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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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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 September 30, 2006



| ̈ | 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.

Yes  x    No ̈

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

Yes ̈No  x

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 September 30, 2006, there were 6,804,628 shares of the registrants common
stock outstanding.

Transitional Small Business Disclosure Format    Yes ̈No  x



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##### Table of Contents

PSB Holdings, Inc.

Table of Contents



|           |  |                                                                                                                |  |         
|---------- |  | -------------------------------------------------------------------------------------------------------------- |  | --------
|           |  |                                                                                                                |  | Page No.
|Part I.    |  | FINANCIAL INFORMATION                                                                                          |  |         
|           |  |                                                                                                               
|Item 1.    |  | Financial Statements                                                                                           |  |         
|           |  |                                                                                                               
|           |  | Consolidated Statements of Financial Condition at September 30, 2006 (Unaudited) and June 30, 2006 (Unaudited) |  | 1       
|           |  |                                                                                                               
|           |  | Consolidated Statements of Income for the Three Months Ended September 30, 2006 and 2005 (Unaudited)           |  | 2       
|           |  |                                                                                                               
|           |  | Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2006 and 2005 (Unaudited)       |  | 3       
|           |  |                                                                                                               
|           |  | Notes to Financial Statements (Unaudited)                                                                      |  | 4       
|           |  |                                                                                                               
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                          |  | 12      
|           |  |                                                                                                               
|Item 3.    |  | Controls and Procedures                                                                                        |  | 20      
|           |  |                                                                                                               
|Part II.   |  | OTHER INFORMATION                                                                                              |  |         
|           |  |                                                                                                               
|Item 1.    |  | Legal Proceedings                                                                                              |  | 20      
|           |  |                                                                                                               
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                    |  | 20      
|           |  |                                                                                                               
|Item 3.    |  | Defaults Upon Senior Securities                                                                                |  | 20      
|           |  |                                                                                                               
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                            |  | 20      
|           |  |                                                                                                               
|Item 5.    |  | Other Information                                                                                              |  | 20      
|           |  |                                                                                                               
|Item 6.    |  | Exhibits                                                                                                       |  | 20      
|           | 
|SIGNATURES |  | 21                                                                                                            



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##### Table of Contents

Part I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

PSB Holdings, Inc.

Consolidated Statements of Financial Condition

(Unaudited)



|                                                                                                                                                                                          |  |                                   |         |   |              |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                                                                          |  | September 30,2006                 |         |   | June 30,2006 |  
|                                                                                                                                                                                          |  | (in thousands ,except share data) |        
|ASSETS                                                                                                                                                                                    |  |                                   |         |   |              |   |         |  
|Cash and due from depository institutions                                                                                                                                                 |  | $                                 | 7,052   |   |              | $ | 6,695   |  
|Federal funds sold and money market accounts                                                                                                                                              |  |                                   | 3,805   |   |              |   | 1,500   |  
|Available-for-sale securities, at fair value                                                                                                                                              |  |                                   | 229,210 |   |              |   | 245,107 |  
|Loans receivable, gross                                                                                                                                                                   |  |                                   | 211,527 |   |              |   | 202,053 |  
|Allowance for loan losses                                                                                                                                                                 |  |                                   | (1,647  | ) |              |   | (1,582  | )
|                                                                                                                                                                                          |  |                                   |         |   |              |   |         |  
|Loans receivable, net                                                                                                                                                                     |  |                                   | 209,880 |   |              |   | 200,471 |  
|Premises and equipment, net                                                                                                                                                               |  |                                   | 4,424   |   |              |   | 4,504   |  
|Intangible assets                                                                                                                                                                         |  |                                   | 8,199   |   |              |   | 8,265   |  
|Other assets                                                                                                                                                                              |  |                                   | 7,104   |   |              |   | 7,911   |  
|                                                                                                                                                                                          |  |                                   |         |   |              |   |         |  
|TOTAL ASSETS                                                                                                                                                                              |  | $                                 | 469,674 |   |              | $ | 474,453 |  
|                                                                                                                                                                                          |  |                                   |         |   |              |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                      |  |                                   |         |   |              |   |         |  
|Liabilities                                                                                                                                                                               |  |                                   |         |   |              |   |         |  
|Deposits                                                                                                                                                                                  |  | $                                 | 301,119 |   |              | $ | 296,965 |  
|Borrowed funds                                                                                                                                                                            |  |                                   | 114,634 |   |              |   | 124,593 |  
|Mortgagors escrow accounts                                                                                                                                                               |  |                                   | 635     |   |              |   | 1,130   |  
|Other liabilities                                                                                                                                                                         |  |                                   | 2,578   |   |              |   | 2,853   |  
|                                                                                                                                                                                          |  |                                   |         |   |              |   |         |  
|Total Liabilities                                                                                                                                                                         |  |                                   | 418,966 |   |              |   | 425,541 |  
|                                                                                                                                                                                          |  |                                  
|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, 6,804,628 shares outstanding at September 30, 2006
and 6,808,764 shares outstanding at June 30, 2006 |  |                                   | 694     |   |              |   | 694     |  
|Additional paid-in capital                                                                                                                                                                |  |                                   | 30,454  |   |              |   | 30,454  |  
|Unearned ESOP shares                                                                                                                                                                      |  |                                   | (2,347  | ) |              |   | (2,347  | )
|Unearned stock awards                                                                                                                                                                     |  |                                   | (1,219  | ) |              |   | (1,219  | )
|Retained earnings                                                                                                                                                                         |  |                                   | 25,563  |   |              |   | 25,219  |  
|Treasury stock, at cost (138,497 shares at September 30, 2006 and 134,361 shares at June 30, 2006)                                                                                        |  |                                   | (1,495  | ) |              |   | (1,437  | )
|Accumulated other comprehensive income (loss)                                                                                                                                             |  |                                   | (942    | ) |              |   | (2,452  | )
|                                                                                                                                                                                          |  |                                   |         |   |              |   |         |  
|Total Stockholders Equity                                                                                                                                                                |  |                                   | 50,708  |   |              |   | 48,912  |  
|                                                                                                                                                                                          |  |                                   |         |   |              |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                |  | $                                 | 469,674 |   |              | $ | 474,453 |  
|                                                                                                                                                                                          |  |                                   |         |   |              |   |         |  

See notes to consolidated financial statements.



