UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
10-Q


(Mark
      One)x
                  QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934For the quarterly period ended March 31,
      2009o
                  TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from ______________ to
  _____________Commission file
      number 0-50970PSB
      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)(Zip
      Code)(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  o
NO




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 during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). o YES  o NO




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


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




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




As
of April 30, 2009, there were 6,530,509 shares of the registrant’s common stock
outstanding.







PSB
Holdings, Inc.


Table
      of Contents




Page
      No.Part
      I.
                FINANCIAL
      INFORMATIONItem
      1.
                Financial
      StatementsCondensed
      Consolidated Balance Sheets at March 31, 2009 (Unaudited) and June 30,
      2008 (Audited)
                
                1Condensed
      Consolidated Statements of Income (Loss) for the Three Months Ended and
      Nine Months Ended March 31, 2009 and 2008 (Unaudited)
                
                2Condensed
      Consolidated Statements of Changes in Stockholders’ Equity for the Nine
      Months Ended March 31, 2009 and 2008 (Unaudited)
                
                3Condensed
      Consolidated Statements of Cash Flows for the Nine Months Ended March 31,
      2009 and 2008 (Unaudited)
                
                4Notes
      to Consolidated Financial Statements (Unaudited)
                
                5Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                18Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                
                32Item
      4.
                Controls
      and Procedures
                
                32Item
      4T.
                Controls
      and Procedures
                
                32Part
      II.
                OTHER
      INFORMATIONItem
      1.
                Legal
      Proceedings
                
                33Item
      1A.
                Risk
      Factors
                
                33Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                
                33Item
      3.
                Defaults
      Upon Senior Securities
                
                33Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                
                33Item
      5.
                Other
      Information
                
                33Item
      6.
                Exhibits
                
                33SIGNATURES
                
                34




Part
I. FINANCIAL INFORMATION




Item 1.
Financial Statements







PSB
Holdings, Inc.


Condensed
      Consolidated Balance Sheets(Unaudited)




March
      31,
                                                                            2009
                                                                          
                                                                          
                                                                          June
      30,
                                                                            2008(Unaudited)
                                                                          
                                                                          
                                                                          (Audited)(in
      thousands, except share data)ASSETSCash
      and due from depository institutions
                                                                          
                                                                          $
                                                                          4,490
                                                                          
                                                                          
                                                                          $
                                                                          7,026Federal
      funds sold
                                                                          
                                                                          
                                                                          4,070
                                                                          
                                                                          
                                                                          
                                                                          1,120Investment
      securities available-for-sale, at fair value and FHLB
stock
                                                                          
                                                                          
                                                                          176,709
                                                                          
                                                                          
                                                                          
                                                                          220,026Loans
      held-for-sale
                                                                          
                                                                          
                                                                          270
                                                                          
                                                                          
                                                                          
                                                                          675Loans
      receivable, net of allowance for loan losses of $2,020 as of March 31,
      2009 and $1,758 as of June 30, 2008
                                                                          
                                                                          
                                                                          259,282
                                                                          
                                                                          
                                                                          
                                                                          242,728Other
      real estate owned
                                                                          
                                                                          
                                                                          1,289
                                                                          
                                                                          
                                                                          
                                                                          —Premises
      and equipment, net
                                                                          
                                                                          
                                                                          4,470
                                                                          
                                                                          
                                                                          
                                                                          3,706Intangible
      assets
                                                                          
                                                                          
                                                                          7,614
                                                                          
                                                                          
                                                                          
                                                                          7,769Other
      assets
                                                                          
                                                                          
                                                                          18,898
                                                                          
                                                                          
                                                                          
                                                                          11,449TOTAL
      ASSETS
                                                                          
                                                                          $
                                                                          477,092
                                                                          
                                                                          
                                                                          $
                                                                          494,499LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilitiesDeposits
                                                                          
                                                                          $
                                                                          301,558
                                                                          
                                                                          
                                                                          $
                                                                          283,724Borrowed
      funds
                                                                          
                                                                          
                                                                          133,908
                                                                          
                                                                          
                                                                          
                                                                          156,621Mortgagors’
      escrow accounts
                                                                          
                                                                          
                                                                          860
                                                                          
                                                                          
                                                                          
                                                                          1,423Other
      liabilities
                                                                          
                                                                          
                                                                          4,962
                                                                          
                                                                          
                                                                          
                                                                          3,294Total
      Liabilities
                                                                          
                                                                          
                                                                          441,288
                                                                          
                                                                          
                                                                          
                                                                          445,062Commitments
      and contingenciesStockholders’
      EquityPreferred
      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, 6,530,509 shares outstanding at March 31, 2009 and at June 30,
      2008
                                                                          
                                                                          
                                                                          694
                                                                          
                                                                          
                                                                          
                                                                          694Additional
      paid-in capital
                                                                          
                                                                          
                                                                          30,771
                                                                          
                                                                          
                                                                          
                                                                          30,795Unearned
      ESOP shares
                                                                          
                                                                          
                                                                          (2,089
                                                                          )
                                                                          
                                                                          
                                                                          (2,089
                                                                          )Unearned
      stock awards
                                                                          
                                                                          
                                                                          (429
                                                                          )
                                                                          
                                                                          
                                                                          (605
                                                                          )Retained
      earnings
                                                                          
                                                                          
                                                                          26,194
                                                                          
                                                                          
                                                                          
                                                                          28,663Treasury
      stock, at cost (412,616 shares at March 31, 2009 and at June 30,
      2008)
                                                                          
                                                                          
                                                                          (4,205
                                                                          )
                                                                          
                                                                          
                                                                          (4,205
                                                                          )Accumulated
      other comprehensive loss
                                                                          
                                                                          
                                                                          (15,132
                                                                          )
                                                                          
                                                                          
                                                                          (3,816
                                                                          )Total
      stockholders’ equity
                                                                          
                                                                          
                                                                          35,804
                                                                          
                                                                          
                                                                          
                                                                          49,437TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                                          
                                                                          $
                                                                          477,092
                                                                          
                                                                          
                                                                          $
                                                                          494,499




See notes
to condensed consolidated financial statements.


1




PSB
Holdings, Inc.


Condensed
      Consolidated Statements of Income (Loss)(Unaudited)




Three
      Months Ended
                                                                                    March
      31,
                                                                                  
                                                                                  
                                                                                  Nine
      Months Ended
                                                                                    March
      31,2009
                                                                                  
                                                                                  
                                                                                  2008
                                                                                  
                                                                                  
                                                                                  2009
                                                                                  
                                                                                  
                                                                                  2008(in
      thousands, except share data)Interest
      and dividend income:Interest
      on loans
                                                                                  
                                                                                  $
                                                                                  3,588
                                                                                  
                                                                                  
                                                                                  $
                                                                                  3,743
                                                                                  
                                                                                  
                                                                                  $
                                                                                  11,039
                                                                                  
                                                                                  
                                                                                  $
                                                                                  11,460Interest
      and dividends on investments
                                                                                  
                                                                                  
                                                                                  2,603
                                                                                  
                                                                                  
                                                                                  
                                                                                  3,028
                                                                                  
                                                                                  
                                                                                  
                                                                                  8,199
                                                                                  
                                                                                  
                                                                                  
                                                                                  8,992Total
      interest and dividend income
                                                                                  
                                                                                  
                                                                                  6,191
                                                                                  
                                                                                  
                                                                                  
                                                                                  6,771
                                                                                  
                                                                                  
                                                                                  
                                                                                  19,238
                                                                                  
                                                                                  
                                                                                  
                                                                                  20,452Interest
      expense:Deposits
      and escrow
                                                                                  
                                                                                  
                                                                                  1,703
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,139
                                                                                  
                                                                                  
                                                                                  
                                                                                  5,209
                                                                                  
                                                                                  
                                                                                  
                                                                                  6,497Borrowed
      funds
                                                                                  
                                                                                  
                                                                                  1,383
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,653
                                                                                  
                                                                                  
                                                                                  
                                                                                  4,446
                                                                                  
                                                                                  
                                                                                  
                                                                                  5,315Total
      interest expense
                                                                                  
                                                                                  
                                                                                  3,086
                                                                                  
                                                                                  
                                                                                  
                                                                                  3,792
                                                                                  
                                                                                  
                                                                                  
                                                                                  9,655
                                                                                  
                                                                                  
                                                                                  
                                                                                  11,812Net
      interest and dividend income
                                                                                  
                                                                                  
                                                                                  3,105
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,979
                                                                                  
                                                                                  
                                                                                  
                                                                                  9,583
                                                                                  
                                                                                  
                                                                                  
                                                                                  8,640Provision
      for loan losses
                                                                                  
                                                                                  
                                                                                  157
                                                                                  
                                                                                  
                                                                                  
                                                                                  —
                                                                                  
                                                                                  
                                                                                  
                                                                                  754
                                                                                  
                                                                                  
                                                                                  
                                                                                  47Net
      interest and dividend income after provision for loan
    losses
                                                                                  
                                                                                  
                                                                                  2,948
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,979
                                                                                  
                                                                                  
                                                                                  
                                                                                  8,829
                                                                                  
                                                                                  
                                                                                  
                                                                                  8,593Noninterest
      income (charge):Fees
      for services
                                                                                  
                                                                                  
                                                                                  543
                                                                                  
                                                                                  
                                                                                  
                                                                                  561
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,767
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,760Mortgage
      banking activities
                                                                                  
                                                                                  
                                                                                  38
                                                                                  
                                                                                  
                                                                                  
                                                                                  25
                                                                                  
                                                                                  
                                                                                  
                                                                                  84
                                                                                  
                                                                                  
                                                                                  
                                                                                  86Net
      commissions from brokerage service
                                                                                  
                                                                                  
                                                                                  33
                                                                                  
                                                                                  
                                                                                  
                                                                                  22
                                                                                  
                                                                                  
                                                                                  
                                                                                  111
                                                                                  
                                                                                  
                                                                                  
                                                                                  90Loss
      on writedowns of securities
                                                                                  
                                                                                  
                                                                                  (75
                                                                                  )
                                                                                  
                                                                                  
                                                                                  —
                                                                                  
                                                                                  
                                                                                  
                                                                                  (5,859
                                                                                  )
                                                                                  
                                                                                  
                                                                                  —Gain
      on sale of securities
                                                                                  
                                                                                  
                                                                                  86
                                                                                  
                                                                                  
                                                                                  
                                                                                  190
                                                                                  
                                                                                  
                                                                                  
                                                                                  86
                                                                                  
                                                                                  
                                                                                  
                                                                                  170Other
      income
                                                                                  
                                                                                  
                                                                                  102
                                                                                  
                                                                                  
                                                                                  
                                                                                  105
                                                                                  
                                                                                  
                                                                                  
                                                                                  475
                                                                                  
                                                                                  
                                                                                  
                                                                                  311Total
      noninterest income (charge)
                                                                                  
                                                                                  
                                                                                  727
                                                                                  
                                                                                  
                                                                                  
                                                                                  903
                                                                                  
                                                                                  
                                                                                  
                                                                                  (3,336
                                                                                  )
                                                                                  
                                                                                  
                                                                                  2,417Noninterest
      expense:Compensation
      and benefits
                                                                                  
                                                                                  
                                                                                  1,466
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,508
                                                                                  
                                                                                  
                                                                                  
