WSB (WSB) 10-Q 2012 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended: June 30, 2012
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from            to

Commission File No. 000-53003

WSB HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	26-1219088
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

4201 Mitchellville Road, Suite 200, Bowie, Maryland 20716

(Address of principal executive offices, Zip Code)

(301) 352-3120

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x  NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§223.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o NO x

There were 7,995,232 shares of Common Stock ($0.0001 Par Value) outstanding as of August 4, 2012.

WSB HOLDINGS, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

		Page
		Number
PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
	Consolidated Statements of Financial Condition (Unaudited) as of June 30, 2012 and December 31, 2011	3
	Consolidated Statements of Operations — (Unaudited) For the Three and Six months ended June 30, 2012 and 2011	4
	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) For the Six months ended June 30, 2012 and 2011	5
	Consolidated Statements of Cash Flows — (Unaudited) For the Six months ended June 30, 2012 and 2011	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3.  Quantitative and Qualitative Disclosures about Market Risk		42
Item 4.  Controls and Procedures		42
PART II.
Item 1.  Legal Proceedings		42
Item 1A.  Risk Factors		42
Item 6.  Exhibits		42
Signatures		44

2

Item 1.  Financial Statments

WSB HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

	June 30,		December 31,
	2012		2011
ASSETS
Cash	$	11,459,541	$	437,414
Federal funds sold and interest bearing deposits at FHLB - Atlanta	6,231,939		3,964,439
Total cash and cash equivalents	17,691,480		4,401,853
Loans receivable:
Held for sale	10,579,611		10,245,483
Held for investment (net of allowance for loan losses of $3,549,571 and $6,124,116 respectively)	186,268,382		205,353,588
Investment securities - available for sale at fair value	28,713,555		44,937,185
Mortgage-backed securities - available for sale at fair value	93,463,661		80,808,257
Investment in Federal Home Loan Bank stock, at cost	3,829,300		4,503,700
Accrued interest receivable on loans	788,504		1,023,847
Accrued interest receivable on investments	646,461		693,967
Real estate acquired in settlement of loans	5,210,970		4,820,634
Bank owned life insurance	12,595,163		12,368,974
Premises and equipment - net	4,920,085		4,807,206
Income taxes receivable	149,812		—
Deferred income taxes	6,559,452		8,574,590
Other assets	2,230,187		2,422,102
TOTAL ASSETS	$	373,646,623	$	384,961,386
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	5,652,102	$	5,256,111
Interest bearing	242,285,794		239,794,477
Total deposits	247,937,896		245,050,588
Federal Home Loan Bank borrowings	68,000,000		84,000,000
Advances from borrowers for taxes and insurance	1,129,664		426,238
Accounts payable, accrued expenses and other liabilities	1,440,036		1,211,550
TOTAL LIABILITIES	318,507,596		330,688,376
STOCKHOLDERS’ EQUITY:
Preferred stock, no stated par value; 10,000,000 shares authorized; none issued and outstanding	—		—
Common stock authorized, 20,000,000 shares at $.0001 par value, 7,995,232 and 7,995,232 issued and outstanding as of June 30, 2012 and December 31, 2011, respectively	799		799
Additional paid-in capital	11,095,646		11,095,646
Retained earnings - substantially restricted	42,682,788		42,230,566
Accumulated other comprehensive income	1,359,794		945,999
TOTAL STOCKHOLDERS’ EQUITY	55,139,027		54,273,010
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	373,646,623	$	384,961,386

See notes to consolidated financial statements.

3

WSB HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months ended						Six Months ended
	June 30,						June 30,
	2012			2011			2012			2011
INTEREST INCOME:
Interest and fees on loans	$	2,894,484		$	3,461,710		$	5,902,098		$	7,177,105
Interest on mortgage-backed securities	798,496			702,752			1,576,844			1,356,836
Interest and dividends on investments	308,528			451,491			712,453			744,194
Total interest income	4,001,508			4,615,953			8,191,395			9,278,135
INTEREST EXPENSE:
Interest on deposits	712,110			1,007,024			1,505,135			2,122,226
Interest on other borrowings	500,711			525,152			1,014,168			1,044,582
Total interest expense	1,212,821			1,532,176			2,519,303			3,166,808
NET INTEREST INCOME	2,788,687			3,083,777			5,672,092			6,111,327
Provision for loan losses	—			100,000			—			100,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	2,788,687			2,983,777			5,672,092			6,011,327
NON-INTEREST INCOME:
Loan related fees	109,015			100,406			198,020			212,526
Gain on sale of loans	395,643			316,432			673,637			680,574
Gain on sale of investment securities - available for sale	3,742			231,427			162,695			414,275
Gain on sale of real estate acquired in settlement of loans	9,414			28,359			151,679			41,502
Service charges on deposits	28,991			27,673			60,888			52,669
Rental income	160,937			93,179			283,563			187,424
Other income	164,025			165,322			323,968			321,133
Total non-interest income	871,767			962,798			1,854,450			1,910,103
NON-INTEREST EXPENSE:
Salaries and benefits	1,774,503			1,732,913			3,569,603			3,693,138
Occupancy expense	175,459			163,320			340,663			336,118
Depreciation	114,161			111,840			228,841			226,764
Advertising	89,361			81,651			169,689			168,164
Service bureau charges	141,731			120,517			268,827			254,641
Service charges from banks	6,887			8,247			13,563			17,257
Stationary, printing and supplies	37,001			42,345			79,538			87,190
Professional services	130,369			240,971			259,551			340,028
FDIC Insurance	161,151			219,861			313,115			439,783
Provision for losses on real estate acquired in settlement of loans	—			50,920			90,502			82,799
Other taxes	66,563			79,163			134,125			159,960
Other	715,991			637,636			1,391,302			1,372,300
Total non-interest expense	3,413,177			3,489,384			6,859,319			7,178,142
EARNINGS BEFORE INCOME TAXES	247,277			457,191			667,222			743,288
INCOME TAX EXPENSE	73,100			136,600			215,000			187,100
NET EARNINGS	$	174,177		$	320,591		$	452,222		$	556,188
OTHER COMPREHENSIVE INCOME (NET OF TAX):
Unrealized gains (losses) on securities	723,346			(96,071		)	512,323			789,947
Less reclassification adjustment for gain on sale of securities realized in net income	(2,266		)	(140,152		)	(98,528		)	(250,885		)
TOTAL COMPREHENSIVE INCOME	$	895,257		$	84,368		$	866,017		$	1,095,250
BASIC EARNINGS PER COMMON SHARE	$	0.02		$	0.04		$	0.06		$	0.07
DILUTED EARNINGS PER COMMON SHARE	$	0.02		$	0.04		$	0.06		$	0.07
CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.00		$	0.00		$	0.00		$	0.00
AVERAGE COMMON SHARES OUTSTANDING	7,995,232			7,993,683			7,995,232			7,980,207
AVERAGE DILUTED COMMON SHARES OUTSTANDING	7,995,232			7,994,742			7,995,232			7,981,065

See notes to consolidated financial statements.

4

WSB HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2012 AND 2011 (Unaudited)

							Accumulated
			Additional				Other			Total
	Common		Paid-In		Retained		Comprehensive			Stockholders’
	Stock		Capital		Earnings		Income (Loss)			Equity
BALANCE, JANUARY 1, 2011	$	792	$	10,872,561	$	40,981,757	$	(236,217	)	$	51,618,893
Exercise of Stock Options	7		220,635		—		—			220,642
Tax effect of stock options exercised	—		2,450		—		—			2,450
Net Income	—		—		556,188		—			556,188
Other comprehensive gain-unrealized, gain on available for sale securities	—		—				539,062			539,062
BALANCE, JUNE 30, 2011	$	799	$	11,095,646	$	41,537,945	$	302,845		$	52,937,235
BALANCE, JANUARY 1, 2012	$	799	$	11,095,646	$	42,230,566	$	945,999		$	54,273,010
Net Income	—		—		452,222		—			452,222
Other comprehensive gain-unrealized, gain on available for sale securities	—		—		���		413,795			413,795
BALANCE, JUNE 30, 2012	$	799	$	11,095,646	$	42,682,788	$	1,359,794		$	55,139,027

See notes to consolidated financial statements

5

WSB HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six months ending
	June 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	452,222		$	556,188
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for loan losses	—			100,000
Provision for losses on real estate acquired in settlement of loans	90,502			82,799
Depreciation	228,841			226,764
Amortization of premiums and accretion of discounts, net	249,471			315,963
Gain on sale of MBS- available for sale	—			(401,052		)
Gain on sale of investment securities- available for sale	(162,695		)	(13,223		)
Gain on sale of other real estate owned	(151,679		)	(41,502		)
Gain on sale of loans	(673,637		)	(680,574		)
Loans originated for sale	(53,574,505		)	(54,548,609		)
Proceeds from sale of loans originated for sale	53,240,377			74,681,721
Increase in cash surrender value of bank owned life insurance	(226,189		)	(227,104		)
Decrease in other assets	191,914			617,968
Decrease (Increase) in accrued interest receivable	282,849			(186,559		)
Change in deferred income taxes	1,745,652			75,756
Change in federal income taxes receivable	(149,812		)	516,344
Excess tax benefits from stock-based compensation	—			(2,450		)
Decrease in accounts payable, accrued expenses and other liabilities	228,487			500,369
Decrease in accrued interest payable	(4,171		)	(11,361		)
(Decrease) Increase in net deferred loan fees	(50,618		)	71,387
Net cash provided by operating activities	1,717,009			21,632,825
INVESTING ACTIVITIES:
Net decrease in loans receivable- held for investment	18,381,236			4,142,789
Purchase of mortgage-backed securities - available for sale	(20,479,072		)	(30,971,549		)
Purchase of investment securities - available for sale	(9,993,750		)	(43,539,673		)
Proceeds from sales, calls, and maturities of mortgage-backed securities	8,661,156			29,597,115
Proceeds from sales, calls and maturities of investment securities-available for sale	25,976,398			5,648,404
Redemption of Federal Home Loan Bank Stock	674,400			511,200
Purchase of premises and equipment	(341,720		)	(63,441		)
Development of real estate acquired in settlement of loans	(172,759		)	(33,222		)
Proceeds from sale of real estate acquired in settlement of loans	1,271,824			2,186,035
Net cash provided by (used in) investing activities	23,977,713			(32,522,342		)
FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and savings accounts	8,931,310			16,206,952
Proceeds from issuance of certificates of deposit	16,718,572			3,057,944
Payments for maturing certificates of deposit	(22,758,403		)	(30,187,000		)
Net increase in advance payments by borrowers for taxes and insurance	703,426			408,715
(Decrease) Increase in FHLB Advances	(16,000,000		)	3,000,000
Proceeds from exercise of stock options	—			220,642
Excess tax benefits from stock-based compensation	—			2,450
Net cash used in financing activities	(12,405,095		)	(7,290,297		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	13,289,627			(18,179,814		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	4,401,853			23,534,036
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	17,691,480		$	5,354,222
CASH PAID DURING THE PERIOD FOR:
Income taxes	$	—		$	—
Interest	$	2,495,156		$	3,182,117
Non-cash transactions:
Real estate acquired in settlement of loans	$	1,428,224		$	1,019,610

See notes to consolidated financial statements.

