# ** **

# **UNITED STATES**

# **SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

----

 

**FORM 10-QSB**

 

**(MarkOne)**

 

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

 

**For the quarterly period ended March 31, 2005**

 

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

 

**For the transition periodfrom                   to                   **

 

**Commission file number               0-50970**

 

**PSBHoldings, Inc.**

(Exact name of registrantas 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 markwhether the registrant:  (1) has filedall reports required to be filed by Section 13 or 15 (d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 

Yes   ý     No   o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

Yes   o     No   ý

 

As of March 31,2005, there were 6,943,125 shares of the registrant’s common stock outstanding.

 

TransitionalSmall Business Disclosure Format    Yes   o     No  ý

 

 

----

 

PSB Holdings, Inc.

 

Table of Contents

 
| **Part I.**  | **FINANCIAL INFORMATION**                                                                                                     | **Page No.** |
|--------------|-------------------------------------------------------------------------------------------------------------------------------|--------------|
|         |                                                                                                                          |         |
| Item 1.      | Financial Statements                                                                                                          |         |
|         |                                                                                                                          |         |
|         | Consolidated  Statements of Financial Condition at March 31, 2005 (Unaudited) and June 30,  2004 (Unaudited)        | 1            |
|         |                                                                                                                          |         |
|         | Consolidated  Statements of Income for the Three Months Ended and Nine Months Ended March 31,  2005 and 2004 (Unaudited) | 2            |
|         |                                                                                                                          |         |
|         | Consolidated  Statements of Cash Flows for the Nine Months Ended March 31, 2005 and  2004 (Unaudited)                    | 3            |
|         |                                                                                                                          |         |
|         | Notes to  Financial Statements (Unaudited)                                                                                    | 4            |
|         |                                                                                                                          |         |
| Item  2.     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                   | 9            |
|         |                                                                                                                          |         |
| Item 3.      | Controls  and Procedures                                                                                                      | 17           |
|         |                                                                                                                          |         |
| **Part II.** | **OTHER INFORMATION**                                                                                                         | 17           |
|         |                                                                                                                          |         |
| Item 1.      | Legal Proceedings                                                                                                             | 17           |
|         |                                                                                                                          |         |
| Item 2.      | Unregistered Sales of Equity  Securities and Use of Proceeds                                                                  | 17           |
|         |                                                                                                                          |         |
| Item  3.     | Defaults  Upon Senior Securities                                                                                              | 17           |
|         |                                                                                                                          |         |
| Item 4.      | Submission of Matters to  a Vote of Security Holders                                                                          | 17           |
|         |                                                                                                                          |         |
| Item 5.      | Other Information                                                                                                             | 17           |
|         |                                                                                                                          |         |
| Item 6.      | Exhibits                                                                                                                      | 17           |
|         |                                                                                                                          |         |
|         |                                                                                                                          |         |
| SIGNATURES   | 18                                                                                                                            |

 

----

 

**Part I.  FINANCIAL INFORMATION**

 

Item 1.  Financial Statements

 

----

 

PSB Holdings, Inc.

 

Consolidated Statementsof Financial Condition

(Unaudited)

 
| ** **                                                                                                                  | ** ** | **March 31,  2005** | ** **  | **June 30,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|-------------|-------------------------|------------|
| ** **                                                                                                                  | ** ** | **(in  thousands)**      | ** **  |
| **ASSETS**                                                                                                                  |       |                     |        |                    |       |
| Cash and due from depository institutions                                                                                   |       | $                        | 6,543       |                    | $          | 5,327 |   |
| Federal funds sold                                                                                                          |       | 3,450                    |        | 2,100                   |       |
| Available-for-sale securities                                                                                               |       | 153,054                  |        | 126,866                 |       |
| Loans receivable, gross                                                                                                     |       | 159,757                  |        | 137,238                 |       |
| Allowance for loan losses                                                                                                   |       | (1,417                   | )           | (1,285                  | )          |
| Loans receivable, net                                                                                                       |       | 158,340                  |        | 135,953                 |       |
| Premises and equipment, net                                                                                                 |       | 4,552                    |        | 4,151                   |       |
| Accrued income receivable                                                                                                   |       | 1,626                    |        | 1,421                   |       |
| BOLI                                                                                                                        |       | 2,254                    |        | 2,189                   |       |
| Other assets                                                                                                                |       | 1,886                    |        | 1,178                   |       |
| **TOTAL ASSETS**                                                                                                            | ** ** | **$**                    | **331,705** | ** **              | **$**      | **279,185** | ** ** |
| ** **                                                                                                                  | ** ** | ** **               | ** **  | ** **              | ** ** |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                              |       |                     |        |                    |       |
| Deposits:                                                                                                                   |       |                     |        |                    |       |
| Non-interest bearing                                                                                                        |       | $                        | 23,915      |                    | $          | 25,370 |   |
| Interest bearing                                                                                                            |       | 203,787                  |        | 178,017                 |       |
| Total deposits                                                                                                              |       | 227,702                  |        | 203,387                 |       |
| Borrowed funds                                                                                                              |       | 50,154                   |        | 50,240                  |       |
| Mortgagors’ escrow accounts                                                                                            |       | 554                      |        | 895                     |       |
| Other liabilities                                                                                                           |       | 1,482                    |        | 1,361                   |       |
| Total Liabilities                                                                                                           |       | 279,892                  |        | 255,883                 |       |
|                                                                                                                        |       |                     |        |                    |       |
| Stockholders’ Equity                                                                                                   |       |                     |        |                    |       |
| Preferred stock, $.10 par value, 1,000,000 shares  authorized, no shares issued and outstanding                             |       | —                   |        | —                  |       |
| Common stock, $.10 par value, 12,000,000 shares  authorized, 6,943,125 shares issued and outstanding at March 31, 2005 |       | 694                      |        | —                  |       |
| Additional paid-in capital                                                                                                  |       | 30,399                   |        | 51                      |       |
| Retained earnings                                                                                                           |       | 23,386                   |        | 22,996                  |       |
| Unearned ESOP shares                                                                                                        |       | (2,539                   | )           | —                  |       |
| Accumulated other comprehensive income (loss)                                                                               |       | (127                     | )           | 255                     |       |
| Total Stockholders’ Equity                                                                                             |       | 51,813                   |        | 23,302                  |       |
| **TOTAL LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                        | ** ** | **$**                    | **331,705** | ** **              | **$**      | **279,185** | ** ** |

 

See notes to consolidated financial statements.

 

1

----

 

PSB Holdings, Inc.

