WSB Wsb Holdings, Inc. (MM)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the Fiscal Year Ended December 31, 2012

For transition period from                to            

Commission File No. 000-53003

WSB HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:   (301) 352-3120

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes   o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨ No x

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 (§232.405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x

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.

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

The aggregate market value of the voting common equity held by non-affiliates of the registrant was $11,135,550 as of June 30, 2012.

Number of shares of Common Stock outstanding on February 15, 2013, was 8,016,607.

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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.

We expect the merger to close on or about May 3, 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.

Market Area and Target Market

We consider our current primary market area to consist of the suburban Maryland (Baltimore/Washington, D.C. suburbs) counties of Prince George’s, Anne Arundel and Charles.  We generally target middle income individuals and small and middle income businesses.

Lending Activities

General. Lending by the Bank has historically focused on residential mortgage loans and construction loans on residential projects.  The following table sets forth information concerning our loan portfolio net of deferred fees at the dates indicated:

(1) Includes $1.7 million, $1.9 million, $1.9 million, $1.2 million and $1.5 million of second mortgage loans at December 31, 2012, 2011, 2010, 2009 and 2008, respectively.

Contractual Maturities .  The following table reflects the approximate schedule of contractual principal repayments of the held-for-investment loan portfolio at December 31, 2012.  With respect to adjustable rate loans, the following table reflects the approximate schedule of contractual maturities:

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Prepayment Experience .  Contractual principal repayment terms do not necessarily reflect the actual repayment experience within the loan portfolio.  The average lives of mortgage loans are expected to be substantially less than their contractual terms due to loan prepayments and refinancings.  The following table presents estimated maturities of our loan portfolio based upon our historic prepayment experience.  With respect to adjustable rate loans, the following table reflects the approximate schedule of contractual maturities:

Origination, Purchase and Sale of Loans .  As a federal savings bank, the Bank has authority to originate and purchase loans secured by real estate located throughout the United States. Generally, we make loans in and around our market area, which primarily is the Baltimore-Washington corridor. Historically, we have not engaged in the purchasing of loans.

In addition to accepting loan requests from our customer base, we employ 16 mortgage loan originators compensated primarily on an incentive basis and two commercial loan originators compensated primarily on a salary basis.  The loan originators and other members of our management maintain contacts with local builders, developers and realtors, which provide us with additional potential customers.  The Bank also enhances its business contacts within the communities it serves by participating in local civic organizations.

The Bank originates residential loans for its portfolio and for sale in the secondary market.  Our general practice has been to sell loans on an individual basis to various lenders throughout the country, without retaining loan servicing rights (commonly referred to as “servicing released”).  In general, higher interest rate loans, such as commercial loans, second mortgages, construction loans, and construction/permanent loans, are held in the Bank’s portfolio, while conforming first mortgages are sold at or shortly after origination. During this period of slow demand in other areas of lending, we are focusing on increasing mortgage activity in order to reduce balance sheet risk and realize gains on the sale of loans in the secondary market.  Due to

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slow demand in commercial lending, our management has reduced our commercial business and commercial real estate lending department staff during the years ended December 31, 2010 and 2011.  This has resulted in a decrease in the portfolios of commercial business, commercial real estate, and residential land development loans to commercial borrowers.  We also use available funds to retain certain higher-yielding fixed rate residential mortgage loans in our portfolio in order to improve interest income.  During the past three fiscal years, we originated 1376 loans with a principal value of approximately $413.8 million.  The proceeds from loan sales are used to fund loans held for investment, mortgage-backed securities (“MBS”) and investment securities.  We also have approval to sell loans to Fannie Mae (“FNMA”) and Freddie Mac (“FHLMC”), which enhances our ability to sell our mortgage loans and to convert pools of loans into marketable Ginnie Mae (“GNMA”), FNMA and FHLMC participation certificates.  See “Mortgage-Backed Securities.”

Loan Underwriting Policies .  Under our loan approval policy, all loans approved must comply with federal regulations.  Generally, we will make residential mortgage loans in amounts up to the limits established from time to time by FNMA and FHLMC for secondary market resale purposes.  This amount for single-family residential loans currently varies from $417,000 up to a maximum of $625,500 for certain high-cost designated areas.  We also make residential mortgage loans up to limits established by the Federal Housing Administration (“FHA”) which currently is $729,500.  The Washington, D.C. and Baltimore areas are both considered high-cost designated areas.  We will, however, make loans in excess of this amount, if we believe we can sell the loans in the secondary market or that the loans should be held in our portfolio.

We obtain detailed loan applications to determine a borrower’s ability to repay and verify the more significant items on these applications through credit reports, financial statements and confirmations.  We also require appraisals of collateral and title insurance on secured real estate loans.  Most borrowers must establish a mortgage escrow account for items such as real estate taxes, governmental charges and hazard and private mortgage insurance premiums.

Our lending policy generally requires private mortgage insurance when the loan-to-value ratio exceeds 80%.  We generally do not lend in excess of 90% of the appraised value of single-family residential dwellings even when private mortgage insurance is obtained, except for FHA, Veterans Administration (“VA”) and Farmers Home Administration (“FmHA”) loans, which permit higher loan-to-value ratios.  Underwriting policies on other types of loans are described below.

Under federal law, the aggregate amount of loans that we may make to any one borrower and related entities is generally limited to 15% of the Bank’s unimpaired capital and unimpaired surplus. Our general lending limit at December 31, 2012 was approximately $8.2 million.  We have not made any loans aggregated in excess of this limit.

Single-Family Residential Real Estate Lending .  At December 31, 2012, we had a total of $204.2 million in loans receivable and MBS. Loans secured by first or second mortgages on single-family properties, excluding construction loans, were $71.2 million or 34.89% of total loans receivable and MBS.  MBS were $24.8 million or 12.15% of total loans receivable and MBS.

Our single-family residential loans have historically consisted of fixed interest rates for terms of up to 30 years.  We originate conventional mortgage loans, FHA loans, VA loans, and loans in excess of the FNMA and FHLMC ceilings both for sale in the secondary market and for

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our own portfolio.  We also offer adjustable-rate mortgages, with rates adjusting to external indices in one to ten years.  We have also made loans which fully amortize in 15 years and, on investment properties, loans which are due and payable in five years, subject to extension in some circumstances.

Non-Residential Real Estate Lending .  We make permanent mortgage loans on various non-residential properties, including office buildings and warehouses.  Non-residential loans are made on properties located in or around our market area.  Non-residential real estate lending may entail significant additional risks as compared to single-family residential property lending. At December 31, 2012, non-residential real estate loans represented $30.0 million, or 14.72% of total loans receivable and MBS, and lot and land loans represented $6.1 million, or 2.98%, of our total loans receivable and MBS.

Acquisition, Development and Construction Lending .  We provide construction loans for single-family and multi-family residences and for non-residential properties.  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 construction financing.