6

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

1.      Financial Statements

The Consolidated Financial Statements for the three and six month periods ended June 30, 2012 and 2011 have been prepared by WSB Holdings, Inc. (“WSB” or the “Company”) without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2012, and for all periods presented, have been made.  All significant intercompany transactions have been eliminated.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.   Management believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Annual Report”), a copy of which is available at www.twsb.com and www.sec.gov.  The results of operations for the six month period ended June 30, 2012, are not necessarily indicative of the operating results for the full year, or any other period.

Certain prior year’s amounts have been reclassified to conform with the current year’s presentation.

2.      Earnings Per Common Share

The following is the reconciliation of the numerators and denominators of the basic and diluted Earnings Per Common Share (“EPS”) computation for all periods presented in the Consolidated Statements of Operations.

	Three Months Ended June 30,
	2012					2011
	Net Income		Shares	Per Share		Net Income		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS
Net income available to Common Stockholders	$	174,178	7,995,232	$	0.02	$	320,591	7,993,683	$	0.04
Effect of Dilutive Options Incremental Shares			—					1,059
Diluted EPS
Net income available to Common Stockholders	$	174,178	7,995,232	$	0.02	$	320,591	7,994,742	$	0.04

7

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

	Six Months Ended June 30,
	2012					2011
	Net Income		Shares	Per Share		Net Income		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS
Net income available to Common Stockholders	$	452,222	7,995,232	$	0.06	$	556,188	7,980,207	$	0.07
Effect of Dilutive Options Incremental Shares			—					858
Diluted EPS
Net income available to Common Stockholders	$	452,222	7,995,232	$	0.06	$	556,188	7,981,065	$	0.07

Options to purchase 33,875 shares of common stock were excluded in the computation of diluted EPS for the three and six months ended June 30, 2012 because their effect would have been antidilutive.

Options to purchase 260,375 shares of common stock were excluded in the computation of diluted EPS for the three and six months ended June 30, 2011 because their effect would have been antidilutive.

3.Stock-Based Compensation

We have incentive compensation plans that permit the granting of incentive and non-qualified awards in the form of stock options.  Generally, the terms of these plans stipulate that the exercise price of options may not be less than the fair market value of WSB’s common stock on the date the options are granted.  Options predominantly vest over a two year period from the date of grant, and expire not later than ten years from the date of grant.

There were no awards granted during 2012 or 2011.  There was no pre-tax stock-based compensation during the three and six months ending June 30, 2012 and 2011.

All outstanding options are vested and there is currently no unrealized compensation cost related to non-vested share based compensation arrangements.

Equity Incentive Plans — On April 27, 2011, the stockholders of WSB Holdings, Inc. approved the adoption of the WSB Holdings, Inc. 2011 Equity Incentive Plan, which reserve shares of common stock for issuance to certain key employees and non-employee directors.  The maximum number of shares of our common stock that be issued with respect to awards granted under the plan is 500,000 plus (i) any shares of common stock that are available under the Washington Savings Bank 2001 Stock Option and Incentive Plan (the “2001 Plan”) as of its termination date (which was April 27, 2011) and (ii) shares of common stock subject to options granted under the 2001 Plan that expire or terminate without having been fully exercised.  In no event, however, may the number of shares issuable pursuant to incentive stock options exceed 500,000.  The period during which an option granted under the Plan will be exercisable, as determined by the Administrator, will be

8

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

set forth in the agreement evidencing the option award.  However, an incentive stock option may not be exercisable for more than ten years from its date of grant.

The following table summarizes stock option activity for the six month period ended June 30, 2012:

		Weighted		Weighted
		Average		Average	Aggregate
		Exercise		Remaining	Intrinsic
	Shares	Price		Life (Years)	Value
Outstanding at December 31, 2011	33,875	$	5.71
Exercised	—	—
Granted	—	—
Forfeited	—	—
Outstanding at June 30, 2012	33,875	$	5.71	1.0	$	0
Exercisable at June 30, 2012	33,875	$	5.71	1.0	$	0

4.Fair Value Measurements

The Company applies guidance issued by FASB regarding fair value measurements which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. This guidance requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available-for-sale investment securities) or on a nonrecurring basis (for example, impaired loans). This guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  This guidance also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

We utilize fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

9

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

Under the fair value measurement guidance, we group assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value. These hierarchy levels are:

Level 1 inputs — Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

An asset or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  Management reviews and updates the fair value hierarchy classifications of our assets and liabilities on a quarterly basis.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

Investment Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.  With the exception of our private labeled mortgage-backed securities, all securities available for sale are classified as Level 2.

Loans

We do not record loans held-for-investment at fair value on a recurring basis, however, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principle will not be made in accordance with the contractual terms of the loan are considered impaired.  Once a loan is identified as individually impaired, management measures impairment in accordance with the FASB’s Accounting Standards Codification Receivables Topic.  The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar

10

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At June 30, 2012, all of the totally impaired loans were evaluated based upon the fair value of the collateral and/or discounted cash flows. In accordance with guidance regarding fair value measurements, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, we record the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we record the loan as nonrecurring Level 3.

Loans Held for Sale- Loans held for sale are valued based on quotations from the secondary market for similar instruments and is classified as level 2 of the fair value hierarchy.

Foreclosed Assets

Foreclosed assets are adjusted for fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value and fair value. Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, we record the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we record the foreclosed asset at nonrecurring Level 3.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis at June 30, 2012 and December 31, 2011:

	At June 30, 2012 (In thousands)
			Quoted Prices in		Other		Significant		Total Changes
			Active Markets for		Observable		Unobservable		in Fair Values
	Carrying Value		Identical Assets		Inputs		Inputs		Included in
	June 30, 2012		(Level 1)		(Level 2)		(Level 3)		Period Earnings
Loans held-for-sale	$	10,580			$	10,580			$
Available-for-sale, FHLB Agencies callable	21,457		—		21,457		—		—
Available-for-Sale, Municipal Bonds	2,342		—		2,342		—		—
Available-for-Sale, Corporate Bonds	4,914		—		4,914
Available-for-Sale Residential MBS	93,464		—		79,981		13,483		—
	$	132,757	$	—	$	119,274	$	13,483	$	—

11

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

	At December 31, 2011 (In thousands)
			Quoted Prices in		Other		Significant		Total Changes
			Active Markets for		Observable		Unobservable		in Fair Values
	Carrying Value		Identical Assets		Inputs		Inputs		Included in
	December 31, 2011		(Level 1)		(Level 2)		(Level 3)		Period Earnings
Loans held-for-sale	$	10,245			$	10,245			$
Available-for-sale, FHLB Agencies callable	37,660		—		37,660		—		—
Available-for-Sale, Municipal Bonds	2,330		—		2,330		—		—
Available-for-Sale, Corporate Bonds	4,947		—		4,947
Available-for-Sale Residential MBS	80,808		—		64,449		16,359		—
	$	135,990	$	—	$	119,631	$	16,359	$	0

Loans held-for-sale, which are carried at the lower of cost or market, did not have any impairment charge at June 30, 2012.

Assets included in Level 3 include our private-labeled mortgage-backed securities (“MBS”) due to lack of observable market data due to decreases in market activity for these securities.  Our policy is to recognize transfers in and out as of the actual date of the event or change in circumstances that caused the transfer.  No assets were transferred to Level 3 during the period ending June 30, 2012.  The change in the assets included in Level 3 was due to principal repayments and the change in unrealized gains/losses for the twelve month period ending June 30, 2012.  The following assumptions were used for the Level 3 valuations on the five remaining private-labeled MBS:

·Estimated future defaults are derived by an analysis of the performance of the underlying collateral as well as obtaining models from a third party.  The model addresses each component of the net present value calculation, which includes loss severity rate, current default rate and current voluntary prepayment rate.

·Each individual security is reviewed and an analysis is prepared for specific credit characteristics of the underlying collateral including recent developments specific to each organization issuing the security, market liquidity, extension risks and credit rating downgrades and an estimate of future defaults is derived.

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2012 and year ended December 31, 2011.

12

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

	Fair Value Measurements
	Using Significant Unobservable Inputs
	(Level 3)
	Private Labeled Mortgage-Backed
	Securities-Available for Sale at
	June 30, 2012			December 31, 2011
Beginning Balance	$	16,359		$	23,365
Accretion/Amortization of Discount/Premiums	3			9
Payments received	(3,131		)	(7,926		)
Difference in Unrealized gain (loss)	252			911
Other than temporary impairment	—			—
Ending Balance	$	13,483		$	16,359

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We may be required from time to time, to measure certain assets at fair value on a non-recurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis at June 30, 2012 and December 31, 2011 is included in the tables below:

	At June 30, 2012 (In thousands)
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Carrying Value		Identical Assets		Inputs		Inputs
	June 30, 2012		(Level 1)		(Level 2)		(Level 3)
Impaired Loans:
Residential Real estate	$	13,984	$	—	$	13,984	$	—
Construction	—		—		—		—
Land and land Acquisition	5,024		—		5,024		—
Commercial Real Estate and Commercial	12,321		—		12,321		—
Consumer	—		—		—		—
Total Impaired Loans	31,329		—		31,329		—
Real estate acquired in settlement of loans:
Residential Real estate	$	527	$	—	$	527	$	—
Construction	896		—		896		—
Land and land Acquisition	1,699		—		1,699		—
Commercial Real Estate and Commercial	2,089		—		2,089		—
Total Real estate acquired in settlement of loans:	5,211		—		5,211		—
Total	$	36,540	$	—	$	36,540	$	—

13

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

	At December 31, 2011 (In thousands)
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Carrying Value		Identical Assets		Inputs		Inputs
	December 31, 2011		(Level 1)		(Level 2)		(Level 3)
Impaired Loans:
Residential Real estate	$	12,531	$	—	$	12,531	$	—
Construction	—		—		—		—
Land and land Acquisition	3,203		—		3,203		—
Commercial Real Estate and Commercial	12,661		—		12,661		—
Consumer	—		—		—		—
Total Impaired Loans	28,395		—		28,395		—
Real estate acquired in settlement of loans:
Residential Real estate	$	739	$	—	$	739	$	—
Construction	744		—		744		—
Land and land Acquisition	2,176		—		2,176		—
Commercial Real Estate and Commercial	1,162		—		1,162		—
Total Real estate acquired in settlement of loans:	4,821		—		4,821		—
Total	$	33,216	$	—	$	33,216	$	—

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $32.3 million, with a related valuation allowance of $980,000, at June 30, 2012 compared to principal balance of $31.3 million, with a related valuation allowance of $2.9 million, at December 31, 2011.

