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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549





FORM 10-QSB





(Mark One)



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

For the quarterly period ended December 31, 2007



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

For the transition period from             to

Commission file number 0-50970





PSB Holdings, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|United States                                                  |  | 42-1597948                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

40 Main Street, Putnam, Connecticut 06260

(Address of principal executive offices)

(860) 928-6501

(Issuers telephone number)

N/A

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





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x  YES     ̈  NO

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act

 ̈  YES    x  NO

As of December 31, 2007, there were 6,566,194 shares of the registrants common stock outstanding.

Transitional Small Business Disclosure Format Yes   ̈    No  x











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PSB Holdings, Inc.

Table of Contents



|           |  |                                                                                                                          |  |         
|---------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | --------
|           |  |                                                                                                                          |  | Page No.
|Part I.    |  | FINANCIAL INFORMATION                                                                                                    |  |         
|Item 1.    |  | Financial Statements                                                                                                     |  |         
|           |  | Consolidated Statements of Financial Condition at December 31, 2007 (Unaudited) and June 30, 2007 (Unaudited)            |  | 1       
|           |  | Consolidated Statements of Income for the Three Months Ended and Six Months Ended December 31, 2007 and 2006 (Unaudited) |  | 2       
|           |  | Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2007 and 2006 (Unaudited)                    |  | 3       
|           |  | Notes to Consolidated Financial Statements (Unaudited)                                                                   |  | 4       
|Item 2.    |  | Managements Discussion and Analysis or Plan of Operation                                                                |  | 12      
|Item 3.    |  | Controls and Procedures                                                                                                  |  | 23      
|Part II.   |  | OTHER INFORMATION                                                                                                        |  |         
|Item 1.    |  | Legal Proceedings                                                                                                        |  | 23      
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                              |  | 23      
|Item 3.    |  | Defaults Upon Senior Securities                                                                                          |  | 23      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                      |  | 24      
|Item 5.    |  | Other Information                                                                                                        |  | 24      
|Item 6.    |  | Exhibits                                                                                                                 |  | 24      
|SIGNATURES |  | 25                                                                                                                      



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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements



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##### Table of Contents

PSB Holdings, Inc.

Consolidated Statements of Financial Condition

(Unaudited)



|                                                                                                                                                                                           |  |                                  |         |   |              |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                                                                           |  | December 31,2007                 |         |   | June 30,2007 |  
|                                                                                                                                                                                           |  | (in thousands, except sharedata) |        
|ASSETS                                                                                                                                                                                     |  |                                  |         |   |              |   |         |  
|Cash and due from depository institutions                                                                                                                                                  |  | $                                | 5,930   |   |              | $ | 8,718   |  
|Federal funds sold                                                                                                                                                                         |  |                                  | 2,375   |   |              |   | 4,480   |  
|Investment securities, at fair value                                                                                                                                                       |  |                                  | 217,266 |   |              |   | 222,502 |  
|Loans receivable, gross                                                                                                                                                                    |  |                                  | 239,766 |   |              |   | 234,160 |  
|Allowance for loan losses                                                                                                                                                                  |  |                                  | (1,776  | ) |              |   | (1,780  | )
|                                                                                                                                                                                           |  |                                  |         |   |              |   |         |  
|Loans receivable, net                                                                                                                                                                      |  |                                  | 237,990 |   |              |   | 232,380 |  
|Premises and equipment, net                                                                                                                                                                |  |                                  | 4,073   |   |              |   | 4,218   |  
|Intangible assets                                                                                                                                                                          |  |                                  | 7,885   |   |              |   | 8,003   |  
|Other assets                                                                                                                                                                               |  |                                  | 10,750  |   |              |   | 10,897  |  
|                                                                                                                                                                                           |  |                                  |         |   |              |   |         |  
|TOTAL ASSETS                                                                                                                                                                               |  | $                                | 486,269 |   |              | $ | 491,198 |  
|                                                                                                                                                                                           |  |                                  |         |   |              |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                       |  |                                  |         |   |              |   |         |  
|Liabilities                                                                                                                                                                                |  |                                  |         |   |              |   |         |  
|Deposits                                                                                                                                                                                   |  | $                                | 286,493 |   |              | $ | 293,473 |  
|Borrowed funds                                                                                                                                                                             |  |                                  | 144,988 |   |              |   | 141,857 |  
|Mortgagors escrow accounts                                                                                                                                                                |  |                                  | 1,292   |   |              |   | 1,280   |  
|Other liabilities                                                                                                                                                                          |  |                                  | 3,079   |   |              |   | 3,337   |  
|                                                                                                                                                                                           |  |                                  |         |   |              |   |         |  
|Total Liabilities                                                                                                                                                                          |  |                                  | 435,852 |   |              |   | 439,947 |  
|Commitments and contingencies                                                                                                                                                              |  |                                  |         |   |              |   |         |  
|Stockholders Equity                                                                                                                                                                       |  |                                  |         |   |              |   |         |  
|Preferred stock, $.10 par value, 1,000,000 shares authorized, no shares issued and outstanding                                                                                             |  |                                  |        |   |              |   |        |  
|Common stock, ($.10 par value, 12,000,000 shares authorized, 6,943,125 shares issued, 6,566,194 shares outstanding at December 31, 2007
and 6,778,303 shares outstanding at June 30, 2007) |  |                                  | 694     |   |              |   | 694     |  
|Additional paid-in capital                                                                                                                                                                 |  |                                  | 30,465  |   |              |   | 30,465  |  
|Unearned ESOP shares                                                                                                                                                                       |  |                                  | (2,222  | ) |              |   | (2,222  | )
|Unearned stock awards                                                                                                                                                                      |  |                                  | (686    | ) |              |   | (978    | )
|Retained earnings                                                                                                                                                                          |  |                                  | 27,290  |   |              |   | 26,441  |  
|Treasury stock, at cost (376,931 shares at December 31, 2007 and 164,822 shares at June 30, 2007)                                                                                          |  |                                  | (3,880  | ) |              |   | (1,767  | )
|Accumulated other comprehensive loss                                                                                                                                                       |  |                                  | (1,244  | ) |              |   | (1,382  | )
|                                                                                                                                                                                           |  |                                  |         |   |              |   |         |  
|Total stockholders equity                                                                                                                                                                 |  |                                  | 50,417  |   |              |   | 51,251  |  
|                                                                                                                                                                                           |  |                                  |         |   |              |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                 |  | $                                | 486,269 |   |              | $ | 491,198 |  
|                                                                                                                                                                                           |  |                                  |         |   |              |   |         |  

See notes to consolidated financial statements.



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##### Table of Contents

PSB Holdings, Inc.

Consolidated Statements of Income

(Unaudited)