Acquisition, development and construction lending, while providing higher yields, may also have greater risks of loss than long-term residential mortgage loans on improved, owner-occupied properties.  At December 31, 2012, acquisition, development and construction loans represented $4.3 million, or 2.12%, of our total loans receivable and MBS.

The Bank generally is not currently seeking land or land acquisition loans; however, in the past the Bank would generally make land acquisition loans with terms of up to three years and loan to value ratios of up to 65%, and land development loans with terms of up to two years and loan-to value ratios of up to 75%.  The Bank is currently focusing on owner occupied residential construction loans with original terms of generally up to one year and loan to-value ratios of up to 80%.

Commercial Lending .  Federal laws and regulations permit thrift institutions to lend up to 20% of total assets in commercial loans on an unsecured basis or secured by collateral other than real estate, provided that amounts in excess of 10% of total assets may be used only for small business loans.  Prior to 2008, commercial lending was a minor component of our lending portfolio and operations.  Since 2008, we expanded this part of our lending business and continue to promote the origination of commercial and commercial real estate lending, but due to slow demand in commercial lending, our commercial portfolio has continued to decrease as a result of loan pay-downs, including by approximately $12.0 million during the year ended December 31, 2012.  We have, however, recently shifted our focus to increasing our mortgage banking activity, primarily loans sold in the secondary market, during this current period of slow demand for commercial lending.  At December 31, 2012, commercial loans represented $1.8 million, or 0.90%, of total loans receivable and MBS. Commercial loans secured by real estate represented $65.4 million, or 32.04%, of total loans receivable and MBS at December 31, 2012.  In addition, we have issued a limited number of standby letters of credit, generally to development loan customers in connection with development work financed by the Bank.

Consumer Lending .  Federal laws and regulations permit a federally chartered thrift institution to make secured and unsecured consumer loans in an aggregate amount up to 35% of the institution’s total assets.  The 35% limitation does not include home equity loans (loans

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secured by the equity in the borrower’s residence, but not necessarily for the purpose of improvement), home improvement loans or loans secured by deposits.  We have not actively promoted these kinds of loans. Consumer loans, including loans secured by deposits, represented $417,000, or 0.20%, of total loans receivable and MBS at December 31, 2012.

Loan Fees and Service Charges .  In addition to interest earned on loans, we receive income through servicing of loans and certain loan fees in connection with loan originations, loan modifications, loan commitments, late payments, changes of property ownership inspection fees and other services related to our outstanding loans.  Income from these activities varies from period to period with the volume and types of loans made and repaid.  We charge loan origination fees, which are calculated as a percentage of the amount loaned.  The fees received in connection with the origination of construction and mortgage loans have generally been from one to four points (one point being equivalent to 1% of the principal amount of the loan) and are dependent upon market conditions and other factors. Loan origination fees, net of certain costs, are deferred and recognized as a yield adjustment over the lives of the loans primarily utilizing the interest method.

Mortgage-Backed Securities (MBS)

In addition to short-term investments, when management believes favorable interest rate spreads are available, we may invest excess funds in MBS.  GNMA participation certificates represent interests in pools of loans which are either insured by the FHA or guaranteed by the VA.  FHLMC participation certificates are guaranteed by the FHLMC and FNMA participation certificates are guaranteed by the FNMA. The United States is not obligated to fund either FHLMC’s obligations or FNMA’s obligations.  MBS may also be used as collateral for short-term and long-term borrowings, which we may obtain from time to time.  We do not generally employ hedging strategies in connection with a MBS portfolio.

The primary risk of holding these securities is the fluctuation of principal value corresponding to changes in interest rates. Although MBS do not alter the overall maturity of our assets as compared to holding a comparable portfolio of whole loans, they are more liquid than whole mortgage loans. At December 31, 2012, we had $24.8 million MBS in our portfolio. The following table sets forth the book value and estimated market value of the MBS portfolio at the dates indicated.

We sold $53.2 million MBS classified as available-for-sale during the year ending December 31, 2012 and experienced $189,000 pre-tax gain, or approximately $115,000 after tax gain, compared to $11.0 million MBS classified as available-for-sale, experiencing a $401,000 pre-tax gain in 2011, or approximately $243,000 after tax gain for the twelve months ending December 31, 2011. We sold the majority of these MBS during 2012 after entry into the Merger Agreement because we believe, based on the manner that the merger consideration will be calculated as provided in the Merger Agreement, 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

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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.

At December 31, 2012, we had no non-cash other-than-temporary impairment (“OTTI”) charges recognized in net earnings, related to available-for-sale investments as we sold the remaining non-agency private labeled MBS during the twelve month period ending December 31, 2012. For full explanation, please refer to Note 3 of the Notes to Consolidated Financial Statements.

Other Investment Activities

In addition to investment in MBS, excess short-term funds have over time been generally been invested in federal funds, agency callable paper, zero coupon bonds, a certificate of deposit (“CD”) and preferred trust coupon bonds.  Our portfolio of investment securities provides a source of liquidity when loan demand exceeds funding capability, provides funding for unexpected savings and CD withdrawals, provides funds for CD maturities, serves as a vehicle for interest rate risk management, and provides a source of income.  We are required to maintain certain liquidity ratios and generally do so by investing in securities that qualify as liquid assets under federal regulations. We are also required to hold FHLB stock in specified amounts and to maintain certain reserves with the Federal Reserve Bank of Richmond.  See “Business-Supervision and Regulation”.

The following table sets forth certain information regarding our investment securities (excluding MBS), at carrying value and other interest earning assets at the dates indicated.

The following table sets forth our scheduled maturities on other investments:

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Prepayments and calls on the U.S. Government Agencies shorten the actual maturity. FHLB and Atlantic Central Bankers Bank stock has been excluded from this table as they have no stated maturity.

Approximately $43.5 million short term investments, callable agencies, were called during the twelve month period ending December 31, 2012.  Also, during the twelve month period ending December 31, 2012, we sold approximately $2.6 million in short term agencies, $5.0 million in corporate bonds and $2.3 million in municipal bonds.  We sold most of these investments 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.

Sources of Funds

General .  Deposits are the primary source of the Bank’s funds for use in lending and for other general business purposes.  In addition to deposits, we obtain funds from loan amortizations and prepayments and sales of loans, MBS and investment securities.  We maintain funding facilities with correspondent banks and the Federal Home Loan Bank of Atlanta, which are cancelable by the lender and subject to lender discretion. Management has begun investing excess cash liquidity in investment grade securities which offer a ready source of collateral for secured borrowings under existing credit facilities. Structured repurchase agreements (“repos”) are financial transactions in which an organization borrows money by selling securities and simultaneously agreeing to buy the securities back later at a higher price, and they function similarly to a secured loan with the securities serving as collateral.  At December 31, 2012, we had borrowings of $68.0 million in the form of advances from the FHLB of Atlanta.

