WSB Financial (WSFGQ) 8-K WSB Financial Reports Fourth Quarter and 2008 Results

Exhibit 99.1

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

WSB Financial Reports Fourth Quarter and 2008 Results

Bremerton, WA —January 30 , 2009 — WSB Financial Group (NASDAQ: WSFG), the parent company of Westsound Bank, today reported that it is continuing to execute its strategic plan to shrink its balance sheet and work through its loan portfolio challenges.

Including a $6.4 million provision for loan losses, WSB Financial posted a net loss of $11.6 million, or $2.08 per share, for the fourth quarter of 2008, compared to a net loss of $4.3 million, or $0.77 per share, for the third quarter. For the year, the total provision for loan loss was $17.6 million, resulting in a loss of $32.7 million, or $5.86 per share, compared to a loss of $5.2 million, or $0.93 per share, in 2007. All results for the fourth quarter and twelve month periods are preliminary and unaudited.

Strategic Review

“We identified the challenges in our loan portfolio roughly six months earlier than most banks,” said Terry Peterson, President and CEO. “We believe this has been advantageous for our recovery process, because we are further along in our loan collection efforts than many banks. For example, we anticipated that the winter months would be very slow for selling and collecting on distressed real estate assets. Instead, our collection rate accelerated in the fourth quarter and looks to be continuing to accelerate. I credit our talented and professional bankers for the successful collection of $21million in the fourth quarter and a total of $92 million in 2008, despite the difficult local real estate markets.”

“We continue to evaluate our real estate collateral with appraisals, professional real estate brokers’ opinions and general market intelligence. In the fourth quarter we elected to charge $12.3 million against the loan loss reserve,” Peterson continued. “Of this net charge, $5.6 million was allocated for non-performing real estate loans even though they had not been collected or transferred to OREO (Other Real Estate Owned). We believe this represents a prudent and conservative approach to our collateral valuation and loan loss reserve methodology.”

“As we enter 2009, we are continuing to execute our plan to collect on our problem assets, shrink the balance sheet and position the franchise to return to health. The dramatic impact to our balance sheet and income statement is required to accomplish this goal. In 2008 we accomplished a number of key components of the plan including reducing assets by $124 million and settling the class action law suit. We also strengthened the branch franchise by relocating our Silverdale office and initiating the permitting process for our new Poulsbo branch building,” Peterson added.

“As we shrink our balance sheet, we are also maintaining high levels of liquidity for our clients,” said Mark Freeman, Chief Financial Officer. Liquidity as measured by cash and securities as a percent of deposits totaled 19% at year end up from 17% a year ago. At December 31, 2008, Westsound Bank had a Tier 1 Capital to Average Assets ratio of 8.16%, Tier 1 Capital to Risk Based Assets of 10.47% and Risk Based Capital/Risk Based Assets of 11.78%. Book value per share was $4.36 at December 31, 2008.”

Balance Sheet and Credit Quality Review

The construction loan portfolio decreased to $91.5 million, or 32% of the total portfolio from $129 million or 40% of the portfolio at September 30, 2008, and $193 million, or 47% a year ago. “As our construction loan portfolio continues to move through its life cycle, we expect NPA’s (non-performing assets) will crest in the first quarter of 2009 with NPL’s (nonperforming loans) declining and OREO increasing as we execute on our collection strategy, “ said Charles Turner, Chief Lending Officer. At December 31, 2008, loans delinquent 30-89 days decreased to $12.8 million, down from $37.5 million as of September 30, 2008, and down from $45.2 million at year end 2007.

The loan portfolio shrank by $39 million to $284 million, in the fourth quarter, which includes $9.4 million in real estate loans that moved to OREO. Over the past 12 months, the loan portfolio shrank by $128 million which includes $19.4 million in real estate loans that moved to OREO.

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WSFG Reports 2008 Results
January 30, 2009
Page 2

“NPAs at December 31, 2008, totaled $131.9 million, which includes $112.2 million of nonperforming loans on non-accrual status and $19.6 million in other real estate owned. At September 30, NPAs were $130.1 million, NPLs were $119.1 million and OREO was $11.0 million. The allowance for loan losses was $18.6 million following the $12.3 million in net charge-offs during the quarter and totaled 6.55% of gross loans at December 31, 2008. In the 2008, net charge-offs were $18.5 million, or 5.27% of average loans. “We continue to work with our outside auditors to finalize the audited financial statements. Until the audit is complete, our provision for loan losses, OREO expenses and other factors impacting financial results may require changes to the statements we file with our Form 10-K,” Freeman noted.

