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: ~~September 30~~ March 31, ~~2012~~2013

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
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
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) Smaller reporting company x

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 78,~~995~~016,~~232~~607 shares of Common Stock ($0.0001 Par Value) outstanding as of ~~November 2~~April 30, ~~2012~~2013.

Table of Contents

WSB HOLDINGS, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

		Page
				Page Number
		Number
PART I.		FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATION
	Item 1.		Financial Statements
Item 1. Financial Statements
			Consolidated Statements of Financial Condition (Unaudited) as of March 31, 2013 and December 31, 2012	3
	Consolidated Statements of Financial Condition (Unaudited) as of September 30, 2012 and December 31, 2011	3
			Consolidated Statements of Operations and Comprehensive Income — (Unaudited) For the Three months ended March 31, 2013 and 2012	4
	Consolidated Statements of Operations — (Unaudited) For the Three and Nine months ended September 30, 2012 and 2011	4
			Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) For the Three months ended March 31, 2013 and 2012	5
	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) For the Nine months ended September 30, 2012 and 2011	5
			Consolidated Statements of Cash Flows — (Unaudited) For the Three months ended March 31, 2013 and 2012	6
	Consolidated Statements of Cash Flows — (Unaudited) For the Nine months ended September 30, 2012 and 2011	6
			Notes to Consolidated Financial Statements (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	7
	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
	Item 3.		Quantitative and Qualitative Disclosures about Market Risk	41
Item 3. Quantitative and Qualitative Disclosures about Market Risk		48
	Item 4.		Controls and Procedures	41
Item 4. Controls and Procedures		48
PART II.
PART II.
	Item 1.		Legal Proceedings	42
Item 1. Legal Proceedings		48
	Item 1A.		Risk Factors	42
Item 1A. Risk Factors		48
	Item 6.		Exhibits	43
Item 6. Exhibits		48
	Signatures			44
Signatures		50

Table of Contents

Item 1. Financial Statments

WSB HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

	September 30,		December 31,
	March 31, 2013		December 31, 2012
	2012		2011
ASSETS
Cash	$	163,~~353~~369,~~795~~782	$	~~437~~2,~~414~~315,185
Federal funds sold and interest bearing deposits at FHLB - Atlanta	2230,~~024~~685,~~644~~753		339,~~964~~114,~~439~~092
Total cash and cash equivalents	3834,~~378~~055,~~439~~535		441,~~401~~429,~~853~~277
Loans receivable:
Held for sale	10,~~687~~080,~~979~~956		1017,~~245~~844,~~483~~400
Held for investment (net of allowance for loan losses of $3,350,630 and $6,124,116 respectively)	183,413,759		205,353,588
Held for investment (net of allowance for loan losses of $2,795,109 and $3,151,476 respectively)	171,898,301		176,200,814
Investment securities - available for sale at fair value	2258,~~861~~936,~~006~~591		4459,~~937~~117,~~185~~873
Mortgage-backed securities - available for sale at fair value	8121,~~836~~762,~~100~~495		8024,~~808~~809,~~257~~365
Investment in Federal Home Loan Bank stock, at cost	32,~~636~~948,100		43,~~503~~636,~~700~~100
Accrued interest receivable on loans	~~732~~743,~~617~~792		1829,~~023,847~~567
Accrued interest receivable on investments	~~470~~395,~~990~~619		~~693~~345,~~967~~829
Real estate acquired in settlement of loans	45,~~906~~062,~~404~~065		45,~~820~~182,~~634~~403
Bank owned life insurance	12,~~710~~936,~~098~~837		12,~~368~~824,~~974~~768
Premises and equipment - net	4,~~852~~741,~~240~~270		4,~~807~~752,~~206~~789
Income taxes receivable	149,812		—
Deferred income taxes	6,852,658		6,668,201
Deferred income taxes	6,335,922		8,574,590
Other assets	1,552,123		2,851,087
Other assets	2,281,120		2,422,102
TOTAL ASSETS	$	331,966,342	$	356,492,473
TOTAL ASSETS	$	373,252,586	$	384,961,386
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	56,~~979~~014,~~100~~995	$	56,~~256~~668,~~111~~011
Interest bearing	~~241~~212,~~324~~591,~~270~~920		~~239~~224,~~794~~764,~~477~~003
Total deposits	~~247~~218,~~303~~606,~~370~~915		~~245~~231,~~050~~432,~~588~~014
Federal Home Loan Bank borrowings	6856,000,000		8468,000,000
Advances from borrowers for taxes and insurance	~~811~~782,~~909~~298		~~426~~469,~~238~~701
Accounts payable, accrued expenses and other liabilities	1,~~543~~424,~~902~~089		1,~~211~~265,~~550~~196
TOTAL LIABILITIES	~~317~~276,~~659~~813,~~181~~302		~~330~~301,~~688~~166,~~376~~911
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 September 30, 2012 and December 31, 2011, respectively	799		799
Common stock authorized, 20,000,000 shares at $.0001 par value, 8,016,607 and 8,016,607 issued and outstanding as of March 31, 2013 and December 31, 2012, respectively	802		802
Additional paid-in capital	11,~~095~~206,~~646~~794		11,~~095~~206,~~646~~794
Retained earnings - substantially restricted	4243,~~678~~197,~~310~~810		4243,~~230~~256,~~566~~158
Accumulated other comprehensive income	1747,~~818,650~~634		~~945~~861,~~999~~808
TOTAL STOCKHOLDERS’ EQUITY	55,~~593~~153,~~405~~040		5455,~~273~~325,~~010~~562
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	~~373~~331,~~252~~966,~~586~~342	$	~~384~~356,~~961~~492,~~386~~473

See notes to consolidated financial statements.

Table of Contents

WSB HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months ended						Nine Months ended
	Three Months ended March 31,
	September 30,						September 30,
	2013			2012
	2012			2011			2012			2011
INTEREST INCOME:
INTEREST INCOME:
Interest and fees on loans	$	2,532,813		$	3,007,614 $
Interest and fees on loans	$	2,790,870		$	3,473,885		$	8,692,968		$	10,650,990
Interest on mortgage-backed securities	157,291			778,348
Interest on mortgage-backed securities	786,843			650,020			2,363,687			2,006,856
Interest and dividends on investments	235,362			403,925
Interest and dividends on investments	273,445			479,790			985,897			1,223,983
Total interest income	2,925,466			4,189,887
Total interest income	3,851,158			4,603,695			12,042,552			13,881,829
INTEREST EXPENSE:
INTEREST EXPENSE:
Interest on deposits	399,802			793,024
Interest on deposits	642,524			903,015			2,147,659			3,025,241
Interest on other borrowings	461,219			513,457
Interest on other borrowings	505,944			536,132			1,520,112			1,580,713
Total interest expense	861,021			1,306,481
Total interest expense	1,148,468			1,439,147			3,667,771			4,605,954
NET INTEREST INCOME	2,064,445			2,883,406
NET INTEREST INCOME	2,702,690			3,164,548			8,374,781			9,275,875
Provision for loan losses	—			—
Provision for loan losses	—			100,000			—			200,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	2,064,445			2,883,406
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	2,702,690			3,064,548			8,374,781			9,075,875
NON-INTEREST INCOME:
NON-INTEREST INCOME:
Loan related fees	119,936			89,005
Loan related fees	139,414			97,970			337,435			310,496
Gain on sale of loans	366,942			277,994
Gain on sale of loans	547,617			478,914			1,221,254			1,159,488
Gain on sale of investment securities - available for sale	—			158,952
(Loss) gain on sale of investment securities - available for sale	(287,952		)	128,304			(125,257		)	542,579
Gain on sale of real estate acquired in settlement of loans	55,631			142,264
Gain on sale of real estate acquired in settlement of loans	12,357			4,235			164,036			45,737
Service charges on deposits	35,632			31,897
Service charges on deposits	33,726			33,430			94,614			86,099
Rental income	180,892			122,626
Rental income	180,839			111,760			464,402			299,183
Other income	184,284			159,943
Other income	157,422			161,031			481,388			482,165
Total non-interest income	943,317			982,681
Total non-interest income	783,423			1,015,644			2,637,872			2,925,747
NON-INTEREST EXPENSE:
NON-INTEREST EXPENSE:
Salaries and benefits	1,715,002			1,795,100
Salaries and benefits	1,824,375			1,738,653			5,393,978			5,431,791
Occupancy expense	171,950			165,204
Occupancy expense	193,526			177,943			534,188			514,061
Depreciation	104,366			114,680
Depreciation	108,702			108,284			337,543			335,048
Advertising	53,843			80,328
Advertising	79,003			93,900			248,692			262,064
Service bureau charges	140,093			127,096
Service bureau charges	145,707			120,762			414,534			375,404
Service charges from banks	4,865			6,676
Service charges from banks	6,343			7,179			19,905			24,436
Stationary, printing and supplies	31,126			42,537
Stationary, printing and supplies	31,291			34,046			110,829			121,235
Professional services	80,476			129,182
Professional services	209,894			148,378			469,445			488,406
FDIC Insurance	151,457			151,964
FDIC Insurance	161,107			179,531			474,222			619,314
Provision for losses on real estate acquired in settlement of loans	—			90,502
Provision for losses on real estate acquired in settlement of loans	98,764			1,398			189,267			84,197
Other taxes	66,912			67,563
Other taxes	65,389			79,782			199,514			239,743
Other	656,120			675,311
Other	641,792			664,542			2,033,094			2,036,842
Total non-interest expense	3,176,210			3,446,143
Total non-interest expense	3,565,893			3,354,398			10,425,211			10,532,541
(LOSS) EARNINGS BEFORE INCOME TAXES	(168,448		)	419,944
(LOSS) EARNINGS BEFORE INCOME TAXES	(79,780		)	725,794			587,442			1,469,081
INCOME TAX (BENEFIT) EXPENSE	(110,100		)	141,900
INCOME TAX (BENEFIT) EXPENSE	(75,302		)	316,159			139,698			503,259
NET (LOSS) EARNINGS	$	(58,348	)	$	278,044
NET (LOSS) EARNINGS	$	(4,478	)	$	409,635		$	447,744		$	965,822
OTHER COMPREHENSIVE (LOSS) INCOME:
OTHER COMPREHENSIVE INCOME (NET OF TAX):
Unrealized gains on securities available for sale (net of taxes of $74,357 and $137,431)	(114,174		)	(211,024		)
Unrealized gains (losses) on securities	284,471			664,133			796,795			1,454,080
Reclassification adjustment for loss (gain) on sale of securities realized in net income (net of taxes of $0, and $62,691)	—			(96,261		)
Reclassification adjustment for loss (gain) on sale of securities realized in net income (net of taxes of $113,568, ($50,603), $49,401, and ($213,993)	174,384			(77,701		)	75,856			(328,586		)
Total other comprehensive loss	(114,174		)	(307,285		)
TOTAL COMPREHENSIVE INCOME	$	454,377		$	996,067		$	1,320,395		$	2,091,316
TOTAL COMPREHENSIVE (LOSS) INCOME	$	(172,522	)	$	(29,241	)
BASIC EARNINGS PER COMMON SHARE	$	0.00		$	0.05		$	0.06		$	0.12
BASIC (LOSS) EARNINGS PER COMMON SHARE	$	(0.01	)	$	0.03
DILUTED EARNINGS PER COMMON SHARE	$	0.00		$	0.05		$	0.06		$	0.12
DILUTED (LOSS) EARNINGS PER COMMON SHARE	$	(0.01	)	$	0.03
CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.00		$	0.00		$	0.00		$	0.00
				$
AVERAGE COMMON SHARES OUTSTANDING	7,995,232			7,995,232			7,995,232			7,985,216
CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.00		$	0.00
AVERAGE DILUTED COMMON SHARES OUTSTANDING	7,995,232			7,995,232			7,995,232			7,985,787
AVERAGE COMMON SHARES OUTSTANDING
	8,016,607			7,995,232
AVERAGE DILUTED COMMON SHARES OUTSTANDING	8,016,607			7,995,232

See notes to consolidated financial statements.