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PSB Holdings, Inc.

Consolidated Statements of Income

(Unaudited)



|                                                    |  |                                   |       |      |   |      
|--------------------------------------------------- |  | --------------------------------- | ----- | ---- | - | -----
|                                                    |  | Three Months EndedSeptember 30,  
|                                                    |  | 2006                              |       | 2005
|                                                    |  | (in thousands, except share data)
|Interest income:                                    |  |                                   |       |      |   |      
|Interest on loans                                   |  | $                                 | 3,310 |      | $ | 2,561
|Interest and dividends on investments and deposits  |  |                                   | 2,985 |      |   | 1,603
|                                                    |  |                                   |       |      |   |      
|Total interest income                               |  |                                   | 6,295 |      |   | 4,164
|Interest expense:                                   |  |                                   |       |      |   |      
|Deposits and escrow                                 |  |                                   | 1,943 |      |   | 1,127
|Borrowed funds                                      |  |                                   | 1,687 |      |   | 595  
|                                                    |  |                                   |       |      |   |      
|Total interest expense                              |  |                                   | 3,630 |      |   | 1,722
|                                                    |  |                                   |       |      |   |      
|Net interest income                                 |  |                                   | 2,665 |      |   | 2,442
|Provision for loan losses                           |  |                                   | 85    |      |   | 20   
|                                                    |  |                                   |       |      |   |      
|Net interest income after provision for loan losses |  |                                   | 2,580 |      |   | 2,422
|Noninterest income:                                 |  |                                   |       |      |   |      
|Fees for services                                   |  |                                   | 578   |      |   | 281  
|Net gain on sale of loans                           |  |                                   | 24    |      |   | 30   
|Net commissions from brokerage service              |  |                                   | 41    |      |   | 29   
|Other income                                        |  |                                   | 60    |      |   | 48   
|Net investment security gains                       |  |                                   |      |      |   | 120  
|                                                    |  |                                   |       |      |   |      
|Total noninterest income                            |  |                                   | 703   |      |   | 508  
|Noninterest expense:                                |  |                                   |       |      |   |      
|Compensation and benefits                           |  |                                   | 1,461 |      |   | 1,174
|Occupancy and equipment                             |  |                                   | 340   |      |   | 243  
|Data processing                                     |  |                                   | 196   |      |   | 153  
|Advertising and marketing                           |  |                                   | 100   |      |   | 57   
|Other noninterest expense                           |  |                                   | 601   |      |   | 458  
|                                                    |  |                                   |       |      |   |      
|Total noninterest expense                           |  |                                   | 2,698 |      |   | 2,085
|                                                    |  |                                   |       |      |   |      
|Income before income tax expense                    |  |                                   | 585   |      |   | 845  
|Income tax expense                                  |  |                                   | 78    |      |   | 233  
|                                                    |  |                                   |       |      |   |      
|NET INCOME                                          |  | $                                 | 507   |      | $ | 612  
|                                                    |  |                                   |       |      |   |      
|Earnings per common share                           |  |                                   |       |      |   |      
|Basic                                               |  | $                                 | 0.08  |      | $ | 0.09 
|Dilutive                                            |  | $                                 | 0.07  |      | $ | 0.09 
|                                                    |  |                                   |       |      |   |      

See notes to consolidated financial statements.



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PSB Holdings, Inc.