|                                                    |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|--------------------------------------------------- |  | --------------------------------- | ----- | - | ---------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                    |  | Three Months EndedDecember 31,    |       |   | Six Months EndedDecember 31, |  
|                                                    |  | 2007                              |       |   | 2006                         |   |       | 2007 |  |   | 2006   |  
|                                                    |  | (in thousands, except share data) |      
|Interest income:                                    |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|Interest on loans                                   |  | $                                 | 3,831 |   |                              | $ | 3,479 |      |  | $ | 7,669  |   |  | $ | 6,790  |  
|Interest and dividends on investments               |  |                                   | 3,047 |   |                              |   | 2,797 |      |  |   | 5,964  |   |  |   | 5,782  |  
|                                                    |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|Total interest income                               |  |                                   | 6,878 |   |                              |   | 6,276 |      |  |   | 13,633 |   |  |   | 12,572 |  
|Interest expense:                                   |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|Deposits and escrow                                 |  |                                   | 2,212 |   |                              |   | 2,067 |      |  |   | 4,357  |   |  |   | 4,010  |  
|Borrowed funds                                      |  |                                   | 1,802 |   |                              |   | 1,607 |      |  |   | 3,662  |   |  |   | 3,294  |  
|                                                    |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|Total interest expense                              |  |                                   | 4,014 |   |                              |   | 3,674 |      |  |   | 8,019  |   |  |   | 7,304  |  
|                                                    |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|Net interest income                                 |  |                                   | 2,864 |   |                              |   | 2,602 |      |  |   | 5,614  |   |  |   | 5,268  |  
|Provision for loan losses                           |  |                                   | 35    |   |                              |   | 101   |      |  |   | 47     |   |  |   | 186    |  
|                                                    |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|Net interest income after provision for loan losses |  |                                   | 2,829 |   |                              |   | 2,501 |      |  |   | 5,567  |   |  |   | 5,082  |  
|Noninterest income:                                 |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|Fees for services                                   |  |                                   | 634   |   |                              |   | 579   |      |  |   | 1,247  |   |  |   | 1,157  |  
|Mortgage banking activities                         |  |                                   | 42    |   |                              |   | 18    |      |  |   | 61     |   |  |   | 42     |  
|Net commissions from brokerage service              |  |                                   | 41    |   |                              |   | 37    |      |  |   | 68     |   |  |   | 78     |  
|Net loss from sale of securities                    |  |                                   | (20   | ) |                              |   | (69   | )    |  |   | (20    | ) |  |   | (69    | )
|Other income                                        |  |                                   | 106   |   |                              |   | 74    |      |  |   | 206    |   |  |   | 134    |  
|                                                    |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|Total noninterest income                            |  |                                   | 803   |   |                              |   | 639   |      |  |   | 1,562  |   |  |   | 1,342  |  
|Noninterest expense:                                |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|Compensation and benefits                           |  |                                   | 1,496 |   |                              |   | 1,458 |      |  |   | 3,000  |   |  |   | 2,936  |  
|Occupancy and equipment                             |  |                                   | 328   |   |                              |   | 314   |      |  |   | 651    |   |  |   | 654    |  
|Data processing                                     |  |                                   | 234   |   |                              |   | 212   |      |  |   | 464    |   |  |   | 408    |  
|Advertising and marketing                           |  |                                   | 125   |   |                              |   | 98    |      |  |   | 233    |   |  |   | 199    |  
|Other noninterest expense                           |  |                                   | 564   |   |                              |   | 674   |      |  |   | 1,185  |   |  |   | 1,257  |  
|                                                    |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|Total noninterest expense                           |  |                                   | 2,747 |   |                              |   | 2,756 |      |  |   | 5,533  |   |  |   | 5,454  |  
|                                                    |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|Income before income tax expense                    |  |                                   | 885   |   |                              |   | 384   |      |  |   | 1,596  |   |  |   | 970    |  
|Income tax expense (benefit)                        |  |                                   | 200   |   |                              |   | (84   | )    |  |   | 372    |   |  |   | (6     | )
|                                                    |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|NET INCOME                                          |  | $                                 | 685   |   |                              | $ | 468   |      |  | $ | 1,224  |   |  | $ | 976    |  
|                                                    |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|Earnings per common share                           |  |                                   |       |   |                              |   |       |      |  |   |        |   |  |   |        |  
|Basic                                               |  | $                                 | 0.10  |   |                              | $ | 0.07  |      |  | $ | 0.19   |   |  | $ | 0.15   |  
|Diluted                                             |  | $                                 | 0.10  |   |                              | $ | 0.07  |      |  | $ | 0.18   |   |  | $ | 0.14   |  

See notes to consolidated financial statements



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PSB Holdings, Inc.

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                              |  |                                      |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                              |  | For the Six MonthsEnded December 31, |        
|                                                                              |  | 2007                                 |         |   | 2006 |  
|                                                                              |  | (in thousands)                       |        
|Cash flows from operating activities                                          |  |                                      |         |   |      |   |         |  
|Net income                                                                    |  | $                                    | 1,224   |   |      | $ | 976     |  
|Adjustments to reconcile net income to cash provided by operating activities: |  |                                      |         |   |      |   |         |  
|Provision for loan losses                                                     |  |                                      | 47      |   |      |   | 186     |  
|Stock-based compensation expense                                              |  |                                      | 217     |   |      |   | 179     |  
|Amortization of core deposit intangible                                       |  |                                      | 118     |   |      |   | 132     |  
|Depreciation                                                                  |  |                                      | 277     |   |      |   | 293     |  
|Net amortization on available-for-sale securities                             |  |                                      | (59     | ) |      |   | (61     | )
|Amortization of premium on purchased loans                                    |  |                                      | 11      |   |      |   | 19      |  
|Net realized investment security losses                                       |  |                                      | 20      |   |      |   | 69      |  
|Originations of loans for resale                                              |  |                                      | (7,314  | ) |      |   | (5,691  | )
|Proceeds from sale of loans                                                   |  |                                      | 7,375   |   |      |   | 5,385   |  
|Gain on sale of loans                                                         |  |                                      | (61     | ) |      |   | (42     | )
|Increase in cash surrender value of Bank owned life insurance                 |  |                                      | (130    | ) |      |   | (54     | )
|Net change in:                                                                |  |                                      |         |   |      |   |         |  
|Deferred loan fees                                                            |  |                                      | (105    | ) |      |   | (192    | )
|Other assets                                                                  |  |                                      | 39      |   |      |   | (193    | )
|Other liabilities                                                             |  |                                      | (220    | ) |      |   | (515    | )
|                                                                              |  |                                      |         |   |      |   |         |  
|Net cash provided (used) by operating activities                              |  |                                      | 1,439   |   |      |   | 491     |  
|                                                                              |  |                                      |         |   |      |   |         |  
|Cash flows from investing activities                                          |  |                                      |         |   |      |   |         |  
|Proceeds from sales of available-for-sale securities                          |  |                                      | 24,626  |   |      |   | 3,927   |  
|Proceeds from maturities of available-for-sale securities                     |  |                                      | 25,985  |   |      |   | 36,669  |  
|Purchase of available-for-sale securities                                     |  |                                      | (44,960 | ) |      |   | (20,404 | )
|Loan originations net of principal payments                                   |  |                                      | (5,563  | ) |      |   | (16,483 | )
|Investment in bank owned life insurance                                       |  |                                      |        |   |      |   | (3,000  | )
|Purchase of premises and equipment                                            |  |                                      | (132    | ) |      |   | (184    | )
|                                                                              |  |                                      |         |   |      |   |         |  
|Net cash provided (used) by investing activities                              |  |                                      | (44     | ) |      |   | 525     |  
|                                                                              |  |                                      |         |   |      |   |         |  
|Cash flows from financing activities                                          |  |                                      |         |   |      |   |         |  
|Change in savings and demand deposit accounts                                 |  |                                      | (10,139 | ) |      |   | (13,616 | )
|Change in time deposit accounts                                               |  |                                      | 3,159   |   |      |   | 13,036  |  
|Proceeds from long term borrowings                                            |  |                                      | 46,000  |   |      |   | 57,425  |  
|Repayments of long term borrowings                                            |  |                                      | (34,105 | ) |      |   | (33,484 | )
|Net change in short term borrowings                                           |  |                                      | (8,764  | ) |      |   | (20,394 | )
|Change in mortgagors escrow account                                          |  |                                      | 12      |   |      |   | 7       |  
|Acquisition of treasury shares                                                |  |                                      | (2,092  | ) |      |   | (46     | )
|Dividends paid                                                                |  |                                      | (359    | ) |      |   | (338    | )
|                                                                              |  |                                      |         |   |      |   |         |  
|Net cash provided (used) by financing activities                              |  |                                      | (6,288  | ) |      |   | 2,590   |  
|                                                                              |  |                                      |         |   |      |   |         |  
|Increase (decrease) in cash and cash equivalents                              |  |                                      | (4,893  | ) |      |   | 3,606   |  
|Cash and cash equivalents at beginning of year                                |  |                                      | 13,198  |   |      |   | 8,195   |  
|                                                                              |  |                                      |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                    |  | $                                    | 8,305   |   |      | $ | 11,801  |  
|                                                                              |  |                                      |         |   |      |   |         |  
|Supplemental disclosures                                                      |  |                                      |         |   |      |   |         |  
|Cash paid during the year for:                                                |  |                                      |         |   |      |   |         |  
|Interest                                                                      |  | $                                    | 8,029   |   |      | $ | 7,503   |  
|Income taxes                                                                  |  | $                                    | 432     |   |      | $ | 422     |  
|Noncash activities                                                            |  |                                      |         |   |      |   |         |  
|Declared dividends                                                            |  | $                                    | 199     |   |      | $ | 184     |  

See notes to consolidated financial statements.



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PSB Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1Organization

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

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

NOTE 2Basis of Presentation

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

NOTE 3Recent Accounting Pronouncements

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

In September 2006, the FASB issued SFAS
No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans. SFAS No. 158 requires an entity to recognize the overfunded or underfunded status of a defined benefit pension and other
postretirement plan (other than a multiemployer plan) as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur though comprehensive income. SFAS No. 158 also requires an
entity to measure the funded status of a plan as of the balance sheet date, with limited exceptions. SFAS No. 158 amends SFAS No. 87, Employers Accounting



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for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, SFAS No. 106, and SFAS No. 132 (revised
2003), Employers Disclosures about Pensions and Other Postretirement Benefits, and other accounting literature. An entity will continue to apply SFAS No. 87, 88 and 106 for measurement of plan assets and benefit obligations as of
the balance sheet date and determination of net periodic benefit cost. Public entities are required to initially recognize the funded status of a defined benefit plan and to provide the required disclosures as of the end of the fiscal year ending
after December 15, 2006. The Companys adoption of SFAS No. 158 did not have a material impact on the Companys financial position or results of operation.