Table of Contents

WSB HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012 (Unaudited)

								Accumulated
	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
			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	—		—		965,822			—			965,822
Other comprehensive gain-unrealized, gain on available for sale securities	—		—					1,125,494			1,125,494
BALANCE, SEPTEMBER 30, 2011	$	799	$	11,095,646	$	41,947,579		$	889,277		$	53,933,301
BALANCE, JANUARY 1, 2012	$	799	$	11,095,646	$	42,230,566		$	945,999		$	54,273,010
Net Income	—		—		447,744			—			447,744
Exercise of Stock Options	—		—		—			—			0
Other comprehensive gain-unrealized, gain on available for sale securities	—		—		—			872,651			872,651
Tax effect of stock options exercised	—		—		—			—			0
BALANCE, SEPTEMBER 30, 2012	$	799	$	11,095,646	$	42,678,310		$	1,818,650		$	55,593,405
Net Income	—		—		278,044			—			278,044
Other comprehensive gain-unrealized, loss on available for sale securities	—		—		—			(307,285		)	(307,285		)
BALANCE, MARCH 31, 2012	$	799	$	11,095,646	$	42,508,610		$	638,714		$	54,243,769
BALANCE, JANUARY 1, 2013	$	802	$	11,206,794	$	43,256,158		$	861,808		$	55,325,562
Net Loss	—		—		(58,348		)	—			(58,348		)
Other comprehensive loss-unrealized, loss on available for sale securities	—		—		—			(114,174		)	(114,174		)
BALANCE, MARCH 31, 2013	$	802	$	11,206,794	$	43,197,810		$	747,634		$	55,153,040

See notes to consolidated financial statements

Table of Contents

WSB HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine months ending
	Three months ending
	September 30,
	March 31,
	2012			2011
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	447,744		$	965,822
Net (loss)/earnings	$	(58,348	)	$	278,044
Adjustments to reconcile net earnings to net cash provided by operating activities:
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Provision for loan losses	—			200,000
Provision for losses on real estate acquired in settlement of loans	—			90,502
Provision for losses on real estate acquired in settlement of loans	189,267			84,197
Depreciation	104,366			114,680
Depreciation	337,543			335,048
Amortization of premiums and accretion of discounts, net	63,312			95,340
Loss on disposal on premises and equipment	9,198			0
Gain on sale of investment securities- available for sale	—			(158,952		)
Amortization of premiums and accretion of discounts, net	373,121			358,760
Gain on sale of other real estate owned	(55,631		)	(142,264		)
Loss (Gain) on sale of MBS- available for sale	535,585			(401,052		)
Gain on sale of loans	(366,942		)	(277,994		)
Gain on sale of investment securities- available for sale	(410,328		)	(141,527		)
Loans originated for sale	(27,082,667		)	(22,625,773		)
Gain on sale of other real estate owned	(164,036		)	(45,737		)
Proceeds from sale of loans originated for sale	34,846,111			23,991,690
Gain on sale of loans	(1,221,254		)	(1,159,488		)
Increase in cash surrender value of bank owned life insurance	(112,069		)	(112,652		)
Loans originated for sale	(88,853,173		)	(79,871,925		)
Decrease (increase) in other assets	1,298,962			(71,131		)
Proceeds from sale of loans originated for sale	89,295,669			97,089,797
Decrease in accrued interest receivable	35,985			162,993
Increase in cash surrender value of bank owned life insurance	(341,123		)	(341,920		)
Change in deferred income taxes	(110,100		)	141,899
Decrease in other assets	140,983			939,202
Increase in accounts payable, accrued expenses and other liabilities	158,894			133,485
Decrease (Increase) in accrued interest receivable	514,206			(136,501		)
Decrease in accrued interest payable	(45		)	(1,314		)
Change in deferred income taxes	1,670,350			349,462
Decrease in net deferred loan fees	(7,088		)	(3,707		)
Change in federal income taxes receivable	(149,812		)	556,344
Net cash provided by operating activities	8,714,740			1,614,846
Excess tax benefits from stock-based compensation	—			(2,450		)
Decrease in accounts payable, accrued expenses and other liabilities	332,353			479,441
Decrease in accrued interest payable	(5,242		)	(19,443		)
(Decrease) Increase in net deferred loan fees	(29,039		)	48,117
Net cash provided by operating activities	2,672,012			19,286,147
INVESTING ACTIVITIES:
Net decrease in loans receivable- held for investment	204,~~807~~533,~~454~~061			98,~~362~~724,~~865~~540
Purchase of mortgage-backed securities - available for sale	~~(26,766,513~~—		)	(3210,~~044~~107,~~549~~813		)
Purchase of investment securities - available for sale	(19,992,500		)	(55,539,675		)
Proceeds from sales, calls, and maturities of mortgage-backed securities	2,926,250			4,124,983
Proceeds from sales, calls, and maturities of mortgage-backed securities	26,648,840			34,406,574
Proceeds from sales, calls and maturities of investment securities-available for sale	50,058			7,256,884
Proceeds from sales, calls and maturities of investment securities-available for sale	42,101,101			21,020,771
Redemption of Federal Home Loan Bank Stock	688,000			—
Redemption of Federal Home Loan Bank Stock	867,600			704,700
Purchase of premises and equipment	(92,847		)	(124,930		)
Purchase of premises and equipment	(391,776		)	(234,806		)
Development of real estate acquired in settlement of loans	(16,826		)	(92,899		)
Development of real estate acquired in settlement of loans	(198,460		)	(40,939		)
Proceeds from sale of real estate acquired in settlement of loans	336,279			634,856
Proceeds from sale of real estate acquired in settlement of loans	1,585,133			2,646,585
Net cash provided by investing activities	8,423,975			10,415,621
Net cash provided by (used in) investing activities	44,660,879			(19,718,474		)
FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and savings accounts	12,029,385			21,399,884
Net (decrease) increase in demand deposits, NOW accounts and savings accounts	(11,204,029		)	5,911,914
Proceeds from issuance of certificates of deposit	17418,~~219,743~~375			316,~~669~~106,~~427~~680
Payments for maturing certificates of deposit	(262,~~991~~039,~~104~~400		)	(4514,~~299~~805,~~739~~339		)
Net increase in advance payments by borrowers for taxes and insurance	~~385~~312,~~671~~597			24239,~~428~~120
(Decrease) Increase in FHLB Advances	(16,000,000		)	1,000,000
Decrease in FHLB Advances	(12,000,000		)	(16,000,000		)
Proceeds from exercise of stock options	—			223,092
Net cash used in financing activities	(24,512,457		)	(8,547,625		)
Excess tax benefits from stock-based compensation	—			2,450
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(7,373,742		)	3,482,842
Net cash used in financing activities	(13,356,305		)	(18,980,458		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	41,429,277			4,401,853
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	33,976,586			(19,412,785		)
CASH AND CASH EQUIVALENTS, END OF PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	4,401,853			23,534,035
	$	34,055,535		$	7,884,695
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	38,378,439		$	4,121,250
CASH PAID DURING THE PERIOD FOR:
Income taxes	$	—		$	—
Interest	$	3822,~~644,695~~365		$	41,~~625~~286,~~311~~989
Non-cash transactions:
Real estate acquired in settlement of loans	$	1131,~~497,674~~120		$	21,~~309~~429,~~984~~400

See notes to consolidated financial statements.

Table of Contents

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SETPEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

1. Financial Statements

The Consolidated Financial Statements for the three ~~and nine~~ month ~~periods~~period ended ~~September 30~~March 31, ~~2012~~2013 and ~~2011~~2012 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 ~~September 30~~March 31, ~~2012~~2013, 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~~2012 (the “~~2011~~2012 Annual Report”), a copy of which is available at www.twsb.com and www.sec.gov. The results of operations for the ~~nine~~three month period ended ~~September 30~~March 31, ~~2012~~2013, 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 September 30,
	Three Months Ended March 31,
	2012							2011
	2013							2012
	Net Loss			Shares	Per Share			Net Income		Shares	Per Share
	(Numerator)			(Denominator)	Amount			(Numerator)		(Denominator)	Amount
Basic EPS
Net (loss) income available to Common Stockholders	$	(458,~~478~~348	)	78,~~995~~016,~~232~~607	$	(0.0001	)	$	~~409~~278,~~635~~044	7,995,232	$	0.0503
Effect of Dilutive Options Incremental Shares				—						—
Effect of Dilutive
Options
Incremental Shares				—						—
Diluted EPS
Net (loss) income available to Common Stockholders	$	(458,~~478~~348	)	78,~~995~~016,~~232~~607	$	(0.0001	)	$	~~409~~278,~~635~~044	7,995,232	$	0.0503

Table of Contents

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

	Nine Months Ended September 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	$	447,744	7,995,232	$	0.06	$	965,822	7,985,216	$	0.12
Effect of Dilutive Options Incremental Shares			—					571
Diluted EPS
Net income available to Common Stockholders	$	447,744	7,995,232	$	0.06	$	965,822	7,985,787	$	0.12

Options to purchase 5,000 shares of common stock were excluded in the computation of diluted EPS for the three months ended March 31, 2013 because their effect would have been antidilutive.

Options to purchase 33,875 shares of common stock were excluded in the computation of diluted EPS for the three ~~and nine~~ months ended ~~September 30~~March 31, 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 nine months ended September 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~~2013 or ~~2011~~2012. There was no pre-tax stock-based compensation during the three ~~and nine~~ months ending ~~September 30~~March 31, ~~2012~~2013 and ~~2011~~2012.

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 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.

Table of Contents

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

The ~~period~~following ~~during~~table ~~which~~summarizes anstock option ~~granted~~activity ~~under~~for the ~~Plan~~three ~~will~~month beperiod ~~exercisable,~~ended ~~as determined by the Administrator~~March, ~~will~~31 be2013: ~~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 nine month period ended September 30, 2012:

		Weighted		Weighted
		Average		Average	Aggregate
		Exercise		Remaining	Intrinsic
	Shares	Price		Life (Years)	Value

Outstanding at December 31, 2012	5,000	$	8.65
Exercised	—	—
Granted	—	—
Forfeited	—	—

Outstanding at March 31, 2013	5,000	$	8.65	4.1	$	0
Exercisable at March 31, 2013	5,000	$	8.65	4.1	$	0

		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 September 30, 2012	33,875	$	5.71	0.8	$	12,994
Exercisable at September 30, 2012	33,875	$	5.71	0.8	$	12,994

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.

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.

Table of Contents

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

~~Under~~in ~~the~~active ~~fair value measurement guidance~~markets, ~~we group assets~~ and ~~liabilities~~inputs atother ~~fair~~than ~~value~~quoted inprices ~~three~~that ~~levels,~~are ~~based~~observable onfor the ~~markets~~asset inor ~~which~~liability, ~~the~~such ~~assets~~as ~~and~~interest ~~liabilities~~rates ~~are traded~~ and ~~the~~yield ~~reliability~~curves ofthat ~~the~~are ~~assumptions~~observable ~~used~~at tocommonly ~~determine~~quoted ~~the fair value~~intervals. ~~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.

For the ~~nine~~three months ending ~~September 30~~March 31, ~~2012~~2013, there were no transfers between levels 1, 2 or 3.

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 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 March 31, 2013, 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

Table of Contents

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

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 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 September 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 are 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 ~~September 30~~March 31, ~~2012~~2013 and December 31, ~~2011~~2012:

	At September 30, 2012 (In thousands)
	At March 31, 2013 (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
	September 30, 2012		(Level 1)		(Level 2)		(Level 3)		Period Earnings
	March 31, 2013		(Level 1)		(Level 2)		(Level 3)		Period Earnings
Loans held-for-sale	$	10,~~688~~081	$		$	10,~~688~~081	$		$
Available-for-sale, FHLB Agencies callable	20,529		—		20,529		—		—
Available-for-sale, Agencies callable	58,937		—		58,937		—		—
Available-for-Sale, Municipal Bonds	~~2,332~~0		—		~~2,332~~0		—		—
Available-for-Sale Residential MBS	8121,~~836~~762		—		7421,~~713~~762		~~7,123~~—		—
	$	~~115~~90,~~385~~780	$	—	$	~~108~~90,~~262~~780	$	~~7,123~~—	$	—

Table of Contents

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

At December 31, 2011 (In thousands)

At December 31, 2012 (In thousands)

Quoted Prices in

Other

Significant

Total Changes

Active Markets for

Observable

Unobservable

in Fair Values

Carrying Value

Identical Assets

Inputs

Included in

December 31, 2011

(Level 1)

(Level 2)

(Level 3)

Period Earnings

December 31, 2012

(Level 1)

(Level 2)

(Level 3)

Period Earnings

Loans held-for-sale

1017,~~245~~844

Available-for-sale, FHLB Agencies callable

37,660

—

37,660

—

Available-for-sale, Agencies callable

59,118

—

59,118

—

Available-for-Sale, Municipal Bonds

~~2,330~~0

—

~~2,330~~0

—

Available-for-Sale, Corporate Bonds

~~4,947~~0

—

~~4,947~~0

Available-for-Sale Residential MBS

8024,~~808~~809

—

6424,~~449~~809

~~16,359~~—

—

~~135~~101,~~990~~771

—

~~119~~101,~~631~~771

~~16,359~~—

0—

Loans held-for-sale, which are carried at the lower of cost or market, did not have any impairment charge at ~~September 30~~March 31, ~~2012~~2013 and December 31, ~~2011~~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~~Liabilities asMeasured ofat ~~the~~Fair ~~actual~~Value date of the event or change in circumstances that caused the transfer. No assets were transferred to Level 3 during the period ending September 30, 2012. The change in the assets included in Level 3 was due to sales, principal repayments and the change in unrealized gains/losses for the nine month period ending September 30, 2012. The following assumptions were used for the Level 3 valuations on ~~the~~a ~~four~~Nonrecurring ~~remaining private-labeled MBS:~~Basis

~~· Estimated~~We ~~future~~may ~~defaults~~be ~~are~~required ~~derived~~from bytime anto ~~analysis~~time, ofto ~~the~~measure ~~performance~~certain ofassets ~~the~~at ~~underlying~~fair ~~collateral~~value ason ~~well~~a asnon-recurring ~~obtaining~~basis ~~models~~in ~~from~~accordance awith ~~third~~U.S. ~~party~~generally accepted accounting principles. ~~The~~ ~~model~~These ~~addresses~~include ~~each~~assets ~~component~~that are measured at the lower of cost or market that were recognized at fair value below cost at the ~~net~~end ~~present~~of the period. Assets measured at fair value ~~calculation,~~on ~~which~~a ~~includes~~nonrecurring ~~loss~~basis ~~severity~~at ~~rate~~March 31, ~~current~~2013 ~~default~~and ~~rate~~December 31, ~~and~~2012 ~~current~~are ~~voluntary~~included ~~prepayment~~in ~~rate.~~the tables below:

· 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.

	At March 31, 2013 (In thousands)
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Carrying Value		Identical Assets		Inputs		Inputs
	March 31, 2013		(Level 1)		(Level 2)		(Level 3)
Impaired Loans:
Residential Real estate	$	16,611	$	—	$	16,611	$	—
Construction	—		—		—		—
Land and land Acquisition	4,487		—		4,487		—
Commercial Real Estate and Commercial	12,800		—		12,800		—
Consumer	—		—		—		—
Total Impaired Loans	33,898		—		33,898		—

Real estate acquired in settlement of loans:
Residential Real estate	$	874	$	—	$	874	$	—
Construction	912		—		912		—
Land and land Acquisition	1,578		—		1,578		—
Commercial Real Estate and Commercial	1,698		—		1,698		—
Consumer	—		—		—		—
Total Real estate acquired in settlement of loans:	5,062		—		5,062		—

Total	$	38,960	$	—	$	38,960	$	—

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 nine months ended September 30, 2012 and year ended December 31, 2011.

