Psb Holdings, Inc. - Quarterly Report of Financial Condition (10QSB)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-50970

PSB Holdings, Inc.

(Exact name of registrant as specified in its charter)

United States

42-1597948

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

40 Main Street, Putnam, Connecticut 06260

(Address of principal executive offices)

(860) 928-6501

(Issuer’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 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. x YES ¨ NO

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

As of March 31, 2008, there were 6,530,671 shares of the registrant’s common stock outstanding.

Transitional Small Business Disclosure Format Yes ¨ No x

PSB Holdings, Inc.

Table of Contents


		Page No.
Part I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Financial Condition at March 31, 2008 (Unaudited) and June 30, 2007 (Unaudited)	1

	Consolidated Statements of Income for the Three Months Ended and Nine Months Ended March 31, 2008 and 2007 (Unaudited)	2

	Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2008 and 2007 (Unaudited)	3

	Notes to Consolidated Financial Statements (Unaudited)	4

Item 2.	Management’s Discussion and Analysis or Plan of Operation	12

Item 3.	Controls and Procedures	23

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Submission of Matters to a Vote of Security Holders	24

Item 5.	Other Information	25

Item 6.	Exhibits	25

SIGNATURES		26

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

PSB Holdings, Inc.

Consolidated Statements of Financial Condition

(Unaudited)


	March 31, 2008			June 30, 2007
	*(in thousands, except share data)*
ASSETS
Cash and due from depository institutions	$	5,975		$	8,718
Federal funds sold		2,965			4,480
Investment securities, at fair value		214,032			222,502

Loans receivable, gross		241,615			234,160
Allowance for loan losses		(1,765	)		(1,780	)

Loans receivable, net		239,850			232,380

Premises and equipment, net		3,997			4,218
Intangible assets		7,827			8,003
Other assets		10,458			10,897

TOTAL ASSETS	$	485,104		$	491,198


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits	$	282,551		$	293,473
Borrowed funds		147,966			141,857
Mortgagors’ escrow accounts		847			1,280
Other liabilities		3,690			3,337

Total Liabilities		435,054			439,947
Commitments and contingencies

Stockholders’ Equity
Preferred stock, $.10 par value, 1,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, ($.10 par value, 12,000,000 shares authorized, 6,943,125 shares issued, 6,530,671 shares outstanding at March 31, 2008 and 6,778,303 shares outstanding at June 30, 2007)		694			694
Additional paid-in capital		30,465			30,465
Unearned ESOP shares		(2,222	)		(2,222	)
Unearned stock awards		(686	)		(978	)
Retained earnings		28,000			26,441
Treasury stock, at cost (412,454 shares at March 31, 2008 and 164,822 shares at June 30, 2007)		(4,203	)		(1,767	)
Accumulated other comprehensive loss		(1,998	)		(1,382	)

Total stockholders’ equity		50,050			51,251

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	485,104		$	491,198

See notes to consolidated financial statements.

PSB Holdings, Inc.

Consolidated Statements of Income

(Unaudited)


	Three Months Ended March 31,				Nine Months Ended March 31,
	2008		2007		2008		2007
	*(in thousands, except share data)*
Interest income:
Interest on loans	$	3,725	$	3,495	$	11,395	$	10,285
Interest and dividends on investments		3,028		2,813		8,992		8,595

Total interest income		6,753		6,308		20,387		18,880

Interest expense:
Deposits and escrow		2,139		2,021		6,497		6,032
Borrowed funds		1,653		1,743		5,315		5,037

Total interest expense		3,792		3,764		11,812		11,069

Net interest income		2,961		2,544		8,575		7,811

Provision for loan losses		—		78		47		264

Net interest income after provision for loan losses		2,961		2,466		8,528		7,547
Noninterest income:
Fees for services		579		530		1,825		1,687
Mortgage banking activities		25		25		86		67
Net commissions from brokerage service		22		20		90		98
Net gain(loss) from sale of securities		190		2		170		(67	)
Other income		105		100		311		234

Total noninterest income		921		677		2,482		2,019

Noninterest expense:
Compensation and benefits		1,508		1,457		4,508		4,393
Occupancy and equipment		348		324		1,000		978
Data processing		180		204		645		612
Advertising and marketing		103		110		335		309
Other noninterest expense		525		585		1,709		1,842

Total noninterest expense		2,664		2,680		8,197		8,134

Income before income tax expense		1,218		463		2,813		1,432
Income tax expense		297		169		669		162

NET INCOME	$	921	$	294	$	2,144	$	1,270

Earnings per common share
Basic	$	0.15	$	0.04	$	0.34	$	0.19
Diluted	$	0.15	$	0.04	$	0.34	$	0.19

See notes to consolidated financial statements.

PSB Holdings, Inc.

Consolidated Statements of Cash Flows

(Unaudited)


	For the Nine Months Ended March 31,
	2008			2007
	*(in thousands)*
Cash flows from operating activities
Net income	$	2,144		$	1,270
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses		47			264
Stock-based compensation expense		298			275
Amortization of core deposit intangible		176			197
Depreciation		408			434
Net amortization on available-for-sale securities		(79	)		(109	)
Amortization of premium on purchased loans		16			26
Net realized investment security losses (gains)		(170	)		67
Originations of loans for resale		(9,952	)		(8,072	)
Proceeds from sale of loans		10,038			8,777
Gain on sale of loans		(86	)		(67	)
Increase in cash surrender value of Bank-owned life insurance		(194	)		(113	)
Net change in:
Deferred loan fees		(67	)		(247	)
Other assets		592			(52	)
Other liabilities		283			(246	)

Net cash provided (used) by operating activities		3,454			2,404

Cash flows from investing activities
Proceeds from sales of available-for-sale securities		30,043			27,372
Proceeds from maturities of available-for-sale securities		33,094			49,175
Purchase of available-for-sale securities		(55,182	)		(48,999	)
Loan originations net of principal payments		(7,466	)		(23,609	)
Investment in bank owned life insurance		—			(3,000	)
Purchase of premises and equipment		(187	)		(185	)

Net cash provided (used) by investing activities		302			754

Cash flows from financing activities
Change in savings and demand deposit accounts		(9,587	)		(9,506	)
Change in time deposit accounts		(1,335	)		1,494
Proceeds from long term borrowings		67,500			117,425
Repayments of long term borrowings		(52,636	)		(74,068	)
Net change in short term borrowings		(8,755	)		(29,151	)
Change in mortgagors’ escrow account		(433	)		(376	)
Acquisition of treasury shares		(2,226	)		(68	)
Dividends paid		(542	)		(535	)

Net cash provided (used) by financing activities		(8,014	)		5,215

Increase(decrease) in cash and cash equivalents		(4,258	)		8,373
Cash and cash equivalents at beginning of year		13,198			8,195

Cash and cash equivalents at end of period	$	8,940		$	16,568

*Supplemental disclosures*
Cash paid during the year for:
Interest	$	11,884		$	11,294
Income taxes	$	187		$	542
Noncash activities
Dividends declared not paid	$	226		$	209

See notes to consolidated financial statements.