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

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

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

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

NOTE 4Earnings Per Share

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



5



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##### Table of Contents

The following information was used in the computation of EPS on both a basic and diluted basis for the three months and
six months ended December 31, 2007 and December 31, 2006:



|                                    |  |                                     |           |                                     |   |          
|----------------------------------- |  | ----------------------------------- | --------- | ----------------------------------- | - | ---------
|                                    |  | Three Months EndedDecember 31, 2007 |           | Three Months EndedDecember 31, 2006
|Basic EPS computation:              |  |                                     |           |                                     |   |          
|Net income                          |  | $                                   | 685,000   |                                     | $ | 468,000  
|                                    |  |                                     |           |                                     |   |          
|Weighted average shares outstanding |  |                                     | 6,534,918 |                                     |   | 6,707,336
|Basic EPS                           |  | $                                   | 0.10      |                                     | $ | 0.07     
|                                    |  |                                     |           |                                     |   |          
|Diluted EPS computation:            |  |                                     |           |                                     |   |          
|Net income                          |  | $                                   | 685,000   |                                     | $ | 468,000  
|                                    |  |                                     |           |                                     |   |          
|Weighted average shares outstanding |  |                                     | 6,534,918 |                                     |   | 6,707,336
|Dilutive potential shares           |  |                                     | 75,460    |                                     |   | 109,219  
|                                    |  |                                     |           |                                     |   |          
|                                    |  |                                     | 6,610,378 |                                     |   | 6,816,555
|Diluted EPS                         |  | $                                   | 0.10      |                                     | $ | 0.07     
|                                    |  |                                     |           |                                     |   |          
|                                    |  |                                    
|                                    |  | Six Months EndedDecember 31, 2007   |           | Six Months EndedDecember 31, 2006  
|Basic EPS computation:              |  |                                     |           |                                     |   |          
|Net income                          |  | $                                   | 1,224,000 |                                     | $ | 976,000  
|                                    |  |                                     |           |                                     |   |          
|Weighted average shares outstanding |  |                                     | 6,574,994 |                                     |   | 6,698,997
|Basic EPS                           |  | $                                   | 0.19      |                                     | $ | 0.15     
|                                    |  |                                     |           |                                     |   |          
|Diluted EPS computation:            |  |                                     |           |                                     |   |          
|Net income                          |  | $                                   | 1,224,000 |                                     | $ | 976,000  
|                                    |  |                                     |           |                                     |   |          
|Weighted average shares outstanding |  |                                     | 6,574,994 |                                     |   | 6,698,997
|Dilutive potential shares           |  |                                     | 83,814    |                                     |   | 114,379  
|                                    |  |                                     |           |                                     |   |          
|                                    |  |                                     | 6,658,808 |                                     |   | 6,813,376
|Diluted EPS                         |  | $                                   | 0.18      |                                     | $ | 0.14     
|                                    |  |                                     |           |                                     |   |          



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NOTE 5Investment Securities

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



|                                        |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|--------------------------------------- |  | ------------------- | ------- | ---------------- | - | ----- | --------- | - | ------ | - |  | - | -------
|                                        |  | December 31, 2007  
|                                        |  | AmortizedCost Basis |         | Gross Unrealized |   |       | FairValue
|                                        |  | Gains               |         | (Losses)         |   |      
|                                        |  | (in thousands)     
|Debt securities:                        |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|U.S. government and agency obligations: |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|Due within one year                     |  | $                   | 3,000   |                  | $ |      |           | $ | (3     | ) |  | $ | 2,997  
|From one through five years             |  |                     | 3,249   |                  |   | 10    |           |   |       |   |  |   | 3,259  
|After ten years                         |  |                     | 12,986  |                  |   | 290   |           |   |       |   |  |   | 13,276 
|                                        |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|                                        |  |                     | 19,235  |                  |   | 300   |           |   | (3     | ) |  |   | 19,532 
|                                        |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|State agency and municipal obligations: |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|From five through ten years             |  |                     | 1,362   |                  |   | 66    |           |   |       |   |  |   | 1,428  
|After ten years                         |  |                     | 6,766   |                  |   | 280   |           |   |       |   |  |   | 7,046  
|                                        |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|                                        |  |                     | 8,128   |                  |   | 346   |           |   |       |   |  |   | 8,474  
|                                        |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|Corporate bonds and other obligations:  |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|Due within one year                     |  |                     | 4,951   |                  |   | 8     |           |   |       |   |  |   | 4,959  
|From one through five years             |  |                     | 7,938   |                  |   | 46    |           |   | (409   | ) |  |   | 7,575  
|After ten years                         |  |                     | 8,043   |                  |   | 127   |           |   | (592   | ) |  |   | 7,578  
|                                        |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|                                        |  |                     | 20,932  |                  |   | 181   |           |   | (1,001 | ) |  |   | 20,112 
|                                        |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|Mortgage-backed securities              |  |                     | 146,084 |                  |   | 631   |           |   | (2,341 | ) |  |   | 144,374
|                                        |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|Total debt securities                   |  |                     | 194,379 |                  |   | 1,458 |           |   | (3,345 | ) |  |   | 192,492
|                                        |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|Marketable equity securities:           |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|Preferred stock                         |  |                     | 16,993  |                  |   |      |           |   |       |   |  |   | 16,993 
|FHLB restricted stock                   |  |                     | 7,781   |                  |   |      |           |   |       |   |  |   | 7,781  
|                                        |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|Total equity securities                 |  |                     | 24,774  |                  |   |      |           |   |       |   |  |   | 24,774 
|                                        |  |                     |         |                  |   |       |           |   |        |   |  |   |        
|Total available-for-sale securities     |  | $                   | 219,153 |                  | $ | 1,458 |           | $ | (3,345 | ) |  | $ | 217,266
|                                        |  |                     |         |                  |   |       |           |   |        |   |  |   |        



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##### Table of Contents

|                                        |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|--------------------------------------- |  | ------------------- | ------- | ---------------- | - | --- | --------- | - | ------ | - |  | - | -------
|                                        |  | June 30, 2007      
|                                        |  | AmortizedCost Basis |         | Gross Unrealized |   |     | FairValue
|                                        |  | Gains               |         | (Losses)         |   |    
|                                        |  | (in thousands)     
|Debt securities:                        |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|U.S. government and agency obligations: |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|Due within one year                     |  | $                   | 17,446  |                  | $ |    |           | $ | (101   | ) |  | $ | 17,345 
|From one through five years             |  |                     | 14,313  |                  |   |    |           |   | (120   | ) |  |   | 14,193 
|From five through ten years             |  |                     | 3,785   |                  |   | 11  |           |   | (22    | ) |  |   | 3,774  
|After ten years                         |  |                     | 9,482   |                  |   |    |           |   | (115   | ) |  |   | 9,367  
|                                        |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|                                        |  |                     | 45,026  |                  |   | 11  |           |   | (358   | ) |  |   | 44,679 
|                                        |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|State agency and municipal obligations: |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|From five through ten years             |  |                     | 1,363   |                  |   | 46  |           |   |       |   |  |   | 1,409  
|After ten years                         |  |                     | 7,765   |                  |   | 208 |           |   |       |   |  |   | 7,973  
|                                        |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|                                        |  |                     | 9,128   |                  |   | 254 |           |   |       |   |  |   | 9,382  
|                                        |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|Corporate bonds and other obligations:  |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|Due within one year                     |  |                     | 2,978   |                  |   |    |           |   | (5     | ) |  |   | 2,973  
|From one through five years             |  |                     | 9,880   |                  |   | 9   |           |   | (58    | ) |  |   | 9,831  
|After ten years                         |  |                     | 8,044   |                  |   | 226 |           |   | (137   | ) |  |   | 8,133  
|                                        |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|                                        |  |                     | 20,902  |                  |   | 235 |           |   | (200   | ) |  |   | 20,937 
|                                        |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|Mortgage-backed securities              |  |                     | 137,529 |                  |   | 159 |           |   | (2,365 | ) |  |   | 135,323
|                                        |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|Total debt securities                   |  |                     | 212,585 |                  |   | 659 |           |   | (2,923 | ) |  |   | 210,321
|                                        |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|Marketable equity securities:           |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|Preferred stock                         |  |                     | 5,000   |                  |   |    |           |   |       |   |  |   | 5,000  
|FHLB restricted stock                   |  |                     | 7,181   |                  |   |    |           |   |       |   |  |   | 7,181  
|                                        |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|Total equity securities                 |  |                     | 12,181  |                  |   |    |           |   |       |   |  |   | 12,181 
|                                        |  |                     |         |                  |   |     |           |   |        |   |  |   |        
|Total available-for-sale securities     |  | $                   | 224,766 |                  | $ | 659 |           | $ | (2,923 | ) |  | $ | 222,502
|                                        |  |                     |         |                  |   |     |           |   |        |   |  |   |        

There were gross losses of $84,934 and $69,056 realized on available-for-sale securities for the six months ended
December 31, 2007 and December 31, 2006, respectively. There were gross gains of $65,242 realized on available-for-sale securities for the six months ended December 31, 2007. There were no gross gains realized for the six months ended
December 31, 2006.