 

Consolidated Statements of Income

(Unaudited)

 
| ** **                                                | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                                                | ** ** | **2005**                               | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                | ** ** | **(in  thousands)**                    | ** ** |
| Interest income:                                          |       |                                   |       |                                  |       |   |   |   |   |
| Interest on loans                                         |       | $                                      | 2,243      |                                  | $          | 1,968 |   | $ | 6,409 |   | $ | 5,876 |   |
| Interest and dividends on investments  and deposits  |       | 1,547                                  |       | 1,081                                 |       | 4,408 |   | 3,128 |   |
| Total interest income                                     |       | 3,790                                  |       | 3,049                                 |       | 10,817 |   | 9,004 |   |
|                                                      |       |                                   |       |                                  |       |   |   |   |   |
| Interest expense:                                         |       |                                   |       |                                  |       |   |   |   |   |
| Deposits and escrow                                       |       | 967                                    |       | 861                                   |       | 2,782 |   | 2,677 |   |
| Borrowed money                                            |       | 439                                    |       | 272                                   |       | 1,287 |   | 845 |   |
| Total interest expense                                    |       | 1,406                                  |       | 1,133                                 |       | 4,069 |   | 3,522 |   |
| Net interest income                                       |       | 2,384                                  |       | 1,916                                 |       | 6,748 |   | 5,482 |   |
|                                                      |       |                                   |       |                                  |       |   |   |   |   |
| Provision for loan losses                                 |       | 72                                     |       | 15                                    |       | 120 |   | 45 |   |
| Net interest income after provision  for loan losses |       | 2,312                                  |       | 1,901                                 |       | 6,628 |   | 5,437 |   |
|                                                      |       |                                   |       |                                  |       |   |   |   |   |
| Noninterest income:                                       |       |                                   |       |                                  |       |   |   |   |   |
| Service fee income                                        |       | 206                                    |       | 201                                   |       | 613 |   | 623 |   |
| Realized gains on loan sales                              |       | 35                                     |       | 14                                    |       | 77 |   | 67 |   |
| Commissions from brokerage service                        |       | 29                                     |       | 42                                    |       | 22 |   | 111 |   |
| All other income                                          |       | 33                                     |       | 36                                    |       | 131 |   | 124 |   |
| Realized gains on investments                             |       | 39                                     |       | 9                                     |       | 58 |   | 45 |   |
| Total noninterest income                                  |       | 342                                    |       | 302                                   |       | 901 |   | 970 |   |
|                                                      |       |                                   |       |                                  |       |   |   |   |   |
| Noninterest expense:                                      |       |                                   |       |                                  |       |   |   |   |   |
| Salaries                                                  |       | 771                                    |       | 728                                   |       | 2,311 |   | 2,171 |   |
| Employee benefits and taxes                               |       | 292                                    |       | 234                                   |       | 769 |   | 653 |   |
| Occupancy and equipment                                   |       | 234                                    |       | 173                                   |       | 629 |   | 493 |   |
| Charitable contributions                                  |       | 6                                      |       | 9                                     |       | 1,266 |   | 26 |   |
| Professional fees                                         |       | 71                                     |       | 75                                    |       | 214 |   | 203 |   |
| Marketing                                                 |       | 62                                     |       | 51                                    |       | 184 |   | 141 |   |
| Office supplies                                           |       | 25                                     |       | 19                                    |       | 81 |   | 73 |   |
| Data processing fees                                      |       | 148                                    |       | 131                                   |       | 420 |   | 386 |   |
| Other                                                     |       | 273                                    |       | 192                                   |       | 804 |   | 613 |   |
| Total noninterest expense                                 |       | 1,882                                  |       | 1,612                                 |       | 6,678 |   | 4,759 |   |
| Income before income tax expense                          |       | 772                                    |       | 591                                   |       | 851 |   | 1,648 |   |
| Income tax expense                                        |       | 219                                    |       | 181                                   |       | 152 |   | 490 |   |
| **NET INCOME**                                            | ** ** | **$**                                  | **553**    | ** **                            | **$**      | **410** | ** ** | **$** | **699** | ** ** | **$** | **1,158** | ** ** |

 

See notes to consolidated financial statements.

 

2

----

 

PSB Holdings, Inc.

 

Consolidated Statementsof Cash Flows

(Unaudited)

 
| ** **                                                                     | ** ** | **For the Nine Months  Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                     | ** ** | **2005**                                      | ** ** | **2004** | ** ** |
| ** **                                                                     | ** ** | **(in  thousands)**                           | ** ** |
| **Cash flows from operating  activities**                                      |       |                                          |       |   |   |
| Net income                                                                     |       | $                                             | 699        |   | $ | 1,158 |   |
| Adjustments to reconcile net income to cash provided  by operating activities: |       |                                          |       |   |   |
| Provision for loan losses                                                      |       | 120                                           |       | 45 |   |
| Depreciation                                                                   |       | 286                                           |       | 200 |   |
| Net amortization on available-for-sale securities                              |       | 351                                           |       | 532 |   |
| Amortization of premium on purchased loans                                     |       | 6                                             |       | — |   |
| Net realized investment security gains                                         |       | (58                                           | )          | (45 | ) |
| Originations of loans for resale                                               |       | (8,845                                        | )          | (9,498 | ) |
| Proceeds from sale of loans                                                    |       | 10,845                                        |       | 10,162 |   |
| Gain on sale of loans                                                          |       | (77                                           | )          | (67 | ) |
| Accrued earnings on bank owned life insurance                                  |       | (65                                           | )          | (67 | ) |
| Deferred income tax provision                                                  |       |                                          |       | (78 | ) |
| Net change in:                                                                 |       |                                          |       |   |   |
| Accrued income receivable                                                      |       | (205                                          | )          | (33 | ) |
| Deferred loan fees                                                             |       | 7                                             |       | (101 | ) |
| Other assets                                                                   |       | (465                                          | )          | (27 | ) |
| Other liabilities                                                              |       | 121                                           |       | 28 |   |
| **Net cash provided by operating  activities**                                 |       | 2,720                                         |       | 2,209 |   |
| **Cash flows from investing  activities**                                      |       |                                          |       |   |   |
| Proceeds from sales of available-for-sale securities                           |       | 40,113                                        |       | 1,650 |   |
| Proceeds from maturities of available-for-sale  securities                     |       | 26,133                                        |       | 24,430 |   |
| Purchase of available-for-sale securities                                      |       | (93,352                                       | )          | (31,359 | ) |
| Purchase of loans                                                              |       | (9,240                                        | )          | — |   |
| Loan originations net of principal payments                                    |       | (15,203                                       | )          | (12,091 | ) |
| Purchase of premises and equipment                                             |       | (687                                          | )          | (1,412 | ) |
| **Net cash used by investing  activities**                                     |       | (52,236                                       | )          | (18,782 | ) |
| **Cash flows from financing  activities**                                      |       |                                          |       |   |   |
| Change in savings and demand deposit accounts                                  |       | 15,003                                        |       | 9,012 |   |
| Change in time deposit accounts                                                |       | 9,312                                         |       | (3,151 | ) |
| Proceeds from long term borrowings                                             |       | 20,575                                        |       | 9,500 |   |
| Repayments of long term borrowings                                             |       | (22,895                                       | )          | (6,750 | ) |
| Net change in short term borrowings                                            |       | 2,234                                         |       | (500 | ) |
| Change in mortgagors’ escrow account                                      |       | (341                                          | )          | (353 | ) |
| Proceeds from common stock offering                                            |       | 31,042                                        |       | — |   |
| Acquisition of common stock by ESOP                                            |       | (2,539                                        | )          | — |   |
| Dividends paid/declared                                                        |       | (309                                          | )          | — |   |
| **Net cash provided by financing  activities**                                 |       | 52,082                                        |       | 7,758 |   |
| Increase in cash and cash equivalents                                          |       | 2,566                                         |       | (8,815 | ) |
| Cash and cash equivalents at beginning of year                                 |       | 7,427                                         |       | 13,280 |   |
| **Cash and cash equivalents at end of  year**                                  |       | $                                             | 9,993      |   | $ | 4,465 |   |
| ***Supplemental  disclosures***                                                |       |                                          |       |   |   |
| Cash paid during the year for:                                                 |       |                                          |       |   |   |
| Interest                                                                       |       | $                                             | 4,041      |   | $ | 3,544 |   |
| Income taxes                                                                   |       | $                                             | 614        |   | $ | 631 |   |

 

See notes to consolidated financial statements.