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                              |  |                                         |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                              |  | For the Three MonthsEnded September 30, |        
|                                                                              |  | 2006                                    |         |   | 2005 |  
|                                                                              |  | (in thousands)                          |        
|Cash flows from operating activities                                          |  |                                         |         |   |      |   |         |  
|Net income                                                                    |  | $                                       | 507     |   |      | $ | 612     |  
|Adjustments to reconcile net income to cash provided by operating activities: |  |                                         |         |   |      |   |         |  
|Provision for loan losses                                                     |  |                                         | 85      |   |      |   | 20      |  
|Stock-based compensation expense                                              |  |                                         | 90      |   |      |   |        |  
|Amortization of core deposit intangible                                       |  |                                         | 66      |   |      |   |        |  
|Depreciation                                                                  |  |                                         | 149     |   |      |   | 130     |  
|Net amortization on available-for-sale securities                             |  |                                         | (29     | ) |      |   | 99      |  
|Amortization of premium on purchased loans                                    |  |                                         | 12      |   |      |   | 12      |  
|Net realized investment security gains                                        |  |                                         |        |   |      |   | (120    | )
|Originations of loans for resale                                              |  |                                         | (2,884  | ) |      |   | (3,056  | )
|Proceeds from sale of loans                                                   |  |                                         | 2,908   |   |      |   | 2,580   |  
|Gain on sale of loans                                                         |  |                                         | (24     | ) |      |   | (30     | )
|Net change in:                                                                |  |                                         |         |   |      |   |         |  
|Deferred loan fees                                                            |  |                                         | (108    | ) |      |   | (36     | )
|Other assets                                                                  |  |                                         | (157    | ) |      |   | (206    | )
|Other liabilities                                                             |  |                                         | (360    | ) |      |   | (268    | )
|                                                                              |  |                                         |         |   |      |   |         |  
|Net cash provided(used) by operating activities                               |  |                                         | 255     |   |      |   | (263    | )
|                                                                              |  |                                         |         |   |      |   |         |  
|Cash flows from investing activities                                          |  |                                         |         |   |      |   |         |  
|Proceeds from sales of available-for-sale securities                          |  |                                         |        |   |      |   | 1,377   |  
|Proceeds from maturities of available-for-sale securities                     |  |                                         | 27,894  |   |      |   | 16,695  |  
|Purchase of available-for-sale securities                                     |  |                                         | (9,494  | ) |      |   | (19,975 | )
|Loan originations net of principal payments                                   |  |                                         | (9,398  | ) |      |   | (5,563  | )
|Purchase of premises and equipment                                            |  |                                         | (69     | ) |      |   | (163    | )
|                                                                              |  |                                         |         |   |      |   |         |  
|Net cash provided(used) by investing activities                               |  |                                         | 8,933   |   |      |   | (7,629  | )
|                                                                              |  |                                         |         |   |      |   |         |  
|Cash flows from financing activities                                          |  |                                         |         |   |      |   |         |  
|Change in savings and demand deposit accounts                                 |  |                                         | (14,066 | ) |      |   | (2,205  | )
|Change in time deposit accounts                                               |  |                                         | 18,220  |   |      |   | 16,163  |  
|Proceeds from long term borrowings                                            |  |                                         | 37,425  |   |      |   | 5,000   |  
|Repayments of long term borrowings                                            |  |                                         | (22,906 | ) |      |   | (151    | )
|Net change in short term borrowings                                           |  |                                         | (24,478 | ) |      |   | (8,048  | )
|Change in mortgagors escrow account                                          |  |                                         | (495    | ) |      |   | (479    | )
|Acquisition of treasury stock                                                 |  |                                         | (58     | ) |      |   |        |  
|Dividends paid                                                                |  |                                         | (168    | ) |      |   | (148    | )
|                                                                              |  |                                         |         |   |      |   |         |  
|Net cash provided(used) by financing activities                               |  |                                         | (6,526  | ) |      |   | 10,132  |  
|                                                                              |  |                                         |         |   |      |   |         |  
|Increase(decrease) in cash and cash equivalents                               |  |                                         | 2,662   |   |      |   | 2,240   |  
|Cash and cash equivalents at beginning of year                                |  |                                         | 8,195   |   |      |   | 7,705   |  
|                                                                              |  |                                         |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                    |  | $                                       | 10,857  |   |      | $ | 9,945   |  
|                                                                              |  |                                         |         |   |      |   |         |  
|Supplemental disclosures                                                      |  |                                         |         |   |      |   |         |  
|Cash paid during the year for:                                                |  |                                         |         |   |      |   |         |  
|Interest                                                                      |  | $                                       | 3,765   |   |      | $ | 1,629   |  
|Income taxes                                                                  |  | $                                       | 163     |   |      | $ | 162     |  

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 Savings
Bank (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 Putnam Savings Bank.

Costs incurred in connection with the offering were recorded as a reduction of the proceeds from the offering and amounted to $1.1 million.

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 the year ending June 30, 2007.

NOTE 3
 Recent Accounting Pronouncements

In March 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 156, Accounting for Servicing of Financial Assets - an amendment of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to simplify the
accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective as of the beginning of an entitys first fiscal year that begins after September 15, 2006. The Company does not expect SFAS
No. 156 to have a material impact on the Companys financial position or results of operation.



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In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB No. 109. This Interpretation prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. The Company is currently
assessing the impact of the Interpretation on its financial statements.

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 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 does not expect SFAS No. 158 to have a material impact on
the Companys financial position or results of operation.



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NOTE 4  Earnings Per Share

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

The following information was used in the computation of EPS on both a basic and diluted basis
for the three months ended September 30, 2006 and September 30, 2005:



|                                      |  |                                      |           |                                      |   |          
|------------------------------------- |  | ------------------------------------ | --------- | ------------------------------------ | - | ---------
|                                      |  | Three Months EndedSeptember 30, 2006 |           | Three Months EndedSeptember 30, 2005
|Basic EPS computation:                |  |                                      |           |                                      |   |          
|Net income                            |  | $                                    | 507,000   |                                      | $ | 612,000  
|                                      |  |                                      |           |                                      |   |          
|Weighted average shares outstanding   |  |                                      | 6,690,657 |                                      |   | 6,943,125
|Basic EPS                             |  | $                                    | 0.08      |                                      | $ | 0.09     
|                                      |  |                                      |           |                                      |   |          
|Diluted EPS computation:              |  |                                      |           |                                      |   |          
|Net income                            |  | $                                    | 507,000   |                                      | $ | 612,000  
|                                      |  |                                      |           |                                      |   |          
|Weighted average shares outstanding   |  |                                      | 6,690,657 |                                      |   | 6,943,125
|Dilutive potential shares outstanding |  |                                      | 119,438   |                                      |   | 0        
|                                      |  |                                      |           |                                      |   |          
|                                      |  |                                      | 6,810,095 |                                      |   | 6,943,125
|Diluted EPS                           |  | $                                    | 0.07      |                                      | $ | 0.09     
|                                      |  |                                      |           |                                      |   |          

NOTE 5  Acquisitions

On October 14, 2005, the Company completed its acquisition of three branches from Peoples Bank, Bridgeport, Connecticut. The acquisition included $60.6 million in deposits, $233,000 in loans and $150,000 in
fixed assets.



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NOTE 6  Investment Securities

