SB-2

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As filed with the Securities and Exchange Commission on June 10, 2004

Registration No. 333-            

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

PSB HOLDINGS, INC.
(Name of Small Business Issuer in Its Charter)

Federal (State or Other Jurisdiction of Incorporation or Organization)	6712 (Primary Standard Industrial Classification Code Number)	Being applied for (I.R.S. Employer Identification No.)
40 Main Street Putnam, Connecticut 06260 (860) 928-6501 (Address and Telephone Number of Principal Executive Offices)
40 Main Street Putnam, Connecticut 06260 (Address of Principal Place of Business)
Robert G. Cocks, Jr. 40 Main Street Putnam, Connecticut 06260 (860) 928-6501 (Name, Address and Telephone Number of Agent for Service)
Copies to: Robert B. Pomerenk, Esq. Kent M. Krudys, Esq. Luse Gorman Pomerenk & Schick, P.C. 5335 Wisconsin Avenue, N.W., Suite 400 Washington, D.C. 20015 (202) 274-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:    ý

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:    o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:    o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:    o

If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box:    o

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be registered	Proposed maximum offering price per share	Proposed maximum aggregate offering price	Amount of registration fee
Common Stock, $0.10 par value per share	3,213,279 shares	$10.00	$32,132,786 (1)	$4,072

(1)

Estimated solely for the purpose of calculating the registration fee.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

PSB Holdings, Inc.

Holding Company for Putnam Savings Bank

2,686,688 Shares of common stock

        PSB Holdings, Inc., a federally chartered corporation, is offering for sale 2,686,688 shares of its common stock on a best efforts basis. The shares being offered represent 44.5% of the shares of common stock of PSB Holdings, Inc. that will be outstanding following the offering. After the offering, 53.7% of PSB Holdings, Inc.'s outstanding common stock will be owned by Putnam Bancorp, MHC, our federally chartered mutual holding company parent. PSB Holdings, Inc. is the holding company for Putnam Savings Bank. In addition, we intend to issue shares of common stock, equal to 4% of the shares being offered for sale, to a charitable foundation to be established by Putnam Savings Bank.

        We must sell a minimum of 1,985,813 shares in order to complete the offering and we will terminate the offering if we do not sell the minimum number of shares. We may sell up to 3,089,691 shares because of regulatory considerations or changes in market or economic conditions without resoliciting subscribers. The offering is scheduled to terminate at 5:00 p.m. on                         , 2004. We may extend the termination date without notice to you, until                        , 2004, unless the Office of Thrift Supervision approves a later date, which may not be beyond August    , 2006.

        The minimum purchase is 25 shares of common stock. The maximum purchase that an individual may make through a single deposit account is $250,000 of common stock, and no person by himself, or with an associate or group of persons acting in concert may purchase more than $500,000 of common stock. Once submitted, orders are irrevocable unless the offering is terminated or extended beyond                        , 2004. If the offering is extended beyond                        , 2004, subscribers will have the right to modify or rescind their purchase orders. Funds received prior to the completion of the offering will be held in an account at Putnam Savings Bank and will bear interest at our savings rate, which is currently 0.65% per annum. If the offering is terminated, subscribers will have their funds returned promptly, with interest.

        Keefe, Bruyette & Woods, Inc. will use its best efforts to assist us in selling our common stock, but is not obligated to purchase any of the common stock that is being offered for sale. Subscribers will not pay any commissions to purchase shares of common stock in the offering. There is currently no public market for the common stock. Keefe, Bruyette & Woods, Inc. has advised us that it intends to make a market in the common stock, but is under no obligation to do so. We expect that the common stock of PSB Holdings, Inc. will be quoted on the Nasdaq National Market under the symbol "            ".

This investment involves risk, including the possible loss of principal.

Please read the "Risk Factors" beginning on page 14.

OFFERING SUMMARY
Price: $10.00 per share

	Minimum		Maximum		Adjusted Maximum
Number of shares		1,985,813		2,686,688		3,089,691
Estimated offering expenses excluding underwriting commissions and expenses	$	525,000	$	525,000	$	525,000
Underwriting commissions and expenses(1)	$	197,059	$	261,316	$	298,263
Net proceeds	$	19,136,071	$	26,080,564	$	30,073,647
Net proceeds per share	$	9.64	$	9.71	$	9.73

(1)

Includes $45,000 of underwriter's expenses, including attorneys' fees. See "The Stock Offering—Plan of Distribution and Marketing Arrangements" at page      for a discussion of Keefe, Bruyette & Woods, Inc.'s compensation for this offering.

These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.

Neither the Securities and Exchange Commission, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, nor any state securities regulator has approved or disapproved these securities or has determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

KEEFE, BRUYETTE & WOODS

The date of this prospectus is August            , 2004

[MAP]

TABLE OF CONTENTS

OFFERING SUMMARY
Keefe, Bruyette & Woods
SUMMARY	1
RISK FACTORS	14
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA	20
FORWARD LOOKING STATEMENTS	21
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING	22
OUR POLICY REGARDING DIVIDENDS	23
MARKET FOR OUR COMMON STOCK	24
REGULATORY CAPITAL COMPLIANCE	26
CAPITALIZATION	28
PRO FORMA DATA	29
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH AND WITHOUT THE FOUNDATION	35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	36
BUSINESS OF PSB HOLDINGS, INC.	50
BUSINESS OF PUTNAM SAVINGS BANK	50
FEDERAL AND STATE TAXATION	74
SUPERVISION AND REGULATION	75
MANAGEMENT	84
THE STOCK OFFERING	93
PUTNAM SAVINGS FOUNDATION	109
RESTRICTIONS ON THE ACQUISITION OF PSB HOLDINGS, INC. AND PUTNAM SAVINGS BANK	112
DESCRIPTION OF CAPITAL STOCK OF PSB HOLDINGS, INC.	114
TRANSFER AGENT AND REGISTRAR	115
LEGAL AND TAX MATTERS	115
EXPERTS	116
WHERE YOU CAN FIND MORE INFORMATION	116
REGISTRATION REQUIREMENTS	116
INDEX TO FINANCIAL STATEMENTS	F-1

SUMMARY

The following summary explains selected information regarding the offering of common stock by PSB Holdings, Inc. and the business of Putnam Savings Bank. However, no summary can contain all the information that may be important to you. For additional information, you should read this prospectus carefully, including the consolidated financial statements and the notes to the consolidated financial statements of PSB Holdings, Inc.

Our Organization

        In May 2003, Putnam Savings Bank reorganized into the two-tier mutual holding company structure. As part of the reorganization, Putnam Savings Bank formed PSB Holdings, Inc. and Putnam Bancorp MHC, Inc., a Connecticut-chartered mid-tier stock holding company and mutual holding company, respectively. Putnam Savings Bank became a Connecticut-chartered capital stock savings bank, and a wholly-owned subsidiary of PSB Holdings, Inc., and PSB Holdings, Inc. became the wholly-owned subsidiary of Putnam Bancorp MHC, Inc. The same directors and officers who manage Putnam Savings Bank manage PSB Holdings, Inc. and Putnam Bancorp MHC, Inc. In connection with the offering, Putnam Savings Bank, PSB Holdings, Inc. and Putnam Bancorp MHC, Inc. converted to federal charters and are regulated by the Office of Thrift Supervision. In connection with the charter conversion, Putnam Bancorp MHC, Inc. will change its name to Putnam Bancorp, MHC.

        This chart shows our current ownership structure, which is commonly referred to as the two-tier mutual holding company structure:

The Companies

Putnam Bancorp, MHC

        Upon completion of the charter conversion, Putnam Bancorp, MHC will be a federally chartered mutual holding company. Putnam Bancorp, MHC has not engaged in any significant business activity other than owning the common stock of PSB Holdings, Inc., and does not intend to do so after the stock offering. After the completion of the stock offering, Putnam Bancorp, MHC is expected to own 53.7% of the outstanding shares of common stock of PSB Holdings, Inc. So long as Putnam Bancorp, MHC exists, it is required to own a majority of the voting stock of PSB Holdings, Inc. As a result, stockholders other than Putnam Bancorp, MHC will not be able to exercise voting control over most matters put to a vote of stockholders and Putnam Bancorp, MHC, through its Board of Directors, will be able to exercise voting control over most matters put to a vote of stockholders.

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PSB Holdings, Inc.

        Upon completion of the charter conversion and offering, PSB Holdings, Inc. will be the federally chartered mid-tier stock holding company for Putnam Savings Bank, and will continue to own 100% of the common stock of Putnam Savings Bank. PSB Holdings, Inc. will not have any other significant assets. We have not engaged in any significant business activity other than owning the common stock of Putnam Savings Bank and investing in marketable securities, and we do not currently intend to do so after the stock offering. Our executive office is located at 40 Main Street, Putnam, Connecticut 06260, and our telephone number is (860) 928-6501.

Putnam Savings Bank

        Putnam Savings Bank is a federally chartered savings bank headquartered in Putnam, Connecticut. Putnam Savings Bank was originally founded in 1862 as a state-chartered mutual savings bank. Putnam Savings Bank is converting to a federal stock savings bank charter in connection with the offering. All of the rights, obligations, assets and liabilities of Putnam Savings Bank, a Connecticut-chartered savings bank, will be assumed by Putnam Savings Bank under its federal charter. We conduct substantially all of our business from four full-service banking offices and one loan origination center. In addition, we also maintain a "Special Needs Limited Branch" and a "Limited Service (Mobile) Branch." The telephone number at our main office is (860) 928-6501.

        At March 31, 2004, we had total assets of $252.7 million, total deposits of $197.3 million and retained earnings of $24.2 million. Our net income for the nine months ended March 31, 2004 and year ended June 30, 2003 was $1.2 million and $1.4 million, respectively. Our principal business activities include the origination of mortgage loans secured by one- to four-family residential real estate, loans secured by non-residential real estate and multi-family real estate, residential construction loans, commercial loans as well as consumer loans. Putnam Savings Bank offers a variety of deposit accounts, including checking, savings and certificates of deposit. Deposits are our primary source of funds for our lending and investing activities.

Business Strategy

        Our business strategy is to grow and improve our profitability by:

•

Remaining a community-oriented institution;



•

Increasing our emphasis on commercial real estate and commercial lending;



•

Expanding our branch network;



•

Continuing to originate one- to four-family residential real estate loans;



•

Growing through a leverage strategy;



•

Offering our products and services to an expanded base of customers; and



•

Maintaining high asset quality.

        A full description of our products and services begins on page    of this prospectus. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations—Business Strategy" beginning on page    of this prospectus for a discussion of our business strategy.

The Stock Offering

        Federal regulations require that Putnam Bancorp, MHC own a majority of our outstanding shares of common stock. Accordingly, the shares that we are permitted to sell in the stock offering must represent a minority of our outstanding shares of common stock. Based on these restrictions, our Board

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of Directors has decided to sell 44.5% of our outstanding shares of common stock in the stock offering. In addition, we intend to contribute shares of common stock, equal to 4% of the shares being offered for sale (or 1.8% of our outstanding shares of common stock), to a charitable foundation to be established by Putnam Savings Bank. The remaining 53.7% will be held by Putnam Bancorp, MHC.

        The following chart shows our structure following the offering:

        Putnam Bancorp, MHC has no plans, understandings or agreements, whether written or oral, to sell or otherwise dispose of its 53.7% of the common stock of PSB Holdings, Inc. However, Putnam Bancorp, MHC may convert to stock form in the future by offering its interest in PSB Holdings, Inc. for sale to depositors and others in a subscription offering. Putnam Bancorp, MHC, however, has no plans to convert to stock form.

Reasons for the Stock Offering

        The primary reasons for our decision to conduct the offering are to (1) offer our depositors, employees, management and directors an equity ownership interest in Putnam Savings Bank and thereby obtain an economic interest in its future success, and (2) increase our capital to support future growth and profitability.

        The capital raised in the offering is expected to:

•

increase our lending capacity by providing us with additional capital to support new loans and higher lending limits;



•

support the introduction of new financial products and services;



•

increase our capital base which will provide greater flexibility to invest in longer-term, higher yielding assets;



•

allow us to grow and enhance our profitability; and



•

improve our ability to manage capital including paying cash dividends and repurchasing shares of our common stock.

The offering also will allow us to establish stock benefit plans for management and employees which will permit us to attract and retain qualified personnel.

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Terms of the Offering

        We are offering between 1,985,813 and 2,686,688 shares of common stock of PSB Holdings, Inc. to qualified depositors, tax-qualified employee plans, officers, directors and employees of PSB Holdings, Inc. and Putnam Savings Bank and to the public to the extent shares remain available. The offering price of the shares of common stock is $10.00 per share.

        The maximum number of shares that we sell in the offering may increase by up to 15%, to 3,089,691 shares, as a result of regulatory considerations, strong demand for the shares of common stock in the offering, or positive changes in financial markets in general and with respect to financial institution stocks in particular. Unless the pro forma market value of PSB Holdings, Inc. decreases below $44.6 million or increases above $69.4 million, you will not have the opportunity to change or cancel your stock order.

        Keefe, Bruyette & Woods, Inc., our marketing advisor in connection with the offering, will use its best efforts to assist us in selling our shares of common stock, but Keefe, Bruyette & Woods, Inc. is not obligated to purchase any shares in the offering.

        We also intend to issue shares of common stock, equal to 4% of the shares being offered for sale, to a charitable foundation to be established by Putnam Savings Bank.

Persons Who May Order Stock in the Offering

        We are offering the shares of common stock of PSB Holdings, Inc. in a "subscription offering" in the following descending order of priority:

(1)

Depositors who had accounts at Putnam Savings Bank with aggregate balances of at least $50 on March 31, 2003;



(2)

The tax-qualified employee benefit plans of Putnam Savings Bank (including our employee stock ownership plan);



(3)

Depositors who had accounts at Putnam Savings Bank with aggregate balances of at least $50 on June 30, 2004; and



(4)

Employees, officers and directors of Putnam Savings Bank or PSB Holdings, Inc.

        If any shares of our common stock remain unsold in the subscription offering, we will offer such shares for sale in a community offering. Natural persons residing in Windham County, Connecticut will have a purchase preference in any community offering. Shares also may be offered to the general public. The community offering, if any, may commence concurrently with, during or promptly after, the subscription offering. We also may offer shares of common stock not purchased in the subscription offering or the community offering through a syndicate of brokers in what is referred to as a syndicated community offering. The syndicated community offering, if necessary, would be managed by Keefe, Bruyette & Woods, Inc. and would commence as soon as practicable after the termination of the subscription offering and would be open to the general public beyond the local community. We have the right to accept or reject, in our sole discretion, any orders received in the community offering and the syndicated community offering.

        To ensure a proper allocation of stock, each eligible account holder must list on his or her stock order form all deposit accounts in which he or she had an ownership interest at March 31, 2003 or June 30, 2004, as applicable. Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscriber's stock allocation. We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership interest. Our interpretation of the terms and conditions of the stock issuance plan and of the acceptability of the order forms will be final.

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Limits on the Amount of Common Stock You May Purchase

        The minimum purchase is 25 shares of common stock. Generally, no individual, or individuals through a single account, may purchase more than $250,000 (25,000 shares of common stock). If any of the following persons purchase shares of common stock, their purchases when combined with your purchases cannot exceed $500,000 (50,000 shares):

•

your spouse, or relatives of you or your spouse living in your house;



•

companies or other entities in which you have a 10% or greater equity or substantial beneficial interest or in which you serve as a senior officer or partner;



•

a trust or other estate if you have a substantial beneficial interest in the trust or estate or you are a trustee or fiduciary for the trust or other estate; or



•

other persons who may be acting together with you (including, but not limited to, persons who file jointly a Schedule 13G or Schedule 13D Beneficial Ownership Report with the Securities and Exchange Commission).

        A detailed discussion of the limitations on purchases of common stock by an individual and persons acting together is set forth under the caption "The Stock Offering—Limitations on Purchase of Shares" beginning on page            .

        Subject to Office of Thrift Supervision approval, we may increase or decrease the purchase limitations in the offering at any time. In addition, in any direct community offering or syndicated community offering, we will first fill orders for our common stock up to a maximum of 1,000 shares. Thereafter, we will allocate any remaining shares of common stock on an equal number of shares per order basis, until we fill all orders. Our tax-qualified benefit plans, including our employee stock ownership plan, are authorized to purchase up to 10% of the minority shares issued in the offering (including shares issued to the Putnam Savings Foundation) without regard to these purchase limitations.

How We Determined to Offer Between 1,985,813 Shares and 2,686,688 Shares and the $10.00 Price Per Share

        We decided to offer between 1,985,813 shares and 2,686,688 shares, which is our offering range, based on an independent appraisal of our pro forma market value prepared by RP Financial, LC, a firm experienced in appraisals of financial institutions. RP Financial, LC is of the opinion that as of May 21, 2004, the estimated pro forma market value of the common stock of PSB Holdings, Inc. on a fully converted basis was between $44.6 million and $60.4 million with a midpoint of $52.5 million. The term "fully converted" means that RP Financial, LC assumed that 100% of our common stock had been sold to the public, as opposed to the 44.5% that will be sold in the offering.

        In preparing its appraisal, RP Financial, LC considered the information contained in this prospectus, including our consolidated financial statements. RP Financial, LC also considered the following factors, among others:

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the present and projected operating results and financial condition of PSB Holdings, Inc. and Putnam Savings Bank and the economic and demographic conditions in Putnam Savings Bank's existing market area;



•

certain historical, financial and other information relating to Putnam Savings Bank;



•

a comparative evaluation of the operating and financial statistics of Putnam Savings Bank with those of other similarly situated publicly traded savings banks and mutual holding companies;



•

the aggregate size of the common stock offering;

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•

the impact of the stock offering on PSB Holdings, Inc.'s consolidated net worth and earnings potential; and



•

the trading market for securities of comparable institutions and general conditions in the market for such securities.

        In addition, we intend to issue shares of common stock, equal to 4% of the shares being offered for sale, to a charitable foundation to be established by Putnam Savings Bank. The contribution of common stock to the charitable foundation will have the effect of reducing our pro forma valuation. See "Comparison of Valuation and Pro Forma Information with and without the Foundation."

        In reviewing the appraisal, our Board of Directors considered the methodologies and the appropriateness of the assumptions used by RP Financial, LC in addition to the factors listed above, and our Board of Directors believes that these assumptions were reasonable.

        The Board of Directors determined that the common stock should be sold at $10.00 per share and that 44.5% of the shares of our common stock should be offered for sale in the offering, and 53.7% should be held by Putnam Bancorp, MHC, after giving effect to the issuance of common stock to the Putnam Savings Foundation. Based on the estimated valuation range and the purchase price, the number of shares of our common stock that will be outstanding upon completion of the stock offering will range from 4,462,500 to 6,037,500 (subject to adjustment to 6,943,125), and the number of shares of our common stock that will be sold in the stock offering will range from 1,985,813 shares to 2,686,688 shares (subject to adjustment to 3,089,691), with a midpoint of 2,336,250 shares. The number of shares that Putnam Bancorp, MHC will own after the offering will range from 2,397,254 to 3,243,344 (subject to adjustment to 3,729,846). The number of shares of common stock that Putnam Charitable Foundation will own the after the offering will range from 79,433 to 107,468 (subject to adjustment to 123,588). The estimated valuation range may be amended with the approval of the Office of Thrift Supervision, if required, or if necessitated by subsequent developments in the financial condition of Putnam Savings Bank or market conditions generally, or to fill the order of the employee stock ownership plan.

        The appraisal will be updated before we complete the stock offering. If the pro forma market value of the common stock (including the shares retained by the mutual holding company) at that time is either below $44.6 million or above $69.4 million, then, after consulting with the Office of Thrift Supervision, we may: terminate the stock offering and return all funds promptly; extend or hold a new subscription or community offering, or both; establish a new offering range and commence a resolicitation of subscribers; or take such other actions as may be permitted by the Office of Thrift Supervision. Under such circumstances, we will notify you, and you will have the opportunity to change or cancel your order. In no event may the stock offering be extended beyond August    , 2006.

        Two measures investors use to analyze an issuer's stock are the ratio of the offering price to the issuer's book value and the ratio of the offering price to the issuer's annual net income. According to RP Financial, LC, while appraisers (as well as investors) use both ratios to evaluate an issuer's stock, the price-to-book-value ratio has historically been the most frequently used method due to the volatility of earnings in the thrift industry in the early- to mid-1990s and, more recently, due to decreasing interest rates. RP Financial, LC considered these ratios, among other factors, in preparing its appraisal. Book value is the same as total equity, and represents the difference between the issuer's assets and liabilities. The following table presents the ratio of the offering price to our pro forma book value and

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earnings per share for the periods indicated. See "Pro Forma Data" for a description of the assumptions we used in making these calculations.

	At and For the Nine Months Ended March 31, 2004
	1,985,813 Shares Sold at $10.00 Per Share		2,336,250 Shares Sold at $10.00 Per Share		2,686,688 Shares Sold at $10.00 Per Share		3,089,691 Shares Sold at $10.00 Per Share
Pro forma price to book value ratio	108.3	%	118.5	%	127.4	%	136.4	%
Pro forma price to earnings ratio	28.9x		34.1x		39.5x		46.9x

        The following table, therefore, presents a summary of selected pricing ratios for the peer group companies and for us, with the ratios adjusted to this hypothetical case of being fully converted. Compared to the average fully converted pricing ratios of the peer group, our pro forma fully converted pricing ratios at the maximum of the offering range, indicated a premium of 77.6% on a price-to-earnings basis and a discount of 15.4% on a price-to-book basis. At the minimum and maximum of the valuation range a share of common stock is priced at 32.8 times and 45.1 times our earnings. This is a significantly higher multiple than the peer group companies which, as of May 21, 2004, traded on average at 25.4 times earnings. The average and median trading price of the peer group common stock was at 25.4 and 20.7 times earnings, respectively. At the minimum and maximum of the valuation range, the common stock is valued at 72.4% and 80.7%, respectively, of our pro forma book value. This represents a discount to the average trading price to book value of peer group companies, which as of May 21, 2004 averaged 95.4%. As of May 21, 2004, the median trading price of peer group companies was 92.8% of the book value of these companies. Consequently, a share of our common stock is more expensive than the peer group based on an earnings per share basis, but less expensive than the peer group based upon a book value per share basis.

	Fully Converted Equivalent Pro Forma Price to Earnings Multiple	Fully Converted Equivalent Pro Forma Price to Book Value Ratio
PSB Holdings, Inc.
Maximum	45.1x	80.7	%
Minimum	32.8x	72.4	%
Valuation of peer group companies as of May 21, 2004
Averages	25.4x	95.4	%
Medians	20.7x	92.8	%

The independent appraisal does not indicate stock market value. Do not assume or expect that PSB Holdings, Inc.'s valuation as indicated above means that the common stock will trade at or above the $10.00 purchase price after the stock offering.

After-Market Performance Information Provided by Independent Appraiser

        In recent years, the prices of shares of common stock of financial institutions or their holding companies have generally appreciated in the period immediately following the completion of the initial public offering (IPO) by thrift institutions, such as ours. The appraisal report prepared by RP Financial, LC included examples of this after-market stock price performance. The following table, which is derived from information included in the appraisal report, presents stock price appreciation information for all thrift IPOs completed between February 21, 2004 and May 21, 2004. "MHC" indicates a "first-step" mutual holding company offering.

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Mutual-to-Stock Conversions and "First-Step" Mutual Holding Company Offerings with Completed Closing Dates between February 21, 2004 and May 21, 2004

		Appreciation from Initial Trading Date
Transaction		1 day		1 week		1 month
SE Financial Corp.(1)		(0.5	)%	(1.5	)%	(3.0	)%
New Alliance Bancshares, Inc.(1)		51.7	%	45.3	%	36.5	%
Wawel Savings Bank (MHC)		29.5	%	25.0	%	12.5	%
Osage Federal Financial, Inc. (MHC)		20.0	%	22.5	%	9.5	%
K-Fed Bancorp (MHC)		34.9	%	29.3	%	15.9	%
Citizens Community Bancorp (MHC)		23.7	%	27.5	%	18.0	%
Clifton Savings Bancorp, Inc. (MHC)		22.5	%	40.9	%	32.0	%
	Average	26.0	%	27.0	%	17.5	%

(1)

Indicates mutual-to-stock standard conversion.

        In certain market conditions, stock prices of thrift IPOs have decreased, and not increased. For example, while the above table illustrates an average appreciation of 17.5% after one month of trading, the stock of one company was trading below its initial offering price and the stocks of six companies were trading above their initial offering prices. The table above presents only short-term historical information on stock price performance, which may not be indicative of the longer-term performance of such stock prices. It is also not intended to predict how our shares of common stock may perform following the offering. The historical information in the table may not be meaningful to you because the data were calculated using a small sample and the transactions from which the data were derived occurred primarily during a low market interest rate environment, during which time the trading prices for financial institution stocks typically increase.

        Under certain market and other conditions, many investors consider an investment in a thrift IPO to be an attractive one. We expect our directors and executive officers, together with their associates, to subscribe for 248,500 shares of common stock in the offering, or 10.6% of the shares to be sold at the midpoint of the offering range.

        You should bear in mind that stock price appreciation or depreciation is affected by many factors. There can be no assurance that our stock price will not trade below $10.00 per share, as has been the case for some thrift IPOs. Before you make an investment decision, we urge you to carefully read this prospectus, including, but not limited to, the section entitled "Risk Factors" beginning on page    .

Our Issuance of Shares of Common Stock to The Charitable Foundation

        To further our commitment to our local community, we intend to establish a charitable foundation as part of the stock offering. We will issue shares of our common stock, ranging from 79,433 shares at the minimum of the valuation range to 107,468 shares at the maximum of the valuation range, having an initial market value of $794,330 at the minimum of the valuation range and $1,074,680 at the maximum of the valuation range, to the charitable foundation. As a result of the issuance of shares to the charitable foundation, we will record an after-tax expense of approximately $484,000 at the minimum of the valuation range and of approximately $655,000 at the maximum of the valuation range, during the quarter in which the stock offering is completed. The charitable foundation will be dedicated exclusively to supporting charitable causes and community development activities in the communities in which we operate.

        Issuing additional shares of common stock to the charitable foundation will:

•

dilute the voting interests of purchasers of shares of our common stock in the offering; and

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•

result in an expense, and a reduction in earnings during the quarter in which the contribution is made, equal to the full amount of the contribution to the charitable foundation, offset in part by a corresponding tax benefit.

        The establishment and funding of the charitable foundation has been approved by the boards of directors and corporators of Putnam Bancorp, MHC. Consummation of the offering of common stock, however, is not conditioned upon corporator approval of the charitable foundation.

        See "Risk Factors—The Issuance of Shares to the Charitable Foundation Will Dilute Your Ownership Interests and Adversely Affect Net Income in Fiscal 2005," "Comparison of Valuation and Pro Forma Information With and Without the Foundation" and "Putnam Savings Foundation" at page    .

How You May Pay for Your Shares

        In the subscription offering and the community offering you may pay for your shares only by:

(1)

personal check, bank check or money order; or



(2)

authorizing us to withdraw money from your deposit account(s) maintained with Putnam Savings Bank.

        If you wish to use your Putnam Savings Bank individual retirement account to pay for your shares, please be aware that federal law requires that such funds first be transferred to a self-directed retirement account with a trustee other than Putnam Savings Bank. The transfer of such funds to a new trustee takes time, so please make arrangements as soon as possible, or contact the Stock Offering Center for further information. Also, please be aware that Putnam Savings Bank is not permitted to lend funds to anyone for the purpose of purchasing shares of common stock in the offering.

        You can subscribe for shares of common stock in the offering by delivering a signed and completed original stock order form, together with full payment, provided we receive the stock order form before the end of the offering. We will pay interest at Putnam Savings Bank's passbook rate, currently 0.65% per annum, from the date funds are received until completion or termination of the offering. Withdrawals from certificates of deposit at Putnam Savings Bank for the purpose of purchasing common stock in the offering may be made without incurring an early withdrawal penalty. All funds authorized for withdrawal from deposit accounts with Putnam Savings Bank must be in the deposit accounts at the time the stock order form is received. However, funds will not be withdrawn from the accounts until the offering is completed and will continue to earn interest at the applicable deposit account rate until the completion of the offering. A hold will be placed on those funds when your stock order is received, making the designated funds unavailable to you. After we receive an order, the order cannot be revoked or changed, except with our consent. Payment may not be made by wire transfer or any other electronic transfer of funds. In addition, we are not required to accept copies or facsimiles of order forms.

        For a further discussion regarding the stock ordering procedures see "The Stock Offering—Prospectus Delivery and Procedure for Purchasing Shares" on page    .

You May Not Sell or Transfer Your Subscription Rights

        If you order shares of common stock in the subscription offering, you will be required to state that you are purchasing the shares of common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights. We intend to take legal action, including reporting persons to federal or state regulatory agencies, against anyone who we believe sells or gives away his or her subscription rights. We will not accept your stock order if we have reason to believe

9

that you sold or transferred your subscription rights. In addition, joint stock registration will only be allowed if the qualified account is so registered.

Deadline for Orders of Common Stock

        If you wish to purchase shares of common stock, we must receive your properly completed stock order form, together with payment for the shares, no later than 5:00 p.m., Connecticut time, on                        , 2004, unless we extend this deadline. You may submit your stock order form by mail using the return envelope provided, by overnight courier to the indicated address on the stock order form, or by bringing your stock order form to our office. Once submitted, your stock order is irrevocable unless the offering is terminated or extended beyond                         , 2004.

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Termination of the Offering

        The subscription offering will terminate at 5:00 p.m., Connecticut time, on                        , 2004. We expect that the community offering would terminate at the same time. We may extend this expiration date without notice to you, until                        , 2004, unless regulators approve a later date, which may not be beyond August    , 2006. If the subscription offering and/or community offerings extend beyond                        , 2004, we will be required to resolicit subscriptions before proceeding with the offering. In such event, if you choose not to subscribe for the common stock, your funds will be promptly returned to you with interest.

Steps We May Take If We Do Not Receive Orders for the Minimum Number of Shares

        If we do not receive orders for at least 1,985,813 shares of common stock, we may take several steps in order to sell the minimum number of shares of common stock in the offering range. Specifically, we may (i) increase the purchase limitations and/or (ii) seek regulatory approval to extend the offering beyond the                        , 2004 expiration date, provided that any such extension will require us to resolicit subscriptions received in the offering.