Table of Contents

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

	Fair Value Measurements
	At December 31, 2012 (In thousands)
	Using Significant Unobservable Inputs
				Quoted Prices in			Other		Significant
	(Level 3)
				Active Markets for			Observable		Unobservable
	Private Labeled Mortgage-Backed
	Carrying Value			Identical Assets			Inputs		Inputs
	Securities-Available for Sale at
	December 31, 2012			(Level 1)			(Level 2)		(Level 3)
	September 30, 2012			December 31, 2011
Impaired Loans:
Beginning Balance	$	16,359		$	23,365
Residential Real estate	$	15,134		$	—		$	15,134	$	—
Accretion/Amortization of Discount/Premiums	4			9
Construction	—			—			—		—
Sales	(5,849		)	—
Land and land Acquisition	4,770			—			4,770		—
Payments received	(4,186		)	(7,926		)
Commercial Real Estate and Commercial	12,616			—			12,616		—
Difference in Unrealized gain (loss)	795			911
Consumer	5			—			5		—
Other than temporary impairment	—			—
Total Impaired Loans	32,525			—			32,525		—
Ending Balance	$	7,123		$	16,359
Real estate acquired in settlement of loans:
Residential Real estate	$	621		$	—		$	621	$	—
Construction	913			—			913		—
Land and land Acquisition	1,447			—			1,447		—
Commercial Real Estate and Commercial	2,201			—			2,201		—
Consumer	—			—			—		—
Total Real estate acquired in settlement of loans:	5,182			—			5,182		—
Total	$	37,707		$	—		$	37,707	$	—

~~Assets~~Impaired ~~and~~loans, ~~Liabilities~~which ~~Measured~~are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $35.0 million, with a related valuation allowance of $1.1 million, at ~~Fair~~March 31, ~~Value~~2013 oncompared to a ~~Nonrecurring~~principal ~~Basis~~balance of $33.7 million, with a related valuation allowance of $1.2 million, at December 31, 2012.

WeReal ~~may~~estate beacquired ~~required~~in ~~from~~settlement ~~time~~of toloans ~~time,~~is tocarried ~~measure~~at ~~certain~~the ~~assets~~lower atof our recorded investment or fair value onat athe ~~non~~date of acquisition. Write-~~recurring~~downs ~~basis~~to infair ~~accordance~~value ~~with~~at Uthe date of acquisition are charged to the allowance for loan losses.S. Subsequent ~~generally~~write ~~accepted~~downs ~~accounting~~are ~~principles~~included in non-interest expense. Costs ~~These~~relating ~~include~~to ~~assets~~the ~~that~~development and improvement of a property are ~~measured~~capitalized, whereas those relating to holding the property are charged to expense when incurred. The real estate is carried at the lower of ~~cost~~acquisition or ~~market~~fair ~~that~~value ~~were~~net ~~recognized~~of atestimated ~~fair~~costs ~~value~~to ~~below~~sell ~~cost~~subsequent atto ~~the~~acquisition. Operating ~~end~~expenses of ~~the~~real ~~period.~~estate ~~Assets~~owned ~~measured~~are atreflected ~~fair~~in other non-interest expenses. The value onof aother ~~nonrecurring~~real ~~basis~~estate atowned ~~September~~“OREO” ~~30,~~properties ~~2012~~held ~~and~~due ~~December~~to foreclosures at March 31, ~~2011~~2013 ~~are~~was ~~included~~$5.1 inmillion ~~the~~compared ~~tables~~to ~~below:~~$5.2 million at December 31, 2012.

	At September 30, 2012 (In thousands)
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Carrying Value		Identical Assets		Inputs		Inputs
	September 30, 2012		(Level 1)		(Level 2)		(Level 3)
Impaired Loans:
Residential Real estate	$	14,603	$	—	$	14,603	$	—
Construction	—		—		—		—
Land and land Acquisition	4,870		—		4,870		—
Commercial Real Estate and Commercial	13,277		—		13,277		—
Consumer	7		—		7		—
Total Impaired Loans	32,757		—		32,757		—
Real estate acquired in settlement of loans:
Residential Real estate	$	593	$	—	$	593	$	—
Construction	912		—		912		—
Land and land Acquisition	1,551		—		1,551		—
Commercial Real Estate and Commercial	1,850		—		1,850		—
Total Real estate acquired in settlement of loans:	4,906		—		4,906		—
Total	$	37,663	$	—	$	37,663	$	—

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

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.

Table of Contents

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

	At December 31, 2011 (In thousands)
	March 31, 2013 (In thousands)								December 31, 2012 (In thousands)
			Quoted Prices in		Other		Significant
			Quoted Prices		Significant		Significant				Quoted Prices		Significant		Significant
			Active Markets for		Observable		Unobservable
			in Active		Other		Other				in Active		Other		Other
	Carrying Value		Identical Assets		Inputs		Inputs
	Carrying		Markets for		Observable		Unobservable		Carrying		Markets for		Observable		Unobservable
	December 31, 2011		(Level 1)		(Level 2)		(Level 3)
	Amount		Identical Assets		Inputs		Inputs		Amount		Identical Assets		Inputs		Inputs
Impaired Loans:
	(000’s)		(Level 1)		(Level 2)		(Level 3)		(000’s)		(Level 1)		(Level 2)		(Level 3)
Residential Real estate	$	12,531	$	—	$	12,531	$	—
Assets:
Construction	—		—		—		—
Cash and cash equivalents	$	34,056	$	—	$	34,056	$	—	$	41,429	$	—	$	41,429	$	—
Land and land Acquisition	3,203		—		3,203		—
Loans receivable, net	181,979		—		183,334		—		194,045		—		196,180		—
Commercial Real Estate and Commercial	12,661		—		12,661		—
Mortgage-backed securities:
Consumer	—		—		—		—
Available for sale	21,762		—		21,762		—		24,809		—		24,809		—
Total Impaired Loans	28,395		—		28,395		—
Investment securities:
Real estate acquired in settlement of loans:
Available for sale	58,937		—		58,937		—		59,118		—		59,118		—
Residential Real estate	$	739	$	—	$	739	$	—
Investment in Federal Home
Construction	744		—		744		—
Loan Bank stock	2,948		—		2,948		—		3,636		—		3,636		—
Land and land Acquisition	2,176		—		2,176		—
Bank Owned Life Insurance	12,937		—		12,937		—		12,825		—		12,825		—
Commercial Real Estate and Commercial	1,162		—		1,162		—
Liabilities:
Total Real estate acquired in settlement of loans:	4,821		—		4,821		—
Deposits:
Total	$	33,216	$	—	$	33,216	$	—
Non-interest-bearing	6,015		—		6,015		—		6,668		—		6,668		—
Interest bearing	212,592		—		213,876		—		224,764		—		226,162		—
Borrowings	56,000		—		57,188		—		68,000		—		69,385		—

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $33.8 million, with a related valuation allowance of $1.1 million, at September 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 September 30, 2012 was $4.9 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.

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(unaudited)

	September 30, 2012								December 31, 2011
			Quoted Prices		Significant		Significant				Quoted Prices		Significant		Significant
			in Active		Other		Other				in Active		Other		Other
	Carrying		Markets for		Observable		Unobservable		Carrying		Markets for		Observable		Unobservable
	Amount		Identical Assets		Inputs		Inputs		Amount		Identical Assets		Inputs		Inputs
	(000’s)		(Level 1)		(Level 2)		(Level 3)		(000’s)		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	38,378	$	—	$	38,378	$	—	$	4,402	$	—	$	4,402	$	—
Loans receivable, net	194,102		—		197,397		—		215,599		—		219,198		—
Mortgage-backed securities:
Available for sale	81,836		—		74,713		7,123		80,808		—		64,449		16,359
Investment securities:
Available for sale	22,861		—		22,861		—		44,937		—		44,937		—
Investment in Federal Home Loan Bank stock	3,636		—		3,636		—		4,504		—		4,504		—
Bank Owned Life Insurance	12,710		—		12,710		—		12,369		—		12,369		—
Liabilities:
Deposits:
Non-interest-bearing	5,979		—		5,979		—		5,256		—		5,256		—
Interest bearing	241,324		—		243,632		—		239,795		—		240,958		—
Borrowings	68,000		—		69,518		—		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.

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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.~~14

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 September 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 September 30, 2012 and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

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 March 31, 2013 and December 31, 2012. 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 March 31, 2013 and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

5. Loans

The following table summarizes loans at ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012.

	September 30, 2012			December 31, 2011
	March 31, 2013			December 31, 2012
FIRST MORTGAGE LOANS:
Secured by single-family residences	$	7167,~~338~~215,~~353~~875		$	7967,~~719~~113,~~713~~044
Secured by 5 or more- residential	2,~~227~~192,~~978~~150			32,~~068~~211,~~229~~044
Secured by other properties	3228,~~563~~744,~~102~~525			3530,~~357~~111,~~446~~544
Construction loans	34,~~657~~407,~~404~~163			34,~~984~~495,~~630~~641
Land and land development loans	65,~~541~~804,~~428~~840			76,~~450~~085,~~684~~545
Land acquisition loans	~~294~~285,~~070~~203			~~492~~290,~~120~~249
	116,622,335			130,072,822
	108,649,756			110,307,067
SECOND MORTGAGE LOANS	1,~~686~~660,~~369~~786			1,~~977~~678,~~851~~060
COMMERCIAL AND OTHER LOANS:
Commercial -secured by real estate	6662,~~489~~562,~~258~~447			7665,~~607~~498,~~916~~712
Commercial	1,~~902~~783,~~447~~005			21,~~735~~838,~~036~~454
Loans secured by savings accounts	~~169~~179,~~384~~254			~~149~~166,~~992~~699
Consumer installment loans	~~285~~238,~~787~~263			~~354~~250,~~317~~487
	187,155,580			211,897,934
	175,073,510			179,739,479
LESS:
Allowance for loan losses	(32,~~350~~795,~~630~~109		)	(63,~~124~~151,~~116~~476		)
Deferred loan fees, net	(~~391~~380,~~191~~101		)	(~~420~~387,~~230~~189		)
TOTAL LOANS RECEIVABLE HELD-FOR-INVESTMENT	$	~~183~~171,~~413~~898,~~759~~301		$	~~205~~176,~~353~~200,~~588~~814

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.15

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

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

~~potential~~First ~~for~~mortgage ~~builder~~loans ~~cost~~secured ~~overruns~~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 ~~builder~~inability ~~being~~of ~~unable~~the borrower to ~~complete~~maintain occupancy for investment properties, and an appraisal on a property is not reflective of the ~~construction~~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.

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.

18Allowance for loan losses and recorded investment in loans for the three month periods ended March31, 2013 and 2012 is summarized as follows:

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

Allowance for loan losses and recorded investment in loans for the three and nine month periods ended September 30, 2012 and 2011 is summarized as follows:

	Three Months Ended March 31, 2013
	Residential Real Estate			Construction			Land and Land Acquisition			Commercial Real Estate and Commercial			Consumer			Total
	(dollars in thousands)

Allowance for loan losses:
Beginning balance	$	1,697		$	89		$	163		$	1,197		$	5		$	3,151
Charge-offs	(501		)	—			(49		)	(35		)	(5		)	(590		)
Recoveries	2			—			2			230			—			234
Provisions	(41		)	(77		)	(22		)	136			4			—
Ending Balance	1,157			12			94			1,528			4			2,795

Ending Balance: individually evaluated for impairment	531			—			57			476			—			1,064
Ending Balance: collectively evaluated for impairment	626			12			37			1,052			4			1,731
	1,157			12			94			1,528			4			2,795

Loans:
Ending Balance	$	99,813		$	4,407		$	6,090		$	64,346		$	418		$	175,074
Ending Balance: individually evaluated for impairment	17,143			—			4,544			13,275			—			34,962
Ending Balance: collectively evaluated for impairment	82,670			4,407			1,546			51,071			418			140,112

	Three Months Ended September 30, 2012
	Three Months Ended March 31, 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,~~158~~740		$	5867		$	~~306~~395		$	12,~~022~~914		$	68		$	36,~~550~~124
Charge-offs	(67737		)	—			(~~146~~234		)	(251,375		)	—			(~~238~~2,346		)
Recoveries	31			—			21			3410			—			3912
Provisions	~~(319~~318		)	(727		)	87213			~~241~~(501		)	(23		)	—
Ending Balance	12,~~775~~322			5140			~~249~~375			1,~~272~~048			45			3,~~351~~790
Ending Balance: individually evaluated for impairment	515			—			103			343			—			961
Ending Balance: collectively evaluated for impairment	1,807			40			272			705			5			2,829
Loans:
Ending Balance	$	114,076		$	3,807		$	7,699		$	73,617		$	488		$	199,687
Ending Balance: individually evaluated for impairment	10,143			—			2,831			10,552			—			23,526
Ending Balance: collectively evaluated for impairment	103,933			3,807			4,868			63,065			488			176,161

	Nine Months Ended September 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	(836		)	—			(464		)	(1,534		)	—			(2,834		)
Recoveries	14			—			4			43			—			61
Provisions	(143		)	(16		)	314			(151		)	(4		)	—
Ending Balance	1,775			51			249			1,272			4			3,351
Ending Balance: individually evaluated for impairment	567			—			82			411			—			1,060
Ending Balance: collectively evaluated for impairment	1,208			51			167			861			4			2,291
	1,775			51			249			1,272			4			3,351
Loans:
Ending Balance	$	107,816		$	3,657		$	6,836		$	68,392		$	455		$	187,156
Ending Balance: individually evaluated for impairment	15,170			—			4,952			13,688			7			33,817
Ending Balance: collectively evaluated for impairment	92,646			3,657			1,884			54,704			448			153,339

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

	Three Months Ended September 30, 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	$	2,894		$	29		$	2,040		$	3,158		$	5		$	8,126
Charge-offs	(225		)	—			(198		)	(74		)	(2		)	(499		)
Recoveries	1			—			2			9			1			13
Provisions	535			(12		)	201			(628		)	4			100
Ending Balance	3,205			17			2,045			2,465			8			7,740

	Nine Months Ended September 30, 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	(652		)	—			(1,542		)	(508		)	(4		)	(2,706		)
Recoveries	14			—			2			9			1			26
Provisions	952			(309		)	653			(1,103		)	7			200
Ending Balance	3,205			17			2,045			2,465			8			7,740
Ending Balance: individually evaluated for impairment	1,607			—			1,242			1,419			—			4,268
Ending Balance: collectively evaluated for impairment	1,598			17			803			1,046			8			3,472
	3,205			17			2,045			2,465			8			7,740
Loans:
Ending Balance	$	118,855		$	3,816		$	10,005		$	86,981		$	454		$	220,111
Ending Balance: individually evaluated for impairment	9,544			—			4,861			13,555			—			27,960
Ending Balance: collectively evaluated for impairment	109,311			3,816			5,144			73,426			454			192,151

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 ~~September~~March 3031, ~~2012~~2013 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.