Real estate acquired in settlement of loans is carried at the lower of our recorded investment or fair value at the date of acquisition.  Write-downs to fair value at the date of acquisition are charged to the allowance for loan losses.  Subsequent write downs are included in non-interest expense.  Costs relating to the development and improvement of a property are capitalized, whereas those relating to holding the property are charged to expense when incurred.  The real estate is carried at the lower of acquisition or fair value net of estimated costs to sell subsequent to acquisition.  Operating expenses of real estate owned are reflected in other non-interest expenses.  The value of OREO properties held due to foreclosures at June 30, 2012 was $5.2 million compared to $4.8 million at December 31, 2011.

Impaired loans and real estate acquired in settlement of loans are classified as Level 2 within the valuation hierarchy.

14

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

The following disclosures of the estimated fair value of financial instruments are made in accordance with the requirements of FASB’s Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures”.           We have determined the fair value amounts by using available market information and appropriate valuation methodologies.  However, considerable judgment is required in interpreting market data to develop the estimates of fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amount we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

	June 30, 2012						December 31, 2011
			Quoted Prices	Significant		Significant
			in Active	Other		Other			Estimated
	Carrying		Markets for	Observable		Unobservable	Carrying		Fair
	Amount		Identical Assets	Inputs		Inputs	Amount		Value
	(000’s)		(Level 1)	(Level 2)		(Level 3)	(000’s)		(000’s)
Assets:
Cash and cash equivalents	$	17,691		$	17,691		$	4,402	$	4,402
Loans receivable, net	196,848			199,138			215,599		219,198
Mortgage-backed securities:
Available for sale	93,464			79,981		13,483	80,808		80,808
Investment securities:
Available for sale	28,714			28,714			44,937		44,937
Investment in Federal Home Loan Bank stock	3,829			3,829			4,504		4,504
Bank Owned Life Insurance	12,595			12,595			12,369		12,369
Liabilities:
Deposits:
Non-interest-bearing	5,652			5,652			5,256		5,256
Interest bearing	242,286			243,872			239,795		240,958
Borrowings	68,000			69,486			84,000		84,315

Cash and Cash Equivalents - For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.

Loans Receivable, Net - Loans not having quoted market prices are priced using the discounted cash flow method.  The discount rate used is the rate currently offered on similar products.  The estimated fair value of loans held-for-sale is based on the terms of the related sale commitments.

Mortgage-Backed Securities - Fair values are based on quoted market prices or dealer quotes.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Investment Securities - Fair values are based on quoted market prices or dealer quotes.  If a quoted market price is not available, fair values are estimated using quoted market prices for similar securities.

15

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

Investment in Federal Home Loan Bank Stock - The carrying amount of Federal Home Loan Bank (FHLB) Stock is a reasonable estimate of fair value as FHLB stock does not have a readily available market and can only be sold back to the FHLB at its par value of $100 per share.

Bank Owned Life Insurance - The carrying amount of Bank Owned Life Insurance (“BOLI”) purchased on a group of officers is a reasonable estimate of fair value.   BOLI is an insurance product that provides an effective way to offset current employee benefit costs.

Deposits - The fair value of non-interest bearing accounts is the amount payable on demand at the reporting date.  The fair value of interest-bearing deposits is determined using the discounted cash flow method.  The discount rate used is the rate currently offered on similar products.

Borrowings — The fair value of borrowings is determined using the discounted cash flow method.  The discount rate used is the rate currently offered on similar products.

Commitments to Grant Loans and Standby Letters of Credit and Financial Guarantees Written - The majority of our commitments to grant loans and standby letters of credit and financial guarantees written carry current market interest rates if converted to loans.  Because commitments to extend credit and letters of credit are generally un-assignable by either the Bank or the borrower, they only have value to the Bank and the borrower and therefore it is impractical to assign any value to these commitments.

The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2012 and December 31, 2011.  Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively reevaluated for purposes of these financial statements since reporting period ending June 30, 2012 and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

16

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

5.Loans

The following table summarizes loans at June 30, 2012 and December 31, 2011.

	June 30, 2012			December 31, 2011
FIRST MORTGAGE LOANS:
Secured by single-family residences	$	71,943,600		$	79,719,713
Secured by 5 or more- residential	2,244,174			3,068,229
Secured by other properties	34,424,770			35,357,446
Construction loans	4,419,156			3,984,630
Land and land development loans	6,958,928			7,450,684
Land acquisition loans	297,733			492,120
	120,288,361			130,072,822
SECOND MORTGAGE LOANS	1,811,232			1,977,851
COMMERCIAL AND OTHER LOANS:
Commercial -secured by real estate	66,297,485			76,607,916
Commercial	1,295,139			2,735,036
Loans secured by savings accounts	192,803			149,992
Consumer installment loans	302,545			354,317
	190,187,565			211,897,934
LESS:
Allowance for loan losses	(3,549,571		)	(6,124,116		)
Deferred loan fees, net	(369,612		)	(420,230		)
TOTAL LOANS RECEIVABLE HELD-FOR-INVESTMENT	$	186,268,382		$	205,353,588

The risks associated with each portfolio class are as follows:

First mortgage loans secured by single family residences,  secured by 5 or more residential, secured by other properties and second mortgage loans — The primary risks related to this type of lending include; unemployment, deterioration in real estate values, our ability to access the creditworthiness of the customer, deterioration in the borrower’s financial condition (whether the result of personal issues or general economic downturn), the inability of the borrower to maintain occupancy for investment properties, and an appraisal on a property is not reflective of the true property value.  Portfolio risk includes condition of the economy, changing demand for these types of loans, large concentration of these types of loans and geographic concentration of these types of loans.

Construction loans — Since this portfolio is substantially owner occupied residential construction loans, the loan specific risks and portfolio risks are the same as described above as first mortgage loans secured by single family residences.  However these loans carry the additional risk associated with the builder and the

17

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

potential for builder cost overruns and/or the builder being unable to complete the construction.

Land development loans and land acquisition loans — The primary loan-specific risk in land and land development are: unemployment, deterioration of the business and/or collateral values, deterioration of the financial condition of the borrowers and/or guarantors creates a risk of default, and that an appraisal on the collateral is not reflective of the true property value. These loans usually include funding for the acquisition and development of unimproved properties to be used for residential or non-residential construction.  We may provide permanent financing on the same projects for which we have provided the development and construction financing.  Portfolio risk includes condition of the economy, changing demand for these types of loans, large concentration of these types of loans, and geographic concentrations of these types of loans.

Commercial loans and commercial loans secured by real estate — The primary loan-specific risks in these types of loans are: unemployment, general deterioration in the economy, deterioration of the business and/or business cash flows, financial condition of the guarantors, deterioration of collateral values, and that an appraisal on any real estate collateral is not reflective of the true property value.  Portfolio risk includes condition of the economy, changing demand for these types of loans, large concentration of these types of loans, and geographic concentration of these types of loans.

Loans secured by savings accounts and consumer installment loans- The primary risks of these loans are unemployment and deterioration of the borrower’s financial condition, whether the result of personal issues or a general economic downturn.  The portfolio risks for these types of loans is the same as for first mortgage loans secured by single family residences as described above.

18

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

Allowance for loan losses and recorded investment in loans for the period ended June 30, 2012 and December 31, 2011 is summarized as follows:

	Six Months Ended June 30, 2012
	Residential Real Estate			Construction			Land and Land Acquisition			Commercial Real Estate and Commercial			Consumer			Total
	(dollars in thousands)
Allowance for loan losses:
Beginning balance	$	2,740		$	67		$	395		$	2,914		$	8		$	6,124
Charge-offs	(769		)	—			(320		)	(1,509		)	—			(2,598		)
Recoveries	11			—			2			9			—			22
Provisions	176			(9		)	229			(392		)	(2		)	2
Ending Balance	2,158			58			306			1,022			6			3,550
Ending Balance: individually evaluated for impairment	615			—			79			286			—			980
Ending Balance: collectively evaluated for impairment	1,543			58			227			736			6			2,570
Loans:
Ending Balance	$	110,424		$	4,419		$	7,257		$	67,592		$	496		$	190,188
Ending Balance: individually evaluated for impairment	14,599			—			5,103			12,607			—			32,309
Ending Balance: collectively evaluated for impairment	95,825			4,419			2,154			54,985			496			157,879

	Twelve Months Ending December 31, 2011
	Residential Real Estate			Construction			Land and Land Acquisition			Commercial Real Estate and Commercial			Consumer			Total
	(dollars in thousands)
Allowance for loan losses:
Beginning balance	$	2,891		$	326		$	2,932		$	4,067		$	4		$	10,220
Charge-offs	(1,334		)	—			(2,570		)	(434		)	(4		)	(4,342		)
Recoveries	21			10			4			10			1			46
Provisions	681			(327		)	38			(194		)	2			200
Ending Balance	2,259			9			404			3,449			3			6,124
Ending Balance: individually evaluated for impairment	1,057			—			283			1,595			—			2,935
Ending Balance: collectively evaluated for impairment	1,202			9			121			1,854			3			3,189
Loans:
Ending Balance	$	120,123		$	3,985		$	7,943		$	79,343		$	504		$	211,898
Ending Balance: individually evaluated for impairment	13,588			—			3,486			14,256			—			31,330
Ending Balance: collectively evaluated for impairment	106,535			3,985			4,457			65,087			504			180,568

19

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

As part of our on-going monitoring of the credit quality of our loan portfolio, we categorize loans into risk categories based on relevant information about the ability of borrowers to repay their debt.  Current financial information, historical payment experience, credit documentation, current economic trends and other factors are used to categorize loans into risk categories.

Credit quality indicators as of June 30, 2012 are as follows:

Pass: Loans classified as pass generally meet or exceed normal credit standards.  Factors include repayment source, collateral, borrower cash flows, and performance history.

Special Mention:  Loans classified as special mention loans have potential weaknesses that deserve management’s attention. These loans are not adversely classified and do not expose an institution to sufficient risk to currently warrant adverse classification.