                                                                                  4,428
                                                                                  
                                                                                  
                                                                                  
                                                                                  4,508Occupancy
      and equipment
                                                                                  
                                                                                  
                                                                                  319
                                                                                  
                                                                                  
                                                                                  
                                                                                  314
                                                                                  
                                                                                  
                                                                                  
                                                                                  862
                                                                                  
                                                                                  
                                                                                  
                                                                                  895Data
      processing
                                                                                  
                                                                                  
                                                                                  162
                                                                                  
                                                                                  
                                                                                  
                                                                                  180
                                                                                  
                                                                                  
                                                                                  
                                                                                  522
                                                                                  
                                                                                  
                                                                                  
                                                                                  645Advertising
      and marketing
                                                                                  
                                                                                  
                                                                                  101
                                                                                  
                                                                                  
                                                                                  
                                                                                  103
                                                                                  
                                                                                  
                                                                                  
                                                                                  313
                                                                                  
                                                                                  
                                                                                  
                                                                                  335Other
      noninterest expense
                                                                                  
                                                                                  
                                                                                  589
                                                                                  
                                                                                  
                                                                                  
                                                                                  559
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,695
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,814Total
      noninterest expense
                                                                                  
                                                                                  
                                                                                  2,637
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,664
                                                                                  
                                                                                  
                                                                                  
                                                                                  7,820
                                                                                  
                                                                                  
                                                                                  
                                                                                  8,197Income
      (loss) before income tax expense (benefit)
                                                                                  
                                                                                  
                                                                                  1,038
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,218
                                                                                  
                                                                                  
                                                                                  
                                                                                  (2,327
                                                                                  )
                                                                                  
                                                                                  
                                                                                  2,813Income
      tax expense (benefit)
                                                                                  
                                                                                  
                                                                                  326
                                                                                  
                                                                                  
                                                                                  
                                                                                  297
                                                                                  
                                                                                  
                                                                                  
                                                                                  (998
                                                                                  )
                                                                                  
                                                                                  
                                                                                  669NET
      INCOME (LOSS)
                                                                                  
                                                                                  $
                                                                                  712
                                                                                  
                                                                                  
                                                                                  $
                                                                                  921
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (1,329
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  2,144Earnings
      (loss) per common shareBasic
                                                                                  
                                                                                  $
                                                                                  0.11
                                                                                  
                                                                                  
                                                                                  $
                                                                                  0.15
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (0.21
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  0.34Diluted
                                                                                  
                                                                                  $
                                                                                  0.11
                                                                                  
                                                                                  
                                                                                  $
                                                                                  0.15
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (0.21
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  0.34




See notes
to condensed consolidated financial statements.


2




PSB
Holdings, Inc.




Condensed
Consolidated Statements of Changes in Stockholders’ Equity


For the
Nine Months Ended March 31, 2009 and 2008


(Unaudited)


Common
                                                                                                                                                                                                                                      Stock
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    Additional
                                                                                                                                                                                                                                      Paid-in
                                                                                                                                                                                                                                      Capital
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    Unearned
                                                                                                                                                                                                                                      ESOP
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    Unearned
                                                                                                                                                                                                                                      Stock
                                                                                                                                                                                                                                      Awards
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    Reatained
                                                                                                                                                                                                                                      Earnings
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    Treasury
                                                                                                                                                                                                                                      Stock
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    Accumulated
                                                                                                                                                                                                                                      Other
                                                                                                                                                                                                                                      Comprehensive
                                                                                                                                                                                                                                      Loss
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    Total
                                                                                                                                                                                                                                      Stockholders’
                                                                                                                                                                                                                                      Equity(in
      thousands)Balances
      at June 30, 2007
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    694
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    30,465
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (2,222
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (978
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    26,441
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (1,767
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (1,382
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    51,251Dividends
      declared
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    (585
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    (585
                                                                                                                                                                                                                                    )Treasury
      stock acquired
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    (2,415
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    (2,415
                                                                                                                                                                                                                                    )Stock
      based compensation
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    21
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    (21
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —Incentive
      plan shares earned
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    271
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    271Comprehensive
      income:Net
      income
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    2,144
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —Net
      change in unrealized holding losses on available-for-sale securities, net
      of tax effect
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    (616
                                                                                                                                                                                                                                    )Comprehensive
      income
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    1,528Balances
      at March 31, 2008
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    694
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    30,465
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (2,222
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (686
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    28,000
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (4,203
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (1,998
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    50,050Balances
      at June 30, 2008
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    694
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    30,795
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (2,089
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (605
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    28,663
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (4,205
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (3,816
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    49,437Dividends
      declared
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    (1,140
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    (1,140
                                                                                                                                                                                                                                    )Stock
      based compensation
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    (24
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    176
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    152Comprehensive
      loss:Net
      loss
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    (1,329
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —Net
      change in unrealized holding losses on available-for-sale securities, net
      of tax effect
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    —
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    (11,316
                                                                                                                                                                                                                                    )Comprehensive
      loss
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    (12,645
                                                                                                                                                                                                                                    )Balances
      at March 31, 2009
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    694
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    30,771
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (2,089
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (429
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    26,194
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (4,205
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    (15,132
                                                                                                                                                                                                                                    )
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    $
                                                                                                                                                                                                                                    35,804




See notes
to condensed consolidated financial statements.


3




PSB
Holdings, Inc.
  Condensed
Consolidated Statements of Cash Flows
 (Unaudited)
 For
      the Nine Months
                                                                                                  Ended
      March 31,2009
                                                                                                
                                                                                                
                                                                                                2008(in
      thousands)Cash
      flows from operating activitiesNet
      (Loss) income
                                                                                                
                                                                                                $
                                                                                                (1,329
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                2,144Adjustments
      to reconcile net (loss) income to cash provided by operating
      activities:Provision
      for loan losses
                                                                                                
                                                                                                
                                                                                                754
                                                                                                
                                                                                                
                                                                                                
                                                                                                47Stock-based
      compensation
                                                                                                
                                                                                                
                                                                                                124
                                                                                                
                                                                                                
                                                                                                
                                                                                                298Amortization
      of core deposit intangible
                                                                                                
                                                                                                
                                                                                                155
                                                                                                
                                                                                                
                                                                                                
                                                                                                176Depreciation
                                                                                                
                                                                                                
                                                                                                292
                                                                                                
                                                                                                
                                                                                                
                                                                                                408Net
      amortization (accretion) of available-for-sale securities
                                                                                                
                                                                                                
                                                                                                63
                                                                                                
                                                                                                
                                                                                                
                                                                                                (79
                                                                                                )Net
      decrease in loans held for sale
                                                                                                
                                                                                                
                                                                                                405
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,344Writedowns
      of securities
                                                                                                
                                                                                                
                                                                                                5,859
                                                                                                
                                                                                                
                                                                                                
                                                                                                —Net
      gain on sale of securities
                                                                                                
                                                                                                
                                                                                                (86
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (170
                                                                                                )Amortization
      of premium on purchased loans
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                
                                                                                                
                                                                                                16Increase
      in cash surrender value of bank owned life insurance
                                                                                                
                                                                                                
                                                                                                (196
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (194
                                                                                                )Bank
      owned life insurance death benefit income
                                                                                                
                                                                                                
                                                                                                (162
                                                                                                )
                                                                                                
                                                                                                
                                                                                                —Net
      change in:Deferred
      loan costs
                                                                                                
                                                                                                
                                                                                                (24
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (67
                                                                                                )Other
      assets
                                                                                                
                                                                                                
                                                                                                (1,613
                                                                                                )
                                                                                                
                                                                                                
                                                                                                592Other
      liabilities
                                                                                                
                                                                                                
                                                                                                1,649
                                                                                                
                                                                                                
                                                                                                
                                                                                                283Net
      cash provided by operating activities
                                                                                                
                                                                                                
                                                                                                5,891
                                                                                                
                                                                                                
                                                                                                
                                                                                                4,798Cash
      flows from investing activitiesProceeds
      from sales of available-for-sale securities
                                                                                                
                                                                                                
                                                                                                4,629
                                                                                                
                                                                                                
                                                                                                
                                                                                                30,043Proceeds
      from maturities of available-for-sale securities
                                                                                                
                                                                                                
                                                                                                22,815
                                                                                                
                                                                                                
                                                                                                
                                                                                                33,094Purchase
      of available-for-sale securities and Federal Home Loan Bank
      stock
                                                                                                
                                                                                                
                                                                                                (7,103
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (55,182
                                                                                                )Loan
      originations net of principal payments
                                                                                                
                                                                                                
                                                                                                (18,573
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (8,810
                                                                                                )Proceeds
      from the surrender of bank owned life insurance policy
                                                                                                
                                                                                                
                                                                                                345
                                                                                                
                                                                                                
                                                                                                
                                                                                                —Purchase
      of premises and equipment
                                                                                                
                                                                                                
                                                                                                (1,056
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (187
                                                                                                )Net
      cash provided (used) by investing activities
                                                                                                
                                                                                                
                                                                                                1,057
                                                                                                
                                                                                                
                                                                                                
                                                                                                (1,042
                                                                                                )Cash
      flows from financing activitiesNet
      increase (decrease) in savings, demand deposits and NOW
      accounts
                                                                                                
                                                                                                
                                                                                                7,127
                                                                                                
                                                                                                
                                                                                                
                                                                                                (9,587
                                                                                                )Net
      increase (decrease) in time deposit accounts
                                                                                                
                                                                                                
                                                                                                10,707
                                                                                                
                                                                                                
                                                                                                
                                                                                                (1,335
                                                                                                )Proceeds
      from long term borrowings
                                                                                                
                                                                                                
                                                                                                24,000
                                                                                                
                                                                                                
                                                                                                
                                                                                                67,500Repayments
      of long term borrowings
                                                                                                
                                                                                                
                                                                                                (30,715
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (52,636
                                                                                                )Net
      change in short term borrowings
                                                                                                
                                                                                                
                                                                                                (15,998
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (8,755
                                                                                                )Net
      decrease in mortgagors’ escrow account
                                                                                                
                                                                                                
                                                                                                (563
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (433
                                                                                                )Acquisition
      of treasury shares
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                
                                                                                                
                                                                                                (2,226
                                                                                                )Dividends
      paid
                                                                                                
                                                                                                
                                                                                                (1,092
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (542
                                                                                                )Net
      cash used by financing activities
                                                                                                
                                                                                                
                                                                                                (6,534
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (8,014
                                                                                                )Increase
      (decrease) in cash and cash equivalents
                                                                                                
                                                                                                
                                                                                                414
                                                                                                
                                                                                                
                                                                                                
                                                                                                (4,258
                                                                                                )Cash
      and cash equivalents at beginning of year
                                                                                                
                                                                                                
                                                                                                8,146
                                                                                                
                                                                                                
                                                                                                
                                                                                                13,198Cash
      and cash equivalents at end of period
                                                                                                
                                                                                                $
                                                                                                8,560
                                                                                                
                                                                                                
                                                                                                $
                                                                                                8,940Supplemental
      disclosuresCash
      paid during the period for:Interest
                                                                                                
                                                                                                $
                                                                                                9,671
                                                                                                
                                                                                                
                                                                                                $
                                                                                                11,884Income
      taxes
                                                                                                