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(unaudited)

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 consist 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 it 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~~at ~~the periods ending September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012 is as follows:

As of September 30, 2012

Residential Real Estate

Construction

Land and Land Acquisition

Commercial Real Estate and Commercial

Consumer

Total

At March 31, 2013

Residential Real Estate

Construction

Land and Land Acquisition

Commercial Real Estate and Commercial

Consumer

Total

(dollars in thousands)

Pass

9390,~~674~~446

34,~~657~~407

2,~~362~~028

5451,~~899~~358

~~448~~418

~~155~~148,~~040~~657

Special Mention

21,~~578~~200

—

~~492~~463

—

31,~~070~~663

Substandard

118,~~490~~113

—

4,~~429~~021

1312,~~001~~525

7—

2824,~~927~~659

Doubtful/Loss

7454

—

4541

—

~~119~~95

Total

~~107~~99,~~816~~813

34,~~657~~407

6,~~836~~090

6864,~~392~~346

~~455~~418

~~187~~175,~~156~~074

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

For the year ended December 31, 2011

Residential Real Estate

Construction

Land and Land Acquisition

Commercial Real Estate and Commercial

Consumer

Total

For the year ended December 31, 2012

Residential Real Estate

Construction

Land and Land Acquisition

Commercial Real Estate and Commercial

Consumer

Total

(dollars in thousands)

Pass

~~101~~90,~~738~~846

34,~~985~~496

31,~~726~~916

5053,~~130~~279

~~504~~412

~~160~~150,~~083~~949

Special Mention

41,~~501~~111

—

5825

~~12,251~~477

—

161,~~810~~613

Substandard

139,~~724~~082

—

34,~~889~~390

1613,~~875~~581

—5

3427,~~488~~058

Doubtful/Loss

~~160~~74

—

~~270~~45

87—

—

~~517~~119

Total

~~120~~101,~~123~~113

34,~~985~~496

76,~~943~~376

7967,~~343~~337

~~504~~417

~~211~~179,~~898~~739

Information on impaired loans ~~for~~at ~~periods ended September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012 is as follows:

			Unpaid
For the nine month period	Recorded		Principal		Related
	Recorded		Principal		Related
ending September 30, 2012	Investment		Balance		Allowance
At March 31, 2013	Investment		Balance		Allowance
	(dollars in thousands)
With no related allowance recorded:
Residential Real Estate	$	47,~~380~~627	$	47,~~380~~627	$	—
Construction	—		—		—
Land and Land Acquisition	2,~~177~~260		2,~~177~~260		—
Commercial Real Estate and Commercial	2,~~628~~183		2,~~628~~183		—
Consumer	7—		7—		—
With an allowance recorded:
Residential Real Estate	$	108,~~223~~984	$	109,~~790~~515	$	~~567~~531
Construction	—		—		—
Land and Land Acquisition	2,~~693~~227		2,~~775~~284		8257
Commercial Real Estate and Commercial	10,~~649~~617		11,~~060~~093		~~411~~476
Consumer	—		—		—
Total
Residential Real Estate	$	1416,~~603~~611	$	1517,~~170~~142	$	~~567~~531
Construction	—		—		—
Land and Land Acquisition	4,~~870~~487		4,~~952~~544		8257
Commercial Real Estate and Commercial	1312,~~277~~800		13,~~688~~276		~~411~~476
Consumer	7		7		—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

			Unpaid
For the year ended	Recorded		Principal		Related
	Recorded		Principal		Related
December 31, 2011	Investment		Balance		Allowance
As of December 31, 2012	Investment		Balance		Allowance
	(dollars in thousands)
With no related allowance recorded:
Residential Real Estate	$	15,~~569~~166	$	25,~~467~~166	$	—
Construction	—		—		—
Land and Land Acquisition	12,~~273~~157		2,~~300~~157		—
Commercial Real Estate and Commercial	~~101~~2,159		~~101~~2,159		—
Consumer	—5		—5		—
With an allowance recorded:
Residential Real Estate	$	109,~~962~~968	$	1210,~~019~~534	$	~~1,057~~573
Construction	—		—		—
Land and Land Acquisition	12,~~930~~613		2,~~213~~687		~~283~~74
Commercial Real Estate and Commercial	1210,~~560~~457		1411,~~155~~030		~~1,595~~566
Consumer	—		—		—
Total
Residential Real Estate	$	1215,~~531~~134	$	1415,~~486~~700	$	~~1,057~~573
Construction	—		—		—
Land and Land Acquisition	34,~~203~~770		4,~~513~~844		~~283~~74
Commercial Real Estate and Commercial	12,~~661~~616		1413,~~256~~189		~~1,595~~566
Consumer	—5		—5		—

Information on the average recorded investment and interest income recognized on impaired loans for three ~~and nine~~ month periods ending ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012 are as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

	Three Months ended
	September 30, 2012				September 30, 2011
	March 31, 2013				March 31, 2012
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
	(dollars in thousands)
With no related allowance recorded:
Residential Real Estate	$	58,~~941~~818	$	7098	$	~~927~~7,357	$	1148
Construction	—		—		—		—
Land and Land Acquisition	3,~~598~~674		2430		1,~~464~~887		2913
Commercial Real Estate and Commercial	2,~~988~~433		83		~~250~~3,759		317
Consumer	7—		—		2—		—
With an allowance recorded:
Residential Real Estate	$	109,~~823~~545	$	~~114~~100	$	710,~~543~~169	$	~~121~~134
Construction	—		—		—		—
Land and Land Acquisition	2,~~810~~284		165		2,~~444~~834		1821
Commercial Real Estate and Commercial	11,~~071~~114		~~160~~122		1110,~~861~~587		~~120~~128
Consumer	—		—		—		—
Total
Residential Real Estate	$	1618,~~764~~363	$	~~184~~198	$	817,~~470~~526	$	~~132~~182
Construction	—		—		—		—
Land and Land Acquisition	65,~~408~~958		4035		34,~~908~~721		4734
Commercial Real Estate and Commercial	1413,~~059~~547		~~168~~125		1214,~~111~~346		~~123~~145
Consumer	7—		—		2—		—

24An age analysis of past due loans as of March 31, 2013 and December 31, 2012 is as follows:

	Two payments		Three payments		Non-Accrual		Total
As of March 31, 2013	Past Due		Past Due		Loans		Past Due		Current		Total
	(dollars in thousands)
Residential Real Estate	$	1,356	$	567	$	6,855	$	8,778	$	91,035	$	99,813
Construction	—		—		—		—		4,407		4,407
Land and Land Acquisition	—		—		3,783		3,783		2,307		6,090
Commercial Real Estate and Commercial	671		—		10,804		11,475		52,871		64,346
Consumer	—		—		—		—		418		418
Total	$	2,027	$	567	$	21,442	$	24,036	$	151,038	$	175,074

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

	Nine Months ended
	2 payments		3 payments		Non-Accrual		Total
	September 30, 2012				September 30, 2011
As of December 31, 2012	Past Due		Past Due		Loans		Past Due		Current		Total
	Average		Interest		Average		Interest
	(dollars in thousands)
	Recorded		Income		Recorded		Income
Residential Real Estate	$	1,842	$	1,329	$	5,088	$	8,259	$	92,855	$	101,114
	Investment		Recognized		Investment		Recognized
Construction	—		—		—		—		4,496		4,496
	(dollars in thousands)
Land and Land Acquisition	—		25		6,349		6,374		1		6,375
With no related allowance recorded:
Commercial Real Estate and Commercial	3,043		988		8,290		12,321		55,016		67,337
Residential Real Estate	$	5,950	$	147	$	955	$	21
Consumer	—		—		5		5		412		417
Construction	—		—		—		—
Total	$	4,885	$	2,342	$	19,732	$	26,959	$	152,780	$	179,739
Land and Land Acquisition	3,601		50		1,464		38
Commercial Real Estate and Commercial	2,988		46		289		26
Consumer	8		—		—		—
With an allowance recorded:
Residential Real Estate	$	10,886	$	377	$	7,344	$	224
Construction	—		—		—		—
Land and Land Acquisition	2,885		58		2,164		53
Commercial Real Estate and Commercial	11,094		405		11,809		366
Consumer	—		—		—		—
Total
Residential Real Estate	$	16,836	$	524	$	8,299	$	245
Construction	—		—		—		—
Land and Land Acquisition	6,486		108		3,628		91
Commercial Real Estate and Commercial	14,082		451		12,098		392
Consumer	8		—		—		—

AnLoans ~~age~~on ~~analysis~~which the recognition of ~~past~~interest ~~due~~has ~~loans~~been asdiscontinued ofamounted ~~September~~to approximately $21.4 million and $19.7 million at March 3031, 2013 and December 31, 2012, respectively. If interest income had been recognized on those loans at their stated rates during the period ending March 31, 2013 and year ended December 31, ~~2011~~2012, isinterest asincome ~~follows:~~would have been increased by approximately $2.3 million and $2.0 million, respectively. The total allowance for loan losses on our impaired loans was approximately $1.2 million at March 31, 2013 and $512,000 million at December 31, 2012.

For the nine month period	Two payments		Three payments		Non-Accrual		Total
ending September 30, 2012	Past Due		Past Due		Loans		Past Due		Current		Total
	(dollars in thousands)
Residential Real Estate	$	1,899	$	501	$	5,108	$	7,508	$	100,308	$	107,816
Construction	—		—		—		—		3,657		3,657
Land and Land Acquisition	—		71		4,118		4,189		2,647		6,836
Commercial Real Estate and Commercial	985		—		5,109		6,094		62,298		68,392
Consumer	—		—		7		7		448		455
Total	$	2,884	$	572	$	14,342	$	17,798	$	169,358	$	187,156

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 $37.9 million and $36.6 million for the three month periods ending March 31, 2013 and March 31, 2012, respectively.

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 $14.3 million and $12.8 million at September 30, 2012 and December 31, 2011, respectively. If interest income had been recognized on those loans at their stated rates during the period ending September 30, 2012 and year ended December 31, 2011, interest income would have been increased by approximately $1.7 million and $1.1 million, respectively. The total allowance for loan losses on our impaired loans was approximately $1.1 million at September 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 $37.4 million and $24.0 million for the nine month periods ending September 30, 2012 and September 30, 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 $22.84 million in TDRs at ~~September~~March 3031, ~~2012~~2013, with approximately $~~520~~419,000 added during the ~~nine~~three month period ending ~~September~~March 3031, ~~2012~~2013, the majority of which were on accrual status.

The following presents by class, information related to loans in a TDR at ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

	TDRs on Non-		TDRs on		Total
September 30, 2012 (in thousands)	Accrual Status		Accrual Status		TDRs
March 31, 2013 (in thousands)	Accrual Status		Accrual Status		TDRs
Residential Real Estate	$	1,~~133~~190	$	89,~~420~~907	$	911,~~553~~097
Land and Lot Loans	1,~~283~~061		~~834~~761		21,~~117~~822
Commercial Real Estate	~~885~~6,597		102,~~221~~851		119,~~106~~448
Total TDRs	$	38,~~301~~848	$	1913,~~475~~519	$	22,~~776~~367

	TDRs on Non-		TDRs on		Total
December 31, 2011 (in thousands)	Accrual Status		Accrual Status		TDRs
December 31, 2012 (in thousands)	Accrual Status		Accrual Status		TDRs
Residential Real Estate	$	~~267~~775	$	79,~~349~~907	$	710,~~616~~682
Construction Loans	—		—		—
Land and Lot Loans	~~931~~943		~~1,689~~762		21,~~620~~705
Commercial Real Estate	~~687~~6,977		93,~~453~~337		10,~~140~~314
Total TDRs	$	18,~~885~~695	$	1814,~~491~~006	$	2022,~~376~~701

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 three ~~and nine~~ months ending ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012.