Substandard:  Loans classified as substandard are loans that have a well-defined weakness. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.  These loans are inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged as security for the asset.

Doubtful:  Loans classified as doubtful consists of loans where we expect a loss, but not a total loss.  These loans have all the weaknesses inherent in a substandard asset, in addition, these weaknesses make collection highly questionable or improbable based on the existing circumstances.

Loss:  Loans classified as loss are considered uncollectible.  A loan classified as a loss does not mean that an asset has no recovery value, but that is practical to defer writing off or reserving all or a portion of the asset, even though partial recovery may be collected in the future.  Loans that are classified as loss are fully reserved for on our financial statements.

Credit risk profile by internally assigned grade, as described above for the periods ending June 31, 2012 and December 31, 2011 is as follows:

As of June 30, 2012	Residential Real Estate		Construction		Land and Land Acquisition		Commercial Real Estate and Commercial		Consumer		Total
	(dollars in thousands)
Pass	$	97,565	$	4,419	$	2,603	$	53,305	$	496	$	158,388
Special Mention	2,335		—		26		2,325		—		4,686
Substandard	10,450		—		4,574		11,962		—		26,986
Doubtful/Loss	74		—		54		—		—		128
Total	$	110,424	$	4,419	$	7,257	$	67,592	$	496	$	190,188

20

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

For the year ended December 31, 2011	Residential Real Estate		Construction		Land and Land Acquisition		Commercial Real Estate and Commercial		Consumer		Total
	(dollars in thousands)
Pass	$	101,738	$	3,985	$	3,726	$	50,130	$	504	$	160,083
Special Mention	4,501		—		58		12,251		—		16,810
Substandard	13,724		—		3,889		16,875		—		34,488
Doubtful/Loss	160		—		270		87		—		517
Total	$	120,123	$	3,985	$	7,943	$	79,343	$	504	$	211,898

Information on impaired loans for the periods ended June 30, 2012 and December 31, 2011 is as follows:

			Unpaid				Average		Interest
For the six month period	Recorded		Principal		Related		Recorded		Income
ending June 30, 2012	Investment		Balance		Allowance		Investment		Recognized
	(dollars in thousands)
With no related allowance recorded:
Residential Real Estate	$	3,867	$	3,867	$	—	$	3,871	$	77
Construction	—		—		—		—		—
Land and Land Acquisition	1,869		1,869		—		1,872		26
Commercial Real Estate and Commercial	2,087		2,087		—		2,087		38
Consumer	—		—		—		—		—
With an allowance recorded:
Residential Real Estate	$	10,117	$	10,732	$	615	$	10,791	$	267
Construction	—		—		—		—		—
Land and Land Acquisition	3,155		3,234		79		3,238		42
Commercial Real Estate and Commercial	10,234		10,520		286		10,542		266
Consumer	—		—		—		—		—
Total
Residential Real Estate	$	13,984	$	14,599	$	615	$	14,662	$	344
Construction	—		—		—		—		—
Land and Land Acquisition	5,024		5,103		79		5,110		68
Commercial Real Estate and Commercial	12,321		12,607		286		12,629		304
Consumer	—		—		—		—		—

21

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

			Unpaid				Average		Interest
For the year ended	Recorded		Principal		Related		Recorded		Income
December 31, 2011	Investment		Balance		Allowance		Investment		Recognized
	(dollars in thousands)
With no related allowance recorded:
Residential Real Estate	$	1,569	$	2,467	$	—	$	2,484	$	82
Construction	—		—		—		—		—
Land and Land Acquisition	1,273		2,300		—		2,309		58
Commercial Real Estate and Commercial	101		101		—		162		19
Consumer	—		—		—		—		—
With an allowance recorded:
Residential Real Estate	$	10,962	$	12,019	$	1,057	$	11,057	$	542
Construction	—		—		—		—		—
Land and Land Acquisition	1,930		2,213		283		1,938		77
Commercial Real Estate and Commercial	12,560		14,155		1,595		14,781		501
Consumer	—		—		—		—		—
Total
Residential Real Estate	$	12,531	$	14,486	$	1,057	$	13,541	$	624
Construction	—		—		—		—		—
Land and Land Acquisition	3,203		4,513		283		4,247		135
Commercial Real Estate and Commercial	12,661		14,256		1,595		14,943		520
Consumer	—		—		—		—		—

An age analysis of past due loans as of June 30, 2012 and December 31, 2011 is as follows:

For the six month	Two payments		Three payments		Non-Accrual		Total
period ending June 30, 2012	Past Due		Past Due		Loans		Past Due		Current		Total
	(dollars in thousands)
Residential Real Estate	$	2,530	$	876	$	3,999	$	7,405	$	103,019	$	110,424
Construction	$	—	—		—		—		4,419		4,419
Land and Land Acquisition	$	643	—		4,071		4,714		2,543		7,257
Commercial Real Estate and Commercial	2,206		166		3,761		6,133		61,459		67,592
Consumer	—		8		—		8		488		496
Total	$	5,379	$	1,050	$	11,831	$	18,260	$	171,928	$	190,188

22

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

For the year ended	2 payments	3 payments	Non-Accrual	Total
December 31, 2011	Past Due	Past Due	Loans	Past Due	Current	Total
	(dollars in thousands)
Residential Real Estate	3,578	2,043	4,436	10,057	110,066	120,123
Construction	—	—	—	—	3,985	3,985
Land and Land Acquisition	2,197	58	1,823	4,078	3,865	7,943
Commercial Real Estate and Commercial	1,617	—	6,580	8,197	71,146	79,343
Consumer	—	—	—	—	504	504
Total	7,392	2,101	12,839	22,332	189,566	211,898

Loans on which the recognition of interest has been discontinued amounted to approximately $11.8 million and $12.8 million at June 30, 2012 and December 31, 2011, respectively.  If interest income had been recognized on those loans at their stated rates during the periods ending June 30, 2012 and year ended December 31, 2011, interest income would have been increased by approximately $1.5 million and $1.1 million, respectively. The total allowance for loan losses on these impaired loans was approximately $980,000 at June 30, 2012 and $2.9 million at December 31, 2011.

The impaired loans included in the table above were comprised of collateral dependent 1-4 residential real estate, lot loans and commercial real estate loans. The average recorded investment in impaired loans was $32.4 million and $32.7 million at June 30, 2012 and December 31, 2011, respectively.

A troubled debt restructure (“TDR”) is when we grant a concession to borrowers that the Bank would not otherwise have considered due to a borrower’s financial difficulties.  All TDRs are considered “impaired”.  The substantial majority of our residential real estate TDRs involved reducing the interest rate for a specified period.  We also have restructured loans involving the restructure of loan terms such as a reduction in the payment requiring interest only payments and/or extending the maturity date of these loans.

We had approximately $22.8 million in TDRs at June 30, 2012, with approximately $557,000 added during the six month period ending June 30, 2012, the majority of which were on accrual status.

23

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

	TDRs on Non-		TDRs on		Total
June 30, 2012 (in thousands)	Accural Status		Accrual Status		TDRS
Residential Real Estate	$	464	$	8,937	$	9,401
Land and Lot Loans	1,211		1,060		2,271
Commercial Real Estate	665		10,482		11,147
Total TDRs	$	2,340	$	20,479	$	22,819

	TDR’s on Non-		TDR’s on		Total
December 31, 2011 (in thousands)	Accural Status		Accrual Status		TDR’S
Residential Real Estate	$	267	$	7,349	$	7,616
Construction Loans	—		—		—
Land and Lot Loans	931		1,689		2,620
Commercial Real Estate	687		9,453		10,140
Total TDRs	$	1,885	$	18,491	$	20,376

We consider an impaired loan to be performing to its modified terms if the loan is not past due 30 days or more as of the report date.

The following presents by class, information related to loans modified in a TDR during the six months ending June 30, 2012.

	Loans Modified as a TDR for the Six Months Ended June 30, 2012
Troubled Debt Restructurings:	Number of	Recorded Investment
(dollars in thousands)	Contracts	(as of period end)
Residential Real Estate	9	$	1,781
Land and Lot Loans	1	197
Total TDRs	10	$	1,978

24

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

The following reflects a summary of TDR loan modifications outstanding and respective performance under the modified terms as of June 30, 2012 and December 31, 2011:

	TDRs		TDRs Not
	Performing to		Performing to		Total
June 30, 2012 (in thousands)	Modified Terms		Modified Terms		TDRS
Residential Real Estate
Rate reduction	$	8,239	$	159	$	8,398
Extension or other modification	698		305		1,003
Total residential TDRs	$	8,937	$	464	$	9,401
Land and Lot Loans:
Rate reduction	$	988	$	1,180	$	2,168
Extension or other modification	72		31		103
Total Land and Lot Loans	$	1,060	$	1,211	$	2,271
Commercial:
Rate reduction	$	8,717	$	665	$	9,382
Extension or other modification	1,765		—		1,765
Total commerical TDRs	$	10,482	$	665	$	11,147
Total TDRs	$	20,479	$	2,340	$	22,819

	TDRs		TDRs Not
	Performing to		Performing to		Total
December 31, 2011 (in thousands)	Modified Terms		Modified Terms		TDRs
Residential Real Estate
Rate reduction	$	6,509	$	527	$	7,036
Extension or other modification	579		—		579
Total residential TDRs	$	7,088	$	527	$	7,615
Land and Lot Loans:
Rate reduction	$	1,079	$	989	$	2,068
Extension or other modification	553		—		553
Total Land and Lot Loans	$	1,632	$	989	$	2,621
Commercial:
Rate reduction	$	8,050	$	2,090	$	10,140
Extension or other modification	—				—
Total commerical TDRs	$	8,050	$	2,090	$	10,140
Total TDRs	$	16,770	$	3,606	$	20,376

25

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

The following presents loans modified in a TDR that defaulted during the six months ended June 30, 2012, and within twelve months of their modification date.  A TDR is considered to be in default once it becomes 30 days or more past due following a modification.