                                                                                                $
                                                                                                217
                                                                                                
                                                                                                
                                                                                                $
                                                                                                187Loans
      transferred to other real estate owned
                                                                                                
                                                                                                $
                                                                                                1,289
                                                                                                
                                                                                                
                                                                                                $
                                                                                                —
  See notes
to condensed consolidated financial statements.
 4
  PSB
Holdings, Inc.
  Notes to
Condensed 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-Q, 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, 2009. These
financial statements should be read in conjunction with the 2008 consolidated
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-KSB filed with the Securities and Exchange Commission (SEC) on
September 23, 2008.
  NOTE
3 – Recent Accounting Pronouncements
  The
Company adopted the provisions of Financial Accounting Standards Board (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 (SFAS) 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.
 5
  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’s adoption of SFAS No.
157 did not have a material impact on the Company’s financial position or
results of operations. See Note 11 for further information.
  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 with the employee.
If the employer 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’s
adoption of EITF Issue 06-4 did not have a material impact on the Company’s
financial position or results of operations.
  During
the first quarter of 2007, the 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 adopted SFAS No. 159 as of July 1, 2008. The
Company did not elect fair value treatment for any financial assets or
liabilities upon adoption. See Note 11 for further information.
  In
December 2007, the FASB issued SFAS No. 141 (Revised 2008), “Business
Combinations” (SFAS 141(R)). SFAS 141(R) will significantly change the
accounting for business combinations. Under SFAS 141(R), an acquiring entity
will be required to recognize all the assets acquired and liabilities assumed in
a transaction at the acquisition-date fair value with limited exceptions. It
also amends the accounting treatment for certain specific items including
acquisition costs and non controlling minority interests and includes a
substantial number of new disclosure requirements. SFAS 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after July 1, 2009. The Company does not expect the adoption of this statement
to have a material impact on its financial condition and results of
operations.
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements and Amendment of ARB No. 51 (SFAS No. 160).
The new pronouncement requires all entities to report noncontrolling (minority)
interests in subsidiaries as a component of stockholders’ equity. SFAS No. 160
will be effective for fiscal years beginning after December 15, 2008. Early
adoption is prohibited. Management does not anticipate that this statement will
have a material impact on the Company’s financial condition and results of
operations.
  In
February 2008, the FASB issued FSP FAS 140-3, “Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions.” This FSP provides
guidance on how the transferor and transferee should separately account for a
transfer of a financial asset and a related repurchase financing if certain
criteria are met. This guidance will be effective January 1, 2009. The adoption
of this new FSP is not expected to have a material effect on the Company’s
results of operations or financial position.
  In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities-an amendment of FASB Statement No. 133” (SFAS 161). SFAS
161 changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows.
The guidance in SFAS 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application encouraged. This statement encourages, but does not require,
comparative disclosures for earlier periods at initial adoption. The Company
does not expect the adoption of this statement to have a material impact on its
financial condition and results of operations.
 6
  In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets.” This FSP provides guidance as to factors considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible
Assets.” This guidance will be effective January 1, 2009. The adoption is not
expected to have a material effect on the Company’s results of operations or
financial position.
  In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” This standard formalizes minor changes in prioritizing
accounting principles used in the preparation of financial statements that are
presented in conformity with GAAP. This standard became effective November 18,
2008.
  In April
2009, the FASB issued FASB Staff Position 157-4, “Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4).
FSP FAS 157-4 provides additional guidance for estimating fair value
measurements in accordance with FASB Statement No. 157, “Fair Value
Measurements,” when the volume and level of activity for the asset or liability
have significantly decreased. FSP FAS 157-4 is effective for interim and annual
reporting periods ending after June 15, 2009 with early adoption permitted for
periods ending after March 15, 2009. The Company is currently evaluating the
impact of the adoption of this FSP on its financial condition and results of
operations.
  In April
2009, the FASB issued FASB Staff Position 107-1 and Accounting Principles Board
Opinion 28-1, “Interim Disclosures About Fair Value of Financial Instruments”
(FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 amends FASB Statement No. 107,
“Disclosures About Fair Value of Financial Instruments,” to require entities to
disclose the methods and significant assumptions used to estimate the fair value
of financial instruments in both interim and annual financial statements. APB
28-1 amends APB Opinion No. 28, “Interim Financial Reporting” to require those
disclosures in summarized financial information at interim reporting periods.
FSP FAS 107-1 and APB 28-1 are effective for interim and annual periods ending
after June 15, 2009 with early adoption permitted for periods ending after March
15, 2009. An entity may early adopt this FSP only if it also elects to early
adopt FSP FAS 157-4. The Company is currently evaluating the impact of the
adoption of this FSP on its financial condition and results of
operations.
  In April
2009, the FASB issued FASB Staff Position 115-2 and 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2).
FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment (OTTI)
guidance for debt securities to make the guidance more operational and to
improve the presentation and disclosure of OTTI on debt and equity securities in
the financial statements. This FSP does not amend existing recognition and
measurement guidance related to OTTI of equity securities. FSP FAS 115-2 and FAS
124-2 are effective for interim and annual reporting periods after June 15, 2009
with early adoption permitted for periods ending after March 15, 2009. The
Company is currently evaluating the impact of the adoption of this FSP on its
financial condition and results of operations.
 7
  NOTE
4 – Earnings (Loss) Per Share (EPS)
  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 ended and nine months ended March 31, 2009
and March 31, 2008:
 Three
      Months Ended
                      March
      31, 2009
                    
                    
                    Three
      Months Ended
                      March
      31, 2008Basic
      EPS computation:Net
      income
                    
                    $
                    712,000
                    
                    
                    $
                    921,000Weighted
      average shares outstanding
                    
                    
                    6,286,951
                    
                    
                    
                    6,262,348Basic
      EPS
                    
                    $
                    0.11
                    
                    
                    $
                    0.15Diluted
      EPS computation:Net
      income
                    
                    $
                    712,000
                    
                    
                    $
                    921,000Weighted
      average shares outstanding
                    
                    
                    6,286,951
                    
                    
                    
                    6,262,348Dilutive
      potential shares
                    
                    
                    40,401
                    
                    
                    
                    64,5856,327,352
                    
                    
                    
                    6,326,933Diluted
      EPS
                    
                    $
                    0.11
                    
                    
                    $
                    0.15
 
 Nine
      Months Ended
                          March
      31, 2009
                        
                        
                        Nine
      Months Ended
                          March
      31, 2008Basic
      EPS computation:Net
      (loss) income
                        
                        $
                        (1,329,000
                        )
                        
                        $
                        2,144,000Weighted
      average shares outstanding
                        
                        
                        6,275,800
                        
                        
                        
                        6,310,899Basic
      EPS
                        
                        $
                        (0.21
                        )
                        
                        $
                        0.34Diluted
      EPS computation:Net
      (loss) income
                        
                        $
                        (1,329,000
                        )
                        
                        $
                        2,144,000Weighted
      average shares outstanding
                        
                        
                        6,275,800
                        
                        
                        
                        6,310,899Dilutive
      potential shares
                        
                        
                        0
                        
                        
                        
                        77,4516,275,800
                        
                        
                        
                        6,388,350Diluted
      EPS
                        
                        $
                        (0.21
                        )
                        
                        $
                        0.34 8
  NOTE
5 – Investment Securities
  The
carrying value and estimated market values of investment securities are as
follows:
 March
      31, 2009Amortized
                                                                                                                                                                                                  Cost
      Basis
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                Gross
      Unrealized
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                Fair
                                                                                                                                                                                                  ValueGains
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (Losses)(in
      thousands)Debt
      securities:U.S.
      government and agency obligations:From
      one through five years
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                2,767
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                82
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                —
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                2,849From
      five through ten years
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                3,249
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                78
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                3,327After
      ten years
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                16,498
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                247
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (4
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                16,74122,514
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                407
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (4
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                22,917Corporate
      bonds and other obligations:Due
      within one year
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                2,999
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                17
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (7
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                3,009From
      one through five years
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                4,054
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                10
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (714
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                3,350After
      ten years
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                6,995
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (3,247
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                3,74814,048
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                27
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (3,968
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                10,107Mortgage-backed
      securities
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                139,968
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                3,255
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (16,458
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                126,765Total
      debt securities
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                176,530
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                3,689
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (20,430
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                159,789Equity
      securities:Preferred
      stock
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                15,046
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                21
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (6,204
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                8,863FHLB
      restricted stock
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                8,057
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                8,057Total
      equity securities
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                23,103
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                21
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (6,204
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                16,920Total
      available-for-sale securities and FHLB Stock
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                199,633
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                3,710
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                (26,634
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                176,709
 9
  NOTE 5 – Investment Securities–
(Continued)
 June
      30, 2008Amortized
                                                                                                                                                                    Cost
      Basis
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  Gross
      Unrealized
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  Fair
                                                                                                                                                                    ValueGains
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  (Losses)(in
      thousands)Debt
      securities:U.S.
      government and agency obligations:From
      one through five years
                                                                                                                                                                  
                                                                                                                                                                  $
                                                                                                                                                                  3,079
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  $
                                                                                                                                                                  16
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  $
                                                                                                                                                                  —
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  $
                                                                                                                                                                  3,095From
      five through ten years
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  2,232
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  17
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  (21
                                                                                                                                                                  )
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  2,228After
      ten years
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  13,987
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  174
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  (12
                                                                                                                                                                  )
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  14,14919,298
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  207
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  (33
                                                                                                                                                                  )
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  19,472State
      agency and municipal obligations:After
      ten years
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  4,448
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  99
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  —
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  4,5474,448
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  99
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  —
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  4,547Corporate
      bonds and other obligations:Due
      within one year
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  2,971
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  7
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  (1
                                                                                                                                                                  )
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  2,977From
      one through five years
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  8,045
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  10
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  (476
                                                                                                                                                                  )
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  7,579After
      ten years
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  8,042
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  47
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  (1,431
                                                                                                                                                                  )
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  6,65819,058
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  64
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  (1,908
                                                                                                                                                                  )
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  17,214Mortgage-backed
      securities
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  156,063
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  556
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  (4,769
                                                                                                                                                                  )
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  151,850Total
      debt securities
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  198,867
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  926
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  (6,710
                                                                                                                                                                  )
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  193,083Equity
      securities:Preferred
      stock
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  19,000
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  —
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  —
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  19,000FHLB
      restricted stock
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  7,943
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  —
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  —
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  7,943Total
      equity securities
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  26,943
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  —
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  —
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  26,943Total
      available-for-sale securities and FHLB Stock
                                                                                                                                                                  
                                                                                                                                                                  $
                                                                                                                                                                  225,810
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  $
                                                                                                                                                                  926
                                                                                                                                                                  
                                                                                                                                                                  
                                                                                                                                                                  $
                                                                                                                                                                  (6,710
                                                                                                                                                                  )
                                                                                                                                                                  
                                                                                                                                                                  $
                                                                                                                                                                  220,026
  Gross
losses of $58,976 and $84,934 were realized on sales of available-for-sale
securities for the nine months ended March 31, 2009 and March 31, 2008,
respectively. Gross gains of $145,242 and $254,951 were realized on sales of
available-for-sale securities for the nine months ended March 31, 2009 and March
31, 2008, respectively. There was an other-than-temporary impairment charge on
available-for-sale securities of $75,000 during the quarter ended March 31, 2009
and $5.9 million during the nine months ended March 31, 2009. See Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations-Overview.
 10
  NOTE
6 – Loans
  The
following table sets forth the composition of our loan portfolio at March 31,
2009 and June 30, 2008:
 March
      31,
                    2009
                  