Our Policy Regarding Dividends

        Following completion of the offering, our Board of Directors will have the authority to declare dividends on our common stock, subject to statutory and regulatory requirements. In the future, our Board intends to consider a policy of paying cash or stock dividends on the common stock. However, no decision has been made with respect to the payment of dividends. The payment of dividends, if at all, will depend upon a number of factors, including the following:

•

regulatory capital requirements,



•

our financial condition and results of operations,



•

tax considerations,



•

statutory and regulatory limitations, and



•

general economic conditions.

Market for the Common Stock

        We anticipate that the common stock sold in the offering will be quoted on the Nasdaq National Market under the symbol "            ." Keefe, Bruyette & Woods, Inc. currently intends to make a market in the shares of common stock, but it is under no obligation to do so.

How We Intend to Use the Proceeds We Raise from the Offering

        Assuming we sell 2,686,688 shares of common stock in the offering, and we generate net proceeds of $26,080,564, we intend to distribute the net proceeds as follows:

•

$13.0 million (50% of the net proceeds) will be contributed to Putnam Savings Bank;



•

$2.2 million (8.6% of the net proceeds) will be loaned to the employee stock ownership plan to fund its purchase of 8% of the minority shares of common stock issued in the offering, including shares issued to the Putnam Savings Foundation; and



•

$10.8 million (41.4% of the net proceeds) will be retained by PSB Holdings, Inc.

        We may use the net proceeds of the offering to invest in securities, to finance the possible acquisition of other financial institutions or financial service businesses, to pay dividends or for other general corporate purposes, including repurchasing shares of our common stock. Putnam Savings Bank

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may use the proceeds it receives to make loans, to purchase securities, to expand its banking franchise internally or through acquisitions, and for general corporate purposes. See "How We Intend to Use the Proceeds from the Offering." Neither Putnam Savings Bank nor PSB Holdings, Inc. is considering any specific acquisition transaction at this time.

Once Submitted, Your Purchase Order May Not Be Revoked Unless the Offering is Terminated or Extended Beyond                        , 2004.

        Funds that you use to purchase shares of our common stock in the offering will be held in an interest bearing account until the termination or completion of the offering, including any extension of the expiration date. The Office of Thrift Supervision approved the offering on August    , 2004; however, because completion of the offering will be subject to an update of the independent appraisal, among other factors, there may be one or more delays in the completion of the offering. Any orders that you submit to purchase shares of our common stock in the offering are irrevocable, and you will not have access to subscription funds unless the stock offering is terminated, or extended beyond                        , 2004.

Our Officers, Directors and Employees Will Receive Additional Compensation and Benefit Programs After the Offering

        We intend to establish an employee stock ownership plan, and we may implement a stock option plan and a recognition and retention plan. The Board of Directors of Putnam Savings Bank has adopted an employee stock ownership plan, which will award shares of our common stock to eligible employees primarily based on their compensation. The Board of Directors of PSB Holdings, Inc. will, at the completion of the offering, ratify the action to make the employee stock ownership plan loan and to issue the common stock to the employee stock ownership plan. Our tax-qualified benefit plans, including our employee stock ownership plan, are authorized to purchase up to 10% of the shares issued in the offering (including shares issued to the Putnam Savings Foundation); however, our employee stock ownership plan is expected to purchase 8% of the shares issued in the offering (including shares issued to the Putnam Savings Foundation). Moreover, in addition to the employee stock ownership plan, we may grant awards under one or more stock benefit plans, including stock option plans and recognition and retention plans, in an amount up to 25% of the number of shares of common stock held by persons other than Putnam Bancorp, MHC. The recognition and retention plan and stock option plan cannot be established sooner than six months after the offering and would require the approval of our stockholders by a majority of the votes eligible to be cast (excluding the votes eligible to be cast by Putnam Bancorp, MHC), unless another vote requirement is permitted or required by the Office of Thrift Supervision. The number of options granted or shares awarded under any initial stock option plan or recognition and retention plan may not exceed 10% and 4%, respectively, of the shares issued in the offering (including shares issued to the Putnam Savings Foundation), if such plans are adopted within one year from the date of completion of the offering. If adopted within one year, the recognition and retention plan would be subject to such other limitations imposed by Office of Thrift Supervision regulations. If the stock option plan or recognition and retention plan is adopted after one year from the date of the completion of the offering, such plan would be permitted to grant or award a greater number of options and shares of common stock, subject to stockholder approval and the overall limitations provided for in the stock issuance plan.

        The employee stock ownership plan and the recognition and retention plan will increase our future compensation costs, thereby reducing our earnings. The Financial Accounting Standards Board, ("FASB"), has suggested that in 2004 it will require companies to expense the cost of stock options granted to officers, directors and employees. Based upon FASB's final rules for the accounting of stock options, we may have to expense the cost of stock options, and this will increase our compensation costs. Additionally, stockholders will experience a reduction in their ownership interest if newly issued

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shares of common stock are used to fund stock options and the recognition and retention plan. See "Risk Factors—Our Stock Benefit Plans Will Increase Our Costs, Which Will Reduce Our Income" and "Management—Future Stock Benefit Plans."

        The following table summarizes the stock benefits that our officers, directors and employees may receive following the offering, at the maximum of the offering range and assuming that we initially implement a stock option plan granting options to purchase 10% of the shares issued in the offering (including shares issued to the Putnam Savings Foundation) and a recognition and retention plan awarding shares of common stock equal to 4% of the shares issued in the offering (including shares issued to the Putnam Savings Foundation)(the maximum amount of shares if such plans are adopted within one year from the date of completion of the offering):

Plan	Individuals Eligible to Receive Awards	% of Shares Issued(1)		Value of Benefits Based on Maximum of Offering Range
Employee stock ownership plan	All employees	8.0		$	2,235,320
Recognition and retention plan	Directors, officers and employees	4.0	(2)	$	1,117,660
Stock option plan	Directors, officers and employees	10.0	(2)	$	—	(3)

(1)

Excluding shares issued to Putnam Bancorp, MHC.

(2)

The stock option plan and recognition and retention plan may award a greater number of options and shares, respectively, if the plans are adopted more than one year after the stock offering.

(3)

Stock options will be granted with a per share exercise price at least equal to the market price of our common stock on the date of grant. The value of a stock option will depend upon increases, if any, in the price of our common stock during the period in which the stock option may be exercised.

Restrictions on the Acquisition of PSB Holdings, Inc. and Putnam Savings Bank

        Federal regulation, as well as provisions contained in the charter and bylaws of Putnam Savings Bank, restrict the ability of any person, firm or entity to acquire PSB Holdings, Inc., Putnam Savings Bank, or their respective capital stock. These restrictions include the requirement that a potential acquirer of common stock obtain the prior approval of the Office of Thrift Supervision before acquiring in excess of 10% of the voting stock of PSB Holdings, Inc. or Putnam Savings Bank. Because a majority of the shares of outstanding common stock of PSB Holdings, Inc. must be owned by Putnam Bancorp, MHC, any acquisition of PSB Holdings, Inc. must be approved by Putnam Bancorp, MHC, and Putnam Bancorp, MHC would not be required to pursue or approve a sale of PSB Holdings, Inc. even if such sale were favored by a majority of PSB Holdings, Inc.'s public stockholders.

Possible Conversion of Putnam Bancorp, MHC to Stock Form

        In the future, Putnam Bancorp, MHC may convert from the mutual to capital stock form, in a transaction commonly known as a "second-step" conversion. In a second-step conversion, depositors of Putnam Savings Bank would have subscription rights to purchase common stock of PSB Holdings, Inc. or its successor equal to the value of Putnam Bancorp, MHC's interest in PSB Holdings, Inc. and the public stockholders of PSB Holdings, Inc. would be entitled to exchange their shares of common stock for an equal percentage of shares of the stock holding company resulting from the conversion. This percentage may be adjusted to reflect any assets owned by Putnam Bancorp, MHC. PSB Holdings, Inc.'s public stockholders, therefore, would own approximately the same percentage of the resulting stock holding company as they owned prior to the second-step conversion. The Board of Directors has no current plan to undertake a second-step conversion transaction.

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Proposed Stock Purchases by Management

        PSB Holdings, Inc.'s directors and executive officers and their associates are expected to purchase approximately 248,500 shares of common stock in the offering, which represents 12.5%, 10.6%, 9.2% and 8.0% of the shares sold to the public and 5.6%, 4.7%, 4.1% and 3.6% of the total shares to be outstanding after the offering (including shares issued to the Putnam Savings Foundation) at the minimum, midpoint, maximum and maximum, as adjusted, of the offering range, respectively. Directors and executive officers will pay the same $10.00 per share price paid by all other persons who purchase shares in the offering. These shares will be counted in determining whether the minimum of the range of the offering is reached.

How You May Obtain Additional Information Regarding the Offering

        If you have any questions regarding the offering, please call the Stock Offering Center at (      )        -        , Monday through Friday between 9:00 a.m. and 4:00 p.m., Connecticut time.

RISK FACTORS

You should carefully consider the following risk factors in evaluating an investment in the common stock.

Strong Competition Within Our Market Area May Limit Our Growth and Profitability.

        Competition in the banking and financial services industry is intense. In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Many of these competitors have substantially greater resources and lending limits than we have and offer certain services that we do not or cannot provide. In addition, recently our competition has been offering loans with lower interest rates on more attractive terms than those offered by Putnam Savings Bank. Our profitability depends upon our continued ability to successfully compete in our market area. The greater resources and deposit and loan products offered by our competition may limit our ability to increase our interest earning assets. For additional information see "Business of Putnam Savings Bank—Competition" on page    .

Because We Intend to Increase Our Commercial Real Estate and Commercial Loan Originations, Our Lending Risk Will Increase and Downturns in the Real Estate Market or Local Economy Could Adversely Affect Our Earnings.

        Commercial real estate and commercial loans generally have more risk than residential mortgage loans. Because the repayment of commercial real estate and commercial loans depends on the successful management and operation of the borrower's properties or related businesses, repayment of such loans can be affected by adverse conditions in the real estate market or the local economy. Commercial real estate and commercial loans may also involve relatively large loan balances to individual borrowers or groups of related borrowers. A downturn in the real estate market or the local economy could adversely impact the value of properties securing the loan or the revenues from the borrower's business thereby increasing the risk of nonperforming loans. As our commercial real estate and commercial loan portfolio increases, the corresponding risks and potential for losses from these loans may also increase.

The Future Price of the Common Stock May Be Less Than the Purchase Price in the Offering.

        We cannot assure you that if you purchase shares of common stock in the offering you will be able to sell them later at or above the purchase price in the offering. The final aggregate purchase price of the shares of common stock in the offering will be based on an independent appraisal. The appraisal is

14

not intended, and should not be construed, as a recommendation of any kind as to the advisability of purchasing shares of common stock. The valuation is based on estimates and projections of a number of matters, all of which are subject to change from time to time. In addition, current Office of Thrift Supervision regulations permit mutual holding companies to be acquired by mutual savings institutions. The possibility of such transactions has resulted in some takeover speculation which may be reflected in the per share price of mutual holding companies' common stock. The Office of Thrift Supervision has issued a policy statement indicating that it views transactions involving the sale of control of a mutual holding company as raising significant issues concerning disparate treatment of minority stockholders and mutual interests. The Office of Thrift Supervision intends to give these transactions special scrutiny and reject applications involving the sale of control of a mutual holding company unless the applicant can clearly demonstrate that the Office of Thrift Supervision's concerns are not warranted in the particular case. Should the Office of Thrift Supervision prohibit or otherwise restrict these transactions in the future, our per-share stock price may be adversely affected.

There Will be a Limited Trading Market in Our Common Stock, Which Will Hinder Your Ability to Sell Our Common Stock and May Lower the Market Price of the Stock.

        PSB Holdings, Inc. has never issued stock and, therefore, there is no current trading market for the shares of common stock. We expect that our common stock will be quoted on the Nasdaq National Market. It is not likely that an active and liquid trading market in shares of our common stock will develop. Persons purchasing shares may not be able to sell their shares when they desire if a liquid trading market does not develop or sell them at a price equal to or above the initial purchase price of $10.00 per share even if a liquid trading market develops. This limited trading market for our common stock may reduce the market value of the common stock and make it difficult to buy or sell our shares on short notice. For additional information see "Market for the Common Stock" on page    .

If Economic Conditions Deteriorate, Our Results of Operations and Financial Condition Could Be Adversely Affected as Borrowers' Ability to Repay Loans Declines and the Value of the Collateral Securing Our Loans Decreases.

        Our financial results may be adversely affected by changes in prevailing economic conditions, including decreases in real estate values, changes in interest rates which may cause a decrease in interest rate spreads, adverse employment conditions, the monetary and fiscal policies of the federal government and other significant external events. Because we have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral. At March 31, 2004, loans secured by real estate represented 93% of our total loans, substantially all of which are secured by properties located in Windham County. Adverse changes in the economy also may have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings. As of March 2004, the unemployment rate in Windham County, Connecticut was 6.0%, which was equal to the national unemployment rate but was higher than the 5.2% unemployment rate for Connecticut as a whole.

If Our Allowance for Loan Losses is Not Sufficient to Cover Actual Loan Losses, Our Earnings Could Decrease.

        We make various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to our allowance. Material additions to our allowance would materially decrease our net income.

15

        In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities may have a material adverse effect on our results of operations and financial condition.

Future Changes in Interest Rates May Reduce our Profits.

        Our ability to make a profit largely depends on our net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between:

•

the interest income we earn on our interest-earning assets, such as loans and securities; and



•

the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings.

        The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. Like many savings institutions, our liabilities generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility, because market interest rates change over time. In a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities. In a period of declining interest rates, the interest income earned on our assets may decrease more rapidly than the interest paid on our liabilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk" on page    .

        In addition, changes in interest rates can affect the average life of loans and mortgage-backed and related securities. A reduction in interest rates results in increased prepayments of loans and mortgage-backed and related securities, as borrowers refinance their debt in order to reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities.

        At March 31, 2004, our "rate shock" analysis prepared by a third-party consultant indicates that our net portfolio value would decrease by $1.2 million if there was an instantaneous 200 basis point increase in market interest rates. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk" on page    .

Our Return on Equity Will Be Low Compared to Other Financial Institutions. This Could Negatively Affect the Trading Price of Our Common Stock.

        Net income divided by average equity, known as "return on equity," is a ratio many investors use to compare the performance of a financial institution to its peers. We expect our return on equity to remain below the industry average until we are able to leverage our increased equity from the offering. Our return on equity will be reduced by the capital raised in the offering, higher expenses from the costs of being a public company, and added expenses associated with our employee stock ownership plan and any stock recognition and retention plan that we intend to establish in the future. Until we can increase our net interest income and non-interest income, we expect our return on equity to be below the industry average, which may reduce the value of our common stock. For the latest 12 months ended March 31, 2004 the peer group return on average equity was 4.93%. This compares to a return on average equity of 8.76% for all publicly traded savings institutions for the same period. Our return on average equity on a pro forma basis for the nine months ended March 31, 2004 was 3.46%. The net proceeds from the offering will significantly increase our consolidated equity from $24.2 million to between $41.2 million at the minimum and $51.0 million at the adjusted maximum of the offering range.

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The Issuance of Shares to the Charitable Foundation Will Dilute Your Ownership Interests and Adversely Affect Net Income in Fiscal 2005

        We intend to establish a charitable foundation in connection with the stock offering. We will make a contribution to the charitable foundation in the form of shares of PSB Holdings, Inc. common stock. At the midpoint of the offering range, we will issue 93,450 shares of common stock to the charitable foundation, which equals 4.0% of the shares of common stock to be sold. The aggregate contribution will also have an adverse effect on our net income for the quarter and year in which we make the issuance and contribution to the charitable foundation. The after-tax expense of the contribution will reduce net income in our 2005 fiscal year by approximately $570,000 at the midpoint of the offering range. Persons purchasing shares in the offering will have their ownership and voting interests in PSB Holdings, Inc. diluted by 3.8% due to the issuance of additional shares of common stock to the charitable foundation.

Our Contribution to the Putnam Savings Foundation May Not be Tax Deductible, Which Could Reduce Our Profits.

        We believe that the contribution to the Putnam Savings Foundation, valued at $1,235,880, pre-tax, at the adjusted maximum of the offering range will be deductible for federal income tax purposes. However, we cannot assure you that the Internal Revenue Service will grant tax-exempt status to the charitable foundation. If the contribution is not deductible, we would not receive any tax benefit from the contribution. In addition, even if the contribution is tax deductible, we may not have sufficient profits to be able to use the deduction fully.

Our Stock Benefit Plans Will Increase Our Costs, Which Will Reduce Our Income.

        We anticipate that our employee stock ownership plan will purchase 8% of the shares of common stock issued in the offering (including shares issued to the Putnam Savings Foundation) with funds borrowed from PSB Holdings, Inc. The cost of acquiring the shares of common stock for the employee stock ownership plan will be between $1,652,190 at the minimum of the offering range and $2,570,620 at the adjusted maximum of the offering range. We will record annual employee stock ownership plan expenses in an amount equal to the fair value of shares of common stock committed to be released to employees. If shares of common stock appreciate in value over time, compensation expense relating to the employee stock ownership plan will increase.

        We also intend to adopt stock-based incentive plans after the offering. Under Office of Thrift Supervision regulations, we are authorized to grant awards under one or more stock-based incentive plans, including a recognition and retention plan and stock option plan, in an amount up to 25% of the number of shares of common stock held by persons other than Putnam Bancorp, MHC. The number of options granted or shares awarded under any initial stock option plan or recognition and retention plan may not exceed 10% and 4%, respectively, of the shares issued in the offering (including shares issued to the Putnam Savings Foundation), if such plans are adopted within one year from the date of completion of the offering. However, these limits would not apply to plans adopted after one year from the date of the completion of the offering, and larger grants would increase our costs further. The recognition and retention plan and stock option plan cannot be implemented until at least six months after the offering, and if they are adopted within 12 months after the offering, they will be subject to certain Office of Thrift Supervision regulations regarding vesting and allocation of awards. In the event that a portion of the shares used to (i) fund the recognition and retention plan or (ii) satisfy the exercise of options from our stock option plan, is obtained from authorized but unissued shares, the issuance of additional shares will decrease our net income per share and stockholders' equity per share.

17

The Implementation of Stock-Based Benefit Plans May Dilute Your Ownership Interest.

        We intend to adopt stock-based incentive plans, including a stock option plan and recognition and retention plan, following the offering. These stock benefit plans will be funded through either open market purchases, if permitted, or from the issuance of authorized but unissued shares. Stockholders would experience a reduction in ownership interest (including shares held by Putnam Bancorp, MHC) totaling 6.1% in the event newly issued shares are used to fund stock options and stock awards under a stock-based incentive plan in an aggregate amount equal to 14%, of the shares issued in the offering (including shares issued to the Putnam Savings Foundation).

We Have Broad Discretion in Allocating the Proceeds of the Offering. Our Failure to Effectively Utilize Such Proceeds Could Reduce Our Profits.

        PSB Holdings, Inc. intends to retain 50% of the net proceeds from the offering and contribute the remainder of the net proceeds of the offering to Putnam Savings Bank. PSB Holdings, Inc. will use a portion of the net proceeds to fund the employee stock ownership plan and may use the remaining net proceeds to pay dividends to stockholders, repurchase shares of common stock, purchase investment securities, acquire other financial services companies or for other general corporate purposes. Putnam Savings Bank may use the proceeds it receives to fund new loans, establish or acquire new branches, purchase investment securities, or for general corporate purposes. We have not, however, allocated specific amounts of proceeds for any of these purposes and we will have significant flexibility in determining the amount of net proceeds we apply to different uses and the timing of such applications. Our failure to utilize these funds effectively could reduce our profitability.

Persons Who Purchase Stock In The Offering Will Own a Minority of PSB Holdings, Inc.'s Common Stock and Will Not Be Able to Exercise Voting Control Over Most Matters Put to a Vote of Stockholders.

        Public stockholders will own a minority of the outstanding shares of PSB Holdings, Inc. common stock. As a result, stockholders other than Putnam Bancorp, MHC will not be able to exercise voting control over most matters put to a vote of stockholders. Putnam Bancorp, MHC will own a majority of PSB Holdings, Inc.'s common stock after the offering and, through its Board of Directors, will be able to exercise voting control over most matters put to a vote of stockholders. The same directors and officers who manage PSB Holdings, Inc. and Putnam Savings Bank also manage Putnam Bancorp, MHC. The only matters as to which stockholders other than Putnam Bancorp, MHC will be able to exercise voting control include any proposal to implement a recognition and retention stock plan or stock option plan following the completion of the offering. In addition, Putnam Bancorp, MHC may exercise its voting control to prevent a sale or merger transaction in which stockholders could receive a premium for their shares.

We Operate in a Highly Regulated Environment and We May Be Adversely Affected by Changes in Laws and Regulations.

        We are subject to extensive regulation, supervision and examination by the Office of Thrift Supervision, our chartering authority, and by the Federal Deposit Insurance Corporation, as insurer of deposits. Such regulation and supervision govern the activities in which a financial institution and its holding company may engage and are intended primarily for the protection of the insurance fund and depositors. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution's allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, may have a material impact on our operations.

18

Our Stock Value May be Negatively Affected by Federal Regulations Restricting Takeovers and our Mutual Holding Company Structure.

        Federal Regulations Restricting Takeovers.    For three years following the offering, Office of Thrift Supervision regulations prohibit any person from acquiring or offering to acquire more than 10% of our common stock without the prior written approval of the Office of Thrift Supervision. Moreover, current OTS policy prohibits the acquisition of a mutual holding company subsidiary by any person or entity other than a mutual holding company or a mutual institution. See "Restrictions on the Acquisition of PSB Holdings, Inc. and Putnam Savings Bank" on page    for a discussion of applicable Office of Thrift Supervision Regulations regarding acquisitions.

        The Mutual Holding Company Structure May Impede Takeovers.    Putnam Bancorp, MHC, as the majority stockholder of PSB Holdings, Inc., will be able to control the outcome of virtually all matters presented to stockholders for their approval, including a proposal to acquire PSB Holdings, Inc. Accordingly, Putnam Bancorp, MHC may prevent the sale of control or merger of PSB Holdings, Inc. or its subsidiaries even if such a transaction were favored by a majority of the public stockholders of PSB Holdings, Inc.

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

        The summary financial information presented below is derived in part from the consolidated financial statements of PSB Holdings, Inc. The following is only a summary and you should read it in conjunction with the financial statements and notes beginning on page F-1. The information at June 30, 2003 and 2002 and for the years ended June 30, 2003 and 2002 is derived in part from the audited consolidated financial statements of PSB Holdings, Inc. that appear in this prospectus. The information for the years ended June 30, 2001, 2000 and 1999 is derived in part from audited consolidated financial statements that do not appear in this prospectus. The operating data for the nine months ended March 31, 2004 and 2003 were not audited, but, in the opinion of management, reflect all adjustments necessary for a fair presentation. No adjustments were made other than normal recurring entries. The results of operations for the nine months ended March 31, 2004 are not necessarily indicative of the results of operations that may be expected for the entire year.

			At June 30,
	At March 31, 2004
			2003		2002		2001		2000		1999
	(In thousands)
Selected Financial Condition Data:
Total assets	$	252,652	$	243,703	$	223,840	$	190,250	$	170,283	$	153,009
Investment securities		107,558		102,683		98,151		68,855		66,954		61,175
Loans receivable, net		132,611		120,464		112,208		105,761		93,581		85,292
Loans held-for-sale		455		1,051		617		616		40		509
Cash and cash equivalents		4,465		13,280		8,097		9,793		4,135		1,948
Deposits		197,281		191,420		161,797		130,018		110,346		110,259
Borrowings		29,250		27,000		39,750		39,384		41,392		24,452
Total capital		24,241		23,059		20,631		19,268		17,047		17,031

		Nine Months Ended March 31,				Years Ended June 30,
		2004		2003		2003		2002		2001			2000		1999
		(In thousands)
Selected Operating Data:
Interest and dividend income		$	9,003	$	9,521	$	12,443	$	12,472	$	12,250		$	10,707	$	8,965
Interest expense			3,521		4,513		5,850		6,958		7,470			5,894		4,774
	Net interest income		5,482		5,008		6,593		5,514		4,780			4,813		4,191
Provision for loan losses			45		45		60		60		60			60		120
	Net interest income after provision for loan losses		5,437		4,963		6,533		5,454		4,720			4,753		4,071
Non-interest income			970		907		1,147		889		978			1,085		513
Non-interest expense			4,759		4,278		5,744		5,180		5,182			4,061		3,300
Income before income taxes			1,648		1,592		1,936		1,163		516			1,777		1,284
Income tax expense			490		497		582		279		38			444		386
	Net income before change in accounting principle		1,158		1,095		1,354		884		478			1,333		898
Adjustment for change in accounting principle			—		—		—		—		(147	)		—		—
	Net income	$	1,158	$	1,095	$	1,354	$	884	$	331		$	1,333	$	898

20

	At or For the Nine Months Ended March 31,				At or For the Years Ended June 30,
	2004		2003		2003		2002		2001		2000		1999
Selected Financial Ratios and Other Data:
Performance Ratios(1):
Return on average assets(5)	0.63	%	0.64	%	0.59	%	0.44	%	0.18	%	0.83	%	0.66	%
Return on average equity(5)	6.66		6.77		6.19		4.52		1.81		7.85		5.21
Interest rate spread(2)	2.82		2.67		2.61		2.32		2.21		2.58		2.57
Net interest margin(3)	3.14		3.08		3.01		2.86		2.79		3.12		3.21
Noninterest expense to average assets	2.59		2.51		2.50		2.57		2.89		2.52		2.42
Efficiency ratio(4)	73.76		72.34		73.15		79.74		83.53		77.47		70.05
Average interest-earning assets to average interest-bearing liabilities	115.98		114.65		114.93		114.74		113.47		114.16		122.15
Capital Ratios:
Equity to total assets at end of period	9.59		9.48		9.46		9.22		10.13		10.01		11.13
Average equity to average assets	9.44		9.49		9.51		9.71		10.17		10.54		12.65
Total capital to risk-weighted assets	16.14		17.10		16.95		17.31		19.60		21.20		22.49
Tier I capital to risk-weighted assets	15.20		16.12		15.97		16.30		18.46		19.97		21.24
Tier I capital to average assets	8.99		9.14		9.01		9.31		10.21		10.99		11.92
Asset Quality Ratios:
Allowance for loan losses as a percent of total loans	0.96		1.11		1.05		1.10		1.12		1.20		1.23
Allowance for loan losses as a percent of nonperforming loans	137.19		112.64		109.06		705.71		213.90		203.99		92.48
Net charge-offs to average outstanding loans during the period	0.03		—		0.03		0.01		—		—		—
Nonperforming loans as a percent of total loans	0.69		0.01		0.95		0.15		0.52		0.58		1.31
Nonperforming assets as a percent of total assets	0.37		0.00		0.48		0.08		0.35		0.32		0.81
Other Data:
Number of full service offices	4		4		4		4		4		3		3

(1)

Performance ratios for the nine months ended March 31, 2004 and 2003 are annualized.

(2)

Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.

(3)

Represents net interest income as a percent of average interest-earning assets.

(4)

Represents noninterest expense divided by the sum of net interest income and noninterest income, excluding gains or losses on the sale of securities, gains on expired options, and losses on derivative instruments.

(5)

In 2001, return on average assets and return on average equity reflect a charge to income of $147,000 due to a change in accounting principle.

FORWARD LOOKING STATEMENTS

        This prospectus contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements include:

•

statements of our goals, intentions and expectations;



•

statements regarding our business plans and prospects and growth and operating strategies;



•

statements regarding the asset quality of our loan and investment portfolios; and



•

estimates of our risks and future costs and benefits.

21

        These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors that could affect the actual outcome of future events:

•

significantly increased competition among depository and other financial institutions;



•

inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;



•

general economic conditions, either nationally or in our market areas, that are worse than expected;



•

adverse changes in the securities markets;



•

legislative or regulatory changes that adversely affect our business;



•

our ability to enter new markets and expand product offerings successfully and take advantage of growth opportunities;



•

changes in consumer spending, borrowing and savings habits;



•

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies and the Financial Accounting Standards Board; and



•

changes in our organization, compensation and benefit plans.

        Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. We discuss these and other uncertainties in "Risk Factors" beginning on page    .

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

        Although we will not be able to determine the amount of actual net proceeds we will receive from the sale of shares of common stock until the offering is completed, we anticipate that the net proceeds will be between $19.1 million and $26.1 million, or $30.1 million if the offering is increased by 15%.

        PSB Holdings, Inc. intends to distribute the net proceeds from the offering as follows:

		Minimum				Midpoint				Maximum				Adjusted Maximum
		Amount		Percent of Net Proceeds		Amount		Percent of Net Net Proceeds		Amount		Percent of Net Proceeds		Amount		Percent of Net Proceeds
		(Dollars in Thousands)
Offering proceeds		$	19,858			$	23,363			$	26,867			$	30,897
Less: offering expenses			722				754				786				823
Net offering proceeds			19,136	100.0	%		22,609	100.0	%		26,081	100.0	%		30,074	100.0	%
Less:
	Proceeds contributed to Putnam Savings Bank		9,568	50.0	%		11,304	50.0	%		13,040	50.0	%		15,037	50.0	%
	Proceeds used for loan to employee stock ownership plan		1,652	8.6	%		1,944	8.6	%		2,235	8.6	%		2,571	8.6	%
Proceeds retained by PSB Holdings, Inc.		$	7,916	41.4	%	$	9,361	41.4	%	$	10,806	41.4	%	$	12,466	41.4	%

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        The net proceeds may vary because total expenses relating to the offering may be more or less than our estimates. For example, our expenses would increase if a syndicated community offering were used to sell shares of common stock not purchased in the subscription offering and any community offering. Payments for shares made through withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will result in a reduction of Putnam Savings Bank's deposits. In all instances, Putnam Savings Bank will receive at least 50% of the net proceeds of the offering.

        We are undertaking the offering at this time in order to increase our capital and have the capital resources available to expand and diversify our business. For further information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Business Strategy." The offering proceeds will increase our capital resources and the amount of funds available to us for lending and investment purposes. The proceeds will also give us greater flexibility to diversify operations and expand the products and services we offer to our customers.