TDRs that Defaulted During the Period,
Within Twelve Months of Modification Date	Number of	Recorded Investment
(dollars in thousands)	Contracts	(as of period end)
Residential Real Estate	6	$	1,031
Lot Loans	3	355
Commercial Real Estate	2	882
Total TDRs	11	$	2,268

6.       Investments and Mortgage-Backed Securities

Investment securities consist of the following:

	June 30, 2012
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
AVAILABLE FOR SALE:
FHLB Agencies	$	21,323,696	$	133,634	$	—	$	21,457,330
Farmer Mac	—		—		—		—
Corporate Bonds	5,000,000		—		86,060		4,913,940
Municipal Bonds	2,289,439		52,846		—		2,342,285
	$	28,613,135	$	186,480	$	86,060	$	28,713,555

	December 31, 2011
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
AVAILABLE FOR SALE:
FHLB Agencies	$	32,139,478	$	505,954	$	—	$	32,645,432
Farmer Mac	5,000,000		14,350		—		5,014,350
Corporate Bonds	5,000,000		—		53,160		4,946,840
Municipal Bonds	2,291,578		38,985		—		2,330,563
	$	44,431,056	$	559,289	$	53,160	$	44,937,185

26

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

Mortgage-backed securities consisted of the following:

	June 30, 2012
				Gross		Gross		Estimated
	Amortized			Unrealized		Unrealized		Fair
	Cost			Gains		Losses		Value
AVAILABLE FOR SALE:
GNMA certificates	$	6,134,305		$	187,523	$	—	$	6,321,828
Private label collaterized mortgage obligations	13,897,785			—		415,106		13,482,679
FHLMC pass-through certificates	31,232,635			1,121,403		—		32,354,038
FNMA pass-through certificates	27,737,286			727,472		—		28,464,758
Other pass-through certificates	12,316,671			690,324		166,637		12,840,358
	$	91,318,682		$	2,726,722	$	581,743	$	93,463,661
Weighted average interest rate	3.75		%

	December 31, 2011
				Gross		Gross		Estimated
	Amortized			Unrealized		Unrealized		Fair
	Cost			Gains		Losses		Value
AVAILABLE FOR SALE:
GNMA certificates	$	7,126,518		$	226,129	$	—	$	7,352,647
Private label collaterized mortgage obligations	17,026,220			17,241		684,135		16,359,326
FHLMC pass-through certificates	27,928,332			530,987		—		28,459,319
FNMA pass-through certificates	20,036,967			443,052		—		20,480,019
Other pass-through certificates	7,634,231			522,715		—		8,156,946
	$	79,752,268		$	1,740,124	$	684,135	$	80,808,257
Weighted average interest rate	4.08		%

The portfolio classified as “Available for Sale” is consistent with management’s assessment and intention as to the portfolio.  While we have the ability to hold the securities until maturity, from time to time or with changing conditions, it may be advantageous to sell certain securities either to take advantage of favorable interest rate changes or to increase liquidity.  Securities classified as “Held to Maturity” are not subject to fair value adjustment due to temporary changes in value due to interest rate variations, while securities classified as “Available for Sale” are subject to adjustment in carrying value through the accumulated comprehensive income line item in Stockholder’s Equity section of the Consolidated Statement of Financial Condition.

27

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

Gross unrealized losses and fair value by length of time that the individual available-for-sale investment and mortgage-backed securities have been in a continuous unrealized loss position is as follows:

	June 30, 2012				December 31, 2011				��
			Continuous				Continuous
	Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses
Less than 12 months
Other pass-through certificates	$	5,000,864	$	348	$	—	$	—
Private label collaterized mortgage obligations	641,133		166,636		—		—
Corporate Bond	4,913,940		86,060		—		—
More than 12 months
Private label collaterized mortgage obligations	12,841,565		414,758		16,055,478		684,135
Total	$	23,397,502	$	667,802	$	16,055,478	$	684,135

In evaluating whether a security was other than temporarily impaired, we considered the severity and length of time impaired for each security in a loss position. Other qualitative data was also considered including recent developments specific to the organization issuing the security, market liquidity, extension risk, credit rating downgrades as well as analysis of performance of the underlying collateral.

We believe that the unrealized losses, included in the table above, are temporary.  The unrealized losses are driven by market illiquidity causing price deterioration.  Because our intention is not to sell the MBS and it is not more likely than not that we will be required to sell the MBS before recovery of their amortized cost bases, which may be maturity, as such, management does not consider these MBS to be other-than-temporarily impaired at June 30, 2012.

There are five remaining non-agency MBS that have been rated less than investment grade by at least one rating agency.  The remaining portfolio is U.S. Government securities.  We continue to aggressively monitor the performance of these securities and the underlying collateral.

Proceeds from the sales and calls of investment securities were as follows for the six months ending June 30, 2012:

28

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

	June 30, 2012
					Gross Realized
	Carrying				Gain
	Value		Proceeds		on sales
FHLB - Agency Callable - Called	$	18,546,257	$	18,550,000	$	3,743
Farmer Mac - Agency Callable - Called	5,000,000		5,000,000		—
FHLB - Agency Callable - Sold	1,808,311		1,967,263		158,952
	$	25,354,568	$	25,517,263	$	162,695

Proceeds from the call of investment securities were as follows for the six months ending June 30, 2011:

	June 30, 2011
					Gross Realized
	Carrying				Gain
	Value		Proceeds		on sales
FNMA - Agency Callable	$	4,986,777	$	5,000,000	$	13,223
	$	4,986,777	$	5,000,000	$	13,223

Proceeds from the sale of mortgage-backed securities were as follows for the six months ending June 30, 2011:

	June 30, 2011
					Gross Realized
	Carrying				Gain
	Value		Proceeds		on sales
FNMA -available for sale	$	3,256,987	$	3,475,190	$	218,203
FHLMC - available for sale	7,715,995		7,898,844		182,849
	$	10,972,982	$	11,374,034	$	401,052

7.       New Accounting Pronouncements

In April 2011, the FASB issued ASU No. 2011-03, “Reconsideration of Effective Control for Repurchase Agreements.” ASU No. 2011-03 affects all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity.  The amendments in ASU No. 2011-03 remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee.  ASU No. 2011-03 also eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets.  The guidance is effective for the Company’s reporting period ended June 30, 2012.  The guidance will be applied prospectively to transactions or modifications of existing transaction that occur on or after January 1, 2012.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.”  This guidance requires companies to present comprehensive income in a single statement below net income or in a separate statement of comprehensive income immediately following the income statement.  The guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in

29

stockholders’ equity, which is our current presentation. This guidance does not change which items are reported in other comprehensive income or the requirement to report reclassifications of items from other comprehensive income to net income.  This guidance is effective for fiscal years and interim periods beginning after December 15, 2011 and will require retrospective application for all periods presented.

In December 2011, the FASB issued an accounting standards update to increase the disclosure requirements surrounding derivative instruments that are offset within the balance sheet pursuant to the provisions of current GAAP. The objective of the update is to provide greater comparability between issuers reporting under U.S. GAAP versus IFRS and provide users the ability to evaluate the effect of netting arrangements on a company’s financial statements. The provisions of the update are effective for annual and interim periods beginning on or after January 1, 2013 and are not expected to add to the Company’s current level of disclosures.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Some of the matters discussed below include forward-looking statements within the meaning of the federal securities laws. Forward-looking statements often use words such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate”, “continue” or other words of similar meaning.  You can also identify them by the fact that they do not relate strictly to historical or current facts. Our actual results and the actual outcome of our expectations and strategies could be materially different from those anticipated or estimated for the reasons discussed below and the reasons under the heading “Information Regarding Forward Looking Statements.”

Overview

The consolidated financial statements include WSB Holdings, Inc. (“WSB”) and its wholly owned subsidiaries, The Washington Savings Bank FSB (the “Bank”), WSB, Inc. and WSB Realty, Inc. (collectively referred to herein, as the “Company”).

We operate a general commercial banking business, attracting deposit customers from the general public and using such funds, together with other borrowed funds, to make loans, with an emphasis currently on residential mortgage lending.  Our results of operations are primarily determined by the difference between the interest income and fees earned on loans, investments and other interest-earning assets and the interest expense paid on deposits and other interest-bearing liabilities. The difference between the average yield earned on interest-earning assets and the average cost of interest-bearing liabilities is known as net interest-rate spread.  Our principal expense generally is the interest we pay on deposits and other borrowings.  The difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities is referred to as net interest income.  Net interest income is significantly affected by general economic conditions and by policies of state and federal regulatory authorities and the monetary policies of the Federal Reserve Board. Our net income is also affected by the level of our non-interest income, including loan-related fees, deposit-based fees, rental income, operations of our service corporation subsidiary, gain on sale of real estate acquired in settlement of loans, gain on the sale of investment securities and gain on sale of loans, as well as our non-interest and tax expenses.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) banks have been permitted to pay interest on demand deposit accounts, including those from businesses, since July 21, 2011.  While we have not yet experienced any impact from this provision on our operations, if our competitors were to start paying interest on these accounts it is possible that our interest expense associated with deposits could increase, or that there could be additional impacts on the Bank’s allocation of deposits, deposit pricing, loan pricing, net interest margin, ability to compete, ability to establish and maintain customer relationships, and profitability.

30

During this continuing period of economic slowdown, the effects of which, including declining real estate values resulting in asset impairment and tightening liquidity, has particularly impacted the banking industry in general, management continues to stress credit quality within both our loan and investment portfolios.  The Bank originates residential loans for its portfolio and for sale in the secondary market.  We had previously focused on diversifying our loan portfolio by broadening our lending emphasis to include commercial real estate and commercial and industrial loans.  Recently, however, as demand for these and other areas of lending have slowed, we again are focusing on increasing our mortgage activity in order to reduce balance sheet risk as well as to realize gains on the sale of loans in the secondary market.  As a result, our portfolios of commercial business, commercial real estate, and residential land development loans to commercial borrowers have decreased.  We also use available funds to retain certain higher-yielding fixed rate residential mortgage loans in our portfolio in order to improve interest income. Although we intend to again focus on diversifying our loan portfolio when demand for these other areas of loans picks up, we believe that our continued efforts to expand our residential mortgage lending department are important to ensure future profitability based on the current slow demand for commercial lending.  Management believes that interest rates and general economic conditions nationally and in our market area are most likely to have a significant impact on our results of operations. We carefully evaluate all loan applications in an attempt to minimize our credit risk exposure by obtaining a thorough application with enhanced approval procedures; however, there is no assurance that this process can reduce lending risks.

Both basic and diluted EPS amounts are shown on the Consolidated Statements of Operations.  However, “basic” earnings per share is utilized in this report’s narrative when per share amounts are listed, unless otherwise stated.

Regulatory Developments

On June 3, 2011, WSB and the Bank each entered into separate Supervisory Agreements (the “Agreements”) with the Office of Thrift Supervision (the “OTS”), their primary banking regulator on such date.  Pursuant to regulatory changes instituted by the Dodd-Frank Act, the WSB is now regulated by the Board of Governors of the Federal Reserve (the “Federal Reserve”) and the Bank is now regulated by the Office of the Comptroller of the Currency (the “OCC”).