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



|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|--------------------------------------- |  | -------------------- | ------- | ---------------- | -------- | --- | ---------- | - | ------ | - |  | - | -------
|                                        |  | September 30, 2006  
|                                        |  | Amortized Cost Basis |         | Gross Unrealized |          |     | Fair Value
|                                        |  |                      | Gains   |                  | (Losses) |     |           
|                                        |  | (in thousands)      
|Debt securities:                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|U.S. government and agency obligations: |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Due within one year                     |  | $                    | 16,018  |                  | $        |    |            | $ | (187   | ) |  | $ | 15,831 
|From one through five years             |  |                      | 22,928  |                  |          | 23  |            |   | (268   | ) |  |   | 22,683 
|From five through ten years             |  |                      | 1,784   |                  |          | 7   |            |   |       |   |  |   | 1,791  
|After 10 years                          |  |                      | 4,976   |                  |          |    |            |   | (6     | ) |  |   | 4,970  
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|                                        |  |                      | 45,706  |                  |          | 30  |            |   | (461   | ) |  |   | 45,275 
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|State agency and municipal obligations: |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|From five through ten years             |  |                      | 609     |                  |          | 17  |            |   |       |   |  |   | 626    
|After ten years                         |  |                      | 8,516   |                  |          | 392 |            |   |       |   |  |   | 8,908  
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|                                        |  |                      | 9,125   |                  |          | 409 |            |   |       |   |  |   | 9,534  
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Corporate bonds and other obligations:  |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Due within one year                     |  |                      | 5,591   |                  |          | 1   |            |   | (41    | ) |  |   | 5,551  
|From one through five years             |  |                      | 9,812   |                  |          | 22  |            |   | (23    | ) |  |   | 9,811  
|After ten years                         |  |                      | 8,043   |                  |          | 285 |            |   | (153   | ) |  |   | 8,175  
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|                                        |  |                      | 23,446  |                  |          | 308 |            |   | (217   | ) |  |   | 23,537 
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Mortgage-backed securities              |  |                      | 109,658 |                  |          | 174 |            |   | (1,786 | ) |  |   | 108,046
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Total debt securities                   |  |                      | 187,935 |                  |          | 921 |            |   | (2,464 | ) |  |   | 186,392
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Marketable equity securities:           |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Preferred stock                         |  |                      | 36,200  |                  |          |    |            |   |       |   |  |   | 36,200 
|FHLB restricted stock                   |  |                      | 6,618   |                  |          |    |            |   |       |   |  |   | 6,618  
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Total equity securities                 |  |                      | 42,818  |                  |          |    |            |   |       |   |  |   | 42,818 
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Total available-for-sale securities     |  | $                    | 230,753 |                  | $        | 921 |            | $ | (2,464 | ) |  | $ | 229,210
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        



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NOTE 6  Investment Securities (Continued)



|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|--------------------------------------- |  | -------------------- | ------- | ---------------- | -------- | --- | ---------- | - | ------ | - |  | - | -------
|                                        |  | June 30, 2006       
|                                        |  | Amortized Cost Basis |         | Gross Unrealized |          |     | Fair Value
|                                        |  |                      | Gains   |                  | (Losses) |     |           
|                                        |  | (in thousands)      
|Debt securities:                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|U.S. government and agency obligations: |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Due within one year                     |  | $                    | 14,025  |                  | $        |    |            | $ | (180   | ) |  | $ | 13,845 
|From one through five years             |  |                      | 27,010  |                  |          |    |            |   | (619   | ) |  |   | 26,391 
|From five through ten years             |  |                      | 1,851   |                  |          |    |            |   | (49    | ) |  |   | 1,802  
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|                                        |  |                      | 42,886  |                  |          |    |            |   | (848   | ) |  |   | 42,038 
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|State agency and municipal obligations: |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|From five through ten years             |  |                      | 609     |                  |          | 10  |            |   |       |   |  |   | 619    
|After ten years                         |  |                      | 8,515   |                  |          | 279 |            |   |       |   |  |   | 8,794  
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|                                        |  |                      | 9,124   |                  |          | 289 |            |   |       |   |  |   | 9,413  
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Corporate bonds and other obligations:  |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Due within one year                     |  |                      | 6,797   |                  |          |    |            |   | (45    | ) |  |   | 6,752  
|From one through five years             |  |                      | 9,890   |                  |          |    |            |   | (130   | ) |  |   | 9,760  
|After ten years                         |  |                      | 8,043   |                  |          | 198 |            |   | (172   | ) |  |   | 8,069  
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|                                        |  |                      | 24,730  |                  |          | 198 |            |   | (347   | ) |  |   | 24,581 
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Mortgage-backed securities              |  |                      | 113,808 |                  |          | 81  |            |   | (3,389 | ) |  |   | 110,500
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Total debt securities                   |  |                      | 190,548 |                  |          | 568 |            |   | (4,584 | ) |  |   | 186,532
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Marketable equity securities:           |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Preferred stock                         |  |                      | 52,198  |                  |          |    |            |   |       |   |  |   | 52,198 
|FHLB restricted stock                   |  |                      | 6,377   |                  |          |    |            |   |       |   |  |   | 6,377  
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Total equity securities                 |  |                      | 58,575  |                  |          |    |            |   |       |   |  |   | 58,575 
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        
|Total available-for-sale securities     |  | $                    | 249,123 |                  | $        | 568 |            | $ | (4,584 | ) |  | $ | 245,107
|                                        |  |                      |         |                  |          |     |            |   |        |   |  |   |        

There were no gross gains and no gross losses realized on available-for-sale securities for the three months ended
September 30, 2006, as compared to gross gains of $132,000 and gross losses of $12,000 for the three months ended September 30, 2005.



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NOTE 7  Allowance for Loan Losses

The following summarizes the changes in the allowance for loan losses for the three months ended September 30, 2006, as compared to the year-ago periods:



|                                                  |  |                                 |       |   |      |   |       |  
|------------------------------------------------- |  | ------------------------------- | ----- | - | ---- | - | ----- | -
|                                                  |  | Three MonthsEnded September 30, |      
|                                                  |  | 2006                            |       |   | 2005 |  
|                                                  |  | (in thousands)                  |      
|Balance, beginning of period                      |  | $                               | 1,582 |   |      | $ | 1,359 |  
|Provision for loan losses                         |  |                                 | 85    |   |      |   | 20    |  
|Charge offs                                       |  |                                 | (24   | ) |      |   | (11   | )
|Recoveries                                        |  |                                 | 4     |   |      |   |      |  
|Transfer from reserve for off-balance sheet items |  |                                 |      |   |      |   | 98    |  
|                                                  |  |                                 |       |   |      |   |       |  
|Balance, end of period                            |  | $                               | 1,647 |   |      | $ | 1,466 |  
|                                                  |  |                                 |       |   |      |   |       |  

At September 30, 2006 and 2005, the Company had loans with balances of $1,447,397 (representing 5 loans) and
$107,667 (representing 4 loans), respectively, on nonaccrual status. At September 30, 2006, two loans totaling $1,313,081 were considered impaired and had an allocated allowance for loan loss of $65,654. There were no impaired loans as of
September 30, 2005.