PSB Holdings, Inc. may use the proceeds it retains from the offering:

•

to finance the purchase of common stock in the offering by our employee stock ownership plan;



•

to invest in securities;



•

to repurchase its shares of common stock;



•

to finance acquisitions of financial institutions or branches and other financial services businesses, although no specific transactions are being considered at this time; and



•

for general corporate purposes.

        Under current Office of Thrift Supervision regulations, we may not repurchase shares of our common stock during the first year following the offering, except when extraordinary circumstances exist and with prior regulatory approval. The loan that will be used to fund the purchases by the employee stock ownership plan will accrue interest.

Putnam Savings Bank may use the proceeds it receives from the offering:

•

to fund new loans;



•

to support an expanding base of customers, products and services;



•

to invest in securities;



•

to expand its retail banking franchise by establishing or acquiring new branches or by acquiring other financial institutions, or other financial services companies, or their assets, although no transactions are being considered at this time; and



•

for general corporate purposes.

        The use of the proceeds outlined above may change based on changes in interest rates, equity markets, laws and regulations affecting the financial services industry, our relative position in the financial services industry, the attractiveness of potential acquisitions to expand our operations, and overall market conditions.

OUR POLICY REGARDING DIVIDENDS

        Following completion of the offering, our Board of Directors will have the authority to declare dividends on our common stock, subject to statutory and regulatory requirements. In the future, our Board intends to consider a policy of paying cash or stock dividends on the common stock. However, no decision has been made with respect to the payment of dividends. The payment of dividends will

23

depend upon a number of factors, including capital requirements, PSB Holdings, Inc.'s and Putnam Savings Bank's financial condition and results of operations, tax considerations, statutory and regulatory limitations and general economic conditions. No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in the future. Special cash dividends, stock dividends or returns of capital, to the extent permitted by Office of Thrift Supervision policy and regulations, may be paid in addition to, or in lieu of, regular cash dividends. Putnam Savings Bank has filed consolidated tax returns. Accordingly, it is anticipated that any cash distributions made by PSB Holdings, Inc. to its stockholders would be treated as cash dividends and not as a non-taxable return of capital for federal and state tax purposes.

        Dividends from PSB Holdings, Inc. will depend, in large part, upon receipt of dividends from Putnam Savings Bank, because PSB Holdings, Inc. initially will have no source of income other than dividends from Putnam Savings Bank, earnings from the investment of proceeds from the sale of shares of common stock, and interest payments with respect to PSB Holdings, Inc.'s loan to the employee stock ownership plan. A regulation of the Office of Thrift Supervision imposes limitations on "capital distributions" by savings institutions. See "Supervision and Regulation—Capital Distributions" on page    .

        Any payment of dividends by Putnam Savings Bank to PSB Holdings, Inc. which would be deemed to be drawn out of Putnam Savings Bank's bad debt reserves would require a payment of taxes at the then-current tax rate by Putnam Savings Bank on the amount of earnings deemed to be removed from the reserves for such distribution. Putnam Savings Bank does not intend to make any distribution to PSB Holdings, Inc. that would create such a federal tax liability. See "Federal and State Taxation" on page    .

        Additionally, PSB Holdings, Inc. has committed to the Office of Thrift Supervision that during the one-year period following the stock offering PSB Holdings, Inc. will not take any action to declare an extraordinary dividend to stockholders that would be treated by recipients as a tax-free return of capital for federal income tax purposes.

        If PSB Holdings, Inc. pays dividends to its stockholders, it also will be required to pay dividends to Putnam Bancorp, MHC, unless Putnam Bancorp, MHC elects to waive the receipt of dividends. We anticipate that Putnam Bancorp, MHC will waive dividends paid by PSB Holdings, Inc. Any decision to waive dividends will be subject to regulatory approval. Under Office of Thrift Supervision regulations, public stockholders would not be diluted for any dividends waived by Putnam Bancorp, MHC in the event Putnam Bancorp, MHC converts to stock form. See "Supervision and Regulation—Holding Company Regulation" on page    .

MARKET FOR OUR COMMON STOCK

        PSB Holdings, Inc. has never issued capital stock to the public. We anticipate that our common stock will be quoted on the Nasdaq National Market. We will try to get at least four market makers to make a market in our common stock. Keefe, Bruyette & Woods, Inc. has advised us that it intends to make a market in our common stock following the offering, but it is under no obligation to do so. While we will attempt before completion of the offering to obtain commitments from at least three other broker-dealers to make a market in our common stock, there can be no assurance that we will be successful in obtaining such commitments.

        The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of the shares of common stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares of common stock on short notice, and, therefore, you should not view the shares of common stock as a short-term investment. We cannot assure you that an active trading market for the common stock will develop or that, if it develops, it

24

will continue. Nor can we assure you that, if you purchase shares of common stock, you will be able to sell them at or above $10.00 per share.

25

REGULATORY CAPITAL COMPLIANCE

        At March 31, 2004, Putnam Savings Bank exceeded all regulatory capital requirements. The following table sets forth our compliance, as of March 31, 2004, with the regulatory capital standards, on a historical and pro forma basis, assuming that the indicated number of shares of common stock were sold as of such date at $10.00 per share, Putnam Savings Bank received 50% of the estimated net proceeds after adjustment for stock benefit plans, and 50% of the net proceeds are retained by PSB Holdings, Inc. Accordingly, proceeds received by Putnam Savings Bank have been assumed to equal $9.6 million, $11.3 million, $13.0 million and $15.0 million at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. For a discussion of the applicable capital requirements, see "Supervision and Regulation—Federal Banking Regulation—Capital Requirements" on page     .

							Pro Forma at March 31, 2004, Based upon the Sale of
			Historical at March 31, 2004				1,985,813 Shares at Minimum of Offering Range				2,336,250 Shares at Midpoint of Offering Range				2,686,688 Shares at Maximum of Offering Range				3,089,691 shares at Adjusted Maximum of Offering Range(1)
			Amount		Percent of Assets (2)(3)		Amount		Percent of Assets(3)		Amount		Percent of Assets(3)		Amount		Percent of Assets(3)		Amount		Percent of Assets(3)
			(Dollars in Thousands)
GAAP capital			$	24,204	9.57	%	$	31,294	12.04	%	$	32,593	12.47	%	$	33,891	12.91	%	$	35,385	13.40	%
Tangible capital:
	Tangible capital(4)(7)		$	22,636	8.99	%	$	29,726	11.49	%	$	31,025	11.93	%	$	32,323	12.37	%	$	33,817	12.87	%
	Requirement			3,775	1.50			3,881	1.50			3,901	1.50			3,920	1.50			3,943	1.50
		Excess	$	18,861	7.49	%	$	24,845	9.99	%	$	27,124	10.43	%	$	28,403	10.87	%	$	29,874	11.37	%
Core capital:
	Core capital(3)(4)(7)		$	22,636	8.99	%	$	29,726	11.49	%	$	31,025	11.93	%	$	32,323	12.37	%	$	33,817	12.87	%
	Requirement(5)			10,067	4.00			10,350	4.00			10,402	4.00			10,454	4.00			10,514	4.00
		Excess	$	12,569	4.99	%	$	19,376	7.49	%	$	20,623	7.93	%	$	21,869	8.37	%	$	23,303	8.87	%
Tier I Risk based			$	22,636	15.20	%	$	29,726	19.77	%	$	31,025	20.60	%	$	32,323	21.42	%	$	33,817	22.37	%
	Requirement			5,959	4.00			6,015	4.00			6,026	4.00			6,036	4.00			6,048	4.00
		Excess	$	16,677	11.20	%	$	23,711	15.77	%	$	24,999	16.60	%	$	26,287	17.42	%	$	27,769	18.37	%
Risk-based capital:
	Risk-based capital(4)(6)(7)		$	24,037	16.14	%	$	31,127	20.70	%	$	32,426	21.53	%	$	33,724	22.35	%	$	35,218	23.29	%
	Requirement			11,917	8.00			12,030	8.00			12,051	8.00			12,072	8.00			12,096	8.00
		Excess	$	12,120	8.14	%	$	19,097	12.70	%	$	20,375	13.53	%	$	21,652	14.35	%	$	23,122	15.29	%

(1)

As adjusted to give effect to a 15% increase in the number of shares of common stock outstanding after the offering which could occur due to an increase in the maximum of the independent valuation as a result of regulatory considerations, demand for the shares, or changes in market conditions or general economic conditions following the commencement of the offering.

26

(2)

Based on adjusted total assets of $251,664,000 for the purposes of the tangible and core capital requirements, and risk-weighted assets of $148,963,000 for the purposes of the risk-based capital requirement.

(3)

Tangible capital levels are shown as a percentage of tangible assets. Core capital levels are shown as a percentage of total adjusted assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.

(4)

Pro forma capital levels assume that PSB Holdings, Inc. funds the recognition and retention plan with purchases in the open market of 4% of the shares of common stock issued in the offering (including shares issued to the Putnam Savings Foundation) at a price equal to the price for which the shares of common stock are sold in the offering, and that the employee stock ownership plan purchases 8% of the shares of common stock issued in the offering (including shares issued to the Putnam Savings Foundation) with funds borrowed from PSB Holdings, Inc. See "Management" on page    for a discussion of the recognition and retention plan and employee stock ownership plan.

(5)

The current core capital requirement for savings associations that receive the highest supervisory rating for safety and soundness is 3% of total adjusted assets and 4% to 5% of total adjusted assets for all other savings associations. See "Supervision and Regulation—Federal Banking Regulation—Standards of Safety and Soundness—Capital Requirements" on page    .

(6)

Assumes net proceeds are invested in assets that carry a 20% risk-weighting.

(7)

Pro forma capital levels assume receipt by Putnam Savings Bank of 50% of the net proceeds from the sale of common stock in the offering.

27

CAPITALIZATION

        The following table presents the historical consolidated capitalization of Putnam Savings Bank at March 31, 2004, and the pro forma consolidated capitalization of PSB Holdings, Inc. after giving effect to the offering, based upon the sale of the number of shares of common stock indicated in the table and the other assumptions set forth under "Pro Forma Data."

							Pro Forma Consolidated Capitalization of PSB Holdings, Inc. Based upon the Sale for $10.00 Per Share of
				PSB Holdings, Inc. Historical Capitalization			1,985,813 Shares at Minimum of Offering Range			2,336,250 Shares at Midpoint of Offering Range			2,686,688 Shares at Maximum of Offering Range			3,089,691 Shares at Adjusted Maximum of Offering Range(1)
				(Dollars In Thousands)
Deposits(2)				$	197,281		$	197,281		$	197,281		$	197,281		$	197,281
Borrowings					29,250			29,250			29,250			29,250			29,250
Total deposits and borrowings				$	226,531		$	226,531		$	226,531		$	226,531		$	226,531
Stockholders' equity:
	Preferred Stock, $0.10 par value per share, 1,000,000 shares authorized; none to be issued			$	—		$	—		$	—		$	—		$	—
	Common Stock, $0.10 par value per share:
		12,000,000 shares authorized; shares to be issued as reflected			—			446			525			604			694
	Additional paid-in capital(3)				—			19,484			23,018			26,552			30,615
	Retained earnings				22,673			22,673			22,673			22,673			22,673
	Less:
		Expense of contribution to foundation			—			(794	)		(935	)		(1,075	)		(1,236	)
	Plus:
		The benefit of contribution to foundation(4)			—			317			373			429			493
		Accumulated other comprehensive income			1,568			1,568			1,568			1,568			1,568
	Less:
		Common Stock acquired by employee stock ownership plan(5)			—			(1,652	)		(1,944	)		(2,235	)		(2,571	)
		Common Stock acquired by recognition and retention plan(6)			—			(826	)		(972	)		(1,118	)		(1,285	)
			Total stockholders' equity(7)	$	24,241		$	41,216		$	44,307		$	47,398		$	50,952
Pro forma shares outstanding:
	Total shares outstanding(8)				100			4,462,500			5,250,000			6,037,500			6,943,125
	Shares issued to Putnam Bancorp, MHC(8)				100			2,397,254			2,820,300			3,243,344			3,729,846
	Shares offered for sale				—			1,985,813			2,336,250			2,686,688			3,089,691
	Shares issued to Putnam Savings Foundation				—			79,433			93,450			107,468			123,588
Total stockholders' equity as a percentage of pro forma total assets					9.59	%		15.29	%		16.25	%		17.18	%		18.24	%

(1)

As adjusted to give effect to a 15% increase in the number of shares of common stock outstanding after the offering which could occur due to an increase in the maximum of the independent valuation as a result of regulatory considerations, demand for the shares of common stock, or changes in market conditions or general financial and economic conditions following the commencement of the offering.

(2)

Does not reflect withdrawals from deposit accounts for the purchase of shares of common stock in the offering. Such withdrawals would reduce pro forma deposits by the amount of such withdrawals.

(footnotes continued on next page)

28

(3)

The sum of the par value and additional paid-in capital equals the net conversion proceeds. No effect has been given to the issuance of additional shares of common stock pursuant to the stock option plan that PSB Holdings, Inc. expects to adopt. In addition to tax-qualified employee stock benefit plans, the stock issuance plan permits PSB Holdings, Inc. to adopt one or more stock benefit plans, subject to stockholder approval, in an amount up to 25% of the number of shares of common stock held by persons other than Putnam Bancorp, MHC.

(4)

Represents the tax effect of the contribution to the charitable foundation based on a 39.9% tax rate. The realization of the deferred tax benefit is limited annually to a maximum deduction for charitable foundations equal to 10% of PSB Holdings, Inc.'s annual taxable income, subject to our ability to carry forward any unused portion of the deduction for five years following the year in which the contribution is made.

(5)

Assumes that 8% of the shares of common stock issued in the offering (including shares issued to the Putnam Savings Foundation) will be purchased by the employee stock ownership plan and that the funds used to acquire the employee stock ownership plan shares will be borrowed from PSB Holdings, Inc. The common stock acquired by the employee stock ownership plan is reflected as a reduction of stockholders' equity. Putnam Savings Bank will provide the funds to repay the employee stock ownership plan loan. See "Management—Benefit Plans."

(6)

Assumes that subsequent to the offering, 4% of the shares of common stock issued in the offering (including shares issued to the Putnam Savings Foundation) are purchased with funds provided by PSB Holdings, Inc. by the recognition and retention plan in the open market at a price equal to the price for which the shares are sold in the offering. The shares of common stock to be purchased by the recognition and retention plan is reflected as a reduction of stockholders' equity. See "Pro Forma Data" and "Management." In addition to tax-qualified employee stock benefit plans, the stock issuance plan permits PSB Holdings, Inc. to adopt one or more stock benefit plans, in an amount up to 25% of the number of shares of common stock held by persons other than Putnam Bancorp, MHC. The recognition and retention plan will not be implemented for at least six months after the offering and until it has been approved by stockholders.

(7)

Pro forma stockholders' equity equals GAAP capital plus 50% of the net offering proceeds retained by PSB Holdings, Inc.

(8)

PSB Holdings, Inc. issued 100 shares of its common stock to Putnam Bancorp, MHC, our mutual holding company, in connection with our mutual holding company reorganization in 2003.

PRO FORMA DATA

        We cannot determine the actual net proceeds from the sale of the common stock until the offering is completed. However, we estimate that net proceeds will be between $19.1 million and $26.1 million, or $30.1 million if the offering range is increased by 15%, based upon the following assumptions:

•

we will sell all shares of common stock in the subscription offering;



•

our employee stock ownership plan will purchase 8% of the shares of common stock issued in the offering (including shares issued to the Putnam Savings Foundation) with a loan from PSB Holdings, Inc. The loan will be repaid in substantially equal principal payments over a period of 20 years;



•

Keefe, Bruyette & Woods will receive a fee equal to 1.0% of the dollar amount of shares of common stock sold in the offering. No fee will be paid with respect to shares of common stock purchased by our qualified and non-qualified employee stock benefit plans or by our officers, directors and employees, and their immediate families; and



•

total expenses of the offering, including the marketing fees to be paid to Keefe, Bruyette & Woods, will be between $722,000 at the minimum of the offering range and $823,000 at the maximum of the offering range, as adjusted.

        We calculated the pro forma consolidated net income and stockholders' equity of PSB Holdings, Inc. for the nine months ended March 31, 2004 and year ended June 30, 2003, as if the shares of common stock had been sold at the beginning of those periods and as if the estimated net proceeds we received had been invested at an assumed interest rate of 1.20% and 1.09% (0.72% and 0.66% on an after-tax basis), which represented the yield on the one-year U.S. Treasury Bill as of March 31, 2004 and June 30, 2003, respectively (which Putnam Savings Bank considers to more accurately reflect the pro forma reinvestment rate than an arithmetic average method in light of current market interest rates). The effect of withdrawals from deposit accounts for the purchase of

29

shares of common stock has not been reflected. Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the indicated number of shares of common stock. No effect has been given in the pro forma stockholders' equity calculations for the assumed earnings on the net proceeds. It is assumed that Putnam Savings Bank will retain between $9.6 million and $13.0 million of the estimated net proceeds in the offering, or $15.0 million if the offering range is increased by 15%. The actual net proceeds from the sale of shares of common stock will not be determined until the offering is completed. However, we currently estimate the net proceeds to be between $19.1 million and $26.1 million, or $30.1 million if the offering range is increased by 15%. It is assumed that all shares of common stock will be sold in the subscription and community offerings.

        The pro forma table gives effect to the implementation of a recognition and retention plan. Subject to the receipt of stockholder approvals, we have assumed that the recognition and retention plan will acquire an amount of common stock equal to 4% of the shares of common stock issued in the offering (including shares issued to the Putnam Savings Foundation) because, under federal regulation, this is the maximum amount of shares that may be granted if such a plan is adopted within one year from the date of completion of the offering. In preparing the table below, we assumed that stockholder approval has been obtained and that the recognition and retention plan purchases in the open market a number of shares equal to 4% of the shares issued in the offering (including shares issued to the Putnam Savings Foundation) at the same price for which they were sold in the stock offering. We assume that shares of common stock are granted under the plan in awards that vest over a five year period. The stock issuance plan provides that we may grant awards under one or more stock benefit plans (exclusive of shares awarded under one or more tax-qualified employee stock benefit plans) in an amount up to 25% of the number of shares of common stock held by persons other than Putnam Bancorp, MHC. We may decide to establish a recognition and retention plan that awards more than 4% of the shares of common stock issued in the offering (including shares issued to the Putnam Savings Foundation).

        As discussed under "How We Intend to Use the Proceeds from the Offering," PSB Holdings, Inc. intends to retain 50% of the net proceeds from the offering and to contribute the remaining net proceeds from the offering to Putnam Savings Bank. PSB Holdings, Inc. will use a portion of the proceeds it retains to make a loan to the employee stock ownership plan, and retain the rest of the proceeds for future use.

        The pro forma table does not give effect to:

•

shares of common stock to be reserved for issuance under the stock option plan;



•

withdrawals from deposit accounts for the purpose of purchasing shares of common stock in the offering;



•

PSB Holdings, Inc.'s results of operations after the offering; or



•

changes in the market price of the common stock after the offering.

        The following pro forma information may not represent the financial effects of the offering at the date on which the offering actually occurs and you should not use the table to indicate future results of operations. Pro forma stockholders' equity represents the difference between the stated amount of assets and liabilities of Putnam Savings Bank computed in accordance with generally accepted accounting principles. We did not increase or decrease stockholders' equity to reflect the difference between the carrying value of loans and other assets and their market value. Pro forma stockholders' equity is not intended to represent the fair market value of the common stock, and may be different than the amounts that would be available for distribution to stockholders if we liquidated. Pro forma stockholders' equity does not give effect to the impact of tax bad debt reserves in the event we are liquidated.

30

			At or For the Nine Months Ended March 31, 2004 Based Upon the Sale at $10.00 Per Share of
			1,985,813 Shares Minimum of Estimated Offering Range			2,336,250 Shares of Midpoint of Estimated Offering Range			2,686,688 Shares of Maximum of Estimated Offering Range			3,089,691 Shares 15% Above Estimated Offering Range(1)
			(Dollars in Thousands, Except Per Share Amount)
Gross proceeds			$	19,858		$	23,363		$	26,867		$	30,897
	Shares issued to the Foundation			794			935			1,075			1,236
Pro forma market capitalization			$	20,652		$	24,297		$	27,942		$	32,133
Gross proceeds			$	19,858		$	23,363		$	26,867		$	30,897
Expenses				722			754			786			823
Estimated net proceeds			$	19,136		$	22,609		$	26,081		$	30,074
Common stock acquired by employee stock ownership plan(2)				(1,652	)		(1,944	)		(2,235	)		(2,571	)
Common stock acquired by recognition and retention plan(3)				(826	)		(972	)		(1,118	)		(1,285	)
	Estimated net proceeds after adjustment for stock benefit plans		$	16,658		$	19,693		$	22,728		$	26,218
For the Nine Months Ended March 31, 2004:
Net income:
	Historical		$	1,158		$	1,158		$	1,158		$	1,158
Pro forma adjustments:
	Income on adjusted net proceeds			90			107			123			142
	Employee stock ownership plan(2)			(37	)		(44	)		(50	)		(58	)
	Recognition and retention plan(3)			(74	)		(88	)		(101	)		(116	)
		Pro forma net income	$	1,137		$	1,133		$	1,130		$	1,126
Net income per share:
	Historical		$	0.27		$	0.23		$	0.20		$	0.17
Pro forma adjustments:
	Income on adjusted net proceeds			0.02			0.02			0.02			0.02
	Employee stock ownership plan(2)			(0.01	)		(0.01	)		(0.01	)		(0.01	)
	Recognition and retention plan(3)			(0.02	)		(0.02	)		(0.02	)		(0.02	)
		Pro forma net income per share(2)(3)(4)	$	0.26		$	0.22		$	0.19		$	0.16
Offering price to pro forma net income per share				28.85	x		34.09	x		39.47	x		46.88	x
Shares considered outstanding in calculating pro forma net income per share				4,303,476			5,062,913			5,822,350			6,695,703
At March 31, 2004:
Stockholders' equity:
	Historical		$	24,241		$	24,241		$	24,241		$	24,241
	Estimated net proceeds			19,136			22,609			26,081			30,074
	Shares issued to the charitable foundation			794			935			1,075			1,236
	Tax benefit of contribution to the charitable foundation			317			373			429			493
	Less:
		Shares contributed to the charitable foundation		(794	)		(935	)		(1,075	)		(1,236	)
		Common stock acquired by employee stock ownership plan(2)		(1,652	)		(1,944	)		(2,235	)		(2,571	)
		Common stock acquired by recognition and retention plan(2)		(826	)		(972	)		(1,118	)		(1,285	)
		Pro forma stockholders' equity(5)	$	41,216		$	44,307		$	47,398		$	50,952
Stockholders' equity per share:
	Historical		$	5.43		$	4.62		$	4.02		$	3.49
	Estimated net proceeds			4.29			4.31			4.32			4.33
	Shares issued to the charitable foundation			0.18			0.18			0.18			0.18
	Tax benefit of contribution to the charitable foundation			0.07			0.07			0.07			0.07
	Less:
		Shares contributed to the charitable foundation		(0.18	)		(0.18	)		(0.18	)		(0.18	)
		Common stock acquired by employee stock ownership plan(2)		(0.37	)		(0.37	)		(0.37	)		(0.37	)
		Common stock acquired by recognition and retention plan(2)		(0.19	)		(0.19	)		(0.19	)		(0.19	)
		Pro forma stockholders' equity per share(3)(4)(5)	$	9.23		$	8.44		$	7.85		$	7.33
Offering price as percentage of pro forma stockholders' equity per share				108.34	%		118.48	%		127.39	%		136.43	%
Shares considered outstanding in calculating offering price as a percentage of pro forma stockholders' equity per share				4,462,500			5,250,000			6,037,500			6,943,125
Minority ownership				46.30	%		46.30	%		46.30	%		46.30	%

(Footnotes begin on next page)

31

(1)

As adjusted to give effect to a 15% increase in the number of shares outstanding after the offering which could occur due to an increase in the maximum of the independent valuation as a result of regulatory considerations, demand for the shares, or changes in market conditions or general financial and economic conditions following the commencement of the offering.

(2)

It is assumed that 8% of the shares issued in the stock offering (including shares issued to the Putnam Savings Foundation) will be purchased by the employee stock ownership plan. For purposes of this table, the funds used to acquire such shares are assumed to have been borrowed by the employee stock ownership plan from PSB Holdings, Inc. The amount to be borrowed is reflected as a reduction of stockholders' equity. Putnam Savings Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the principal and interest requirement of the debt. Putnam Savings Bank's total annual payment of the employee stock ownership plan debt is based upon 20 equal annual installments of principal and interest. The pro forma net earnings information makes the following assumptions: (i) Putnam Savings Bank's contribution to the employee stock ownership plan is equivalent to the debt service requirement for the period presented and was made at the end of the period; (ii) 6,196, 7,289, 8,382 and 9,640 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, were committed to be released during the nine months ended March 31, 2004, at an average fair value equal to the price for which the shares are sold in the stock offering in accordance with SOP 93-6; and (iii) only the employee stock ownership plan shares committed to be released were considered outstanding for purposes of the net earnings per share calculations.

(3)

Gives effect to the recognition and retention plan expected to be adopted following the stock offering. We have assumed that this plan acquires a number of shares of common stock equal to 4% of the shares issued in the stock offering (including shares issued to the Putnam Savings Foundation) either through open market purchases or from authorized but unissued shares of common stock or treasury stock of PSB Holdings, Inc., if any. Funds used by the recognition and retention plan to purchase the shares will be contributed to the plan by PSB Holdings, Inc. In calculating the pro forma effect of the recognition and retention plan, it is assumed that the shares were acquired by the plan in open market purchases at the beginning of the period presented for a purchase price equal to the price for which the shares are sold in the stock offering, and that 20% of the amount contributed were an amortized expense (based upon a five-year vesting period) during the nine months ended March 31, 2004. There can be no assurance that the actual purchase price of the shares granted under the recognition and retention plan will be equal to the Subscription Price. If shares are acquired from authorized but unissued shares of common stock or from treasury shares of PSB Holdings, Inc., there will be a dilutive effect of approximately 1.8% (at the maximum of the offering range) on the ownership interest of stockholders.

(4)

No effect has been given to the issuance of additional shares of common stock pursuant to the stock option plan, which is expected to be adopted by PSB Holdings, Inc. following the offering and presented to stockholders for approval not earlier than six months after the completion of the offering. If the stock option plan is approved by stockholders and implemented sooner than one year after the completion of the offering, a number of shares up to 10% of the shares issued in the offering (including shares issued to the Putnam Savings Foundation) may be reserved for future issuance upon the exercise of options to be granted under the stock option plan. The issuance of authorized but previously unissued shares of common stock or treasury stock pursuant to the exercise of options under such plan would dilute existing stockholders' ownership and voting interests by approximately 4.4% at the maximum of the offering range.

(5)

The retained earnings of Putnam Savings Bank will continue to be substantially restricted after the stock offering. See "Supervision and Regulation—Federal Banking Regulation."

32

			At or For the Year Ended June 30, 2003 Based Upon the Sale at $10.00 Per Share of
			1,985,813 Shares Minimum of Estimated Offering Range			2,336,250 Shares of Midpoint of Estimated Offering Range			2,686,688 Shares of Maximum of Estimated Offering Range			3,089,691 Shares 15% Above Estimated Offering Range(1)
			(Dollars in Thousands, Except Per Share Amount)
Gross proceeds			$	19,858		$	23,363		$	26,867		$	30,897
Shares issued to the Foundation				794			935			1,075			1,236
Pro forma market capitalization			$	20,652		$	24,298		$	27,942		$	32,133
Gross proceeds			$	19,858		$	23,363		$	26,867		$	30,897
	Expenses			722			754			786			823
Estimated net proceeds			$	19,136		$	22,609		$	26,081		$	30,074
Common stock acquired by employee stock ownership plan(2)				(1,652	)		(1,944	)		(2,235	)		(2,571	)
Common stock acquired by recognition and retention plan(3)				(826	)		(972	)		(1,118	)		(1,285	)
	Estimated net proceeds after adjustment for stock benefit plans		$	16,658		$	19,693		$	22,728		$	26,218
For the Year Ended June 30, 2003:
Net income:
	Historical		$	1,354		$	1,354		$	1,354		$	1,354
Pro forma adjustments:
	Income on adjusted net proceeds			109			129			149			172
	Employee stock ownership plan(2)			(50	)		(58	)		(67	)		(77	)
	Recognition and retention plan(3)			(99	)		(117	)		(134	)		(154	)
		Pro forma net income	$	1,314		$	1,308		$	1,302		$	1,295
Net income per share:
	Historical		$	0.31		$	0.27		$	0.23		$	0.20
Pro forma adjustments:
	Income on adjusted net proceeds			0.03			0.03			0.03			0.03
	Employee stock ownership plan(2)			(0.01	)		(0.01	)		(0.01	)		(0.01	)
	Recognition and retention plan(3)			(0.02	)		(0.02	)		(0.02	)		(0.02	)
		Pro forma net income per share(2)(3)(4)	$	0.31		$	0.27		$	0.23		$	0.20
Offering price to pro forma net income per share				32.26	x		37.04	x		43.48	x		50.00	x
Shares considered outstanding in calculating pro forma net income per share				4,305,541			5,065,343			5,825,144			6,698,916
At June 30, 2003:
Stockholders' equity:
	Historical		$	23,059		$	23,059		$	23,059		$	23,059
	Estimated net proceeds			19,136			22,609			26,081			30,074
	Shares issued to the charitable foundation			794			935			1,075			1,236
	Tax benefit of contribution to the charitable foundation			317			373			429			493
	Less:
		Shares contributed to the charitable foundation		(794	)		(935	)		(1,075	)		(1,236	)
		Common stock acquired by employee stock ownership plan(2)		(1,652	)		(1,944	)		(2,235	)		(2,571	)
		Common stock acquired by recognition and retention plan(2)		(826	)		(972	)		(1,118	)		(1,285	)
		Pro forma stockholders' equity(5)	$	40,034		$	43,125		$	46,216		$	49,770
Stockholders' equity per share:
	Historical		$	5.17		$	4.39		$	3.82		$	3.32
	Estimated net proceeds			4.29			4.31			4.32			4.33
	Shares issued to the charitable foundation			0.18			0.18			0.18			0.18
	Tax benefit of contribution to the charitable foundation			0.07			0.07			0.07			0.07
	Less:
		Shares contributed to the charitable foundation		(0.18	)		(0.18	)		(0.18	)		(0.18	)
		Common stock acquired by employee stock ownership plan(2)		(0.37	)		(0.37	)		(0.37	)		(0.37	)
		Common stock acquired by recognition and retention plan(2)		(0.19	)		(0.19	)		(0.19	)		(0.19	)
		Pro forma stockholders' equity per share(3)(4)(5)	$	8.97		$	8.21		$	7.65		$	7.16
Offering price as percentage of pro forma stockholders' equity per share				111.48	%		121.80	%		130.72	%		139.66	%
Shares considered outstanding in calculating offering price as a percentage of pro forma stockholders' equity per share				4,462,500			5,250,000			6,037,500			6,943,125
Minority ownership				46.30	%		46.30	%		46.30	%		46.30	%

(Footnotes begin on following page)

33

(1)

As adjusted to give effect to a 15% increase in the number of shares outstanding after the offering which could occur due to an increase in the maximum of the independent valuation as a result of regulatory considerations, demand for the shares, or changes in market conditions or general financial and economic conditions following the commencement of the offering.