The Agreements, which are formal enforcement actions initiated by the OTS, require WSB and the Bank to take certain measures to improve their safety and soundness and maintain ongoing compliance with applicable laws.  During the course of a routine review at the Bank by the OTS, examiners identified certain supervisory issues, primarily related to our classified assets.  The Agreements formulized the current understandings of both the Company and the OTS and the Federal Reserve of the actions that WSB, the Bank and their Boards of Directors must undertake to address the issues identified therein.  Each Agreement will remain in effect until terminated, modified or suspended by the Federal Reserve or OCC, as applicable.

We have adopted many of the requirements required by the Supervisory Agreements and have submitted the information to the appropriate regulators for their approval.

For additional information regarding the Agreements, please see WSB’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2011.  The Agreements are filed as Exhibits 10.12 and 10.13 to our quarterly report for the period ending June 30, 2011.

Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of consolidated financial statements requires management

31

to make judgments in the application of certain of its accounting policies that involve significant estimates and assumptions about the effect of matters that are inherently uncertain.  These estimates and assumptions are based on information available as of the date of the financial statements, and may materially impact the reported amounts of certain assets, liabilities, revenues and expenses as the information changes over time. Accordingly, different amounts could be reported as a result of the use of revised estimates and assumptions in the application of these accounting policies.

Accounting policies considered relatively more critical due to either the subjectivity involved in the estimate and/or the potential impact that changes in the estimates can have on the reported financial results include the accounting for the allowance for loan losses.  Information concerning this policy is included in the “Critical Accounting Policies” section of Management’s Discussion and Analysis in our Form 10-K for the year ended December 31, 2011 (“2011 Form 10-K”).  There were no significant changes in this accounting policy during the six months ending June 30, 2012.

Consolidated Results of Operations

Net income for the three and six months ended June 30, 2012 was $174,000, or $0.02 per basic and diluted share, and $452,000, or $0.06 per basic and diluted share, respectively, compared to net income of $321,000 or $0.04 per basic share and diluted share and $556,000, or $0.07 per basic and diluted share, respectively, for the corresponding 2011 periods.  Net income for the three and six month periods ended June 30, 2012, represents decreases $146,000, or 46%, and $104,000, or 19%, respectively, over the same periods last year.

The decrease in net earnings for the three month period is primarily the result of a $295,000 decrease in net interest income partially offset by decreases of $91,000 in non-interest income and $76,000 in non-interest expenses as compared to the same three month period last year.  The decrease in net interest income is the result of the reduction of our loan portfolio classified as held for investment due to loan payoffs.  The primary reason for the decrease in non-interest income during the three month period is a decrease in the gain on sale of investment securities available for sale.  The decrease in non-interest expense for the three month period is primarily the result of lower fees for professional services and reduced FDIC premiums which is the result of an overall decrease in FDIC assessment rates as a result of changes to the FDIC assessment calculation. The decrease in net earnings for the six month period is primarily the result of a $439,000 decrease in net interest income, partially offset by a decrease of $319,000 in non-interest expenses.  The decrease in net interest income is the result of the reduction of our loan portfolio classified as held for investment due to loan payoffs that occurred during the six month period ending June 30, 2012.  The decrease in non-interest expenses is primarily the result decreases in FDIC premiums  salaries and benefits and professional services.   As we continue to experience low loan demand levels there has been a decrease in our total loans held-for-investments portfolio which has contributed to our interest income decreasing by 13% and 12%, respectively, for the three and six months ending June 30, 2012. Also, during the six month period ending June 30, 2012, interest income decreased both as a result of a decrease in the balance and yield in our loan portfolio classified as held for sale, offsetting the decrease in interest expense, primarily as a result of the continued efforts to reduce our higher cost liabilities

Interest Income/Expense

Total interest income decreased $614,000, or 13.3%, and $1.1 million, or 11.7%, respectively, for the three and six month periods ending June 30, 2012, compared to the corresponding periods last year, due primarily to a decrease in both the average volume and average yield on interest-earning assets.

The average six month balance of interest-earning assets decreased to $343.1 million for the six months ending June 30, 2012 from $367.7 million for the six months ending June 30, 2011, due primarily to a decrease in loans held for investment and investment securities, offsetting the increase in MBS securities.  The decrease in

32

loans held-for-investment is primarily the result principal paydowns. The decrease in investment securities is the result of approximately $23.5 million called agency securities and the sale of a $2.0 million agency security. The increase in MBS is primarily the result of purchases of MBS. The short-term investment securities that were called and sold during the six month period were reinvested in mortgage-backed securities to increase the yield spread.  The average yield on our interest-earning assets decreased to 4.78% during the six months ended June 30, 2012 from 5.05% during the same period in 2011.  The decrease is primarily the result of lower interest rates on interest earnings assets including our loans held for investment, MBS and investment securities compared to the same period last year due to a lower interest rate environment.  In addition, our troubled debt restructured loans increased by approximately $5.5 million since June 2011, which had significantly lower interest rates after such restructuring, in the 2012 period compared to the same period last year, which also negatively impacted the yield on our interest-earning assets.

Total interest expense decreased $319,000, or 20.9%, and $648,000, or 20.5%, respectively, for the three and six month periods ended June 30, 2012, compared to the same periods in the prior year.  The decrease was attributable to a decrease in both the average balance, resulting primarily from the maturities of approximately $10.0 million in our brokered certificate of deposits since June 30, 2011, and the average interest rate on our interest-bearing liabilities.  For the six month period ended June 30, 2012, our average interest-bearing liabilities were $309.2 million with an average rate of 1.63%, compared to $339.2 million with an average rate of 1.89% for the corresponding period last year.

Net interest income decreased $295,000, or 9.6%, and $439,000, or 7.2%, respectively, for the three and six month periods ended June 30, 2012, compared to the same periods in the prior year.  Due to a lower average yield on our interest earning assets and our cost of our interest-bearing liabilities remaining stable, our net interest rate spread decreased slightly to 3.15% for the six month period ended June 30, 2012 from 3.16% for the same period in the prior year. The ratio of our interest-earning assets to interest-bearing liabilities increased to 110.94% at June 30, 2012 from 108.41% at June 30, 2011.

We continue to experience pressure on the compression of our interest rate margins due to slowing demand for loans and lower yields on loan originations and investment security offerings, however, the effects of this have been minimized by our ability to decrease interest rate expense through lower deposit costs. This lower interest rate environment for loans and investment securities compresses the interest rate spread by reducing interest income.  Interest rate margins may be further enhanced when and if economic conditions begin to become more favorable to lending and funds currently held in investment securities can be redirected back into the loan portfolio.

Allowance for Loan Losses

Our loan portfolio is subject to varying degrees of credit risk.  Credit risk is mitigated through portfolio diversification and limiting exposure to any single customer or industry.  We maintain an allowance for loan losses (the “allowance”) to absorb losses inherent in the loan portfolio.  The allowance is based on careful, continuous review and evaluation of the loan portfolio, along with ongoing, quarterly assessments of the probable losses inherent in that portfolio.  The methodology for assessing the appropriateness of the allowance includes:  (1) a formula allowance reflecting historical losses by credit category; (2) the specific allowance for risk rated credits on an individual or portfolio basis; and (3) a nonspecific allowance which accounts for risks not reflected by the other two components of the methodology.  The amount of the allowance is reviewed monthly by our Loan Committee, and reviewed and approved monthly by the Board of Directors.

The allowance is increased by provisions for loan losses, which are an expense.  Charge-offs of loan amounts determined by management to be uncollectible or impaired decrease the allowance, while recoveries of loans previously charged-off are added back to the allowance.  We make provisions for loan losses in amounts necessary to maintain the allowance at an appropriate level, as established by use of the allowance methodology.

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Under the methodology, we consider trends in credit risk against broad categories of homogenous loans, as well as a loan by loan review of loans criticized or classified by management. Classified loans exceeding $300,000 are individually evaluated quarterly as part of the calculation of the adequacy of the allowance.

The allowance for loans losses is very subjective in nature, relying significantly on historical loss experience, collateral valuations available to management on specific loans, and economic conditions.  The challenges caused by the recent recession and continuing high unemployment levels and uncertain real estate valuations have resulted in the Bank currently applying a loss history look back period for the allowance for loan losses of 12 months, which is shorter than the period the Bank had used hisorically.  We continue to be mindful of the continued problems within the economy and its impact on our loan portfolio as well as the inherent risk within the portfolio, and management will make adjustments to the allowance and loan loss provision as necessary.  Based on our review, no provision was necessary for either the three or six month periods ending June 30, 2012.

During the six months ended June 30, 2012, the allowance decreased in net by $2.6 million or 42.0%, to $3.5 million at June 30, 2012 from $6.1 million at December 31, 2011, as a result of net charge-offs of approximately $2.6 million during the six months ending June 30, 2012. At June 30, 2012, the allowance was 1.87% of total loans held-for-investment, compared to 2.90% of total loans held-for-investment at December 31, 2011.

The change in the allowance was primarily due to the fact that the risk profile of our loan portfolio has improved as well as the reduction of our loan portfolio balance classified as held-for-investment, particularly our commercial secured by real estate loans.  However,  $2.6 million charge-offs were related to eliminating the specific reserve on our collateral dependent loans in 2012 based on the OCC guidance newly applicable to us compared to the specific reserve balances that existed at December 31, 2011.

Our determination of the adequacy of the allowance requires significant judgment, and estimates of probable losses inherent in the loans held-for-investment portfolio can vary significantly from the amounts actually observed. See Critical Accounting Policies in the 2011 Form 10-K. While we use available information to recognize probable losses, future additions to the allowance may be necessary based on changes in the credits comprising the portfolios, changes in the financial condition of borrowers, such as may result from changes in economic conditions, or other considerations determined by management to be appropriate.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the loan portfolio and the allowance.  Such review may result in additional provisions based upon their judgments of information available at the time of each examination.

We experienced an increase in charge-offs in our loan portfolio during the six month period ending June 30, 2012 compared to the same period last year.  During the six months ending June 30, 2012 we recorded loan charge-offs of $2.6 million and recoveries of previous charged-off loans of approximately $23,000 compared to net charge-offs of $2.2 million for the corresponding six month period last year.

Assets subject to our Loan Committee review include loans which meet our criteria for classification as sub-standard due to collateral deficiencies that may reflect inherent losses.  Based on the review of the individual loans involved, management estimates inherent losses. We continue to assess the allowance as new and relevant data is obtained.

We believe that the allowance reflects our best estimate of the probable inherent losses existing in our $189.8 million loans-held for investment portfolio as of June 30, 2012.  The $10.6 million loan held-for-sale portfolio has been committed to be purchased by investors at June 30, 2012 and will be settled subsequent to that date.

