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

Overview

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

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

Pursuant of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd Frank Act") banks have been permitted to pay interest on demand deposit accounts, including those from businesses, since July 21, 2011. While we have not yet experienced any impact from this provision on our operations, if our competitors were to start paying interest on these accounts, it is possible that our interest expense associated with deposits could increase, or that there could be additional impacts on the Banks'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 or loan portfolio when demand for these other areas of loans picks up, we believe that our continued efforts to expand our residential mortgage lending department are important to ensure future profitability based on the current slow demand for commercial lending. Management believes that interest rates and general economic conditions nationally and in our market area are most likely to have a significant impact on our results of operations. We carefully evaluate all loan applications in an attempt to minimize our credit risk exposure by obtaining a thorough application with enhanced approval procedures; however, there is no assurance that this process can reduce lending risks.

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

Regulatory Developments

On June 3, 2011, WSB and the Bank entered into separate Supervisory Agreements (the "Agreements") with the Office of Thrift Supervision (the "OTS"), their primary banking regulator on such date. Pursuant to

regulatory changes instituted by the Dodd-Frank Act, the WSB is now regulated by the Board of Governors of the Federal Reserve (the "Federal Reserve") and the Bank is now regulated by the Office of the Comptroller of the Currency (the "OCC").

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

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

For additional information regarding the Agreements, please see the WSB's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2011. The Agreements are also 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 three months ending March 31, 2012.

Consolidated Results of Operations

Net income for the three month period ended March 31, 2012 was $278,000, or $0.03 per basic and diluted share, compared to net income of $236,000 or $0.03 per basic share and diluted share for the corresponding 2011 period. Net income for the three period ended March 31, 2012, represents an increase $42,000, or 18%, over the same three month period last year.

The increase in net earnings for the three month period is primarily the result of $243,000 decrease in non- interest expense partially offset by a $144,000 decrease in net interest income as compared to three month period last year. The decrease in non-interest expense for the three month period is primarily the result of reduced salaries and benefits due to the reduction in the number of loan originators needed to meet the current loan demand. Also, during the three month period ending March 31, 2012, interest income decreased both as a result of a decrease in our loan portfolio classified as held for sale and yield on this portfolio, offsetting the decrease in interest expense, primarily as a result of the continued efforts to reduce our higher cost liabilities.

Interest Income/Expense

Total interest income decreased $472,000, or 10.1% for the three month period ending March 31, 2012, compared to the corresponding period last year, due primarily to a decrease in both the average volume and average yield on interest-earning assets.

The average three month balance of interest-earning assets decreased to $344.6 million for the three months ending March 31, 2012 from $365.3 million for the three months ending March 31, 2011, due primarily to a decrease in loans held for investment and investment securities, offsetting the increase in MBS securities. The decrease in loans held-for-investment is primarily the result principal paydowns. The decrease in investment securities is the result of $5.0 million called agency security and the sale of a $2.0 million agency security. The increase in MBS is primarily the result of purchases of MBS. The short-term investment securities that were called and sold were reinvested in mortgage-backed securities to increase the yield spread. The average yield on our interest-earning assets decreased to 4.86% during the three months ended March 31, 2012 from 5.08% during the same period in 2011. The decrease is primarily the result of lower interest rates on interest earnings assets including our loans held for investment, MBS and investment securities compared to the same period last year due to a lower interest rate environment. In addition, we increased our restructured loans by approximately $6.8 million since March 31, 2011, which loans had significantly lower interest rates after such restructuring, which also negatively impacted the yield on our interest-earning assets.

Total interest expense decreased $328,000, or 20.1%, for the three month period ended March 31, 2012, compared to the same period in the prior year. The decrease was attributable to a decrease in both the average balance, resulting primarily from the maturities of approximately $39.0 million in our brokered certificate of deposits since March 31, 2011, and the average interest rate on our interest-bearing liabilities. For the three month period ended March 31, 2012, our average interest-bearing liabilities were $309.9 million with an average rate of 1.69%, compared to $338.9 million with an average rate of 1.96% for the corresponding period last year.

Net interest income decreased $144,000, or 4.8%, for the three month period ended March 31, 2012, compared to the same period in the prior year. Due to a lower average cost of our interest-bearing liabilities, our net interest rate spread increased to 3.35% for the three month period ended March 31, 2012 from 3.12% for the same period in the prior year. The ratio of our interest-earning assets to interest-bearing liabilities increased to 111.20% in the 2012 period from 107.79% in the corresponding period of the prior year.

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 shortening its loss history look back period used for the allowance for loan losses from 36 months to 12 months during the third quarter of 2010. 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. The shortened loss history component of our calculation of the allowance for loan losses was due, in part, to recommendations from our regulators. Based on our review, no provision was necessary for the three month period ending March 31, 2012.

During the three months ended March 31, 2012, the allowance decreased in net by $2.3 million or 38.1%, to $3.8 million at March 31, 2012 from $6.1 million at December 31, 2011, as a result of net charge-offs of approximately $2.3 million during the three months ending March 31, 2012. At March 31, 2012, the allowance was 1.91% of total loans held-for-investment, compared to 2.90% of total loans held-for-investment at December 31, 2011.