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

Loan Category	Dec. 31, 2008		% of			Sept. 30, 2008		% of			Quarter
($ in thousands)	Loans		Loans			Loans		Loans			Change
Spec Construction	$	35,314		12	%	$	48,609		15	%		-27	%
Custom Construction		56,160		20	%		80,180		25	%		-30	%
Total Construction		91,474		32	%		128,789		40	%		-29	%
Vacant Land & Land Development		45,961		16	%		43,129		13	%		7	%
1-4 Family Mortgage		33,937		12	%		34,866		11	%		-3	%
Multifamily Mortgage		12,611		4	%		11,997		4	%		5	%
Commercial RE		61,057		21	%		61,931		19	%		-1	%
Commercial Loans		36,775		13	%		39,285		12	%		-6	%
Consumer		2,811		1	%		3,075		1	%		-9	%
Total Gross Loans	$	284,626		100	%	$	323,072		100	%		-12	%

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

Loan Category	Dec. 31, 2008		% of			Sept. 30, 2008		% of			Quarter
($ in thousands)	NPLs		NPLs			NPLs		NPLs			Change
Spec Construction	$	25,150		22.4	%	$	29,608		24.9	%		-15	%
Custom Construction		40,802		36.4	%		45,667		38.4	%		-11	%
Total Construction		65,952		58.8	%		75,275		63.2	%		-12	%
Vacant Land & Land Development		16,169		14.4	%		16,597		13.9	%		-3	%
1-4 Family Mortgage		11,733		10.5	%		9,546		8.0	%		23	%
Multifamily Mortgage		3,447		3.1	%		2,783		2.3	%		24	%
Commercial RE		2,712		2.4	%		2,710		2.3	%		0	%
Commercial Loans		11,793		10.5	%		11,860		10.0	%		-1	%
Consumer		426		0.4	%		296		0.2	%		44	%
Total Nonperforming Loans	$	112,232		100.0	%	$	119,067		100.0	%		-6	%

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

Loan Category 12/31/2008	Total		% of			Kitsap		% of			King		% of			Pierce		% of			Other		% of
($ in thousands)	Loans		Total			County		Total			County		Total			County		Total			Counties		Total
Spec Construction		35,314		12	%		13,408		5	%	$	8,035		3	%	$	7,141		3	%	$	6,730		2	%
Custom Construction		56,160		20	%		10,880		4	%		27,859		10	%		11,775		4	%		5,646		2	%
Total Construction	$	91,474		32	%	$	24,288		9	%	$	35,894		13	%	$	18,916		7	%		12,376		4	%
Vacant Land & Land Development		45,961		16	%		27,209		10	%		2,821		1	%		5,469		2	%		10,462		4	%
1-4 Family		33,937		12	%		17,464		6	%		3,115		1	%		5,384		2	%		7,974		3	%
Multifamily		12,611		4	%		6,468		2	%		—		0	%		2,955		1	%		3,188		1	%
Commercial RE		61,057		21	%		42,615		15	%		2,897		1	%		3,001		1	%		12,544		4	%
Commercial		36,775		13	%		19,028		7	%		13,705		5	%		2,405		1	%		1,637		1	%
Consumer		2,811		1	%		2,148		1	%		21		0	%		81		0	%		561		0	%
Totals	$	284,626		100	%	$	139,220		49	%	$	58,453		21	%	$	38,211		13	%	$	48,742		17	%

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WSFG Reports 2008 Results
January 30, 2009
Page 3

Review of Operations

Net interest income before provision for loan losses was $291,000 in the fourth quarter of 2008 compared to $569,000 in the third quarter, and $4.2 million in the fourth 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 $3.8 million compared to $19.9 million in 2007. The increase in non-accrual loans also impacted net interest income, as $1.8 million in interest income was reversed in the fourth quarter and $7.8 million was reversed in 2008.

Noninterest income in the quarter was $205,000, up from $194,000 in the preceding quarter, but down from the $930,000 earned in the fourth 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.

Noninterest expense in the fourth quarter was $5.7 million compared to $5.1 million in the third quarter of 2008 and $3.5 million in the fourth quarter of 2007, with lower compensation costs offset by increased consulting, accounting, legal, loan collection and appraisal expenses. Fourth quarter expenses included approximately $1.4 million in OREO losses and $2.0 million in OREO losses for the year. In 2008, noninterest expense totaled $18.5 million compared to $16.5 million in 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 five 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.