NOTE 8  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 (see Note 5). 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 September 30, 2006 was $6.9 million and $1.3
million, respectively. The amortization expense related to the core deposit intangible was $65,570 for the three months ended September 30, 2006.



|                        |  |                     |           |                         |   |                             |  |   |          
|----------------------- |  | ------------------- | --------- | ----------------------- | - | --------------------------- |  | - | ---------
|                        |  | September 30, 2006 
|                        |  | GrossCarryingAmount |           | AccumulatedDepreciation |   | UnamortizedIntangibleAssets
|Intangible Assets:      |  |                     |           |                         |   |                             |  |   |          
|Core Deposit Intangible |  | $                   | 1,552,521 |                         | $ | 265,516                     |  | $ | 1,287,005
|                        |  |                     |           |                         |   |                             |  |   |          



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



|                                     |  |                        |          
|------------------------------------ |  | ---------------------- | ---------
|                                     |  | Core DepositIntangible
|Nine months ending June 30, 2007     |  | $                      | 196,712  
|Year ending June 30, 2008            |  |                        | 234,054  
|Year ending June 30, 2009            |  |                        | 205,827  
|Year ending June 30, 2010            |  |                        | 177,599  
|Year ending June 30, 2011            |  |                        | 149,371  
|Year ending June 30, 2012            |  |                        | 121,144  
|Year ending June 30, 2013            |  |                        | 92,916   
|Year ending June 30, 2014            |  |                        | 64,688   
|Year ending June 30, 2015            |  |                        | 36,461   
|Year ending June 30, 2016            |  |                        | 8,233    
|                                     |  |                        |          
|Total estimated amortization expense |  | $                      | 1,287,005
|                                     |  |                        |          

NOTE 9  Comprehensive Income

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



|                                                                                   |  |                                 |       |      |   |        |  
|---------------------------------------------------------------------------------- |  | ------------------------------- | ----- | ---- | - | ------ | -
|                                                                                   |  | Three Months EndedSeptember 30, |      
|                                                                                   |  | 2006                            |       | 2005 |  
|                                                                                   |  | (in thousands)                  |      
|Net Income                                                                         |  | $                               | 507   |      | $ | 612    |  
|                                                                                   |  |                                 |       |      |   |        |  
|Other comprehensive income(loss):                                                  |  |                                 |       |      |   |        |  
|Net unrealized holding gains(losses) on available-for-sale securities              |  |                                 | 2,473 |      |   | (1,150 | )
|Reclassification adjustment for gain recognized in net income                      |  |                                 |      |      |   | (120   | )
|                                                                                   |  |                                 |       |      |   |        |  
|Other comprehensive gains(loss) before tax expense                                 |  |                                 | 2,473 |      |   | (1,270 | )
|Income tax expense (benefit) related to items of other comprehensive income (loss) |  |                                 | 963   |      |   | (495   | )
|                                                                                   |  |                                 |       |      |   |        |  
|Other comprehensive income (loss) net of tax                                       |  |                                 | 1,510 |      |   | (775   | )
|                                                                                   |  |                                 |       |      |   |        |  
|Total comprehensive income (loss)                                                  |  | $                               | 2,017 |      | $ | (163   | )
|                                                                                   |  |                                 |       |      |   |        |  



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NOTE 10  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. 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.

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. 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.

The Company has elected to comply with the Financial Accounting Standards Boards SFAS No.123(R),
Share Based Payment, beginning with the period ended December 31, 2005, prior to the mandatory compliance date for the Company of July 1, 2006. 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 of $90,000 for the three months ended September 30, 2006 in connection with the stock option and restricted stock awards.

The weighted-average fair value of stock options granted on November 7, 2005 and June 7, 2006 using the Black-Scholes option pricing method was $2.00 per share
and $1.97 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 |  
|Dividend yield         |  |                       | 1.89  | % |                   |   | 2.23  | %
|Expected volatility    |  |                       | 12.65 | % |                   |   | 12.17 | %
|Risk-free rate         |  |                       | 4.56  | % |                   |   | 4.95  | %
|Expected life in years |  |                       | 6.5   |   |                   |   | 6.5   |  
|Fair value             |  | $                     | 2.00  |   |                   | $ | 1.97  |  

NOTE 11  Dividends

On September 20, 2006, the Board of Directors of the Company declared a cash dividend of $0.06 a share for stockholders of record as of October 5, 2006 and payable on October 20, 2006. The dividends
declared totaling $184,487 were accrued and are included in other liabilities in the September 30, 2006 Consolidated Statements of Financial Condition. Putnam Bancorp, MHC, the mutual holding company, waived the receipt of the dividend declared
by the Company.



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NOTE 12  Commitment to Extend Credit

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

The contractual amounts of outstanding commitments were as follows:



|                              |  |                   |        |              |   |       
|----------------------------- |  | ----------------- | ------ | ------------ | - | ------
|                              |  | September 30,2006 |        | June 30,2006
|                              |  | (in thousands)   
|Commitments to extend credit: |  |                   |        |              |   |       
|Loan commitments              |  | $                 | 9,049  |              | $ | 6,160 
|Unadvanced construction loans |  |                   | 5,664  |              |   | 5,486 
|Unadvanced lines of credit    |  |                   | 15,047 |              |   | 15,368
|Standby letters of credit     |  |                   | 2,087  |              |   | 1,128 
|                              |  |                   |        |              |   |       
|Outstanding commitments       |  | $                 | 31,847 |              | $ | 28,142
|                              |  |                   |        |              |   |       



|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 ended September 30, 2006 and 2005, and should be read in conjunction with the
Companys Condensed Consolidated Financial Statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report. These financial statements should be read in conjunction with the 2006 consolidated financial statements and
notes thereto included in the Companys Form 10-KSB filed with the SEC on September 15, 2006.