Deposits .   Deposits are the primary source of our funds for use in lending and for other general business purposes. We compete with other financial institutions for deposits.  Competition for deposits remains high.  The receipt and disbursement of deposits are significantly influenced by economic conditions, interest rates, money market conditions and other factors. Our consumer deposits and commercial deposits are attracted from within our primary market areas through the offering of a broad selection of deposit instruments including consumer, small business and commercial demand deposit accounts, interest-bearing checking accounts, money market accounts, regular savings accounts, certificates of deposit and retirement savings plans. These accounts are a source of low-interest cost funds and provide fee income to the Bank.

Information concerning our deposits is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Consolidated Financial Condition Analysis — Deposits” and in Note 8 of the Notes to Consolidated Financial Statements.

The change in the mix of our deposits during 2012, as discussed further in the table below, reflects our emphasis to decrease our deposits by decreasing the rates offered on these products to continue our efforts to reduce interest expense.  We advertise for CDs from time to time generally when we have the need for deposits of specific maturities.  We have received deposits through brokers on an occasional basis in a manner consistent with federal regulations for our current funding obligations, however, we have consciously reduced our reliance on brokered deposits and have focused growth through the branches.

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The following table shows the distribution of our deposits by type of deposit, including accrued interest, for the periods indicated.

Our deposits are insured by the FDIC.  The Bank’s deposits have FDIC insurance coverage of $250,000 per depositor.  The Dodd-Frank Wall Street Reform and Consumer Protection Act signed on July 21, 2010, made permanent the deposit insurance amount of $250,000.

The following table presents, by various interest rate categories, the amounts of time deposit accounts, excluding accrued interest payable of $7,254 at December 31, 2012, which will mature during the periods indicated.

(1)Brokered accounts consisting of individual accounts issued under master certificates in the broker’s name have been included in the total representing balance of $100,000 or less.

The following table contains information pertaining to approximately 146 certificates of deposit accounts held in excess of $100,000 as of December 31, 2012.

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Borrowings.   At December 31, 2012, total borrowings consisted of $68.0 million in FHLB advances. During the fiscal year ending December 31, 2012, our borrowings were reduced as a result of an $8.0 million maturity and the repayment of $8.0 million in the daily rate credit, bringing the balance of our FHLB advances to $68.0 million at December 31, 2012 as compared to $84.0 million at December 31, 2011.  Borrowings for fiscal 2012 were as follows:

Our interest expense on our borrowings decreased approximately $85,400 and $1.4 million for the periods ending December 31, 2012 and 2011.  This decrease is due to our continuing efforts to reduce our higher cost liabilities.

Subsidiaries

WSB, Inc.

The Bank established a wholly owned service corporation subsidiary, WSB, Inc., in 1985. WSB Inc. became a subsidiary of WSB in the holding company reorganization.  WSB, Inc. purchases land to develop into single-family building lots that are offered for sale to third parties.  It also builds homes on certain lots on a contract basis.  During the years ended December 31, 2012 and 2011, WSB, Inc. did not develop any lots. See Note 5 of Notes to Consolidated Financial Statements.

WSB Realty, LLC

The Bank established a wholly-owned operating subsidiary in January 2009 for the purpose of directly or indirectly, acquiring, owning, holding, leasing, developing, managing, operating, investing in or otherwise dealing with various real and personal property.  Management is authorized to take assignment of the right to acquire title to certain properties purchased at foreclosure sales.  Management is authorized to take usual and customary activities toward the acquisition, rehabilitation, sale, rental and disposition of these properties.  At December 31, 2012, WSB Realty, LLC had assets of approximately $3.2 million consisting primarily of cash and other real estate owned.  WSB Realty, LLC reports a net loss of approximately $24,700 for year ending December 31, 2012.

WSB Realty, Inc.

The Bank established a wholly-owned operating subsidiary in September 2010 for the purpose of directly or indirectly, acquiring, owning, holding, leasing, developing, managing, operating, investing in or otherwise dealing with various real and personal property.  Management is authorized to take assignment of the right to acquire title to certain properties purchased at

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foreclosure sales.  Management is authorized to take usual and customary activities toward the acquisition, rehabilitation, sale, rental and disposition of these properties.  At December 31, 2012, WSB Realty, Inc. had assets of approximately $17,000 consisting primarily of cash.  WSB Realty, Inc. reports a net loss of approximately $65 for year ending December 31, 2012.

Employees

We had 88 full-time and 22 part-time employees at December 31, 2012.  We provide health and life insurance benefits and an employer matching 401(k) plan.  None of the employees are represented by a collective bargaining union.  We believe that we enjoy good relations with our employees.

Available Information

WSB’s internet address is www.twsb.com. There we make available, free of charge, our annual report on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports as soon as practicable after we file or furnish them with the Securities and Exchange Commission (“SEC”), as well as copies of required Forms 3, 4, and 5 filings for insider security holdings and transactions and copies of our Code of Ethics for our officers, directors and employees as well as our committee charters. Our SEC reports can be accessed through the financial highlights information section of our website. The information on our website is not a part of this or any other report we file with or furnish to the SEC.

Supervision and Regulation

General

The following discussion summarizes certain material elements of the regulatory framework applicable to WSB and its subsidiaries.  These summaries of statutes and regulations are not intended to be complete and such summaries are qualified in their entirety by reference to such statutes and regulations.

WSB is a unitary savings and loan holding company that is subject to regulation and supervision by the Federal Reserve Board.  As such, WSB is required to serve as a source of financial strength to its subsidiary depository institution and to commit resources to support the depository institution as needed.  The Federal Reserve Board also has the authority to require WSB to terminate any activity or to relinquish control of a nonbank subsidiary upon the Federal Reserve Board’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of the holding company or the depository institution.  WSB’s status as a savings and loan holding company does not exempt it from certain federal and state laws applicable to Delaware corporations generally, including, without limitation, certain provisions of the federal securities laws.

As a federal savings bank, the Bank is subject to extensive regulation and periodic examination by the OCC.  The lending activities and other investments of the Bank must comply with various federal regulatory requirements and the Bank must periodically file reports with the OCC describing its activities and financial condition. The Bank’s deposits are insured by the FDIC through its Deposit Insurance Fund (“DIF”). The Bank is also subject to regulation for certain matters by the FDIC and for certain other matters by the Federal Reserve Board.  This

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supervision and regulation is intended primarily for the protection of depositors. Certain of these regulatory requirements are referred to below or appear elsewhere herein.

As a savings and loan holding company, WSB is registered with the Federal Reserve Board and is subject to regulation, examinations, supervision, and reporting requirements applicable to savings and loan holding companies. In addition, the Federal Reserve Board has enforcement authority over WSB and its subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the Bank.

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.

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 of the Company by the OTS, examiners identified certain supervisory issues, primarily related to our classified assets.  The Supervisory Agreements set forth the actions that WSB, the Bank and their Boards of Directors must undertake to address the issues.   Pursuant to regulatory changes instituted by the Dodd-Frank Act, WSB is now regulated by the Federal Reserve Board and the Bank is now regulated by the OCC. As our current regulators, the Agreements will be enforced by the OCC with respect to the Bank and the Federal Reserve Board with respect to WSB.  Each Agreement will remain in effect until terminated, modified or suspended by the Federal Reserve Board 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 Company’s Current Report on Form 8-K filed with the SEC 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.