(2)

It is assumed that 8% of the shares issued in the stock offering (including shares issued to the Putnam Savings Foundation) will be purchased by the employee stock ownership plan. For purposes of this table, the funds used to acquire such shares are assumed to have been borrowed by the employee stock ownership plan from PSB Holdings, Inc. The amount to be borrowed is reflected as a reduction of stockholders' equity. Putnam Savings Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the principal and interest requirement of the debt. Putnam Savings Bank's total annual payment of the employee stock ownership plan debt is based upon 20 equal annual installments of principal and interest. The pro forma net earnings information makes the following assumptions: (i) Putnam Savings Bank's contribution to the employee stock ownership plan is equivalent to the debt service requirement for the period presented and was made at the end of the period; (ii) 8,261, 9,719, 11,177 and 12,853 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, were committed to be released during the year ended June 30, 2003, at an average fair value equal to the price for which the shares are sold in the stock offering in accordance with SOP 93-6; and (iii) only the employee stock ownership plan shares committed to be released were considered outstanding for purposes of the net earnings per share calculations.

(3)

Gives effect to the recognition and retention plan expected to be adopted following the stock offering. We have assumed that this plan acquires a number of shares of common stock equal to 4% of the shares issued in the stock offering (including shares issued to the Putnam Savings Foundation) either through open market purchases or from authorized but unissued shares of common stock or treasury stock of PSB Holdings, Inc., if any. Funds used by the recognition and retention plan to purchase the shares will be contributed to the plan by PSB Holdings, Inc. In calculating the pro forma effect of the recognition and retention plan, it is assumed that the shares were acquired by the plan in open market purchases at the beginning of the period presented for a purchase price equal to the price for which the shares are sold in the stock offering, and that 20% of the amount contributed were an amortized expense (based upon a five-year vesting period) during the year ended June 30, 2003. There can be no assurance that the actual purchase price of the shares granted under the recognition and retention plan will be equal to the Subscription Price. If shares are acquired from authorized but unissued shares of common stock or from treasury shares of PSB Holdings, Inc., there will be a dilutive effect of approximately 1.8% (at the maximum of the offering range) on the ownership interest of stockholders.

(4)

No effect has been given to the issuance of additional shares of common stock pursuant to the stock option plan, which is expected to be adopted by PSB Holdings, Inc. following the offering and presented to stockholders for approval not earlier than six months after the completion of the offering. If the stock option plan is approved by stockholders and implemented sooner than one year after the completion of the offering, a number of shares up to 10% of the shares issued in the offering (including shares issued to the Putnam Savings Foundation) may be reserved for future issuance upon the exercise of options to be granted under the stock option plan. The issuance of authorized but previously unissued shares of common stock or treasury stock pursuant to the exercise of options under such plan would dilute existing stockholders' ownership and voting interests by approximately 4.4% at the maximum of the offering range.

(5)

The retained earnings of Putnam Savings Bank will continue to be substantially restricted after the stock offering. See "Supervision and Regulation—Federal Banking Regulation."

34

COMPARISON OF VALUATION AND PRO FORMA INFORMATION
WITH AND WITHOUT THE FOUNDATION

        As reflected in the table below, if the charitable foundation is not established and funded as part of the stock offering, RP Financial estimates that the pro forma valuation of PSB Holdings, Inc. would be greater and, as a result, a greater number of shares of common stock would be issued in the offering. At the minimum, midpoint, maximum and adjusted maximum of the valuation range, the pro forma valuation of PSB Holdings, Inc. is $44.6 million, $52.5 million, $60.4 million and $69.4 million with the charitable foundation, as compared to $45.5 million, $53.5 million, $61.5 million and $70.8 million, respectively, without the charitable foundation. There is no assurance that in the event the charitable foundation were not formed, the appraisal prepared at that time would conclude that the pro forma market value of PSB Holdings, Inc. would be the same as that estimated in the table below. Any appraisal prepared at that time would be based on the facts and circumstances existing at that time, including, among other things, market and economic conditions.

        For comparative purposes only, set forth below are certain pricing ratios and financial data and ratios at and for the nine months ended March 31, 2004 at the minimum, midpoint, maximum and adjusted maximum of the offering range, assuming the stock offering was completed at March 31, 2004, with and without the charitable foundation. Pro forma financial ratios are annualized. The valuation amounts referred to in the table below relate to the value of the shares sold to the depositors and the public.

	1,985,813 Shares Sold						2,336,250 Shares Sold						2,686,688 Shares Sold						3,089,691 Shares Sold
	With Foundation			Without Foundation			With Foundation			Without Foundation			With Foundation			Without Foundation			With Foundation			Without Foundation
	(Dollars in thousands, except per share amounts)
Estimated offering amount	$	19,858		$	21,046		$	23,363		$	24,760		$	26,867		$	28,474		$	30,897		$	32,745
Pro forma market capitalization		20,652			21,046			24,297			24,760			27,942			28,474			32,133			32,745
Estimated full value		44,625			45,475			52,500			53,500			60,375			61,525			69,431			70,754
Total assets		269,627			270,438			272,718			273,673			275,809			276,907			279,363			280,626
Total liabilities		228,411			228,411			228,411			228,411			228,411			228,411			228,411			228,411
Pro forma stockholders' equity		41,216			42,027			44,307			45,262			47,398			48,496			50,952			52,215
Pro forma net income		1,137			1,140			1,133			1,138			1,130			1,135			1,126			1,132
Pro forma stockholders' equity per share		9.23			9.24			8.44			8.45			7.85			7.88			7.33			7.38
Pro forma net income per share		0.26			0.25			0.22			0.21			0.19			0.19			0.16			0.16
Pro forma pricing ratios:
Offering price as a percentage of pro forma stockholders' equity per share		108.34	%		108.23	%		118.48	%		118.34	%		127.39	%		126.90	%		136.43	%		135.50	%
Offering price to pro forma net income per share		28.85	x		30.00	x		34.09	x		35.71	x		39.47	x		39.47	x		46.88	x		46.88	x
Pro forma financial ratios:
Return on assets(1)		0.56	%		0.56	%		0.55	%		0.55	%		0.55	%		0.55	%		0.54	%		0.54	%
Return on equity(1)		3.68			3.62			3.41			3.35			3.18			3.12			2.95			2.89
Equity to assets		15.29			15.54			16.25			16.54			17.18			17.51			18.24			18.61

(1)

Annualized.

35

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the audited consolidated financial statements, which appear beginning on page F-1 of this prospectus. You should read the information in this section in conjunction with the business and financial information regarding PSB Holdings, Inc. provided in this prospectus.

Overview

        Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities (including mortgage-backed securities and corporate bonds) and other interest-earning assets (primarily cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting of money market accounts, savings accounts and time deposit accounts. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of service fees, gains and losses on the sale of loans and securities and miscellaneous other income, including income on commissions for securities brokerage services. Noninterest expense currently consists primarily of compensation and employee benefits, occupancy, data processing, advertising and marketing, and other operating expenses consisting primarily of professional and director fees, supplies and charitable contributions. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

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.

        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.

36

Business Strategy

        Our business strategy is to operate as a well-capitalized and profitable community bank dedicated to providing quality customer service. Our principal business activity has been the origination of one- to four-family residential mortgage loans and we will continue to emphasize this type of lending. We have also increased our origination of commercial business loans and loans secured by commercial real estate, including multi-family properties. In addition, we intend to expand our branch network into Southeastern Connecticut and Rhode Island and, to a lesser extent, Massachusetts, to the extent new market opportunities exist. Lastly, we intend to leverage Putnam Savings Bank's wholesale assets with the capital raised in the offering. There can be no assurances that we will successfully implement our business strategy.

        Highlights of our business strategy are as follows:

•

Remaining a Community-Oriented Institution.  We were established in Putnam, Connecticut in 1862 and we have been operating continuously since that time. We have been, and continue to be, committed to meeting the financial needs of the communities in which we operate, and we are dedicated to providing quality personal service to our customers.



•

Increasing our Emphasis on Commercial Real Estate and Commercial Lending.  While we will continue to originate one- to four-family mortgage loans, we also intend to increase our origination of commercial real estate and commercial loans. We originated $16.0 million of commercial and commercial real estate loans during the nine months ended March 31, 2004, compared to $12.8 million of such loans for fiscal year 2003. The additional capital raised in the offering will increase our commercial lending capacity by enabling us to originate more loans and loans with larger balances. This will permit us to serve commercial borrowers with larger lending needs and to originate larger commercial loans than we have in the past. We recently hired a new senior vice president in charge of commercial lending and two additional commercial loan officers to support our commercial lending activities.



•

Expanding our Branch Network.  We currently operate from four full service banking offices and one loan origination center. We will continue to evaluate new branch expansion opportunities to expand our market presence both locally and in Rhode Island and Southeastern Connecticut and, to a lesser extent, Massachusetts. In addition, our conversion to a federal savings bank charter will make it easier for us to branch across state lines into Rhode Island and Massachusetts. Rhode Island and Massachusetts are both located less than 15 miles from Putnam, Connecticut.



•

Continuing One- to Four-Family Residential Real Estate Lending.  Historically, we have emphasized one- to four-family residential lending within our market area. As of March 31, 2004, $102.4 million, or 75.4%, of our total loan portfolio consisted of one- to four-family residential mortgage loans. During the nine months ended March 31, 2004 and the year ended June 30, 2003, we originated $43.2 million and $68.7 million of one- to four-family residential mortgage loans, respectively. We retain fixed rate one- to four-family mortgage loans with terms of 15 years or less, and we generally sell in the secondary market fixed rate one- to four-family mortgage loans with terms of more than 15 years. We generally retain in our portfolio substantially all fixed rate bi-weekly mortgage loans even if such loans have terms of more than 15 years.



•

Growing Through a Leverage Strategy.  We have traditionally maintained a significant amount of securities in our investment portfolio, relative to our total assets. At March 31, 2004, 52.5% of our assets were loans and 42.6% of our assets were investment securities. We intend to use part of the capital raised in the offering to support the increase in our investment securities portfolio which will be funded by deposits and Federal Home Loan Bank borrowings.

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•

Offering Our Products and Services to an Expanded Base of Customers.  We will continue to offer our products and services to meet the needs of our existing customers. In addition, we will seek to expand our customer base and offer our products and services to the new base of customers, some of which products and services have been successful niche products and services for us in the past, such as business on-line banking for our commercial customers, online banking for consumers and bi-weekly mortgages.



•

Maintaining High Asset Quality.  We have emphasized maintaining strong asset quality by following conservative underwriting criteria, and primarily originating loans secured by real estate. Our non-performing assets at March 31, 2004 and June 30, 2003 were $925,000 and $1.2 million, respectively, or 0.37% and 0.48% of total assets, respectively.

Comparison of Financial Condition at March 31, 2004 and June 30, 2003

        Our total assets increased by $9.0 million, or 3.7%, to $252.7 million at March 31, 2004 from $243.7 million at June 30, 2003. The increase in total assets resulted primarily from increases in loans and investment securities, which were offset in part by a decrease in cash and cash equivalents. During the nine months ended March 31, 2004, investment securities increased by $4.9 million, or 4.7%, to $107.6 million at March 31, 2004 from $102.7 million at June 30, 2003. Loans receivable, net increased by $12.1 million, or 10.1%, to $132.6 million at March 31, 2004 from $120.5 million at June 30, 2003. The increase in loans receivable, net reflected continued strong demand for loans in the low interest rate environment and our increased emphasis on residential construction loans, commercial real estate and commercial loans. Loans held for sale decreased by $596,000, or 56.7%, to $455,000 at March 31, 2004 from $1.1 million at June 30, 2003. The decrease in loans held for sale reflected lower originations of long-term fixed rate, residential mortgage loans which we generally sell in the secondary mortgage market. Cash and cash equivalents decreased by $8.8 million, or 66.4%, to $4.5 million at March 31, 2004 from $13.3 million at June 30, 2003, reflecting the settlement of securities purchases that were pending as of June 30, 2003.

        Total deposits increased by $5.9 million, or 3.1%, to $197.3 million at March 31, 2004 from $191.4 million at June 30, 2003. Borrowings increased by $2.3 million, or 8.3%, to $29.3 million at March 31, 2004 from $27.0 million at June 30, 2003, reflecting our ongoing use of leverage to increase assets.

        Total capital increased by $1.2 million, or 5.1%, to $24.2 million at March 31, 2004 from $23.1 million at June 30, 2003, reflecting net income of $1.2 million for the period.

Comparison of Financial Condition Data at June 30, 2003 and June 30, 2002

        Our total assets increased by $19.9 million, or 8.9%, to $243.7 million at June 30, 2003 from $223.8 million at June 30, 2002. The increase in total assets resulted primarily from increases in loans, investment securities and cash and cash equivalents. Investment securities increased by $4.5 million, or 4.6%, to $102.7 million at June 30, 2003 from $98.2 million at June 30, 2002. Loans receivable, net increased by $8.3 million, or 7.4%, to $120.5 million at June 30, 2003 from $112.2 million at June 30, 2002, reflecting strong demand for new loans and refinancings of existing mortgage loans in the low interest rate environment. Loans held for sale increased by $434,000, or 70.3%, to $1.1 million at June 30, 2003 from $617,000 at June 30, 2002, reflecting strong demand for long-term fixed rate loans in the low interest rate environment and our ongoing strategy of selling such loans in the secondary mortgage market. Cash and cash equivalents increased by $5.2 million, or 64.0%, to $13.3 million at June 30, 2003 from $8.1 million at June 30, 2002, reflecting primarily that new investments in securities had not settled as of June 30, 2003.

        Total deposits increased by $29.6 million, or 18.3%, to $191.4 million from $164.8 million due to an increase in transactional accounts, primarily from our commercial loan customers, and an increase in

38

consumer demand deposit accounts due to our customers' desire to remain liquid in the relatively low interest rate environment. Borrowings decreased by $12.8 million, or 32.1%, to $27.0 million at June 30, 2003 from $39.8 million at June 30, 2002.

        Total capital increased by $2.5 million, or 11.8%, to $23.1 million at June 30, 2003 from $20.6 million at June 30, 2002, as a result of net income of $1.4 million and a net increase of $1.0 million in unrealized gains on investment securities available for sale.

Comparison of Operating Results for the Nine Months Ended March 31, 2004 and March 31, 2003

        General.    Net income increased $63,000, or 5.8%, to $1.2 million for the nine months ended March 31, 2004 from $1.1 million for the nine months ended March 31, 2003. The increase in net income resulted primarily from an improvement in net interest income and noninterest income, which was partially offset by an increase in noninterest expense.

        Interest Income.    Interest income decreased by $518,000, or 5.4%, to $9.0 million for the nine months ended March 31, 2004 from $9.5 million for the nine months ended March 31, 2003. The decrease in interest income resulted primarily from a 69 basis points decrease in the average yield on our interest-earning assets in a declining interest rate environment to 5.16% for the nine months ended March 31, 2004 from 5.85% for the nine months ended March 31, 2003. The decrease in average yield was only partially offset by a $15.9 million, or 7.3%, increase in average interest-earning assets between the periods. Interest income on loans decreased by $96,000, or 1.6%, to $5.9 million from $6.0 million. Interest income in investment securities decreased $422,000, or 11.9%, to $3.1 million for the nine months ended March 31, 2004 from $3.5 million for the nine months ended March 31, 2003.

        Interest Expense.    Interest expense decreased $992,000, or 22.0%, to $3.5 million for the nine months ended March 31, 2004 from $4.5 million for the nine months ended March 31, 2003. The decrease in interest expense resulted primarily from a 84 basis points decrease in the average cost of our interest bearing liabilities, consisting primarily of deposit accounts, to 2.34% for the nine months ended March 31, 2004 from 3.18% for the nine months ended March 31, 2003, which was partially offset by a $11.5 million, or 6.1%, increase in average interest-bearing liabilities from period to period. The average cost of all categories of deposits decreased in the declining interest rate environment to 2.06% for the nine months ended March 31, 2004 from 2.79% for the nine months ended March 31, 2003.

        Net Interest Income.    Our net interest income increased $474,000, or 9.5%, to $5.5 million for the nine months ended March 31, 2004 from $5.0 million for the nine months ended March 31, 2003. The primary reason for the improvement in our net interest income was the improvement in our net interest rate spread which increased to 2.82% for the nine months ended March 31, 2004 from 2.67% for the nine months ended March 31, 2003, combined with an increase in our net earning assets to $32.1 million for the nine months ended March 31, 2004 from $27.7 million for the nine months ended March 31, 2003. The improvement in our net interest rate spread resulted primarily from the average cost of our interest-bearing liabilities decreasing more in the lower interest rate environment than the decrease in the average yield on our interest-earning assets.

        Provision for Loan Losses.    We establish provisions for loan losses, which are charged to operations, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the dates of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. Based on our evaluation of these factors, management

39

made a provision of $45,000 for the nine months ended March 31, 2004, and a provision of $45,000 for the nine months ended March 31, 2003. The provision reflected probable and reasonably estimable losses in our loan portfolio. At March 31, 2004, the allowance for loan losses totaled $1.27 million, or 0.96% of total loans, compared to $1.28 million at March 31, 2003, or 1.11% of total loans. The allowance for loan losses remained relatively unchanged because net charge-offs totaled $39,842 for the nine months ended March 31, 2004. The level of the allowance is based on estimates, and the ultimate losses may vary from the estimates.

        Noninterest Income.    Noninterest income increased by $63,000, or 6.9%, to $970,000 for the nine months ended March 31, 2004 from $907,000 for the nine months ended March 31, 2003. The increase in noninterest income resulted primarily from an increase in service fee income, commissions from brokerage service, other income and net investment security gains, which was partially offset by a decrease in net gain on sale of loans. Service fee income, consisting primarily of overdraft fees, ATM fees, wire transfer fees, loan servicing fees and debit card fees, increased by $52,168, or 9.1%, to $622,539 for the nine months ended March 31, 2004 from $570,371 for the nine months ended March 31, 2003. Commissions from brokerage services increased by $79,224 or 246% to $111,378 for the nine months ended March 31, 2004 from $32,154 for the nine months ended March 31, 2003 reflecting higher volume and the maturation of the service. Other income, consisting primarily of the return on bank-owned life insurance and rental income, increased by $70,414 or 131% to $123,989 for the nine months ended March 31, 2004 from $53,575 for the nine months ended March 31, 2003. Net investment securities gains increased to $44,843 for the nine months ended March 31, 2004 from a net investment securities loss of $7,000 for the nine months ended March 31, 2003. These increases were offset by a decrease in net gain on sale of loans of $183,945, or 73.2%, to $67,353 for the nine months ended March 31, 2004 from $251,298 for the nine months ended March 31, 2003. The decrease in net gain on sale of loans reflected lower originations of long-term fixed rate loans which are generally sold by us as a part of our asset-liability management strategy.

        Noninterest Expense.    Total noninterest expense increased by $480,249, or 11.2%, to $4.8 million for the nine months ended March 31, 2004 from $4.3 million for the nine months ended March 31, 2003. The increase in noninterest expense resulted primarily from an increase in compensation and benefits, occupancy and equipment expense and other noninterest expenses. Compensation and benefits expense increased by $260,114, or 10.1%, to $2.8 million for the nine months ended March 31, 2004 from $2.6 million for the nine months ended March 31, 2003. The primary reasons for the increase in compensation and benefits expense were increased salaries and commissions, due to increased staffing and higher medical insurance premiums. Occupancy and equipment expense increased by $38,793 to $492,984 primarily as a result of depreciation of data processing equipment and software. Other noninterest expense, consisting primarily of office supplies, postage, professional and director fees, increased by $181,400, or 24.7%, to $914,583 for the nine months ended March 31, 2004 from $733,183 for the nine months ended March 31, 2003. The increase resulted primarily from increased professional expenses (investment advisory, commercial credit analysis, sales training, chief financial officer employment search) and director fees (related to Board and committee meetings concerning our charter conversion and the offering).

        Income Tax Expense.    The income tax expense decreased to $490,000 even though net income before income tax expense increased by $56,000 for the nine months ended March 31, 2004 from $497,000 for the nine months ended March 31, 2003. The decrease in overall income tax expense is primarily caused by an increase in non-taxable income from bank-owned life insurance of $68,000 for the nine months ended March 31, 2004. Our effective tax rate was 29.7% for the nine months ended March 31, 2004 compared to 31.2% for the nine months ended March 31, 2003. 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.

40

Comparison of Operating Results for the Years Ended June 30, 2003 and June 30, 2002

        General.    Net income increased $470,260, or 53.2%, to $1.4 million for the fiscal year ended June 30, 2003 from $884,210 for the fiscal year ended June 30, 2002. The increase in net income resulted from higher net interest income and noninterest income, which was only partially offset by an increase in noninterest expense.

        Interest Income.    Interest income decreased by $29,000 to $12.4 million for the fiscal year ended June 30, 2003 from $12.5 million for the fiscal year ended June 30, 2002. The decrease in interest income resulted from a 79 basis points decrease in the average yield on interest-earning assets to 5.67% for the fiscal year ended June 30, 2003 from 6.46% for the fiscal year ended June 30, 2002, which was almost entirely offset by an increase in average interest-earning assets to $219.4 million for the fiscal year ended June 30, 2003 from $193.1 million for the fiscal year ended June 30, 2002. The decrease in average yield reflected the decrease in market interest rates generally from fiscal year 2002 through fiscal year 2003. The increase in average interest-earning assets reflected continued strong demand for mortgage and other loans in a declining interest rate environment. The average yield on loans decreased 49 basis points to 6.81% from 7.30%, while the average balance of loans increased $6.1 million, or 5.6%, to $115.3 million from $109.2 million. The average yield on investment securities decreased by 95 basis points to 4.56% from 5.51%, while the average balance of investment securities increased by $18.8 million, or 23.4%, to $99.3 million from $80.5 million. The increase in the average balance of investment securities reflected management's decision to reinvest funds from new deposits in mortgage-backed securities and corporate bonds.

        Interest Expense.    Total interest expense decreased by $1.1 million, or 15.9%, to $5.8 million for the fiscal year ended June 30, 2003 from $7.0 million for the fiscal year ended June 30, 2002. The decrease in total interest expense resulted from a 107 basis points decrease in the average cost of interest-bearing liabilities to 3.06% for the fiscal year ended June 30, 2003 from 4.13% for the fiscal year ended June 30, 2002, which was only partially offset by a $22.6 million, or 13.4%, increase in average interest-bearing liabilities to $190.9 million for the fiscal year ended June 30, 2003 from $168.3 million for the fiscal year ended June 30, 2002. The decrease in the average cost of interest-bearing liabilities reflected the continued decline in market interest rates generally which resulted in lower rates offered on all deposit account products, including NOW and money market accounts, savings accounts and certificates of deposit. Interest expense also decreased as a result of a reduction in the average balance of Federal Home Loan Bank advances to $33.4 million from $41.2 million.

        Net Interest Income.    Net interest income increased $1.1 million, or 19.6%, to $6.6 million for the fiscal year ended June 30, 2003 from $5.5 million for the fiscal year ended June 30, 2002 primarily as a result of a 29 basis points improvement in our net interest rate spread to 2.61% for the fiscal year ended June 30, 2003 from 2.32% for the fiscal year ended June 30, 2002. The improvement in our net interest rate spread resulted from the cost of our average interest-bearing liabilities decreasing more than the decrease in yield on our average interest-earning assets in a declining interest rate environment. Our net interest margin also improved by 15 basis points to 3.01% for the fiscal year ended June 30, 2003 from 2.86% for the fiscal year ended June 30, 2002.

        Provision for Loan Losses.    Management made a provision of $60,000 for the year ended June 30, 2003, and a provision of $60,000 for the year ended June 30, 2002. The provision reflects probable and estimable losses in our loan portfolio. At June 30, 2003, the allowance for loan loss totaled $1.26 million, or 1.05% of total loans, compared to $1.23 million, or 1.10% of total loans, at June 30, 2002. The allowance for loan losses remained relatively unchanged because net charge-offs totaled $31,043 for the year ended June 30, 2003. The level of the allowance is based on estimates, and the ultimate losses may vary from the estimates.

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        Noninterest Income.    Noninterest income increased by $258,406, or 29.1%, to $1.1 million for the fiscal year ended June 30, 2003 from $889,388 for the fiscal year ended June 30, 2002. The primary reasons for the increase in noninterest income were increases in fees for services, net gain on sales of loans, and other income, which were offset partially by a decrease in income on expired options due to the discontinuance of Putnam Savings Bank's covered call program, a decrease in commissions from brokerage service, and an increase in net investment security losses. Fees for services income, consisting primarily of fees associated with an increase in the number of transactional accounts, increased by $180,280, or 29.5%, to $791,315 for the fiscal year ended June 30, 2003 from $611,035 for fiscal year ended June 30, 2002. Net gain on sale of loans increased by $215,444, or 253%, to $300,598 for the fiscal year ended June 30, 2003 from $85,154 for the fiscal year ended June 30, 2002. The increase in net gain on sale of loans resulted from the higher volume of long-term fixed rate loan originations, which loans are generally sold in the secondary market. Income on expired options decreased to $0 for fiscal year 2003 from $57,000 for fiscal year 2002 due to the discontinuance of our covered call program. Other income, consisting of securities brokerage commissions, return on bank-owned life insurance and the sale of real estate owned, increased by $49,786, or 67.7%, to $123,306 for the fiscal year ended June 30, 2003 from $73,520 for the fiscal year ended June 30, 2002. Losses from net investment securities increased to ($111,364) for fiscal year 2003 from ($1,999) for fiscal year 2002. The primary reasons for the higher losses on investment securities were sales of investment securities for tax planning purposes to offset prior year capital gains on securities sales.

        Noninterest Expense.    Noninterest expense increased by $563,548, or 10.9%, to $5.7 million for the fiscal year ended June 30, 2003 from $5.2 million for the fiscal year ended June 30, 2002. The primary reasons for the increase in noninterest expense were increases in compensation and benefits expense, occupancy and equipment expense, data processing expense and other noninterest expense, which was partially offset by a decrease in loss on derivative instruments. Compensation and benefits expense increased by $507,709, or 17.7%, to $3.4 million for the fiscal year ended June 30, 2003 from $2.9 million for the fiscal year ended June 30, 2002, primarily as a result of higher salaries, staff increases, adoption of an incentive bonus plan that was accrued for the year and higher medical insurance costs. Occupancy and equipment expense increased by $24,557, or 4.2%, to $612,071 from $587,514. Data processing expense increased $42,999, or 9.4%, to $499,426 for the fiscal year ended June 30, 2003 from $456,427 for the fiscal year ended June 30, 2002 resulting primarily from increases in deposit accounts. Loss on derivative instruments consisting of decreases in the market value of trading securities that were subject to options was ($118,090) for the fiscal year ended June 30, 2002 compared to no loss on derivative instruments for the fiscal year ended June 30, 2003 as a result of the discontinuance of our covered call program. Other noninterest expense, consisting primarily of office supplies, postage and professional and director fees, increased by $102,368, or 10.8%, to $1.1 million for the fiscal year ended June 30, 2003 from $951,632 for the fiscal year ended June 30, 2002. The primary reason for the increase in other noninterest expense was legal and other fees associated with the formation of our mutual holding company.

        Income Tax Expense.    The income tax expense increased to $582,000 for the fiscal year ended June 30, 2003 from $279,000 for the fiscal year ended June 30, 2002. The higher income tax expense resulted primarily from our higher income before income taxes of $1.9 million for fiscal year 2003 compared to $1.2 million for fiscal year 2002. Our effective tax rate was 30.1% for the fiscal year 2003 compared to 24.0% for the fiscal year 2002. The effective tax rate differed from the statutory tax rate of 34.0% primarily due to the dividends received deduction applicable to certain securities in our investment portfolio, tax-exempt municipal income and non-taxable income from bank-owned life insurance.

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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.