 

3

----

 

PSB Holdings, Inc.

 

Notes to ConsolidatedFinancial Statements

(Unaudited)

 

**NOTE 1 –Organization**

 

PSB Holdings, Inc.(Company) is a federally chartered holding company formed on May 27, 2003 forthe purpose of acquiring all of the common stock of Putnam Savings Bank (Bank)concurrent with the Bank’s reorganization from a mutual savings institution tothe mutual holding company form of organization.  No shares were offered to the public as partof this reorganization.

 

On October 4, 2004,the Company sold 3,089,691 shares of its common stock to depositors of the Bankand certain other persons, and issued shares of its common stock to PutnamBancorp, MHC. After the stock offering, purchasers in the offering owned 44.5%of outstanding shares of common stock, and Putnam Bancorp, MHC owned 53.7% ofthe Company’s outstanding shares of common stock.  In addition, shares of common stock, equal to4% of the shares sold were issued to a charitable foundation established by theBank.

 

Costs incurred inconnection with the offering were recorded as a reduction of the proceeds fromthe offering and amounted to $1.1 million.

 

**NOTE 2 –Basis of Presentation**

 

The accompanyingunaudited condensed consolidated interim financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial statements and the instructionsto Form 10-QSB, and accordingly do not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates of America for complete financial statements.  In the opinion of management, theaccompanying unaudited financial statements reflect all adjustments necessary,consisting of only normal recurring accruals, to present fairly the financialposition, results of operations and cash flows of the Company for the periodspresented.  In preparing the interimfinancial statements, management is required to make estimates and assumptionsthat affect the reported amounts of assets and liabilities as of the date ofthe balance sheet and revenues and expenses for the period.  Material estimates that are particularlysusceptible to significant changes in the near-term relate to the determinationof the allowance for losses on loans and the valuation of real estate acquiredin connection with foreclosure or in satisfaction of loans.  While management uses available informationto recognize losses on loans and foreclosed real estate, future additions tothe allowance may be necessary based on changes in economic conditions,particularly in Connecticut.  Actualresults could differ significantly from those estimates.  The interim results of operations are notnecessarily indicative of the operating results to be expected for the yearending June 30, 2005.

 

4

----

 

**NOTE 3 –Investment Securities**

 

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

 
| ** **                              | ** ** | **March 31, 2005** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|
| ** **                              | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | **Estimated** | ** ** |
| ** **                              | ** ** | **Amortized**           | ** ** | **Gross Unrealized** | ** ** | **Market** | ** ** |
| ** **                              | ** ** | **Cost Basis**          | ** ** | **Gain** | ** ** | **(Loss)** | ** ** | **Value** | ** ** |
| ** **                              | ** ** | **(in  thousands)**     | ** ** |
| Debt securities:                        |       |                    |       |   |   |   |   |   |   |
| US government and agency obligations:   |       |                    |       |   |   |   |   |   |   |
| From one through five years             |       | $                       | 24,065     |   | $ | — |   | $ | (404 | ) | $ | 23,661 |   |
|                                    |       | 24,065                  |       | — |   | (404 | ) | 23,661 |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| State agency and municipal obligations: |       |                    |       |   |   |   |   |   |   |
| From five through ten years             |       | 609                     |       | 20 |   | — |   | 629 |   |
| After ten years                         |       | 8,512                   |       | 342 |   | — |   | 8,854 |   |
|                                    |       | 9,121                   |       | 362 |   | — |   | 9,483 |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| Corporate bonds and other obligations:  |       |                    |       |   |   |   |   |   |   |
| Due within one year                     |       | 6,040                   |       | 35 |   | (8 | ) | 6,067 |   |
| From one through five years             |       | 11,194                  |       | 112 |   | (116 | ) | 11,190 |   |
| After ten years                         |       | 8,040                   |       | 387 |   | (199 | ) | 8,228 |   |
|                                    |       | 25,274                  |       | 534 |   | (323 | ) | 25,485 |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| Mortgage-backed securities              |       | 69,654                  |       | 250 |   | (906 | ) | 68,998 |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| Total debt securities                   |       | 128,114                 |       | 1,146 |   | (1,633 | ) | 127,627 |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| Marketable equity securities:           |       |                    |       |   |   |   |   |   |   |
| Common stock                            |       | 3,537                   |       | 227 |   | (1 | ) | 3,763 |   |
| Preferred stock                         |       | 21,610                  |       | 54 |   | — |   | 21,664 |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| Total equity securities                 |       | 25,147                  |       | 281 |   | (1 | ) | 25,427 |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| **Total available-for-sale securities** |       | $                       | 153,261    |   | $ | 1,427 |   | $ | (1,634 | ) | 153,054 |   |
|                                         |            |                         |            |  |  |  |  |  |  |  |  |  |  |

 

5

----

 
| ** **                              | ** ** | **June 30, 2004**    | ** ** |
|-----------------------------------------|------------|---------------------------|------------|
| ** **                              | ** ** | **Amortized  Cost Basis** | ** ** | **Gross Unrealized** | ** ** | **Estimated  Market Value** | ** ** |
| **Gain**                                | ** ** | **(Loss)**                |
| ** **                              | ** ** | **(in  thousands)**       | ** ** |
| Debt securities:                        |       |                      |       |   |   |   |   |   |   |
| US government and agency obligations:   |       |                      |       |   |   |   |   |   |   |
| From one through five years             |       | $                         | 15,072     |   | $ | 4 |   | $ | (143 | ) | $ | 14,933 |   |
|                                    |       | 15,072                    |       | 4 |   | (143 | ) | 14,933 |   |
|                                    |       |                      |       |   |   |   |   |   |   |
| State agency and municipal obligations: |       |                      |       |   |   |   |   |   |   |
| From five through ten years             |       | 609                       |       | 17 |   | — |   | 626 |   |
| After ten years                         |       | 8,509                     |       | 168 |   | — |   | 8,677 |   |
|                                    |       | 9,118                     |       | 185 |   | — |   | 9,303 |   |
|                                    |       |                      |       |   |   |   |   |   |   |
| Corporate bonds and other obligations:  |       |                      |       |   |   |   |   |   |   |
| Due within one year                     |       | 3,021                     |       | 51 |   | — |   | 3,072 |   |
| From one through five years             |       | 20,080                    |       | 535 |   | (87 | ) | 20,528 |   |
| After ten years                         |       | 8,138                     |       | 243 |   | (195 | ) | 8,186 |   |
|                                    |       | 31,239                    |       | 829 |   | (282 | ) | 31,786 |   |
|                                    |       |                      |       |   |   |   |   |   |   |
| Mortgage-backed securities              |       | 61,144                    |       | 475 |   | (753 | ) | 60,866 |   |
|                                    |       |                      |       |   |   |   |   |   |   |
| Total debt securities                   |       | 116,573                   |       | 1,493 |   | (1,178 | ) | 116,888 |   |
|                                    |       |                      |       |   |   |   |   |   |   |
| Marketable equity securities:           |       |                      |       |   |   |   |   |   |   |
| Common stock                            |       | 3,160                     |       | 88 |   | (3 | ) | 3,245 |   |
| Preferred stock                         |       | 6,716                     |       | 23 |   | (6 | ) | 6,733 |   |
|                                    |       |                      |       |   |   |   |   |   |   |
| Total equity securities                 |       | 9,876                     |       | 111 |   | (9 | ) | 9,978 |   |
|                                    |       |                      |       |   |   |   |   |   |   |
| **Total available-for-sale securities** |       | $                         | 126,449    |   | $ | 1,604 |   | $ | (1,187 | ) | $ | 126,866 |   |

 

Gross gains of $39,000 and no losses; and gross gainsof $9,000 and no losses were realized on available-for-sale securities for thethree months ended March 31, 2005 and March 31, 2004, respectively.Gross gains of $82,000 and losses of $24,000; and gross gains of $45,000 and nolosses were realized on available-for-sale securities for the nine months endedMarch 31, 2005 and March 31, 2004, respectively.