The following is a summary of certain laws and regulations that are applicable to the Bank.  This summary is not a complete description of such laws and regulations, nor does it encompass all such laws and regulations.  Any change in the laws and regulations governing the Bank or in the policies of the various regulatory authorities could have a material impact on the Bank, its operations and its stockholders.

Regulatory Reform Legislation .   The Dodd-Frank Act, enacted in 2010, will have a broad impact on the financial services industry, imposing significant regulatory and compliance changes, including the designation of certain financial companies as systemically significant, the imposition of increased capital, leverage, and liquidity requirements, and numerous other provisions designed to improve supervision and oversight of, and strengthen safety and soundness within, the financial services sector.

The following items provide a brief description of certain provisions of the Dodd-Frank Act.

·                   OTS merged with OCC .  The Dodd-Frank Act eliminated the OTS.  On July 21, 2011, the OTS merged into the OCC, with the OCC assuming all functions and authority from the OTS relating to federally chartered savings banks, such as the Bank, and the Federal

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Reserve Board assuming all functions and authority from the OTS relating to holding companies for savings banks, such as WSB.  As a result, as of July 21, 2011, the OCC became the Bank’s primary federal regulator and WSB became subject to supervision by the Federal Reserve Board.

·                   Source of strength.   The Dodd-Frank Act extended the Federal Reserve Board’s “source of strength” doctrine to savings and loan holding companies such as WSB.  The regulatory agencies must issue regulations requiring that all bank and savings and loan holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

·                   Mortgage loan origination and risk retention.   The Dodd-Frank Act imposes new standards for mortgage loan originations on all lenders, including banks, in an effort to require steps to verify a borrower’s ability to repay. In addition, the Dodd-Frank Act generally requires lenders or securitizers to retain an economic interest in the credit risk relating to loans the lender sells or mortgage and other asset-backed securities that the securitizer issues. The risk retention requirement generally will be 5%, but could be increased or decreased by regulation.

·                   Consumer Financial Protection Bureau (“CFPB”).   The Dodd-Frank Act created a new independent CFPB within the Federal Reserve Board. The CFPB is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. The CFPB has rulemaking authority over many of the statutes governing products and services offered to bank consumers, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. For banking organizations with assets under $10 billion, like the Bank, the CFPB has exclusive rulemaking authority, but the Bank’s primary federal regulator will continue to have examination and enforcement authority under federal consumer financial law. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB. Compliance with any such new regulations would increase our cost of operations.

·                   Deposit insurance.   The Dodd-Frank Act made permanent the general $250,000 deposit insurance limit for insured deposits. The Dodd-Frank Act also extended until January 1, 2013, federal deposit insurance coverage for the full net amount held by depositors in non-interest bearing transaction accounts. Amendments to the Federal Deposit Insurance Act also broadened the assessment base against which an insured depository institution’s deposit insurance premiums paid to DIF will be calculated. Under the amendments, the assessment base will no longer be the institution’s deposit base, but rather its average consolidated total assets less its average tangible equity. These provisions could increase the FDIC deposit insurance premiums paid by the Bank.

·                   Corporate governance.   The Dodd-Frank Act addresses many investor protection, corporate governance and executive compensation matters that will affect most U.S. publicly traded companies, including the Company. The Dodd-Frank Act provides the SEC with authority to adopt proxy access rules that would allow stockholders of publicly traded companies to nominate candidates for election as a director and have those nominees included in a company’s proxy materials and directs the SEC and national

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securities exchanges to adopt rules that (1) provide stockholders of U.S. publicly traded companies an advisory vote on executive compensation; (2) will enhance independence requirements for compensation committee members; and (3) will require companies listed on national securities exchanges to adopt incentive-based compensation clawback policies for executive officers.

Many of the requirements of the Dodd-Frank Act will be implemented over time and most will be subject to regulations implemented over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements may negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors.

Liquidity Requirements .  As a thrift, the Bank derives its lending and investment authority from the Home Owners’ Loan Act, as amended, and regulations of the OCC thereunder.  Those laws and regulations limit the ability of the Bank to invest in certain types of assets and to make certain types of loans.  For example, the OCC requires thrifts to maintain sufficient liquidity to ensure their safe and sound operation. Liquid assets are defined to include cash, deposits maintained pursuant to Federal Reserve Board reserve requirements, time deposits in certain institutions and certain savings deposits, obligations of the United States and certain of its agencies and qualifying obligations of the states and political subdivisions thereof, highly rated corporate debt, mutual funds that are restricted by their investment policies to investing only in liquid assets, certain mortgage loans and mortgage-related securities and bankers acceptances.  As of December 31, 2012, the Bank had $41.4 million of cash and cash equivalents.  Further, the Company had $77.6 million of unpledged investment securities. .

Internal sources of operational liquidity used by the Bank are cash, various short-term investments, mortgage-backed securities and loans and investments classified as available-for-sale. Additionally, we may borrow funds from commercial banks or from the FHLB of Atlanta or the Federal Reserve Bank “discount window” after exhausting FHLB sources. Previously, we also have utilized short term borrowings in the form of reverse repurchase agreements from a commercial bank to meet short-term liquidity needs.  At December 31, 2012, we had approximately $43.8 million of availability on our FHLB line, and $12.0 million of availability on our secured line of credits with correspondent banks.

Qualified Thrift Lender Test .  As a federal savings bank, the Bank must satisfy the qualified thrift lender, or “QTL,” test. To satisfy the QTL test, the Bank must either qualify as a domestic building and loan association under the Internal Revenue Code, or maintain an appropriate level of certain investments, called “Qualified Thrift Investments” (“QTIs”). QTIs include, among other things, a bank’s residential mortgages and related investments, including mortgage-backed securities, Federal Home Loan Bank stock, education loans, small business loans, and loans made through credit cards.  QTIs must represent 65% or more of the Bank’s portfolio assets on a monthly average basis in 9 months out of every 12-month period. “Portfolio

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assets” generally means total assets of a savings bank, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the savings bank’s business. Failure by the Bank to maintain its status as a QTL will result in certain restrictions under the Home Owners’ Loan Act on the Bank’s ability to engage in new activities, to establish new branches and to pay dividends. Additionally, WSB would be required to register as a bank holding company and become subject to the various restrictions applicable to the activities of bank holding companies. The Dodd-Frank Act made noncompliance with the QTL test subject to OCC enforcement action for a violation of law.  At December 31, 2012, our QTL ratio was 67%, which exceeded the requirements of the QTL test.