We have developed a comprehensive review process to monitor the adequacy of the allowance.  The review process and guidelines were developed utilizing guidance from federal banking regulatory agencies and relies on

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relevant observable data.  The observable data considered in the determination of the allowance is modified as more relevant data becomes available.  The results of this review process support management’s view that the allowance reflects probable losses within the loan portfolio as of June 30, 2012.

Changes in the estimation valuations may take place based on the status of the economy and the estimate of the value of the property securing loans, and as a result, the allowance may increase or decrease.  Future adjustments could substantially affect the amount of the allowance.

We believe our evaluation as to the adequacy of the allowance as of June 30, 2012 is appropriate, and caution the reader that the provisioning for the six month period is not necessarily indicative of future provisioning.  Subjective judgment is significant in the determination of the provision and allowance, manifested in the valuation of collateral, a borrower’s prospects of repayment, and in establishing allowance factors and components for the formula allowance for homogeneous loans. The establishment of allowance factors is a continuing exercise, based on management’s assessment of the factors and their impact on the portfolio, and that allowance factors may change from period to period, resulting in an increase or decrease in the amount of the provision or allowance, based upon the same volume and classification of loans. A time lag between the recognition of loss exposure in the evaluation of the adequacy of the allowance and a loan’s ultimate resolution and/or charge-off is normal and to be expected.

We review on a monthly basis the adequacy of the allowance, and make provisions accordingly to meet the deemed losses within the portfolio.  Based on this review, as noted above, no provision was deemed necessary for the three and six month periods ending June 30, 2012.  For a better understanding and a more complete description of the allowance and the evaluation process, refer to the 2011 Form 10-K.

The following table shows charge-offs and recoveries in the allowance during the three and six month periods ending June 30, 2012 and 2011. In addition, we believe there are additional, unidentified, probable losses within the portfolio, which may be reflected as charge-offs against the allowance in future quarters as these losses manifest themselves and loan collection efforts continue.

	2012						2011
	2nd Qtr			1st Qtr			2nd Qtr			1st Qtr
Provision for loan losses	$	0		$	0		$	100,000		$	0
Loan charge-offs
single family	$	158,692		$	610,954		$	—		$	426,710
construction	—			—			—			—
commercial, land and other	92,466			1,735,782			1,741,128			39,395
	251,158			2,346,736			1,741,128			466,105
Loan recoveries
single family	9,562			1,195			5,071			7,755
construction				0						0
commercial, land and other	1,650			10,942			941			0
Net Charge-offs	$	239,946		$	2,334,599		$	1,735,116		$	458,350
Allowance for loan losses at period end	$	3,549,571		$	3,789,517		$	8,126,326		$	9,761,442
Total loans held for investment at at period end	$	189,817,953		$	199,270,866		$	226,637,073		$	235,551,909
Allowance to total loans held for investment at period end	1.87		%	1.90		%	3.59		%	4.14		%

The fair value of impaired loans may be estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At June 30, 2012, all of the impaired loans were evaluated based upon the fair value of the collateral and/or discounted cash flows. Management’s analysis of our

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impaired loans represents a level of reserves of approximately $980,000 for the period ending June 30, 2012 compared to approximately $2.9 million at December 31, 2011.

Our policy is to charge off all or that portion of our investment in an impaired loan upon a determination that it is probable the full amount will not be collected.  At June 30, 2012, total impaired loans were $32.3 million, or 17.03% of total loans held for investment, compared to $31.3 million, or 14.82% of total loans held-for-investment, at December 31, 2011.  Non-performing loans consisted of $11.8 million that were non-accrual loans at June 30, 2012 and approximately $22.8 million of troubled debt restructured loans.  Significant variation in this ratio may occur from period to period because the amount of non-performing loans depends largely on the condition of a small number of individual credits and borrowers relative to the total loan and lease portfolio.

The following table sets forth information as to non-accrual loans. We generally discontinue the accrual of interest on loans after a delinquency of more than four monthly payments, or when, in the opinion of management, the complete recovery of principal and interest is unlikely, at which time all previously accrued but uncollected interest is reversed from income.

	At June 30,			At December 31,
	2012			2011
	(dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Single family	$	3,999		$	4,436
Land	4,070			1,944
Construction	—			—
Non-mortgage loans:
Consumer	—			—
Commercial	3,761			6,459
Non-residential	—			—
Total non-accrual loans	11,830			12,839
Foreclosed real estate	5,211			4,821
Total non-performing assets	$	17,041		$	17,660
Total non-performing loans to total loans held-for-investment	6.23		%	6.07		%
Allowance for loan losses to total non-performing loans	30.00		%	47.70		%
Total non-performing loans to total assets	3.17		%	3.33		%
Total non-performing assets to total assets	4.56		%	4.59		%

A troubled debt restructuring (“TDR”) means that, due to a borrower’s current financial difficulties, we have granted a concession to the borrower that we would not otherwise have considered.  We do this when we believe the borrower may default on the loan without such concession and we believe the concession will increase the borrower’s ability to remain current on the loan, in order to maximize recovery of our investment. The majority of our TDRs involve a restructuring of loan terms such as a temporary reduction in the payment amount to require only interest and escrow (if required), lowering of the interest rate and/or extending the maturity date of the loan.  All TDRs are reported as “impaired” but not reported as non-performing loans unless the restructured loans are more than 90 days delinquent or on non-accrual status.  As of June 30, 2012, we had $22.8 million in TDRs, of which $2.3 million were on non-accrual status, compared to $18.5 million in TDRs, of which $1.9 million were on non-accrual status, as of December 31, 2011.

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As previously reported, there has been an increase in court caseloads resulting in delays in ratification of foreclosure sale actions by the courts affecting mortgage lenders, including us.  This has resulted in both a lengthening of the curing time for delinquent loans and the possibility of an increase in non-performing asset levels.  We are also experiencing increased short sales and re-sales of bank owned properties in the marketplace, which is having a negative impact on real estate values and collateral on loans, in general. We are continuing our practice of working with borrowers to resolve delinquencies, with foreclosure action being the remedy of last resort when reasonable means to cure deficiencies in the best interest of both the Bank and the borrower, consistent with sound banking considerations, are exhausted.

Non-Interest Income

Total non-interest income decreased $91,000, or 9.5%, and $56,000 or 2.9%, respectively, for the three and six month periods ended June 30, 2012, compared to the same periods in the prior year.  The decrease for the three month period is primarily attributable to a $228,000 decrease in the gain on the sale of investment securities available for sale and a $19,000 decrease in the gain on the sale of real estate acquired in settlement of loans, partially offset by an increase of $79,000 on gain on sale of loans sold in the secondary market and a $68,000 increase in rental income.  The six month period was also impacted by decreases in our gain on the sale of investment securities available for sale, offset by increases in the gain on the sale of real estate acquired in settlement of loans and rental income.

The gain on the sale of real estate acquired in settlement of loans for the six month period ending June 30, 2012 is the result of the sale of seven properties for a net gain of $152,000 compared to a net gain of $42,000 on the sale of seven properties during the same period last year.  In the current economic environment, property values have a material result in our selling these properties.  Management may determine it in our best interests to sell the properties at a lower price than the value we had assigned to them as real estate owned in settlement of loans in order to avoid the ongoing expense associated with maintaining these properties in our portfolio, including maintenance, costs and property taxes, and with selling the properties at a later date.

Rental income increased as a result of rental agreements associated with the available lease space at WSB’s corporate headquarters located in Bowie, MD.

Gain on the sale of loans increased $79,000 for the three and decreased $7,000 for the six month period ending June 30, 2012, compared to the same periods last year.  The increase for the three month period is the result of premiums associated with the loans sold in the secondary market. Premiums recognized as gains depends largely on market rates and will fluctuate based on the market.  The decrease for the six month period is primarily due to a decrease in number of originations.  Our ability to realize gains in future periods will depend largely on interest rates and the demand for mortgage loans.

While production of loans held-for-sale has been negatively impacted nationally by the current market constriction as to non-conforming and non-traditional mortgage offerings, and overall credit tightening, the Bank continues to offer traditional mortgage financing through its mortgage banking operations.  Because loans we sell in the secondary market are with recourse, and we could be required to repurchase such loans if the purchasers turn out to be not creditworthy, we continue to monitor the anticipated negative impact and/or exposure of many of the larger secondary market investors, and as such have further reduced or eliminated the selling of loans to investors where liquidity or financial capacity is in question.

Gain on the sale of investment securities for the three month period ending June 30, 2012, was approximately $4,000 pretax, $2,000 net of tax, compared to $231,000 pretax, $140,000 net of tax during the same three month period last year.  Gain on the sale of investment securities for the six month period ending June 30, 2012, was

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approximately $163,000 pretax, $99,000 net of tax, compared to $414,000, $251,000 net of tax, during the same six month period last year. Gain on the sale of these investment securities is the result of the Bank selling approximately $2.0 million of callable agency paper during the first quarter of this year.  We believed there was a good opportunity to receive a premium on the investment securities sold during 2012 and therefore decided to sell the investments that generated these gains.    The gain on the sale of MBS for the six months ending June 30, 2011 $251,000 net of tax and was the result of the Bank selling approximately $7.6 million in MBS and approximately $5.0 million agency called in the first quarter of 2011 and approximately $3.3 million in the second quarter of 2011, of which we believed there was a good opportunity to receive a premium on the MBS during 2011 and therefore decided to sell the MBS that generated the 2011 gain.  We did not sell any MBS during the six months ended June 30, 2012.

Non-Interest Expenses

Non-interest expenses decreased $76,000 or 2.2% and $319,000, or 4.4%, respectively, for the three and six month periods ending June 30, 2012, as compared to the corresponding prior year periods.

The decrease in non-interest expenses for the three month period was primarily due to decreases of $110,000 in professional services, $59,000 in FDIC insurance and $51,000 in provision for losses on real estate acquired in settlement of loans, partially offset by increases of $78,000 in other expenses.  The decrease in non-interest expenses for the six month period was primarily the result of decreases of $124,000 in salaries and benefits, $127,000 in FDIC insurance and $80,000 in professional services.

The decreases in professional services during the three and six month periods is primarily associated with reduced legal expenses associated with litigation on two of our loans last year that were resolved in June 2012.

The decrease in salaries and benefits during the six month period is primarily associated with the reduced salaries and benefits due to the reduction in the number of loan originators needed to meet the current loan demand during the six month period ending June 30, 2012.