8



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##### Table of Contents

NOTE 6Allowance for Loan Losses

The following summarizes the changes in the allowance for loan losses for the three months and six months ended December 31, 2007, as compared to the year-ago period:



|                             |  |                               |       |   |                             |   |       |      |  |   |       |   |  |   |       |  
|---------------------------- |  | ----------------------------- | ----- | - | --------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                             |  | Three MonthsEndedDecember 31, |       |   | Six MonthsEndedDecember 31, |  
|                             |  | 2007                          |       |   | 2006                        |   |       | 2007 |  |   | 2006  |  
|                             |  | (in thousands)                |       |   | (in thousands)              |  
|Balance, beginning of period |  | $                             | 1,780 |   |                             | $ | 1,647 |      |  | $ | 1,780 |   |  | $ | 1,582 |  
|Provision for loan losses    |  |                               | 35    |   |                             |   | 101   |      |  |   | 47    |   |  |   | 186   |  
|Charge offs                  |  |                               | (60   | ) |                             |   | (18   | )    |  |   | (75   | ) |  |   | (42   | )
|Recoveries                   |  |                               | 21    |   |                             |   | 24    |      |  |   | 24    |   |  |   | 28    |  
|                             |  |                               |       |   |                             |   |       |      |  |   |       |   |  |   |       |  
|Balance, end of period       |  | $                             | 1,776 |   |                             | $ | 1,754 |      |  | $ | 1,776 |   |  | $ | 1,754 |  
|                             |  |                               |       |   |                             |   |       |      |  |   |       |   |  |   |       |  

At December 31, 2007 and 2006, the Company had loans with balances of $1,719,352 (representing 10 loans) and
$1,570,955 (representing 6 loans), respectively, on nonaccrual status. There were no impaired loans as of December 31, 2007. Three loans totaling $1,434,821 were considered impaired and had an allocated allowance for loan loss of $214,875 as of
December 31, 2006.

NOTE 7Goodwill and Other Intangibles

Intangible assets include goodwill and a core deposit intangible associated with the Banks purchase of three branches from another financial institution in October 2005. The goodwill is evaluated for impairment
on an annual basis and the core deposit intangible is amortized on an accelerated basis over a ten-year period. The carrying amount of goodwill and core deposit intangible as of December 31, 2007 was $6.9 million and $973,000, respectively. The
amortization expense related to the core deposit intangible for the three months ended December 31, 2007 and 2006 was $59,000 and $66,000, respectively. The amortization expense related to the core deposit intangible for the six months ended
December 31, 2007 and 2006 was $117,000 and $131,000, respectively.



|                                      |  |                  |       |              |   |      
|------------------------------------- |  | ---------------- | ----- | ------------ | - | -----
|                                      |  | December 31,2007 |       | June 30,2007
|                                      |  | ( in thousands) 
|Balances not subject to amortization: |  |                  |       |              |   |      
|Goodwill                              |  | $                | 6,912 |              | $ | 6,912
|Balances subject to amortization:     |  |                  |       |              |   |      
|Core Deposit Intangible               |  | $                | 973   |              | $ | 1,091
|                                      |  |                  |       |              |   |      
|Total intangible assets               |  | $                | 7,885 |              | $ | 8,003
|                                      |  |                  |       |              |   |      



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



|           |  |                            |    
|---------- |  | -------------------------- | ---
|           |  | For theyears endedJune 30,
|           |  | (in thousands)            
|2008       |  |                            | 117
|2009       |  |                            | 206
|2010       |  |                            | 178
|2011       |  |                            | 149
|2012       |  |                            | 121
|Thereafter |  |                            | 202
|           |  |                            |    
|Total      |  | $                          | 973
|           |  |                            |    

NOTE 8Comprehensive Income

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



|                                                                                   |  |                               |      |   |                             |   |      |      |  |   |       |   |  |   |        |  
|---------------------------------------------------------------------------------- |  | ----------------------------- | ---- | - | --------------------------- | - | ---- | ---- |  | - | ----- | - |  | - | ------ | -
|                                                                                   |  | Three MonthsEndedDecember 31, |      |   | Six MonthsEndedDecember 31, |  
|                                                                                   |  | 2007                          |      |   | 2006                        |   |      | 2007 |  |   | 2006  |  
|                                                                                   |  | (in thousands)                |      |   | (in thousands)              |  
|Net Income                                                                         |  | $                             | 685  |   |                             | $ | 468  |      |  | $ | 1,224 |   |  | $ | 976    |  
|                                                                                   |  |                               |      |   |                             |   |      |      |  |   |       |   |  |   |        |  
|Other comprehensive income (loss):                                                 |  |                               |      |   |                             |   |      |      |  |   |       |   |  |   |        |  
|Net unrealized holding gains (losses) on available-for-sale securities             |  |                               | (488 | ) |                             |   | 526  |      |  |   | 356   |   |  |   | 2,999  |  
|Reclassification adjustment for (gain) loss recognized in net income               |  |                               | 20   |   |                             |   | 69   |      |  |   | 20    |   |  |   | 69     |  
|                                                                                   |  |                               |      |   |                             |   |      |      |  |   |       |   |  |   |        |  
|Other comprehensive gains (loss) before tax expense                                |  |                               | (468 | ) |                             |   | 595  |      |  |   | 376   |   |  |   | 3,068  |  
|Income tax expense (benefit) related to items of other comprehensive income (loss) |  |                               | 158  |   |                             |   | (232 | )    |  |   | (238  | ) |  |   | (1,195 | )
|                                                                                   |  |                               |      |   |                             |   |      |      |  |   |       |   |  |   |        |  
|Other comprehensive income (loss) net of tax                                       |  |                               | (311 | ) |                             |   | 363  |      |  |   | 138   |   |  |   | 1,873  |  
|                                                                                   |  |                               |      |   |                             |   |      |      |  |   |       |   |  |   |        |  
|Total comprehensive income                                                         |  | $                             | 374  |   |                             | $ | 831  |      |  | $ | 1,362 |   |  | $ | 2,849  |  
|                                                                                   |  |                               |      |   |                             |   |      |      |  |   |       |   |  |   |        |  

NOTE 9Stock-Based Incentive Plan

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

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



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

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

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

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

In
accordance with Statement No.123 (R), the Company has recorded share-based compensation expense related to outstanding stock option and restricted stock awards based upon the fair value at the date of grant over the vesting period of such awards on
a straight-line basis. The fair value of each restricted stock allocation, based on the market price at the date of grant, is recorded to unearned stock awards. Compensation expenses related to unearned restricted shares are 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
December 31, 2007 and December 31, 2006 of $80,000 and $90,000, respectively. The Company recorded share-based compensation expense in connection with the stock option and restricted stock awards for the six months ended December 31,
2007 and December 31, 2006 of $217,000 and $179,000, respectively.

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



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

NOTE 10Dividends

On December 5, 2007, the Board of Directors of the Company declared a cash dividend of $0.07 a share for stockholders of record as of January 4, 2008 and payable on January 18, 2008. The dividends declared totaling $199,000
were accrued and are included in other liabilities in the December 31, 2007 Consolidated Statements of Financial Condition. Putnam Bancorp, MHC, the mutual holding company, waived the receipt of the dividend declared by the Company.

NOTE 11Commitment to Extend Credit

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



11



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##### Table of Contents

The contractual amounts of outstanding commitments were as follows:



|                              |  |                  |        |              |   |       
|----------------------------- |  | ---------------- | ------ | ------------ | - | ------
|                              |  | December 31,2007 |        | June 30,2007
|                              |  | (in thousands)  
|Commitments to extend credit: |  |                  |        |              |   |       
|Loan commitments              |  | $                | 3,479  |              | $ | 6,345 
|Unadvanced construction loans |  |                  | 6,640  |              |   | 8,264 
|Unadvanced lines of credit    |  |                  | 15,916 |              |   | 15,133
|Standby letters of credit     |  |                  | 3,050  |              |   | 3,209 
|                              |  |                  |        |              |   |       
|Outstanding commitments       |  | $                | 29,085 |              | $ | 32,951
|                              |  |                  |        |              |   |       



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following analysis discusses changes in the financial condition and results of operations at and for the three months and six months ended December 31, 2007 and 2006, and should be read in conjunction with
the Companys Consolidated Financial Statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report. These financial statements should be read in conjunction with the 2007 Consolidated Financial Statements and notes
thereto included in the Companys Form 10-KSB filed with the SEC on September 21, 2007.

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

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this
statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identified by use of the words
believe, expect, intend, anticipate, estimate, project, or similar expressions. The Companys ability to predict results or the actual effect of future plans or strategies
is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiary include, but are not limited to, changes in: interest rates, general economic conditions, legislation and regulations,
monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand
for financial services in the Companys market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such
statements. Further information concerning the Company and its business, including additional factors that could materially affect the Companys financial results, is included in the Companys filings with the Securities and Exchange
Commission.