Capital Standards .  The Bank is subject to capital standards imposed by the OCC. These standards call for a minimum “leverage ratio” of core capital to adjusted total assets of 4% (3% for savings institutions receiving the highest composite CAMELS rating for safety and soundness), a minimum ratio of tangible capital to adjusted total assets of 1.5%, and a minimum ratio of risk-based capital to risk-weighted assets of 8%. For capital adequacy purposes, a bank is placed in one of the following five categories based on the bank’s capital: (1) well capitalized (at least 5% leverage capital, 6% Tier 1 risk-based capital and 10% total risk-based capital); (2) adequately capitalized (at least 4% leverage capital (3% for savings banks receiving the highest rating on the CAMELS rating system), 4% Tier 1 risk-based capital and 8% total risk-based capital); (3) undercapitalized (less than 4% leverage capital (3% for savings banks receiving the highest rating on the CAMELS rating system), 4% Tier 1 risk-based capital or less than 8% total risk-based capital,); (4) significantly undercapitalized (less than 3% leverage capital, 3% Tier 1 risk-based capital or less than 6% total risk-based capital,); and (5) critically undercapitalized (less than 2% tangible capital).  The federal banking agencies are required to take prompt corrective action with respect to insured institutions that fall below the adequately capitalized level.  Any insured depository institution that falls below the adequately capitalized level must submit a capital restoration plan, and, if its capital levels further decline or do not increase, will face increased scrutiny and more stringent supervisory action. At December 31, 2012, the Bank’s ratios exceeded all regulatory capital requirements for well capitalized institutions. See Note 12 of Notes to Consolidated Financial Statements.

Proposed New Capital Rules .  On June 12, 2012, the federal bank regulatory agencies adopted notices of proposed rulemaking in which they proposed to revise their risk-based and leverage capital requirements consistent with agreements reached by the Basel Committee on Banking Supervision (BCBS) in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (“Basel III”).  If adopted, the new requirements would introduce new tier 1 common equity ratio requirements of 4.5% and 6.5%, net of regulatory deductions, for adequately capitalized and well-capitalized institutions, respectively, and would also establish more conservative standards for including an instrument in regulatory capital.  The new requirements would also introduce a capital conservation buffer of an additional 2.5% of common equity to risk-weighted assets, raising the target minimum common equity ratio to 7%, the minimum tier 1 capital ratio to 8.5%, and the minimum total capital ratio to 10.5%.  An institution’s failure to achieve these minimum levels including the capital conservation buffer would restrict the institution’s ability to make capital distributions, including dividends, and to make certain discretionary bonus payments to executive officers.  The regulatory agencies also reserve the right to require capital ratios for individual institutions that are higher than these minimums depending on the institution’s individual circumstances.  The new requirements would also assign new risk weight categories for certain assets, most notably residential mortgage loans, high volatility commercial real estate loans, and past due assets.  These new risk weightings may require banks and bank holding companies to maintain additional capital against assets in those categories and

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may introduce more volatility in their capital ratios.  The new capital requirements would be applicable to savings and loan holding companies such as WSB.

Prompt Corrective Action .  The federal banking agencies have established by regulation, for each capital measure, the levels at which an insured institution is well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized. The federal banking agencies are required to take prompt corrective action with respect to insured institutions that fall below the adequately capitalized level. Any insured depository institution that falls below the adequately capitalized level must submit a capital restoration plan, and, if its capital levels further decline or do not increase, will face increased scrutiny and more stringent supervisory action. As of December 31, 2012, we were deemed to be well capitalized.

Interest Rate Risk .  The OCC has issued guidelines regarding the management of interest rate risk (“IRR”). The OCC expects all federal savings associations, such as the Bank, to manage their IRR exposure using processes and systems commensurate with their earnings and capital levels; complexity; business model; risk profile; and scope of operations. Savings associations are required to have comprehensive policies and procedures that govern all aspects of their IRR management process and that address the potential impact of changing interest rates on earnings and capital from a short-term and a long-term perspective. Stress testing is an integral component of IRR management. The Bank’s IRR program incorporates a stress-testing process to identify and quantify the Bank’s IRR exposure and potential problem areas.

Deposit Insurance .  Deposit accounts in the Bank are insured by the FDIC generally up to a maximum of $250,000 per separately insured depositor.  FDIC-insured depository institutions are required to pay deposit insurance assessments to the FDIC.  The amount of a particular institution’s deposit insurance assessment is based on that institution’s risk classification under an FDIC risk-based assessment system. Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other risk factors. Rates are based on each institution’s risk category and certain specified risk adjustments.  Deposit insurance assessments fund the DIF, which is currently under-funded.

The Dodd-Frank Act changed the way an insured depository institution’s deposit insurance premiums are calculated.  The assessment base is no longer the institution’s deposit base, but rather its average consolidated total assets less its average tangible equity.  The legislation also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and noninterest bearing transaction accounts had unlimited deposit insurance through December 31, 2012.  The Dodd-Frank Act also made changes to the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15% percent to 1.35% of the estimated amount of total insured deposits, eliminating the upper limit for the reserve ratio designated by the FDIC each year, and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds.

As mandated by the Dodd-Frank Act, in February 2011, the FDIC approved a final rule that changes the deposit insurance assessment system from one that is based on domestic deposits to one that is based on average consolidated total assets minus average tangible equity.  In addition, the rule adopts a “scorecard” assessment scheme for larger banks and suspends dividend payments indefinitely if the DIF reserve ratio exceeds 1.5% percent, but provides for decreasing assessment rates when the reserve ratio reaches certain thresholds.  Under the new rule, larger

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insured depository institutions generally pay higher assessments than under the old system, which should offset the cost of the assessment increases for institutions with consolidated assets of less than $10 billion, such as the Bank.

In 2009, the FDIC imposed a 5 basis point special assessment on each insured depository institution’s insurance assets minus Tier 1 capital (core capital) as of June 30, 2009, not to exceed 10 basis points of the institution’s domestic deposits.  This special assessment was collected on September 30, 2009. The FDIC also adopted a final rule requiring insured institutions to prepay quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012.  The pre-payment allowed the FDIC to strengthen the cash position of the DIF immediately without impacting earnings of the industry.  We paid the prepaid assessments, along with our regular quarterly assessment, on December 30, 2009. As of December 31, 2012, $223,000 in pre-paid deposit insurance assessments is included in other assets in the accompanying consolidated balance sheet.

In addition to FDIC deposit insurance assessments, all FDIC-insured depository institutions must also pay an annual assessment to interest payments on bonds issued by the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds (commonly referred to as “FICO bonds”) were issued to capitalize the Federal Savings and Loan Insurance Corporation. The Financing Corporation payments will continue until the bonds mature in 2017 through 2019.  Our FICO expense payments totaled $632,000 in 2012 and $742,000 in 2011.

The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Our management is not aware of any existing circumstances which would result in termination of our deposit insurance.