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



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##### Table of Contents

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 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 September 30, 2006, the cost of our interest-bearing liabilities continued to increase more rapidly than yields on our
interest-earning assets, reflecting the inverted yield curve. This has reduced the Company's net interest margin from 2.96% for the three months ended September 30, 2005 to 2.35% for the three months ended September 30,
2006. In addition, noninterest expense increased 29.4% in the current period compared to the prior year period, reflecting in part the impact of our branch acquisition completed on October 14, 2005. These effects were partially
offset by a 38.3% increase in non-interest income in the current period compared to the prior year period.

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 and goodwill.

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.

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



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##### Table of Contents

Comparison of Financial Condition at September 30, 2006 and June 30, 2006

Assets

Total assets of the Company were $469.7 million at
September 30, 2006, a decrease of $4.8 million, or 1.0%, from $474.5 million at June 30, 2006. Investments in available-for-sale securities decreased $15.9 million, or 6.5%, to $229.2 million at September 30, 2006 compared to $245.1
million at June 30, 2006. Total loans outstanding increased $9.5 million, or 4.7%, to $211.5 million at September 30, 2006 from $202.0 million at June 30, 2006. This increase was due to an increase of $8.1 million, or 5.3%, in
residential mortgage loans. In addition, commercial loans increased $1.4 million, or 2.9%, from June 30, 2006 to September 30, 2006, which reflected the continued strong performance by the Companys Business Banking Group.

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 September 30, 2006 and June 30, 2006.

Past due and Nonperforming loans

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



|                                              |  |                   |       |              |   |      
|--------------------------------------------- |  | ----------------- | ----- | ------------ | - | -----
|                                              |  | September 30,2006 |       | June 30,2006
|                                              |  | (in thousands)   
|Past due 30 days through 89 days and accruing |  | $                 | 1,297 |              | $ | 552  
|Past due 90 days or more and accruing         |  | $                 |      |              | $ | 75   
|Past due 90 days or more and nonaccruing      |  | $                 | 1,447 |              | $ | 1,376

Liabilities

Total liabilities decreased $6.5 million, or 1.5%, to $419.0 million at September 30, 2006 from $425.5 million at June 30, 2006, primarily due to a decrease in borrowed funds of $10.0 million, or 8.0%, which was partially offset
by an increase in deposits of $4.2 million, or 1.4%.

Stockholders Equity

Total stockholders equity increased $1.8 million, or 3.7%, to $50.7 million at September 30, 2006 from $48.9 million at June 30, 2006. This was primarily due to the decrease in the accumulated other
comprehensive income (loss) of $1.5 million and net income of $507,000. During the three months ended September 30, 2006, 4,136 shares of the Companys stock were repurchased at a total cost of $43,983. The unrealized loss in the
available-for-sale securities was attributable solely to interest rate movements. Management does not consider the loss to be other than temporary.



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##### Table of Contents

Comparison of Operating Results for the Three Months Ended September 30, 2006 and 2005

Net Income

Net income decreased $105,000, or 17.2%, to $507,000 for
the three months ended September 30, 2006 from net income of $612,000 for the three months ended September 30, 2005. The decrease in net income resulted primarily from a $120,000 gain on sale of securities realized during the three months
ended September 30, 2005. There were no realized gains or losses on securities during the three months ended September 30, 2006. In addition, there was an increase in noninterest expense for the three months ended September 30, 2006,
which was partially offset by an improvement in net interest income and noninterest income.

Interest and Dividend Income

Interest and dividend income increased by $2.1 million, or 51.2%, to $6.3 million for the three months ended September 30, 2006 from $4.2 million for the three
months ended September 30, 2005. The increase in interest and dividend income resulted primarily from an increase of $122.1 million, or 37.3%, in average interest-earning assets and an increase of 52 basis points in the average yield on our
interest-earning assets between the periods. This increase was primarily due to the net cash from the recently completed branch acquisitions being deployed into loans and investments. The yield on total interest-earning assets increased to 5.56% for
the three months ended September 30, 2006 from 5.04% for the three months ended September 30, 2005. Interest income on loans increased by $749,000, or 29.2%, to $3.3 million from $2.6 million. Interest and dividends on investments and
deposits increased $1.4 million, or 86.2%, to $3.0 million for the three months ended September 30, 2006 from $1.6 million for the three months ended September 30, 2005.

Interest Expense

Interest expense increased by $1.9 million, or 111.8%, to $3.6 million for three months ended
September 30, 2006 from $1.7 million for the three months ended September 30, 2005. The increase in interest expense resulted primarily from an increase in average interest-bearing liabilities of $120.9 million, or 46.0%, from period to
period and an increase of 116 basis points in the average cost of our interest-bearing liabilities to 3.76% for the three months ended September 30, 2006 from 2.60% for the three months ended September 30, 2005. The increase in average
interest-bearing liabilities reflected an increase of $56.9 million in average interest-bearing deposits and an increase of $64.0 million in average other borrowed money from September 30, 2005 to September 30, 2006.

Net Interest Income

Net interest income increased $223,000, or 9.1%,
to $2.7 million for the three months ended September 30, 2006 from $2.4 million for three months ended September 30, 2005. The primary reason for the improvement in our net interest and dividend income was the $12.2 million increase in our
average non-interest-bearing deposits which was partially offset by a decrease in the net interest margin to 2.35% for the three months ended September 30, 2006 from 2.96% for the three months ended September 30, 2005.

Provision for Loan Losses

The provision for loan losses increased by
$65,000, or 325.0%, to $85,000 for the three months ended September 30, 2006 from $20,000 for the three months ended September 30, 2005. This was primarily attributable to the growth in average total loans of $37.3 million from period to
period.