				Nine Months Ended March 31,
		At March 31, 2004		2004						2003
				Average Balance		Interest and Dividends				Average Balance		Interest and Dividends
		Yield/Cost						Yield/Cost(1)						Yield/Cost(1)
				(Dollars in thousands)
Interest-earning assets:
Loans		5.91	%	$	126,602	$	5,876	6.19	%	$	114,196	$	5,972	6.97	%
Investment securities		4.13			103,969		3,114	3.99			98,295		3,507	4.76
Other earning assets		4.40			2,227		13	0.78			4,410		42	1.27
	Total interest-earning assets	5.10			232,798		9,003	5.16			216,901		9,521	5.85
Noninterest-earning assets					12,643						10,391
Total assets				$	245,441					$	227,292
Interest-bearing liabilities:
NOW and money market accounts		1.38		$	51,867		553	1.42	%	$	38,984		624	2.13	%
Savings accounts		0.78			43,778		306	0.93			36,268		421	1.55
Certificates of deposit		3.04			77,686		1,817	3.12			79,166		2,181	3.67
	Total interest-bearing deposits	1.94			173,331		2,676	2.06			154,418		3,226	2.79
FHLB advances		3.65			27,383		845	4.11			34,766		1,287	4.94
	Total interest-bearing liabilities	2.18			200,714		3,521	2.34			189,184		4,513	3.18
Noninterest-bearing liabilities					21,546						16,545
	Total liabilities				222,260						205,729
Capital					23,181						21,563
	Total liabilities and capital			$	245,441					$	227,292
Net interest income						$	5,482					$	5,008
Net interest rate spread(2)		2.92	%					2.82	%					2.67	%
Net interest-earning assets(3)				$	32,084					$	27,717
Net interest margin(4)								3.14	%					3.08	%
Average interest-earning assets to average interest-bearing liabilities								115.98	%					114.65	%

(footnotes on following page)

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		Years Ended June 30,
		2003						2002
		Average Balance		Interest and Dividends		Yield/ Cost		Average Balance		Interest and Dividends		Yield/ Cost
		(Dollars in thousands)
Interest-earning assets:
Loans		$	115,326	$	7,851	6.81	%	$	109,173	$	7,972	7.30	%
Investment securities			99,340		4,534	4.56			80,475		4,431	5.51
Other earning assets			4,710		58	1.23			3,437		69	2.01
	Total interest-earning assets		219,376		12,443	5.67			193,085		12,472	6.46
Noninterest-earning assets			10,792						8,533
	Total assets	$	230,168					$	201,618
Interest-bearing liabilities:
NOW and money market accounts		$	41,306		828	2.00		$	18,042		437	2.42
Savings accounts			37,046		543	1.47			31,140		646	2.07
Certificates of deposit			79,140		2,832	3.58			77,878		3,680	4.73
	Total interest-bearing deposits		157,492		4,203	2.67			127,060		4,763	3.75
FHLB advances			33,386		1,647	4.93			41,215		2,195	5.33
	Total interest-bearing liabilities		190,878		5,850	3.06			168,275		6,958	4.13
Noninterest-bearing liabilities			17,407						13,775
	Total liabilities		208,285						182,050
Capital			21,883						19,568
	Total liabilities and capital	$	230,168					$	201,618
Net interest income				$	6,593					$	5,514
Net interest rate spread(2)						2.61	%					2.33	%
Net interest-earning assets(3)		$	28,498					$	24,810
Net interest margin(4)						3.01	%					2.86
Average interest-earning assets to average interest-bearing liabilities						114.93	%					114.74	%

(1)

Yields and costs for the nine months ended March 31, 2004 and 2003 are annualized.

(2)

Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(3)

Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(4)

Net interest margin represents net interest income divided by average total interest-earning assets.

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Rate/Volume Analysis

        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.

			Nine Months Ended March 31, 2004 vs. 2003									Years Ended June 30, 2003 vs. 2002
			Increase (Decrease) Due to									Increase (Decrease) Due to
			Volume			Rate			Net			Volume			Rate			Net
			(In thousands)
Interest and dividend income:
	Loans receivable		$	833		$	(929	)	$	(96	)	$	435		$	(556	)	$	(121	)
	Investment securities			293			(686	)		(393	)		936			(833	)		103
	Other earning assets			(16	)		(13	)		(29	)		21			(32	)		(11	)
		Total interest-earning assets	$	1,110		$	(1,628	)	$	(518	)	$	1,392		$	(1,421	)	$	(29	)
Interest expense:
	NOW and Money Market accounts		$	241		$	(312	)	$	(71	)	$	478		$	(87	)	$	391
	Savings accounts			114			(229	)		(115	)		108			(211	)		(103	)
	Certificates of deposit			(40	)		(324	)		(364	)		59			(907	)		(848	)
		Total interest-bearing deposits	$	315		$	(865	)	$	(550	)	$	645		$	(1,205	)	$	(560	)
	FHLB Advances			(248	)		(194	)		(442	)		(395	)		(153	)		(548	)
		Total interest-bearing liabilities	$	67		$	(1,059	)	$	(992	)	$	250		$	(1,358	)	$	(1,108	)
Net change in interest income			$	1,043		$	(569	)	$	474		$	1,142		$	(63	)	$	1,079

Management of Market Risk

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

        We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. During the low interest rate environment that has existed in recent years, we have implemented the following strategies to manage our interest rate risk:

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(i) maintaining a high equity-to-assets ratio, (ii) offering a variety of adjustable rate loan products, including adjustable rate one- to four-family, multifamily and non-residential mortgage loans, and short-term consumer loans and (iii) match-funding loans with adjustable rate deposits, when possible. By maintaining a high equity-to-assets ratio and by investing in adjustable-rate and short-term assets, we believe that we are better positioned to react to increases in market interest rates. However, maintaining high equity balances reduces our return on equity ratio, and investments in shorter-term assets generally bear lower yields than longer-term investments.

        Net Portfolio Value.    In past years, many savings institutions have measured interest rate sensitivity by computing the "gap" between the assets and liabilities which are expected to mature or reprice within certain time periods, based on assumptions regarding loan prepayment and deposit decay rates formerly provided by the Office of Thrift Supervision. However, the Office of Thrift Supervision now requires the computation of amounts by which the net present value of an institution's cash flow from assets, liabilities and off balance sheet items (the institution's net portfolio value) would change in the event of a range of assumed changes in market interest rates. The Office of Thrift Supervision provides all institutions that file a Consolidated Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with an interest rate sensitivity report of net portfolio value. The Office of Thrift Supervision simulation model uses a discounted cash flow analysis and an option-based pricing approach to measuring the interest rate sensitivity of net portfolio value. Historically, the Office of Thrift Supervision model estimated the economic value of each type of asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 300 basis points in 100 basis point increments. However, given the current low level of market interest rates, we did not prepare a net portfolio value calculation for an interest rate decrease of greater than 100 basis points. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the "Change in Interest Rates" column below. Going forward as a federal savings bank, the Office of Thrift Supervision will provide us the results of the interest rate sensitivity model, which is based on information which we provide to the Office of Thrift Supervision to estimate the sensitivity of our net portfolio value.

        The table below, which was prepared for us by a third-party consultant, sets forth, as of March 31, 2004, the estimated changes in our net portfolio value that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

	Net Portfolio Value ("NPV")
								NPV as a Percentage of Present Value of Assets
			Estimated Increase (Decrease) in NPV
Change in Interest Rates (basis points)	Estimated NPV							NPV Ratio		Change in Basis Points
			Amount			Percent
	(Dollars in thousands)
+300	$	29,729	$	(2,274	)	(7.1	)%	12.62	%	9 basis points
+200		30,825		(1,178	)	(3.7	)	12.73		20 basis points
+100		31,653		(350	)	(1.1	)	12.72		19 basis points
0		32,003		—				12.53		—
-100		30,990		(1,013	)	(3.2	)%	11.87	%	(66) basis points

        The table above indicates that at March 31, 2004, in the event of a 100 basis point decrease in interest rates, we would experience a 3.2% decrease in net portfolio value. In the event of a 200 basis point increase in interest rates, we would experience a 3.9% decrease in net portfolio value.

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        Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in net portfolio value require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net portfolio value table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

Liquidity and Capital Resources

        We maintain liquid assets at levels we consider adequate to meet our liquidity needs. Our liquidity ratio averaged 16.1% and 17.1% for the nine months ended March 31, 2004 and the year ended June 30, 2003, respectively. We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on mortgage loans, repay our borrowings and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives.

        Our primary sources of liquidity are deposits, amortization and prepayment of loans, maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements.

        A portion of our liquidity consists of cash and cash equivalents, which are a product of our operating, investing and financing activities. At March 31, 2004 and June 30, 2003, $4.5 million and $13.3 million, respectively, of our assets were invested in cash and cash equivalents. Our primary sources of cash are principal repayments on loans, proceeds from the calls and maturities of investment securities, increases in deposit accounts and advances from the Federal Home Loan Bank of Boston.

        Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included with our Consolidated Financial Statements.

        Our primary investing activities are the origination of loans and the purchase of investment securities. During the nine months ended March 31, 2004 and year ended June 30, 2003, our loan originations, net of collected principal, totaled $12.2 million and $8.3 million, respectively, reflecting net growth in our portfolio due to a continued low interest rate environment. For the nine months ended March 31, 2004 and year ended June 30, 2003 we sold loans totaling $10.1 million and $20.6 million, respectively. Cash received from the calls and maturities of investment securities totaled $24.3 million and $30.0 million for the nine months ended March 31, 2004 and year ended June 30, 2003, respectively. We purchased $31.4 million and $34.7 million in available-for-sale investment securities during the nine months ended March 31, 2004 and year ended June 30, 2003, respectively, and sold $1.7 million and $992,000 in such securities during the nine months ended March 31, 2004 and the year ended June 30, 2003, respectively.

        Deposit flows are generally affected by the level of interest rates, the interest rates and products offered by local competitors, and other factors. The net increase in total deposits was $5.9 million and $29.6 million for nine months ended March 31, 2004 and year ended June 30, 2003, respectively.

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        Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Boston, which provide an additional source of funds. At March 31, 2004, we had $29.3 million in advances from the Federal Home Loan Bank of Boston and an available borrowing limit of $76.0 million.

        At March 31, 2004, we had outstanding commitments to originate loans of $6.7 million and unfunded commitments under lines of credit and stand-by letters of credit of $11.3 million. At March 31, 2004, certificates of deposit scheduled to mature in less than one year totaled $35.9 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In the event a significant portion of our deposits are not retained by us, we will have to utilize other funding sources, such as Federal Home Loan Bank of Boston advances in order to maintain our level of assets. Alternatively, we would reduce our level of liquid assets, such as our cash and cash equivalents. In addition, the cost of such deposits may be significantly higher if market interest rates are higher at the time of renewal.

Off-Balance Sheet Arrangements

        In the ordinary course of business, Putnam Savings Bank is a party to credit-related financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Putnam Savings Bank follows the same credit policies in making commitments as it does for on-balance-sheet instruments.

        Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by Putnam Savings Bank, is based on management's credit evaluation of the customer.

        Unfunded commitments under construction lines of credit for residential and commercial properties and commercial lines of credit are commitments for possible future extensions of credit to existing customers. These lines of credit may not be drawn upon to the total extent to which Putnam Savings Bank is committed.

        At March 31, 2004 and June 30, 2003, Putnam Savings Bank had $6.7 million and $7.8 million, respectively, of commitments to grant loans, and $11.3 million and $8.8 million, respectively, of unfunded commitments under lines of credit.

Impact of Recent Accounting Pronouncements

        In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities." Interpretation No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or is entitled to receive a majority of the entity's residual returns, or both. Interpretation No. 46 also requires disclosures about variable interest entities that a company is not required to consolidate, but in which it has a significant variable interest. The consolidation requirements of Interpretation No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to existing entities in the first fiscal year or interim period beginning after June 15, 2003. Certain other disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. PSB Holdings, Inc. has not established any variable interest entities. Management does not expect Interpretation No. 46 to have a material effect on our financial statements.

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        In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" which clarifies certain implementation issues raised by constituents and amends Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", to include the conclusions reached by the Financial Accounting Standards Board on certain Financial Accounting Standards Board Staff Implementation Issues that, while inconsistent with Statement 133's discussion of financial guarantee contracts and the application of the shortcut method to an interest-rate swap agreement that includes an embedded option and amends other pronouncements. The guidance in Statement 149 is effective for new contracts entered into or modified after June 30, 2003 and for hedging relationships designated after that date, except for the following: guidance incorporated from FASB Staff Implementation Issues that was effective for periods beginning prior to June 15, 2003 should continue to be applied according to the effective dates in those issues; and guidance relating to forward purchase and sale agreements involving "when-issued" securities should be applied to both existing contracts and new contracts entered into after June 30, 2003. Management does not expect Statement of Financial Accounting Standards No. 149 to have a material effect on our financial statements.

        In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", which changes the classification in the statement of financial position of certain common financial instruments form either equity or mezzanine presentation to liabilities and requires an issuer of those financial statements to recognize changes in fair value or redemption amount, as applicable, in earnings. Statement of Financial Accounting Standards No. 150 requires an issuer to classify certain financial instruments as liabilities, including mandatorily redeemable preferred and common stocks. Statement of Financial Accounting Standards No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and, with one exception, is effective at the beginning of the first interim period beginning after June 15, 2003. The effect of an accounting change as of the beginning of the period of adoption. Restatement of prior periods is not permitted. Management does not expect Statement of Financial Accounting Standards No. 150 to have a material effect on our financial statements.

        In December 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132 (revised 2003) "Employers Disclosures about Pensions and Other Postretirement Benefits", which revises and enhances disclosures about pension and other postretirement plans. The additional disclosures are effective for fiscal years ending after December 15, 2003. This pronouncement does not change the accounting for such plans and will therefore have no effect on our financial statements.

        In March 2004, Staff Accounting Bulletin No. 105 was issued, which provides guidance regarding loan commitments that are accounted for as derivative instruments under FASB No. 133 (as amended), "Accounting for Derivative Instruments and Hedging Activities." In this Bulletin, the Securities and Exchange Commission ruled that the amount of expected servicing rights should not be included when determining the fair value of derivative interest rate lock commitments. This guidance must be applied to rate locks initiated after March 31, 2004. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

Impact of Inflation and Changing Prices

        Our financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our

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assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

BUSINESS OF PSB HOLDINGS, INC.

        Since being formed in May 2003, we have not engaged in any business other than holding the common stock of Putnam Savings Bank. Upon completion of the offering, we will continue to own all of the issued and outstanding common stock of Putnam Savings Bank. We will retain up to 50% of the net proceeds from the offering. A portion of the net proceeds we retain will be used to make a loan to fund the purchase of our shares of common stock by the Putnam Savings Bank employee stock ownership plan. We will contribute the remaining net proceeds to Putnam Savings Bank as additional capital. We intend to invest our capital as discussed in "How We Intend to Use the Proceeds from the Offering."

        In the future, PSB Holdings, Inc., as the holding company of Putnam Savings Bank, will be authorized to pursue other business activities permitted by applicable laws and regulations for savings and loan holding companies, which may include the acquisition of banking and financial services companies. We have no plans for any mergers or acquisitions, or other diversification of the activities of PSB Holdings, Inc. at the present time.

        Our cash flow will depend on earnings from the investment of the net proceeds we retain and any dividends received from Putnam Savings Bank. PSB Holdings, Inc. neither owns nor leases any property, but instead uses the premises, equipment and furniture of Putnam Savings Bank. At the present time, we employ as officers only certain persons who are also officers of Putnam Savings Bank. However, we use the support staff of Putnam Savings Bank from time to time. These persons are not separately compensated by PSB Holdings, Inc. PSB Holdings, Inc. may hire additional employees, as appropriate, to the extent it expands its business in the future.

BUSINESS OF PUTNAM SAVINGS BANK

General

        Our principal business consists of attracting deposits from the general public in the areas surrounding our main office location in Putnam, Connecticut and our three full service branch offices in Danielson, Plainfield and Pomfret Center, Connecticut and investing those deposits, together with funds generated from operations, primarily in one- to four-family residential mortgage loans and, to a lesser extent, commercial real estate loans (including multi-family real estate loans), commercial loans, construction mortgage loans and consumer loans, and in investment securities. We also operate a loan center in Putnam, which is adjacent to our main office. In addition, we maintain a "Special Needs Limited Branch" at a retirement facility in Brooklyn, Connecticut and a "Limited Service (Mobile) Branch." Our revenues are derived principally from interest on loans and securities, and from loan origination and servicing fees. Our primary sources of funds are deposits and principal and interest payments on loans and securities.

Competition

        We face intense competition within our market area both in making loans and attracting deposits. The Town of Putnam and the surrounding area have a high concentration of financial institutions including large commercial banks, community banks and credit unions. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. As of June 30, 2003, based on the FDIC's annual Summary of Deposits Report, our market share of deposits represented 15.1% of deposits in Windham County.

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        Our competition for loans and deposits comes principally from commercial banks, savings institutions, mortgage banking firms and credit unions. We face additional competition for deposits from money market funds, brokerage firms, mutual funds and insurance companies. Our primary focus is to build and develop profitable customer relationships across all lines of business while maintaining our role as a community bank.

Market Area

        We operate in a primarily rural market area that has a stable population and household base. All of our offices are located in Windham County, Connecticut. According to a recent census report, during the past three years, the population of Windham County increased by 0.5% while the population of the United States increased by 1.2%. During the period, the number of households in Windham County and in the United States increased 0.8% and 1.2%, respectively. In 2003, per capita income for Windham County was $22,800, and the median household income was $48,000. This compares to per capita income for the State of Connecticut and the United States of $32,800 and $24,700, respectively, and median household income of $59,200 and $46,600, respectively.

        Windham County is located in the Northeastern corner of Connecticut and borders both Massachusetts (to the north) and Rhode Island (to the east). Putnam is approximately 45 miles from Hartford, Connecticut, 30 miles from Providence, Rhode Island, and 65 miles from Boston, Massachusetts. Windham County has a diversified mix of industry groups and employment sectors, including services, wholesale/retail trade and manufacturing as the basis of the local economy. These three sectors comprise approximately 70% of the employment base in Windham County. Windham County's March 2004 unemployment rate of 6.0% was higher than the comparable Connecticut unemployment rate of 5.2% and equal to the national unemployment rate. Consistent with the national and Connecticut unemployment trends, Windham County's March 2004 unemployment rate was lower compared to the March 2003 unemployment rate of 6.9%.

        Our primary market area for deposits includes the communities in which we maintain our main office and our branch office locations. Our primary lending area is broader than our primary deposit market area and includes all of Windham County, and parts of the adjacent Connecticut Counties of Tolland and New London and the Rhode Island and Massachusetts communities adjacent to Windham County.

Lending Activities

        Historically, our principal lending activity has been the origination of first mortgage loans for the purchase or refinancing of one- to four-family residential real estate. Generally, we retain all loans that we originate. However, we generally sell long-term fixed rate loans in the secondary market. When we sell loans, we generally will retain the servicing rights for such loans. One- to four-family residential real estate mortgage loans represented $102.4 million, or 75.4%, of our loan portfolio at March 31, 2004. We also offer commercial real estate loans (including multi-family real estate loans), commercial loans, construction mortgage loans (primarily secured by single-family properties) and consumer loans. At March 31, 2004, commercial real estate loans totaled $23.2 million, or 17.1% of our loan portfolio, commercial loans totaled $3.5 million, or 2.6% of our loan portfolio, construction mortgage loans totaled $5.6 million, or 4.2% of our loan portfolio and consumer loans, consisting primarily of auto loans and secured personal loans, totaled $1.0 million, or 0.8% of our loan portfolio.

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        Loan Portfolio Composition.    The following table sets forth the composition of our loan portfolio at the dates indicated.

							At June 30,
		At March 31, 2004					2003					2002					2001					2000					1999
		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
		(Dollars in thousands)
Mortgage Loans:
	Residential(1)	$	102,448		75.44	%	$	100,624		82.17	%	$	97,222		84.24	%	$	92,844		86.36	%	$	85,951		90.15	%	$	76,680		87.86	%
	Commercial real estate		23,225		17.10			16,753		13.68			11,408		9.88			10,132		9.42			5,640		5.92			5,888		6.75
	Residential construction		5,633		4.15			2,057		1.68			4,528		3.92			1,990		1.85			2,128		2.23			2,628		3.01
Commercial			3,486		2.57			1,696		1.38			1,031		0.89			799		0.74			—		—			—		—
Consumer and other			1,013		0.75			1,325		1.08			1,221		1.06			1,742		1.62			1,624		1.70			2,079		2.38
Total loans		$	135,805		100.00	%	$	122,455		100.00	%	$	115,410		100.00	%	$	107,507		100.00	%	$	95,343		100.00	%	$	87,275		100.00	%
Unadvanced construction loans			(1,792	)				(696	)				(2,008	)				(702	)				(734	)				(952	)
Net deferred loan costs (fees)			(133	)				(31	)				41					141					98					14
Allowance for loan losses			(1,269	)				(1,264	)				(1,235	)				(1,185	)				(1,126	)				(1,045	)
Loans, net		$	132,611				$	120,464				$	112,208				$	105,761				$	93,581				$	85,292

(1)

Residential mortgage loans include one- to four-family mortgage loans, home equity loans, and home equity lines of credit.

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        Loan Portfolio Maturities and Yields.    The following table summarizes the scheduled repayments of our loan portfolio at June 30, 2003. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

		Residential(1)				Commercial Real Estate				Residential Construction				Commercial				Consumer and Other				Total Loans
		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate
		(Dollars in thousands)
Due During the Years Ending June 30,
2004		$	38,237	6.02	%	$	7,712	6.52	%	$	1,361	6.04	%	$	1,321	6.40	%	$	744	7.13	%	$	49,375	6.13	%
2005			16,369	6.44			1,885	6.77			—	—			226	6.32			245	8.13			18,725	6.49
2006			11,584	6.45			1,280	6.95			—	—			117	6.11			148	8.04			13,129	6.51
2007 to 2008			14,569	6.37			4,912	7.07			—	—			32	5.90			180	7.99			19,693	6.55
2009 to 2013			13,578	6.24			783	7.18			—	—			—	—			6	8.72			14,367	6.29
2014 and beyond			6,287	6.28			181	6.99			—	—			—	—			2	6.87			6,470	6.30
	Total	$	100,624	6.23		$	16,753	6.78		$	1,361	6.04		$	1,696	6.36		$	1,325	7.54		$	121,759	6.32

(1)

Residential mortgage loans include one- to four-family mortgage loans, home equity loans, and home equity lines of credit.

        The following table sets forth the scheduled repayments of fixed and adjustable rate loans at June 30, 2003 that are contractually due after June 30, 2004.

			Due After June 30, 2004
			Fixed		Adjustable		Total
			(In thousands)
Mortgage Loans:
	Residential		$	47,995	$	14,392	$	62,387
	Commercial real estate			8,834		207		9,041
Commercial				375		—		375
Consumer and other				581		—		581
		Total	$	57,785	$	14,599	$	72,384

(1)

Residential mortgage loans include one- to four-family mortgage loans, home equity loans, and home equity lines of credit.

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        The total amount of loans due after June 30, 2004 that have fixed interest rates is $57.8 million, and the total amount of loans due after that date that have floating or adjustable interest rates is $14.6 million.

        Residential Mortgage Loans.    Our primary lending activity consists of the origination of one- to four-family residential mortgage loans that are primarily secured by properties located in Windham County. At March 31, 2004, $102.4 million, or 75.4% of our loan portfolio, consisted of one- to four-family residential mortgage loans. Included within these one- to four-family loans at March 31, 2004 were $3.1 million in home equity loans and $8.1 million in home equity lines of credit. Generally, one- to four-family residential mortgage loans are originated in amounts up to 80% of the lesser of the appraised value or purchase price of the property, with private mortgage insurance required on loans with a loan-to-value ratio in excess of 80%. We will not make loans with a loan-to-value ratio in excess of 100% for loans secured by single- family homes. Fixed rate mortgage loans generally are originated for terms of 10, 15, 20, 25 and 30 years. Generally, all fixed rate residential mortgage loans are underwritten according to Fannie Mae policies and procedures. Fixed rate residential mortgage loans with terms of more than 15 years are generally sold in the secondary market. We will usually retain the servicing rights for all loans that we sell in the secondary market. We originated $26.7 million of fixed rate one- to four-family residential loans during the nine months ended March 31, 2004 of which $10.1 million were sold in the secondary market.

        We also offer adjustable-rate mortgage loans for one- to four-family properties, with an interest rate based on the one-year Constant Maturity Treasury Bill Index, which adjusts annually from the outset of the loan or which adjusts annually after a three-, five-, seven-, or ten-year initial fixed rate period. We originated $16.4 million of adjustable rate one- to four-family residential loans during the nine months ended March 31, 2004. Our adjustable rate mortgage loans generally provide for maximum rate adjustments of 100 basis points per adjustment, with a lifetime maximum adjustment up to 6%, regardless of the initial rate. Our adjustable rate mortgage loans amortize over terms of up to 30 years.

        Adjustable rate mortgage loans decrease the risk associated with changes in market interest rates by periodically repricing, but involve other risks because, as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate is also limited by the maximum periodic and lifetime interest rate adjustments permitted by our loan documents and, therefore, the effectiveness of adjustable rate mortgage loans may be limited during periods of rapidly rising interest rates. At March 31, 2004, $30.9 million, or 28.9%, of our one- to four-family residential loans had adjustable rates of interest.

        In an effort to provide financing for moderate income home buyers, we offer Veterans Administration (VA), Federal Housing Administration (FHA), Connecticut Housing Finance Authority (CHFA) and Rural Development loans. These programs offer residential mortgage loans to qualified individuals. These loans are offered with fixed rates of interest and terms of up to 30 years. Such loans are secured by one- to four-family residential properties. All of these loans are originated using agency underwriting guidelines. VA, FHA and CHFA loans are closed in the name of Putnam Savings Bank and immediately sold on a servicing released basis. All such loans are originated in amounts of up to 100% of the lower of the property's appraised value or the sale price. Private mortgage insurance is required on all such loans.

        All residential mortgage loans that we originate include "due-on-sale" clauses, which give us the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the real property subject to the mortgage and the loan is not repaid. Regulations limit the amount that a savings association may lend relative to the appraised value of the real estate securing the loan, as determined by an appraisal of the property at the time the loan

54

is originated. All borrowers are required to obtain title insurance. We also require homeowner's insurance and fire and casualty insurance and, where circumstances warrant, flood insurance on properties securing real estate loans. At March 31, 2004, our largest residential mortgage loan had a principal balance of $441,000 and was secured by a residence located in Brooklyn, Connecticut. This loan was performing in accordance with its repayment terms.

        We also offer home equity loans and home equity of lines of credit, both of which are secured by owner-occupied one- to four-family residences. At March 31, 2004, home equity loans and equity lines of credit totaled $11.2 million, or 10.9% of our residential mortgage loans and 8.2% of total loans. Additionally, at March 31, 2004, the unadvanced amounts of home equity lines of credit totaled $8.1 million. The underwriting standards utilized for home equity loans and home equity lines of credit include a determination of the applicant's credit history, an assessment of the applicant's ability to meet existing obligations and payments on the proposed loan and the value of the collateral securing the loan. Home equity loans are offered with fixed rates of interest and with terms up to 15 years. The loan-to-value ratio for a home equity loan is generally limited to 80%, however, we offer special programs to borrowers, who satisfy certain underwriting criteria, with loan-to-value ratios of up to 100%. Our home equity lines of credit have adjustable rates of interest which are indexed to the prime rate, as reported in The Wall Street Journal. Interest rates on home equity lines of credit are generally limited to a maximum rate of 14.25%.

        Commercial Real Estate Loans.    We originate commercial real estate loans, including multi-family real estate loans, that are generally secured by five or more unit apartment buildings, construction loans and loans on properties used for business purposes such as small office buildings, industrial facilities or retail facilities primarily located in our primary market area. We also offer real estate development loans to licensed contractors and builders for the construction and development of commercial real estate projects and one- to four-family residential properties. At March 31, 2004, commercial mortgage loans totaled $23.2 million, which amounted to 17.1% of total loans. Our commercial real estate underwriting policies provide that such real estate loans may be made in amounts of up to 80% of the appraised value of the property provided such loan complies with our current loans-to-one borrower limit, which may be increased on an exception basis, at March 31, 2004 was $1.0 million. Our commercial real estate loans may be made with terms of up to five years with 20 year amortization schedules and are offered with interest rates that are fixed or adjust periodically and are generally indexed to the prime rate as reported in The Wall Street Journal. In reaching a decision on whether to make a commercial real estate loan, we consider the net operating income of the property, the borrower's expertise and credit history, and the profitability of the value of the underlying property. In addition, with respect to commercial real estate rental properties, we will also consider the term of the lease and the quality of the tenants. We generally require that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.25x. Environmental surveys are generally required for commercial real estate loans. Generally, multi-family and commercial real estate loans made to corporations, partnerships and other business entities require personal guarantees by the principals.

        A commercial borrower's financial information is monitored on an ongoing basis by requiring periodic financial statement updates, payment history reviews and periodic face-to-face meetings with the borrower. We require commercial borrowers to provide annually updated financial statements and federal tax returns. These requirements also apply to all guarantors on commercial loans. We also require borrowers with rental investment property to provide an annual report of income and expenses for the property, including a tenant list and copies of leases, as applicable. The largest commercial real estate loan in our portfolio at March 31, 2004 was a performing $1.4 million loan located in our primary market area.

        Loans secured by commercial real estate, including multi-family properties generally involve larger principal amounts and a greater degree of risk than one- to four-family residential mortgage loans.

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Because payments on loans secured by commercial real estate, including multi-family properties, are often dependent on successful operation or management of the properties, repayment of such loans may be affected by adverse conditions in the real estate market or the economy.

        Residential Construction Loans.    We originate construction loans to individuals for the construction and acquisition of personal residences. At March 31, 2004, construction mortgage loans amounted to $5.6 million, or 4.2%, of total loans. At March 31, 2004, the unadvanced portion of these construction loans totaled $1.8 million.

        Our construction mortgage loans generally provide for the payment of interest only during the construction phase, which is usually nine months. At the end of the construction phase, the construction loan converts to a permanent mortgage loan. Construction loans can be made with a maximum of loan-to-value ratio of 95%, provided that the borrower obtains private mortgage insurance on the loan if the loan balance exceeds 80% of the appraised value or sales price, whichever is less, of the secured property. At March 31, 2004, our largest outstanding residential construction mortgage loan commitment was for $600,000, $545,000 of which was outstanding. This loan was performing according to its terms at March 31, 2004. Construction loans to individuals are generally made on the same terms as our one- to four-family mortgage loans.

        Before making a commitment to fund a residential construction loan, we require an appraisal of the property by an independent licensed appraiser. We also review and inspect each property before disbursement of funds during the term of the construction loan. Loan proceeds are disbursed after inspection based on the percentage of completion method.

        Construction financing is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost is inaccurate, we may be required to advance funds beyond the amount originally committed in order to protect the value of the property. Additionally, if the estimate of value is inaccurate, we may be confronted with a project, when completed, with a value that is insufficient to assure full payment.

        Commercial Loans.    At March 31, 2004, we had $3.5 million in commercial loans which amounted to 2.6% of total loans. We make commercial business loans primarily in our market area to a variety of professionals, sole proprietorships and small businesses. Commercial lending products include term loans and revolving lines of credit. The maximum amount of a commercial business loan is limited by our loans-to-one-borrower limit, which may be increased on an exception basis, at March 31, 2004 was $1.0 million. Such loans are generally used for longer-term working capital purposes such as purchasing equipment or furniture. Commercial loans are made with either adjustable or fixed rates of interest. Variable rates are based on the prime rate, as published in The Wall Street Journal, plus a margin. Fixed rate commercial loans are set at a margin above the Federal Home Loan Bank comparable advance rate.