Restrictions on Capital Distributions .  OCC regulations govern capital distributions by a federal savings bank, which include cash dividends, stock repurchases and other transactions charged to the capital account.  A savings bank must file an application for approval of a capital distribution if: (1) the total capital distributions for the applicable calendar year exceed the sum of the savings bank’s net income for that year to date plus the savings bank’s retained net income for the preceding two years; (2) the bank would not be at least adequately capitalized following the distribution; (3) the distribution would violate any applicable statute, regulation, agreement or OCC-imposed condition; or (4) the savings bank is not eligible for expedited treatment of its filings.  Even if an application is not otherwise required, every savings bank that is a subsidiary of a holding company must file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend or approves a capital distribution.  The OCC may disapprove a notice or application if: (1) the savings bank would be undercapitalized following the distribution; (2) the proposed capital distribution raises safety and soundness concerns; or (3) the capital distribution would violate a prohibition contained in any statute, regulation or agreement. Refer to “Market Price of WSB’s Capital Stock and Dividends” for WSB’s current dividend position.

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Federal Reserve System .

Pursuant to regulations of the Federal Reserve Board, a thrift institution must maintain non-interest bearing reserves at the Federal Reserve Bank or in a pass-through account at a correspondent institution, calculated daily, equal to 3% of its “low reserve tranche,” currently the first $79.5 million of transaction accounts (less a $12.4 million exclusion).  Amounts above $79.5 million require reserves of $2,013,000 plus 10 percent of the amount in excess of $79.5 million.  We have consistently met the reserve requirements.

Federal Home Loan Bank System .  The Bank is a member of the FHLB of Atlanta, which is one of 12 regional Federal Home Loan Banks.  FHLB banks provide a central credit facility primarily for member institutions. At December 31, 2012 and 2011, we had advances of $68.0 million and $84.0 million, respectively, from the FHLB of Atlanta. The FHLB borrowings are collateralized by a blanket collateral loan agreement under which we must maintain minimum eligible collateral for the outstanding advances.

As a member, the Bank is also required to acquire and hold shares of capital stock in the FHLB of Atlanta. We were compliant with this requirement with an investment in FHLB of Atlanta stock at December 31, 2012 of $3.6 million.

Safety and Soundness Standards .  We are subject to certain standards designed to maintain the safety and soundness of individual banks and the banking system.  The OCC has prescribed safety and soundness guidelines relating to: (i) internal controls, information systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure; (v) asset growth, concentration, and quality; (vi) earnings; and (vii) compensation and benefit standards for officers, directors, employees and principal stockholders.  A federal savings institution not meeting one or more of the safety and soundness guidelines may be required to file a compliance plan with the OCC. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.

Community Reinvestment Act .  In 1977, Congress enacted the Community Reinvestment Act to encourage depository institutions, including thrifts, to help meet the credit needs of their entire communities, including low- and moderate-income areas, consistent with safe and sound banking practices. Because the Bank meets the OCC’s definition of an “intermediate small savings association,” i.e., those with more than $296 million in assets, but less than $1.186 billion in assets as of the end of either of the two previous years, the Bank is subject to somewhat streamlined examinations and reduced data collection and regulatory reporting requirements under the Community Reinvestment Act, relative to large retail savings associations. As a result, the Bank qualifies for the intermediate small institution Community Reinvestment Act examinations, based on its present asset size. Standard Community Reinvestment Act examinations evaluate depository institutions under lending, investment and community service tests.  Intermediate small institutions’ examinations, however, focus mainly on the lending activities of depository institutions, and also evaluate community development activities of the institution, such as community development loans, investments, and services.

The Bank received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.

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Loans-to-One-Borrower Limitations .  Generally, a federal savings bank may not make a loan or extend credit to a single borrower or related group of borrowers in excess of 15% of unimpaired capital and surplus.  An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate.  As of December 31, 2012, we were in compliance with loans-to-one-borrower limitations.

Transactions with Related Parties .  Under Sections 23A and 23B of the Federal Reserve Act, which are applicable to savings banks, extensions of credit and certain asset purchases between a savings bank and its affiliates are restricted.  An affiliate of a bank is a company that controls or is under common control with the bank, except, in most instances, subsidiaries of the bank itself.  In a holding company context, the parent savings and loan holding company and any companies that are controlled by such savings and loan holding company are affiliates of the subsidiary savings bank. The general purpose of these restrictions is to prevent a savings bank from subsidizing its affiliates that are not insured by the FDIC through transactions that are excessive in amount, on preferential terms, or otherwise unsafe and unsound.  Under Section 23A, the Bank is not able to engage in “covered transactions” with any single affiliate if the aggregate amount of its covered transactions with that affiliate exceeds 10% of the Bank’s capital and surplus, or with all of the Bank’s affiliates collectively if the aggregate amount of our covered transactions with all affiliates exceeds 20% of our capital and surplus.  A transaction with a third party is deemed to be a covered transaction to the extent that the proceeds of the transaction are used for the benefit of or transferred to an affiliate.  The term “covered transaction” includes the making of loans, purchase of assets, issuance of guarantees and other similar transactions. In addition, loans or other extensions of credit by the Bank to an affiliate are required to be collateralized in accordance with regulatory requirements, and the Bank’s transactions with affiliates must be consistent with safe and sound banking practices and may not involve the purchase by the Bank of any low-quality asset.  Section 23B applies to covered transactions as well as certain other transactions and requires that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to non-affiliates.  Dividends and fees paid by us are not defined as covered transactions and are not subject to section 23A and 23B restrictions, but are subject to the capital distribution restrictions noted above.

Certain transactions with affiliates are prohibited altogether.  For example, the Bank may not purchase or invest in securities issued by any of its affiliates.  Other transactions are subject to full or partial exemptions.  For example, purchasing an asset having a readily identifiable and publicly available market quotation and purchased at or below the asset’s current market quotation is exempt from the quantitative limits, collateral requirements and low-quality asset restrictions of Section 23A.

Section 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board govern extensions of credit made by a bank to its directors, executive officers, and principal stockholders (“insiders”).  Among other things, these provisions require that extensions of credit to insiders be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features.  Further, such extensions may not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital.  Extensions of credit in excess of certain limits must be also be approved by the board of directors.

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Consumer Protection Laws .  The Bank is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy.  These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, and the Real Estate Settlement Procedures Act, and various state law counterparts.

In addition, federal law currently contains extensive customer privacy protection provisions.  Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information.  These provisions also provide that, except for certain limited exceptions, a financial institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure.  Further under the “Interagency Guidelines Establishing Information Security Standards,” savings banks must implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer information. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means.

Anti-Money Laundering and OFAC

Under federal law, financial institutions must maintain anti-money laundering programs that include established internal policies, procedures and controls; a designated compliance officer, an ongoing employee training program and testing of the program by an independent audit function.  Financial institutions are also prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and customer identification in their dealings with foreign financial institutions and foreign customers.  Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions, and law enforcement authorities have been granted increased access to financial information maintained by financial institutions.  Bank regulators routinely examine institutions for compliance with these obligations, and they must consider an institution’s compliance in connection with the regulatory review of applications, including applications for banking mergers and acquisitions. The regulatory authorities have imposed “cease and desist” orders and civil money penalty sanctions against institutions found to be violating these obligations.