Noninterest Income

Noninterest income
increased $195,000, or 38.4%, to $703,000 for the three months ended September 30, 2006 from $508,000 for the three months ended September 30, 2005. The increase in noninterest income resulted primarily from an increase in service fee
income of $297,000 which was partially offset by a decrease in gain on sale of securities of $120,000.



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##### Table of Contents

Noninterest Expense

Noninterest expense increased by $613,000, or 29.4%, to $2.7 million for the three months ended September 30, 2006 from $2.1 million for the three months ended September 30, 2005. The increase in noninterest expense was primarily
due to an increase in compensation and benefits, occupancy and equipment expense and other noninterest expenses. Compensation and benefits expense increased by $287,000, or 24.4%, to $1.5 million for the three months ended September 30, 2006
from $1.2 million for the three months ended September 30, 2005. The primary reasons for the increase were the compensation and benefits expense associated with the acquisition of the three new branches and the new supermarket branch opened in
Putnam, Connecticut during August 2006, in addition to increased staffing and higher medical insurance premiums. The current quarter included $54,000 in employee stock-based compensation expense as compared to none for the three months ended
September 30, 2005. Occupancy and equipment expense increased by $97,000, or 39.9%, to $340,000 for the three months ended September 30, 2006 from $243,000 for the three months ended September 30, 2005 primarily due to increased
depreciation expense and rental expense for the new branches. Rent expense for the current period increased by $33,000 over the three months ended September 30, 2005. Other noninterest expense, consisting primarily of marketing, office
supplies, and professional expenses increased by $229,000, or 34.3%, to $897,000 for the three months ended September 30, 2006 from $668,000 for the three months ended September 30, 2005. This was primarily due to increases in data
processing fees of $43,000, Core Deposit Intangible amortization expense of $66,000, marketing expense of $43,000 and other miscellaneous expenses and higher professional fees related to being a public company.

Provision for Income Taxes

The income tax expense decreased by
$155,000, or 66.5%, to $78,000 for the three months ended September 30, 2006 as compared to $233,000 for the three months ended September 30, 2005. Our effective tax rate was 13.3% for the three months ended September 30, 2006,
compared to 27.6% for the three months ended September 30, 2005. 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 September 30, |        
|                                                               |  | 2006                                     |         |                    | 2005 |           
|                                                               |  | (Dollars in thousands)                   |        
|                                                               |  | AverageBalance                           |         | Interest/Dividends |      | Yield/Cost |  |        | AverageBalance |  | Interest/Dividends |         | Yield/Cost |  
|Interest-earning assets:                                       |  |                                          |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Investment securities                                          |  | $                                        | 239,999 |                    | $    | 2,953      |  | 4.88   | %              |  | $                  | 155,905 |            | $ | 1,589 |  | 4.04   | %
|Loans                                                          |  |                                          | 207,176 |                    |      | 3,311      |  | 6.34   | %              |  |                    | 169,874 |            |   | 2,561 |  | 5.98   | %
|Other earning assets                                           |  |                                          | 2,385   |                    |      | 31         |  | 5.16   | %              |  |                    | 1,672   |            |   | 14    |  | 3.20   | %
|                                                               |  |                                          |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Total interest-earnings assets                                 |  |                                          | 449,560 |                    |      | 6,295      |  | 5.56   | %              |  |                    | 327,451 |            |   | 4,164 |  | 5.04   | %
|Non-interest-earning assets                                    |  |                                          | 22,660  |                    |      |            |  |        |                |  |                    | 15,673  |            |   |       |  |        |  
|                                                               |  |                                          |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Total assets                                                   |  | $                                        | 472,220 |                    |      |            |  |        |                |  | $                  | 343,124 |            |   |       |  |        |  
|                                                               |  |                                          |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Interest-bearing liabilities:                                  |  |                                          |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|NOW accounts                                                   |  | $                                        | 25,383  |                    |      | 99         |  | 1.55   | %              |  | $                  | 34,434  |            |   | 151   |  | 1.74   | %
|Savings accounts                                               |  |                                          | 52,880  |                    |      | 98         |  | 0.74   | %              |  |                    | 41,797  |            |   | 68    |  | 0.65   | %
|Money market accounts                                          |  |                                          | 22,595  |                    |      | 93         |  | 1.63   | %              |  |                    | 27,639  |            |   | 116   |  | 1.67   | %
|Time deposits                                                  |  |                                          | 155,274 |                    |      | 1,653      |  | 4.22   | %              |  |                    | 95,351  |            |   | 792   |  | 3.30   | %
|Borrowed money                                                 |  |                                          | 127,245 |                    |      | 1,687      |  | 5.26   | %              |  |                    | 63,288  |            |   | 595   |  | 3.73   | %
|                                                               |  |                                          |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Total interest-bearing liabilities                             |  |                                          | 383,377 |                    |      | 3,630      |  | 3.76   | %              |  |                    | 262,509 |            |   | 1,722 |  | 2.60   | %
|Non-interest-bearing demand deposits                           |  |                                          | 38,701  |                    |      |            |  |        |                |  |                    | 26,512  |            |   |       |  |        |  
|Other non-interest-bearing liabilities                         |  |                                          | 269     |                    |      |            |  |        |                |  |                    | 1,019   |            |   |       |  |        |  
|Capital accounts                                               |  |                                          | 49,873  |                    |      |            |  |        |                |  |                    | 53,084  |            |   |       |  |        |  
|                                                               |  |                                          |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Total liabilities and capital accounts                         |  | $                                        | 472,220 |                    |      |            |  |        |                |  | $                  | 343,124 |            |   |       |  |        |  
|                                                               |  |                                          |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Net interest income                                            |  |                                          |         |                    | $    | 2,665      |  |        |                |  |                    |         |            | $ | 2,442 |  |        |  
|Interest rate spread                                           |  |                                          |         |                    |      |            |  | 1.80   | %              |  |                    |         |            |   |       |  | 2.44   | %
|Net interest-earning assets                                    |  | $                                        | 66,183  |                    |      |            |  |        |                |  | $                  | 64,942  |            |   |       |  |        |  
|                                                               |  |                                          |         |                    |      |            |  |        |                |  |                    |         |            |   |       |  |        |  
|Net interest margin                                            |  |                                          |         |                    |      |            |  | 2.35   | %              |  |                    |         |            |   |       |  | 2.96   | %
|Average earning assets to average interest-bearing liabilities |  |                                          |         |                    |      |            |  | 117.26 | %              |  |                    |         |            |   |       |  | 124.74 | %