	Loans Modified as a TDR for the Three Months Ended
	September 30, 2012			September 30, 2011
	March 31, 2013			March 31, 2012
Troubled Debt Restructurings:	Number of	Recorded Investment		Number of	Recorded Investment
(dollars in thousands)	Contracts	(as of period end)		Contracts	(as of period end)
Residential Real Estate	61	$	~~520~~179	26	$	~~824~~1,478
Land and Lot Loans	—	—		1—	73—
Commerical Real Estate	—1	—210		1—	~~617~~—
Total TDRs	62	$	~~520~~389	46	$	1,~~514~~478

	Loans Modified as a TDR for the Nine Months Ended
	September 30, 2012			September 30, 2011
Troubled Debt Restructurings:	Number of	Recorded Investment		Number of	Recorded Investment
(dollars in thousands)	Contracts	(as of period end)		Contracts	(as of period end)
Residential Real Estate	14	$	2,409	12	$	3,305
Land and Lot Loans	1	$	71	4	$	907
Commerical Real Estate	—	—		7	1,834
Total TDRs	15	$	2,480	23	$	6,046

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~September~~MARCH 3031, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

The following reflects a summary of TDR loan modifications outstanding and respective performance under the modified terms as of ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012:

	TDRs		TDRs Not
	Performing to		Performing to		Total
September 30, 2012 (in thousands)	Modified Terms		Modified Terms		TDRs
March 31, 2013 (in thousands)	Modified Terms		Modified Terms		TDRs
Residential Real Estate
Rate reduction	$	78,~~837~~251	$	~~829~~324	$	8,~~666~~575
Extension or other modification	~~583~~757		~~304~~287		~~887~~1,044
Total residential TDRs	$	89,~~420~~008	$	~~1,133~~611	$	9,~~553~~619
Land and Lot Loans:
Rate reduction	$	~~763~~761	$	1,~~252~~030	$	21,~~015~~791
Extension or other modification	71—		31		~~102~~31
Total Land and Lot Loans	$	~~834~~761	$	1,~~283~~061	$	21,~~117~~822
Commercial:
Rate reduction	$	81,~~460~~999	$	~~886~~7,175	$	9,~~346~~174
Extension or other modification	1,~~760~~752		—		1,~~760~~752
Total commerical TDRs	$	103,~~220~~751	$	~~886~~7,175	$	1110,~~106~~926
Total TDRs	$	1913,~~474~~520	$	38,~~302~~847	$	22,~~776~~367

	TDRs		TDRs Not
	Performing to		Performing to		Total
December 31, 2011 (in thousands)	Modified Terms		Modified Terms		TDRs
December 31, 2012 (in thousands)	Modified Terms		Modified Terms		TDRs
Residential Real Estate
Rate reduction	$	69,~~509~~021	$	~~527~~924	$	79,~~036~~945
Extension or other modification	~~579~~581		—156		~~579~~737
Total residential TDRs	$	79,~~088~~602	$	~~527~~1,080	$	710,~~615~~682
Land and Lot Loans:
Rate reduction	$	~~1,079~~762	$	~~989~~912	$	21,~~068~~674
Extension or other modification	~~553~~—		—31		~~553~~31
Total Land and Lot Loans	$	~~1,632~~762	$	~~989~~943	$	21,~~621~~705
Commercial:
Rate reduction	$	~~8,050~~875	$	27,~~090~~536	$	108,~~140~~411
Extension or other modification	—		1,903		—1,903
Total commerical TDRs	$	~~8,050~~875	$	29,~~090~~439	$	10,~~140~~314
Total TDRs	$	1611,~~770~~239	$	311,~~606~~462	$	2022,~~376~~701

28The following presents loans modified in a TDR that defaulted during the three months ended March 31, 2013 and 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.

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

The following presents loans modified in a TDR that defaulted during the three and nine months ended September 30, 2012 and 2011, 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.

	Three Months ended
TDRs that Defaulted During the Period,	March 31, 2013			March 31, 2012
Within Twelve Months of Modification Date	Number of	Recorded Investment		Number of	Recorded Investment
(dollars in thousands)	Contracts	(as of period end)		Contracts	(as of period end)

Residential Real Estate	4	$	281	5	$	417
Lot Loans	—	—		1	146
Commercial Real Estate	—	—		1	613

Total TDRs	4	$	281	7	$	1,176

	Three Months ended
TDRs that Defaulted During the Period,	September 30, 2012			September 30, 2011
Within Twelve Months of Modification Date	Number of	Recorded Investment		Number of	Recorded Investment
(dollars in thousands)	Contracts	(as of period end)		Contracts	(as of period end)
Residential Real Estate	2	$	106	3	$	726
Lot Loans	—	—		2	528
Commercial Real Estate	—	—		—	—
Total TDRs	2	$	106	5	$	1,254

	Nine Months ended
TDRs that Defaulted During the Period,	September 30, 2012			September 30, 2011
Within Twelve Months of Modification Date	Number of	Recorded Investment		Number of	Recorded Investment
(dollars in thousands)	Contracts	(as of period end)		Contracts	(as of period end)
Residential Real Estate	8	$	1,088	9	$	1,789
Lot Loans	3	326		12	1,514
Commercial Real Estate	2	879		4	7,070
Total TDRs	13	$	2,293	25	$	10,373

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(unaudited)

6. Investments and Mortgage-Backed Securities

Investment securities consist of the following:

	September 30, 2012
	March 31, 2013
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
AVAILABLE FOR SALE:
FHLB Agencies	$	2012,~~446~~351,~~275~~874	$	8241,~~614~~695	$	—32,030	$	2012,~~528~~361,~~889~~539
Farmer Mac	—6,997,649		—3,400		—2,769		—6,998,280
Municipal Bonds	2,288,222		43,895		—		2,332,117
FNMA Agencies	33,597,985		9,672		75,784		33,531,873
	$	22,734,497	$	126,509	$	—	$	22,861,006
FHLMC Agencies	6,051,856		4,187		11,144		6,044,899
	$	58,999,364	$	58,954	$	121,727	$	58,936,591

	December 31, 2011
	December 31, 2012
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
AVAILABLE FOR SALE:
FHLB Agencies	$	3212,~~139~~401,~~478~~830	$	~~505~~68,~~954~~247	$	—22,474	$	3212,~~645~~447,~~432~~603
Farmer Mac	56,~~000~~997,~~000~~553		142,~~350~~550		—3,793		56,~~014~~996,~~350~~310
Corporate Bonds	5,000,000		—		53,160		4,946,840
FNMA Agencies	33,613,844		45,714		47,618		33,611,940
Municipal Bonds	2,291,578		38,985		—		2,330,563
FHLMC Agencies	6,065,936		6,584		10,500
	$	4459,~~431~~079,~~056~~163	$	~~559~~123,~~289~~095	$	5384,~~160~~385	$	4459,~~937~~117,~~185~~873

30There were no proceeds from the sales and calls of investment securities for the three months ending March 31, 2013.

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

Proceeds from the sales and calls of investment securities were as follows for the three months ending March 31, 2012:

	March 31, 2012
					Gross Realized
	Carrying				Gain
	Value		Proceeds		on sales

FHLB - Agency Callable - Called	$	5,000,000	$	5,000,000	$	—
FHLB - Agency Callable - Sold	1,808,311		1,967,263		158,952
	$	6,808,311	$	6,967,263	$	158,952

Mortgage-backed securities consisted of the following:

	September 30, 2012
	March 31, 2013
				Gross		Gross		Estimated
	Amortized			Unrealized		Unrealized		Fair
	Cost			Gains		Losses		Value
AVAILABLE FOR SALE:
GNMA certificates	$	8,292,852		$	77,570	$	—	$	8,370,422
FHLMC pass-through certificates	$	2,839,353		$	133,222	$	—	$	2,972,575
Private label collaterized mortgage obligations	6,994,295			138,982		10,156		7,123,121
FNMA pass-through certificates	7,980,085			426,897		—		8,406,982
FHLMC pass-through certificates	28,546,644			1,144,745		—		29,691,389
Other pass-through certificates	9,645,717			737,221		—		10,382,938
FNMA pass-through certificates	25,015,720			799,634		—		25,815,354
	$	20,465,155		$	1,297,340	$	—	$	21,762,495
Other pass-through certificates	10,110,012			725,802		—		10,835,814
Weighted average interest rate	3.26		%
	$	78,959,523		$	2,886,733	$	10,156	$	81,836,100
Weighted average interest rate	3.57		%

	December 31, 2011
	December 31, 2012
				Gross		Gross		Estimated
	Amortized			Unrealized		Unrealized		Fair
	Cost			Gains		Losses		Value
AVAILABLE FOR SALE:
GNMA certificates	$	7,126,518		$	226,129	$	—	$	7,352,647
FHLMC pass-through certificates	$	3,220,880		$	141,916	$	—	$	3,362,796
Private label collaterized mortgage obligations	17,026,220			17,241		684,135		16,359,326
FNMA pass-through certificates	8,667,364			467,908		—		9,135,272
FHLMC pass-through certificates	27,928,332			530,987		—		28,459,319
Other pass-through certificates	11,536,733			774,564		—		12,311,297
FNMA pass-through certificates	20,036,967			443,052		—		20,480,019
	$	23,424,977		$	1,384,388	$	—	$	24,809,365
Other pass-through certificates	7,634,231			522,715		—		8,156,946
Weighted average interest rate	3.58		%
	$	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.

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

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.

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:

	September 30, 2012				December 31, 2011
	March 31, 2013				December 31, 2012
			Continuous				Continuous
	Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses
Less than 12 months
Other pass-through certificates	$	—	$	—	$	—	$	—
Callable Agencies	$	37,507,653	$	121,727	$	24,043,600	$	84,384
Private label collaterized mortgage obligations	—		—		—		—
More than 12 months
Private label collaterized mortgage obligations	~~1,639,125~~—		~~10,156~~—		~~16,055,478~~—		~~684,135~~—
Total	$	137,~~639~~507,~~125~~653	$	10121,~~156~~727	$	1624,~~055~~043,~~478~~600	$	~~684~~84,~~135~~384

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 ~~September~~March 3031, ~~2012~~2013.

There ~~are~~were ~~four~~no ~~remaining~~sales ~~non~~of mortgage-~~agency~~backed ~~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~~for ~~to aggressively monitor~~ the ~~performance~~three ofmonths ~~these~~ending ~~securities~~March 31, ~~and the underlying collateral~~2013.

~~Proceeds from the sales and calls of investment securities were as follows for the nine months ending September 30, 2012:~~27

Table of Contents

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

	September 30, 2012
					Gross Realized
	Carrying				Gain
	Value		Proceeds		on sales
FHLB - Agency Callable - Called	$	28,546,257	$	28,550,000	$	3,743
Farmer Mac - Agency Callable - Called	5,000,000		5,000,000		—
FHLB - Agency Callable - Sold	2,597,652		2,801,737		204,085
Corporate Bonds	5,000,000		5,202,500		202,500
	$	41,143,909	$	41,554,237	$	410,328

7. Accumulated Other Comprehensive Income

~~Proceeds~~The ~~from~~following table presents the ~~sales~~change ~~and~~in ~~calls~~each component of ~~investment~~accumulated ~~securities~~other ~~were~~comprehensive asincome, ~~follows~~net of tax, for the ~~nine~~three months ~~ending~~ended ~~September~~March 3031, ~~2011~~2013:

	September 30, 2011
	Net Unrealized Gains
					Gross Realized
	and Losses on
	Carrying				Gain
(dollars in thousands)	Investment Securities
	Value		Proceeds		on sales
January 1, 2013	(862	)
FNMA - Agency Callable	$	14,986,777	$	15,057,812	$	71,035
Other Comprehensive Loss Before Reclassifications	748
FHLB - Agency Callable	4,995,134		5,065,626		70,492
Amounts Reclassified from Accululated Other Comprehensive Income
	$	19,981,911	$	20,123,438	$	141,527
Net Current-Period Other Comprehensive Loss	748
March 31, 2013	(114	)

~~Proceeds~~8. New ~~from~~Accounting ~~the sale of mortgage-backed securities were as follows for the nine months ending September 30, 2012:~~Pronouncements

	September 30, 2012
					Gross Realized
	Carrying				Loss
	Value		Proceeds		on sales
GNMA certificates	$	339,651	356,374		$	16,723
Private-labeled collaterized	5,849,262		5,382,319		(466,943		)
Other pass through certificates	5,173,499		5,088,134		(85,365		)
	$	11,362,412	$	10,826,827	$	(535,585	)

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 did not add to the Company’s current level of disclosures.

33In February 2013 FASB issued ASU 2013-02, “Comprehensive Income (Topic 220) — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. The objective of the new guidance is to improve the transparency of reporting reclassifications out of accumulated other comprehensive income (“OCI”) by requiring entities to present in one place information about significant amounts reclassified and, in some cases, to provide cross references to related footnote disclosures. The amendments do not change the current requirements for reporting net income or OCI, nor do they require new information to be disclosed. The amendments has been applied prospectively and are effective for public entities in both interim and annual reporting periods beginning after December 15, 2012.

9. Pending Merger

On September 10, 2012, WSB and Old Line Bancshares, Inc., the parent company of Old Line Bank, entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Old Line Bancshares will acquire WSB for consideration of approximately $48.7 million in stock and cash, or $6.12 per share, subject to possible adjustment. The Merger Agreement, which has been approved by the Boards of Directors and stockholders of both companies, provides that WSB will be merged with and into Old Line Bancshares. The Bank will be merged with and into Old Line Bank immediately following consummation of the merger.

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30~~MARCH 31, ~~2012~~2013 AND ~~2011~~2012

(unaudited)

~~Proceeds~~Consummation ~~from~~of the ~~sale~~merger is subject to certain conditions, including, among others, the approval of ~~mortgage-backed~~the ~~securities~~Merger ~~were~~Agreement asby ~~follows~~the ~~for~~stockholders of Old Line Bancshares and WSB and the ~~nine~~receipt ~~months~~of ~~ending~~required ~~September 30~~regulatory approvals, ~~2011:~~all of which approvals have been received.

	September 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

The Merger Agreement includes customary representations, warranties and covenants of the parties. The Merger Agreement contains termination rights of WSB and Old Line Bancshares and further provides that we will be required to pay Old Line Bancshares a termination fee of $1.75 million if the Merger Agreement is terminated under specified circumstances set forth therein.