The Office of Foreign Assets Control, or OFAC, is responsible for helping to insure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress.  OFAC sends bank regulatory agencies lists of persons and organizations suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons.  If WSB or the Bank finds a name on any transaction, account, or wire transfer that is on an OFAC list, they must freeze such account, file a suspicious activity report and notify the appropriate authorities.

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Holding Company Regulation

General . WSB is registered with the Federal Reserve Board and is subject to regulations, examinations, supervision and reporting requirements applicable to savings and loan holding companies. In addition, the Federal Reserve Board has enforcement authority over WSB and its subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the Bank. The Federal Reserve Board assumed the authority over savings and loan holding companies previously exercised by the OTS on July 21, 2011.

Permissible Activities . Under present law, the business activities of WSB are generally limited to those activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act,  financial holding companies under Section 4(k) of the Bank Holding Company Act of 1956, as amended, provided certain conditions are met, and certain additional activities authorized by federal regulations.

Savings and loan holding companies, such as WSB, may not directly or indirectly, or through one or more subsidiaries, acquire more than 5% of another savings institution or savings and loan holding company, without prior regulatory approval. WSB may not, with certain exceptions, acquire more than 5% of a non-subsidiary company engaged in activities that are not closely related to banking or financial in nature, or acquire or retain control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider the financial and managerial resources, future prospects of the company and institution involved, the effect of the acquisition on the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors.

Capital . Savings and loan holding companies are not currently subject to specific regulatory capital requirements. The Dodd-Frank Act, however, requires the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. In addition, proposed capital rules would subject top-tier saving and loan holding companies, such as WSB, to the same general capital requirements applicable to their subsidiary savings banks.  See “— Proposed New Capital Rules.”.

Source of Strength . The Dodd-Frank Act extended the “source of strength” doctrine to savings and loan holding companies. The regulatory agencies must issue regulations requiring that all bank and savings and loan holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

Dividends . The Bank must notify the Federal Reserve Board 30 days before declaring any dividend to WSB. The Federal Reserve Board may disapprove such dividend, in whole or in part, if it finds that the proposed dividend would, among other things, cause the Bank to be undercapitalized, raise safety or soundness concerns,  or violate a prohibition contained in any statute, regulation, enforcement action, or agreement between the Bank or WSB and any Federal banking agency.

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Acquisition of WSB

Under the Federal Change in Control Act, a notice must be submitted to the Federal Reserve Board if any person (including a company), or group acting in concert, seeks to acquire direct or indirect “control” of a savings and loan holding company. Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the company’s outstanding voting stock, unless the Federal Reserve Board has found that the acquisition will not result in control of the company. A change in control definitively occurs upon the acquisition of 25% or more of the company’s outstanding voting stock. Under the Change in Bank Control Act, the Federal Reserve Board generally has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition.

Proposed Legislation and Regulatory Actions

New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations, and competitive relationships of the nation’s financial institutions.  We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.

Effect of Governmental Monetary Policies

Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies.  The Federal Reserve Board’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of financial institutions through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession.  The monetary policies of the Federal Reserve Board affect the levels of bank loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject. We cannot predict the nature or impact of future changes in monetary and fiscal policies.

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the stockholders do not approve the merger and/or Merger Agreement at the special stockholder meetings, the Merger will not be consummated.

Completion of the Merger is also conditioned upon customary closing conditions.

Although WSB and Old Line Bancshares have agreed in the Merger Agreement to use reasonable best efforts to consummate the merger, the other conditions to the merger may fail to be satisfied.  In addition, satisfying the conditions to, and completion of, the merger may take longer than, and could cost more than, we expect. Any delay in completing the merger may adversely affect the benefits that WSB and Old Line Bancshares expect to achieve from the merger and the integration of our businesses.  In addition, failure to complete the merger may adversely affect Old Line Bancshares.

Failure to complete the merger could negatively impact our stock price and future businesses and financial results SB.  If the merger is not completed, our ongoing business may be adversely affected we will be subject to several risks, including the following:

·                   As noted above we may be required, under certain circumstances, to pay Old Line Bancshares a termination fee of $1,750,000 under the merger agreement;

·                   We will be required to pay certain costs relating to the merger, whether or not the merger is completed, such as legal, accounting, financial advisor and printing fees;

·                   Under the merger agreement, we are subject to certain restrictions on the conduct of our business prior to completing the merger, which may adversely affect our ability to execute certain of our business strategies; and

·                   Matters relating to the merger have required and may require substantial commitments of time and resources by our management that could otherwise have been devoted to other opportunities that may have been beneficial WSB as an independent company, and WSB and The Washington Savings Bank will remain subject to the provisions of the agreements with the OCC and Federal Reserve Board, respectively, described in “Item 1. Business — Supervision and Regulation — General.”

In addition, if the merger is not completed, we may experience negative reactions from the financial markets and from our customers and employees.  We also could be subject to litigation related to any failure to complete the merger or to enforcement proceedings commenced against us to perform our obligations under the Merger Agreement.  If the merger is not completed, we cannot assure our stockholders that the risks described above will not materialize and will not materially affect our business, financial results and stock price.

The Merger Agreement limits our ability to pursue alternative transactions to the merger and requires us to pay a termination fee if we do.

The Merger Agreement prohibits WSB and our directors, officers, representatives and agents, subject to narrow exceptions, from initiating, encouraging, soliciting or entering into discussions with any third party regarding alternative acquisition proposals.  The prohibition limits our ability to pursue offers from other possible acquirers that may be superior to the pending merger with Old Line Bancshares from a financial point of view.  If we receive an unsolicited proposal from a third party that is superior from a financial point of view to that made by Old Line Bancshares and the Merger Agreement is terminated, we would be required to pay a

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termination fee of $1,750,000.  This fee makes it less likely that a third party will make an alternative acquisition proposal.

If the merger is completed, Old Line Bancshares may fail to realize all of the anticipated benefits of the merger.

Because a portion of the merger consideration to be paid to our stockholders in the merger in exchange for their shares of WSB common stock consists of Old Line Bancshares common stock, realization of the anticipated benefits in the merger for those who receive Old Line Bancshares common stock in the merger will depend, in part, on the combined company’s ability to successfully integrate the businesses and operations of Old Line Bancshares and us. The combined company will be required to devote significant management attention and resources to integrating its business practices, operations and support functions.

The success of the merger will depend, in part, on Old Line Bancshares’ ability to realize the anticipated benefits and cost savings from combining the businesses of Old Line Bancshares and WSB.  To realize these anticipated benefits and cost savings, however, Old Line Bancshares must successfully combine the businesses of Old Line Bancshares and WSB.  If Old Line Bancshares is unable to achieve these objectives, the anticipated benefits and cost savings of the merger may not be realized fully or at all or may take longer to realize than expected.