The change in the allowance was primarily due to the fact that the risk profile of our loan portfolio has improved as well as the reduction of our loan portfolio balance classified as held-for-investment, particularly our commercial secured by real estate loans. However, approximately $2.3 million charge-offs were related to reducing the specific reserve on our collateral dependent loans based on the OCC guidance newly applicable to us that was in our specific reserve balance at December 31, 2011.

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

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

We experienced an increase in charge-offs in our loan portfolio during the three month period ending March 31, 2012 compared to the same period last year. During the three months ending March 31, 2012 we recorded loan charge-offs of $2.3 million and recoveries of previous charged-off loans of approximately $12,000 compared to net charge-offs of $466,000 for the corresponding 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 $199.3 million loans-held for investment portfolio as of March 31, 2012. The $8.9 million loan held-for-sale portfolio has been committed to be purchased by investors at March 31, 2012 and will be settled subsequent to that date.

We have developed a comprehensive review process to monitor the adequacy of the allowance. The review process and guidelines were developed utilizing guidance from federal banking regulatory agencies and relies on 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 March 31, 2012.

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

We believe our evaluation as to the adequacy of the allowance as of March 31, 2012 is appropriate, and caution the reader that the provisioning for the 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, no provision was deemed necessary for the three month period ending March 31, 2012. For a better understanding and a more complete description of the allowance and the evaluation process, refer to the 2011 Form 10-K.

As shown below in tabular format, there was an increase in charge-offs compared to the comparable period last year. The increase is primarily related to reducing the specific reserve on our collateral dependent loans based on the OCC guidance newly applicable to us

In addition, we believe there are additional, unidentified, probable losses within the portfolio, which may be reflected as charge-offs against the allowance in future quarters as these losses manifest themselves and loan collection efforts continue.

                                                 2012                   2011
                                               1st Qtr                1st Qtr
Provision for loan losses                 $                -     $                -

Loan charge-offs                          $                -     $                -
single family                                        831,478                426,710
construction                                         404,829                      -
commercial, land and other                         1,110,329                 39,395
                                                   2,346,636                466,105
Loan recoveries
single family                                          1,195                  3,931
construction                                           1,200                      -
commercial, land and other                             9,742                  3,824
Net Charge-offs                           $        2,334,499     $          458,350

Allowance for loan losses at period
end                                       $        3,789,517     $        9,761,442
Total loans held for investment at at
period end                                $      199,270,866     $      235,551,909
Allowance to total loans held for
investment at period end                                1.90 %                 4.14 %

The fair value of impaired loans may be estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At March 31, 2012, all of the impaired loans were evaluated based upon the fair value of the collateral and/or discounted cash flows. Management's analysis of our impaired loans represents a level of reserves of approximately $962,000 for the period ending March 31, 2012 compared to approximately $2.9 million at December 31, 2011.

Our policy is to charge off all or that portion of our investment in an impaired loan upon a determination that it is probable the full amount will not be collected. At March 31, 2012, total impaired loans were $33.3 million, or 16.71% of total loans held for investment, compared to $31.3 million, or 14.82% of total loans held-for-investment, at December 31, 2011. Impaired loans consisted of $13.0 million that were non-accrual loans at March 31, 2012 and approximately $20.3 million of troubled debt restructured loans. Significant variation in this ratio may occur from period to period because the amount of non-performing loans depends largely on the condition of a small number of individual credits and borrowers relative to the total loan and lease portfolio.

                                                     At March 31,      At December 31,
                                                         2012               2011
                                                          (dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Single family                                       $        4,472    $           4,436
Land                                                         4,251                1,944
Construction                                                     -                    -

Non-mortgage loans:
Consumer                                                         -                    -
Commercial                                                   3,176                6,459
Non-residential                                              1,108                    -
Total non-accrual loans                                     13,007               12,839

Foreclosed real estate                                       5,760                4,821

Total non-performing assets                         $       18,767    $          17,660

Total non-performing loans to total loans
held-for-investment                                           6.52 %               6.07 %

Allowance for loan losses to total
non-performing loans                                         29.13 %              47.70 %

Total non-performing loans to total assets                    3.45 %               3.33 %

Total non-performing assets to total assets                   4.98 %               4.59 %

A troubled debt restructuring ("TDR") means that, due to a borrower's current financial difficulties, we have granted a concession to the borrower that we would not otherwise have considered. We do this when we believe the borrower may default on the loan without such concession and we believe the concession will increase the borrower's ability to remain current on the loan, in order to maximize recovery of our investment. The majority of our TDRs involve a restructuring of loan terms such as a temporary reduction in the payment amount to require only interest and escrow (if required), lowering of the interest rate and/or extending the maturity date of the loan. All TDRs are reported as "impaired" but not reported as non-performing loans unless the restructured loans are more than 90 days delinquent or on non-accrual status. As of March 31, 2012, we had $22.6 million in TDRs, of which $2.3 million were on non-accrual status, compared to $18.5 million in TDRs, of which $1.9 million were on non-accrual status, as of December 31, 2011.

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 . . .