~~7. New~~We ~~Accounting~~expect ~~Pronouncements~~the merger to close on or about May 10, 2013.

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.

8. Subsequent Event

On September 10, 2012, WSB and Old Line Bancshares, Inc., the parent company of Old Line Bank, entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Old Line Bancshares will acquire WSB for consideration of approximately $48.7 million in stock and cash, or $6.09 per share, subject to possible adjustment. The Merger Agreement, which has been approved by the Boards of Directors of both companies, provides that WSB will be merged with and into Old Line Bancshares (the “Merger”). The Bank will be merged with and into Old Line Bank immediately following consummation of the Merger.

Consummation of the Merger is subject to certain conditions, including, among others, the approval of the Merger Agreement by the stockholders of Old Line Bancshares and WSB and the receipt of required regulatory approvals. In addition, a lawsuit has been filed against WSB and its directors and against Old Line Bancshares that seeks to enjoin the Merger. Please see “Part I. Legal Proceedings” in Part II of this report.

Please refer to our Current Report on Form 8-K filed September 11, 2012 for further information and details relating to the Merger Agreement. Please refer to our Current Report on Form 8-K filed October 26, 2012 for further information relating to the lawsuit.

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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 Board of Governors of the Federal Reserve (the “Federal Reserve”). 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 material 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.

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 commercial29

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~~lending. Management~~provision ~~believes~~on ~~that~~our ~~interest~~operations, ~~rates~~if ~~and~~our ~~general~~competitors ~~economic~~were ~~conditions~~to ~~nationally~~start ~~and~~paying ininterest ~~our~~on ~~market~~these ~~area~~accounts ~~are~~it ~~most~~is ~~likely~~possible tothat ~~have a significant impact on~~ our ~~results~~interest ofexpense ~~operations.~~associated Wewith ~~carefully~~deposits ~~evaluate~~could ~~all~~increase, ~~loan~~or ~~applications~~that inthere ancould ~~attempt~~be toadditional ~~minimize~~impacts ~~our~~on ~~credit~~the ~~risk~~Bank’s ~~exposure~~allocation byof ~~obtaining~~deposits, adeposit ~~thorough~~pricing, ~~application~~loan ~~with~~pricing, ~~enhanced~~net ~~approval~~interest ~~procedures; however~~margin, ~~there~~ability isto nocompete, ~~assurance~~ability ~~that~~to ~~this~~establish ~~process~~and ~~can~~maintain ~~reduce~~customer ~~lending~~relationships, ~~risks~~and profitability.

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.

Recent Developments

Entry into a Material Definitive Agreement

On September 10, 2012, WSB and Old Line Bancshares, Inc., the parent company of Old Line Bank, entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Old Line Bancshares will acquire WSB for consideration of approximately $48.7 million in stock and cash, or $6.0912 per share, subject to possible adjustment. The Merger Agreement, which has been approved by the Boards of Directors and the stockholders of both companies, provides that WSB will be merged with and into Old Line Bancshares ~~(the “Merger”)~~. The Bank will be merged with and into Old Line Bank immediately following consummation of the ~~Merger~~merger.

Consummation of the ~~Merger~~merger is subject to certain conditions, including, among others, the approval of the Merger Agreement by the stockholders of Old Line Bancshares and WSB and the receipt of required regulatory approvals~~. In addition~~, aall ~~lawsuit~~of ~~has~~which ~~been~~approvals ~~filed~~have ~~against~~been ~~WSB and its directors and against Old Line Bancshares that seeks to enjoin the Merger~~received. ~~Please see “Part I. Legal Proceedings” in Part II of this report.~~

~~Please~~In ~~refer~~addition, toa ~~our~~lawsuit ~~Current~~has ~~Report~~been ~~on Form 8-K~~ filed ~~September 11,~~against ~~2012~~WSB ~~for~~and ~~further~~its ~~information~~directors and ~~details~~against ~~relating~~Old Line Bancshares that seeks to enjoin the ~~Merger~~merger. Please ~~Agreement~~see Part II - “Item 1. Legal Proceedings” of this report. Please refer to our Current Report on Form 8-K filed October 26, 2012 for further information relating to the lawsuit.

The Merger Agreement includes customary representations, warranties and covenants of the parties. The Merger Agreement contains termination rights of WSB and Old Line Bancshares and further

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provides that we will be required to pay Old Line Bancshares a termination fee of $1.75 million if the Merger Agreement is terminated under specified circumstances set forth therein.

We expect the merger to close on or about May 10, 2013. For additional information regarding our pending merger with Old Line Bancshares, please see as our definitive proxy statement filed with the Securities and Exchange Commission on March 5, 2013.

You should keep in mind that discussions in this report that refer to WSB’s business, operations and risks in the future refer to WSB as a stand-alone entity up to the closing of the pending merger or if the merger does not close, and that these considerations will be different with respect to the combined company after the closing of the merger.

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, WSB is now regulated by 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 formalized 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.

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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 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 nine months ending September 30, 2012.~~

~~Consolidated Results of Operations~~31

Net loss for the three months ended September 30, 2012 was $4,000, or $0.00 per basic and diluted share, compared to net income of $410,000 or $0.05 per basic share and diluted share for the same three month period last year. Net earnings for the nine months ended September 30, 2012 was $448,000, or $0.06 per basic and diluted share, compared to net earnings of $966,000, or $0.12 per basic and diluted share for the corresponding 2011 period. Net income for the three and nine month periods ended September 30, 2012, represent decreases $414,000, or 101%, and $518,000, or 54%, respectively, over the same periods last year.

The decrease in net earnings for the three month period is primarily the result of a $462,000 decrease in net interest income, a $232,000 decrease in non-interest income and an increase of $211,000 in non-interest expenses as compared to the same three month period last year. The decrease in net interest income is primarily 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 increase in non-interest expense for the three month period is primarily the result of increases of $97,000 in the provision for losses on real estate acquired in settlement of loans, $86,000 in salaries and benefits and $61,000 in professional fees. The decrease in net earnings for the nine month period is primarily the result of a $901,000 decrease in net interest income and a $288,000 decrease in non-interest income, partially offset by a decrease of $107,000 in non-interest expenses. The decrease in net interest income is primarily the result of the reduction of our loan portfolio classified as held for investment due to loan payoffs that occurred during the nine month period ending September 30, 2012 as well as a decrease in the yield on the portfolio. The decrease in non-interest income is the result of a loss on the sale of investment securities for the period ending September 30, 2012 as compared to a gain on the sale of investments for the same nine month period last year, partially offset by increases in most other components of non-interest income. The decrease in non-interest expenses is primarily the result of decreases in FDIC premiums and salaries and benefits. As we continue to experience low loan demand there has been a decrease in our total loans held-for-investments portfolio which has contributed to our interest income decreasing by 15% and 10%, respectively, for the three and nine months ended September 30, 2012. Also, during the nine month period ending September 30, 2012, interest

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~~income~~Form 10-K ~~decreased~~for ~~as a result of a decrease in both~~ the ~~balance~~year ~~and~~ended ~~yield~~December 31, in2012 ~~our~~(“2012 ~~loan~~Form 10-K”). There ~~portfolio~~were ~~classified~~no assignificant ~~held~~changes ~~for sale, offsetting the decrease~~ in ~~interest~~this ~~expense,~~accounting ~~primarily~~policy asduring ~~a result of~~ the ~~continued~~three ~~efforts~~months toending ~~reduce our higher cost liabilities~~March 31, ~~offsetting the decrease in interest expense~~2013.

Consolidated Results of Operations

Net loss for the three months ended March 31, 2013 was $58,000, or $0.01 per basic and diluted share, compared to net income of $278,000 or $0.03 per basic share and diluted share for the same three month period last year. Net income for the three period ended March 31, 2013, represent a decrease of $336,000, or 121%, over the same period last year.

The decrease in net earnings for the three month period is primarily the result of an $819,000 decrease in net interest income and a $39,000 decrease in non-interest income, partially offset by the decrease of $270,000 in non-interest expenses, all as compared to the same three month period last year. The decrease in net interest income is primarily the result of the reductions in our mortgage-backed securities (“MBS”) and 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 decreases of $91,000 in the provision for losses on real estate acquired in settlement of loans and $80,000 in salaries and benefits. As we continue to experience low loan demand there has been a decrease in our total loans held-for-investments portfolio which contributed to our interest income decreasing by 30%, for the three months ended March 31, 2013. Also, during the three month period ending March 31, 2013, interest income decreased as a result of a decrease in both the balance of and yield in our loan portfolio classified as held for sale, primarily as a result of the continued efforts to reduce our higher cost liabilities, offsetting the decrease in interest expense.

Interest Income/Expense

Total interest income decreased $~~753,000, or 16.4%, and $~~1.83 million, or 1330.32%, ~~respectively,~~ for the three ~~and nine~~ month ~~periods~~period ending ~~September~~March 3031, ~~2012~~2013, compared to the corresponding ~~periods~~period last year, due primarily to a decrease in both the average volume and average yield on interest-earning assets.

The ~~nine~~three month average balance of interest-earning assets decreased to $~~338~~304.51 million for the ~~nine~~three months ending ~~September~~March 3031, ~~2012~~2013 from $~~361~~344.6 million for the ~~nine~~three months ending ~~September~~March 3031, ~~2011~~2012, due primarily to a decrease in loans held for investment ~~and investment securities~~MBS, offsetting an increase in ~~MBS~~investment securities and federal funds sold. The decrease in loans held-for-investment is primarily the result of principal paydowns. The decrease in ~~investment~~MBS securities is the result of ~~approximately~~repositioning ~~$33.5~~our ~~million~~investment ~~called~~portfolio ~~agency~~by ~~securities,~~selling ~~the~~our ~~sale~~MBS ~~of a $2.5 million agency security~~ and ~~the~~purchasing ~~sale of $5.0 million of corporate bonds offset by $10.0 million in purchases of~~ callable agencies~~. The~~ ~~increase in MBS is the result of purchases of MBS, partially offset by the sale of other MBS. The short-term investment securities that were called and sold~~ during ~~the nine month period were reinvested in mortgage-backed securities to increase the yield spread~~2012. In accordance with the Merger Agreement, WSB isrepositioned ~~repositioning~~ a portion of its investment portfolio by selling existing securities that may ~~result~~have resulted in an adjustment to the total consideration to be paid in the ~~Merger~~merger with Old Line Bancshares, based on adjustments relating to the value of our investment portfolio as set forth in the Merger Agreement, if such securities ~~remain~~remained in our portfolio, as well as purchasing new securities with Old Line Bancshares’ consent. We expect to continue to reposition the investment portfolio in order to attempt to minimize any potential adjustment to the total consideration paid to WSB’s stockholders upon closing of the Merger.

The average yield on our interest-earning assets decreased to 43.7485% during the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 from 54.1286% during the same period in ~~2011~~2012. 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 $6.9 million from September 30, 2011 to September 30 2012, and such loans had significantly lower interest rates after such restructuring, which also negatively impacted the yield on our interest-earning assets in the 2012 period.

Total interest expense decreased $~~291~~445,000, or 2034.21%, ~~and $938,000, or 20.4%, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September~~March 3031, ~~2012~~2013, compared to the same ~~periods~~period in the prior year. The decrease was attributable to a decrease in both the average balance, resulting primarily from the maturities of approximately $5.0 million in our brokered certificate of deposits since ~~September~~March 3031, ~~2011~~2012, and the average interest rate on our interest-bearing liabilities. For the nine month period ended September 30, 2012, our average interest-bearing liabilities were $307.6 million with an average rate of 1.59%, compared to $333.6 million with an average rate of 1.85% for the corresponding period last year.

Net interest income decreased $462,000, or 14.6%, and $901,000, or 9.7%, respectively, for the three and nine month periods ended September 30, 2012, compared to the same periods in the prior year. Due to a lower average yield on our interest earning assets and a lower average yield on our cost of interest-bearing liabilities, our net interest rate spread decreased to 3.15% for the nine month period ended September 30, 2012 from 3.27% for the same period in the prior year. The ratio of our interest-earning assets to interest-bearing liabilities increased to 110.04% at September 30, 2012 from 108.41% at September 30, 2011.32

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~~been~~liabilities. For ~~minimized~~the bythree ~~our~~month ~~ability~~period toended ~~decrease~~March 31, ~~interest~~2013, ~~rate~~our ~~expense~~average ~~through~~interest-bearing ~~lower~~liabilities ~~deposit~~were ~~costs~~$271.9 ~~This~~million ~~lower~~with ~~interest~~an ~~rate~~average ~~environment for loans and investment securities compresses the interest~~ rate ~~spread~~of ~~by reducing interest income~~1. ~~Interest~~29%, ~~rate~~compared ~~margins may be further enhanced when and if economic conditions begin~~ to ~~become~~$309.9 ~~more~~million ~~favorable~~with toan ~~lending~~average ~~and~~rate ~~funds~~of ~~currently~~1.69% ~~held~~for inthe ~~investment~~corresponding ~~securities~~period ~~can~~last ~~be redirected back into the loan portfolio~~year.

Net interest income decreased $819,000, or 28.4%, for the three month period ended March 31, 2013, compared to the same period in the prior year. Due to a lower average yield on our interest earning assets and a lower average yield on our cost of interest-bearing liabilities, our net interest rate spread decreased to 2.56% for the three month period ended March 31, 2013 from 3.17% for the same period in the prior year. The ratio of our interest-earning assets to interest-bearing liabilities increased to 111.87% at March 31, 2013 from 111.20% at March 31, 2012.

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.

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 historically. 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 nine~~ month ~~periods~~period ending ~~September~~March 3031, ~~2012~~2013.

