity securities and its investment securities are Treasury or U.S. Government Agency securities. Book value per share was $6.40 at September 30, 2008.

Balance Sheet and Credit Quality Review

“Our construction loan portfolio decreased to $129 million or 40% of the total portfolio from $149 million or 44% of the portfolio at June 30, 2008,” said Charles Turner, Chief Credit Officer. “The maturity distribution of our construction loan portfolio will continue to increase NPA’s in the fourth quarter. We anticipate NPA’s to crest in the first half of 2009.

“As further evidence of our deleveraging strategy, the loan portfolio shrank by $16.6 million to $323.1 million, in the third quarter, and includes $7.2 million in real estate loans that moved to OREO. Over the past 12 months, the loan portfolio shrank by $104 million and includes $11.3 million in real estate loans that moved to OREO.”

Nonperforming assets (NPAs) at September 30, 2008, totaled $130.1 million, which includes $119.1 million of nonperforming loans on non-accrual status and $11.0 million in other real estate owned (OREO). The allowance for loan losses was $24.5 million, or 7.60% of gross loans at September 30, 2008. During the third quarter of 2008, net charge-offs totaled $3.6 million, or 1.15% of average loans. Year to date, net charge-offs were $6.2 million, or 1.78% of average loans in the first nine months of 2008.

WSFG Reports 3Q08 Results
October 29, 2008      Page 2

The following table reflects the makeup of the company’s overall loan portfolio by loan type.

	Sep. 30,					June 30,
Loan Category	2008		% of			2008		% of			Quarter
($ in thousands)	Loans		Loans			Loans		Loans			Change
Spec Construction	$	48,609		15	%	$	53,961		16	%		-10	%
Custom Construction		80,180		25	%		94,567		28	%		-15	%
Total Construction		128,789		40	%		148,528		44	%		-13	%
Vacant Land & Land Development		43,129		13	%		47,622		14	%		-9	%
1-4 Family Mortgage		34,866		11	%		34,462		10	%		1	%
Multifamily Mortgage		11,997		4	%		11,815		3	%		2	%
Commercial RE		61,931		19	%		66,293		20	%		-7	%
Commercial Loans		39,285		12	%		27,658		8	%		42	%
Consumer		3,075		1	%		3,311		1	%		-7	%
Total Gross Loans	$	323,072		100	%	$	339,689		100	%		-5	%

The following table reflects the makeup of the company’s total nonperforming loan portfolio:

	Sept. 30,					June 30,
Loan Category	2008		% of			2008		% of			Quarter
($ in thousands)	NPLs		NPLs			NPLs		NPLs			Change
Spec Construction	$	29,608		24.9	%	$	23,318		23.0	%		27	%
Custom Construction		45,667		38.4	%		45,773		45.1	%		0	%
Total Construction		75,275		63.2	%		69,091		68.1	%		9	%
Vacant Land & Land Development		16,597		13.9	%		14,542		14.3	%		14	%
1-4 Family Mortgage		9,546		8.0	%		8,425		8.3	%		13	%
Multifamily Mortgage		2,783		2.3	%		3,111		3.1	%		-11	%
Commercial RE		2,710		2.3	%		2,762		2.7	%		-2	%
Commercial Loans		11,860		10.0	%		3,399		3.4	%		249	%
Consumer		296		0.2	%		82		0.1	%		261	%
Total Nonperforming Loans	$	119,067		100.0	%	$	101,412		100.0	%		17	%

Of the nonperforming loans, 41% were in Kitsap County, 30% were in King County, 19% were in Pierce County and the remaining 10% were in other parts of Western Washington. OREO consists of 38 properties with 4 homes and 3 lots in King County, 7 homes and 2 lots in Kitsap County, 1 home and 4 lots in Mason County, 10 homes and 3 lots in Pierce County, 1 home and 2 lots in Clallam County and 1 lot in Snohomish County.