                  
                  June
      30,
                    2008Amount
                  
                  
                  Percent
                  
                  
                  Amount
                  
                  
                  Percent(Dollars
      in thousands)Mortgage
      Loans:Residential
      (1)
                  
                  $
                  198,804
                  
                  
                  
                  75.03
                  %
                  
                  $
                  181,978
                  
                  
                  
                  72.59
                  %Commercial
      real estate
                  
                  
                  52,891
                  
                  
                  
                  19.96
                  
                  
                  
                  55,406
                  
                  
                  
                  22.10Residential
      construction
                  
                  
                  2,816
                  
                  
                  
                  1.06
                  
                  
                  
                  3,223
                  
                  
                  
                  1.29Commercial
                  
                  
                  9,311
                  
                  
                  
                  3.51
                  
                  
                  
                  8,687
                  
                  
                  
                  3.46Consumer
      and other
                  
                  
                  1,160
                  
                  
                  
                  0.44
                  
                  
                  
                  1,394
                  
                  
                  
                  0.56Total
      loans
                  
                  
                  264,982
                  
                  
                  
                  100.00
                  %
                  
                  
                  250,688
                  
                  
                  
                  100.00
                  %Unadvanced
      construction loans
                  
                  
                  (4,024
                  )
                  
                  
                  
                  
                  
                  
                  (6,522
                  )260,958
                  
                  
                  
                  
                  
                  
                  
                  244,166Net
      deferred loan costs
                  
                  
                  344
                  
                  
                  
                  
                  
                  
                  
                  320Allowance
      for loan losses
                  
                  
                  (2,020
                  )
                  
                  
                  
                  
                  
                  
                  (1,758
                  )Loans,
      net
                  
                  $
                  259,282
                  
                  
                  
                  
                  
                  
                  $
                  242,728
  
 (1)
                  Residential
      mortgage loans include one- to four-family mortgage loans, home equity
      loans, and home equity lines of
credit.
 11
  NOTE
7 – Non-performing Assets
  The table
below sets forth the amounts and categories of non-performing assets at the
dates indicated.
 At
      March 31,
                      2009
                    
                    
                    At
      June 30,
                      2008(Dollars
      in thousands)Non-accrual
      loans:Residential
      mortgage loans (1)
                    
                    $
                    1,077
                    
                    
                    $
                    —Commercial
      real estate
                    
                    
                    2,879
                    
                    
                    
                    982Residential
      construction
                    
                    
                    —
                    
                    
                    
                    —Commercial
                    
                    
                    100
                    
                    
                    
                    —Consumer
      and other
                    
                    
                    —
                    
                    
                    
                    —Total
      non-accrual loans
                    
                    
                    4,056
                    
                    
                    
                    982Accruing
      loans past due 90 days or more:Residential
      mortgage loans (1)
                    
                    
                    —
                    
                    
                    
                    —Commercial
      real estate
                    
                    
                    496
                    
                    
                    
                    2,859Residential
      construction
                    
                    
                    —
                    
                    
                    
                    —Commercial
                    
                    
                    —
                    
                    
                    
                    195Consumer
      and other
                    
                    
                    —
                    
                    
                    
                    —Total
                    
                    
                    496
                    
                    
                    
                    3,054Total
      non-performing loans
                    
                    
                    4,552
                    
                    
                    
                    4,036Real
      estate owned
                    
                    
                    1,289
                    
                    
                    
                    —Other
      non-performing assets
                    
                    
                    46
                    
                    
                    
                    —Total
      non-performing assets
                    
                    $
                    5,887
                    
                    
                    $
                    4,036Total
      non-performing loans to total loans
                    
                    
                    1.74
                    %
                    
                    
                    1.65
                    %Total
      non-performing assets to total assets
                    
                    
                    1.23
                    
                    
                    
                    0.82
  
 (1)
                  Residential
      mortgage loans include one- to four-family mortgage loans, home equity
      loans, and home equity lines of
credit.
 12
  NOTE
8 – Allowance for Loan Losses
  The
following summarizes the changes in the allowance for loan losses for the
quarter and nine months ended March 31, 2009, as compared to the prior year
periods:
 Three
      Months Ended
                                                        March
      31,
                                                      
                                                      
                                                      Nine
      Months Ended
                                                        March
      31,2009
                                                      
                                                      
                                                      2008
                                                      
                                                      
                                                      2009
                                                      
                                                      
                                                      2008(in
      thousands)
                                                      
                                                      
                                                      (in
      thousands)Balance,
      beginning of period
                                                      
                                                      $
                                                      1,888
                                                      
                                                      
                                                      $
                                                      1,776
                                                      
                                                      
                                                      $
                                                      1,758
                                                      
                                                      
                                                      $
                                                      1,780Provision
      for loan losses
                                                      
                                                      
                                                      157
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      754
                                                      
                                                      
                                                      
                                                      47Charge
      offs
                                                      
                                                      
                                                      (42
                                                      )
                                                      
                                                      
                                                      (27
                                                      )
                                                      
                                                      
                                                      (529
                                                      )
                                                      
                                                      
                                                      (102
                                                      )Recoveries
                                                      
                                                      
                                                      17
                                                      
                                                      
                                                      
                                                      16
                                                      
                                                      
                                                      
                                                      37
                                                      
                                                      
                                                      
                                                      40Balance,
      end of period
                                                      
                                                      $
                                                      2,020
                                                      
                                                      
                                                      $
                                                      1,765
                                                      
                                                      
                                                      $
                                                      2,020
                                                      
                                                      
                                                      $
                                                      1,765
  At March
31, 2009, the Company had loans with balances of $4.0 million (representing 16
loans) on nonaccrual status and $496,000 (representing one loan) past due over
90 days and still accruing. At March 31, 2008, the Company had loans with
balances of $1.4 million (representing eight loans) on nonaccrual status and
$1.6 million (representing 13 loans) past due over 90 days and still accruing.
The Company had nine loan relationships that are considered impaired with a
balance of $3.2 million as of March 31, 2009 and there were no impaired loan
relationships as of March 31, 2008.
  NOTE
9 – 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 and core deposit intangible are 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, 2009 was $6.9 million and $702,000, respectively. The
amortization expense related to the core deposit intangible for the three months
ended March 31, 2009 and 2008 was $51,000 and $59,000, respectively. The
amortization expense related to the core deposit intangible for the nine months
ended March 31, 2009 and 2008 was $155,000 and $176,000
respectively.
 March
      31,
                    2009
                  
                  
                  June
      30,
                    2008(in
      thousands)Balances
      not subject to amortization:Goodwill
                  
                  $
                  6,912
                  
                  
                  $
                  6,912Balances
      subject to amortization:Core
      Deposit Intangible
                  
                  
                  702
                  
                  
                  
                  857Total
      intangible assets
                  
                  $
                  7,614
                  
                  
                  $
                  7,769 13
  The
following table shows the estimated future amortization expense for amortizing
intangible assets for the periods indicated:
 (in
      thousands)For
      the three months ending June 30, 2009
                  
                  $
                  51For
      the twelve months ending June 30, 2010
                  
                  
                  178For
      the twelve months ending June 30, 2011
                  
                  
                  149For
      the twelve months ending June 30, 2012
                  
                  
                  121Thereafter
                  
                  
                  203Total
                  
                  $
                  702
  NOTE
10 – Comprehensive (Loss) Income
  SFAS 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
      31,2009
                                                                                                                
                                                                                                                
                                                                                                                2008
                                                                                                                
                                                                                                                
                                                                                                                2009
                                                                                                                
                                                                                                                
                                                                                                                2008(in
      thousands)
                                                                                                                
                                                                                                                
                                                                                                                (in
      thousands)Net
      Income (Loss)
                                                                                                                
                                                                                                                $
                                                                                                                712
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                921
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                (1,329
                                                                                                                )
                                                                                                                
                                                                                                                $
                                                                                                                2,144Other
      comprehensive (loss) income:Net
      unrealized holding (losses) gains on available-for-sale
      securities
                                                                                                                
                                                                                                                
                                                                                                                (1,433
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (950
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (22,913
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (594
                                                                                                                )Reclassification
      adjustment for (gain) loss recognized in net inome
                                                                                                                
                                                                                                                
                                                                                                                (11
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (190
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                5,773
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (170
                                                                                                                )Other
      comprehensive loss before tax benefit
                                                                                                                
                                                                                                                
                                                                                                                (1,444
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (1,140
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (17,140
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (764
                                                                                                                )Income
      tax benefit related to items of other comprehensive loss
                                                                                                                
                                                                                                                
                                                                                                                490
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                386
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                5,824
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                148Other
      comprehensive loss, net of tax
                                                                                                                
                                                                                                                
                                                                                                                (954
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (754
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (11,316
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (616
                                                                                                                )Total
      comprehensive (loss) income
                                                                                                                
                                                                                                                $
                                                                                                                (242
                                                                                                                )
                                                                                                                
                                                                                                                $
                                                                                                                167
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                (12,645
                                                                                                                )
                                                                                                                
                                                                                                                $
                                                                                                                1,528
 14
  NOTE
11 – FAIR VALUE MEASUREMENTS
  Effective
July 1, 2008, the Company adopted SFAS 157, Fair Value Measurements, which
provides a framework for measuring fair value under generally accepted
accounting principles.
  The
Company also adopted SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, including an amendment of FASB Statement No. 115.
SFAS 159 allows an entity the irrevocable option to elect fair value for the
initial and subsequent measurement for certain financial assets and liabilities
on a contract-by-contract basis. The Company did not elect fair value treatment
for any financial assets or liabilities upon adoption.
  In
accordance with SFAS 157, the Company groups its financial assets and financial
liabilities measured at fair value in three levels, based on the markets in
which the assets and liabilities are traded and the reliability of the
assumptions used to determine fair value.
  Level 1 –
Valuations for assets and liabilities traded in active exchange markets, such as
the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S.
Government and agency mortgage-backed securities that are traded by dealers or
brokers in active markets. Valuations are obtained from readily available
pricing sources for market transactions involving identical assets or
liabilities.
  Level 2 –
Valuations for assets and liabilities traded in less active dealer or broker
markets. Valuations are obtained from third party pricing services for identical
or comparable assets or liabilities.
  Level 3 –
Valuations for assets and liabilities that are derived from other methodologies,
including option pricing models, discounted cash flow models and similar
techniques, and not based on market exchange, dealer, or broker traded
transactions. Level 3 valuations incorporate certain assumptions and projections
in determining the fair value assigned to such assets and
liabilities.
  A
financial instrument’s level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement.
  A
description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below. These valuation methodologies were
applied to all of the Company’s financial assets and financial liabilities
carried at fair value for March 31, 2009.
  The
Company’s cash instruments are generally classified within level 1 or level 2 of
the fair value hierarchy because they are valued using quoted market prices,
broker or dealer quotations, or alternative pricing sources with reasonable
levels of price transparency.
  The
Company’s investment and mortgage-backed securities and other debt securities
available for sale are generally classified within level 2 of the fair value
hierarchy. For these securities, we obtain fair value measurements from
independent pricing services. The fair value measurements consider observable
data that may include dealer quotes, market spreads, cash flows, the U. S.
treasury yield curve, trading levels, market consensus prepayment speeds, credit
information and the instrument’s terms and conditions.
  Level 3
is for positions that are not traded in active markets or are subject to
transfer restrictions, valuations are adjusted to reflect illiquidity and/or
non-transferability, and such adjustments are generally based on available
market evidence. In the absence of such evidence, management’s best estimate is
used. Subsequent to inception, management only changes level 3 inputs and
assumptions when corroborated by evidence such as transactions in similar
instruments, completed or pending third-party transactions in the underlying
investment or comparable entities, subsequent rounds of financing,
recapitalization and other transactions across the capital structure, offerings
in the equity or debt markets, and changes in financial ratios or cash
flows.
  The
Company’s impaired loans are reported at the fair value of the underlying
collateral if repayment is expected solely from the collateral. Collateral
values are estimated using level 2 inputs based upon appraisals of similar
properties obtained from a third party.
 15
  The
following summarizes assets measured at fair value for the period ending March
31, 2009 (in thousands):
  ASSETS
MEASURED AT FAIR VALUE ON A RECURRING BASIS
 Fair
      Value Measurements at Reporting Date Using:March
      31, 2009
                            