PSB Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 – Organization

PSB Holdings, Inc. (Company) is a federally chartered holding company formed on May 27, 2003 for the purpose of acquiring all of the common stock of Putnam Bank (formerly known as Putnam Savings Bank until its name change effective November 2, 2007) (Bank) concurrent with the Bank’s reorganization from a mutual savings institution to the mutual holding company form of organization. No shares were offered to the public as part of this reorganization.

On October 4, 2004, the Company issued 6,943,125 shares of common stock, 3,729,846 shares (53.7%) of which were issued to Putnam Bancorp, MHC and 3,089,691 shares (44.5%) of which were sold to eligible depositors of the Bank and others at $10.00 per share. In addition, the Company issued 123,588 shares (1.8%) to a charitable foundation established by the Bank.

NOTE 2 – Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and the instructions to Form 10-QSB, and accordingly do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary, consisting of only normal recurring accruals and the elimination of all significant intercompany accounts, to present fairly the financial position, results of operations and cash flows of the Company for the periods presented. In preparing the interim financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for losses on loans and the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans. While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowance may be necessary based on changes in economic conditions, particularly in Connecticut. Actual results could differ significantly from those estimates. The interim results of operations are not necessarily indicative of the operating results to be expected for future periods, including the year ending June 30, 2008. These financial statements should be read in conjunction with the 2007 consolidated financial statements and notes thereto included in the Company’s Form 10-KSB filed with the SEC on September 21, 2007.

NOTE 3 – Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” to define fair value, establish a framework for measuring fair value and expand disclosures about fair values. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not expect SFAS No. 157 to have a material impact on the Company’s financial position or results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS No. 158 requires an entity to recognize the overfunded or underfunded status of a defined benefit pension and other postretirement plan (other than a multiemployer plan) as an asset or liability on its balance sheet and to recognize changes in that funded status in the year in which the changes occur though comprehensive income. SFAS No. 158 also requires an entity to measure the funded status of a plan as of the balance sheet date, with limited exceptions. SFAS No. 158 amends SFAS No. 87, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” SFAS No. 106, and SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” and other accounting literature. An entity

will continue to apply SFAS No. 87, 88 and 106 for measurement of plan assets and benefit obligations as of the balance sheet date and determination of net periodic benefit cost. Public entities are required to initially recognize the funded status of a defined benefit plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The Company’s adoption of SFAS No. 158 did not have a material impact on the Company’s financial position or results of operations.

During the first quarter of 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), which permits entities to choose and measure many financial instruments and certain other items at fair value. The Company will be required to adopt SFAS No. 159 as of July 1, 2008, and is currently evaluating the impact of the adoption on its financial position and results of operation.

In September 2006, the Emerging Issues Task Force issued EITF Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“EITF Issue 06-4”). EITF Issue 06-4 requires that for endorsement split-dollar insurance arrangements that provide a benefit to an employee that extends to postretirement periods, an employer should recognize a liability for future benefits in accordance with SFAS No. 106 or APB No. 12 based on the substantive agreement of the employee. If the employee has effectively agreed to maintain a life insurance policy during postretirement periods, the costs of the life insurance policy during the postretirement periods should be accrued in accordance with either FASB Statement No. 106 or APB No. 12. If the employer has agreed to provide a death benefit, the employer should recognize a liability for the future death benefit in accordance with either SFAS No. 106 or APB No. 12. EITF Issue 06-4 is effective for fiscal years beginning after December 15, 2007. The Company is currently evaluating the impact of EITF Issue 06-4 on its financial statements.

The Company adopted the provisions of FASB Interpretation 48, Accounting for Uncertainty in Income Taxes, on October 1, 2007. Previously, the Company had accounted for tax contingencies in accordance with Statement of Financial Accounting Standards 5, Accounting for Contingencies. As required by Interpretation 48, which clarifies Statement 109, Accounting for Income Taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.

The Company applied Interpretation 48 to all tax positions for which the statute of limitations remained open. The adoption of Interpretation 48 did not have a material impact on the results of operation or financial condition of the Company.

NOTE 4 – Earnings Per Share

As presented, basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For purposes of computing diluted EPS, the treasury stock method is used.

The following information was used in the computation of EPS on both a basic and diluted basis for the three months and nine months ended March 31, 2008 and March 31, 2007:


	Three Months Ended March 31, 2008		Three Months Ended March 31, 2007
Basic EPS computation:
Net income	$	921,000	$	294,000

Weighted average shares outstanding		6,262,348		6,718,915
Basic EPS	$	0.15	$	0.04

Diluted EPS computation:
Net income	$	921,000	$	294,000

Weighted average shares outstanding		6,262,348		6,718,915
Dilutive potential shares		64,585		92,586

		6,326,933		6,811,501
Diluted EPS	$	0.15	$	0.04


	Nine Months Ended March 31, 2008		Nine Months Ended March 31, 2007
Basic EPS computation:
Net income	$	2,144,000	$	1,270,000

Weighted average shares outstanding		6,310,899		6,705,539
Basic EPS	$	0.34	$	0.19

Diluted EPS computation:
Net income	$	2,144,000	$	1,270,000

Weighted average shares outstanding		6,310,899		6,705,539
Dilutive potential shares		77,451		107,083

		6,388,350		6,812,622
Diluted EPS	$	0.34	$	0.19

NOTE 5 – Investment Securities

The carrying value and estimated market values of investment securities are as follows:


	March 31, 2008
	Amortized		Gross Unrealized					Fair
	Cost Basis		Gains		(Losses)			Value
	*(in thousands)*
Debt securities:
U.S. government and agency obligations:
Due within one year	$	1,000	$	2	$	—		$	1,002
From one through five years		3,157		34		—			3,191
From five through ten years		997		8		—			1,005
After ten years		12,988		479		—			13,467