 

6

----

 

**NOTE 4 –Allowance for Loan Losses**

 

The following summarizesthe changes in allowance for loan losses for the three and nine months ended March 31:

 
| ** **                   | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                   | ** ** | **2005**                               | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                   | ** ** | **(in  thousands)**                    | ** ** |
| Balance, beginning of period |       | $                                      | 1,350      |                                  | $          | 1,283 |   | $ | 1,285 |   | $ | 1,264 |   |
| Provision for loan losses    |       | 72                                     |       | 15                                    |       | 120 |   | 45 |   |
| Chargeoffs                   |       | (5                                     | )          | (47                                   | )          | (5 | ) | (60 | ) |
| Recoveries                   |       | —                                 |       | 18                                    |       | 17 |   | 20 |   |
| **Balance, end of period**   | ** ** | **$**                                  | **1,417**  | ** **                            | **$**      | **1,269** | ** ** | **$** | **1,417** | ** ** | **$** | 1,269 | ** ** |

 

At March 31, 2005and June 30, 2004, the Company had loans with balances of $594,000(representing 7 loans) and $657,000 (representing 8 loans), respectively, onnonaccrual status.  The loans were notconsidered impaired.

 

**NOTE 5 –Earnings per Share and Dividends Declared**

 

As presented, basicearnings per share is computed by dividing income available to commonstockholders by the weighted average number of common shares outstanding forthe period.  Diluted earnings per sharereflect the potential dilution that could occur if securities or othercontracts to issue common stock were exercised or converted into common stockor resulted in the issuance of common stock that then shared in the earnings ofthe entity.  Because the initial publicoffering of the Company was completed on October 4, 2004, per shareearnings data is not meaningful for the nine months ended March 31, 2005,the three months ended March 31, 2004 or the nine months ended March 31,2004.  For the three months ended March 31,2005 basic and diluted earnings per share were $.08 per share.  Weighted average shares outstanding for theperiod were 6,943,125.

 

On March 17, 2005,the Board of Directors of the Company declared a dividend of $0.05 a share forstockholders of record as of April 6, 2005 and payable on April 21,2005.  The dividends declared totaling$161,000 were accrued and are included in other liabilities in the March 31,2005 Consolidated Statements of Financial Condition.  Putnam Bancorp, MHC, the mutual holdingcompany, waived the receipt of the dividend declared by the Company.

 

7

----

 

**NOTE 6 –Comprehensive Income**

 

Statement of FinancialAccounting Standards No. 130, “Reporting Comprehensive Income” establishesstandards for disclosure of comprehensive income, which includes net income andany changes in equity from non-owner sources that are not recorded in theincome statement (such as changes in the net unrealized gains (losses) onsecurities).  The Company’s one source ofother comprehensive income is the net unrealized gain (loss) on securities.

 
| ** **                                                                          | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                          | ** ** | **2005**                               | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                          | ** ** | **(in  thousands*)***                  | ** ** |
| Net Income                                                                          |       | $                                      | 553        |                                  | $          | 410 |   | $ | 699 |   | $ | 1,158 |   |
|                                                                                |       |                                   |       |                                  |       |   |   |   |   |
| Other comprehensive income (loss):                                                  |       |                                   |       |                                  |       |   |   |   |   |
| Net unrealized holding gains (losses) on  available-for-sale securities             |       | (1,368                                 | )          | 733                                   |       | (566 | ) | 128 |   |
| Reclassification adjustment for gain recognized in  net income                      |       | (39                                    | )          | (9                                    | )          | (58 | ) | (45 | ) |
| Other comprehensive income (loss) before tax expense                                |       | (1,407                                 | )          | 724                                   |       | (624 | ) | 83 |   |
| Income tax expense (benefit) related to items of  other comprehensive income (loss) |       | 548                                    |       | (289                                  | )          | 243 |   | (58 | ) |
| Other comprehensive income net of tax                                               |       | (859                                   | )          | 435                                   |       | (381 | ) | 25 |   |
| **Total comprehensive income (loss)**                                               | ** ** | **$**                                  | **(306**   | **)**                                 | **$**      | **845** | ** ** | **$** | **318** | ** ** | **$** | **1,183** | ** ** |

 

 

**NOTE7  – Commitment to Extend Credit**

 

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

 

The contractual amountsof outstanding commitments were as follows:

 
| ** **                    | ** ** | **March 31,  2005** | ** ** | **June 30,  2004** | ** ** |
|-------------------------------|------------|--------------------------|------------|-------------------------|------------|
| ** **                    | ** ** | **(in thousands)**       | ** ** |
| Commitments to extend credit: |       |                     |       |                    |       |
| Loan commitments              |       | $                        | 5,971      |                    | $          | 4,770 |   |
| Unadvanced construction loans |       | 4,515                    |       | 4,623                   |       |
| Unadvanced lines of credit    |       | 11,940                   |       | 10,398                  |       |
| Standby letters of credit     |       | 20                       |       | 145                     |       |
| Outstanding commitments       |       | $                        | 22,446     |                    | $          | 19,936 |   |

 

8

----

 

**Item 2. Management****’s Discussion and Analysisof Financial Condition and Results of Operations**

 

Thefollowing analysis discusses changes in the financial condition and results ofoperations at and for the three and nine months ended March 31, 2005 and2004, and should be read in conjunction with the Company’s CondensedConsolidated Financial Statements and the notes thereto, appearing in Part I,Item 1 of this quarterly report.  Thesefinancial statements should be read in conjunction with the 2004 consolidatedfinancial statements and notes thereto included in the Company’s Form 10-KSBfiled with the SEC on November 12, 2004.

 

Theyear-end condensed balance sheet data was derived from audited financialstatements, but does not include all disclosures required by GAAP.

 

**Forward-LookingStatements**

 

This report containsforward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended.  TheCompany intends such forward-looking statements to be covered by the safeharbor provisions for forward-looking statements contained in the PrivateSecurities Litigation Reform Act of 1995, and is including this statement forpurposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions anddescribe future plans, strategies and expectations of the Company, aregenerally 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 futureplans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations ofthe 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 theU.S. Treasury and the Federal Reserve Board, the quality or composition of theloan or investment portfolios, demand for loan products, deposit flows,competition, demand for financial services in the Company’s market area andaccounting principles and guidelines. These risks and uncertainties should be considered in evaluatingforward-looking statements and undue reliance should not be placed on suchstatements.  Further informationconcerning the Company and its business, including additional factors thatcould materially affect the Company’s financial results, is included in theCompany’s filings with the Securities and Exchange Commission.