                            
                            Quoted
      Prices in
                              Active
      Markets for
                              Identical
      Assets
                              Level
      1
                            
                            
                            Significant
      Other
                              Observable
      Inputs
                              Level
      2
                            
                            
                            Significant
                              Unobservable
      Inputs
                              Level
      3Securities
      available for sale
                            
                            $
                            168,652
                            
                            
                            $
                            —
                            
                            
                            $
                            135,677
                            
                            
                            $
                            32,975Impaired
      Loans
                            
                            
                            3,004
                            
                            
                            
                            —
                            
                            
                            
                            3,004
                            
                            
                            
                            —Total
                            
                            $
                            171,656
                            
                            
                            $
                            —
                            
                            
                            $
                            138,681
                            
                            
                            $
                            32,975
 
 Fair
      Value Measurements
                                    Using
      Significant Unobservable Inputs
                                    (Level
      3)Available-for-sale
                                    Securities
                                  
                                  
                                  TotalBeginning
      balance, July 1, 2008
                                  
                                  $
                                  15,000
                                  
                                  
                                  $
                                  15,000Total
      gains or losses (realized/unrealized)Included
      in earnings (or changes in net assets)
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Included
      in other comprehensive incomeAmortization
      of securities, netTransfers in and/or out of Level 3
                                  
                                  
                                  17,975
                                  
                                  
                                  
                                  17,975Ending
      balance, March 31, 2009
                                  
                                  $
                                  32,975
                                  
                                  
                                  $
                                  32,975The
      amount of total gains or losses for the period included in earnings (or
      changes in net assets)attributable
      to the change in unrealized gains or losses relating to assets still held
      at the reporting date
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  —
 16
  NOTE
12 – 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 SFAS No.123 (R), “Accounting for Stock Options and Other Stock
Based Compensation”, 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, 2009 and March 31, 2008 of $74,000 and $82,000,
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, 2009 and March 31, 2008 of $124,000 and $298,000, respectively.
During the nine months ended March 31, 2009, a reduction of $99,000 was recorded
in stock award expense due to forfeitures.
  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
                        GrantDividend
      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
                      
                      
                      
                      6.5Fair
      value
                      
                      $
                      2.00
                      
                      
                      $
                      1.97
                      
                      
                      $
                      1.84
 17
  NOTE
13 – Dividends
  On March
17, 2009, the Board of Directors of the Company declared a cash dividend of
$0.05 a share for stockholders of record as of April 2, 2009 and payable on
April 16, 2009. Putnam Bancorp, MHC, the mutual holding company, waived the
receipt of the dividend declared by the Company.
  NOTE
14 – Commitments 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 Consolidated Balance Sheet.
  The
contractual amounts of outstanding commitments were as follows:
 March
      31,
                                                                            2009
                                                                          
                                                                          
                                                                          June
      30,
                                                                            2008(in
      thousands)Commitments
      to extend credit:Loan
      commitments
                                                                          
                                                                          $
                                                                          13,750
                                                                          
                                                                          
                                                                          $
                                                                          9,732Unadvanced
      construction loans
                                                                          
                                                                          
                                                                          4,024
                                                                          
                                                                          
                                                                          
                                                                          6,522Unadvanced
      lines of credit
                                                                          
                                                                          
                                                                          18,565
                                                                          
                                                                          
                                                                          
                                                                          18,522Standby
      letters of credit
                                                                          
                                                                          
                                                                          1,198
                                                                          
                                                                          
                                                                          
                                                                          2,050Outstanding
      commitments
                                                                          
                                                                          $
                                                                          37,537
                                                                          
                                                                          
                                                                          $
                                                                          36,826
  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 and nine months ended March 31, 2009 and 2008,
and should be read in conjunction with the Company’s Condensed 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 2008 Consolidated Financial Statements and notes thereto included in the
Company’s Annual Report on Form 10-KSB filed with the SEC on September 23,
2008.
  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, real
estate values, 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.
 18
  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.
 19
  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 quarter ended September 30, 2008, the U.S. Treasury announced a plan to
place the Federal National Mortgage Association (“Fannie Mae”) and the Federal
Home Loan Mortgage Corporation (“Freddie Mac”) under conservatorship under the
authority of the Federal Housing Finance Agency. The actions of the U.S.
Government adversely impacted the value of the preferred stock of Fannie Mae and
Freddie Mac. The Bank owns $4.0 million of Freddie Mac auction pass-through
certificates (APT) issued by trusts sponsored by Merrill Lynch. The results of
this action, along with general concern in the market about the future value of
Freddie Mac preferred stock, have caused the values for the APT certificates to
decrease materially. The Company had recorded a non-cash other-than-temporary
impairment (“OTTI”) charge of $3.7 million in the quarter ended September 30,
2008. On October 29, 2008, the U.S. Treasury clarified that ordinary loss
treatment applies to these Freddie Mac APT certificates. As an ordinary loss,
under generally accepted accounting principles banks may not record the effect
of this tax change in their balance sheets and income statements for financial
and regulatory purposes until the period in which the law was enacted, i.e., the
fourth quarter of 2008. The carrying value of the Freddie Mac APT certificates
is now $46,000 as of March 31, 2009. On September 15, 2008, Lehman Brothers
Holdings Inc. (“LBHI”) filed a petition in the United States Bankruptcy Court
for the Southern District of New York seeking relief under Chapter 11 of the
United States Bankruptcy Code. This action has adversely impacted the value of
Lehman Brothers corporate debt. The Bank owned $2.0 million of this corporate
debt. The Company had recorded an OTTI charge of $1.8 million in the quarter
ended September 30, 2008. During the quarter ended December 31, 2008, the market
value declined by an additional $30,000 and the Company recorded a non-cash OTTI
charge of $30,000 during the quarter ended December 31, 2008. During the quarter
ended March 31, 2009, the Company sold one of the two Lehman Brothers bonds it
owned and recorded a $15,000 gain on sale. The remaining Lehman Brothers bond,
which had a previous carrying value of $75,000, has been determined to be
worthless and has been completely written-off during the current quarter. At
this time it is unclear when and if the values of both these investments will
recover in the future. Both of these investments were rated investment grade by
Moody’s and Standard & Poor’s at the time of purchase.
  The net
interest margin increased from 2.61% for the quarter ended March 31, 2008 to
2.85% for the quarter ended March 31, 2009. This resulted in a $126,000 increase
in net interest and dividend income over the periods. In addition, noninterest
expense decreased $27,000 or 1.0% during the quarter ended March 31, 2009
compared to the quarter ended March 31, 2008. The provision for loan losses
increased $157,000 during the quarter ended March 31, 2009 as compared to the
quarter ended March 31, 2008.
  The net
interest margin increased from 2.49% for the nine months ended March 31, 2008 to
2.82% for the nine months ended March 31, 2009. This resulted in a $943,000
increase in net interest and dividend income over the periods. In addition,
noninterest expense decreased $377,000 or 4.6% during the nine months ended
March 31, 2009 compared to the nine months ended March 31, 2008. The provision
for loan losses increased $707,000 during the nine months ended March 31, 2009
as compared to the nine months ended March 31, 2008.
  Critical
Accounting Policies
  Critical
accounting policies are those that involve significant judgments and assumptions
by management 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.
 20
  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, SFAS 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 $6.0
million of investments were other-than-temporarily impaired as of September 30,
2008 and was written-down by $5.5 million as of the quarter ended September 30,
2008 and an additional write-down of $304,000 during the quarter ended December
31, 2008 and $75,000 during the quarter ended March 31, 2009, resulting in a
charge to income of the same amounts. There were no other-than-temporarily
impaired investments as of March 31, 2008.
  Management
has discussed the development and selection of these critical accounting
policies with the Audit Committee of the Board of Directors.
 21
  Comparison
of Financial Condition at March 31, 2009 and June 30, 2008
  Assets
  Total
assets decreased to $477.1 million at March 31, 2009 from $494.5 million at June
30, 2008. Investments in securities decreased $43.3 million during the nine
months ended March 31, 2009, and represented $176.7 million or 37.0% of total
assets at March 31, 2009. Net loans have continued to grow to $259.3 million at
March 31, 2009 from $242.7 million at June 30, 2008 and now represent 54.4% of
total assets. Cash flows from the investment portfolio have been used to fund
this loan growth.
  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, 2009 and June 30,
2008.
 March
      31,
                                                                                          2009
                                                                                        
                                                                                        June
      30,
                                                                                          2008(Dollars
      in thousands)Allowance
      for loan losses
                                                                                        
                                                                                        $
                                                                                        2,020
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,758Gross
      loans outstanding
                                                                                        
                                                                                        
                                                                                        260,958
                                                                                        
                                                                                        
                                                                                        
                                                                                        244,166Nonperforming
      loans
                                                                                        
                                                                                        
                                                                                        4,552
                                                                                        
                                                                                        
                                                                                        
                                                                                        4,036Allowance/gross
      loans outstanding
                                                                                        
                                                                                        
                                                                                        0.77
                                                                                        %
                                                                                        
                                                                                        
                                                                                        0.72
                                                                                        %Allowance/nonperforming
      loans
                                                                                        
                                                                                        
                                                                                        44.4
                                                                                        %
                                                                                        
                                                                                        
                                                                                        43.6
                                                                                        %
  Past
Due and Nonperforming Loans
  The
following table sets forth information regarding past due and non-performing
loans:
 March
      31, 2009
                                                        
                                                        
                                                        June
      30, 2008(in
      thousands)Past
      due 30 days through 89 days and accruing
                                                        
                                                        $
                                                        6,399
                                                        
                                                        
                                                        $
                                                        4,230Past
      due 90 days or more and accruing
                                                        
                                                        $
                                                        496
                                                        
                                                        
                                                        $
                                                        3,054Past
      due 90 days or more and nonaccruing
                                                        
                                                        $
                                                        4,056
                                                        
                                                        
                                                        $
                                                        982
  Liabilities
  Total
liabilities decreased to $441.3 million at March 31, 2009 from $445.1 million at
June 30, 2008. Total deposits increased to $301.5 million at March 31, 2009 from
$283.7 million at June 30, 2008, an increase of $17.8 million or 6.3%. Borrowed
funds decreased to $133.9 million at March 31, 2009 from $156.6 million at June
30, 2008, a decrease of $22.7 million or 14.5%.
  Stockholders’
Equity
  Stockholders’
equity decreased to $35.8 million at March 31, 2009 from $49.4 million at June
30, 2008, primarily due to the net loss of $1.3 million and an increase in other
comprehensive loss of $11.3 million.
 22




Comparison
of Operating Results for the Three and Nine Months Ended March 31, 2009 and
2008




Net
Income (Loss)




Net
income amounted to $712,000 for the quarter ended March 31, 2009 compared to net
income of $921,000 for the quarter ended March 31, 2008. This was primarily
attributable to an increase in provision for loan losses of $157,000 and a
reduction in noninterest income of $176,000. Included in this reduction in
noninterest income were lower gain on sales of securities of $104,000 and an
additional impairment charge on Lehman Brothers investments of $75,000 for the
quarter ended March 31, 2009. The Company has now sold or written-off its entire
investment in Lehman Brothers. This was partially offset by an increase in net
interest and dividend income of $126,000 and a decrease in noninterest expense
of $27,000.