		18,142		523		—			18,665

State agency and municipal obligations:
After ten years		4,448		168		—			4,616

		4,448		168		—			4,616

Corporate bonds and other obligations:
Due within one year		4,962		25		—			4,987
From one through five years		7,943		84		(502	)		7,525
After ten years		8,043		74		(1,182	)		6,935

		20,948		183		(1,684	)		19,447

Mortgage-backed securities		146,741		1,557		(3,775	)		144,523

Total debt securities		190,279		2,431		(5,459	)		187,251

Marketable equity securities:
Preferred stock		19,000		—		—			19,000
FHLB restricted stock		7,781		—		—			7,781

Total equity securities		26,781		—		—			26,781

Total available-for-sale securities	$	217,060	$	2,431	$	(5,459	)	$	214,032

NOTE 5 – Investment Securities – (Continued)


	June 30, 2007
	Amortized		Gross Unrealized					Fair
	Cost Basis		Gains		(Losses)			Value
	*(in thousands)*
Debt securities:
U.S. government and agency obligations:
Due within one year	$	17,446	$	—	$	(101	)	$	17,345
From one through five years		14,313		—		(120	)		14,193
From five through ten years		3,785		11		(22	)		3,774
After ten years		9,482		—		(115	)		9,367

		45,026		11		(358	)		44,679

State agency and municipal obligations:
From five through ten years		1,363		46		—			1,409
After ten years		7,765		208		—			7,973

		9,128		254		—			9,382

Corporate bonds and other obligations:
Due within one year		2,978		—		(5	)		2,973
From one through five years		9,880		9		(58	)		9,831
After ten years		8,044		226		(137	)		8,133

		20,902		235		(200	)		20,937

Mortgage-backed securities		137,529		159		(2,365	)		135,323

Total debt securities		212,585		659		(2,923	)		210,321

Marketable equity securities:
Preferred stock		5,000		—		—			5,000
FHLB restricted stock		7,181		—		—			7,181

Total equity securities		12,181		—		—			12,181

Total available-for-sale securities	$	224,766	$	659	$	(2,923	)	$	222,502

There were gross losses of $84,934 and $82,212 realized on available-for-sale securities for the nine months ended March 31, 2008 and March 31, 2007, respectively. There were gross gains of $254,951 and $14,810 realized on available-for-sale securities for the nine months ended March 31, 2008 and March 31, 2007, respectively.

NOTE 6 – Allowance for Loan Losses

The following summarizes the changes in the allowance for loan losses for the three months and nine months ended March 31, 2008, as compared to the year-ago period:


	Three Months Ended March 31,						Nine Months Ended March 31,
	2008			2007			2008			2007
	(in thousands)						(in thousands)
Balance, beginning of period	$	1,776		$	1,754		$	1,780		$	1,582
Provision for loan losses		—			78			47			264
Charge offs		(27	)		(24	)		(102	)		(66	)
Recoveries		16			6			40			34

Balance, end of period	$	1,765		$	1,814		$	1,765		$	1,814

At March 31, 2008 and 2007, the Company had loans with balances of $1,454,214 (representing 8 loans) and $1,620,730 (representing 7 loans), respectively, on nonaccrual status. There were no impaired loans as of March 31, 2008. Two loans totaling $1,312,641 were considered impaired and had an allocated allowance for loan loss of $196,896 as of March 31, 2007.

NOTE 7 – Goodwill and Other Intangibles

Intangible assets include goodwill and a core deposit intangible associated with the Bank’s purchase of three branches from another financial institution in October 2005. The goodwill is evaluated for impairment on an annual basis and the core deposit intangible is amortized on an accelerated basis over a ten-year period. The carrying amount of goodwill and core deposit intangible as of March 31, 2008 was $6.9 million and $915,000, respectively. The amortization expense related to the core deposit intangible for the three months ended March 31, 2008 and 2007 was $59,000 and $66,000, respectively. The amortization expense related to the core deposit intangible for the nine months ended March 31, 2008 and 2007 was $176,000 and $197,000, respectively.


	March 31, 2008		June 30, 2007
	( in thousands)
Balances not subject to amortization:
Goodwill	$	6,912	$	6,912
Balances subject to amortization:
Core Deposit Intangible	$	915	$	1,091

Total intangible assets	$	7,827	$	8,003

The following table shows the estimated future amortization expense for amortizing intangible assets for the periods indicated:


	For the years ended June 30,
	(in thousands)
2008		59
2009		206
2010		178
2011		149
2012		121
Thereafter		202

Total	$	915

NOTE 8 – Comprehensive Income

Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” establishes standards for disclosure of comprehensive income, which includes net income and any changes in equity from non-owner sources that are not recorded in the income statement (such as changes in the net unrealized gains (losses) on securities. The Company’s one source of other comprehensive income is the net unrealized gain (loss) on securities.


	Three Months Ended March 31,						Nine Months Ended March 31,
	2008			2007			2008			2007
	*(in thousands)*						*(in thousands)*
Net Income	$	921		$	294		$	2,144		$	1,270

Other comprehensive income (loss):
Net unrealized holding gains (losses) on available-for-sale securities		(950	)		300			(594	)		3,299
Reclassification adjustment for (gain) loss recognized in net income		(190	)		(2	)		(170	)		67

Other comprehensive gains (loss) before tax expense		(1,140	)		298			(764	)		3,366
Income tax expense (benefit) related to items of other comprehensive income (loss)		386			(116	)		148			(1,311	)

Other comprehensive income (loss) net of tax		(754	)		182			(616	)		2,055

Total comprehensive income	$	167		$	476		$	1,528		$	3,325

NOTE 9 – Stock-Based Incentive Plan

At the annual meeting of stockholders on October 21, 2005, stockholders of the Company approved the PSB Holdings, Inc. 2005 Stock-Based Incentive Plan (the “Incentive Plan”). Under the Incentive Plan, the Company may grant up to 340,213 stock options and 136,085 shares of restricted stock to its employees, officers and directors for an aggregate amount of up to 476,298 shares of the Company’s common stock for issuance upon the grant or exercise of awards. Both incentive stock options and non-statutory stock options may be granted under the Incentive Plan.

On November 7, 2005, the Company awarded 319,800 options to purchase the Company’s common stock and 129,281 shares of restricted stock. Stock option awards were granted with an exercise price equal to the market price of the Company’s stock at the date of grant ($10.60) with a maximum term of ten years.