During the nine months ended September 30, 2012, the allowance decreased by $2.8 million or 45.3%, to $3.4 million at September 30, 2012 from $6.1 million at December 31, 2011, as a result of net charge-offs of approximately $2.8 million during the nine months ending September 30, 2012. At September 30, 2012, the allowance was 1.79% of total loans held-for-investment, compared to 2.90% of total loans held-for-investment at December 31, 2011.33

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 in charge-offs were related to eliminating the specific reserve on our collateral dependent loans in 2012 based on OCC guidance newly applicable to us compared to the specific reserve balances that existed at December 31, 2011.

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~~recognize~~During ~~probable~~the ~~losses,~~three ~~future~~months ~~additions~~ended toMarch 31, 2013, the allowance ~~may~~decreased beby ~~necessary~~$356,000 ~~based~~or on10.7%, ~~changes~~to in$2.8 ~~the~~million ~~credits~~at ~~comprising~~March 31, ~~the~~2013 ~~portfolios~~from $3.2 million at December 31, ~~changes~~2012, inas ~~the~~a ~~financial~~result ~~condition~~of net charge-offs of ~~borrowers~~approximately $356,000 ~~such~~during asthe ~~may~~three ~~result~~months ~~from~~ending ~~changes~~March 31, in2013. ~~economic~~At ~~conditions~~March 31, or2013, ~~other~~the ~~considerations~~allowance ~~determined~~was by1.60% ~~management~~of total loans held-for-investment, compared to be1.76% ~~appropriate~~of total loans held-for-investment at December 31, 2012.

Based on our review, the change in the allowance is appropriate primarily due to the fact that the risk profile of our loan portfolio has improved and our loan portfolio balance classified as held-for-investment, particularly our residential real estate loans, have been reduced during the three months ended March 31, 2013.

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 2012 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 ana ~~increase~~decrease in charge-offs in our loan portfolio during the ~~nine~~three month period ending ~~September~~March 3031, ~~2012~~2013 compared to the same period last year. During the ~~nine~~three months ending ~~September~~March 3031, ~~2012~~2013 we recorded loan charge-offs of $~~2.8~~590,000 ~~million~~ and recoveries of previous charged-off loans of approximately $61234,000 compared to net charge-offs of $2.73 million for the corresponding ~~nine~~three 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 $~~186~~174.87 million (net of deferred loan fees) loans-held for investment portfolio as of ~~September~~March 3031, ~~2012~~2013. The $10.71 million loan held-for-sale portfolio has been committed to be purchased by investors at ~~September~~March 3031, ~~2012~~2013 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 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 ~~September~~March 3031, ~~2012~~2013.

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 ~~September~~March 3031, ~~2012~~2013 is appropriate, and caution the reader that the provisioning for the ~~nine~~three 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 nine month periods ending September 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.34

The following table shows charge-offs and recoveries in the allowance during the three and nine month periods ending September 30, 2012 and 2011. In addition, we believe there are additional, unidentified, probable

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~~losses~~allowance, ~~within~~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, ~~which~~and that allowance factors may bechange ~~reflected~~from asperiod ~~charge-offs~~to ~~against~~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 ~~future~~the ~~quarters~~evaluation asof ~~these~~the ~~losses~~adequacy ~~manifest~~of ~~themselves~~the allowance and a loan’s ~~collection~~ultimate ~~efforts~~resolution ~~continue~~and/or charge-off is normal and to be expected.

	2012									2011
	3rd Qtr			2nd Qtr			1st Qtr			3rd Qtr			2nd Qtr			1st Qtr
Provision for loan losses	0			$	0		$	0		$	100,000		$	100,000		$	0
Loan charge-offs
single family	$	66,072		$	158,692		$	610,954		$	299,555		$	—		$	426,710
construction	—			—			—			—			—			—
commercial, land and other	170,575			92,466			1,735,782			199,433			1,741,128			39,395
	236,647			251,158			2,346,736			498,988			1,741,128			466,105
Loan recoveries
single family	2,810			9,562			1,195			4,327			5,071			7,755
construction	—			—			—			5,021			—			—
commercial, land and other	34,896			1,650			10,942			3,242			941			0
Net Charge-offs	$	198,941		$	239,946		$	2,334,599		$	486,398		$	1,735,116		$	458,350
Allowance for loan losses at period end	$	3,350,630		$	3,549,571		$	3,789,517		$	7,739,928		$	8,126,326		$	9,761,442
Total loans held for investment at at period end (1)	$	186,764,390		189,817,953			$	199,270,866		$	219,663,498		$	226,637,073		$	235,551,909
Allowance to total loans held for investment at period end	1.79		%	1.87		%	1.90		%	3.52		%	3.59		%	4.14		%

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 month period ending March 31, 2013. For a better understanding and a more complete description of the allowance and the evaluation process, refer to the 2012 Form 10-K.

The following table shows charge-offs and recoveries in the allowance during the three month periods ending March 31, 2013 and 2012. 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.

	2013			2012
	1st Qtr			1st Qtr
Provision for loan losses	0			$	0

Loan charge-offs
single family	$	137,786		$	831,478
construction	—			404,829
commercial, land and other	453,029			1,110,329
	590,815			2,346,636
Loan recoveries
single family	2,452			1,195
construction	—			1,200
commercial, land and other	231,995			9,742
Net Charge-offs	$	356,368		$	2,334,499

Allowance for loan losses at period end	$	2,795,109		$	3,789,517
Total loans held for investment at at period end (1)	$	174,693,410		$	199,270,866
Allowance to total loans held for investment at period end	1.60		%	1.90		%

(1) net of deferred loan fees

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 ~~September~~March 3031, ~~2012~~2013, 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 impaired loans represents a level of reserves of approximately $1.12 million for the period ending ~~September~~March 3031, ~~2012~~2013 ~~compared~~consistent towith approximately $21.92 million at December 31, ~~2011~~2012.

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 ~~September~~March 3031, ~~2012~~2013, total impaired loans were $3335.80 million, or 1820.1101% of total loans held for investment, compared to $3133.37 million, or 14.82% of total loans held-for-investment, at December 31, 2011. Non-performing loans consisted of $14.3 million that were non-accrual loans at September 30, 2012 and approximately $22.8 million of troubled debt restructured loans, which included $3.3 million in non-accrual status. 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.

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18.82% of total loans held-for-investment, at December 31, 2012. Non-performing loans consisted of $21.4 million that were non-accrual loans at March 31, 2013 and approximately $22.4 million of troubled debt restructured loans, which included $8.8 million in non-accrual status. 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 March 31,			At December 31,
	2013			2012
	(dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Single family	$	6,855		$	5,088
Land	3,783			6,349
Construction	—			—

Non-mortgage loans:
Consumer	—			—
Commercial	10,804			8,290
Non-residential	—			5
Total non-accrual loans	21,442			19,732

Foreclosed real estate	5,062			5,182

Total non-performing assets	$	26,504		$	24,914

Restructured loans on accrual status and not past due 90 days or more	$	13,520		$	14,006

Total non-performing assets including restructured loans on accrual status	$	40,024		$	38,920

Total non-performing loans to total loans held-for-investment	12.27		%	11.00		%

Allowance for loan losses to total non-performing loans	13.04		%	15.97		%

Total non-performing loans to total assets	6.46		%	5.54		%

Total non-performing assets to total assets	7.98		%	6.99		%

Ratio of non-peforming assets and restructured loans on accrual status to total loans held-for-investment	22.91		%	21.70		%

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 March 31, 2013, we had $22.4 million in TDRs, of which $8.8 million were on non-accrual status, compared to $22.7 million in TDRs, of which $8.7 million were on non-accrual status,

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	At Sepember 30,			At December 31,
	2012			2011
	(dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Single family	$	5,108		$	4,436
Land	4,118			1,944
Construction	—			—
Non-mortgage loans:
Consumer	7			—
Commercial	5,109			6,459
Non-residential	—			—
Total non-accrual loans	14,342			12,839
Foreclosed real estate	4,906			4,821
Total non-performing assets	$	19,248		$	17,660
Total non-performing loans to total loans held-for-investment	7.68		%	6.07		%
Allowance for loan losses to total non-performing loans	23.36		%	47.70		%
Total non-performing loans to total assets	3.84		%	3.33		%
Total non-performing assets to total assets	5.16		%	4.59		%

as of December 31, 2012.

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 September 30, 2012, we had $22.8 million in TDRs, of which $3.3 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.

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 $~~232~~39,000, or 224.90%, ~~and $288,000, or 9.8%, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September~~March 3031, ~~2012~~2013, compared to the same ~~periods~~period in the prior year. The decrease for the three month period is primarily attributable to adecreases of $~~416~~159,000 ~~decrease~~ in the gain on the sale of investment securities available for sale and $86,000 on the gain on sale of real estate acquired in settlement of loans, partially offset by increases of $6958,000 in rental income, $6989,000 on the gain on sale of loans sold in the secondary market and $4131,000 in loan related fees. ~~The decrease in the nine month period was~~

42The gain on the sale of real estate acquired in settlement of loans for the three month period ending March 31, 2013 is the result of the sale of two properties for a net gain of $56,000 compared to a net gain of $142,000 on the sale of three properties during the same period last year. In the current economic environment, property values have a material effect on our ability to sell these properties. In the future, management may determine it is 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.

~~Table~~Rental income for the three period ending March 31, 2013 increased as a result of ~~Contents~~rental agreements with new tenants to lease available space at WSB’s corporate headquarters located in Bowie, MD.

~~also~~Gain on the sale of loans increased $89,000, for the three month period ending March 31, 2013, compared to the same period last year. The increase is the result of aan ~~decrease~~increase in ~~our~~the ~~gain~~dollar onamount of premiums associated with the ~~sale~~loans sold in the secondary market. The number of ~~investment~~loans ~~securities~~originated ~~available~~in ~~for~~the ~~sale~~secondary market was generally flat, ~~partially~~with ~~offset~~86 byloans ~~increases~~sold induring the ~~gain~~three months ending March 31, 2013 as compared to 77 during the same three months last year. Premiums recognized as gains depends largely on market rates and will fluctuate based on the ~~sale~~market. Our ofability ~~real~~to ~~estate~~realize ~~acquired~~gains in ~~settlement~~future ofperiods ~~loans~~will depend largely on interest rates and ~~rental~~the ~~income~~demand for mortgage loans.

The gain on the sale of real estate acquired in settlement of loans for the nine month period ending September 30, 2012 is the result of the sale of nine properties for a net gain of $164,000 compared to a net gain of $46,000 on the sale of eight properties during the same period last year. In the current economic environment, property values have a material effect on our ability to sell these properties. Management may determine it is 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 for the three and nine month periods ending September 30, 2012 increased as a result of rental agreements with new tenants to lease available space at WSB’s corporate headquarters located in Bowie, MD.

Gain on the sale of loans increased $69,000 and $62,000, respectively, for the three and nine month periods ending September 30, 2012, compared to the same periods last year. The increases are the result of an increase in the dollar amount of premiums associated with the loans sold in the secondary market. The number of loans originated in the secondary market was generally flat, with 295 loans sold during the nine months ending September 30, 2012 as compared to 292 during the same nine months last year. Premiums recognized as gains depends largely on market rates and will fluctuate based on the market. Our ability to realize gains in future periods will depend largely on interest rates and the demand for mortgage loans.

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.

AsWe ~~discussed~~had ~~above,~~no wegain ~~have~~on ~~been~~the ~~repositioning~~sale aof ~~portion~~investment ofsecurities ~~our~~for ~~investment~~the ~~portfolio~~three bymonth ~~selling~~period ~~existing~~ending ~~securities~~March 31, in2013, ~~order~~compared to ~~reduce~~$159,000 ~~the~~pretax, ~~potential~~$96,000 ~~for~~net ~~adjustments~~of totax during the ~~total~~same ~~consideration~~three ~~that~~month ~~will~~period belast ~~paid~~year. Gain inon the ~~Merger~~sale of these investment securities for the period ending March 31, as2012 ~~well~~was asthe ~~purchasing~~result ~~new~~of ~~securities~~the ~~with~~Bank ~~Old~~selling ~~Line~~approximately ~~Bancshares’~~$2.0 ~~consent~~million of callable agency paper. We believed there was a good

Loss on the sale of investment securities for the three month period ending September 30, 2012, was approximately $288,000 pretax, $174,000 net of tax, compared to a gain of $128,000 pretax, $78,000 net of tax during the same three month period last year. The gross realized loss for the three month period ending September 30, 2012 was due to sales and calls of approximately $1.1 million in sales of agency callable, $5.0 million in corporate bonds, $10.0 million in called agencies, and $10.3 million in MBS. The gross realized loss for the nine month period ending September 30, 2012, was $125,000 pretax, $76,000 net of tax was due to the sales and calls of approximately $2.8 million in sales of agency callable, $5.0 million in corporate bonds, $34.0 million in called agencies, and $11.4 million in MBS. These investment calls and sales resulted in a gross realized gain of $410,000, offset by the MBS sales resulting in a gross realized loss of $535,000 pretax, or $324,000 net of tax, compared to a gain of $543,000 pretax, or $329,000 net of tax, during the same nine month period last year. We sold these MBS because we believe that these MBS may have resulted in downward adjustments in the total consideration to be paid to WSB’s stockholders in the Merger had such MBS remained in our portfolio on the effective date of the Merger. The 2011 gain was due to the opportunity to sell and receive a premium on MBS then held in our portfolio. We expect to continue to reposition the investment portfolio in order to attempt to minimize any potential adjustment to the total consideration to be paid upon closing of the Merger.37

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opportunity to receive a premium on the investment securities sold during the three month period and therefore decided to sell the investments that generated these gains. We did not have similar opportunity during the period ended March 31, 2013 and so did not sell any investment securities during that period.