        When making commercial loans, we consider the financial statements of the borrower, our lending history with the borrower, the debt service capabilities of the borrower, the projected cash flows of the business and the value of the collateral. Commercial loans are generally secured by a variety of collateral, primarily accounts receivable, inventory and equipment, and are supported by personal guarantees. Depending on the collateral used to secure the loans, commercial loans are made in amounts of up to 75% of the value of the collateral securing the loan. We generally do not make unsecured commercial loans.

        Commercial loans generally have greater credit risk than residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower's ability to make

56

repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial loans generally are made on the basis of the borrower's ability to repay the loan from the cash flow of the borrower's business. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. Further, any collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. We seek to minimize these risks through our underwriting standards. At March 31, 2004, our largest commercial loan was a $1.5 million loan to a manufacturing company and secured by business assets located in our primary market area. This loan was performing according to its terms at March 31, 2004.

        Consumer and Other Loans.    We offer a limited range of consumer loans, principally to Putnam Savings Bank customers residing in our primary market area with acceptable credit ratings. Our consumer loans generally consist of loans on new and used automobiles, loans secured by deposit accounts and unsecured personal loans. Consumer loans totaled $1.0 million, or 0.8% of our total loan portfolio at March 31, 2004.

        The following table shows loan origination, sale and principal repayment activity during the periods indicated.

			Nine Months Ended March 31,				Years Ended June 30,
			2004		2003		2003		2002		2001
			(In thousands)
Total loans at beginning of period			$	121,728	$	113,443	$	113,443	$	106,946	$	94,707
Loans originated:
	Residential(1)			43,181		48,737		68,693		48,589		26,637
	Commercial real estate			11,199		5,744		8,043		3,835		2,984
	Residential construction			7,900		3,969		4,744		5,213		2,610
	Commercial			4,828		3,469		4,758		1,717		761
	Consumer and other			632		1,012		1,185		979		1,960
		Total loans originated		67,740		62,931		87,423		60,333		34,952
Loans purchased				—		—		—		—		5,481
Deduct:
	Principal repayments			45,433		43,278		58,483		42,390		24,024
	Loan sales			10,095		16,431		20,615		11,432		4,145
	Other repayments			61		—		40		14		25
Net loan activity				12,151		3,222		8,285		6,497		12,239
Total loans at end of period			$	133,879	$	116,665	$	121,728	$	113,443	$	106,946

(1)

Residential mortgage loans include one- to four-family mortgage loans, home equity loans, and home equity lines of credit.

        Origination, Sale and Servicing of Loans.    Lending activities are conducted primarily by our loan personnel operating at our four branch offices and one loan origination center. All loans originated by us are underwritten pursuant to our policies and procedures. We originate both adjustable rate and fixed rate loans. Our ability to originate fixed or adjustable rate loans is dependent upon the relative customer demand for such loans, which is affected by the current and expected future level of interest rates.

        Generally, we retain in our portfolio all loans that we originate, with the exception of longer-term fixed rate one- to four-family mortgage loans. The one- to four-family loans that we currently originate

57

for sale include mortgage loans which conform to the underwriting standards specified by Fannie Mae. We also sell all mortgage loans insured by CHFA, FHA and VA and Rural Development loans. All one- to four-family loans that we sell are sold pursuant to master commitments negotiated with Fannie Mae. We sell our loans without recourse. We generally retain the servicing rights on the mortgage loans sold to Fannie Mae, but generally sell all CHFA, VA, FHA and Rural Development loans on a servicing released basis.

        At March 31, 2004, Putnam Savings Bank was servicing loans sold in the amount of $28.5 million. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans.

        During the fiscal year ended June 30, 2003, we originated $73.4 million of fixed rate and adjustable rate one-to four-family loans, of which $52.8 million were retained by us. The fixed rate loans retained by us consisted primarily of loans with terms of 15 years or less. We recognize at the time of sale, the cash gain or loss on the sale of the loans based on the difference between the net cash proceeds received and the carrying value of the loans sold.

        Loan Approval Procedures and Authority.    Putnam Savings Bank's lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by Putnam Savings Bank's Board of Directors. The loan approval process is intended to assess the borrower's ability to repay the loan, the viability of the loan, and the adequacy of the value of the property that will secure the loan, if applicable. To assess the borrower's ability to repay, we review the employment and credit history and information on the historical and projected income and expenses of borrowers.

        Putnam Savings Bank's policies and loan approval limits are established by the Board of Directors. The Board of Directors has designated certain individuals of Putnam Savings Bank (ranging from senior management to branch managers) (the "Designated Officers") to consider and approve loans within their designated authority. Loans in amounts above the individual authorized limits of the Designated Officers require the approval of Putnam Savings Bank's Credit Committee. The Credit Committee includes, as voting members, the Chairman of the Board, President, one additional member of Putnam Savings Bank's Board of Directors, who serves on a rotational basis, and Putnam Savings Bank's Senior Retail Loan Officer and Senior Commercial Loan Officer. Certain loans approved by the Credit Committee, depending on the size of the loan, may also require the approval of Putnam Savings Bank's Board of Directors.

        All one- to four-family mortgage loans in amounts up to $250,000, and all home equity loans, commercial real estate loans, commercial loans and secured consumer loans in amounts up to $100,000 and unsecured consumer loans in amounts up to $50,000 may be approved by certain of the Designated Officers.

        The Credit Committee is authorized to approve the following types of loans in amounts up to $250,000: all one- to four-family mortgage loans, commercial real estate loans, commercial loans and secured consumer loans. All loans of $250,000 or greater must receive the approval of Putnam Savings Bank's Board of Directors.

Non-performing and Problem Assets

        A computer-generated delinquency notice is mailed monthly to all delinquent borrowers, advising them of the amount of their delinquency. When a loan becomes 60 days delinquent, Putnam Savings Bank sends a letter advising the borrower of the delinquency. The borrower is given 30 days to pay the delinquent payments or to contact Putnam Savings Bank to make arrangements to bring the loan current over a longer period of time. If the borrower fails to bring the loan current in 30 days or to

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make arrangements to cure the delinquency over a longer period of time, the matter is referred to legal counsel and foreclosure proceedings are started. We may consider forbearance in cases of a temporary loss of income if a plan is presented by the borrower to cure the delinquency in a reasonable period of time after his or her income resumes.

        All non-commercial mortgage loans are reviewed on a regular basis and such loans are placed on non-accrual status when they become more than 90 days delinquent. Commercial loans are evaluated for non-accrual status on a case-by-case basis. When loans are placed on non-accrual status, unpaid accrued interest is fully reserved, and further income is recognized only to the extent received.

        Non-Performing Assets.    The table below sets forth the amounts and categories of our non-performing assets at the dates indicated. At each date presented, we had no troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates). A loan classified in the table below as "non-accrual" does not necessarily mean that such loan is or has been delinquent. Once a loan is 90 days delinquent or the borrower or collateral securing the loan experiences an event that makes collectibility suspect, the loan is placed on "non-accrual" status. Our policies require six-months of continuous payments in order for the loan to be removed from non-accrual status.

						At June 30,
			At March 31, 2004
						2003			2002			2001			2000			1999
			(Dollars in thousands)
Non-accrual loans:
	Residential mortgage loans(1)		$	717		$	742		$	114		$	491		$	486		$	842
	Commercial real estate			—			59			61			63			64			288
	Residential construction			—			—			—			—			—			—
Commercial				30			65			—			—			—			—
Consumer and other				—			1			—			—			2			—
		Total		747	(2)		867			175			554			552			1,130
Accruing loans under 90 days past due:
	Residential mortgage loans(1)			—			7			—			—			—			—
	Commercial real estate			128			285			—			—			—			—
	Residential construction			—			—			—			—			—			—
Commercial				—			—			—			—			—			—
Consumer and other				—			—			—			—			—			—
		Total		128			292			—			—			—			—
Accruing loans past due 90 days or more:
	Residential mortgage loans(1)			—			—			—			—			—			—
	Commercial real estate			50			—			—			—			—			—
	Residential construction			—			—			—			—			—			—
Commercial				—			—			—			—			—			—
Consumer and other				—			—			—			—			—			—
		Total		50			—			—			—			—			—
		Total non-performing loans		925			1,159			175			554			552			1,130
Real estate owned				—			—			—			109			—			110
Other nonperforming assets				—			—			—			—			—			—
		Total nonperforming assets		925			1,159			175			663			552			1,240
Troubled debt restructurings				—			—			—			—			—			—
Troubled debt restructurings and total nonperforming assets			$	925		$	1,159		$	175		$	663		$	552		$	1,240
Total nonperforming loans to total loans				0.69	%		0.95	%		0.15	%		0.52	%		0.58	%		1.31	%
Total nonperforming loans to total assets				0.37			0.48			0.08			0.29			0.32			0.74
Total nonperforming assets and troubled debt restructurings to total assets				0.37			0.48			0.08			0.35			0.32			0.81

(1)

Residential mortgage loans include one- to four-family mortgage loans, home equity loans, and home equity lines of credit.

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(2)

The amount of income that was contractually due but not recognized on non-accrual loans totaled $10,086 at March 31, 2004.

        The following table sets forth certain information with respect to our loan portfolio delinquencies at the dates indicated.

			Loans Delinquent For
			60-89 Days			90 Days and Over			Total
			Number	Amount		Number	Amount		Number	Amount
			(Dollars in thousands)
At March 31, 2004
	Residential(1)		3	$	149	3	$	124	6	$	273
	Commercial real estate		—		—	—		—	—		—
	Residential construction		—		—	—		—	—		—
	Commercial		—		—	—		80	2		80
	Consumer and other		—		—	2		—	—		—
		Total	3	$	149	5	$	204	8	$	353
At June 30, 2003
	Residential (1)		—	$	—	3	$	327	3	$	327
	Commercial real estate		—		—	—		—	—		—
	Residential construction		—		—	—		—	—		—
	Commercial		—		—	1		33	1		33
	Consumer and other		—		—	1		1	1		1
		Total	—	$	—	5	$	361	5	$	361
At June 30, 2002
	Residential (1)		1	$	32	3	$	93	4	$	125
	Commercial real estate		—		—	—		—	—		—
	Residential construction		—		—	—		—	—		—
	Commercial		—		—	—		—	—		—
	Consumer and other		1		1	—		—	1		1
		Total	2	$	33	3	$	93	5	$	126

(1)

Residential mortgage loans include one- to four-family mortgage loans, home equity loans, and home equity lines of credit.

        Classified Assets.    Office of Thrift Supervision regulations provide that loans and other assets considered to be of lesser quality be classified as "substandard," "doubtful" or "loss" assets. An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

        An insured institution is required to establish general allowances for loan losses in an amount deemed prudent by management for loans classified substandard or doubtful, as well as for other problem loans. General allowances represent loss allowances which have been established to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as "loss," it is required either to establish a specific allowance for losses equal to 100% of the amount of the asset so classified or to charge off such amount. An institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the Office

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of Thrift Supervision which can order the establishment of additional general or specific loss allowances.

        On the basis of management's review of its assets, at March 31, 2004 we had classified $778,000 of our assets as substandard and $97,000 as doubtful. At March 31, 2004, none of our assets were classified as loss.

        The loan portfolio is reviewed on a regular basis to determine whether any loans require classification in accordance with applicable regulations. Not all classified assets constitute non-performing assets.

Allowance for Loan Losses

        Our allowance for loan losses is maintained at a level necessary to absorb loan losses that are both probable and reasonably estimable. Management, in determining the allowance for loan losses, considers the losses inherent in our loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. We utilize a two-tier approach: (1) identification and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of our loan portfolio. Once a loan becomes delinquent or is otherwise identified as a problem, we may establish a specific loan loss allowance based on a review of among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions, management's judgment and losses which are probable and reasonably estimable. The allowance is increased through provisions charged against current earnings and recoveries of previously charged-off loans. Loans that are determined to be uncollectible are charged against the allowance. While management uses available information to recognize probable and reasonably estimable loan losses, future loss provisions may be necessary based on changing economic conditions. Payments received on impaired loans are applied first to accrued interest receivable and then to principal. The allowance for loan losses as of March 31, 2004 was maintained at a level that represents management's best estimate of losses inherent in the loan portfolio, and such losses were both probable and reasonably estimable.

        In addition, the Office of Thrift Supervision and Federal Deposit Insurance Corporation, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require that we recognize additions to the allowance based on their judgments of information available to them at the time of their examination.

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        The following table sets forth activity in our allowance for loan losses for the periods indicated.

			At or For the Nine Months Ended March 31,						At or For the Years Ended June 30,
			2004			2003			2003			2002			2001			2000			1999
			(Dollars in thousands)
Balance at beginning of period			$	1,264		$	1,235		$	1,235		$	1,185		$	1,126		$	1,045		$	880
Provision for Loan Losses				45			45			60			60			60			60			120
Charge-offs:
	Residential(1)			(3	)		—			—			—			(15	)		(16	)		—
	Commercial real estate			—			—			—			—			—			—			—
	Residential construction			—			—			—			—			—			—			—
	Commercial			(47	)		—			(38	)		—			—			—			—
	Consumer and other			(11	)		—			(2	)		(14	)		(10	)		—
		Total charge-offs		(61	)		—			(40	)		(14	)		(25	)		(16	)		—
Recoveries:
	Residential(1)			3			3			4			4			23			37			9
	Commercial real estate			—			—			—			—			—			—			4
	Residential construction			—			—			—			—			—			—			—
	Commercial			18			—			—			—			—			—			—
	Consumer and other			—			—			5			—			1			—			32
		Total recoveries		21			3			9			4			24			37			45
Net (charge-offs) recoveries				(40	)		3			(31	)		(10	)		(1	)		21			45
Allowance at end of period			$	1,269		$	1,283		$	1,264		$	1,235		$	1,185		$	1,126		$	1,045
Ratios:
Allowance for loan losses to non-performing loans at end of period				137.19	%		112.64	%		109.06	%		705.71	%		213.90	%		203.99	%		92.48	%
Allowance for loan losses to total loans outstanding at end of period				0.96	%		1.11	%		1.05	%		1.10	%		1.12	%		1.20	%		1.23	%
Net charge-offs to average loans outstanding (annualized)				0.03	%		—			0.03	%		0.01	%		—			—			—

(1)

Residential mortgage loans include one- to four-family mortgage loans, home equity loans, and home equity lines of credit.

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        Allocation of Allowance for Loan Losses.    The following table sets forth the allowance for loan losses allocated by loan category, the total loan balances by category (including loans held for sale), and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

							At June 30,
	At March 31, 2004						2003						2002
	Allowance for Loan Losses		% of Allowance to Total Allowance		% of Loans in Category to Total Loans		Allowance for Loan Losses		% of Allowance to Total Allowance		% of Loans in Category to Total Loans		Allowance for Loan Losses		% of Allowance to Total Allowance		% of Loans in Category to Total Loans
	(Dollars in thousands)
Residential(1)	$	430	33.88	%	79.59	%	$	467	36.95	%	83.85	%	$	459	33.43	%	88.16	%
Commercial real estate		587	46.26		19.67			529	41.85		15.07			340	24.76		10.78
Consumer and other		14	1.10		0.75			19	1.50		1.08			17	1.24		1.06
Unallocated		238	18.75		—			249	19.70		—			557	40.57		—
Total allowance for loan losses	$	1,269	100.00	%	100.00	%	$	1,264	100.00	%	100.00	%	$	1,373	100.00	%	100.00	%

	At June 30,
	2001						2000						1999
	Allowance for Loan Losses		% of Allowance to Total Allowance		% of Loans in Category to Total Loans		Allowance for Loan Losses		% of Allowance to Total Allowance		% of Loans in Category to Total Loans		Allowance for Loan Losses		% of Allowance to Total Allowance		% of Loans in Category to Total Loans
	(Dollars in thousands)
Residential(1)	$	472	39.80	%	88.21	%	$	487	43.25	%	92.38	%	$	590	56.46	%	90.87	%
Commercial real estate		111	9.36		10.17			56	4.97		5.92			59	5.65		6.75
Consumer and other		20	1.69		1.62			24	2.13		1.70			18	1.72		2.38
Unallocated		583	49.16		—			559	49.64		—			378	36.17		—
Total allowance for loan losses	$	1,186	100.00	%	100.00	%	$	1,126	100.00	%	100.00	%	$	1,045	100.00	%	100.00	%

(1)

Residential mortgage loans include one- to four-family mortgage loans, home equity loans, and home equity lines of credit.

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        Each quarter, management evaluates the total balance of the allowance for loan losses based on several factors, some of which are not loan specific but are reflective of the inherent losses in the loan portfolio. This process includes, but is not limited to, a periodic review of loan collectibility in light of historical experience, the nature and volume of loan activity, conditions that may affect the ability of the borrower to repay, underlying value of collateral, if applicable, and economic conditions in our immediate market area. First, we group loans by delinquency status. All loans 90 days or more delinquent are evaluated individually, based primarily on the value of the collateral securing the loan. Specific loss allowances are established as required by this analysis. All loans for which a specific loss allowance has not been assigned are segregated by type, delinquency status or loan grade and a loss allowance is established by using loss experience data and management's judgment concerning other matters it considers significant. The allowance is allocated to each category of loan based on the results of the above analysis. Small differences between the allocated balances and recorded allowances are reflected as unallocated to absorb losses resulting from the inherent imprecision involved in the loss analysis process.

        This analysis process is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe that we have established the allowance at levels to absorb probable and estimable losses, future additions may be necessary if economic or other conditions in the future differ from the current environment.

Investment Activities

        Putnam Savings Bank's Investment Committee is responsible for implementing Putnam Savings Bank's Investment Policy. The Investment Policy is reviewed annually by the Investment Committee and any changes to the policy are recommended to and subject to the approval of our Board of Directors. The Investment Committee is comprised of our Chairman, President, Treasurer and one director who is selected annually for a one-year term. Authority to make investments under the approved Investment Policy guidelines is delegated by the Investment Committee to appropriate officers. While general investment strategies are developed and authorized by the Investment Committee, the execution of specific actions rests with the President or Treasurer who may act jointly or severally as Putnam Savings Bank's Investment Officer. The Investment Officer is responsible for ensuring that the guidelines and requirements included in the Investment Policy are followed and that all securities are considered prudent for investment. The Investment Officer is authorized to execute investment transactions (purchases and sales) up to $2 million per transaction without the prior approval of the Investment Committee and within the scope of the established investment policy. Each transaction in excess of $2 million must receive prior approval of the Investment Committee.

        In addition, Putnam Savings Bank may utilize the services of an independent investment advisor to assist in managing the investment portfolio. The investment advisor is responsible for maintaining current information regarding securities dealers with whom they are conducting business on our behalf. A list of appropriate dealers is provided annually to the Board of Directors for approval and authorization prior to execution of trades. The investment advisor, through its assigned portfolio manager, must contact our President or Treasurer to review all investment recommendations and transactions and receive approval from the President or Treasurer prior to execution of any transaction that might be transacted on our behalf. Upon receipt of approval, the investment advisor, or its assigned portfolio manager, is authorized to conduct all investment business on our behalf.

        Our Investment Policy requires that all securities transactions be conducted in a safe and sound manner. Investment decisions must be based upon a thorough analysis of each security instrument to determine its quality, inherent risks, fit within our overall asset/liability management objectives, effect on our risk-based capital measurement and prospects for yield and/or appreciation.

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        Consistent with our overall business and asset/liability management strategy, which focuses on sustaining adequate levels of core earnings, all securities purchased are held available-for-sale.

        U.S. Government and Agency Obligations.    At March 31, 2004, Putnam Savings Bank's U.S. Government and Agency securities portfolio totaled $7.1 million, all of which was classified as available-for-sale. There were no structured notes in the portfolio. While these securities generally provide lower yields than other investments in our securities investment portfolio, we maintain these investments, to the extent appropriate, for liquidity purposes, as collateral for borrowings and prepayment protection.

        State Agency and Municipal Obligations.    These securities consist of obligations issued by states, counties and municipalities or their agencies and include general obligation bonds, industrial development revenue bonds and other revenue bonds. Our investment policy requires that such state agency or municipal obligations be rated "A-" or better by a nationally recognized rating agency. If the debt obligation rating goes below "A-" then the investment is placed on an investment "watch report" and is monitored by our Investment Officer. The investment is then reviewed quarterly by our Board of Directors where a determination is made to hold or dispose of the investment. At March 31, 2004, Putnam Savings Bank's state agency and municipal obligations portfolio totaled $9.6 million, all of which was classified as available-for-sale.

        Corporate Bonds.    At March 31, 2004, Putnam Savings Bank's corporate bond portfolio totaled $33.1 million, all of which was classified as available-for-sale. Although corporate bonds may offer higher yields than U.S. Treasury or agency securities of comparable duration, corporate bonds also have a higher risk of default due to possible adverse changes in the credit-worthiness of the issuer. In order to mitigate this risk, our investment policy requires that corporate debt obligations be rated "A-" by a nationally recognized rating agency. If the bond rating goes below "A-" then the investment is placed on an investment "watch report" and is monitored by our Investment Officer. The investment is then reviewed quarterly by our Board of Directors where a determination is made to hold or dispose of the investment.

        Mortgage-Backed Securities.    Putnam Savings Bank purchases mortgage-backed securities insured or guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. We invest in mortgage-backed securities to achieve positive interest rate spreads with minimal administrative expense, and lower our credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae and Ginnie Mae. Putnam Savings Bank also invests in collateralized mortgage obligations ("CMOs"), also insured or issued by Freddie Mac, Fannie Mae and Ginnie Mae, or private issuers such as Washington Mutual and Countrywide Home Loans.

        Mortgage-backed securities are created by the pooling of mortgages and the issuance of a security with an interest rate which is less than the interest rate on the underlying mortgage. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although we focus our investments on mortgage-backed securities backed by one- to four-family mortgages. The issuers of such securities (generally U.S. government agencies and government sponsored enterprises, including Fannie Mae, Freddie Mac and Ginnie Mae) pool and resell the participation interests in the form of securities to investors such as Putnam Savings Bank, and guarantee the payment of principal and interest to investors. Mortgage- backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. However, mortgage-backed securities are usually more liquid than individual mortgage loans and may be used to collateralize our specific liabilities and obligations.

        CMOs are a type of debt security issued by a special purpose entity that aggregates pools of mortgage-backed securities and creates different classes of CMO securities with varying maturities and amortization schedules as well as a residual interest, with each class, or "tranche," possessing different

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risk characteristics. A particular tranche of CMOs may, therefore, carry prepayment risk that differs from that of both the underlying collateral and other tranches. CMO tranches purchased by the Bank attempt to moderate reinvestment risk associated with mortgage-backed securities resulting from unexpected prepayment activities.

        At March 31, 2004, mortgage-backed securities totaled $47.4 million, or 18.8% of assets and 19.5% of interest earning assets, all of which were classified as available-for-sale. At March 31, 2004, 29.7% of the mortgage-backed securities were backed by adjustable rate loans and 70.3% were backed by fixed rate mortgage loans. The mortgage-backed securities portfolio had a stated rate of 4.2% at March 31, 2004. The estimated fair value of our mortgage-backed securities at March 31, 2004 was $47.4 million, which is $495,000 more than the amortized cost of $46.9 million. Investments in mortgage-backed securities involve a risk that actual prepayments may differ from estimate prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments thereby changing the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities or if such securities are redeemed by the issuer. In addition, the market value of such securities may be adversely affected by changes in interest rates.

        Marketable Equity Securities.    We currently maintain a diversified equity securities portfolio. At March 31, 2004, our equity securities portfolio totaled $10.3 million, or 4.1% of total assets, all of which were classified as available for sale. The portfolio primarily consisted of $3.1 million of diversified common stock, $2.5 million of preferred stock issued by corporate issuers and $4.6 million of auction rate preferred stock. At March 31, 2004, our investments in common stock consisted of investments in eight corporate issuers, and the maximum investment in any single issuer was $198,000. The industries represented by our common stock investments include technology, services, consumer and financial. Our investments in preferred stock consisted of investments in six corporate issuers, and the maximum investment in any single issuer was $2.0 million. The industries represented by our preferred stock investments included government agency, technology, financial and investment banking. We generally require that the maximum equity investment in any one corporation shall not exceed $3.0 million.

        Investments in equity securities involve risk as they are not insured or guaranteed investments and are affected by stock market fluctuations. Such investments are carried at their market value and can directly affect our net capital position.

        As a result of Putnam Savings Bank's conversion to a federally-chartered savings bank, Putnam Savings Bank will no longer be permitted to invest in equity securities, pursuant to Office of Thrift Supervision regulations. However, it is expected that the Office of Thrift Supervision will permit Putnam Savings Bank to divest its equity securities portfolio over a period of years. Alternatively, Putnam Savings Bank may transfer such securities to PSB Holdings, Inc., our stock holding company. PSB Holdings, Inc., as a federally-chartered mid-tier stock holding company, may invest in equity securities subject to certain limitations.

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        Investment Securities Portfolio.    The following table sets forth the carrying values of our investment securities portfolio at the dates indicated.

							At June 30,
			At March 31, 2004				2003				2002				2001
			Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
			(In thousands)
Debt Securities:
	U.S. Government and agency obligations		$	7,054	$	7,114	$	6,173	$	6,268	$	8,248	$	8,350	$	4,758	$	4,816
	State agency and municipal obligations			9,117		9,603		9,115		9,636		9,189		9,233		—		—
	Corporate bonds and other securities			31,821		33,097		30,818		31,943		26,617		26,706		25,130		24,892
	Mortgage-backed securities			46,950		47,445		46,577		47,229		44,742		45,507		30,032		30,322
		Total debt securities		94,942		97,259		92,683		95,076		88,796		89,796		59,920		60,030
Marketable equity securities:
	Common stock			2,880		3,110		2,880		2,930		3,171		3,075		2,416		2,375
	Preferred stock			7,123		7,187		4,590		4,675		5,411		5,278		5,382		5,299
	Mutual funds			2		2		2		2		2		2		41		41
		Total equity securities		10,005		10,299		7,472		7,607		8,584		8,355		7,839		7,715
		Total available for sale securities		104,947		107,558		100,155		102,683		97,380		98,151		67,759		67,745
Trading Securities:				—		—		—		—		—		—		1,110		1,110
	Total investment securities		$	104,947	$	107,558	$	100,155	$	102,683	$	97,380	$	98,151	$	68,869	$	68,855

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        Portfolio Maturities and Yields.    The composition and maturities of the investment securities portfolio at March 31, 2004 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. State agency and municipal obligations as well as common and preferred stock yields have not been adjusted to a tax-equivalent basis. Certain mortgage-backed securities have interest rates that are adjustable and will reprice annually within the various maturity ranges. These repricing schedules are not reflected in the table below. At March 31, 2004, mortgage-backed securities with adjustable rates totaled $14.1 million.

		One Year or Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total Securities
		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carry Value		Weighted Average Yield
		(Dollars in thousands)
Debt Securities:
	U.S. Government and agency securities	$	—			$	7,114	2.84	%	$	—			$	—			$	7,114	2.84	%
	State agency and municipal obligations		—				—				652	4.39	%		8,951	4.99	%		9,603	4.95	%
	Corporate bonds and other obligations		2,576	6.71	%		22,178	4.77	%		—				8,343	3.24	%		33,097	4.54	%
	Mortgage-backed securities		10	7.00	%		2,744	4.35	%		16,516	4.30	%		28,175	4.18	%		47,445	4.23	%
	Total debt securities		2,586				32,036				17,168				45,569				97,259	4.31	%
Marketable equity securities:
	Common stock		—				—				—				—				3,110	1.74	%
	Preferred stock		—				—				—				—				7,187	2.78	%
	Mutual funds		—				—				—				—				2	0.91	%
	Total equity securities		—				—				—				—				10,299	2.46	%
	Total investment securities	$	2,586			$	32,036			$	17,168			$	45,469			$	107,558	4.13	%

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Sources of Funds

        General.    Deposits have traditionally been our primary source of funds for use in lending and investment activities. In addition to deposits, funds are derived from scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. Borrowings from the Federal Home Loan Bank of Boston may be used in the short-term to compensate for reductions in deposits and to fund loan growth.

        Deposits.    A majority of our depositors are persons who work or reside in Windham County, Connecticut. We offer a selection of deposit instruments, including checking, savings, money market deposit accounts, negotiable order of withdrawal (NOW) accounts and fixed-term certificates of deposit. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. We do not accept brokered deposits.

        Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. To attract and retain deposits, we rely upon personalized customer service, long-standing relationships and competitive interest rates.

        The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates and competition. The variety of deposit accounts that we offer allows us to be competitive in obtaining funds and responding to changes in consumer demand. Based on historical experience, management believes our deposits are relatively stable. However, the ability to attract and maintain money market accounts and certificates of deposit, and the rates paid on these deposits, have been and will continue to be significantly affected by market conditions. At March 31, 2004 and June 30, 2003, $76.5 million and $79.6 million, or 38.8% and 41.6%, respectively, of our deposit accounts were certificates of deposit, of which $35.9 million and $38.5 million, respectively, had maturities of one year or less.

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        The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated.

		At March 31, 2004						At June 30, 2003
		Balance		Percent		Weighted Average Rate		Balance		Percent		Weighted Average Rate
		(Dollars in thousands)
Deposit type:
Demand deposits		$	20,617	10.45	%	—	%	$	23,075	12.05	%	—	%
NOW accounts			8,093	4.10		0.25			10,105	5.28		0.40
Regular savings			44,865	22.74		0.75			39,283	20.52		1.00
Money market accounts			47,001	23.82		1.57			39,090	20.42		1.70
Club accounts			250	0.13		4.17			261	0.14		4.17
	Total transaction accounts		120,826	61.25		0.92			111,814	58.41		0.99
Certificates of deposit			76,445	38.75		3.04			79,606	41.59		3.24
	Total deposits	$	197,281	100.00	%	1.74		$	191,420	100.00	%	1.93

		At June 30,
		2002						2001
		Balance		Percent		Weighted Average Rate		Balance		Percent		Weighted Average Rate
		(Dollars in thousands)
Deposit type:
Demand deposits		$	15,698	9.70	%	—	%	$	13,723	10.55	%	—	%
NOW accounts			8,084	5.00		0.75			6,937	5.34		1.00
Regular savings			34,105	21.08		2.00			27,537	21.18		2.23
Money market accounts			24,009	14.84		2.92			5,789	4.45		3.45
Club accounts			247	0.15		4.17			225	0.17		4.17
	Total transaction accounts		82,143	50.77		1.77			54,211	41.69		1.65
Certificates of deposit			79,654	49.23		4.24			75,807	58.31		5.28
	Total deposits	$	161,797	100.00	%	2.99		$	130,018	100.00	%	3.77

        As of March 31, 2004, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $25.0 million. The following table sets forth the maturity of those certificates as of March 31, 2004.