On June 7, 2006, the Company awarded 18,000 options to purchase the Company’s common stock and 6,000 shares of restricted stock. Stock option awards were granted with an exercise price equal to the market price of the Company’s stock at the date of grant ($10.78) with a maximum term of ten years.

On May 25, 2007, the Company awarded 29,000 options to purchase the Company’s common stock and 9,500 shares of restricted stock. Stock option awards were granted with an exercise price equal to the market price of the Company’s stock at the date of grant ($10.70) with a maximum term of ten years.

Both stock option and restricted stock awards granted to date vest at 20% per year beginning on the first anniversary of the date of the grant.

Stock options and restricted stock awards are considered common stock equivalents for the purpose of computing earnings per share on a diluted basis.

In accordance with Statement No.123 (R), the Company has recorded share-based compensation expense related to outstanding stock option and restricted stock awards based upon the fair value at the date of grant over the vesting period of such awards on a straight-line basis. The fair value of each restricted stock allocation, based on the market price at the date of grant, is recorded to unearned stock awards. Compensation expense related to unearned restricted shares is amortized to compensation and benefits expense over the vesting period of the restricted stock awards. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing method which includes several assumptions such as volatility, expected dividends, expected term and risk-free rate for each stock option award. The Company recorded share-based compensation expense in connection with the stock option and restricted stock awards for the three months ended March 31, 2008 and March 31, 2007 of $82,000 and $96,000, respectively. The Company recorded share-based compensation expense in connection with the stock option and restricted stock awards for the nine months ended March 31, 2008 and March 31, 2007 of $298,000 and $275,000, respectively.

The weighted-average fair value of stock options granted on November 7, 2005, June 7, 2006 and May 25, 2007 using the Black-Scholes option pricing method was $2.00 per share, $1.97 per share and $1.84 per share, respectively. Assumptions used to determine the weighted-average fair value of stock options granted were as follows:


	November 7, 2005 Grant			June 7, 2006 Grant			May 25, 2007 Grant
Dividend yield		1.89	%		2.23	%		2.24	%
Expected volatility		12.65	%		12.17	%		11.04	%
Risk-free rate		4.56	%		4.95	%		4.86	%
Expected life in years		6.5			6.5			6.5
Fair value	$	2.00		$	1.97		$	1.84

NOTE 10 – Dividends

On March 5, 2008, the Board of Directors of the Company declared a cash dividend of $0.08 a share for stockholders of record as of April 4, 2008 and payable on April 18, 2008. The dividends declared totaling $226,000 were accrued and are included in other liabilities as of March 31, 2008 in the Consolidated Statements of Financial Condition. Putnam Bancorp, MHC, the mutual holding company, waived the receipt of the dividend declared by the Company.

NOTE 11 – Commitment to Extend Credit

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Statement of Financial Condition.

The contractual amounts of outstanding commitments were as follows:


	March 31, 2008		June 30, 2007
	*(in thousands)*
Commitments to extend credit:
Loan commitments	$	5,786	$	6,345
Unadvanced construction loans		8,850		8,264
Unadvanced lines of credit		15,567		15,133
Standby letters of credit		2,050		3,209

Outstanding commitments	$	32,253	$	32,951

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following analysis discusses changes in the financial condition and results of operations at and for the three months and nine months ended March 31, 2008 and 2007, and should be read in conjunction with the Company’s Consolidated Financial Statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report. These financial statements should be read in conjunction with the 2007 Consolidated Financial Statements and notes thereto included in the Company’s Form 10-KSB filed with the SEC on September 21, 2007.

The year-end condensed balance sheet data were derived from audited financial statements, but do not include all disclosures required by GAAP.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiary include, but are not limited to, changes in: interest rates, general

economic conditions, legislation and regulations, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission.

Except as required by applicable law and regulation, the Company does not undertake – and specifically disclaims any obligation – to publicly release the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Overview

The Company’s results of operation depend primarily on net interest and dividend income, which is the difference between the interest and dividend income earned on its interest-earning assets, such as loans and securities, and the interest expense on its interest-bearing liabilities, such as deposits and borrowings. The Company also generates noninterest income, primarily from fees and service charges. Gains on sales of loans and securities and cash surrender value of life insurance policies are added sources of noninterest income. The Company’s noninterest expense primarily consists of employee compensation and benefits, occupancy and equipment expense, advertising, data processing, professional fees and other operating expenses.

During the three months ended March 31, 2008, the yield on our interest-earning assets increased and the cost of our interest-bearing liabilities decreased, reflecting a steepening of the yield curve. This has increased the Company’s net interest margin from 2.28% for the three months ended March 31, 2007 to 2.57% for the three months ended March 31, 2008. In addition, noninterest expense decreased 0.6% during the three months ended March 31, 2008 compared to the three months ended March 31, 2007. Noninterest income increased 36.0% and the provision for loan loss decreased 100.0% during the three months ended March 31, 2008 as compared to the three months ended March 31, 2007.

During the nine months ended March 31, 2008, the yield on our interest-earning assets increased more rapidly than the cost of our interest-bearing liabilities, reflecting a steepening of the yield curve. This has increased the Company’s net interest margin from 2.31% for the nine months ended March 31, 2007 to 2.47% for the nine months ended March 31, 2008. Noninterest expense increased 0.8% during the nine months ended March 31, 2008 compared to the nine months ended March 31, 2007. Noninterest income increased 22.9% and the provision for loan loss decreased 82.2% during the nine months ended March 31, 2008 as compared to the nine months ended March 31, 2007.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets. Our critical accounting policies are those related to our allowance for loan losses, goodwill and the impairment of securities.

Allowance for Loan Losses . The allowance for loan losses is the amount estimated by management as necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income.

Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. We consider a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal and external loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change.

The analysis has two components: specific and general allocations. Specific allocations are made for loans for which collection is questionable and the loan is downgraded. Additionally, the size of the allocation is measured by

determining an expected collection or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. For the general allocations, we consider a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, historical loan charge offs, results of internal and external loan reviews and other relevant factors. This evaluation is

inherently subjective as it requires material estimates by management that may be susceptible to significant change. Actual loan losses may be significantly more than the allowances we have established which could have a material negative effect on our financial results.