The net
loss amounted to $1.3 million for the nine months ended March 31, 2009 compared
to net income of $2.1 million for the nine months ended March 31, 2008. The
decrease in net income reflected an OTTI charge on investments of $5.9 million
for the nine months ended March 31, 2009. The provision for loan losses
increased by $707,000. This was partially offset by an increase in net interest
and dividend income of $943,000 and a decrease in noninterest expense of
$377,000 and a decrease in income tax expense of $1.7 million.




Interest
and Dividend Income




Interest
and dividend income amounted to $6.2 million for the quarter ended March 31,
2009 as compared to $6.8 million for the quarter ended March 31, 2008, a
decrease of $580,000 or 8.6%. The decrease in yield on loans had the greatest
impact on interest income when comparing the quarters. The yield on loans
decreased 59 basis points. This was partially offset by an increase in average
loan balances of $13.6 million when comparing the quarters ended March 31, 2009
and 2008. Average investment securities decreased $35.6 million and the yield
increased 20 basis points. Average other earning assets decreased $456,000 and
the yield decreased by 284 basis points when comparing the quarters ended March
31, 2009 and 2008. The decrease in yield is due to reductions in short-term
rates implemented by the Federal Open Market Committee since March 31,
2008.




Interest
and dividend income amounted to $19.2 million for the nine months ended March
31, 2009 as compared to $20.4 million for the nine months ended March 31, 2008,
a decrease of $1.2 million or 5.9%. The decrease in yield on loans had the
greatest impact on interest income when comparing these time periods. The yield
on loans decreased 53 basis points. This was partially offset by an increase in
average loan balances of $11.8 million when comparing the nine months ended
March 31, 2009 and 2008. Average investment securities decreased $20.9 million
and the yield increased 10 basis points. Included in the change in investment
security yields for the nine months ended March 31, 2009 was the accrued
interest and dividend income reversed on the Freddie Mac Auction Rate Preferred
and Lehman Brothers investments that were written down. Average other earning
assets decreased $483,000 and the yield decreased by 335 basis points when
comparing the nine months ended March 31, 2009 and 2008. The decrease in yield
is due to reductions in short-term rates implemented by the Federal Open Market
Committee since March 31, 2008.




Interest
Expense




Interest
expense amounted to $3.1 million for the quarter ended March 31, 2009 as
compared to $3.8 million for the quarter ended March 31, 2008, a decrease of
$706,000 or 18.6%. The decrease in rates on interest-bearing liabilities had the
greatest impact on interest expense. The average rates paid on interest-bearing
liabilities decreased by 76 basis points during the periods. The average balance
of interest-bearing deposits grew by $13.1 million, and the average rate paid
decreased by 85 basis points when comparing the quarters ended March 31, 2009
and 2008. The average balance of borrowed money decreased by $9.0 million, and
the average rate paid decreased by 49 basis points when comparing the quarters
ended March 31, 2009 and 2008. Average brokered deposits decreased $1.8 million
for the quarter ended March 31, 2009 as compared to the quarter ended March 31,
2008. We replaced brokered deposits with FHLBB advances, which were
significantly lower in cost than the brokered deposits.




Interest
expense amounted to $9.7 million for the nine months ended March 31, 2009 as
compared to $11.8 million for the nine months ended March 31, 2008, a decrease
of $2.1 million or 18.3%. The decrease in rates on interest-bearing liabilities
had the greatest impact on interest expense. The average rates paid on
interest-bearing liabilities decreased by 78 basis points during the periods.
The average balance of interest-bearing deposits grew by $5.6 million, and the
average rate paid decreased by 76 basis points when comparing the nine months
ended March 31, 2009 and 2008. The average balance of borrowed money increased
by $1.7 million, and the average rate paid decreased by 82 basis points when
comparing the nine months ended March 31, 2009 and 2008. Average brokered
deposits decreased $4.9 million for the nine months ended March 31, 2009 as
compared to the nine months ended March 31, 2008. We replaced brokered deposits
with Federal Home Loan Bank of Boston (FHLBB) advances, which were significantly
lower in cost than the brokered deposits.


23




Net
Interest and Dividend Income




Net
interest and dividend income amounted to $3.1 million for the quarter ended
March 31, 2009 as compared to $3.0 million for the quarter ended March 31, 2008,
an increase of $126,000 or 4.2%. Net interest spread increased 51 basis points
to 2.56% as compared to 2.05% and net interest margin increased 24 basis points
to 2.85% as compared to 2.61% when comparing the quarters ended March 31, 2009
and 2008.




Net
interest and dividend income amounted to $9.6 million for the nine months ended
March 31, 2009 as compared to $8.6 million for the nine months ended March 31,
2008, an increase of $943,000 or 10.9%. Net interest spread increased 55 basis
points to 2.46% as compared to 1.91% and net interest margin increased 33 basis
points to 2.82% as compared to 2.49% when comparing the nine months ended March
31, 2009 and 2008.




Due to
the large portion of fixed rate loans and securities in the Company’s asset
portfolio, interest rate risk is a concern and the Company continues to monitor
and adjust the asset and liability mix as much as possible to take advantage of
the benefits and reduce the risks or potential negative effects of a rising rate
environment. Management attempts to mitigate the interest rate risk through
balance sheet composition. One strategy has been to extend out FHLBB advance
maturities and take advantage of relatively low cost funding.




Provision
for Loan Losses




The
provision for loan losses amounted to $157,000 for the quarter ended March 31,
2009 with no provision for loan losses for the quarter ended March 31, 2008. The
allowance for loan losses is based on management’s estimate of the probable
losses inherent in the portfolio, considering the impact of certain factors.
Among the factors management may consider are prior loss experience, current
economic conditions and their effects on borrowers, the character and size of
the portfolio, trends in nonperforming loans and delinquency rates and the
performance of individual loans in relation to contractual terms. The provision
for loan losses reflects adjustments to the allowance based on management’s
review of the portfolio in light of those conditions. The ratio of the allowance
to gross loans outstanding was .77% as of March 31, 2009 compared to 0.72% as of
June 30, 2008. Net charge-offs were $25,000 for the quarter ended March 31,
2009.




The
provision for loan losses amounted to $754,000 for the nine months ended March
31, 2009 and $47,000 for the nine months ended March 31, 2008. This increase in
the level of provision was primarily the result of a single commercial loan
charge-off of $400,000 and an increased allocation against the remainder of the
portfolio. The ratio of the allowance to gross loans outstanding was 0.77% as of
March 31, 2009 compared to 0.72% as of June 30, 2008. Net charge-offs were
$492,000 for the nine months ended March 31, 2009.




Noninterest
Income (Charge)




Noninterest
income amounted to $727,000 for the quarter ended March 31, 2009 as compared to
noninterest income of $903,000 for the quarter ended March 31, 2008, a decrease
of $176,000 or 19.5%. This decrease was primarily due to OTTI investment
write-downs of $75,000 in Lehman Brothers corporate debt and a decrease in net
gain on sale of securities of $104,000.




Noninterest
charge amounted to $3.3 million for the nine months ended March 31, 2009 as
compared to noninterest income of $2.4 million for the nine months ended March
31, 2008, a decrease of $5.8 million or 238.0%. This decrease was primarily due
to OTTI investment write-downs of $5.9 million. The write-downs included $3.95
million in Freddie Mac pass-through auction-rate securities issued by trusts
consisting solely of Freddie Mac preferred stock and $1.9 million in Lehman
Brothers corporate debt. The current carrying values as of March 31, 2009 of the
Freddie Mac auction-rate securities and Lehman Brothers corporate debt was
$46,000 and $0, respectively. This decrease in the nine months ended March 31,
2009 was partially offset by increased BOLI income of $164,000.


24




Noninterest
Expense




Noninterest
expense amounted to $2.64 million for the quarter ended March 31, 2009 as
compared to $2.66 million for the quarter ended March 31, 2008, a decrease of
$27,000 or 1.0%. Compensation and benefits expense decreased $42,000 or 2.8%.
Occupancy and equipment expense increased $5,000 or 1.6%. Data processing,
advertising & marketing and other noninterest expense increased $10,000 or
1.2%.




Noninterest
expense amounted to $7.8 million for the nine months ended March 31, 2009 as
compared to $8.2 million for the nine months ended March 31, 2008, a decrease of
$377,000 or 4.6%. Compensation and benefits expense decreased $80,000 or 1.8%.
This decrease was primarily due to a reduction in employee stock award expense
due to forfeitures. Occupancy and equipment expense decreased $33,000 or 3.7%
due primarily to lower depreciation expense and service contracts. Data
processing, advertising & marketing and other noninterest expense decreased
$264,000 or 9.4% primarily due to decreases in data processing, Director stock
awards, postage expense and software depreciation expense. This was partially
offset by increases in FDIC assessments and miscellaneous expenses.




Provision
for Income Taxes




The
income tax expense amounted to $326,000 for the quarter ended March 31, 2009 as
compared to $297,000 in income tax expense for the quarter ended March 31,
2008.




The
income tax benefit amounted to $998,000 for the nine months ended March 31, 2009
as compared to $669,000 in income tax expense for the nine months ended March
31, 2008. This benefit was due to the $5.9 million of OTTI write-down’s,
discussed above.


25




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. Yields and costs are annualized.