	At March 31, 2004
	(In thousands)
Three months or less	$	4,421
Over three months through six months		2,523
Over six months through one year		3,636
Over one year to three years		9,100
Over three years		5,296
Total	$	24,976

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        The following table sets forth the time deposits classified by interest rate as of the dates indicated.

				At June 30,
		At March 31, 2004		2003		2002		2001
		(In thousands)
Interest Rate
	0.00%—1.00%	$	3,698	$	58	$	—	$	58
	1.01%—2.00%		23,050		19,392		1,701		—
	2.01%—3.00%		11,568		20,394		20,762		122
	3.01%—4.00%		17,201		16,244		13,188		2,084
	4.01%—5.00%		13,691		14,341		20,196		28,516
	5.01%—6.00%		6,173		8,107		17,039		32,753
	6.01%—7.00%		1,074		1,070		6,645		12,156
	7.01%—8.00%		—		—		123		118
	Total	$	76,455	$	79,606	$	79,654	$	75,807

        The following table sets forth the amount and maturities of time deposits at March 31, 2004.

		Less Than One Year		Over One Year to Two Years		Over Two Years to Three Years		Over Three Years to Four Years		Over Four Years to Five Years		Total		Percentage of Total Certificate Accounts
		(Dollars in Thousands)
Interest Rate:
	0.00%—1.00%	$	3,698	$	—	$	—	$	—	$	—	$	3,698	4.84	%
	1.01%—2.00%		19,726		3,324		—		—		—		23,050	30.15
	2.01%—3.00%		4,441		3,619		3,440		47		21		11,568	15.13
	3.01%—4.00%		4,062		6,953		439		1,981		3,766		17,201	22.50
	4.01%—5.00%		1,742		1,925		2,459		7,565		—		13,691	17.91
	5.01%—6.00%		1,958		1,250		2,238		727		—		6,173	8.07
	6.01%—7.00%		229		845		—		—		—		1,074	1.40
	Total	$	35,856	$	17,916	$	8,576	$	10,320	$	3,787	$	76,455	100.0	%

        The following table sets forth the interest-bearing deposit activities for the periods indicated.

	Nine Months Ended				Years Ended June 30,
	2004		2003		2003		2002		2001
	(In Thousands)
Beginning balance	$	169,197	$	146,916	$	146,916	$	117,047	$	101,853
Net deposits before interest credited		5,290		14,333		18,078		25,106		10,524
Interest credited		2,676		3,227		4,203		4,763		4,670
Net increase in deposits		7,966		17,560		22,281		29,869		15,194
Ending balance	$	177,163	$	164,476	$	169,197	$	146,916	$	117,047

        Borrowings.    Our borrowings consist solely of advances from and a line of credit with the Federal Home Loan Bank of Boston. At March 31, 2004, we had an available line of credit with the Federal Home Loan Bank of Boston in the amount of $2.4 million and access to additional Federal Home Loan Bank advances of up to $76.0 million. The following table sets forth information concerning

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balances and interest rates on our Federal Home Loan Bank advances at the dates and for the periods indicated.

		At or For the Nine Months Ended March 31,						At or For the Years Ended June 30,
		2004			2003			2003			2002			2001
		(Dollars in thousands)
Maximum amount of advances outstanding at any month end during the period:
	FHLB Advances	$	32,750		$	38,250		$	38,250		$	43,535		$	46,645
Average advances outstanding during the period:
	FHLB Advances		27,383			34,766			33,386			41,214			43,928
Balance outstanding at end of period:
	FHLB Advances		29,250			30,000			27,000			39,750			39,384
Weighted average interest rate during the period:
	FHLB Advances		4.11	%		4.94	%		4.93	%		5.33	%		6.34	%
Weighted average interest rate at the end of period:
	FHLB Advances		3.65	%		4.94	%		4.95	%		5.16	%		5.63	%

Properties

        We conduct substantially all of our business through our main office, three full service branch offices and one loan origination center. We also conduct limited business operations through a "Special Needs Limited Branch" and a "Limited Services Branch." In 2002, we began Limited Service (Mobile) Branch activities. The Limited Services (Mobile) Branch serves approximately eight locations in our primary market area consisting of schools and retirement facilities. Bank personnel visit these facilities approximately once per week and, in the case of school locations, conduct deposit taking activities and,

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in the case of the retirement facilities, conduct deposit taking, check cashing, notary and certificate of deposit renewal activities.

Location		Leased or Owned	Year Acquired or Leased	Square Footage	Net Book Value of Real Property
					(In thousands)
Main Office:
40 Main Street Putnam, Connecticut 06260		Owned	1974	14,938	$	1,617
Full Service Branches:
100 Averill Road Pomfret Center, Connecticut 06259		Owned	1981	2,487		657
125 Wauregan Road Danielson, Connecticut 06239		Owned	1993	2,452		462
11 Pratt Road Plainfield, Connecticut 06374		Owned	2000	2,162		429
Loan Center:
50 Canal Street Putnam, Connecticut 06260		Owned	2000	2,940		239
ATM Remote Location:
168 Route 169 Woodstock, Connecticut 06281		Leased	2003	30		—
Special Needs Limited Branch(1):
Creamery Brook Retirement Village 36 Vina Lane Brooklyn, Connecticut 06234		—	—	—		—
	Total				$	3,404

(1)

Our personnel are at this location for approximately three hours once a week. The facility provides a furnished room for us at no cost. Our personnel conduct limited banking activities, such as deposit taking, check cashing, notary and certificate of deposit renewals. We began operating at this location in 2002.

Subsidiary Activities

        PSB Holdings, Inc.'s only subsidiary is Putnam Savings Bank. Putnam Savings Bank has two subsidiaries, Windham North Properties, LLC and PSB Realty, LLC. Windham North Properties, LLC is used to acquire title to selected properties on which Putnam Savings Bank forecloses. As of March 31, 2004, Windham North Properties, LLC, did not own any such properties. PSB Realty, LLC owns a single parcel of real estate located immediately adjacent to Putnam Savings Bank's main office. This real estate is utilized as a loan center for Putnam Savings Bank and there are no outside tenants that occupy the premises.

Putnam Savings Bank Foundation, Inc.

        In 1999, Putnam Savings Bank established Putnam Savings Bank Foundation, Inc., which is a private charitable foundation. This foundation, which is not a subsidiary of Putnam Savings Bank, provides grants to individuals and not-for-profit organizations within the communities that Putnam

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Savings Bank serves. In 2000, Putnam Savings Bank contributed $45,000 in cash and marketable equity securities with a cost basis and fair market value of $62,000 and $255,000, respectively, at the date of contribution and transfer to the foundation. At March 31, 2004, the foundation had assets of approximately $210,000. The foundation's nine member board of directors consists of the current directors of Putnam Savings Bank. After the transaction, Putnam Savings Bank will continue to maintain the foundation, but does not expect to make any further contributions to the foundation. The existence of Putnam Savings Bank's current foundation is not expected to impact the business and affairs of Putnam Savings Foundation, which is being established in connection with the offering.

Legal Proceedings

        We are not involved in any pending legal proceedings as a defendant other than routine legal proceedings occurring in the ordinary course of business. At March 31, 2004, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

Personnel

        As of March 31, 2004, we had 61 full-time employees and 22 part-time employees. Our employees are not represented by any collective bargaining group. Management believes that we have good relations with our employees.

FEDERAL AND STATE TAXATION

Federal Taxation

        General.    PSB Holdings, Inc. and Putnam Savings Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. PSB Holdings, Inc.'s and Putnam Savings Bank's tax returns have not been audited during the past five years. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to PSB Holdings, Inc. or Putnam Savings Bank.

        Method of Accounting.    For Federal income tax purposes, PSB Holdings, Inc. and Putnam Savings Bank currently report their income and expenses on the accrual method of accounting and use a tax year ending June 30 for filing their federal income tax returns.

        Bad Debt Reserves.    Prior to the Small Business Protection Act of 1996 (the "1996 Act"), Putnam Savings Bank was permitted to establish a reserve for bad debts and to make annual additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at our taxable income. As a result of the 1996 Act, Putnam Savings Bank was required to use the specific charge off method in computing its bad debt deduction beginning with its 1996 federal tax return. Savings institutions were required to recapture any excess reserves over those established as of December 31, 1987 (base year reserve). At March 31, 2004 Putnam Savings Bank had no reserves subject to recapture in excess of its base year.

        Taxable Distributions and Recapture.    Prior to the 1996 Act, bad debt reserves created prior to January 1, 1988 were subject to recapture into taxable income if Putnam Savings Bank failed to meet certain thrift asset and definitional tests. Federal legislation has eliminated these thrift-related recapture rules. At March 31, 2004, our total federal pre-1988 base year reserve was approximately $2.3 million. However, under current law, pre-1988 base year reserves remain subject to recapture if Putnam Savings Bank makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter.

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        Alternative Minimum Tax.    The Internal Revenue Code of 1986, as amended (the "Code") imposes an alternative minimum tax ("AMT") at a rate of 20% on a base of regular taxable income plus certain tax preferences which we refer to as "alternative minimum taxable income." The AMT is payable to the extent such alternative minimum taxable income is in excess of an exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no more than 90% of alternative minimum taxable income. Certain AMT payments may be used as credits against regular tax liabilities in future years. Putnam Savings Bank has not been subject to the AMT and has no such amounts available as credits for carryover.

        Net Operating Loss Carryovers.    A financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. At March 31, 2004, Putnam Savings Bank had no net operating loss carryforwards for federal income tax purposes.

        Corporate Dividends-Received Deduction.    PSB Holdings, Inc. may exclude from its income 100% of dividends received from Putnam Savings Bank as a member of the same affiliated group of corporations. The corporate dividends-received deduction is 80% in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, and corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of dividends received or accrued on their behalf.

State Taxation

        Connecticut State Taxation.    Putnam Bancorp, MHC and its subsidiaries, PSB Holdings, Inc. and Putnam Savings Bank, are subject to the Connecticut corporation business tax. All three entities are required to pay the regular corporation business tax (income tax).

        The Connecticut corporation business tax is based on the federal taxable income before net operating loss and special deductions and makes certain modifications to federal taxable income to arrive at Connecticut taxable income. Connecticut taxable income is multiplied by the state tax rate of 7.5% to arrive at Connecticut income tax. Additionally, for the fiscal year ended June 30, 2004, there is a 20% surcharge resulting in an effective rate of 9%.

        Neither Putnam Bancorp, MHC, PSB Holdings, Inc. nor Putnam Savings Bank are currently under audit with respect to their income tax returns and their state tax returns have not been audited for the past five years.

SUPERVISION AND REGULATION

General

        Putnam Savings Bank is examined and supervised by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the Federal Deposit Insurance Corporation's deposit insurance funds and depositors. Under this system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. Following completion of its examination, the federal agency critiques the institution's operations and assigns its rating (known as an institution's CAMELS rating). Under federal law, an institution may not disclose its CAMELS rating to the public. Putnam Savings Bank also is a member of and owns stock in the Federal Home Loan Bank of Boston, which is one of the twelve regional banks in the Federal Home Loan Bank System. Putnam Savings Bank also is regulated to a lesser extent by the Board of Governors of the Federal Reserve System, governing reserves to be maintained against deposits and other matters. The Office of Thrift Supervision examines Putnam Savings Bank and prepares reports for the consideration of its Board of Directors on any operating

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deficiencies. Putnam Savings Bank's relationship with its depositors and borrowers also is regulated to a great extent by both federal and state laws, especially in matters concerning the ownership of deposit accounts and the form and content of Putnam Savings Bank's mortgage documents.

        Any change in these laws or regulations, whether by the Federal Deposit Insurance Corporation, Office of Thrift Supervision or Congress, could have a material adverse impact on PSB Holdings, Inc. and Putnam Savings Bank and their operations.

Federal Banking Regulation

        Business Activities.    A federal savings association derives its lending and investment powers from the Home Owners' Loan Act, as amended, and the regulations of the Office of Thrift Supervision. Under these laws and regulations, Putnam Savings Bank may invest in mortgage loans secured by residential real estate without limitations as a percentage of assets and non-residential real estate loans which may not exceed 400% of capital in the aggregate, commercial business loans up to 20% of assets in the aggregate and consumer loans up to 35% of assets in the aggregate, certain types of debt securities and certain other assets. Putnam Savings Bank also may establish subsidiaries that may engage in activities not otherwise permissible for Putnam Savings Bank, including real estate investment and securities and insurance brokerage.

        Capital Requirements.    Office of Thrift Supervision regulations require savings associations to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for associations receiving the highest rating on the CAMELS rating system) and an 8% risk-based capital ratio. The prompt corrective action standards discussed below, in effect, establish a minimum 2% tangible capital standard.

        The risk-based capital standard for savings associations requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision based on the risks believed inherent in the type of asset. Core capital is defined as common stockholders' equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 46% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital. Additionally, a savings association that retains credit risk in connection with an asset sale may be required to maintain additional regulatory capital because of the recourse back to the savings association. Putnam Savings Bank does not typically engage in asset sales.

        At March 31, 2004, Putnam Savings Bank's capital exceeded all applicable requirements.

        Loans-to-One Borrower.    A federal savings association generally may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of March 31, 2004, Putnam Savings Bank was in compliance with the loans-to-one borrower limitations.

        Qualified Thrift Lender Test.    As a federal savings association, Putnam Savings Bank is subject to a qualified thrift lender, or "QTL," test. Under the QTL test, Putnam Savings Bank must maintain at

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least 65% of its "portfolio assets" in "qualified thrift investments" in at least nine of the most recent 12-month period. "Portfolio assets" generally means total assets of a savings institution, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the savings association's business.

        "Qualified thrift investments" includes various types of loans made for residential and housing purposes, investments related to such purposes, including certain mortgage-backed and related securities, and loans for personal, family, household and certain other purposes up to a limit of 20% of portfolio assets. "Qualified thrift investments" also include 100% of an institution's credit card loans, education loans and small business loans. Putnam Savings Bank also may satisfy the QTL test by qualifying as a "domestic building and loan association" as defined in the Internal Revenue Code.

        A savings association that fails the qualified thrift lender test must either convert to a bank charter or operate under specified restrictions. At March 31, 2004, Putnam Savings Bank satisfied this test.

        Capital Distributions.    Office of Thrift Supervision regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the capital account. A savings association must file an application for approval of a capital distribution if:

•

the total capital distributions for the applicable calendar year exceed the sum of the association's net income for that year to date plus the association's retained net income for the preceding two years;



•

the association would not be at least adequately capitalized following the distribution;



•

the distribution would violate any applicable statute, regulation, agreement or Office of Thrift Supervision-imposed condition; or



•

the association is not eligible for expedited treatment of its filings.

        Even if an application is not otherwise required, every savings association that is a subsidiary of a holding company must still file a notice with the Office of Thrift Supervision at least 30 days before the Board of Directors declares a dividend or approves a capital distribution.

        The Office of Thrift Supervision may disapprove a notice or application if:

•

the association would be undercapitalized following the distribution;



•

the proposed capital distribution raises safety and soundness concerns; or



•

the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

        In addition, the Federal Deposit Insurance Act provides that an insured depository institution shall not make any capital distribution, if after making such distribution the institution would be undercapitalized.

        Liquidity.    A federal savings association is required to maintain a sufficient amount of liquid assets to ensure its safe and sound operation.

        Community Reinvestment Act and Fair Lending Laws.    All savings associations have a responsibility under the Community Reinvestment Act and related regulations of the Office of Thrift Supervision to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In connection with its examination of a federal savings association, the Office of Thrift Supervision is required to assess the association's record of compliance with the Community Reinvestment Act. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. An

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association's failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers restrictions on its activities. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of Thrift Supervision, as well as other federal regulatory agencies and the Department of Justice. Putnam Savings Bank received a satisfactory Community Reinvestment Act rating in its most recent federal examination.

        Transactions with Related Parties.    A federal savings association's authority to engage in transactions with its "affiliates" is limited by Office of Thrift Supervision regulations and by Sections 23A and 23B of the Federal Reserve Act (the "FRA"). The term "affiliates" for these purposes generally means any company that controls, is controlled by, or is under common control with an institution. PSB Holdings, Inc. is an affiliate of Putnam Savings Bank. In general, transactions with affiliates must be on terms that are as favorable to the association as comparable transactions with non-affiliates. In addition, certain types of these transactions are restricted to an aggregate percentage of the association's capital. Collateral in specified amounts must usually be provided by affiliates in order to receive loans from the association. In addition, Office of Thrift Supervision regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary.

        Putnam Savings Bank's authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the FRA and Regulation O of the Federal Reserve Board. Among other things, these provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Putnam Savings Bank's capital. In addition, extensions of credit in excess of certain limits must be approved by Putnam Savings Bank's Board of Directors.

        Enforcement.    The Office of Thrift Supervision has primary enforcement responsibility over federal savings institutions and has the authority to bring enforcement action against all "institution-affiliated parties," including stockholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action by the Office of Thrift Supervision may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The Federal Deposit Insurance Corporation also has the authority to terminate deposit insurance or to recommend to the Director of the Office of Thrift Supervision that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take action under specified circumstances.

        Standards for Safety and Soundness.    Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted Interagency Guidelines Prescribing Standards for Safety and Soundness to implement the safety and soundness standards

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required under federal law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit systems, credit underwriting, loan documentation, interest rate risk exposure, asset growth, compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan.

        Prompt Corrective Action Regulations.    Under the prompt corrective action regulations, the Office of Thrift Supervision is required and authorized to take supervisory actions against undercapitalized savings associations. For this purpose, a savings association is placed in one of the following five categories based on the association's capital:

•

well-capitalized (at least 5% leverage capital, 6% Tier 1 risk-based capital and 10% total risk-based capital);



•

adequately capitalized (at least 4% leverage capital, 4% Tier 1 risk-based capital and 8% total risk-based capital);



•

undercapitalized (less than 8% total risk-based capital, 4% Tier 1 risk-based capital or 3% leverage capital);



•

significantly undercapitalized (less than 6% total risk-based capital, 3% Tier 1 risk-based capital or 3% leverage capital); and



•

critically undercapitalized (less than 2% tangible capital).

        Generally, the banking regulator is required to appoint a receiver or conservator for an association that is "critically undercapitalized" within specific time frames. The regulations also provide that a capital restoration plan must be filed with the Office of Thrift Supervision within 45 days of the date an association receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." The criteria for an acceptable capital restoration plan include, among other things, the establishment of the methodology and assumptions for attaining adequately capitalized status on an annual basis, procedures for ensuring compliance with restrictions imposed by applicable federal regulations, the identification of the types and levels of activities the savings association will engage in while the capital restoration plan is in effect, and assurances that the capital restoration plan will not appreciably increase the current risk profile of the savings association. Any holding company for the savings association required to submit a capital restoration plan must guarantee the lesser of: an amount equal to 5% of the savings association's assets at the time it was notified or deemed to be under capitalized by the Office of Thrift Supervision or the amount necessary to restore the savings association to adequately capitalized status. This guarantee remains in place until the Office of Thrift Supervision notifies the savings association that it as maintained adequately capitalized status for each of four consecutive calendar quarters, and the Office of Thrift Supervision has the authority to requirement payment and collect payment under the guarantee. Failure by a holding company to provide the required guarantee will result in certain operating restrictions on the savings association, such as restrictions on the ability to declare and pay dividends, pay executive compensation and management fees, and increase asset size or expand operations. The Office of Thrift Supervision may also take any one of a number of discretionary supervisory actions against undercapitalized associations, including the issuance of a capital directive and the replacement of senior executive officers and directors.

        At March 31, 2004, Putnam Savings Bank met the criteria for being considered "well-capitalized."

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        Insurance of Deposit Accounts.    Deposit accounts in Putnam Savings Bank are insured by the Federal Deposit Insurance Corporation, generally up to a maximum of $100,000 per separately insured depositor. Putnam Savings Bank's deposits therefore are subject to Federal Deposit Insurance Corporation deposit insurance assessments. The Federal Deposit Insurance Corporation has adopted a risk-based system for determining deposit insurance assessments. The Federal Deposit Insurance Corporation is authorized to raise the assessment rates as necessary to maintain the required ratio of reserves to insured deposits of 1.25%. In addition, all Federal Deposit Insurance Corporation- insured institutions must pay assessments to the Federal Deposit Insurance Corporation at an annual rate of approximately .02% of insured deposits to fund interest payments on bonds maturing in 2017 issued by a federal agency to recapitalize the predecessor to the Savings Association Insurance Fund.

        Prohibitions Against Tying Arrangements.    Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

        Federal Home Loan Bank System.    Putnam Savings Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions. As a member of the Federal Home Loan Bank of Boston, Putnam Savings Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank in an amount at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or 1/20 of its borrowings from the Federal Home Loan Bank, whichever is greater. As of March 31, 2004, Putnam Savings Bank was in compliance with this requirement.

Federal Reserve System

        The Federal Reserve Board regulations require savings associations to maintain noninterest-earning reserves against their transaction accounts, such as negotiable order of withdrawal and regular checking accounts. At March 31, 2004, Putnam Savings Bank was in compliance with these reserve requirements.

The USA PATRIOT Act

        The USA PATRIOT Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. Certain provisions of the Act impose affirmative obligations on a broad range of financial institutions, including thrifts, like Putnam Savings Bank. These obligations include enhanced anti-money laundering programs, customer identification programs and regulations relating to private banking accounts or correspondence accounts in the United States for non-United States persons or their representatives (including foreign individuals visiting the United States).

        The federal banking agencies have begun to propose and implement regulations pursuant to the USA PATRIOT Act. These proposed and interim regulations would require financial institutions to adopt the policies and procedures contemplated by the USA PATRIOT Act.

Sarbanes-Oxley Act of 2002

        The Sarbanes-Oxley Act of 2002 was enacted in response to public concerns regarding corporate accountability in connection with recent accounting scandals. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act

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generally applies to all companies that file or are required to file periodic reports with the SEC, under the Securities Exchange Act of 1934.

        The Sarbanes-Oxley Act includes very specific additional disclosure requirements and new corporate governance rules requiring the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules, and mandates further studies of certain issues by the SEC. The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

        Although we anticipate that we will incur additional expense in complying with the provisions of the Sarbanes-Oxley Act and the regulations that have been promulgated to implement the Sarbanes-Oxley Act, management does not expect that such compliance will have a material impact on our results of operations or financial condition.

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Holding Company Regulation

        General.    Putnam Bancorp, MHC and PSB Holdings, Inc. are nondiversified savings and loan holding companies within the meaning of the Home Owners' Loan Act. As such, Putnam Bancorp, MHC and PSB Holdings, Inc. are registered with the Office of Thrift Supervision and are subject to Office of Thrift Supervision regulations, examinations, supervision and reporting requirements. In addition, the Office of Thrift Supervision has enforcement authority over PSB Holdings, Inc. and Putnam Bancorp, MHC, and their subsidiaries. Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution. As federal corporations, PSB Holdings, Inc. and Putnam Bancorp, MHC are generally not subject to state business organization laws.

        Permitted Activities.    Pursuant to Section 10(o) of the Home Owners' Loan Act and Office of Thrift Supervision regulations and policy, a mutual holding company and a federally chartered mid-tier holding company such as PSB Holdings, Inc. may engage in the following activities: (i) investing in the stock of a savings association; (ii) acquiring a mutual association through the merger of such association into a savings association subsidiary of such holding company or an interim savings association subsidiary of such holding company; (iii) merging with or acquiring another holding company, one of whose subsidiaries is a savings association; (iv) investing in a corporation, the capital stock of which is available for purchase by a savings association under federal law or under the law of any state where the subsidiary savings association or associations share their home offices; (v) furnishing or performing management services for a savings association subsidiary of such company; (vi) holding, managing or liquidating assets owned or acquired from a savings subsidiary of such company; (vii) holding or managing properties used or occupied by a savings association subsidiary of such company; (viii) acting as trustee under deeds of trust; (ix) any other activity (A) that the Federal Reserve Board, by regulation, has determined to be permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the Director of the Office of Thrift Supervision, by regulation, prohibits or limits any such activity for savings and loan holding companies; or (B) in which multiple savings and loan holding companies were authorized (by regulation) to directly engage on March 5, 1987; (x) any activity permissible for financial holding companies under Section 4(k) of the Bank Holding Company Act, including securities and insurance underwriting; and (xi) purchasing, holding, or disposing of stock acquired in connection with a qualified stock issuance if the purchase of such stock by such savings and loan holding company is approved by the Director. If a mutual holding company acquires or merges with another holding company, the holding company acquired or the holding company resulting from such merger or acquisition may only invest in assets and engage in activities listed in (i) through (xi) above, and has a period of two years to cease any nonconforming activities and divest of any nonconforming investments.

        The Home Owners' Loan Act prohibits a savings and loan holding company, including PSB Holdings, Inc. and Putnam Bancorp, MHC, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution or holding company thereof, without prior written approval of the Office of Thrift Supervision. It also prohibits the acquisition or retention of, with certain exceptions, more than 5% of a nonsubsidiary company engaged in activities other than those permitted by the Home Owners' Loan Act; or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings institutions, the Office of Thrift Supervision must consider the financial and managerial resources, future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance fund, the convenience and needs of the community and competitive factors.

        The Office of Thrift Supervision is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies, and (ii) the acquisition of a savings institution in another state if the laws of the

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state of the target savings institution specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

        Waivers of Dividends by Putnam Bancorp, MHC.    Office of Thrift Supervision regulations require Putnam Bancorp, MHC to notify the Office of Thrift Supervision of any proposed waiver of its receipt of dividends from PSB Holdings, Inc. The Office of Thrift Supervision reviews dividend waiver notices on a case-by-case basis, and, in general, does not object to any such waiver if: (i) the mutual holding company's board of directors determines that such waiver is consistent with such directors' fiduciary duties to the mutual holding company's members; (ii) for as long as the savings association subsidiary is controlled by the mutual holding company, the dollar amount of dividends waived by the mutual holding company is considered as a restriction on the retained earnings of the savings association, which restriction, if material, is disclosed in the public financial statements of the savings association as a note to the financial statements; (iii) the amount of any dividend waived by the mutual holding company is available for declaration as a dividend solely to the mutual holding company, and, in accordance with SFAS 5, where the savings association determines that the payment of such dividend to the mutual holding company is probable, an appropriate dollar amount is recorded as a liability; and (iv) the amount of any waived dividend is considered as having been paid by the savings association in evaluating any proposed dividend under Office of Thrift Supervision capital distribution regulations. We anticipate that Putnam Bancorp, MHC will waive dividends paid by PSB Holdings, Inc. Under Office of Thrift Supervision regulations, our public stockholders would not be diluted because of any dividends waived by Putnam Bancorp, MHC (and waived dividends would not be considered in determining an appropriate exchange ratio) in the event Putnam Bancorp, MHC converts to stock form.

        Conversion of Putnam Bancorp, MHC to Stock Form.    Office of Thrift Supervision regulations permit Putnam Bancorp, MHC to convert from the mutual form of organization to the capital stock form of organization (a "Conversion Transaction"). There can be no assurance when, if ever, a Conversion Transaction will occur, and the Board of Directors has no current intention or plan to undertake a Conversion Transaction. In a Conversion Transaction a new holding company would be formed as the successor to PSB Holdings, Inc. (the "New Holding Company"), Putnam Bancorp, MHC's corporate existence would end, and certain depositors of Putnam Savings Bank would receive the right to subscribe for additional shares of the New Holding Company. In a Conversion Transaction, each share of common stock held by stockholders other than Putnam Bancorp, MHC ("Minority Stockholders") would be automatically converted into a number of shares of common stock of the New Holding Company determined pursuant an exchange ratio that ensures that Minority Stockholders own the same percentage of common stock in the New Holding Company as they owned in PSB Holdings, Inc. immediately prior to the Conversion Transaction. Under Office of Thrift Supervision regulations, Minority Stockholders would not be diluted because of any dividends waived by Putnam Bancorp, MHC (and waived dividends would not be considered in determining an appropriate exchange ratio), in the event Putnam Bancorp, MHC converts to stock form. The total number of shares held by Minority Stockholders after a Conversion Transaction also would be increased by any purchases by Minority Stockholders in the stock offering conducted as part of the Conversion Transaction.

Federal Securities Laws

        PSB Holdings, Inc. has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 for the registration of the shares of common stock to be issued pursuant to the offering. Upon completion of the offering, PSB Holdings, Inc. common stock will be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. PSB Holdings, Inc. will continue to be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

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        The registration under the Securities Act of 1933 of shares of common stock to be issued in the offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not affiliates of PSB Holdings, Inc. may be resold without registration. Shares purchased by an affiliate of PSB Holdings, Inc. will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If PSB Holdings, Inc. meets the current public information requirements of Rule 144 under the Securities Act of 1933, each affiliate of PSB Holdings, Inc. that complies with the other conditions of Rule 144, including those that require the affiliate's sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of PSB Holdings, Inc., or the average weekly volume of trading in the shares during the preceding four calendar weeks. In the future, PSB Holdings, Inc. may permit affiliates to have their shares registered for sale under the Securities Act of 1933.

MANAGEMENT

Shared Management Structure

        The directors of PSB Holdings, Inc. are those same persons who are the directors of Putnam Savings Bank. In addition, each executive officer of PSB Holdings, Inc. is also an executive officer of Putnam Savings Bank. Although there are no present plans to do so, both PSB Holdings, Inc. and Putnam Savings Bank may choose to appoint additional or different persons as directors and executive officers in the future. We expect that PSB Holdings, Inc. and Putnam Savings Bank will continue to have common executive officers until there is a business reason to establish separate management structures. To date, directors and executive officers have been compensated for their services to Putnam Savings Bank. These individuals may receive additional compensation for their services to PSB Holdings, Inc.