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

Overview

The Companys results of operations 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



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Company also generates noninterest income, primarily from fees and service charges. Gains on sales of loans and securities and cash surrender value of life
insurance policies are added sources of noninterest income. The Companys noninterest expense primarily consists of employee compensation and benefits, occupancy and equipment expense, advertising, data processing, professional fees and other
operating expenses.

During the three months ended December 31, 2007, the yield on our interest-earning assets increased more rapidly than the cost of
our interest-bearing liabilities, reflecting a steepening of the yield curve. This has increased the Company's net interest margin from 2.30% for the three months ended December 31, 2006 to 2.45% for the three months ended
December 31, 2007. In addition, noninterest expense decreased 0.3% during the three months ended December 31, 2007 compared to the three months ended December 31, 2006. Noninterest income increased 25.7% and the provision for loan
loss decreased 65.3% during the three months ended December 31, 2007 as compared to the three months ended December 31, 2006.

During the six
months ended December 31, 2007, the yield on our interest-earning assets increased more rapidly than the cost of our interest-bearing liabilities, reflecting a steepening of the yield curve. This has increased the Company's net interest
margin from 2.33% for the six months ended December 31, 2006 to 2.41% for the six months ended December 31, 2007. Noninterest expense increased 1.4% during the six months ended December 31, 2007 compared to the six months ended
December 31, 2006. This was partially offset by an increase in noninterest income of 16.4% and the provision for loan loss during the six months ended December 31, 2007 as compared to the six months ended December 31, 2006 decreased
74.7%.

Critical Accounting Policies

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

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

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

The analysis has two components: specific and general allocations. Specific allocations are made for loans for which collection is questionable and the loan is downgraded. Additionally, the size of the allocation is
measured by determining an expected collection or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type
of loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied
to the loan groups to determine the amount of the general allowance for loan losses. 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.



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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. 115Accounting for Certain Investments in
Debt and Equity Securities,No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations,and APB Opinion 18, The Equity Method of Accounting for Investments in Common Stock.Management evaluates the
Companys investment portfolio on an ongoing basis and determined that all unrealized losses were the direct result of temporary changes in interest rates and that such losses may be recovered in the foreseeable future. As a result, management
did not consider any unrealized losses as other-than-temporary at December 31, 2007 and 2006.

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

Comparison of Financial Condition at
December 31, 2007 and June 30, 2007

Assets

Total assets of the Company were $486.3 million at December 31, 2007, a decrease of $4.9 million, or 1.0%, from $491.2 million at June 30, 2007. Investments in available-for-sale securities decreased $5.2 million, or 2.4%, to
$217.3 million at December 31, 2007 from $222.5 million at June 30, 2007. Federal funds sold decreased $2.1 million, or 47.0%, to $2.4 million at December 31, 2007 from $4.5 million at June 30, 2007 Total loans outstanding
increased $5.6 million, or 2.4%, to $239.8 million at December 31, 2007 from $234.2 million at June 30, 2007.

Allowance for Loan Losses

The Company determines the adequacy of the allowance for loan losses on a quarterly basis. 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 table below indicates the relationships between the allowance for loan
losses, total loans outstanding and nonperforming loans at December 31, 2007 and June 30, 2007.



|                                  |  |                        |         |   |              |   |         |  
|--------------------------------- |  | ---------------------- | ------- | - | ------------ | - | ------- | -
|                                  |  | December 31,2007       |         |   | June 30,2007 |  
|                                  |  | (Dollars in thousands) |        
|Allowance for loan losses         |  | $                      | 1,776   |   |              | $ | 1,780   |  
|Gross loans outstanding           |  |                        | 239,766 |   |              |   | 234,160 |  
|Nonperforming loans               |  |                        | 1,719   |   |              |   | 1,538   |  
|Allowance/gross loans outstanding |  |                        | 0.74    | % |              |   | 0.76    | %
|Allowance/nonperforming loans     |  |                        | 103     | % |              |   | 116     | %



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##### Table of Contents

Past due and Nonperforming loans

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



|                                              |  |                  |       |              |   |      
|--------------------------------------------- |  | ---------------- | ----- | ------------ | - | -----
|                                              |  | December 31,2007 |       | June 30,2007
|                                              |  | (in thousands)  
|Past due 30 days through 89 days and accruing |  | $                | 4,828 |              | $ | 1,364
|Past due 90 days or more and accruing         |  | $                | 602   |              | $ |     
|Past due 90 days or more and nonaccruing      |  | $                | 1,719 |              | $ | 1,538

Although nonperforming loans and delinquencies have shown an increase from June 30, 2007 to Dec 31, 2007,
careful analysis of the loan credits involved indicate that no additional allowances are warranted at this time.

Liabilities

Total liabilities decreased $4.1 million, or 0.9%, to $435.8 million at December 31, 2007 from $439.9 million at June 30, 2007, primarily due to a decrease in
total deposits of $7.0 million, or 2.4% which was partially offset by an increase in borrowed funds of $3.1 million, or 2.2%. Of the $7.0 million reduction in deposits, $6.8 million was due to a reduction in brokered certificates of deposits.

Stockholders Equity

Total stockholders
equity decreased $834,000, or 1.6%, to $50.4 million at December 31, 2007 from $51.2 million at June 30, 2007. This was primarily due to the repurchase of 210,109 shares of the Companys common stock at a total cost of $2.1 million
during the six months ended December 31, 2007. This was partially offset by net income of $1.2 million. The unrealized loss in the available-for-sale securities of $1.2 million as of December 31, 2007 and the unrealized loss in the
available-for-sale securities of $1.4 million at June 30, 2007 were attributable solely to interest rate movements. Management does not consider the losses to be other than temporary.

Comparison of Operating Results for the Three Months Ended December 31, 2007 and 2006

Net Income

Net income increased $217,000, or 46.4%, to $685,000 for the three months ended December 31, 2007
from net income of $468,000 for the three months ended December 31, 2006. The increase in net income reflected an improvement in the net interest margin. The increase in net income also resulted from an increase in noninterest income of
$164,000 realized during the three months ended December 31, 2007 as compared to the three months ended December 31, 2006. In addition, there was a decrease in the loan loss provision of $66,000 for the three months ended December 31,
2007, and a decrease in noninterest expense of $9,000 for the three months ended December 31, 2007.

Interest and Dividend Income

Interest and dividend income increased by $602,000, or 9.6%, to $6.9 million for the three months ended December 31, 2007 from $6.3 million for the three months
ended December 31, 2006. The increase in interest and dividend income resulted primarily from an increase of $15.3 million, or 3.4%, in average interest-earning assets and an increase of 33 basis points in the average yield on interest-earning
assets to 5.89% for the three months ended December 31, 2007 from 5.56% for the three months ended December 31, 2006. This increase was primarily due to an increase of 61 basis points in the average yield on investment securities to 5.42%
for the three months ended December 31, 2007 from 4.81% for the three months ended December 31, 2006. Interest income on loans increased by $352,000, or 10.1%, to $3.8 million from $3.5 million. Interest and dividends on investments and
deposits increased $250,000, or 8.9%, to $3.0 million for the three months ended December 31, 2007 from $2.8 million for the three months ended December 31, 2006.



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Interest Expense

Interest expense increased by $340,000, or 9.3%, to $4.0 million for three months ended December 31, 2007 from $3.7 million for the three months ended December 31, 2006. The increase in interest expense resulted primarily from an
increase in average interest-bearing liabilities of $16.2 million, or 4.3%, from period to period and an increase of 18 basis points in the average cost of our interest-bearing liabilities to 4.03% for the three months ended December 31, 2007
from 3.85% for the three months ended December 31, 2006. The increase in average interest-bearing liabilities reflected a decrease of $8.8 million in average interest-bearing deposits and an increase of $25.0 million in average other borrowed
money from December 31, 2006 to December 31, 2007. Average brokered deposits decreased $20.7 million, or 80.3%, from the three months ended December 31, 2006 to the average three months ended December 31, 2007.

Net Interest Income

Net interest income for the three months ended
December 31, 2007 was $2.9 million, an increase of $262,000 or 10.1%, over the three months ended December 31, 2006. This increase was primarily due to an increase in the net interest margin from 2.30% for the three months ended
December 31, 2006 to 2.45% for the three months ended December 31, 2007. During the three months ended December 31, 2007, the yield on our interest-earning assets increased more rapidly than the cost on our interest-bearing
liabilities, reflecting the steepening yield curve of market rates.

Provision for Loan Losses

The provision for loan losses decreased by $66,000, or 65.3%, to $35,000 for the three months ended December 31, 2007 from $101,000 for the three months ended
December 31, 2006.

Noninterest Income

Noninterest income increased $164,000, or 25.7%, to $803,000 for the three months ended December 31, 2007 from $639,000 for the three months ended December 31, 2006. This resulted primarily from an increase in service fee income
of $55,000, Mortgage Banking activities of $24,000 and other income of $32,000.