For
      the Three Months Ended March 31,2009
                                                                                                  
                                                                                                  
                                                                                                  2008(Dollars
      in thousands)Interest-earning
      assets:
                                                                                                  
                                                                                                  Average
                                                                                                    Balance
                                                                                                  
                                                                                                  
                                                                                                  Interest/
                                                                                                    Dividends
                                                                                                  
                                                                                                  
                                                                                                  Yield/
                                                                                                    Cost
                                                                                                  
                                                                                                  
                                                                                                  Average
                                                                                                    Balance
                                                                                                  
                                                                                                  
                                                                                                  Interest/
                                                                                                    Dividends
                                                                                                  
                                                                                                  
                                                                                                  Yield/
                                                                                                    CostInvestment
      securities
                                                                                                  
                                                                                                  $
                                                                                                  183,022
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  2,602
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  5.77
                                                                                                  %
                                                                                                  
                                                                                                  $
                                                                                                  218,624
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  3,001
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  5.57
                                                                                                  %Loans
                                                                                                  
                                                                                                  
                                                                                                  254,668
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,588
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  5.71
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  241,064
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,743
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  6.30
                                                                                                  %Other
      earning assets
                                                                                                  
                                                                                                  
                                                                                                  4,180
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  0.10
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  3,724
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  27
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.94
                                                                                                  %Total
      interest-earnings assets
                                                                                                  
                                                                                                  
                                                                                                  441,870
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  6,191
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  5.68
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  463,412
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  6,771
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  5.93
                                                                                                  %Non-interest-earning
      assets
                                                                                                  
                                                                                                  
                                                                                                  35,780
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  26,228Total
      assets
                                                                                                  
                                                                                                  $
                                                                                                  477,650
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  489,640Interest-bearing
      liabilities:NOW
      accounts
                                                                                                  
                                                                                                  $
                                                                                                  42,607
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  222
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.11
                                                                                                  %
                                                                                                  
                                                                                                  $
                                                                                                  30,542
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  208
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.76
                                                                                                  %Savings
      accounts
                                                                                                  
                                                                                                  
                                                                                                  45,249
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  57
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  0.51
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  46,291
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  78
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  0.68
                                                                                                  %Money
      market accounts
                                                                                                  
                                                                                                  
                                                                                                  12,443
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  50
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1.63
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  15,369
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  78
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.06
                                                                                                  %Time
      deposits
                                                                                                  
                                                                                                  
                                                                                                  159,656
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,374
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3.49
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  154,698
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,775
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  4.65
                                                                                                  %Borrowed
      money
                                                                                                  
                                                                                                  
                                                                                                  140,589
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,383
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3.99
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  149,541
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,653
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  4.48
                                                                                                  %Total
      interest-bearing liabilities
                                                                                                  
                                                                                                  
                                                                                                  400,544
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,086
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3.12
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  396,441
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,792
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3.88
                                                                                                  %Non-interest-bearing
      demand deposits
                                                                                                  
                                                                                                  
                                                                                                  35,412
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  37,285Other
      non-interest-bearing liabilities
                                                                                                  
                                                                                                  
                                                                                                  5,398
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,796Capital
      accounts
                                                                                                  
                                                                                                  
                                                                                                  36,296
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  52,118Total
      liabilities and capital accounts
                                                                                                  
                                                                                                  $
                                                                                                  477,650
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  489,640Net
      interest income
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  3,105
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  2,979Interest
      rate spread
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.56
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.05
                                                                                                  %Net
      interest-earning assets
                                                                                                  
                                                                                                  $
                                                                                                  41,326
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  66,971Net
      interest margin
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.85
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.61
                                                                                                  %Average
      earning assets toaverage
      interest-bearing liabilities
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  110.32
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  116.89
                                                                                                  %


26




For
      the Nine Months Ended March 31,2009
                                                                                                          
                                                                                                          
                                                                                                          2008(Dollars
      in thousands)Interest-earning
      assets:
                                                                                                          
                                                                                                          Average
                                                                                                            Balance
                                                                                                          
                                                                                                          
                                                                                                          Interest/
                                                                                                            Dividends
                                                                                                          
                                                                                                          
                                                                                                          Yield/
                                                                                                            Cost
                                                                                                          
                                                                                                          
                                                                                                          Average
                                                                                                            Balance
                                                                                                          
                                                                                                          
                                                                                                          Interest/
                                                                                                            Dividends
                                                                                                          
                                                                                                          
                                                                                                          Yield/
                                                                                                            CostInvestment
      securities
                                                                                                          
                                                                                                          $
                                                                                                          198,270
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          8,185
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          5.50
                                                                                                          %
                                                                                                          
                                                                                                          $
                                                                                                          219,194
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          8,890
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          5.40
                                                                                                          %Loans
                                                                                                          
                                                                                                          
                                                                                                          251,180
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          11,039
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          5.85
                                                                                                          %
                                                                                                          
                                                                                                          
                                                                                                          239,383
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          11,460
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          6.38
                                                                                                          %Other
      earning assets
                                                                                                          
                                                                                                          
                                                                                                          2,922
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          14
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          0.64
                                                                                                          %
                                                                                                          
                                                                                                          
                                                                                                          3,405
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          102
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3.99
                                                                                                          %Total
      interest-earnings assets
                                                                                                          
                                                                                                          
                                                                                                          452,372
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          19,238
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          5.67
                                                                                                          %
                                                                                                          
                                                                                                          
                                                                                                          461,982
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          20,452
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          5.90
                                                                                                          %Non-interest-earning
      assets
                                                                                                          
                                                                                                          
                                                                                                          31,960
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          28,099Total
      assets
                                                                                                          
                                                                                                          $
                                                                                                          484,332
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          490,081Interest-bearing
      liabilities:NOW
      accounts
                                                                                                          
                                                                                                          $
                                                                                                          39,397
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          670
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2.27
                                                                                                          %
                                                                                                          
                                                                                                          $
                                                                                                          28,248
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          572
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2.70
                                                                                                          %Savings
      accounts
                                                                                                          
                                                                                                          
                                                                                                          45,236
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          194
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          0.57
                                                                                                          %
                                                                                                          
                                                                                                          
                                                                                                          47,641
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          259
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          0.72
                                                                                                          %Money
      market accounts
                                                                                                          
                                                                                                          
                                                                                                          12,262
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          153
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1.66
                                                                                                          %
                                                                                                          
                                                                                                          
                                                                                                          16,065
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          238
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1.97
                                                                                                          %Time
      deposits
                                                                                                          
                                                                                                          
                                                                                                          154,763
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          4,192
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3.61
                                                                                                          %
                                                                                                          
                                                                                                          
                                                                                                          154,063
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          5,428
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          4.69
                                                                                                          %Borrowed
      money
                                                                                                          
                                                                                                          
                                                                                                          150,821
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          4,446
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3.93
                                                                                                          %
                                                                                                          
                                                                                                          
                                                                                                          149,132
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          5,315
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          4.75
                                                                                                          %Total
      interest-bearing liabilities
                                                                                                          
                                                                                                          
                                                                                                          402,479
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          9,655
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3.20
                                                                                                          %
                                                                                                          
                                                                                                          
                                                                                                          395,149
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          11,812
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3.98
                                                                                                          %Non-interest-bearing
      demand deposits
                                                                                                          
                                                                                                          
                                                                                                          36,189
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          39,068Other
      non-interest-bearing liabilities
                                                                                                          
                                                                                                          
                                                                                                          4,574
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3,741Capital
      accounts
                                                                                                          
                                                                                                          
                                                                                                          41,090
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          52,123Total
      liabilities and capital accounts
                                                                                                          
                                                                                                          $
                                                                                                          484,332
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          490,081Net
      interest income
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          9,583
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          8,640Interest
      rate spread
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2.47
                                                                                                          %
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1.92
                                                                                                          %Net
      interest-earning assets
                                                                                                          
                                                                                                          $
                                                                                                          49,893
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          66,833Net
      interest margin
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2.82
                                                                                                          %
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2.49
                                                                                                          %Average
      earning assets toaverage
      interest-bearing liabilities
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          112.40
                                                                                                          %
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          116.91
                                                                                                          %


27




The
following tables set 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, 2009Compared
      to the Three Months Ended March 31, 2008Increase(Decrease)
      Due toINTEREST
      INCOME
                          
                          Rate
                          
                          
                          Volume
                          
                          
                          NetInvestment
      securities
                          
                          $
                          641
                          
                          
                          $
                          (1,040
                          )
                          
                          $
                          (399
                          )Loans
                          
                          
                          (1,161
                          )
                          
                          
                          1,006
                          
                          
                          
                          (155
                          )Other
      interest-earning assets
                          
                          
                          (47
                          )
                          
                          
                          21
                          
                          
                          
                          (26
                          )TOTAL
      INTEREST INCOME
                          
                          
                          (567
                          )
                          
                          
                          (13
                          )
                          
                          
                          (580
                          )INTEREST
      EXPENSE:NOW
      accounts
                          
                          
                          (243
                          )
                          
                          
                          257
                          
                          
                          
                          14Savings
      accounts
                          
                          
                          (19
                          )
                          
                          
                          (2
                          )
                          
                          
                          (21
                          )Money
      Market accounts
                          
                          
                          (15
                          )
                          
                          
                          (13
                          )
                          
                          
                          (28
                          )Time
      deposits
                          
                          
                          (764
                          )
                          
                          
                          363
                          
                          
                          
                          (401
                          )Other
      borrowed money
                          
                          
                          (175
                          )
                          
                          
                          (95
                          )
                          
                          
                          (270
                          )TOTAL
      INTEREST INCOME
                          
                          
                          (1,216
                          )
                          
                          
                          510
                          
                          
                          
                          (706
                          )CHANGE
      IN NET INTEREST INCOME
                          
                          $
                          649
                          
                          
                          $
                          (523
                          )
                          
                          $
                          126


28





For
      the Nine Months Ended March 31, 2009Compared
      to the Nine Months Ended March 31, 2008Increase(Decrease)
      Due toINTEREST
      INCOME
                      
                      Rate
                      
                      
                      Volume
                      
                      
                      NetInvestment
      securities
                      
                      $
                      245
                      
                      
                      $
                      (950
                      )
                      
                      $
                      (705
                      )Loans
                      
                      
                      (1,203
                      )
                      
                      
                      782
                      
                      
                      
                      (421
                      )Other
      interest-earning assets
                      
                      
                      (75
                      )
                      
                      
                      (13
                      )
                      
                      
                      (88
                      )TOTAL
      INTEREST INCOME
                      
                      
                      (1,033
                      )
                      
                      
                      (181
                      )
                      
                      
                      (1,214
                      )INTEREST
      EXPENSE:NOW
      accounts
                      
                      
                      (145
                      )
                      
                      
                      243
                      
                      
                      
                      98Savings
      accounts
                      
                      
                      (52
                      )
                      
                      
                      (13
                      )
                      
                      
                      (65
                      )Money
      Market accounts
                      
                      
                      (34
                      )
                      
                      
                      (51
                      )
                      
                      
                      (85
                      )Time
      deposits
                      
                      
                      (1,277
                      )
                      
                      
                      41
                      
                      
                      
                      (1,236
                      )Other
      borrowed money
                      
                      
                      (966
                      )
                      
                      
                      97
                      
                      
                      
                      (869
                      )TOTAL
      INTEREST INCOME
                      
                      
                      (2,474
                      )
                      
                      
                      317
                      
                      
                      
                      (2,157
                      )CHANGE
      IN NET INTEREST INCOME
                      
                      $
                      1,441
                      
                      
                      $
                      (498
                      )
                      
                      $
                      943




Market
Risk, Liquidity and Capital Resources




Market
Risk




The
majority of our assets and liabilities are monetary in nature. Consequently, our
most significant form of market risk is interest rate risk (“IRR”). Our assets,
consisting primarily of mortgage loans, have longer maturities than our
liabilities, consisting primarily of deposits and other borrowings. As a result,
a principal part of our business strategy is to manage IRR and reduce the
exposure of our net interest income (“NII”) to changes in market interest rates.
Accordingly, our Board of Directors has established an Asset/Liability
Management Committee which is responsible for evaluating the IRR inherent in our
assets and liabilities, for determining the level of risk that is appropriate
given our business strategy, operating environment, capital, liquidity and
performance objectives, and for managing this risk consistent with the
guidelines approved by the Board of Directors. With the assistance of an IRR
management consultant, the committee monitors the level of IRR on a regular
basis and generally meets at least on a quarterly basis to review our
asset/liability policies and IRR position.