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WSFG Reports 2008 Results
January 30, 2009
Page 4

CONSOLIDATED STATEMENTS OF INCOME

	Quarter Ended									Year to Date
(Unaudited)	Dec. 30,			Sept. 30,			Dec. 30,			Dec. 31,			Dec. 31,
(in thousands except share data)	2008			2008			2007			2008			2007
Interest Income
Interest and fees on loans	$	3,525		$	3,754		$	8,465		$	18,325		$	35,958
Taxable investment securities		157			146			84			487			316
Tax exempt securities		14			14			20			46			76
Federal funds sold		92			268			295			1,383			879
Other interest income		38			44			34			143			167
Total interest income		3,826			4,226			8,898			20,384			37,396
Interest Expense
Deposits		3,445			3,567			4,552			16,091			16,910
Other borrowings		—			—			—			—			1
Junior subordinated debentures		90			90			155			450			603
Total interest expense		3,535			3,657			4,707			16,541			17,514
Net Interest Income		291			569			4,191			3,843			19,882
Provision for loan losses		6,354			—			1,700			17,589			15,879
Net interest income (loss) after provision for loan losses		(6,063	)		569			2,491			(13,746	)		4,003
Noninterest Income
Service charges on deposit accounts		109			97			106			357			381
Other customer fees		83			86			113			403			790
Net gain on sale of loans		—			—			243			—			2,845
Other income (loss)		13			11			468			36			515
Total noninterest income		205			194			930			796			4,531
Noninterest Expense
Salaries and employee benefits		1,505			1,533			1,733			6,275			9,486
Premises lease		82			72			77			314			329
Depreciation expense		200			198			221			812			824
Occupancy and equipment		169			163			155			640			614
Data and item processing		212			175			208			757			698
Advertising expense		139			62			25			281			180
Office expense		106			90			106			397			457
Legal fees		215			872			158			1,706			301
Professional services		446			275			384			1,691			791
Business and occupation taxes		35			37			104			181			344
OREO loses and expense, net		1,403			413			59			1,987			266
Provision (benefit) for unfunded credit losses		(14	)		(44	)		(200	)		(444	)		361
Insurance expense		618			362			83			1,326			241
Loan collection expense		299			514			43			1,061			58
Other expenses		319			339			361			1,474			1,544
Total noninterest expense		5,734			5,061			3,517			18,458			16,494
Loss before provision (benefit) for income taxes		(11,592	)		(4,298	)		(96	)		(31,408	)		(7,960	)
Provision (benefit) for income taxes (1)		—			—			(136	)		1,261			(2,760	)
Net Loss	$	(11,592	)	$	(4,298	)	$	40		$	(32,669	)	$	(5,200	)
Diluted Loss per Common Share from Operations (1)	$	(2.08	)	$	(0.77	)	$	0.01		$	(4.69	)	$	(0.93	)
Basic Loss per Common Share	$	(2.08	)	$	(0.77	)	$	0.01		$	(5.86	)	$	(0.93	)
Diluted Loss per Common Share	$	(2.08	)	$	(0.77	)	$	0.01		$	(5.86	)	$	(0.93	)
Average Number of Common Shares Outstanding		5,574,853			5,574,853			5,574,853			5,574,853			5,565,123
Fully Diluted Average Common Shares Outstanding		5,574,853			5,574,853			5,650,715			5,574,853			5,565,123

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

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WSFG Reports 2008 Results
January 30, 2009
Page 5