 

Except as required byapplicable law and regulation, the Company does not undertake – andspecifically disclaims any obligation – to publicly release the result of anyrevisions that may be made to any forward-looking statements to reflect eventsor circumstances after the date of such statements or to reflect the occurrenceof anticipated or unanticipated events.

 

**Overview**

 

The Company’s results ofoperations depend primarily on net interest and dividend income, which is thedifference between the interest and dividend income earned on itsinterest-earning assets, such as loans and securities, and the interest expenseon its interest-bearing liabilities, such as deposits and borrowings. TheCompany also generates noninterest income, primarily from fees and servicecharges.  Gains on sales of loans andsecurities and cash surrender value of life insurance policies are addedsources of noninterest income.  TheCompany’s noninterest expense primarily consists of employee compensation andbenefits, occupancy and equipment expense, advertising, data processing,professional fees and other operating expenses.

 

**Comparisonof Financial Condition at March 31, 2005 and June 30, 2004**

 

**Assets**

 

Totalassets of the Company were $331.7 million at March 31, 2005, an increaseof $52.5 million or 18.8%, from $279.2 million at June 30, 2004.  Investments in available-for-sale securitiesincreased $26.2 million or 20.6%, to $153.0 million at March 31, 2005compared to $126.8 million at June 30, 2004.  Federal funds sold were $3.5 million at March 31,2005, an increase of $1.4 million, compared to $2.1 million at June 30,2004.  The growth in securities andfederal funds sold was primarily due to the $28.3 million in net proceedsraised in our recently completed minority stock offering on October 4,2004.  Gross loans outstanding increased$22.5 million to $159.8 million at  March 31,2005 from $137.2 million at June 30, 2004. This increase was primarily due to an increase of $18.7 million inresidential mortgage loans.  Of this$18.7 million increase, $9.2 million was a wholesale purchase

 

9

----

 

ofresidential mortgages.  Commercial loansincreased $5.9 million, or 20.3%, from June 30, 2004 to March 31,2005, which reflects the continued strong performance by the Company’s BusinessBanking Group.

 

**Allowancefor Loan Losses**

 

The Company determinesthe adequacy of the allowance for loan losses on a quarterly basis. We considera variety of factors in establishing this estimate including, but not limitedto, current economic conditions, delinquency statistics, geographic andindustry concentrations, the adequacy of the underlying collateral, thefinancial strength of the borrower, results of internal and external loanreviews and other relevant factors.  Thisevaluation is inherently subjective as it requires material estimates bymanagement that may be susceptible to significant change.  The table below indicates the relationshipsbetween the allowance for loan losses, total loans outstanding andnonperforming loans at March 31, 2005 and June 30, 2004.

 

**Past dueand Nonperforming loans**

 

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

 
| ** **                        | ** ** | **March 31,  2005**   | ** ** | **June 30,  2004** | ** ** |
|-----------------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                        | ** ** | **(dollars in thousands)** | ** ** |
| Allowance for loan losses         |       | $                          | 1,417      |                    | $          | 1,285 |   |
| Gross loans outstanding           |       | $                          | 159,757    |                    | $          | 137,238 |   |
| Nonperforming loans               |       | $                          | 594        |                    | $          | 657 |   |
|                              |       |                       |       |                    |       |   |   |
| Allowance/gross loans outstanding |       | 0.89                       | %          | 0.94                    | %          |
| Allowance/nonperforming loans     |       | 239                        | %          | 209                     | %          |

 

**Liabilities**

 

Total liabilitiesincreased $24.0 million, or 9.4%, from $255.9 million at June 30, 2004 to$279.9 million at March 31, 2005, primarily due to the increase indeposits.  Deposits increased $24.3million, or 12.0%, from $203.4 million at June 30, 2004 to $227.7 millionat March 31, 2005.

 

**Stockholders’Equity**

 

Total stockholders’ equityincreased $28.5 million to $51.8 million at March 31, 2005 from $23.3million at June 30, 2004.  Theincrease was primarily due to the sale of 3,213,279 shares of common stock at$10.00 per share less unearned ESOP compensation of $2.5 million as well as netincome of $553,000.

 

**Comparisonof Operating Results for the Three Months Ended March 31, 2005 and 2004**

 

## **Net Income**

 

Net income increased$143,000, or 34.9%, to $553,000 for the three months ended March 31, 2005from $410,000 for the three months ended March 31, 2004.  The increase in net income resulted primarilyfrom an improvement in net interest income and noninterest income, which waspartially offset by an increase in the provision for loan loss and in noninterestexpense.

 

**Interestand Dividend Income**

 

Interestand dividend income increased by $741,000, or 24.3%, to $3.8 million for thethree months ended March 31, 2005 from $3.1 million for the three monthsended March 31, 2004.  The increasein interest and dividend income resulted primarily from an increase of $76.6million, or 31.5%, in average interest-bearing assets between  the periods. This was partially offset by a decrease of 30 basis points in theaverage yield on our interest-earning assets in a declining interest rateenvironment to 4.85% for the three months ended March 31, 2005 from 5.15%for the three months ended March 31, 2004. Interest income on loans increased by $275,000, or 14.0%, to $2.2million

 

10

----

 

from$2.0 million.  Interest and dividendincome on investment securities increased $466,000, or 43.1%, to $1.5 millionfor the three months ended March 31, 2005 from $1.0 million for the threemonths ended March 31, 2004.  Totalinvestment securities have increased $45.5 million from the $107.6 million asof March 31, 2004 to $153.1 million as of March 31, 2005.  This increase is primarily due to the netproceeds of the stock offering being invested in securities pending thedeployment into loans.

 

**Interest Expense**

 

Interestexpense increased by $273,000, or 24.1%, to $1.4 million for three months endedMarch 31, 2005 from $1.1 million for the three months ended March 31,2004.  The increase in interest expenseresulted primarily from an increase in average interest-bearing liabilities of$46.7 million, or 22.7% from period to period and an increase of 3 basis pointsin the average cost of our interest-bearing liabilities to 2.25% for the threemonths ended March 31, 2005 from 2.22% for the three months ended March 31,2004.  This increase was primarily due toan increase of $22.6 million in average interest-bearing deposits and anincrease of $23.6 million in average Federal Home Loan Bank borrowings from March 31,2004 to March 31, 2005.

 

**Net Interest and Dividend Income**

 

Netinterest and dividend income increased $468,000, or 24.4%, to $2.4 million forthe three months ended March 31, 2005 from $1.9 million for three monthsended March 31, 2004.  The primaryreason for the improvement in our net interest and dividend income was the $29.8million increase in our net interest-earning assets to $66.9 million for thethree months ended March 31, 2005 from $37.1 million for the three monthsended March 31, 2004.  Included inthis increase was the $28.3 million raised in our recently completed minoritystock offering on October 4, 2004. The increase in net interest-earning assets more than offset thereduction in the net interest margin from 3.26% for the three months ended March 31,2004, to 3.07% for the three months ended March 31, 2005.

 

**Provision for Loan Losses**

 

Theprovision for loan losses for the quarter ended March 31, 2005 was $72,000compared to $15,000 recorded for the three months ended March 31, 2004.Total loans increased $25.4 million to $159.8 million at March 31, 2005from $134.4 million at March 31, 2004.