Noninterest Expense

Noninterest expense decreased by $9,000, or 0.3%, to $2.75 million for the three months ended December 31, 2007 from $2.76 million for the three months ended
December 31, 2006. Other noninterest expense, consisting primarily of office supplies and professional expenses decreased $110,000, or 16.3% to $564,000 for the three months ended December 31, 2007 from $674,000 for the three months ended
December 31, 2006. This was primarily due to decreases in item processing expense of $34,000 and investor relations expense of $15,000. Occupancy expense increased $14,000, or 4.5% to $328,000 for the three months ended December 31, 2007
from $314,000 for the three months ended December 31, 2006. This was primarily due to an increase in real estate expense of $10,000. Compensation and benefits expense increased by $38,000, or 2.6%, to $1.50 million for the three months ended
December 31, 2007 from $1.46 million for the three months ended December 31, 2006. The primary reasons for the increase were higher staffing costs and higher medical insurance premiums.

Provision for Income Taxes

The income tax expense increased by
$284,000, or 338.1.0%, to $200,000 for the three months ended December 31, 2007 as compared to a tax benefit of $84,000 for the three months ended December 31, 2006. This increase in the tax provision reflected a significant reduction in
Auction Rate Preferred investments that have a dividends-received deduction applicable to them. Average Auction Rate Preferred securities for the three months ended December 31, 2007 were $12.4 million as compared to $37.1 million for the three
months ended



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##### Table of Contents

December 31, 2006. Our effective tax rate was 22.6% for the three months ended December 31, 2007. The effective tax rate differed from the
statutory tax rate of 34% primarily due to the dividends-received deduction applicable to certain securities in our investment portfolio, tax-exempt municipal income and non-taxable bank-owned life insurance income.

Comparison of Operating Results for the Six Months Ended December 31, 2007 and 2006

Net Income

Net income increased $248,000, or 25.4%, to $1.2 million for the six months ended December 31, 2007
from net income of $976,000 for the six months ended December 31, 2006. The increase in net income reflected an improvement in the net interest margin. The increase in net income also resulted from an increase in noninterest income of $220,000
realized during the six months ended December 31, 2007 as compared to the six months ended December 31, 2006. In addition, there was a decrease in the loan loss provision of $139,000 for the six months ended December 31, 2007, which
was partially offset by an increase in noninterest expense of $79,000 for the six months ended December 31, 2007.

Interest and Dividend Income

Interest and dividend income increased by $1.1 million, or 8.4%, to $13.6 million for the six months ended December 31, 2007 from $12.5 million
for the six months ended December 31, 2006. The increase in interest and dividend income resulted primarily from an increase of $12.1 million, or 2.7%, in average interest-earning assets and an increase of 31 basis points in the average yield
on interest-earning assets to 5.86% for the six months ended December 31, 2007 from 5.55% for the six months ended December 31, 2006. This increase was primarily due to an increase of 48 basis points in the average yield on investment
securities to 5.32% for the six months ended December 31, 2007 from 4.84% for the six months ended December 31, 2006. Interest income on loans increased by $879,000, or 12.9%, to $7.7 million from $6.8 million. Interest and dividends on
investments and deposits increased $182,000, or 3.1%, to $6.0 million for the six months ended December 31, 2007 from $5.8 million for the six months ended December 31, 2006.

Interest Expense

Interest expense increased by $715,000, or 9.8%, to $8.0 million for six months ended
December 31, 2007 from $7.3 million for the six months ended December 31, 2006. The increase in interest expense resulted primarily from an increase in average interest-bearing liabilities of $12.9 million, or 3.4%, from period to period
and an increase of 23 basis points in the average cost of our interest-bearing liabilities to 4.03% for the six months ended December 31, 2007 from 3.80% for the six months ended December 31, 2006. The increase in average interest-bearing
liabilities reflected a decrease of $10.2 million in average interest-bearing deposits and an increase of $23.1 million in average other borrowed money from December 31, 2006 to December 31, 2007. Average brokered deposits decreased $18.5
million, or 74.0% from the six months ended December 31, 2006 to the average six months ended December 31, 2007.

Net Interest Income

Net interest income for the six months ended December 31, 2007 was $5.6 million, an increase of $346,000 or 6.6% over the six months ended
December 31, 2006. This increase was primarily due to an increase in the net interest margin from 2.33% for the six months ended December 31, 2006 to 2.41% for the six months ended December 31, 2007. During the six months ended
December 31, 2007, the yield on our interest-earning assets increased more rapidly than the cost on our interest-bearing liabilities.

Provision
for Loan Losses

The provision for loan losses decreased by $139,000, or 74.7%, to $47,000 for the six months ended December 31, 2007 from $186,000
for the six months ended December 31, 2006.



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##### Table of Contents

Noninterest Income

Noninterest income increased $220,000, or 16.4%, to $1.6 million for the six months ended December 31, 2007 from $1.3 for the six months ended December 31, 2006. This resulted primarily from an increase in service fee income of
$90,000 and other income of $72,000.

Noninterest Expense

Noninterest expense increased by $79,000, or 1.4%, to $5.53 million for the six months ended December 31, 2007 from $5.45 million for the six months ended December 31, 2006. The increase in noninterest expense was primarily due to
increases in salaries and benefits and other noninterest expenses. Occupancy expense decreased $3,000, or 0.5% to $651,000 for the six months ended December 31, 2007 from $654,000 for the six months ended December 31, 2006. Other
noninterest expense, consisting primarily of marketing, office supplies, and professional expenses increased $18,000, or 1.0% to $1.88 million for the six months ended December 31, 2007 from $1.86 for the six months ended December 31,
2006. This was primarily due to an increase in advertising and marketing expense of $34,000. Compensation and benefits expense increased by $64,000, or 2.2%, to $3.0 million for the six months ended December 31, 2007 from $2.9 million for the
six months ended December 31, 2006. The primary reasons for the increase were higher staffing costs and higher medical insurance premiums.

Provision for Income Taxes

The income tax expense increased by $378,000 to $372,000 for the six months ended December 31, 2007 as
compared to a tax benefit of $6,000 for the six months ended December 31, 2006. This increase in the tax provision reflected a significant reduction in Auction Rate Preferred investments that have a dividends-received deduction applicable to
them. Average Auction Rate Preferred securities for the six months ended December 31, 2007 were $9.0 million as compared to $43.7 million for the six months ended December 31, 2006. Our effective tax rate was 23.3% for the six months ended
December 31, 2007. The effective tax rate differed from the statutory tax rate of 34% primarily due to the dividends-received deduction applicable to certain securities in our investment portfolio, tax-exempt municipal income and non-taxable
bank-owned life insurance income.