CONSOLIDATED BALANCE SHEETS

(Unaudited)	Dec 31,			Sept 30,			June 30,			Dec 31,
(in thousands except share data)	2008			2008			2008			2007
ASSETS
Cash and due from banks	$	13,515		$	11,954		$	12,557		$	10,026
Fed funds sold		32,500			43,800			66,000			56,900
Total cash and cash equivalents		46,015			55,754			78,557			66,926
Investment securities available for sale, at fair value		18,443			16,166			17,593			8,832
Federal Home Loan Bank stock, at cost		319			319			319			319
Loans held for sale		—			—			—			—
Loans receivable		284,191			322,666			339,233			412,950
Less: allowance for loan losses		(18,621	)		(24,536	)		(28,140	)		(19,514	)
Loans, net		265,570			298,130			311,093			393,436
Premises and equipment, net		7,905			7,872			8,485			8,760
Accrued interest receivable		983			1,346			1,505			2,541
Other real estate owned		19,629			10,984			4,394			983
Deferred tax asset		7,993			6,532			6,536			6,496
Less: valuation allowance deferred taxes		(7,993	)		(6,532	)		(6,532	)		—
Deferred tax asset, net		—			—			4			6,496
Other assets		6,464			6,500			7,052			1,040
TOTAL ASSETS	$	365,328		$	397,071		$	429,002		$	489,333
LIABILITIES
Deposits:
Noninterest-bearing	$	16,965		$	19,409		$	21,503		$	24,711
Interest-bearing		313,066			331,093			356,858			396,734
Total deposits		330,031			350,502			378,361			421,445
Accrued interest payable		1,974			2,057			2,044			1,955
Allowance for unfunded credit losses		21			35			79			465
Other liabilities		754			557			381			500
Junior subordinated debentures		8,248			8,248			8,248			8,248
TOTAL LIABILITIES		341,028			361,399			389,113			432,613
STOCKHOLDERS’ EQUITY
Common Stock, $1 par value; 15,357,250 shares authorized; 5,574,853 shares issued and outstanding at December 31, 2008 September 30, 2008, June 30, 2008 and December 31, 2007		5,575			5,575			5,575			5,575
Additional paid-in capital		48,279			48,263			48,247			48,223
Retained earnings (accumulated deficit)		(29,815	)		(18,223	)		(13,926	)		2,854
Accumulated other comprehensive gain (loss)		261			57			(7	)		68
TOTAL STOCKHOLDERS’ EQUITY		24,300			35,672			39,889			56,720
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	365,328		$	397,071		$	429,002		$	489,333
Book Value per Share		4.36			6.40			7.16			10.17

WSFG Reports 2008 Results
January 30, 2009
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)	2008			2008			2007			2008			2007
Revenues
(Net interest income plus non-interest income)	$	496		$	763		$	5,121		$	4,639		$	24,413
Averages
Total Assets	$	396,633		$	412,664		$	466,126		$	448,630		$	443,102
Loans and Loans Held for Sale	$	305,640		$	330,277		$	421,141		$	350,943		$	401,198
Interest Earning Assets	$	263,216		$	300,399		$	454,722		$	355,470		$	429,220
Deposits	$	352,123		$	363,429		$	396,414		$	392,901		$	369,761
Stockholders’ Equity	$	33,605		$	38,355		$	57,621		$	44,647		$	62,254
Financial Ratios
Return on Average Assets		-11.63	%		-4.14	%		0.03	%		-7.28	%		-1.17	%
Return on Average Equity		-137.23	%		-44.58	%		0.28	%		-73.17	%		-8.35	%
Net Interest Margin		0.11	%		0.75	%		3.62	%		1.08	%		4.63	%
Efficiency Ratio		1156.0	%		662.9	%		66.7	%		397.9	%		67.6	%
Non-performing Assets to Total Assets		36.09	%		32.75	%		5.38	%		36.09	%		5.38	%

Asset Quality

	Quarter Ended									Year to Date
(Unaudited)	Dec. 31,			Sept. 30,			Dec. 31,			Dec. 31,			Dec. 31,
(dollars in thousands)	2008			2008			2007			2008			2007
Allowance for Loan Losses Activity:
Balance of Beginning of Period	$	24,536		$	28,140		$	17,852		$	19,514		$	3,972
Charge-offs		(12,284	)		(3,624	)		(40	)		(18,521	)		(339	)
Recoveries		15			20			2			39			2
Net Loan Charge-offs		(12,269	)		(3,604	)		(38	)		(18,482	)		(337	)
Reclassification of unfunded credit commitments		—			—			—			—			—
Provision for Loan Losses		6,354			—			1,700			17,589			15,879
Balance at End of Period	$	18,621		$	24,536		$	19,514		$	18,621		$	19,514
Selected Ratios:
Net Charge-offs to average loans		4.01	%		1.09	%		0.01	%		5.27	%		0.08	%
Provision for loan losses to average loans		2.08	%		0.00	%		0.40	%		5.01	%		3.96	%
Allowance for loan losses to total loans		6.55	%		7.60	%		4.71	%		6.55	%		4.71	%
Nonperforming Assets:
Non-Accrual loans	$	112,232		$	119,067		$	24,923
Accruing Loans past due 90 days or more		—			—			399
Total non-performing loans (NPLs)	$	112,232		$	119,067		$	25,322
Other real estate owned		19,629			10,984			983
Total non-performing assets (NPAs)	$	131,861		$	130,051		$	26,305
Selected Ratios:
NPLs to total loans		39.43	%		36.85	%		6.12	%
NPAs to total assets		36.09	%		32.75	%		5.38	%

Note: Transmitted on GlobeNewswire on January 30, 2009 at -5:49 p.m. PST