 

**Noninterest Income**

 

Noninterestincome increased $40,000, or 13.2%, to $342,000 for the three months ended March 31,2005 from $302,000 for the three months ended March 31, 2004. The increasein noninterest income resulted primarily from an increase in service fee incomeon transaction accounts, net investment security gains, and net gains on loansales, which were partially offset by a decrease in commissions from brokerageservices.

 

**Noninterest Expense**

 

Noninterestexpense increased by $270,000, or 16.7%, to $1.9 million for the three monthsended March 31, 2005 from $1.6 million for the three months ended March 31,2004.  The increase in noninterestexpense resulted primarily from an increase in compensation and benefits,occupancy and equipment expense and other noninterest expenses.  Compensation and benefits expense increasedby $101,000, or 10.5%, to $1.1 million for the three months ended March 31,2005 from $1.0 million for the three months ended March 31, 2004.  The primary reasons for the increase incompensation and benefits expense were increased salaries and commissions, dueto increased staffing and higher medical insurance premiums.  In addition, the current quarter included$36,000 in ESOP compensation expense as compared to no ESOP compensationexpense for the three months ended March 31, 2004.  Occupancy and equipment expense increased by$61,000, or 35.3%, to $234,000 for the three months ended March 31, 2005from $173,000 for the three months ended March 31, 2004 primarily due toincreased depreciation expense of $40,000. Other noninterest expense, consisting primarily of marketing, officesupplies, and professional expenses increased by $108,000, or 22.6%, to $585,000for the three months ended March 31, 2005 from $477,000 for the threemonths ended March 31, 2004.  Theincrease resulted primarily from increased marketing expenses, data processingfees and other miscellaneous expenses including a new OTS assessment.

 

11

----

 

**Provision for Income Taxes**

 

Theincome tax expense increased by $38,000, or 21.0%, to $219,000 for the threemonths ended March 31, 2005 from $181,000 for the three months ended March 31,2004.  Our effective tax rate was 28.4%for the three months ended March 31, 2005, compared to 30.6% for the threemonths ended March 31, 2004.  Theeffective tax rate differed from the statutory tax rate of 34% primarily due tothe dividends-received deduction applicable to certain securities in ourinvestment portfolio, tax-exempt municipal income and non-taxable bank-ownedlife insurance income.

 

**Comparisonof Operating Results for the Nine Months Ended March 31, 2005 and 2004**

 

## **Net Income**

## ** **

Net income decreased$459,000, or 39.6%, to $699,000 for the nine months ended March 31, 2005from $1.16 million for the nine months ended March 31, 2004.  The decrease in net income was primarily dueto a one-time charge of $1.24 million used to establish and fund the PutnamSavings Foundation.  This was partiallyoffset by an increase in net interest income. Net income for the nine month period excluding this one time chargewould have been $1.51 million or an increase of $354,000, or 30.5% over the$1.16 million for the nine months ended March 31, 2004.

 

**Interestand Dividend Income**

 

Interestand dividend income increased by $1.8 million, or 20.1%, to $10.8 million forthe nine months ended March 31, 2005 from $9.0 million for the nine monthsended March 31, 2004.  The increasein interest and dividend income resulted primarily from an increase of $67.9million, or 28.6%, in average interest-bearing assets between the periods.  This was partially offset by a decrease of 35basis points in the average yield on our interest-earning assets in a declininginterest rate environment to 4.77% for the nine months ended March 31,2005 from 5.12% for the nine months ended March 31, 2004.  Interest income on loans increased by $533,000,or 9.1%, to $6.4 million from $5.9 million. Interest and dividend income in investment securities increased $1.3million, or 40.9%, to $4.4 million for the nine months ended March 31,2005 from $3.1 million for the nine months ended March 31, 2004.  This increase is primarily due to the netproceeds of the stock offering being invested in securities pending thedeployment into loans.

 

**Interest Expense**

 

Interestexpense increased by $547,000, or 15.5%, to $4.0 million for nine months ended March 31,2005 from $3.5 million for the nine months ended March 31, 2004.  The increase in interest expense resultedprimarily from an increase in average interest-bearing liabilities of $44.9million, or 22.4% from period to period. This was partially offset by a decrease of 13 basis points in theaverage cost of our interest-bearing liabilities to 2.21% for the nine monthsended March 31, 2005 from 2.34% for the nine months ended March 31,2004.

 

**Net Interest and Dividend Income**

 

Netinterest and dividend income increased $1.2 million, or 23.1%, to $6.7 millionfor the nine months ended March 31, 2005 from $5.5 million for nine monthsended March 31, 2004.  The primaryreason for the improvement in our net interest and dividend income was the $23.0million increase in our net interest-earning assets to $59.6 million for the ninemonths ended March 31, 2005 from $36.6 million for the nine months ended March 31,2004.  Included in this increase was the$28.3 million raised in our recently completed minority stock offering on October 4,2004.

 

**Provision for Loan Losses**

 

Theprovision for loan losses for the nine months ended March 31, 2005 was$120,000 compared to $45,000 recorded for the nine months ended March 31,2004. Total loans increased $25.4 million to $159.8 million at March 31,2005 from $134.4 million at March 31, 2004.

 

12

----

 

**Noninterest Income**

 

Noninterestincome decreased $69,000, or 7.1%, to $901,000 for the nine months ended March 31,2005 from $970,000 for the nine months ended March 31, 2004. The decreasein noninterest income resulted primarily from a decrease in commissions frombrokerage services.  This was partiallyoffset by increases in net investment security gains and net gains on loansales.

 

**Noninterest Expense**

 

Noninterestexpense increased by $1.9 million, or 40.3%, to $6.7 million for the ninemonths ended March 31, 2005 from $4.8 million for the nine months ended March 31,2004.  Compensation and benefits expenseincreased by $256,000, or 9.1%, to $3.1 million for the nine months ended March 31,2005 from $2.8 million for the nine months ended March 31, 2004.  The primary reasons for the increase incompensation and benefits expense were increased salaries and commissions, dueto increased staffing and higher medical insurance premiums.  In addition, the current period includes $71,000in ESOP compensation expense as compared to no ESOP compensation expense forthe nine months ended March 31, 2004. Occupancy and equipment expense increased by $136,000, or 27.6%, to $629,000for the nine months ended March 31, 2005 from $493,000 for the nine monthsended March 31, 2004 primarily due to increased depreciation expense of $110,000.  Other noninterest expense, consistingprimarily of charitable contributions, marketing, office supplies, andprofessional expenses increased by $1.5 million, or 105.9%, to $3.0 million forthe nine months ended March 31, 2005 from $1.4 million for the nine monthsended March 31, 2004.  The increaseresulted primarily from a one-time charge of $1.24 million to establish andfund the Putnam Savings Foundation. In addition, there were increases inmarketing expenses, data processing fees and other miscellaneous expensesincluding a new OTS assessment.

 

**Provision for Income Taxes**

 

Theincome tax expense decreased by $338,000, or 69.0%, to $152,000 for the ninemonths ended March 31, 2005 from $490,000 for the nine months ended March 31,2004.  Our effective tax rate was 17.9%for the nine months ended March 31, 2005, compared to 29.7% for the ninemonths ended March 31, 2004.  Theprimary reason for the decrease was due to the tax benefits associated with theestablishment and funding of the new Putnam Savings Foundation.  The effective tax rate differed from thestatutory tax rate of 34% primarily due to the dividends-received deductionapplicable to certain securities in our investment portfolio, tax-exemptmunicipal income and non-taxable bank-owned life insurance income.