WSFG Reports 3Q08 Results
October 29, 2008      Page 3

The following table reflects the makeup of the company’s overall loan portfolio by location:

Loan Category
9/30/2008	Total		% of			Kitsap		% of			King		% of			Pierce		% of			Other		% of
($ in thousands)	Loans		Total			County		Total			County		Total			County		Total			Counties		Total
Spec Construction	$	48,609		15	%	$	19,134		6	%	$	10,684		3	%	$	10,776		3	%	$	8,015		2	%
Custom Construction		80,180		25	%		17,568		5	%		41,154		13	%		14,201		4	%		7,257		2	%
Total Construction		128,789		40	%		36,702		11	%		51,838		16	%		24,977		8	%		15,272		5	%
Vacant Land & Land		43,129		13	%		22,677		7	%		4,239		1	%		5,428		2	%		10,785		3	%
Development
1-4 Family		34,866		11	%		17,493		5	%		2,716		1	%		6,418		2	%		8,239		3	%
Multifamily		11,997		4	%		4,964		2	%		—		0	%		2,955		1	%		4,078		1	%
Commercial RE		61,931		19	%		43,538		13	%		2,905		1	%		3,339		1	%		12,149		4	%
Commercial		39,285		12	%		20,319		6	%		14,741		5	%		2,483		1	%		1,742		1	%
Consumer		3,075		1	%		2,864		1	%		20		0	%		23		0	%		168		0	%
Totals	$	323,072		100	%	$	148,557		46	%	$	76,459		24	%	$	45,623		14	%	$	52,433		16	%

Review of Operations

Net interest income before provision for loan losses was $569,000 in the third quarter of 2008 compared to $948,000 in the second quarter of 2008, and $5.5 million in the third quarter of 2007, reflecting lower earning assets and reversal of accrued interest on nonperforming loans. Year-to-date, net interest income before provision for loan losses totaled $3.6 million compared to $15.7 million in the nine months of 2007. The increase in non-accrual loans also impacted net interest income, as $1.5 million in interest income was reversed in the third quarter and $6.0 million was reversed in the first nine months of 2008.

“Due to substantial additions to our allowance for loan losses earlier this year, combined with the outcome of our regulatory examination, we did not take additional provision for loan losses this quarter”, said Peterson. Year-to-date, the provision for loan losses totaled $11.2 million compared to $14.2 million for the first nine months of 2007. Net interest income after no loan loss provision was $569,000 in the third quarter of 2008, compared to a net interest loss, after loan loss provision of $2.6 million for the preceding quarter, and net interest loss, after loan loss provision of $7.9 million, in the third quarter of 2007. In the first nine months of 2008, net interest income after loan loss provision was a loss of $7.7 million, compared to net interest income of $1.5 million, after the $14.2 million provision for loan loss, in the same period a year ago.

Noninterest income in the quarter was $194,000, up from $161,000 in the preceding quarter, but down from the $1.0 million earned in the third quarter a year ago. WSB has had no gain on sale of loans in 2008, due to the closure of the mortgage operation in 2007. In the third quarter a year ago, the company recognized $737,000 in gain on sale of loans and $2.6 million for the first nine months a year ago.

Noninterest expense in the third quarter was $5.1 million compared to $4.3 million in the second quarter of 2008 and $4.8 million in the third quarter of 2007, with lower compensation costs offset by increased consulting, accounting, legal, loan collection and appraisal expenses. Third quarter expenses included approximately $800,000 in legal costs associated with the settlement of the class action lawsuit. Year-to-date, noninterest expense totaled $12.7 million, down from $13.0 million in the first nine months of 2007.

ABOUT WSB FINANCIAL GROUP, INC. WSB Financial Group, Inc., based out of Bremerton, Washington, is the holding company for Westsound Bank. The company was founded in 1999, and currently operates nine full service offices located within 5 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, net interest margin, credit quality loan losses and efficiency ratio, and 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 risks and uncertainties 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 filings 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 conditions; (2) changes in interest rates and their impact on net interest margin; (3) competition among financial institutions; (4) legislative or regulatory requirements; (5) pending litigation; (6) reductions in loan demand or deposit levels; and (7) changes in loan collectibility, defaults 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.