Non-Interest Expenses

Non-interest expenses ~~increased $211,000 or 6.3% and~~ decreased $~~107~~270,000, or 17.08%, ~~respectively,~~ for the three ~~and nine~~ month ~~periods~~period ending ~~September~~March 3031, ~~2012~~2013, as compared to the corresponding prior year ~~periods~~period.

The ~~increase~~decrease in non-interest expenses ~~for the three month period~~ was primarily due to ~~increases~~decreases of $9791,000 in the provision for losses on real estate acquired in settlement of loans, ~~$86,000 in salaries~~ and ~~benefits and~~ $6280,000 in ~~professional~~salaries ~~services, partially offset by decreases of $23,000 in other expenses, $19,000 in FDIC premiums~~ and ~~$15,000 in advertising expenses~~benefits. The decrease in non-interest expenses for the nine month period was primarily the result of decreases of $145,000 in FDIC insurance premium, offsetting a $105,000 increase in the provision for losses on real estate acquired in settlement of loans.

We recognized anno expense ~~of $99,000 and $189,000, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ending ~~September~~March 3031, ~~2012~~2013 for the provision for losses on real estate acquired in settlement of loans as compared to $191,000 ~~and $84,000, respectively,~~ for the corresponding ~~periods~~period last year. We continue to obtain updated appraisals and/or evaluations on the properties that have been classified as real estate owned, which ~~resulted~~may result in additional write downs of certain properties as a result of continuing declines in real estate prices. No such write down, however, were necessary during the period ended March 31, 2013.

The ~~increase~~decrease in salaries and benefits during the three month period is the result of ~~increased~~decreased employee benefits expenses as compared with the same period last year. Benefit costs ~~increased~~decreased due to ~~higher~~lower medical ~~and~~expenses ~~life~~as ~~insurance~~compared ~~premiums. The~~to ~~decrease in salaries and benefits during~~ the ~~nine~~same three month period islast ~~primarily associated with the lower premiums received on the loans sold in the secondary market~~year.

The increase in professional services during the three month period is primarily associated with additional legal and investment banker fees associated with the Merger Agreement and pending Merger. Professional services decreased $19,000 during the nine month period, primarily as a result of reduced legal expenses associated with litigation during 2011 on two of our loans that was resolved in June 2012. We expect that these fees will remain elevated as we work toward stockholder and regulatory approval of the Merger, which we expect to be completed in the second or third quarter of 2013.

The decreases in deposit insurance premiums during the three and nine month periods ended September 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 nine month period is primarily the result a reduction of foreclosure expenses.

Income Taxes

Although we generally provide for income taxes at substantially equivalent statutory rates, the tax effects of certain operations have caused variances in our overall effective tax rates from period to period. A tax benefit of $75110,000 was recorded for the three months ended ~~September~~March 3031, ~~2012~~2013, compared to a tax expense of $~~316~~142,000 for the three months ended ~~September~~March 3031, ~~2011~~2012. AThe tax ~~expense~~benefit ~~of $140,000 was recorded~~ for the ~~nine month~~ period ending ~~September~~March 3031, ~~2012,~~2013 ~~compared~~includes toan aexclusion ~~tax expense~~ of ~~$503,000~~income for the ~~nine~~bank ~~months~~owned ~~ended~~life ~~September 30, 2011~~insurance. The tax ~~expense~~expenses for the ~~periods~~period ending ~~September~~March 3031, 2012 includes an exclusion of income 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 23(65.84)% and 3433.38% for the respective ~~nine~~three month ~~periods~~period ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012.

Liquidity and Capital Resources

Total assets were $~~373~~332.30 million and $~~385~~356.05 million at ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012, respectively. The decrease in assets at ~~September~~March 3031, ~~2012~~2013, compared to December 31, ~~2011~~2012, was primarily attributable to decreases our net loan receivables, both loans held for held for sale and loans held for investment. Loans classified as held for investment decreased as we experienced principal pay-downs associated with these loans. Loans classified as held for sale is the result a lower amount due from our investors of loans that we sold in the secondary market.

44Deposits were $218.6 million at March 31, 2013, compared to $231.4 million at December 31, 2012. The decrease in deposits at March 31, 2013, compared to December 31, 2012, was primarily due to a decrease in our savings accounts, primarily money market accounts. During this three month period ending March 31, 2013, our rates on money fund accounts were reduced lower than that of our competitors, resulting in a decrease in our core deposits.

Borrowings at March 31, 2013 and December 31, 2012 are as follows:

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attributable to decreases in loans held for investment and investment securities, partially offset by an increase in 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.

	Balance as of
	March 31,		Weighted		December 31,		Weighted
	2013		Avg Rate		2012		Avg Rate

FHLB-advances -fixed	$	56,000,000	3.02	%	$	68,000,000	2.81	%
	$	56,000,000			$	68,000,000

~~Deposits~~Total ~~were~~borrowings are $~~247~~56.30 million at ~~September~~March 3031, ~~2012,~~2013 compared to $~~245~~68.10 million at December 31, ~~2011~~2012. The ~~increase~~reduction induring ~~deposits~~the atperiod ~~September 30,~~ended ~~2012, compared to December~~March 31, ~~2011,~~2013 was ~~primarily~~ due to anthe ~~increase~~fact inthat ~~our~~one ~~savings~~FHLB ~~accounts,~~advance ~~primarily~~for ~~money~~$12.0 ~~market~~matured ~~accounts~~on February 5, ~~offsetting~~2013. We amaintain ~~decrease~~funding inactivities ~~our~~with ~~brokered~~correspondent ~~deposits. During~~banks ~~this~~and ~~period,~~the ~~our~~Federal ~~rates~~Home onLoan ~~money~~Bank ~~fund~~of ~~accounts~~Atlanta, ~~were~~which ~~slightly~~are ~~higher~~cancelable ~~than~~by the ~~Bank’s~~lender ~~competitors,~~and ~~resulting~~subject into anlender ~~increase in our core deposits~~discretion. AsTo ~~previously~~the ~~reported,~~extent we ~~exercised~~do ~~our~~not ~~intention~~or tocannot ~~renew~~use ~~the~~FHLB ~~broker~~borrowings, ~~deposits~~we ~~that~~would ~~matured~~expect ~~during~~to ~~the~~rely ~~fourth~~on ~~quarter~~alternative offunding ~~2011~~sources, ~~and~~including ~~first~~our ~~quarter~~deposit ofbase ~~2012.~~and ~~Approximately~~correspondent ~~$14.0~~bank ~~million~~lines of ~~our~~credit. Our ~~certificate~~remaining ofcredit ~~deposits~~availability ~~(“CDs”)~~for ~~classified~~additional asFHLB ~~broker~~advances ~~deposits~~at ~~matured~~March 31, ~~approximately~~2013 is $1151.0 ~~of which were renewed, during the nine months ended September 30, 2012~~million. ~~Management~~ ~~anticipates~~We ~~continuing~~currently tohave ~~utilize~~unused ~~excess~~lines ~~funding liquidity to offset a runoff~~ of ~~higher~~credit ~~cost~~with ~~CDs~~our ~~which~~correspondent ~~were~~banks ~~previously~~in ~~originated~~the toamount ~~fund~~of ~~loan~~$7.0 ~~production~~million.

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

	September 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 September 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 September 30, 2012 is $43.9 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 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 $748,000 and $1.2 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 $2.5 million in the general loan loss reserve during the three months ended March 31, 2013. 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 March 31, 2013.

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deducted in the computation of the institution’s regulatory capital. The Bank’s regulatory capital and regulatory assets below also reflect decreases of $1.8 million and $3.0 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 $2.5 million in the general loan loss reserve during the nine months ended September 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 September 30, 2012.

Capital Category	Regulatory Ratios Required			Bank’s Amount and Ratio			Bank’s Excess of Requirements			Calculations		Based Upon
Leverage	$	12,965,016		$	45,405,359		$	32,440,343		$	45,405,359	Regulatory Capital
	4.00		%	14.01		%	10.01		%	$	324,125,402	Regulatory Assets

Tangible	$	4,861,881		$	45,405,359		$	40,543,478		$	45,405,359	Regulatory Capital
	1.50		%	14.01		%	12.51		%	$	324,125,402	Regulatory Assets

Risk-Based	$	15,648,811		$	46,996,551		$	31,347,740		$	46,996,551	Regulatory Capital
	8.00		%	24.03		%	16.03		%	$	195,610,141	Risk-Weighted Assets

Capital Category	Regulatory Ratios Required			Bank’s Amount and Ratio			Bank’s Excess of Requirements			Calculations		Based Upon
Leverage	$	14,529,933		$	44,617,641		$	30,087,708		$	44,617,641	Regulatory Capital
	4.00		%	12.28		%	8.28		%	$	363,248,324	Regulatory Assets
Tangible	$	5,448,725		$	44,617,641		$	39,168,916		$	44,617,641	Regulatory Capital
	1.50		%	12.28		%	10.78		%	$	363,248,324	Regulatory Assets
Risk-Based	$	15,861,274		$	46,766,837		$	30,905,563		$	46,766,837	Regulatory Capital
	8.00		%	23.59		%	15.59		%	$	198,265,920	Risk-Weighted Assets

Our management believes that, under current regulations, and eliminating the assets of WSB, 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 ~~September~~March 3031, ~~2012~~2013, our ratio was approximately 8571% 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:

Commitments to originate new loans	$	51,~~644~~740,~~672~~924
Unfunded commitments to extend credit under existing construction, equity line and commercial lines of credit	119,~~955~~978,~~304~~592
Standby letters of credit	~~147~~530,~~238~~534
Commitments to sell loans held-for-sale	10,~~687~~080,~~979~~956

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.

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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 anticipated merger with Old Line Bancshares and the anticipated timing of the ~~Merger~~merger, 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, ~~increased professional services fees while~~ the ~~Merger is pending, 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) the risk that ~~necessary stockholder and regulatory approval for~~ the ~~Merger will not be obtained; (b) the risk that the~~ pending lawsuit regarding the Merger will delay or preclude the Merger; (cb) changes we make as a result of our ongoing review of our business and operations; (dc) implementation of changes in lending practices and lending operations; (ed) changes made as a result of the Board of Directors’ ongoing review of our capital management plan; (fe) changes in accounting principles; (gf) government legislation and regulation, including regulations adopted pursuant to the Dodd-Frank Act; (hg) changes in interests rates; (ih) further deterioration of economic conditions or a slowing recovery; (ji) 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; (kj) the impact of any legal or regulatory proceedings; and (lk) other expectations, assessments and risks that are specifically mentioned in this report and in such other reports filed with the Securities and Exchange Commission. You should also note that, except with respect to forward-looking statements that specifically relate to the Merger, such forward-looking statements describe our current intensions and strategy without regard to the anticipated consummation of the Merger.

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 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.

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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 September 30, 2012.

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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 March 31, 2013.

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

On September 27, 2012, a complaint was filed by Rosalie Jones, both individually and on behalf of a putative class of WSB’s stockholders, in the Circuit Court for Prince George’s County, Maryland, against WSB and its Directors and Old Line Bancshares. The complaint seeks to enjoin the Merger and alleges, among other things, that the members of WSB’s Board of Directors breached their fiduciary duties by agreeing to sell WSB for inadequate and unfair consideration and pursuant to an unfair process. We have not yet responded to the complaint, but intend to vigorously defend this lawsuit. Please refer to our Current Report on Form 8-K filed October 26, 2012 for further information relating to the lawsuit.

InOn ~~addition~~February 5, ~~from~~2013, ~~time~~the todefendants ~~time~~entered weinto ~~may~~a bememorandum ~~involved~~of inunderstanding ~~ordinary~~with ~~routine~~the plaintiff regarding settlement of all claims asserted on behalf of the alleged class of WSB stockholders. In connection with the settlement contemplated by that memorandum of understanding, the litigation ~~incidental~~and all claims asserted in such litigation will be dismissed, subject to ~~our~~court ~~business~~approval. AtThe ~~September 30,~~proposed ~~2012~~settlement terms require Old Line Bancshares and WSB to make certain additional disclosures related to the merger, wewhich disclosures were ~~not~~included ~~involved~~ in ~~any~~the ~~legal~~joint ~~proceedings~~proxy statement/prospectus of WSB and Old Line Bancshares filed with the Securities and Exchange Commission on March 5, ~~other~~3013. The ~~than~~parties also agreed that ~~discussed~~plaintiffs ~~above~~may seek attorneys’ fees and costs in an as-yet undetermined amount, with the ~~outcome~~defendants to pay such fees and costs if and to the extent they are approved by the court. The memorandum of understanding further contemplates that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, inincluding ~~management~~confirmatory discovery and court approval following notice to WSB’s ~~opinion~~stockholders. If the parties enter into a stipulation of settlement, ~~would~~a hearing will be ~~material~~scheduled toat ~~our~~which ~~financial~~the ~~condition~~court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement, that the court will approve any proposed settlement, or ~~results~~that any eventual settlement will be under the same terms as those contemplated by the memorandum of ~~operations~~understanding.

Subsequent to March 31, 2013, WSB’s request to the insurance provider has subsequently been denied and an accrual of $600,000 has been recorded during the second quarter to cover the costs of this lawsuit.

In addition, from time to time we may be involved in ordinary routine litigation incidental to our business. At March 31, 2013, we were not involved in any legal proceedings, other than that discussed above, 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~~2012 Form 10-K.

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Item 6. Exhibits

2.1 Agreement and Plan of Merger, dated as of September 10, 2012, by and between Old Line Bancshares, Inc. and WSB Holdings, Inc. (Incorporated by reference from WSB’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 11, 2012).

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).

48101 The following materials from WSB Holdings, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2013, 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).*

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101 The following materials from WSB Holdings, Inc.’s Quarterly Report on Form 10-Q for the period ended September 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 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: ~~November~~May 910, ~~2012~~2013

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Filing Compare · WSB Holdings Inc