 

**AverageBalance Sheet**

 

The following tables setforth average balance sheets, average yields and costs, and other informationfor the periods indicated.  Notax-equivalent yield adjustments were made. All average balances are daily average balances.  Non-accrual loans were included in thecomputation of average balances, but have been reflected in the table as loanscarrying a zero yield.  The yields setforth below include the effect of deferred fees, discounts and premiums

 

13

----

 
| ** **                                                      | ** ** | **For Three Months Ended** | ** ** |
|-----------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                      | ** ** | **March 31, 2005**    | ** ** | **March 31, 2004** | ** ** |
| ** **                                                      | ** ** | **Average  Balance**       | ** ** | **Interest/  Dividends** | ** ** | **Yield/  Cost** | ** ** | **Average  Balance** | ** ** | **Interest/  Dividends** | ** ** | **Yield/  Cost** | ** ** |
| **Interest-earning assets:**                                    |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold and money  market accounts              |       | $                          | 5,164      |   | $ | 30 |   | 2.36 | % | $ | 1,655 |   | $ | 3 |   | 0.74 | % |
| Investment securities                                           |       | 158,273                    |       | 1,517 |   | 3.89 | % | 107,169 |   | 1,078 |   | 4.08 | % |
| Loans                                                           |       | 154,123                    |       | 2,265 |   | 5.96 | % | 132,276 |   | 1,985 |   | 6.09 | % |
| BOLI                                                            |       | 2,215                      |       | 14 |   | 2.56 | % | 2,111 |   | 20 |   | 3.84 | % |
| Total interest-earnings assets                                  |       | 319,775                    |       | 3,826 |   | 4.85 | % | 243,211 |   | 3,086 |   | 5.15 | % |
| Non-interest-earning assets                                     |       | 9,831                      |       |   |   |   |   | 8,340 |   |   |   |   |   |
| Total assets                                                    |       | $                          | 329,606    |   |   |   |   |   | $ | 251,551 |   |   |   |   |   |
|                                                            |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing liabilities:**                               |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| NOW accounts                                                    |       | $                          | 23,058     |   | $ | 78 |   | 1.37 | % | $ | 7,663 |   | $ | 5 |   | 0.26 | % |
| Savings and money market accounts                               |       | 83,221                     |       | 236 |   | 1.15 | % | 90,598 |   | 274 |   | 1.23 | % |
| Time deposits                                                   |       | 91,312                     |       | 653 |   | 2.90 | % | 76,696 |   | 581 |   | 3.07 | % |
| Borrowed money                                                  |       | 55,261                     |       | 439 |   | 3.22 | % | 31,183 |   | 273 |   | 3.55 | % |
| Total interest-bearing liabilities                              |       | 252,852                    |       | 1,406 |   | 2.25 | % | 206,140 |   | 1,133 |   | 2.23 | % |
| Non-interest-bearing demand deposits                            |       | 23,873                     |       |   |   |   |   | 20,551 |   |   |   |   |   |
| Other non-interest-bearing liabilities                          |       | 390                        |       |   |   |   |   | 1,016 |   |   |   |   |   |
| Capital accounts                                                |       | 52,491                     |       |   |   |   |   | 23,844 |   |   |   |   |   |
| Total liabilities and capital accounts                          |       | $                          | 329,606    |   |   |   |   |   | $ | 251,551 |   |   |   |   |   |
|                                                            |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                             |       |                       |       | $ | 2,420 |   |   |   |   |   | $ | 1,953 |   |   |   |
| Interest rate spread                                            |       |                       |       |   |   | 2.60 | % |   |   |   |   | 2.92 | % |
| Net interest-earning assets                                     |       | $                          | 66,923     |   |   |   |   |   | $ | 37,071 |   |   |   |   |   |
| Net interest margin                                             |       |                       |       |   |   | 3.07 | % |   |   |   |   | 3.26 | % |
| Average earning assets to average interest bearing  liabilities |       |                       |       |   |   | 126.47 | % |   |   |   |   | 117.98 | % |
|                                                                 |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

14

----

 
| ** **                                                      | ** ** | **For Nine Months Ended** | ** ** |
|-----------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                                      | ** ** | **March 31, 2005**   | ** ** | **March 31, 2004** | ** ** |
| ** **                                                      | ** ** | **Average  Balance**      | ** ** | **Interest/  Dividends** | ** ** | **Yield/  Cost** | ** ** | **Average  Balance** | ** ** | **Interest/  Dividends** | ** ** | **Yield/  Cost** | ** ** |
| **Interest-earning  assets:**                                   |       |                      |       |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold and money market accounts                    |       | $                         | 6,622      |   | $ | 87 |   | 1.75 | % | $ | 2,227 |   | $ | 14 |   | 0.84 | % |
| Investment securities                                           |       | 150,428                   |       | 4,321 |   | 3.83 | % | 103,969 |   | 3,113 |   | 3.99 | % |
| Loans                                                           |       | 146,014                   |       | 6,451 |   | 5.89 | % | 129,085 |   | 5,926 |   | 6.12 | % |
| BOLI                                                            |       | 2,193                     |       | 65 |   | 3.95 | % | 2,088 |   | 68 |   | 4.34 | % |
| Total interest-earnings assets                                  |       | 305,257                   |       | 10,924 |   | 4.77 | % | 237,369 |   | 9,121 |   | 5.12 | % |
| Non-interest-earning assets                                     |       | 13,771                    |       |   |   |   |   | 7,896 |   |   |   |   |   |
| Total assets                                                    |       | $                         | 319,028    |   |   |   |   |   | $ | 245,265 |   |   |   |   |   |
|                                                            |       |                      |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing liabilities:**                               |       |                      |       |   |   |   |   |   |   |   |   |   |   |
| NOW accounts                                                    |       | 14,989                    |       | 96 |   | 0.85 | % | 8,397 |   | 20 |   | 0.32 | % |
| Savings and money market accounts                               |       | 91,539                    |       | 787 |   | 1.15 | % | 86,611 |   | 828 |   | 1.27 | % |
| Time deposits                                                   |       | 85,679                    |       | 1,894 |   | 2.94 | % | 77,893 |   | 1,822 |   | 3.12 | % |
| Borrowed money                                                  |       | 53,430                    |       | 1,292 |   | 3.22 | % | 27,839 |   | 852 |   | 4.08 | % |
| Total interest-bearing liabilities                              |       | 245,637                   |       | 4,069 |   | 2.21 | % | 200,740 |   | 3,522 |   | 2.34 | % |
| Non-interest-bearing demand deposits                            |       | 25,144                    |       |   |   |   |   | 20,526 |   |   |   |   |   |
| Other non-interest-bearing liabilities                          |       | 5,834                     |       |   |   |   |   | 835 |   |   |   |   |   |
| Capital accounts                                                |       | 42,413                    |       |   |   |   |   | 23,164 |   |   |   |   |   |
| Total liabilities and capital accounts                          |       | $                         | 319,028    |   |   |   |   |   | $ | 245,265 |   |   |   |   |   |
|                                                            |       |                      |       |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                             |       |                      |       | $ | 6,855 |   |   |   |   |   | $ | 5,599 |   |   |   |
| Interest rate spread                                            |       |                      |       |   |   | 2.56 | % |   |   |   |   | 2.78 | % |
| Net interest-earning assets                                     |       | $                         | 59,620     |   |   |   |   |   | $ | 36,629 |   |   |   |   |   |
| Net interest margin                                             |       |                      |       |   |   | 9.11 | % |   |   |   |   | 9.57 | % |
| Average earning assets to average interest bearing  liabilities |       |                      |       |   |   | 124.27 | % |   |   |   |   | 118.25 | % |

 

----

(1)          Yieldsand costs for the three and nine months ended March 31, 2005 and 2004 areannualized.