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##### Table of Contents

Average Balance Sheet

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



|                                                               |  |                                         |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|-------------------------------------------------------------- |  | --------------------------------------- | ------- | ------------------ | ---- | ---------- |  | ------ | -------------- |  | ------------------ | ------- | ---------- | - | ----- |  | ------ | -
|                                                               |  | For the Three Months Ended December 31, |        
|                                                               |  | 2007                                    |         |                    | 2006 |           
|                                                               |  | (Dollars in thousands)                  |        
|                                                               |  | AverageBalance                          |         | Interest/Dividends |      | Yield/Cost |  |        | AverageBalance |  | Interest/Dividends |         | Yield/Cost |  
|Interest-earning assets:                                       |  |                                         |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Investment securities                                          |  | $                                       | 218,866 |                    | $    | 2,990      |  | 5.42   | %              |  | $                  | 228,006 |            | $ | 2,764 |  | 4.81   | %
|Loans                                                          |  |                                         | 239,554 |                    |      | 3,831      |  | 6.34   | %              |  |                    | 217,500 |            |   | 3,479 |  | 6.35   | %
|Other earning assets                                           |  |                                         | 5,000   |                    |      | 57         |  | 4.52   | %              |  |                    | 2,597   |            |   | 33    |  | 5.04   | %
|                                                               |  |                                         |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Total interest-earnings assets                                 |  |                                         | 463,420 |                    |      | 6,878      |  | 5.89   | %              |  |                    | 448,103 |            |   | 6,276 |  | 5.56   | %
|Non-interest-earning assets                                    |  |                                         | 26,152  |                    |      |            |  |        |                |  |                    | 23,213  |            |   |       |  |        |  
|                                                               |  |                                         |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Total assets                                                   |  | $                                       | 489,572 |                    |      |            |  |        |                |  | $                  | 471,316 |            |   |       |  |        |  
|                                                               |  |                                         |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|                                                               |  |                                         |         |                    |      |           
|Interest-bearing liabilities:                                  |  |                                         |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|NOW accounts                                                   |  | $                                       | 27,518  |                    |      | 195        |  | 2.81   | %              |  | $                  | 23,725  |            |   | 94    |  | 1.57   | %
|Savings accounts                                               |  |                                         | 47,751  |                    |      | 90         |  | 0.75   | %              |  |                    | 52,242  |            |   | 97    |  | 0.74   | %
|Money market accounts                                          |  |                                         | 15,688  |                    |      | 76         |  | 1.92   | %              |  |                    | 19,939  |            |   | 82    |  | 1.63   | %
|Time deposits                                                  |  |                                         | 154,978 |                    |      | 1,851      |  | 4.74   | %              |  |                    | 158,807 |            |   | 1,794 |  | 4.48   | %
|Borrowed money                                                 |  |                                         | 149,348 |                    |      | 1,802      |  | 4.79   | %              |  |                    | 124,342 |            |   | 1,607 |  | 5.13   | %
|                                                               |  |                                         |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Total interest-bearing liabilities                             |  |                                         | 395,283 |                    |      | 4,014      |  | 4.03   | %              |  |                    | 379,055 |            |   | 3,674 |  | 3.85   | %
|Non-interest-bearing demand deposits                           |  |                                         | 39,545  |                    |      |            |  |        |                |  |                    | 40,086  |            |   |       |  |        |  
|Other non-interest-bearing liabilities                         |  |                                         | 1,943   |                    |      |            |  |        |                |  |                    | 560     |            |   |       |  |        |  
|Capital accounts                                               |  |                                         | 52,801  |                    |      |            |  |        |                |  |                    | 51,615  |            |   |       |  |        |  
|                                                               |  |                                         |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Total liabilities and capital accounts                         |  | $                                       | 489,572 |                    |      |            |  |        |                |  | $                  | 471,316 |            |   |       |  |        |  
|                                                               |  |                                         |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Net interest income                                            |  |                                         |         |                    | $    | 2,864      |  |        |                |  |                    |         |            | $ | 2,602 |  |        |  
|Interest rate spread                                           |  |                                         |         |                    |      |            |  | 1.86   | %              |  |                    |         |            |   |       |  | 1.71   | %
|Net interest-earning assets                                    |  | $                                       | 68,137  |                    |      |            |  |        |                |  | $                  | 69,048  |            |   |       |  |        |  
|                                                               |  |                                         |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Net interest margin                                            |  |                                         |         |                    |      |            |  | 2.45   | %              |  |                    |         |            |   |       |  | 2.30   | %
|Average earning assets to average interest-bearing liabilities |  |                                         |         |                    |      |            |  | 117.24 | %              |  |                    |         |            |   |       |  | 118.22 | %



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##### Table of Contents

|                                                               |                        |                                       |         |                    |   |            |  |        |                |  |                    |         |            |   |        |  |        |  
|-------------------------------------------------------------- | ---------------------- | ------------------------------------- | ------- | ------------------ | - | ---------- |  | ------ | -------------- |  | ------------------ | ------- | ---------- | - | ------ |  | ------ | -
|                                                               |                        | For the Six Months Ended December 31, |        
|                                                               | 2007                   |                                       |         | 2006               |  
|                                                               | (Dollars in thousands) |                                      
|                                                               |                        | AverageBalance                        |         | Interest/Dividends |   | Yield/Cost |  |        | AverageBalance |  | Interest/Dividends |         | Yield/Cost |  
|Interest-earning assets:                                       |                        |                                       |         |                    |   |            |  |        |                |  |                    |         |            |   |        |  |        |  
|Investment securities                                          |                        | $                                     | 219,476 |                    | $ | 5,889      |  | 5.32   | %              |  | $                  | 234,346 |            | $ | 5,718  |  | 4.84   | %
|Loans                                                          |                        |                                       | 238,552 |                    |   | 7,669      |  | 6.38   | %              |  |                    | 212,338 |            |   | 6,790  |  | 6.34   | %
|Other earning assets                                           |                        |                                       | 3,247   |                    |   | 75         |  | 4.58   | %              |  |                    | 2,492   |            |   | 64     |  | 5.09   | %
|                                                               |                        |                                       |         |                    |   |            |  |        |                |  |                    |         |            |   |        |  |        |  
|Total interest-earnings assets                                 |                        |                                       | 461,275 |                    |   | 13,633     |  | 5.86   | %              |  |                    | 449,176 |            |   | 12,572 |  | 5.55   | %
|Non-interest-earning assets                                    |                        |                                       | 26,900  |                    |   |            |  |        |                |  |                    | 22,592  |            |   |        |  |        |  
|                                                               |                        |                                       |         |                    |   |            |  |        |                |  |                    |         |            |   |        |  |        |  
|Total assets                                                   |                        | $                                     | 488,175 |                    |   |            |  |        |                |  | $                  | 471,768 |            |   |        |  |        |  
|                                                               |                        |                                       |         |                    |   |            |  |        |                |  |                    |         |            |   |        |  |        |  
|                                                               |                        |                                       |         |                    |   |           
|Interest-bearing liabilities:                                  |                        |                                       |         |                    |   |            |  |        |                |  |                    |         |            |   |        |  |        |  
|NOW accounts                                                   |                        | $                                     | 27,114  |                    |   | 364        |  | 2.66   | %              |  | $                  | 24,555  |            |   | 193    |  | 1.56   | %
|Savings accounts                                               |                        |                                       | 48,308  |                    |   | 181        |  | 0.74   | %              |  |                    | 52,561  |            |   | 196    |  | 0.74   | %
|Money market accounts                                          |                        |                                       | 16,410  |                    |   | 161        |  | 1.95   | %              |  |                    | 21,267  |            |   | 174    |  | 1.62   | %
|Time deposits                                                  |                        |                                       | 153,748 |                    |   | 3,651      |  | 4.71   | %              |  |                    | 157,409 |            |   | 3,447  |  | 4.34   | %
|Borrowed money                                                 |                        |                                       | 148,930 |                    |   | 3,662      |  | 4.88   | %              |  |                    | 125,794 |            |   | 3,294  |  | 5.19   | %
|                                                               |                        |                                       |         |                    |   |            |  |        |                |  |                    |         |            |   |        |  |        |  
|Total interest-bearing liabilities                             |                        |                                       | 394,510 |                    |   | 8,019      |  | 4.03   | %              |  |                    | 381,586 |            |   | 7,304  |  | 3.80   | %
|Non-interest-bearing demand deposits                           |                        |                                       | 39,950  |                    |   |            |  |        |                |  |                    | 39,374  |            |   |        |  |        |  
|Other non-interest-bearing liabilities                         |                        |                                       | 1,665   |                    |   |            |  |        |                |  |                    | 58      |            |   |        |  |        |  
|Capital accounts                                               |                        |                                       | 52,050  |                    |   |            |  |        |                |  |                    | 50,750  |            |   |        |  |        |  
|                                                               |                        |                                       |         |                    |   |            |  |        |                |  |                    |         |            |   |        |  |        |  
|Total liabilities and capital accounts                         |                        | $                                     | 488,175 |                    |   |            |  |        |                |  | $                  | 471,768 |            |   |        |  |        |  
|                                                               |                        |                                       |         |                    |   |            |  |        |                |  |                    |         |            |   |        |  |        |  
|Net interest income                                            |                        |                                       |         |                    | $ | 5,614      |  |        |                |  |                    |         |            | $ | 5,268  |  |        |  
|Interest rate spread                                           |                        |                                       |         |                    |   |            |  | 1.83   | %              |  |                    |         |            |   |        |  | 1.75   | %
|Net interest-earning assets                                    |                        | $                                     | 66,765  |                    |   |            |  |        |                |  | $                  | 67,590  |            |   |        |  |        |  
|                                                               |                        |                                       |         |                    |   |            |  |        |                |  |                    |         |            |   |        |  |        |  
|Net interest margin                                            |                        |                                       |         |                    |   |            |  | 2.41   | %              |  |                    |         |            |   |        |  | 2.33   | %
|Average earning assets to average interest-bearing liabilities |                        |                                       |         |                    |   |            |  | 116.92 | %              |  |                    |         |            |   |        |  | 117.71 | %