We
have sought to manage our IRR in order to minimize the exposure of our earnings
and capital to changes in interest rates. As part of our ongoing asset/liability
management, we currently use the following strategies to manage our IRR: (i)
using alternative funding sources, such as advances from the Federal Home Loan
Bank of Boston, to “match fund” certain investments and/or loans; (ii) continued
emphasis on increasing core deposits; (iii) offering adjustable rate and
shorter-term home equity loans, commercial real estate loans, construction loans
and commercial and industrial loans; (iv) offering a variety of consumer loans,
which typically have shorter-terms; (v) investing in mortgage-backed securities
with variable rates or fixed rates with shorter durations. Shortening the
average maturity of our interest-earning assets by increasing our investments in
shorter-term loans and securities, as well as loans and securities with variable
rates of interest, helps to better match the maturities and interest rates of
our assets and liabilities, thereby reducing the exposure of our NII to changes
in market interest rates.


29




Net
interest income at-risk measures the risk of a decline in earnings due to
potential short-term and long term changes in interest rates. The table below
represents an analysis of our IRR as measured by the estimated changes in NII,
resulting from an instantaneous and sustained parallel shift in the yield curve
(+100 and +200 basis points) at June 30, 2008 and December 31,
2008.


Net
      Interest Income At-RiskChange
      in Interest Rates
              (Basis
      Points)
            
            
            Estimated
      Increase (Decrease)
              in
      NII
              December
      31, 2008
            
            
            Estimated
      Increase (Decrease)
              in
      NII
              June
      30, 2008Stable+
      100
            
            
            -2.20%
            
            
            -2.75%+
      200
            
            
            -6.73%
            
            
            -7.48%




The
preceding income simulation analysis does not represent a forecast of NII and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions, which are
subject to change, including: the nature and timing of interest rate levels
including the yield curve shape, prepayments on loans and securities, deposit
decay rates, pricing decisions on loans and deposits, reinvestment/replacement
of asset and liability cash flows, and others. Also, as market conditions vary
prepayment/refinancing levels will likely deviate from those assumed, the
varying impact of interest rate changes on caps and floors embedded in
adjustable rate loans, early withdrawal of deposits, changes in product
preferences, and other internal/external variables. We do not believe that there
has been a material change in our NII position between December 31, 2008 and
March 31, 2009.




Net
Portfolio Value Simulation Analysis.The Office of Thrift Supervision
requires the computation of amounts by which the net present value of an
institution’s cash flow from assets, liabilities and off-balance sheet items
(the institution’s net portfolio value or “NPV”) would change in the event of a
range of assumed changes in market interest rates. The Office of Thrift
Supervision provides all institutions that file a Consolidated Maturity/Rate
Schedule as a part of their quarterly Thrift Financial Report an interest rate
sensitivity report of net portfolio value. The Office of Thrift Supervision
simulation model uses a discounted cash flow analysis and an option-based
pricing approach to measuring the interest rate sensitivity of net portfolio
value. Historically, the Office of Thrift Supervision model estimated the
economic value of each type of asset, liability and off-balance sheet contract
under the assumption that the United States Treasury yield curve increases or
decreases instantaneously by 100 to 300 basis point increments. However, given
the current low level of market interest rates, we did not prepare a net
portfolio value calculation for an interest rate decrease of greater than 100
basis points. A basis point equals one-hundredth of one percent, and 200 basis
points equals two percent, an increase in interest rates from 3% to 5% would
mean, for example, a 200 basis point increase in the “Change in Interest Rates”
column below. The Office of Thrift Supervision provides us the results of the
interest rate sensitivity model, which is based on information we provide to the
Office of Thrift Supervision to estimate the sensitivity of our net portfolio
value.




The
tables below set forth, at December 31, 2008, indicated the estimated changes in
our net portfolio value that would result from the designated instantaneous
changes in the United States Treasury yield curve. Computations of prospective
effects of hypothetical interest rate changes are based on numerous assumptions,
including relative levels of market interest rates, loan prepayments and deposit
decay, and should not be relied upon as indicative of actual results. This data
is for Putnam Bank only and does not include any yield curve changes in the
assets of PSB Holdings, Inc. We do not believe that there has been a material
change in our NPV position between December 31, 2008 and March 31,
2009.


30




NPV as a Percentage of
      PresentEstimated Increase (Decrease)
      in
                                                                        
                                                                        Value
      of Assets (3)Change
in
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        NPV
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        IncreaseInterest
      Rates
                                                                        
                                                                        Estimated
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (Decrease)(basis
      points) (1)
                                                                        
                                                                        NPV
      (2)
                                                                        
                                                                        
                                                                        Amount
                                                                        
                                                                        
                                                                        Percent
                                                                        
                                                                        NPV
      Ratio (4)
                                                                        
                                                                        (basis
      points)+300
                                                                        
                                                                        $
                                                                        19,978
                                                                        
                                                                        
                                                                        $
                                                                        (13,356
                                                                        )
                                                                        
                                                                        
                                                                        -40
                                                                        %
                                                                        
                                                                        
                                                                        4.28
                                                                        %
                                                                        
                                                                        
                                                                        -248+200
                                                                        
                                                                        $
                                                                        26,776
                                                                        
                                                                        
                                                                        $
                                                                        (6,558
                                                                        )
                                                                        
                                                                        
                                                                        -20
                                                                        %
                                                                        
                                                                        
                                                                        5.60
                                                                        %
                                                                        
                                                                        
                                                                        -115+100
                                                                        
                                                                        $
                                                                        30,831
                                                                        
                                                                        
                                                                        $
                                                                        (2,504
                                                                        )
                                                                        
                                                                        
                                                                        -8
                                                                        %
                                                                        
                                                                        
                                                                        6.34
                                                                        %
                                                                        
                                                                        
                                                                        -410
                                                                        
                                                                        $
                                                                        33,334
                                                                        
                                                                        
                                                                        $
                                                                        —
                                                                        
                                                                        
                                                                        
                                                                        0
                                                                        %
                                                                        
                                                                        
                                                                        6.75
                                                                        %
                                                                        
                                                                        
                                                                        0-100
                                                                        
                                                                        $
                                                                        32,457
                                                                        
                                                                        
                                                                        $
                                                                        (877
                                                                        )
                                                                        
                                                                        
                                                                        -3
                                                                        %
                                                                        
                                                                        
                                                                        6.52
                                                                        %
                                                                        
                                                                        
                                                                        -23









(1)
              Assumes
      an instantaneous uniform change in interest rates at all
      maturities.(2)
              NPV
      is the discounted present value of expected cash flows from assets,
      liabilities and off-balance sheet contracts.(3)
              Present
      value of assets represents the discounted present value of incoming cash
      flows on interest-earning assets.(4)
              NPV
      ratio represents NPV divided by the present value of
    assets.




Liquidity




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 of Boston borrowings. The Bank can borrow funds from the Federal Home
Loan Bank of Boston based on eligible collateral of loans and securities. The
Bank had Federal Home Loan Bank of Boston borrowings as of March 31, 2009 of
$130.5 million with unused borrowing capacity of $70.8 million. The Bank had no
brokered certificates of deposits as of March 31, 2009. The Bank has an internal
limit of wholesale borrowings to total assets ratio of 40.0%. As of March 31,
2009, the ratio of wholesale borrowings to total assets was 27.4%.




The
Bank’s primary investing activities are the origination of loans and the
purchase of investment securities. During the nine months ended March 31, 2009
and 2008, the Bank originated loans for the portfolio net of principal payments
of $18.6 million and $8.8 million, respectively. Purchases of securities totaled
$7.1 million and $55.2 million, for the nine months ended March 31, 2009 and
2008, 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 $160.6 million at March 31, 2009. 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, 2009 and exceeded each of the applicable
regulatory capital requirements at such date.


31




Required
                    ActualRatio
      of Tier 1 Capital to total assets
                    4%
                    8.14%Ratio
      of Total Risk Based Capital to risk-weighted assets
                    8%
                    11.86%Ratio
      of Tier 1 Risk Based Capital to risk-weighted assets
                    4%
                    11.29%




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
quarter ended March 31, 2009, 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. Quantitative and Qualitative Disclosures About Market Risk




Not
applicable to smaller reporting companies




Item
4. Controls and Procedures




Not
applicable




Item
4T. 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.


32




Part
      II. – OTHER INFORMATIONItem
      1.
                Legal
      Proceedings – Not applicableItem
      1A.
                Risk
      FactorsThere
      have been no material changes to the risk factors described in the
      Company’s previous filings with the Securities and Exchange
      Commission.Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceedsa)
      Not applicableb)
      Not applicablec)
      Not applicableItem
      3.
                Defaults
      Upon Senior Securities – Not applicableItem
      4.
                Submission
      of Matters to a Vote of Security
Holders




The
Company convened its 2008 Annual Meeting of Stockholders on November 7, 2008. At
the meeting, the stockholders of the Company considered and voted on the
following proposals:




Proposal
No. 1. The election of Mary E. Patenaude, Robert J. Halloran, Jr., and Jitendra
K. Sinha, each to serve as a director for a term of three years and until his or
her successor has been elected and qualified.


For
                                    
                                    
                                    WithheldMary
      E. Patenaude
                                    
                                    
                                    5,782,723
                                    
                                    
                                    
                                    23,281Robert
      J. Halloran, Jr.
                                    
                                    
                                    5,722,090
                                    
                                    
                                    
                                    83,914Jitendra
      K. Sinha
                                    
                                    
                                    5,782,723
                                    
                                    
                                    
                                    23,281




The term
in office of directors Thomas A. Borner, Richard A. Loomis, Paul M. Kelly,
Charles H. Puffer, Charles W. Bentley, Jr. and John P. Miller continued after
the 2008 Annual Meeting.




Proposal
No. 2. The ratification of the appointment of Shatswell, MacLeod & Company,
P.C. as the independent registered public accounting firm of the Company for the
fiscal year ending June 30, 2009.


For
                      
                      
                      Against
                      
                      
                      AbstainNumber
      of votes
                      
                      
                      5,773,249
                      
                      
                      
                      16,586
                      
                      
                      
                      16,169Percentage
      of shares voting in person or by proxy
                      
                      
                      99.7
                      %
                      
                      
                      0.3
                      %





Item
      5.
            Other
      Information





a.
              Not
      applicable.b.
              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-Q.





Item
      6.
              Exhibits





Exhibits31.1
                    
                    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.


33




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
      15, 2009
                      
                      /s/
      Thomas A. BornerThomas
      A. BornerChief
      Executive OfficerDate
                      May
      15, 2009
                      
                      /s/
      Robert J. Halloran, Jr.Robert
      J. Halloran, Jr.President,
      Chief Financial Officer and
Treasurer








34