(2)          Netinterest spread represents the difference between the yield on averageinterest-earning assets and the cost of average interest-bearing liabilities.

(3)          Netinterest-bearing assets represent total interest-earning assets less totalinterest-bearing liabilities.

(4)          Netinterest margin represents net interest income divided by average totalinterest-earning assets.

 

**Liquidity and Capital Resources**

 

Theterm liquidity refers to the ability of the Company and the Bank to meetcurrent and future short-term financial obligations.  The Company and the Bank further defineliquidity as the ability to generate adequate amounts of cash to fund loanoriginations, deposit withdrawals and operating expenses.  Liquidity management is both a daily andlong-term function of business management. The Bank’s primary sources ofliquidity are deposits, scheduled amortization and prepayments of loanprincipal and mortgage-related securities, and Federal Home Loan Bankborrowings.  The Bank can borrow fundsfrom the Federal Home Loan Bank based on eligible collateral of loans andsecurities.  The Bank had Federal HomeLoan Bank borrowings as of March 31, 2005 of $49.3 million with unused borrowingcapacity of $76.1 million.  The Bank alsohas the ability to originate brokered CD’s as a secondary source of liquidity

 

15

----

 

TheBank’s primary investing activities are the origination of loans and thepurchase of investment securities. During the nine months ended March 31, 2005 and 2004, the Bankoriginated loans net of principal payments of approximately $15.2 million and $12.1million, respectively.  In addition, theBank purchased $9.2 million of residential mortgage loans during the ninemonths ended March 31, 2005.  There wasno loan purchases during the nine months ended March 31, 2004.  Purchases of securities totaled $93.3 millionand $31.4 million, for the nine  monthsended March 31, 2005 and 2004, respectively.  The primary reason for the increased securitypurchases for 2005 is the money on deposit at the Bank during the Company’sstock subscription period was invested in short term investments.

 

Loanrepayment and maturing investment securities are a relatively predictablesource of funds.  However, deposit flows,calls of investment securities and prepayments of loans and mortgage-backedsecurities are strongly influenced by interest rates, general and economicconditions and competition in the marketplace. These factors reduce the predictability of the timing of these sourcesof funds.  Deposit flows are affected bythe level of interest rates, by the interest rates and products offered bycompetitors and by other factors.  TheBank monitors its liquidity position frequently and anticipates that it willhave sufficient funds to meet its current funding commitments.

 

Certificatesof deposits totaled $86.1 million at March 31, 2005. The Bank relies oncompetitive rates, customer service and long-standing relationships withcustomers to retain deposits.  Based onthe Bank’s experience with deposit retention and current retention strategies,management believes that, although it is not possible to predict future termsand conditions upon renewal, a significant portion of such deposits will remainwith the Bank.

 

TheBank was well capitalized at March 31, 2005 and exceeded each of theapplicable regulatory capital requirements at such date.  The table below presents the capital requiredand maintained at March 31, 2005.

 
| ** **                | ** ** | **Required** | ** ** | **Actual** | ** ** |
|---------------------------|------------|--------------|------------|------------|------------|
| Tier 1 Capital            |       | 4            | %          | 12.22      | %          |
| Total Risk Based Capital  |       | 8            | %          | 21.88      | %          |
| Tier 1 Risk Based Capital |       | 8            | %          | 21.06      | %          |

 

Managementis not aware of any known trends, events or uncertainties that will have or arereasonably likely to have a material effect on the Company’s or the Bank’sliquidity, capital or operations, nor is management aware of any currentrecommendations by regulatory authorities which, if implemented, would have amaterial effect on the Company’s or the Bank’s liquidity, capital oroperations.

 

**Off-Balance Sheet Arrangements**

 

Inaddition to the normal course of operations, we engage in a variety offinancial transactions that, in accordance with generally accepted accountingprinciples are not recorded in our financial statements.  These transactions involve, to varyingdegrees, elements of credit, interest rate, and liquidity risk.  Such transactions are used primarily to managecustomers’ requests for funding and take the form of loan commitments, lines ofcredit, and letters of credit.

 

Forthe nine months ended March 31, 2005, we engaged in no off-balance sheettransactions reasonably likely to have a material effect on our financialcondition, results of operations or cash flows.

 

16

----

 

**Item 3. Controls****and Procedures**

 

Underthe supervision and with the participation of the Company’s management,including its Chief Executive Officer and Chief Financial Officer, the Companyevaluated the effectiveness of the design and operation of its disclosurecontrols and procedures (as defined in Rule 13a-15(e) and Rule 15(d)-15(e) underthe Exchange Act) as of the end of the period covered by this report.  Basedupon that evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that, as of the end of the period covered by this report, the Company’sdisclosure controls and procedures were effective to ensure that informationrequired to be disclosed in the reports that the Company files or submits underthe Exchange Act is recorded, processed, summarized and reported within thetime periods specified in the Securities and Exchange Commission’s rules andforms and in timely altering them to material information relating to theCompany (or its consolidated subsidiaries) required to be filed in its periodicSEC filings.

 

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

 

**Part II. – OTHER INFORMATION**

 

**Item 1.****           LegalProceedings****– Not applicable**

**Item 2.****           UnregisteredSales****of Equity Securities and Use of Proceeds**

 

Completion of the Company’s stock offering resulted in the issuance of 6,943,125 shares of common stock, 3,729,846 shares (53.7%) of which were issued to the MHC and 3,089,691 shares (44.5%) of which were sold to eligible depositors of the Bank at $10.00 per share. In addition, the Company issued 123,588 (1.8%) shares to a charitable foundation established by Putnam Savings Bank.  Costs related to the Offering (primarily marketing fees paid to an underwriting firm, professional fees, registration fees, and printing and mailing costs) aggregated $1.1 million and have been deducted to arrive at net proceeds of $29.8 million from the Offering. The Company contributed 50% of the net proceeds of the Offering to the Bank for general corporate use. Net Offering proceeds retained by the Company were used to acquire investments and fund a loan to the Bank’s employee stock ownership plan.

 

**Item 3.****           DefaultsUpon****Senior Securities – Not applicable**

**Item 4.****           Submissionof Matters****to a Vote of Security Holders– Not applicable**

**Item 5.****           OtherInformation****– Not applicable**

**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.                                                                  |

 

17

----

 

**SIGNATURES**

 

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

 
| ** ** | **PSB  HOLDINGS, INC.**                |
|------------|----------------------------------------|
|       | (Registrant)                           |
|       |                                   |
|       |                                   |
| Date       |                                   |   | /s/ Robert G.  Cocks, Jr. |   |
|       | Robert G. Cocks,  Jr.                  |
|       | President and  Chief Executive Officer |
|       |                                   |
|       |                                   |
| Date       |                                   |   | /s/ Robert J.  Halloran, Jr. |   |
|       | Robert J.  Halloran, Jr.               |
|       | Vice President  and Treasurer          |

 

18

----