Goodwill . The Company’s goodwill (the amount paid in excess of fair value of acquired net assets) is reviewed at least annually to ensure that there have been no events or circumstances resulting in an impairment of the recorded amount of excess purchase price. Adverse changes in the economic environment, operations of acquired business units, or other factors could result in a decline in projected fair values. If the estimated fair value is less than the carrying amount, a loss would be recognized to reduce the carrying amount to implied fair value.

Other-Than-Temporary Impairment of Securities. Management periodically reviews all investment securities with significant declines in fair value for potential other-than-temporary impairment pursuant to the guidance provided by SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. In November 2006, the Financial Accounting Standards Board issued Staff Position (“FSP”) FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. The FSP addressed the determination as to when an investment is considered impaired, whether the impairment is other-than-temporary, and the measurement of an impairment loss. It also included accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amended SFAS No. 115 Accounting for Certain Investments in Debt and Equity Securities, No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB Opinion 18, The Equity Method of Accounting for Investments in Common Stock. Management evaluates the Company’s investment portfolio on an ongoing basis and determined that all unrealized losses were the direct result of temporary changes in interest rates and that such losses may be recovered in the foreseeable future. As a result, management did not consider any unrealized losses as “other-than-temporary” at March 31, 2008 and 2007.

Management has discussed the development and selection of these critical accounting policies with the Audit Committee of the Board of Directors.

Comparison of Financial Condition at March 31, 2008 and June 30, 2007

Assets

Total assets of the Company were $485.1 million at March 31, 2008, a decrease of $6.1 million, or 1.2%, from $491.2 million at June 30, 2007. Investments in available-for-sale securities decreased $8.5 million, or 3.8%, to $214.0 million at March 31, 2008 from $222.5 million at June 30, 2007. Federal funds sold decreased $1.5 million, or 33.8%, to $3.0 million at March 31, 2008 from $4.5 million at June 30, 2007. Total loans outstanding increased $7.4 million, or 3.2%, to $241.6 million at March 31, 2008 from $234.2 million at June 30, 2007.

Allowance for Loan Losses

The table below indicates the relationships between the allowance for loan losses, total loans outstanding and nonperforming loans at March 31, 2008 and June 30, 2007.


	March 31, 2008			June 30, 2007
	*(Dollars in thousands)*
Allowance for loan losses	$	1,765		$	1,780
Gross loans outstanding		241,615			234,160
Nonperforming loans		1,454			1,538
Allowance/gross loans outstanding		0.73	%		0.76	%
Allowance/nonperforming loans		121	%		116	%

Past Due and Nonperforming Loans

The following table sets forth information regarding past due and non-performing loans:


	March 31, 2008		June 30, 2007
	*(in thousands)*
Past due 30 days through 89 days and accruing	$	5,758	$	1,364

Past due 90 days or more and accruing	$	1,563	$	—

Past due 90 days or more and nonaccruing	$	1,454	$	1,538

Although delinquencies have increased from June 30, 2007 to March 31, 2008, the Company determined that no additional allowances are warranted at this time.

Liabilities

Total liabilities decreased $4.9 million, or 1.1%, to $435.0 million at March 31, 2008 from $439.9 million at June 30, 2007, primarily due to a decrease in total deposits of $10.9 million, or 3.7% which was partially offset by an increase in borrowed funds of $6.1 million, or 4.3%. This decrease in deposits was related to a reduction of $11.4 million, or 100.0%, in brokered deposits since June 30, 2007 reflecting our utilization of FHLB advances instead of brokered deposits due to significantly lower rates.

Stockholders’ Equity

Total stockholders’ equity decreased $1.2 million, or 2.3%, to $50.0 million at March 31, 2008 from $51.2 million at June 30, 2007. This was primarily due to the repurchase of 226,810 shares of the Company’s common stock at a total cost of $2.2 million during the nine months ended March 31, 2008. This was partially offset by net income of $2.1 million. The unrealized loss in the available-for-sale securities of $2.0 million as of March 31, 2008 and the unrealized loss in the available-for-sale securities of $1.4 million at June 30, 2007 were attributable solely to interest rate movements. Management does not consider the losses to be other than temporary.

Comparison of Operating Results for the Three Months Ended March 31, 2008 and 2007

Net Income

Net income increased $627,000, or 213.3%, to $921,000 for the three months ended March 31, 2008 from net income of $294,000 for the three months ended March 31, 2007. The increase in net income reflected an improvement in the net interest margin of 417,000. The increase in net income also resulted from an increase in noninterest income of $244,000 realized during the three months ended March 31, 2008 as compared to the three months ended March 31, 2007. In addition, there was a decrease in the loan loss provision of $78,000 for the three months ended March 31, 2008, and a decrease in noninterest expense of $16,000 for the three months ended March 31, 2008.

Interest and Dividend Income

Interest and dividend income increased by $445,000, or 7.1%, to $6.7 million for the three months ended March 31, 2008 from $6.3 million for the three months ended March 31, 2007. The increase in interest and dividend income

resulted primarily from an increase of $11.6 million, or 2.6%, in average interest-earning assets and an increase of 20 basis points in the average yield on interest-earning assets to 5.86% for the three months ended March 31, 2008 from 5.66% for the three months ended March 31, 2007. This increase was primarily due to an increase of 56 basis points in the average yield on investment securities to 5.52% for the three months ended March 31, 2008 from 4.96% for the three months ended March 31, 2007. Interest income on loans increased by $230,000, or 6.6%, to $3.7 million from $3.5 million. Interest and dividends on investments and deposits increased $215,000, or 7.6%, to $3.0 million for the three months ended March 31, 2008 from $2.8 million for the three months ended March 31, 2007.

Interest Expense

Interest expense increased by $28,000, or 0.7%, to $3.79 million for three months ended March 31, 2008 from $3.76 million for the three months ended March 31, 2007. The increase in interest expense resulted primarily from an increase in average interest-bearing liabilities of $10.7 million, or 2.8%, from period to period partially offset by a decrease of 11 basis points in the average cost of our interest-bearing liabilities to 3.85% for the three months ended March 31, 2008 from 3.96% for the three months ended March 31, 2007. The increase in average interest-bearing liabilities reflected a decrease of $3.8 million in average interest-bearing deposits and an increase of $14.6 million in average other borrowed money for the three months ended March 31, 2007 compared to the three months ended March 31, 2008. Average brokered deposits decreased $16.4 million for the three months ended March 31, 2007 to the average three months ended March 31, 2008.