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##### Table of Contents

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



|                              |  |                                                                                                     |     |   |        |   |       |     |  |   |       |  
|----------------------------- |  | --------------------------------------------------------------------------------------------------- | --- | - | ------ | - | ----- | --- |  | - | ----- | -
|                              |  | For the three months ended September 30, 2006 compared to the three months ended September 30, 2005 |    
|                              |  | Increase (decrease) due to                                                                          |     |   |        |  
|                              |  | Rate                                                                                                |     |   | Volume |   |       | Net | 
|INTEREST INCOME               |  |                                                                                                     |     |   |        |   |       |     |  |   |       |  
|Investment securities         |  | $                                                                                                   | 379 |   |        | $ | 985   |     |  | $ | 1,364 |  
|Loans                         |  |                                                                                                     | 161 |   |        |   | 589   |     |  |   | 750   |  
|Other interest-earning assets |  |                                                                                                     | 10  |   |        |   | 7     |     |  |   | 17    |  
|                              |  |                                                                                                     |     |   |        |   |       |     |  |   |       |  
|TOTAL INTEREST INCOME         |  |                                                                                                     | 550 |   |        |   | 1,581 |     |  |   | 2,131 |  
|                              |  |                                                                                                     |    
|INTEREST EXPENSE:             |  |                                                                                                     |     |   |        |   |       |     |  |   |       |  
|                              |  |                                                                                                     |    
|NOW accounts                  |  |                                                                                                     | (15 | ) |        |   | (37   | )   |  |   | (52   | )
|Savings accounts              |  |                                                                                                     | 10  |   |        |   | 20    |     |  |   | 30    |  
|Money Market accounts         |  |                                                                                                     | (2  | ) |        |   | (21   | )   |  |   | (23   | )
|Time deposits                 |  |                                                                                                     | 266 |   |        |   | 595   |     |  |   | 861   |  
|Other borrowed money          |  |                                                                                                     | 315 |   |        |   | 777   |     |  |   | 1,092 |  
|                              |  |                                                                                                     |     |   |        |   |       |     |  |   |       |  
|TOTAL INTEREST INCOME         |  |                                                                                                     | 574 |   |        |   | 1,334 |     |  |   | 1,908 |  
|                              |  |                                                                                                     |     |   |        |   |       |     |  |   |       |  
|CHANGE IN NET INTEREST INCOME |  | $                                                                                                   | (24 | ) |        | $ | 247   |     |  | $ | 223   |  
|                              |  |                                                                                                     |     |   |        |   |       |     |  |   |       |  

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 September 30, 2006 of $110.5 million with unused borrowing capacity of $50.9 million. The Bank also had brokered CDs as of September 30, 2006 of $30.7 million, an increase of $12.6 million since
June 30, 2006, 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 three months ended September 30, 2006 and 2005, the Bank originated loans net of principal payments of approximately $9.4 million and $5.6 million,
respectively. Purchases of securities totaled $9.5 million and $20.0 million, for the three months ended September 30, 2006 and 2005, 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



18



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##### Table of Contents

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 $163.4 million at September 30, 2006. 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
September 30, 2006 and exceeded each of the applicable regulatory capital requirements at such date. The table below presents the capital required and maintained at September 30, 2006.



|                                                           |  |          |   |  |        |  
|---------------------------------------------------------- |  | -------- | - |  | ------ | -
|                                                           |  | Required |   |  | Actual |  
|Ratio of Tier 1 Capital to total assets                    |  | 4        | % |  | 7.49   | %
|Ratio of Total Risk Based Capital to risk-weighted assets  |  | 8        | % |  | 14.02  | %
|Ratio of Tier 1 Risk Based Capital to risk-weighted assets |  | 4        | % |  | 13.38  | %

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

Off-Balance Sheet Arrangements

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

For the three months ended September 30, 2006, 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.



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##### Table of Contents

|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 September 30, 2006.
| | -- | ----------------------------------------------------------------------------------------------------------------------



|                                       |  |                                 |  |                             |       |                                                                        |         |                                                                      |       
|-------------------------------------- |  | ------------------------------- |  | --------------------------- | ----- | ---------------------------------------------------------------------- | ------- | -------------------------------------------------------------------- | ------
|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)
|July 1 through July 31, 2006           |  | 2,922                           |  | $                           | 10.62 |                                                                        | 252,151 |                                                                      | 94,849
|August 1 through August 31, 2006       |  | 1,214                           |  | $                           | 10.66 |                                                                        | 253,365 |                                                                      | 93,635
|September 1 through September 30, 2006 |  | 0                               |  | $                           |      |                                                                        | 253,365 |                                                                      | 93,635



|(1) | On December 12, 2005 the Company announced that its Board of Directors had authorized a stock repurchase program pursuant to which the Company intends to purchase up to 5% of
its issued and outstanding shares, or up to 347,000 shares.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|Item 4. | Submission of Matters to a Vote of Security Holders  Not applicable
|------- | --------------------------------------------------------------------



|Item 5. | Other Information  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.                                                                



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##### Table of Contents

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 November 13, 2006 |  |  |  | /s/ Thomas A. Borner           
|                       |  |  |  | Thomas A. Borner               
|                       |  |  |  | Chief Executive Officer        
|                       |  | 
|Date November 13, 2006 |  |  |  | /s/ Robert J. Halloran, Jr.    
|                       |  |  |  | Robert J. Halloran, Jr.        
|                       |  |  |  | President and Treasurer        



21