We recognized no expense and $91,000, respectively, for the three and six month periods ending June 30, 2012 for the provision for losses on real estate acquired in settlement of loans as compared to $51,000 and $83,000, respectively, for the corresponding periods last year.  We continue to obtain updated appraisals and/or evaluations on the properties that have been classified as real estate owned, which resulted in additional write downs of certain properties as a result of continuing declines in real estate prices.

The decreases in deposit insurance premiums during the three and six month periods ended June 30, 2012 is primarily the result of an overall decrease in FDIC assessment rates as a result of changes to the FDIC assessment calculation.

The decrease in other expenses during the three month period is primarily the result a reduction of foreclosure expenses.

Income Taxes

A tax expense of $215,000 was recorded for the six months ended June 30, 2012, compared to $187,000 for the same period last year.  The tax expense for the period ending June 30, 2012 includes an exclusion of income

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for the bank owned life insurance and state income tax benefit attributable to our investment portfolio which consists of U.S. Agencies.  The effective tax rates were 32.2% and 25.2% for the respective six month periods ended June 30, 2011 and 2011.

Liquidity and Capital Resources

Total assets were $373.6 million and $385.0 million at June 30, 2012 and December 31, 2011, respectively. The decrease in assets at June 30, 2012, compared to December 31, 2011, was primarily attributable to decreases in loans held for investment and investment securities, partially offset by an increase in available for sale MBS and total cash and cash equivalents.  Loans classified as held for investment decreased as we experienced principal pay-downs associated with these loans.  Some of these funds received from these pay-downs were used to purchase MBS available for sale.

Deposits were $247.9 million at June 30, 2012, compared to $245.1 million at December 31, 2011.  The increase in deposits at June 30, 2012, compared to December 31, 2011, was primarily due to an increase in our brokered certificate of deposits and in our savings accounts, primarily money market accounts.  During this period, our rates on money fund accounts were slightly higher than the Bank’s competitors, resulting in an increase in our core deposits.  As previously reported, we exercised our intention to renew the broker deposits that matured during the fourth quarter of 2011 and first quarter of 2012. Approximately $14.0 million of our certificate of deposits (“CDs”) classified as broker deposits matured of which approximately $11.0 were renewed.  Management anticipates continuing to utilize excess funding liquidity to offset a runoff of higher cost CDs which were previously originated to fund loan production.

Borrowings at June 30, 2012 and December 31, 2011 are as follows:

	June 30,		Weighted		December 31,		Weighted
	2012		Avg Rate		2011		Avg Rate
FHLB-advances -fixed	$	68,000,000	2.82	%	$	76,000,000	2.64	%
FHLB - Daily rate credit	—		0.00	%	8,000,000		0.36	%
	$	68,000,000			$	84,000,000

Total borrowings are $68.0 million as of June 30, 2012.  We maintain funding activities with correspondent banks and the Federal Home Loan Bank of Atlanta, which are cancelable by the lender and subject to lender discretion.  To the extent we do not or cannot use FHLB borrowings, we would expect to rely on alternative funding sources, including our deposit base and correspondent bank lines of credit.  Our remaining credit availability for additional FHLB advances at June 30, 2012 is $47.2 million. We currently have unused lines of credit with our correspondent banks in the amount of $7.0 million.

As a member of the FHLB system, and in order to maintain insurance with the FDIC, we must maintain sufficient liquidity to ensure a safe and sound operation.  Liquid assets are defined as cash, Federal Reserve deposits, time and savings deposits in certain institutions, obligations of states and political subdivisions thereof, highly rated corporate debt, mortgage loans and MBS, and accrued interest receivable and principal on certain qualified unpledged assets payable within five years.  Internal sources of liquidity used by the Bank are various short-term investments, MBS, and short-term borrowings.

Funding requirements are impacted by loan originations and maturities of CDs and borrowings.  We comply with regulatory guidelines regarding required liquidity levels and monitor our liquidity position.  In an effort to reduce exposure to liquidity risk, the Board’s Asset and Liability Committee monitors our sources of funds and our assets and liabilities, which may result in a change of our asset, liability, and off-balance sheet positions.   Long-term liquidity is

39

generated through growth in our deposits and long-term debt, while short-term liquidity is generated though federal funds and securities sold under agreement to repurchase. We maintain sufficient liquidity to fund routine loan demand and routine deposit withdrawal activity. Liquidity is managed by maintaining sufficient liquid assets in the form of investment securities. Funding and cash flows can also be realized by the sale of securities available for sale, principal pay-downs on loans and MBS and proceeds realized from loans held for sale.

Current regulations require subsidiaries of a financial institution to be separately capitalized and require investments in and extensions of credit to any subsidiary engaged in activities not permissible for a bank to be deducted in the computation of the institution’s regulatory capital.  The Bank’s regulatory capital and regulatory assets below also reflect decreases of $1.4 million and $2.2 million, respectively, which represents unrealized gains (after-tax for capital deductions and pre-tax for asset deductions, respectively) on MBS and investment securities classified as available for sale.  In addition, the Bank’s risk-based capital reflects an increase of $2.6 million in the general loan loss reserve during the six months ended June 30, 2012.  The loan loss reserve factor represents 1.25% of the Bank’s risk-weighted assets.  The following table shows regulatory thrift capital ratios required, the Bank’s actual ratios, and the amount by which the Bank’s ratios exceed required capital ratios, as of June 30, 2012.

Capital Category	Regulatory Ratios Required			Bank’s Amount and Ratio			Bank’s Excess of Requirements			Calculations		Based Upon
Leverage	$	14,548,561		$	44,197,512		$	29,648,951		$	44,197,512	Regulatory Capital
	4.00		%	12.15		%	8.15		%	$	363,714,021	Regulatory Assets
Tangible	$	5,455,710		$	44,197,512		$	38,741,802		$	44,197,512	Regulatory Capital
	1.50		%	12.15		%	10.65		%	$	363,714,021	Regulatory Assets
Risk-Based	$	16,290,024		$	46,739,795		$	30,449,771		$	46,739,795	Regulatory Capital
	8.00		%	22.95		%	14.95		%	$	203,625,301	Risk-Weighted Assets

Our management believes that, under current regulations, and eliminating the assets of WSB Holdings, the Bank remains well capitalized and will continue to meet its minimum capital requirements in the foreseeable future.  However, events beyond our control, such as a shift in interest rates or a continued downturn or slower recovery in the economy in areas where we extend credit, could adversely affect future earnings and, consequently, our ability to meet minimum capital requirements in the future.

The Qualified Thrift Lender Test currently requires that “qualified thrift investments” be at least 65% of portfolio assets as defined by the OCC.  At June 30, 2012, our ratio was approximately 85% of defined portfolio assets.

Off-Balance Sheet Transactions

We are a party to financial instruments with off-balance sheet risk including commitments to extend credit under existing lines of credit and commitments to sell loans.  These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated Statement of Financial Condition.

Off-balance sheet financial instruments whose contract amounts represent credit and interest rate risk are summarized as follows:

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Commitments to originate new loans	$	14,622,533
Unfunded commitments to extend credit under existing construction, equity line and commercial lines of credit	5,855,101
Standby letters of credit	180,988
Commitments to sell loans held-for-sale	10,579,611

We do not have any unconsolidated special purpose entities or other similar forms of off-balance sheet financing arrangements.

Commitments to originate new loans or to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Loan commitments generally expire within 90 days.  Most equity line commitments for the unfunded portion of equity lines are for a term of 12 months, and commercial lines of credit are generally renewable on an annual basis.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  We evaluate each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on management’s credit evaluation of the borrower.

Commitments to sell loans held-for-sale are agreements to sell loans to third parties at an agreed upon price.

Information Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of and pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  A forward-looking statement encompasses any estimate, prediction, opinion or statement of belief contained in this report and the underlying management assumptions, including those identified by terminology such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar expressions. The statements presented herein with respect to, among other things, our intensions with respect to our investment portfolio, our expectations regarding diversifying our loan portfolio when our nonresidential loan demand picks up, the impact of future potential economic conditions, on us, the allowance for loan losses and the adequacy thereof, the impact of pending legal proceedings, our anticipated use of excess funding liquidity, the Bank’s continuing to meet its capital requirements and future sources of liquidity are forward-looking.

Forward-looking statements are based on our current expectations and assessments of potential developments affecting market conditions, interest rates and other economic conditions and assumptions and results may ultimately vary from the statements made in this report.  Our future results and prospects may be dependent upon a number of factors that could cause our performance to differ from the performance anticipated or projected in these forward-looking statements or to compare unfavorably to prior periods.  Among these factors are: (a) changes we make as a result of our ongoing review of our business and operations; (b) implementation of changes in lending practices and lending operations; (c) changes made as a result of the Board of Directors’ ongoing review of our capital management plan; (d) changes in accounting principles; (e) government legislation and regulation, including regulations adopted pursuant to the Dodd-Frank  Act; (f) changes in interests rates; (g) further deterioration of economic conditions or a slowing recovery; (h) credit or other risks of lending activity, such as changes in real estate values and changes in the quality or composition of our loan portfolio; (i) the impact of any legal or regulatory proceedings; and (j) other expectations, assessments and risks that are specifically mentioned in this report and in such other reports filed with the Securities and Exchange Commission. We wish to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including those described above, could affect our financial performance and could cause our actual results or circumstances for future periods to differ materially from those

41

anticipated or projected.  Unless required by law, we do not undertake, and specifically disclaim any obligation, to publicly update or revise any forward- looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Not applicable

Item 4.Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this report.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of June 30, 2012.

During the period covered by this report, there were no changes (including corrective actions with regard to significant or material weaknesses) in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

Item 1.Legal Proceedings

From time to time we may be involved in ordinary routine litigation incidental to our business.  At June 30, 2012, we were not involved in any legal proceedings the outcome of which, in management’s opinion, would be material to our financial condition or results of operations.

Item 1A.      Risk Factors

There have been no other material changes in the risk factors from those disclosed in Item 1A “Risk Factors” in our 2011 Form 10-K.

Item 6.   Exhibits

31.1	Rule 13a-14(a) Certification of Principal Executive Officer (Filed herewith).
31.2	Rule 13a-14(a) Certification of Principal Financial Officer (Filed herewith).
32.1	Section 1350 Certification of Principal Executive Officer and Principal Financial Officer (Furnished herewith).
101	The following materials from WSB Holdings, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Cash Flows and (iv) the Notes to the Consolidated Financial Statements, tagged as blocks of text - (Furnished herewith).*

*Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as

42

amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

				WSB HOLDINGS, INC.
		By:	/s/ Phillip C. Bowman
		Phillip C. Bowman
		Chief Executive Officer
		By:	/s/ Carol A. Ramey
		Carol A. Ramey
		Senior Vice President and Chief Financial Officer
Date:	August 13, 2012

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