WSFG Reports 3Q08 Results
October 29, 2008       Page 4

CONSOLIDATED STATEMENTS OF INCOME	Quarter Ended									Year to Date
(Unaudited)	Sept. 30,			Jun. 30,			Sept. 30,			Sept. 30,			Sept. 30,
(in thousands except share data)	2008			2008			2007			2008			2007
Interest Income
Interest and fees on loans	$	3,754		$	4,710		$	9,826		$	14,800		$	27,493
Taxable investment securities		146			105			88			330			232
Tax exempt securities		14			(1	)		18			32			56
Federal funds sold		268			468			171			1,291			584
Other interest income		44			36			39			105			133
Total interest income		4,226			5,318			10,142			16,558			28,498
Interest Expense
Deposits		3,567			4,244			4,514			12,646			12,358
Other borrowings		—			—			—			—			1
Junior subordinated debentures		90			126			152			360			448
Total interest expense		3,657			4,370			4,666			13,006			12,807
Net Interest Income		569			948			5,476			3,552			15,691
Provision for loan losses		—			3,545			13,362			11,235			14,179
Net interest income (loss) after provision for loan losses		569			(2,597	)		(7,886	)		(7,683	)		1,512
Noninterest Income
Service charges on deposit accounts		97			73			95			248			275
Other customer fees		86			141			198			320			677
Net gain on sale of loans		—			—			737			—			2,602
Other income (loss)		11			(53	)		(5	)		23			47
Total noninterest income		194			161			1,025			591			3,601
Noninterest Expense
Salaries and employee benefits		1,533			1,711			2,510			4,770			7,753
Premises lease		72			83			80			232			252
Depreciation expense		198			212			206			612			603
Occupancy and equipment		163			149			150			471			459
Data and item processing		175			186			167			545			490
Advertising expense		62			38			59			142			155
Office expense		90			101			107			291			351
Legal fees		872			313			34			1,491			143
Professional services		275			567			148			1,245			407
Business and occupation taxes		37			52			83			146			240
OREO loses and expense, net		413			145			170			584			207
Provision (benefit) for unfunded credit losses		(44	)		(66	)		548			(430	)		561
Insurance expense		362			233			73			708			158
Loan collection expense		514			126			6			762			15
Other expenses		339			420			427			1,155			1,183
Total noninterest expense		5,061			4,270			4,768			12,724			12,977
Loss before provision (benefit) for income taxes		(4,298	)		(6,706	)		(11,629	)		(19,816	)		(7,864	)
Provision (benefit) for income taxes (1)		—			4,255			(3,877	)		1,261			(2,624	)
Net Loss	$	(4,298	)	$	(10,961	)	$	(7,752	)	$	(21,077	)	$	(5,240	)
Diluted Loss per Common Share from Operations (1)	$	(0.77	)	$	(0.80	)	$	(1.39	)	$	(2.61	)	$	(0.94	)
Basic Loss per Common Share	$	(0.77	)	$	(1.97	)	$	(1.39	)	$	(3.78	)	$	(0.94	)
Diluted Loss per Common Share	$	(0.77	)	$	(1.97	)	$	(1.39	)	$	(3.78	)	$	(0.94	)
Average Number of Common Shares Outstanding		5,574,853			5,574,853			5,573,089			5,574,853			5,561,844
Fully Diluted Average Common Shares Outstanding		5,574,853			5,574,853			5,573,089			5,574,853			5,561,844

(1) Excludes adjustment for deferred tax asset one-time accounting charge of $6.5 million during quarter ended June 30, 2008.

WSFG Reports 3Q08 Results
October 29, 2008        Page 5

CONSOLIDATED BALANCE SHEETS     (Unaudited)	Sept 30,			June 30,			Dec 31,			Sept 30,
(in thousands except share data)	2008			2008			2007			2007
ASSETS
Cash and due from banks	$	11,954		$	12,557		$	10,026		$	8,538
Fed funds sold		43,800			66,000			56,900			21,825
Total cash and cash equivalents		55,754			78,557			66,926			30,363
Investment securities available for sale, at fair value		16,166			17,593			8,832			8,700
Federal Home Loan Bank stock, at cost		319			319			319			319
Loans held for sale		—			—			—			6,650
Loans receivable		322,666			339,233			412,950			419,023
Less: allowance for loan losses		(24,536	)		(28,140	)		(19,514	)		(17,852	)
Loans, net		298,130			311,093			393,436			401,171
Premises and equipment, net		7,872			8,485			8,760			9,496
Accrued interest receivable		1,346			1,505			2,541			2,537
Other real estate owned		10,984			4,394			983			1,647
Deferred tax asset		6,532			6,536			6,496			5,687
Less: valuation allowance deferred taxes		(6,532	)		(6,532	)		—			—
Deferred tax asset, net		—			4			6,496			5,687
Other assets		6,500			7,052			1,040			1,479
TOTAL ASSETS	$	397,071		$	429,002		$	489,333		$	468,049
LIABILITIES
Deposits:
Noninterest-bearing	$	19,409		$	21,503		$	24,711		$	27,658
Interest-bearing		331,093			356,858			396,734			372,152
Total deposits		350,502			378,361			421,445			399,810
Accrued interest payable		2,057			2,044			1,955			1,764
Allowance for unfunded credit losses		35			79			465			665
Other liabilities		557			381			500			978
Junior subordinated debentures		8,248			8,248			8,248			8,248
TOTAL LIABILITIES		361,399			389,113			432,613			411,465
STOCKHOLDERS’ EQUITY
Common Stock, $1 par value; 15,357,250 shares authorized; 5,574,853 shares issued and outstanding at September 30, 2008 June 30, 2008, December 31, 2007 and September 30, 2007		5,575			5,575			5,575			5,575
Additional paid-in capital		48,263			48,247			48,223			48,217
Retained earnings (accumulated deficit)		(18,223	)		(13,926	)		2,854			2,814
Accumulated other comprehensive gain (loss)		57			(7	)		68			(22	)
TOTAL STOCKHOLDERS’ EQUITY		35,672			39,889			56,720			56,584
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	397,071		$	429,002		$	489,333		$	468,049
Book Value per Share		6.40			7.16			10.17			10.16