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



|                              |  |                                                                                                |       |   |        |   |      |     |  |   |       |  
|----------------------------- |  | ---------------------------------------------------------------------------------------------- | ----- | - | ------ | - | ---- | --- |  | - | ----- | -
|                              |  | For the Three Months EndedDecember 31, 2007 Comparedto the Three Months EndedDecember 31, 2006 |      
|                              |  | Increase (Decrease)Due to                                                                      |       |   |        |  
|                              |  | Rate                                                                                           |       |   | Volume |   |      | Net | 
|INTEREST INCOME               |  |                                                                                                |       |   |        |   |      |     |  |   |       |  
|Investment securities         |  | $                                                                                              | 840   |   |        | $ | (614 | )   |  | $ | 226   |  
|Loans                         |  |                                                                                                | (5    | ) |        |   | 357  |     |  |   | 352   |  
|Other interest-earning assets |  |                                                                                                | (22   | ) |        |   | 46   |     |  |   | 24    |  
|                              |  |                                                                                                |       |   |        |   |      |     |  |   |       |  
|TOTAL INTEREST INCOME         |  |                                                                                                | 813   |   |        |   | (211 | )   |  |   | 602   |  
|                              |  |                                                                                                |      
|INTEREST EXPENSE:             |  |                                                                                                |       |   |        |   |      |     |  |   |       |  
|NOW accounts                  |  |                                                                                                | 84    |   |        |   | 17   |     |  |   | 101   |  
|Savings accounts              |  |                                                                                                | 9     |   |        |   | (16  | )   |  |   | (7    | )
|Money Market accounts         |  |                                                                                                | 60    |   |        |   | (66  | )   |  |   | (6    | )
|Time deposits                 |  |                                                                                                | 282   |   |        |   | (225 | )   |  |   | 57    |  
|Other borrowed money          |  |                                                                                                | (588  | ) |        |   | 783  |     |  |   | 195   |  
|                              |  |                                                                                                |       |   |        |   |      |     |  |   |       |  
|TOTAL INTEREST INCOME         |  |                                                                                                | (153  | ) |        |   | 493  |     |  |   | 340   |  
|                              |  |                                                                                                |       |   |        |   |      |     |  |   |       |  
|CHANGE IN NET INTEREST INCOME |  | $                                                                                              | 966   |   |        | $ | (704 | )   |  | $ | 262   |  
|                              |  |                                                                                                |       |   |        |   |      |     |  |   |       |  
|                              | 
|                              |  | For the Six Months EndedDecember 31, 2007 Comparedto the Six Months EndedDecember 31, 2006     |      
|                              |  | Increase (Decrease)Due to                                                                      |       |   |        |  
|                              |  | Rate                                                                                           |       |   | Volume |   |      | Net | 
|INTEREST INCOME               |  |                                                                                                |       |   |        |   |      |     |  |   |       |  
|Investment securities         |  | $                                                                                              | 984   |   |        | $ | (813 | )   |  | $ | 171   |  
|Loans                         |  |                                                                                                | 36    |   |        |   | 843  |     |  |   | 879   |  
|Other interest-earning assets |  |                                                                                                | (16   | ) |        |   | 27   |     |  |   | 11    |  
|                              |  |                                                                                                |       |   |        |   |      |     |  |   |       |  
|TOTAL INTEREST INCOME         |  |                                                                                                | 1,004 |   |        |   | 57   |     |  |   | 1,061 |  
|                              |  |                                                                                                |      
|INTEREST EXPENSE:             |  |                                                                                                |       |   |        |   |      |     |  |   |       |  
|NOW accounts                  |  |                                                                                                | 149   |   |        |   | 22   |     |  |   | 171   |  
|Savings accounts              |  |                                                                                                | 3     |   |        |   | (18  | )   |  |   | (15   | )
|Money Market accounts         |  |                                                                                                | 67    |   |        |   | (80  | )   |  |   | (13   | )
|Time deposits                 |  |                                                                                                | 409   |   |        |   | (205 | )   |  |   | 204   |  
|Other borrowed money          |  |                                                                                                | (507  | ) |        |   | 875  |     |  |   | 368   |  
|                              |  |                                                                                                |       |   |        |   |      |     |  |   |       |  
|TOTAL INTEREST INCOME         |  |                                                                                                | 121   |   |        |   | 594  |     |  |   | 715   |  
|                              |  |                                                                                                |       |   |        |   |      |     |  |   |       |  
|CHANGE IN NET INTEREST INCOME |  | $                                                                                              | 883   |   |        | $ | (537 | )   |  | $ | 346   |  
|                              |  |                                                                                                |       |   |        |   |      |     |  |   |       |  



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Liquidity and Capital Resources

The term liquidity refers to the ability of the Company and the Bank to meet current and future short-term financial obligations. The Company and the Bank further define liquidity as the ability to generate adequate
amounts of cash to fund loan originations, deposit withdrawals and operating expenses. Liquidity management is both a daily and long-term function of business management. The Banks primary sources of liquidity are deposits, scheduled
amortization and prepayments of loan principal and mortgage-related securities, and Federal Home Loan Bank borrowings. The Bank can borrow funds from the Federal Home Loan Bank based on eligible collateral of loans and securities. The Bank had
Federal Home Loan Bank borrowings as of December 31, 2007 of $140.8 million with unused borrowing capacity of $45.7 million. The Bank also had brokered CDs as of December 31, 2007 of $4.5 million, a decrease of $6.8 million since
June 30, 2007, and the ability to originate additional brokered CDs, up to our policy limit of 10% of total assets.

The Banks primary investing
activities are the origination of loans and the purchase of investment securities. During the six months ended December 31, 2007 and 2006, the Bank originated loans for the portfolio net of principal payments of approximately $5.6 million and
$16.5 million, respectively. Purchases of securities totaled $45.0 million and $20.4 million, for the six months ended December 31, 2007 and 2006, 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 $157.0 million at December 31, 2007. 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 December 31, 2007 and exceeded each of the applicable regulatory
capital requirements at such date. The table below presents the capital required and maintained at December 31, 2007.



|                                                           |  |          |   |  |        |  
|---------------------------------------------------------- |  | -------- | - |  | ------ | -
|                                                           |  | Required |   |  | Actual |  
|Ratio of Tier 1 Capital to total assets                    |  | 4        | % |  | 8.55   | %
|Ratio of Total Risk Based Capital to risk-weighted assets  |  | 8        | % |  | 16.42  | %
|Ratio of Tier 1 Risk Based Capital to risk-weighted assets |  | 4        | % |  | 15.75  | %

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.



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For the six months ended December 31, 2007, we engaged in no off-balance sheet transactions reasonably likely to
have a material effect on our financial condition, results of operations or cash flows.



|Item 3. | Controls and Procedures
|------- | -----------------------

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

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

Part II.OTHER INFORMATION



|Item 1. | Legal ProceedingsNot applicable
|------- | --------------------------------



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------



| | a) | Not applicable
| | -- | --------------



| | b) | Not applicable
| | -- | --------------



| | c) | The following table presents a summary of the Companys share repurchases during the quarter ended December 31, 2007.
| | -- | ---------------------------------------------------------------------------------------------------------------------



|                                     |  |                                 |  |                             |       |                                                                        |         |                                                                      |        
|------------------------------------ |  | ------------------------------- |  | --------------------------- | ----- | ---------------------------------------------------------------------- | ------- | -------------------------------------------------------------------- | -------
|Period                               |  | Total Number ofShares Purchased |  | Average Price PaidPer Share |       | Total Number ofShares Purchasedas Part of PubliclyAnnouncedProgram (1) |         | Maximum Numberof Shares that MayYet be PurchasedUnder theProgram (1)
|October 1 through October 31, 2007   |  | 500                             |  | $                           | 10.23 |                                                                        | 398,816 |                                                                      | 115,184
|November 1 through November 30, 2007 |  | 97,100                          |  | $                           | 9.93  |                                                                        | 495,916 |                                                                      | 18,084 
|December 1 through December 31, 2007 |  | 1,383                           |  | $                           | 8.89  |                                                                        | 497,299 |                                                                      | 16,701 



|(1) | On December 12, 2005 the Company announced that its Board of Directors had authorized a stock repurchase program pursuant to which the Company intended to purchase up to 5% of
its issued and outstanding shares, or up to 347,000 shares. This program was completed on August 2, 2007, and the Company then announced a new stock repurchase program pursuant to which the Company intends to purchase up to 2.5% of the then
outstanding shares, or an additional 167,000 shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 3. | Defaults Upon Senior SecuritiesNot applicable
|------- | ----------------------------------------------



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##### Table of Contents

|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

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

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

The results of Ballot
No. 1 were as follows:



|                        |  |           |  |         
|----------------------- |  | --------- |  | --------
|                        |  | For       |  | Withheld
|Charles W. Bentley, Jr. |  | 5,798,348 |  | 20,369  
|Paul M. Kelly           |  | 5,798,348 |  | 20,369  
|Charles H. Puffer       |  | 5,798,348 |  | 20,369  
|Jitendra K. Sinha       |  | 5,792,120 |  | 26,597  

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

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

The results of Ballot No. 2 were
as follows:



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



|Item 5. | Other Information
|------- | -----------------

| | 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-QSB.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 6. | Exhibits
|------- | --------



|         |  |                                                                                                                                          
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |  |                                                                                                                                          
|31.1     |  | Chief Executive Officer Certification pursuant to 17 CFR 240.13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|         | 
|31.2     |  | Chief Financial Officer Certification pursuant to 17 CFR 240.13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|         | 
|32.1     |  | Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350.                                                                
|         | 
|32.2     |  | Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350.                                                                



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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    February 8, 2008 |  |  |  | /s/    Thomas A. Borner                        
|                         |  |  |  | Thomas A. Borner Chief Executive Officer       
|                         |  | 
|Date    February 8, 2008 |  |  |  | /s/    Robert J. Halloran, Jr.                 
|                         |  |  |  | Robert J. Halloran, Jr. President and Treasurer



25