Net Interest Income

Net interest income for the three months ended March 31, 2008 was $3.0 million, an increase of $417,000 or 16.4%, over the three months ended March 31, 2007. This increase was primarily due to a 29 basis point increase in our net interest margin from 2.28% for the three months ended March 31, 2007 to 2.57% for the three months ended March 31, 2008. During the three months ended March 31, 2008, the yield on our interest-earning assets increased by 20 basis points and the cost on our interest-bearing liabilities decreased 11 basis points, reflecting the steepening yield curve of market interest rates.

Provision for Loan Losses

There was no provision for loan loss for the three months ended March 31, 2008, a decrease of $78,000, or 100.0%, over the three months ended March 31, 2007. The ratio of the allowance to gross loans outstanding was 0.73% as of March 31, 2008 compared to 0.76% as of June 30, 2007. The ratio of the allowance to nonperforming loans was 121% as of March 31, 2008 compared to 116% as of June 30, 2007.

Noninterest Income

Noninterest income increased $244,000, or 36.0%, to $921,000 for the three months ended March 31, 2008 from $677,000 for the three months ended March 31, 2007. This resulted primarily from an increase in service fee income of $49,000 and an increase in net gains on securities sales of $188,000.

Noninterest Expense

Total noninterest expense decreased by $16,000, or 0.6%, to $2.66 million for the three months ended March 31, 2008 from $2.68 million for the three months ended March 31, 2007. Other noninterest expense, consisting primarily of data processing, advertising and marketing and other noninterest expenses decreased $91,000, or 10.1%, to $808,000 for the three months ended March 31, 2008 from $899,000 for the three months ended March 31, 2007. Occupancy expense increased $24,000, or 7.4%, to $348,000 for the three months ended March 31, 2008 from $324,000 for the three months ended March 31, 2007. Compensation and benefits expense increased by $51,000, or 3.5%, to $1.51 million for the three months ended March 31, 2008 from $1.46 million for the three months ended March 31, 2007. The primary reasons for the increase were higher staffing costs and higher medical insurance premiums.

Provision for Income Taxes

The income tax expense increased by $128,000, or 75.7%, to $297,000 for the three months ended March 31, 2008 compared to $169,000 for the three months ended March 31, 2007. This increase in the tax provision reflected a significant reduction in Auction Rate Preferred investments that have a dividends-received deduction applicable to them. The reason for the reduction was to avoid being subject to Alternative Minimum Tax. Average Auction Rate Preferred securities for the three months ended March 31, 2008 were $18.8 million compared to $33.9 million for the three months ended March 31, 2007. Our effective tax rate was 24.4% for the three months ended March 31, 2008. The effective tax rate differed from the statutory tax rate of 34% primarily due to the dividends-received deduction applicable to certain securities in our investment portfolio, tax-exempt municipal income and non-taxable bank-owned life insurance income.

Comparison of Operating Results for the Nine Months Ended March 31, 2008 and 2007

Net Income

Net income increased $874,000, or 68.8%, to $2.1 million for the nine months ended March 31, 2008 from net income of $1.3 million for the nine months ended March 31, 2007. The increase in net income reflected an improvement in our net interest margin of $764,000. The increase in net income also resulted from an increase in noninterest income of $463,000 during the nine months ended March 31, 2008 compared to the nine months ended March 31, 2007. In addition, there was a decrease in the loan loss provision of $217,000 for the nine months ended March 31, 2008, which was partially offset by an increase in total noninterest expense of $63,000 for the nine months ended March 31, 2008.

Interest and Dividend Income

Interest and dividend income increased by $1.5 million, or 8.0%, to $20.4 million for the nine months ended March 31, 2008 from $18.9 million for the nine months ended March 31, 2007. The increase in interest and dividend income resulted primarily from an increase of $11.9 million, or 2.7%, in average interest-earning assets and an increase of 28 basis points in the average yield on interest-earning assets to 5.87% for the nine months ended March 31, 2008 from 5.59% for the nine months ended March 31, 2007. This increase was primarily due to an increase of 52 basis points in the average yield on investment securities to 5.40% for the nine months ended March 31, 2008 from 4.88% for the nine months ended March 31, 2007. Interest income on loans increased by $1.1 million, or 10.8%, to $11.4 million from $10.3 million. Interest and dividends on investments and deposits increased $397,000, or 4.6%, to $9.0 million for the nine months ended March 31, 2008 from $8.6 million for the nine months ended March 31, 2007.

Interest Expense

Interest expense increased by $743,000, or 6.7%, to $11.8 million for the nine months ended March 31, 2008 from $11.1 million for the nine months ended March 31, 2007. The increase in interest expense resulted primarily from an increase in average interest-bearing liabilities of $12.9 million, or 3.4%, from period to period and an increase of 12 basis points in the average cost of our interest-bearing liabilities to 3.98% for the nine months ended March 31, 2008 from 3.86% for the nine months ended March 31, 2007. The increase in average interest-bearing liabilities reflected a $7.4 million decrease in average interest-bearing deposits and a $20.3 million increase in average other borrowed money for the nine months ended March 31, 2007 compared to the nine months ended March 31, 2008. Average brokered deposits decreased $17.8 million from the nine months ended March 31, 2007 compared to the nine months ended March 31, 2008.

Net Interest Income

Net interest income for the nine months ended March 31, 2008 was $8.6 million, an increase of $764,000, or 9.8%, over the nine months ended March 31, 2007. This increase was primarily due to a 16 basis point increase in the net interest margin from 2.31% for the nine months ended March 31, 2007 to 2.47% for the nine months ended March 31, 2008. During the nine months ended March 31, 2008, the yield on our interest-earning assets increased more rapidly than the cost of our interest-bearing liabilities.

Provision for Loan Losses

The provision for loan losses decreased by $217,000, or 82.2%, to $47,000 for the nine months ended March 31, 2008 from $264,000 for the nine months ended March 31, 2007. The ratio of the allowance to gross loans outstanding was 0.73% as of March 31, 2008 compared to 0.76% as of June 30, 2007. The ratio of the allowance to nonperforming loans was 121% as of March 31, 2008 compared to 116% as of June 30, 2007.

Noninterest Income

Noninterest income increased $464,000, or 23.0%, to $2.5 million for the nine months ended March 31, 2008 from $2.0 million for the nine months ended March 31, 2007. This resulted primarily from an increase in service fee income of $138,000 and net gains on securities sales of $237,000.