Old Line Bancshares and WSB have operated and, until the completion of the merger, will continue to operate, independently.  It is possible that the integration process could result in the loss of key employees, the loss of key depositors or other bank customers, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect Old Line Bancshares’ and WSB’s ability to maintain their relationships with their respective clients, customers, depositors and employees or to achieve the anticipated benefits of the merger.  Integration efforts between the two companies may, to some extent, also divert management attention and resources.  These integration matters could have an adverse effect on each of Old Line Bancshares and WSB during such transition period.

If the merger is not completed, we will have incurred substantial expenses without realizing the expected benefits.

We have incurred substantial expenses in connection with the execution of the Merger Agreement and the merger.  The completion of the merger depends on the satisfaction of specified conditions, including the approval of the stockholders of Old Line Bancshares and WSB.  There is no guarantee that these conditions will be met.  If the merger is not completed, these expenses could have a material adverse impact on our financial condition because we would not have realized the expected benefits of the merger.

Because the aggregate merger consideration is subject to adjustment, our stockholders will not know until the effective time of the merger the value of the consideration they will receive in the merger.

Upon completion of the merger, each share of WSB common stock will be converted into the right to receive merger consideration consisting of shares of Old Line Bancshares common stock and/or cash pursuant to the terms of the Merger Agreement.  The value of the aggregate merger consideration to be received by WSB stockholders will be adjusted as provided in the Merger Agreement for certain operating losses, asset quality changes, changes in the value of

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certain investment securities and merger-related expenses incurred by WSB.  Assuming there are no adjustments to the aggregate merger consideration, the value of the per-share cash consideration would be $6.09 and the exchange ratio with respect to the per-share stock consideration, based on 8,016,607 shares of WSB common stock outstanding as of the date hereof, would be 0.5585.  In addition, the per-share merger consideration will be reduced if the aggregate merger consideration is adjusted, however, and these calculations will not be completed until the closing of the merger.

Further, the exchange ratio will not be adjusted if the average price of Old Line Bancshares common stock, as determined pursuant to the Merger Agreement, decreases, although, as discussed below, WSB can terminate the merger agreement if the average price falls below $8.14 and Old Line Bancshares does not increase the merger consideration.  As a result, the value of shares of Old Line Bancshares common stock that a WSB stockholder receives in the merger will decline correspondingly with declines in the average price of Old Line Bancshares common stock prior to and as of the date the merger consideration is received.

Accordingly, at the time of the special meeting of WSB stockholders to vote to approve the merger and at the time stockholders must elect what form of consideration they want in the merger, WSB stockholders will not know or be able to calculate the amount of the consideration they will receive, the exchange ratio that will be used to determine the number of shares of Old Line Bancshares common stock that they would receive upon completion of the merger, or the value of any shares of Old Line Bancshares common stock they would receive upon completion of the merger.  Stock price changes may result from a variety of factors, including general market and economic conditions, changes in the businesses, operations and prospects of Old Line Bancshares and regulatory considerations.  Many of these factors are beyond Old Line Bancshares’ control.  You should obtain current market quotations for shares of Old Line Bancshares common stock.

WSB has the option, but is not required, to terminate the merger agreement if the average price of the Old Line Bancshares common stock falls below $8.14, although WSB does not have this option if Old Line Bancshares, in its sole discretion, increases the aggregate merger consideration to at least $40.8 million (subject to adjustment) as set forth in the Merger Agreement.  We cannot predict at this time whether or not our board of directors would exercise its right to terminate the Merger Agreement if these conditions were met.  The Merger Agreement does not provide for a resolicitation of WSB stockholders in the event that the conditions are met and our board nevertheless chooses to complete the transaction.  Our board of directors has made no decision as to whether it would exercise its right to terminate the Merger Agreement.  In considering whether to exercise its right to terminate the Merger Agreement, the board of directors would take into account all the relevant facts and circumstances that exist at the time and would consult with our financial advisor and legal counsel.

Our stockholders may not receive the form of merger consideration that they elect.

Depending on the elections made by all our stockholders, certain stockholders who elect to receive cash consideration may instead receive shares of Old Line Bancshares common stock for all or a portion of their shares of WSB common stock, and some stockholders who elect to receive the stock consideration may instead receive cash for all or a portion of their shares of WSB common stock.

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If WSB stockholders oversubscribe for the cash portion of the merger consideration, those WSB stockholders electing to receive cash will have the amount of cash they selected reduced and will receive all or a portion of their consideration in the form of shares of Old Line Bancshares common stock.  Similarly, if WSB stockholders oversubscribe for the Old Line Bancshares common stock portion of the merger consideration, those WSB stockholders electing to receive shares of Old Line Bancshares common stock will have the amount of common stock they selected reduced and will receive all or a portion of their consideration in the form of cash.  Accordingly, at the time WSB stockholders vote on the proposal to approve the merger agreement, they will not know the form of merger consideration that they will receive, regardless of their intended election.

Pending litigation related to the merger may delay or prevent the merger and could cause Old Line Bancshares and WSB to incur significant costs and expenses.

As discussed under “Legal Proceedings,” Rosalie Jones, both individually and on behalf of a putative class of WSB Holdings’ stockholders, filed a complaint in the Circuit Court for Prince George’s County, Maryland, against WSB and its directors as well as Old Line Bancshares.  The complaint asks the Court to enjoin the merger based on allegations that, among others things, the merger consideration to be paid to stockholders of WSB is inadequate and, in approving that consideration and the other terms of the merger agreement, the directors of WSB breached their fiduciary duties to stockholders.  If the merger is consummated prior to the time these claims are adjudicated, then the plaintiff has asked the Court to rescind the merger or award rescissory damages to the plaintiff and the other members of the putative class of stockholders.  While the defendants have entered into a memorandum of understanding with the plaintiff that contemplates a settlement between the parties (which must be approved by the court), there can be no assurance that the parties will enter into a stipulation of settlement or, if they do, that the court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding.  If the parties do not enter into a stipulation of settlement or the court does not approve such a stipulation of settlement, then this litigation could delay or even prevent the merger and could cause WSB to incur significant legal fees and other costs to defend the claims, which could reduce the aggregate merger consideration that will be payable to stockholders of WSB if and when the merger is consummated and/or adversely impact the financial condition and results of operations of WSB and Old Line Bancshares, both before and after the merger.  No assurance can be given that Old Line Bancshares, WSB or WSB’s directors would be successful in the defense of these claims.

Risks Related to Our Business

If economic conditions should further deteriorate, our results of operations and financial condition could be adversely affected as borrowers’ ability to repay loans declines and the value of the collateral securing our loans decreases.

There has been significant disruption and volatility in the financial and capital markets since 2007.  The financial markets and the financial services industry in particular suffered unprecedented disruption, causing a number of institutions to fail or require government intervention to avoid failure.  Our financial results may be adversely affected by changes in prevailing economic conditions, including further decreases in real estate values, changes in interest rates which may cause a decrease in interest rate spreads, sustained adverse employment

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