WSFG Reports 3Q08 Results
October 29, 2008        Page 6

Financial Statistics	Quarter Ended									Year to Date
(Unaudited)	Sept. 30,			Jun. 30,			Sept. 30,			Sept. 30,			Sept. 30,
(in thousands except share data)	2008			2008			2007			2008			2007
Revenues
(Net interest income plus non-interest income)	$	763		$	1,109		$	6,501		$	4,143		$	19,292
Averages
Total Assets	$	412,664		$	482,528		$	464,602		$	465,962		$	435,427
Loans and Loans Held for Sale	$	313,995		$	356,417		$	424,407		$	348,332		$	394,448
Interest Earning Assets	$	300,399		$	473,911		$	449,343		$	386,222		$	421,274
Deposits	$	363,429		$	421,456		$	388,079		$	406,513		$	360,866
Stockholders’ Equity	$	38,355		$	49,923		$	65,319		$	48,327		$	63,798
Financial Ratios
Return on Average Assets		-4.14	%		-9.14	%		-6.62	%		-6.04	%		-1.61	%
Return on Average Equity		-44.58	%		-88.31	%		-47.10	%		-58.26	%		-11.00	%
Net Interest Margin		0.75	%		0.80	%		4.83	%		1.23	%		4.98	%
Efficiency Ratio		662.9	%		384.9	%		73.4	%		307.1	%		67.3	%
Non-performing Assets to Total Assets		32.75	%		24.66	%		0.92	%		32.75	%		0.92	%

Asset Quality	Quarter Ended									Year to Date
(Unaudited)	Sept. 30,			Jun. 30,			Sept. 30,			Sept. 30,			Sept. 30,
(dollars in thousands)	2008			2008			2007			2008			2007
Allowance for Loan Losses Activity:
Balance of Beginning of Period	$	28,140		$	26,292		$	4,492		$	19,514		$	3,972
Charge-offs		(3,624	)		(1,697	)		(15	)		(6,237	)		(299	)
Recoveries		20			—			—			24			—
Net Loan Charge-offs		(3,604	)		(1,697	)		(15	)		(6,213	)		(299	)
Reclassification of unfunded credit commitments		—			—			13			—			—
Provision for Loan Losses		—			3,545			13,362			11,235			14,179
Balance at End of Period	$	24,536		$	28,140		$	17,852		$	24,536		$	17,852
Selected Ratios:
Net Charge-offs to average loans		1.15	%		0.48	%		0.00	%		1.78	%		0.08	%
Provision for loan losses to average loans		0.00	%		0.99	%		3.15	%		3.23	%		3.59	%
Allowance for loan losses to total loans		7.60	%		8.30	%		4.18	%		7.60	%		4.18	%
Nonperforming Assets:
Non-Accrual loans	$	119,067		$	101,412		$	2,395
Accruing Loans past due 90 days or more		—			—			282
Total non-performing loans (NPLs)	$	119,067		$	101,412		$	2,677
Other real estate owned		10,984			4,394			1,647
Total non-performing assets (NPAs)	$	130,051		$	105,806		$	4,324
Selected Ratios:
NPLs to total loans		36.85	%		29.85	%		0.63	%
NPAs to total assets		32.75	%		24.66	%		0.91	%

Note: Transmitted on GlobeNewswire on October 29, 2008 at 6:08 p.m. PDT