Noninterest Expense

Noninterest expense increased by $63,000, or 0.8%, to $8.20 million for the nine months ended March 31, 2008 from $8.13 million for the nine months ended March 31, 2007. The increase in noninterest expense was primarily due to increases in salaries and benefits and occupancy expense. Compensation and benefits expense increased by $115,000, or 2.6%, to $4.5 million for the nine months ended March 31, 2008 from $4.4 million for the nine months ended March 31, 2007. The primary reasons for the increase were higher staffing costs and higher medical insurance premiums. Occupancy expense increased $22,000, or 2.2%, to $1.0 million for the nine months ended March 31, 2008 from $978,000 for the nine months ended March 31, 2007. Other noninterest expense, consisting primarily of data processing, advertising and marketing and other noninterest expenses decreased $74,000, or 2.7% to $2.69 million for the nine months ended March 31, 2008 from $2.76 million for the nine months ended March 31, 2007.

Provision for Income Taxes

The income tax expense increased by $507,000 to $669,000 for the nine months ended March 31, 2008 as compared to $162,000 for the nine months ended March 31, 2007. This increase in the tax provision reflected a significant reduction in Auction Rate Preferred investments that have a dividends-received deduction applicable to them. The reason for the reduction was to avoid being subject to Alternative Minimum Tax. Average Auction Rate Preferred securities for the nine months ended March 31, 2008 was $12.3 million compared to $40.5 million for the nine months ended March 31, 2007. Our effective tax rate was 23.8% for the nine months ended March 31, 2008 as compared to 11.3% for the nine months ended March 31, 2007. The effective tax rate differed from the statutory tax rate of 34% primarily due to the dividends-received deduction applicable to certain securities in our investment portfolio, tax-exempt municipal income and non-taxable bank-owned life insurance income.

Average Balance Sheet

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.


	For the Three Months Ended March 31,
	2008						2007
	*(Dollars in thousands)*
Interest-earning assets:	Average Balance		Interest/ Dividends		Yield/ Cost		Average Balance		Interest/ Dividends		Yield/ Cost
Investment securities	$	218,624	$	3,002	5.52	%	$	224,827	$	2,748	4.96	%
Loans		241,064		3,725	6.21	%		221,903		3,495	6.39	%
Other earning assets		3,724		27	2.92	%		5,117		65	5.15	%

Total interest-earnings assets		463,412		6,754	5.86	%		451,847		6,308	5.66	%
Non-interest-earning assets		24,504						25,958

Total assets	$	487,916					$	477,805


Interest-bearing liabilities:
NOW accounts	$	30,542		208	2.74	%	$	25,696		99	1.56	%
Savings accounts		46,291		78	0.68	%		50,745		92	0.74	%
Money market accounts		15,369		78	2.04	%		19,319		84	1.76	%
Time deposits		154,698		1,776	4.62	%		154,981		1,746	4.57	%
Borrowed money		149,541		1,653	4.45	%		134,953		1,743	5.24	%

Total interest-bearing liabilities		396,441		3,793	3.85	%		385,694		3,764	3.96	%
Non-interest-bearing demand deposits		37,285						38,840
Other non-interest-bearing liabilities		2,382						1,240
Capital accounts		51,808						52,031

Total liabilities and capital accounts	$	487,916					$	477,805

Net interest income			$	2,961					$	2,544
Interest rate spread					2.01	%					1.70	%
Net interest-earning assets	$	66,971					$	66,153

Net interest margin					2.57	%					2.28	%
Average earning assets to average interest-bearing liabilities					116.89	%					117.15	%


	For the Nine Months Ended March 31,
	2008						2007
	*(Dollars in thousands)*
Interest-earning assets:	Average Balance		Interest/ Dividends		Yield/ Cost		Average Balance		Interest/ Dividends		Yield/ Cost
Investment securities	$	219,194	$	8,890	5.40	%	$	231,219	$	8,465	4.88	%
Loans		239,383		11,395	6.34	%		215,480		10,285	6.36	%
Other earning assets		3,405		102	3.99	%		3,353		130	5.16	%

Total interest-earnings assets		461,982		20,387	5.87	%		450,052		18,880	5.59	%
Non-interest-earning assets		25,982						23,759

Total assets	$	487,964					$	473,811


Interest-bearing liabilities:
NOW accounts	$	28,248		573	2.70	%	$	24,929		292	1.56	%
Savings accounts		47,641		259	0.72	%		51,964		288	0.74	%
Money market accounts		16,065		238	1.97	%		20,627		258	1.67	%
Time deposits		154,063		5,428	4.69	%		155,939		5,194	4.44	%
Borrowed money		149,132		5,314	4.74	%		128,802		5,037	5.21	%

Total interest-bearing liabilities		395,149		11,812	3.98	%		382,261		11,069	3.86	%
Non-interest-bearing demand deposits		39,068						39,873
Other non-interest-bearing liabilities		1,901						446
Capital accounts		51,846						51,231

Total liabilities and capital accounts	$	487,964					$	473,811

Net interest income			$	8,575					$	7,811
Interest rate spread					1.89	%					1.73	%
Net interest-earning assets	$	66,833					$	67,791

Net interest margin					2.47	%					2.31	%
Average earning assets to average interest-bearing liabilities					116.91	%					117.73	%

The following table sets forth the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.


	For the Three Months Ended March 31, 2008 Compared to the Three Months Ended March 31, 2007
	Increase(Decrease) Due to
	Rate			Volume			Net
INTEREST INCOME

Investment securities	$	700		$	(447	)	$	253
Loans		(529	)		759			230
Other interest-earning assets		(23	)		(15	)		(38	)

TOTAL INTEREST INCOME		148			297			445

INTEREST EXPENSE:

NOW accounts		87			22			109
Savings accounts		(7	)		(7	)		(14	)
Money Market accounts		58			(64	)		(6	)
Time deposits		48			(19	)		29
Other borrowed money		(944	)		854			(90	)

TOTAL INTEREST EXPENSE		(758	)		786			28

CHANGE IN NET INTEREST INCOME	$	906		$	(489	)	$	417


	For the Nine Months Ended March 31, 2008 Compared to the Nine Months Ended March 31, 2007
	Increase(Decrease) Due to
	Rate			Volume			Net
INTEREST INCOME

Investment securities	$	1,075		$	(650	)	$	425
Loans		(61	)		1,171			1,110
Other interest-earning assets		(31	)		3			(28	)

TOTAL INTEREST INCOME		983			524			1,507

INTEREST EXPENSE:

NOW accounts		238			43			281
Savings accounts		(6	)		(23	)		(29	)
Money Market accounts		60			(80	)		(20	)
Time deposits		330			(96	)		234
Other borrowed money		(667	)		944			277

TOTAL INTEREST EXPENSE		(45	)		788			743

CHANGE IN NET INTEREST INCOME	$	1,028		$	(264	)	$	764

Liquidity and Capital Resources

The term liquidity refers to the ability of the Company and the Bank to meet current and future short-term financial obligations. The Company and the Bank further define liquidity as the ability to generate adequate amounts of cash to fund loan originations, deposit withdrawals and operating expenses. Liquidity management is both a daily and long-term function of business management. The Bank’s primary sources of liquidity are deposits, scheduled amortization and prepayments of loan principal and mortgage-related securities, and Federal Home Loan Bank borrowings. The Bank can borrow funds from the Federal Home Loan Bank based on eligible collateral of loans and securities. The Bank had Federal Home Loan Bank borrowings as of March 31, 2008 of $143.2 million with unused borrowing capacity of $49.5 million. The Bank had no brokered CDs as of March 31, 2008, a decrease of $11.4 million from June 30, 2007. The Bank has a limit of wholesale borrowings to total assets ratio of 40.0%. As of March 31, 2008, the ratio of wholesale borrowings to total assets was 29.5%.

The Bank’s primary investing activities are the origination of loans and the purchase of investment securities. During the nine months ended March 31, 2008 and 2007, the Bank originated loans for the portfolio net of principal payments of $7.5 million and $23.6 million, respectively. Purchases of securities totaled $55.2 million and $49.0 million, for the nine months ended March 31, 2008 and 2007, respectively.

Loan repayment and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and economic conditions and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds. Deposit flows are affected by the level of interest rates, by the interest rates and products offered by competitors and by other factors. The Bank monitors its liquidity position frequently and anticipates that it will have sufficient funds to meet its current funding commitments.

Certificates of deposits totaled $152.4 million at March 31, 2008. The Bank relies on competitive rates, customer service and long-standing relationships with customers to retain deposits. Based on the Bank’s experience with deposit retention and current retention strategies, management believes that, although it is not possible to predict future terms and conditions upon renewal, a significant portion of such deposits will remain with the Bank.

The Bank was well capitalized at March 31, 2008 and exceeded each of the applicable regulatory capital requirements at such date. The table below presents the capital required and maintained at March 31, 2008.


	Required		Actual
Ratio of Tier 1 Capital to total assets	4	%	8.74	%

Ratio of Total Risk Based Capital to risk-weighted assets	8	%	16.73	%

Ratio of Tier 1 Risk Based Capital to risk-weighted assets	4	%	16.06	%

Management is not aware of any known trends, events or uncertainties that will have or are reasonably likely to have a material effect on the Company’s or the Bank’s liquidity, capital or operations, nor is management aware of any current recommendations by regulatory authorities which, if implemented, would have a material effect on the Company’s or the Bank’s liquidity, capital or operations.

Off-Balance Sheet Arrangements

In addition to the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, lines of credit, and letters of credit.

For the nine months ended March 31, 2008, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3.

Controls and Procedures

Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15(d)-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and in timely altering them to material information relating to the Company (or its consolidated subsidiaries) required to be filed in its periodic SEC filings.

There has been no change in the Company’s internal control over financial reporting in connection with the quarterly evaluation that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. – OTHER INFORMATION

Item 1.

Legal Proceedings – Not applicable

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

The following table presents a summary of the Company’s share repurchases during the quarter ended March 31, 2008.


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (1)	Maximum Number of Shares that May Yet be Purchased Under the Program (1)
January 1 through January 31, 2008	0	$	—	497,299	16,701
February 1 through February 28, 2008	0	$	—	497,299	16,701
March 1 through March 31, 2008	16,701	$	8.00	514,000	0

(1)

On December 12, 2005 the Company announced that its Board of Directors had authorized a stock repurchase program pursuant to which the Company intended to purchase up to 5% of its issued and outstanding shares, or up to 347,000 shares. This program was completed on August 2, 2007, and the Company then announced a new stock repurchase program pursuant to which the Company intended to purchase up to 2.5% of the then outstanding shares, or an additional 167,000 shares. This program was completed on March 7, 2008.

Item 3.

Defaults Upon Senior Securities – Not applicable

Item 4.

Submission of Matters to a Vote of Security Holders

The Company convened its 2007 Annual Meeting of Stockholders on November 2, 2007. At the meeting, the stockholders of the Company considered and voted on the following proposals:

Ballot No. 1. The election of Charles W. Bentley, Jr., Paul M. Kelly and Charles H. Puffer, each to serve as a director for a term of three years and until his successor has been elected and qualified and the election of Jitendra K. Sinha to serve as a director for a term of one year and until his successor has been elected and qualified.

The results of Ballot No. 1 were as follows:


	For	Withheld
Charles W. Bentley, Jr.	5,798,348	20,369

Paul M. Kelly	5,798,348	20,369

Charles H. Puffer	5,798,348	20,369

Jitendra K. Sinha	5,792,120	26,597

The term in office of directors Mary E. Patenaude, Robert J. Halloran, Jr., Thomas A. Borner, Richard A. Loomis and John P. Miller continued after the 2007 Annual Meeting.

Ballot No. 2. The ratification of the appointment of Whittlesey & Hadley, P.C. as the independent registered public accounting firm of the Company for the fiscal year ending June 30, 2008.

The results of Ballot No. 2 were as follows:


	For		Against		Abstain
Number of votes	5,815,205		2,719		793
Percentage of shares voting in person or by proxy	99.95	%	0.04	%	0.01	%

Item 5.

Other Information

Not applicable.

There were no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors during the period covered by this Form 10-QSB.

Item 6.

Exhibits

Exhibits


31.1		Chief Executive Officer Certification pursuant to 17 CFR 240.13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Chief Financial Officer Certification pursuant to 17 CFR 240.13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350.

32.2		Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		PSB HOLDINGS, INC.
		(Registrant)

Date May 9, 2008		/s/ Thomas A. Borner
		Thomas A. Borner
		Chief Executive Officer

Date May 9, 2008		/s/ Robert J. Halloran, Jr.
		Robert J. Halloran, Jr.
		President, Chief Financial Officer and Treasurer