Directors of PSB Holdings, Inc.

        The Board of Directors of PSB Holdings, Inc. currently consists of nine members. Directors serve three-year staggered terms so that approximately one-third of the directors are elected at each annual meeting of stockholders. The class of directors whose term of office expires at the first annual meeting of stockholders following completion of the offering are directors Maurice P. Beaulac, Robert G. Cocks, Jr. and Mary E. Patenaude. The class of directors whose term expires at the second annual meeting of stockholders following completion of the offering are directors Thomas A. Borner, Richard A. Loomis and Wilbur D. Neumann. The class of directors whose term of office expires at the third annual meeting of stockholders following the completion of the offering are directors A. Leon Archambault, Paul M. Kelly and Charles H. Puffer.

Executive Officers of PSB Holdings, Inc.

        The following individuals are the executive officers of PSB Holdings, Inc. and hold the offices set forth below opposite their names.

Name	Age(1)	Position
Thomas A. Borner	49	Chairman of the Board
Robert G. Cocks, Jr.	59	President and Chief Executive Officer
John T. Knierim	43	Vice President and Treasurer

(1)

As of March 31, 2004.

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        The executive officers of PSB Holdings, Inc. are elected annually and hold office until their respective successors have been elected or until death, resignation, retirement or removal by the Board of Directors.

Directors of Putnam Savings Bank

        Composition of our Board.    Putnam Savings Bank has nine directors. Directors of Putnam Savings Bank are elected annually by PSB Holdings, Inc. as its sole stockholder.

        The following table states our directors' names, their ages as of March 31, 2004, the calendar years when they began serving as directors and the years their current terms as directors will expire:

Directors	Age (1)	Position	Director Since (2)	Term Expires
Thomas A. Borner	49	Chairman of the Board	1987	2006
Robert G. Cocks, Jr.	59	Director, President and Chief Executive Officer	2000	2005
A. Leon Archambault	62	Director	1985	2004
Maurice P. Beaulac	68	Director	1985	2005
Paul M. Kelly	53	Director	1993	2004
Richard A. Loomis	45	Director	2002	2006
Wilbur D. Neumann	59	Director	2003	2006
Mary E. Patenaude	58	Director	1991	2005
Charles H. Puffer	52	Director	1984	2004

(1)

As of March 31, 2004.

(2)

All directors were appointed to the Board of Directors of PSB Holdings, Inc. upon its formation in May 2003, except for Mr. Neumann, who was elected in September 2003. The year indicated is the year each director was first elected or appointed to the Board of Directors of Putnam Savings Bank.

        The Business Background of Our Directors and Executive Officers.    The business experience for the past five years of each of our directors and executive officers is set forth below. Unless otherwise indicated, directors and executive officers have held their positions for the past five years.

Directors:

Thomas A. Borner is Chairman of the Board of Putnam Savings Bank and "of counsel" to the law firm of Borner Scola Hill Baruti Vancini & Smith, located in Putnam, Connecticut. During his tenure as Chairman of the Board of Putnam Savings Bank, Mr. Borner was also Interim Chief Executive Officer from 1999 to 2000.

Robert G. Cocks, Jr. has been President and Chief Executive Officer of Putnam Savings Bank since 2000. Prior to his affiliation with Putnam Savings Bank, Mr. Cocks was Senior Vice President, Commercial Lending, of the Washington Trust Company, Westerly, Rhode Island.

A. Leon Archambault is the President and owner of J.A. Archambault & Son, Inc. an insurance agency located in Putnam, Connecticut.

Maurice P. Beaulac is retired. Mr. Beaulac was formerly with Beaulac's Pharmacy, Inc., located in Thompson, Connecticut, where he served as President.

Paul M. Kelly is the treasurer of Kelly's Tire, Inc., an automotive tire retail business, located in Putnam, Connecticut.

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Richard A. Loomis is the owner and operator of Loomis Real Estate located in Putnam, Connecticut.

Wilbur D. Neumann is co-President of Shopper—Turnpike Corp., a publishing company, located in Putnam, Connecticut.

Mary E. Patenaude is the owner and sole proprietor of Pomfret Spirit Shoppe, located in Pomfret, Connecticut.

Charles H. Puffer is the owner and operator of Leschke-Puffer Insurance Agency, Inc. located in Putnam, Connecticut.

Executive Officers Who Are Not Directors:

John T. Knierim joined Putnam Savings Bank in 1998 and serves as Senior Vice President and Treasurer. Mr. Knierim is also Vice President and Treasurer of both Putnam Bancorp, MHC and PSB Holdings, Inc. Mr. Knierim is 43 years old.

John F. LaFountain joined Putnam Savings Bank in 1995 and serves as Senior Vice President, Retail Lending. Mr. LaFountain is 47 years old.

Anthony J. Serio joined Putnam Savings Bank in 2000 and serves as Senior Vice President, Commercial Lending. Prior to his association with Putnam Savings Bank, Mr. Serio was Vice President, Business Development Officer for U.S. Trust, Connecticut. Mr. Serio is 57 years old.

Lynn K. Brodeur joined Putnam Savings Bank in 1993 and serves as Vice President, Branch Administration. Ms. Brodeur is 51 years old.

Meetings of the Board of Directors and Committees

        The Board of Directors of PSB Holdings, Inc. meets on an as-needed basis and may hold additional special meetings. During the fiscal year ended June 30, 2003, our Board of Directors held two regular meetings. No director attended fewer than 75% of such meetings.

        Putnam Savings Bank's Board of Directors meets on a semi-monthly basis and may hold additional special meetings. During the fiscal year ended June 30, 2003, Putnam Savings Bank's Board of Directors held 24 regular and seven special meetings. No director attended fewer than 75% of such meetings.

Committees of PSB Holdings, Inc.

        PSB Holdings, Inc. currently maintains a Nomination Committee and intends to establish standing Audit and Compensation Committees following the offering.

        The Audit Committee will review audit reports and related matters to ensure effective compliance with regulations and internal policies and procedures. This committee also will act on the recommendation by management of an accounting firm to perform PSB Holdings, Inc.'s annual audit, and will act as a liaison between the auditors and the Board of Directors. The Audit Committee will be comprised of directors who are "independent" under the current Nasdaq listing standards. As a non-SEC registered company, we have not been required to designate an "audit committee financial expert" pursuant to the Sarbanes-Oxley Act of 2002 or the Securities and Exchange Commission regulations. We currently do not intend to designate an existing member of our Board of Directors as an "audit committee financial expert". However, in the future, if a vacancy on our Board of Directors is created we will, at that time, explore the possibility of adding a director to our Board who will meet the qualifications of an "audit committee financial expert" and will be designated as such.

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        The Nomination Committee meets annually in order to nominate candidates for membership on the Board of Directors. This committee is comprised of independent directors.

        The Compensation Committee will establish PSB Holdings, Inc.'s compensation policies and will review compensation matters. It is expected that the Compensation Committee will consist of PSB Holdings, Inc.'s independent directors.

Director Compensation

        Director Fees.    PSB Holdings, Inc. currently pays no fees for service on the Board of Directors or Board committees, but may pay fees for Board or committee service after the offering consistent with the extent of the business activities of PSB Holdings, Inc. Putnam Savings Bank pays each non-employee director an annual retainer of $8,000 and $300 for each board meeting that he/she attends. All non-employee Board committee members receive a fee of $150 for each committee meeting attended except that committee chairpersons receive a fee of $200 for each committee meeting attended. Putnam Savings Bank paid fees totaling $78,300 to directors for the fiscal year ended June 30, 2003.

        Putnam Savings Bank maintains a Board of Directors Emeritus which consists of former directors of Putnam Savings Bank. Pursuant to Putnam Savings Bank's bylaws, Directors must retire at the next annual meeting of Putnam Savings Bank following such Director reaching age 72. Any Director who retires because of such age limitation is eligible to be elected for a two-year term as a Director Emeritus. Directors Emeritus may attend Board of Director meetings but have no vote at such meetings. Directors Emeritus receive an annual retainer equal to the then current annual retainer received by members of the Board of Directors (currently $3,000).

        Deferred Compensation Retirement Plan.    Putnam Savings Bank maintains a deferred compensation retirement plan for the benefit of directors and employees designated by the board to participate in the plan. The Plan has been frozen as of July 1, 2004, and no further contributions will be made to the plan after that date. Prior to July 1, 2004, a participant was allowed to defer a portion of his annual compensation in the form of a percentage or dollar amount. The election, once made for a plan year, was irrevocable for that plan year. Deferrals under the plan are credited to an account for the participant. In its discretion, Putnam Savings Bank was entitled to make an employer contribution to the account of any participant for any plan year. As of each valuation date, the participants' accounts have been credited with an investment return equal to the New York prime rate of interest, compounded monthly.

        Participants are fully vested in their accounts at all times. The participant's account will be distributed to the participant (or the participant's beneficiary in the event of death) in periodic installments (at least annually) as elected by the participant or the participant's beneficiary. In the event the annual installment exceeds $10,000, the maximum distribution period will be ten years. In the event the participant's account is less than $10,000, distribution will be made in a lump sum. Distribution will be made within 60 days of a participant's normal or late retirement. In the event of termination of employment due to disability, distribution will be made within 60 days following the close of the plan year in which termination of employment occurs. In the event a participant terminates employment for any reason other than normal retirement, disability or death, distribution will commence within the later of 60 days following the close of the plan year in which the participant terminates employment or 60 days after the participant's election to commence payment is delivered to the plan administrator. In the event of a participant's death prior to termination of employment, the participant's account will be distributed to his or her beneficiary. If the participant dies after termination of employment but prior to the complete distribution of his account balance, the undistributed balance will be distributed to the participant's beneficiary in annual installments over three years unless the beneficiary elects otherwise.

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        In connection with the stock offering, the deferral compensation retirement plan will be amended to permit the directors to elect to invest their existing account balance in stock of PSB Holdings, Inc., in connection with the offering. A rabbi trust will be established and will hold the shares of stock acquired by the plan.

Executive Officer Compensation

        Summary Compensation Table.    The following table sets forth for the fiscal year ended June 30, 2003, certain information as to the total remuneration paid by Putnam Savings Bank to our Chief Executive Officer and each executive officer who received salary and bonus of $100,000 or more. No other executive officer received salary and bonus for fiscal 2003 in excess of $100,000.

		Annual Compensation(1)
Name and Principal Position	Fiscal Year	Salary($)		Bonus($)		Other Annual Compensation ($)	LTIP Payouts	All Other Compensation(2)
Robert G. Cocks, Jr. President and Chief Executive Officer	2003	$	147,788	$	20,590	—	—	$	11,246
John F. LaFountain Senior Vice President	2003	$	96,417	$	12,109	—	—	$	7,215
John T. Knierim Senior Vice President	2003	$	93,075	$	11,689	—	—	$	6,804

(1)

Summary compensation information is excluded for the fiscal years ended June 30, 2002 and 2001, as PSB Holdings, Inc. was not a public company during those periods.

(2)

Consists of profit sharing plan contributions of $8,867, $5,785 and $5,584, 401(k) plan contributions of $1,478, $964 and $931 and life insurance premiums paid by Putnam Savings Bank of $901, $466 and $289, on behalf of Messrs. Cocks, LaFountain and Knierim, respectively.

Benefit Plans

        Insurance Plan.    Putnam Savings Bank provides its full-time officers and employees with health and life insurance through Anthem Blue Cross & Blue Shield, Fort Dearborn Life Insurance Co., and GE Group Life Assurance Co.

        Deferred Compensation Retirement Plan.    Putnam Savings Bank maintains a deferred compensation retirement plan for the benefit of directors and employees designated by the board to participate in the plan. For a further discussion of the Deferred Compensation Retirement Plan, see "Management—Director Compensation—Deferred Compensation Retirement Plan."

        Incentive Plan.    Putnam Savings Bank maintains an incentive compensation plan for the benefit of its employees. The operation of the plan is predicated on attaining and exceeding management performance goals. The board of directors will formulate a rate of distribution for awards, based upon Putnam Savings Bank's performance, measured by the bank's return on equity and efficiency ratio. To be eligible for an award, a participant must be employed by April 1 of the plan year and must remain employed through the date of disbursement. Under the plan, incentive bonuses of up to 25% of salary may be paid to Putnam Savings Bank's President, up to 20% to other senior officers, up to 10% to 15% to other officers and employees.

Future Stock Benefit Plans

        Employee Stock Ownership Plan and Trust.    We intend to implement an employee stock ownership plan in connection with the offering. The Board of Directors of Putnam Savings Bank intends to adopt the employee stock ownership plan, and the Board of Directors of PSB Holdings, Inc. intends to

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approve the employee stock ownership loan, effective at the closing of the offering. Employees who are at least 21 years old with at least one year of employment with Putnam Savings Bank are eligible to participate. As part of the offering, the employee stock ownership plan trust intends to borrow funds from PSB Holdings, Inc. and use those funds to purchase a number of shares equal to 8% of the common stock issued in the offering (including shares issued to the Putnam Savings Foundation). Collateral for the loan will be the common stock purchased by the employee stock ownership plan. The loan will be repaid principally from Putnam Savings Bank discretionary contributions to the employee stock ownership plan over a period of up to 20 years. The loan documents will provide that the loan may be repaid over a shorter period, without penalty for prepayments. It is anticipated that the interest rate for the loan will be a floating rate equal to the prime rate. Shares purchased by the employee stock ownership plan will be held in a suspense account for allocation among participants as the loan is repaid.

        Contributions to the employee stock ownership plan and shares released from the suspense account in an amount proportional to the repayment of the employee stock ownership plan loan will be allocated among employee stock ownership plan participants on the basis of compensation in the year of allocation. Benefits under the plan will become fully vested upon completion of seven years of credited service, with credit given to participants for up to two years of credited service with Putnam Savings Bank's mutual predecessor prior to the adoption of the plan. A participant's interest in his account under the plan will also fully vest in the event of termination of service due to a participant's early or normal retirement, death, disability, or upon a change in control (as defined in the plan). Vested benefits will be payable in the form of common stock and/or cash. Putnam Savings Bank's contributions to the employee stock ownership plan are discretionary, subject to the loan terms and tax law limits. Therefore, benefits payable under the employee stock ownership plan cannot be estimated. Pursuant to SOP 93-6, we will be required to record compensation expense each year in an amount equal to the fair market value of the shares released from the suspense account. In the event of a change in control, the employee stock ownership plan will terminate.

        Stock Option Plan.    We may implement a stock option plan for our directors, officers and employees of PSB Holdings, Inc. and Putnam Savings Bank after the offering. Office of Thrift Supervision regulations prohibit us from implementing this plan until six months after the offering. If the stock option plan is implemented within the first 12 months after the offering, Office of Thrift Supervision regulations require that the plan be approved by a majority of the outstanding votes of PSB Holdings, Inc. eligible to be cast (excluding votes eligible to be cast by Putnam Bancorp, MHC). Pursuant to our Stock Issuance Plan and Office of Thrift Supervision regulations, in addition to shares awarded under one or more tax-qualified employee stock benefit plans, we may grant awards under one or more stock benefit plans, including the stock option plan, in an aggregate amount up to 25% of the common stock held by persons other than Putnam Bancorp, MHC.

        We expect that the stock option plan would authorize a committee of non-employee directors, or the full board, to grant options to purchase up to 10% of the shares issued in the offering (including shares issued to the Putnam Savings Foundation), although we may decide to adopt a stock option plan providing for greater or fewer stock option grants, if adopted after one year from the date of completion of the offering. The stock option plan will have a term of 10 years. The committee will decide which directors, officers and employees will receive options and the terms of those options. Generally, no stock option will permit its recipient to purchase shares at a price that is less than the fair market value of a share on the date the option is granted, and no option will have a term that is longer than 10 years. If we implement a stock option plan before the first anniversary of the offering, current regulations will require that:

•

non-employee directors in the aggregate may not receive more than 30% of the options authorized under the plan;

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•

any one non-employee director may not receive more than 5% of the options authorized under the plan;



•

any officer or employee may not receive more than 25% of the options authorized under the plan;



•

the options may not vest more rapidly than 20% per year, beginning on the first anniversary of stockholder approval of the plan; and



•

accelerated vesting is not permitted except for death, disability or upon a change in control of Putnam Savings Bank or PSB Holdings, Inc.

        PSB Holdings, Inc. may obtain the shares needed for this plan by issuing additional shares of common stock or through stock repurchases.

        Recognition and Retention Plan.    We may implement a recognition and retention plan for the directors, officers and employees of Putnam Savings Bank and PSB Holdings, Inc. after the offering. Office of Thrift Supervision regulations prohibit us from implementing this plan until six months after the offering. If the recognition plan is implemented within the first 12 months after the offering, Office of Thrift Supervision regulations require that the plan be approved by a majority of the outstanding votes of PSB Holdings, Inc. (excluding votes eligible to be cast by Putnam Bancorp, MHC). Pursuant to our stock issuance plan and Office of Thrift Supervision regulations, in addition to shares awarded under one or more tax-qualified employee stock benefit plans, we may grant awards under one or more stock benefit plans, including the recognition and retention plan, in an amount up to 25% of the common stock held by persons other than Putnam Bancorp, MHC. If adopted within one year from the date of completion of the offering, the initial recognition and retention plan would authorize awards of our common stock in an aggregate amount up to 4% of the shares issued in the offering (including shares issued to the Putnam Savings Foundation), and would be subject to such other limitations as may be imposed by the Office of Thrift Supervision. The recognition and retention plan may authorize awards of more than 4% of the shares issued in the offering (including shares issued to the Putnam Savings Foundation), if it is adopted after one year from the date of the completion of the offering.

        The committee will decide which directors, officers and employees will receive restricted stock and the terms of those awards. We may obtain the shares of common stock needed for this plan by issuing additional shares of common stock or through stock repurchases. If we implement a recognition and retention plan before the first anniversary of the offering, current regulations will require that:

•

all non-employee directors in the aggregate may not receive more than 30% of the shares authorized under the plan;



•

no non-employee director may receive more than 5% of the shares authorized under the plan;



•

no officer or employee may receive more than 25% of the shares authorized under the plan;



•

the awards may not vest more rapidly than 20% per year, beginning on the first anniversary of stockholder approval of the plan; and



•

accelerated vesting is not permitted except for death, disability or upon a change of control of Putnam Savings Bank or PSB Holdings, Inc.

        Restricted stock awards under this plan may contain restrictions that require continued employment for a period of time for the award to be vested. Awards are not vested unless the specified employment requirements are satisfied. However, pending vesting, the award recipient may have voting and dividend rights. When an award becomes vested, the recipient must include the current fair market value of the vested shares in his or her income for federal income tax purposes. We will be allowed a federal income tax deduction in the same amount. We will have to recognize compensation expense for

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accounting purposes ratably over the vesting period, equal to the fair market value of the shares on the original award date.

Transactions with Certain Related Persons

        In the ordinary course of business, Putnam Savings Bank makes loans available to its directors, officers and employees. These loans are made in the ordinary course of business on substantially the same terms, including interest rate and collateral, as comparable loans to other borrowers. Management believes that these loans neither involve more than the normal risk of collectibility nor present other unfavorable features. Federal regulations permit executive officers and directors to participate in loan programs that are available to other employees, as long as the director or executive officer is not given preferential treatment compared to other participating employees. Loans made to directors or executive officers, including any modification of such loans, must be approved by a majority of disinterested members of the Board of Directors. The interest rate on loans to directors and officers is the same as that offered to other employees.

        Putnam Savings Bank utilizes the insurance services of J.A. Archambault & Sons, Inc. and Leschke-Puffer Insurance Agency. Messrs. Archambault and Puffer are directors of Putnam Savings Bank and principals of each of their respective insurance agencies. Total premiums, commissions and fees received by J.A. Archambault & Sons, Inc. and Leschke-Puffer Insurance Agency for insurance policies underwritten on behalf of Putnam Savings Bank totaled $15,302 and $3,026, respectively, for the nine months ended March 31, 2004 and $109,580 and $13,400, respectively, for the fiscal year ended June 30, 2003.

Participation By Management in the Offering

        The following table sets forth information regarding intended common stock purchases by each of the directors and executive officers of Putnam Savings Bank and their associates, and by all directors and executive officers as a group. These purchases of common stock are for investment purposes and not for resale. In the event the individual maximum purchase limitation is increased, persons subscribing for the maximum amount may increase their purchase order. Directors and executive officers will purchase shares of common stock at the same $10.00 purchase price per share and on the same terms as other purchasers in the offering. This table excludes shares of common stock to be purchased by the employee stock ownership plan, as well as any recognition and retention plan awards or stock option grants that may be made no earlier than six months after the completion of the offering. The directors and officers have indicated their intention to purchase in the offering an aggregate of $2.5 million of common stock, equal to 12.5%, 10.6%, 9.2% and 8.0% of the number of

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shares of common stock to be sold in the offering, at the minimum, midpoint, maximum and adjusted maximum of the estimated valuation range, respectively.

Name	Aggregate Purchase Price(1)		Number of Shares(1)	Percent at Midpoint
Thomas A. Borner	$	500,000	50,000	2.1	%
Robert G. Cocks, Jr.		500,000	50,000	2.1
A. Leon Archambault		150,000	15,000	0.6
Maurice P. Beaulac		250,000	25,000	1.1
Paul M. Kelly		250,000	25,000	1.1
Richard A. Loomis		250,000	25,000	1.1
Wilbur D. Neumann		135,000	13,500	0.6
Mary E. Patenaude		100,000	10,000	0.4
Charles H. Puffer		250,000	25,000	1.1
John T. Knierim		10,000	1,000	0.04
John F. LaFountain		25,000	2,500	0.1
Anthony J. Serio		50,000	5,000	0.2
Lynn K. Brodeur		10,000	1,000	0.04
All directors and executive officers as a group	$	2,480,000	248,000	10.6	%

(1)

Includes purchases by the individual's spouse and other relatives of the named individual living in the same household. The above named individuals are not aware of any other purchases by a person who, or entity which would be considered an associate of the named individuals under the Stock Issuance Plan.

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THE STOCK OFFERING

The Board of Directors of PSB Holdings, Inc. and the Office of Thrift Supervision have approved the plan, subject to the satisfaction of certain conditions imposed by the Office of Thrift Supervision in its approval. Office of Thrift Supervision approval does not constitute a recommendation or endorsement of the plan by the Office of Thrift Supervision.

General

        On April 7, 2004, our Board of Directors unanimously adopted the plan pursuant to which PSB Holdings, Inc. will sell shares of its common stock to depositors of Putnam Savings Bank and certain other persons, and issue shares of its common stock to Putnam Bancorp, MHC. After the stock offering, purchasers in the offering will own 44.5% of PSB Holdings, Inc.'s outstanding shares of common stock, and Putnam Bancorp, MHC will own 53.7% of PSB Holdings, Inc.'s outstanding shares of common stock. In addition, we intend to issue shares of common stock, equal to 4% of the shares being offered for sale, to a charitable foundation to be established by Putnam Savings Bank.

        The aggregate price of the shares of common stock sold in the offering will be within the offering range. The offering range of between $19.9 million and $26.9 million has been established by the Board of Directors, based upon an independent appraisal of the estimated pro forma market value of the common stock of PSB Holdings, Inc. The appraisal was prepared by RP Financial, LC, a consulting firm experienced in the valuation and appraisal of savings institutions. All shares of common stock to be sold in the offering will be sold at the same price per share. The independent appraisal will be affirmed or, if necessary, updated at the completion of the offering. See "How We Determined Stock Pricing and the Number of Shares to be Issued" for additional information as to the determination of the estimated pro forma market value of the common stock.

        The following is a brief summary of all material aspects of the stock offering. Prospective purchasers should also carefully review the terms of the stock issuance plan. A copy of the stock issuance plan is available from Putnam Savings Bank upon request and is available for inspection at the offices of Putnam Savings Bank and at the Office of Thrift Supervision. The plan is also filed as an exhibit to the Registration Statement of which this prospectus is a part, copies of which may be obtained from the Securities and Exchange Commission. See "Where You Can Find More Information" on page     .

Reasons for the Stock Offering

        The proceeds from the sale of common stock of PSB Holdings, Inc. will provide Putnam Savings Bank with additional capital, which may be used to support future growth, internally or through acquisitions. The stock offering will also enable PSB Holdings, Inc. and Putnam Savings Bank to increase their capital in response to any future regulatory capital requirements. Although Putnam Savings Bank currently exceeds all regulatory capital requirements, the sale of common stock will assist Putnam Savings Bank with the orderly preservation and expansion of its capital base and will provide flexibility to respond to sudden and unanticipated capital needs.

        In addition, since Putnam Savings Bank competes with local and regional banks not only for customers, but also for employees, we believe that the stock offering also will afford us the opportunity to attract and retain management and employees through various stock benefit plans, including incentive stock option plans, restricted stock plans and an employee stock ownership plan.

        After completion of the stock offering, the unissued common and preferred stock authorized by PSB Holdings, Inc.'s Charter, as well as any treasury shares that may have been repurchased, will permit PSB Holdings, Inc. to raise additional equity capital through further sales of securities and may

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permit PSB Holdings, Inc. to issue securities in connection with possible acquisitions, subject to market conditions and any required regulatory approval. PSB Holdings, Inc. currently has no plans with respect to additional offerings of securities.

        The stock offering proceeds will provide additional flexibility to grow through acquisitions of other financial institutions or other businesses. Although there are no current arrangements, understandings or agreements, written or oral, regarding any such opportunities, PSB Holdings, Inc. will be in a position after the stock offering to take advantage of any such favorable opportunities that may arise. See "How We Intend to Use the Proceeds from the Offering" on page    for a description of our intended use of proceeds.

        After considering the advantages and disadvantages of the stock offering, as well as applicable fiduciary duties, the Board of Directors of PSB Holdings, Inc. unanimously approved the stock offering as being in the best interests of PSB Holdings, Inc., Putnam Savings Bank, and Putnam Savings Bank's depositors and the communities we serve.

Offering of Common Stock

        Under the stock issuance plan, up to 2,686,688 shares of PSB Holdings, Inc. common stock will be offered for sale, subject to certain restrictions described below, through a subscription and community offering.

        Subscription Offering.    The subscription offering will expire at 5:00 p.m., Connecticut time, on                        , 2004, unless otherwise extended by Putnam Savings Bank and PSB Holdings, Inc. Regulations of the Office of Thrift Supervision require that all shares to be offered in the offering be sold within a period ending not more than 90 days after Office of Thrift Supervision approval of the use of the prospectus or a longer period as may be approved by the Office of Thrift Supervision, or the offering will not be effected. This period expires on                        , 2004, unless extended with the approval of the Office of Thrift Supervision. If the offering is not completed by                        , 2004, all subscribers will have the right to modify or rescind their subscriptions and to have their subscription funds returned promptly with interest. In the event of an extension of this type, all subscribers will be notified in writing of the time period within which subscribers must notify Putnam Savings Bank of their intention to maintain, modify or rescind their subscriptions. If the subscriber rescinds or does not respond in any manner to Putnam Savings Bank's notice, the funds submitted will be refunded to the subscriber with interest at Putnam Savings Bank's current savings rate, and/or the subscriber's withdrawal authorizations will be terminated. In the event that the offering is not completed, all funds submitted and not previously refunded pursuant to the subscription and community offering will be promptly refunded to subscribers with interest at Putnam Savings Bank's current savings rate, and all withdrawal authorizations will be terminated.

        Subscription Rights.    Under the stock issuance plan, nontransferable subscription rights to purchase the shares of common stock have been issued to persons and entities entitled to purchase the shares of common stock in the subscription offering. The amount of shares of common stock which these parties may purchase will depend on the availability of the common stock for purchase under the categories described in the stock issuance plan. Subscription priorities have been established for the allocation of common stock to the extent that the common stock is available. These priorities are as follows:

        Category 1: Eligible Account Holders.    Subject to the maximum purchase limitations, each depositor with $50.00 or more on deposit at Putnam Savings Bank, as of the close of business on March 31, 2003, will receive nontransferable subscription rights to subscribe for up to the greater of the following:

(i)

$250,000 of common stock;

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(ii)

one-tenth of one percent of the total offering of common stock (excluding shares held by Putnam Bancorp, MHC); or



(iii)

15 times the product, rounded down to the nearest whole number, obtained by multiplying the total number of shares of common stock to be issued by a fraction, the numerator of which is the amount of the qualifying deposit of the eligible account holder and the denominator is the total amount of qualifying deposits of all eligible account holders.

        If the exercise of subscription rights in this category results in an oversubscription, shares of common stock will be allocated among subscribing eligible account holders so as to permit each one, to the extent possible, to purchase a number of shares sufficient to make the person's total allocation equal to 100 shares or the number of shares actually subscribed for, whichever is less. Thereafter, unallocated shares will be allocated among the remaining subscribing eligible account holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to the total amount of qualifying deposits of all remaining eligible account holders whose subscriptions remain unfilled; however, no fractional shares shall be issued. If the amount so allocated exceeds the amount subscribed for by any one or more eligible account holders, the excess shall be reallocated, one or more times as necessary, among those eligible account holders whose subscriptions are still not fully satisfied on the same principle until all available shares have been allocated or all subscriptions satisfied. Subscription rights received by officers and directors in this category based on their increased deposits in Putnam Savings Bank in the one-year period preceding March 31, 2003 are subordinated to the subscription rights of other eligible account holders.

        Category 2: Tax-Qualified Employee Plans.    The stock issuance plan provides that tax-qualified employee plans of Putnam Bancorp, MHC, PSB Holdings, Inc., or Putnam Savings Bank, such as the employee stock ownership plan, shall receive nontransferable subscription rights to purchase up to 10% of the shares of common stock issued in the offering. The employee stock ownership plan intends to purchase 8% of the shares of common stock issued in the offering (including shares issued to the Putnam Savings Foundation). In the event the number of shares offered in the offering is increased above the maximum of the valuation range, tax-qualified employee plans will have a priority right to purchase any shares exceeding that amount up to 10% of the common stock. If the employee stock ownership plan's subscription is not filled in its entirety, the employee stock ownership plan may purchase shares of common stock in the open market or may purchase shares of common stock directly from PSB Holdings, Inc.

        Category 3: Supplemental Eligible Account Holders.    To the extent that there are sufficient shares of common stock remaining after satisfaction of subscriptions by eligible account holders and the tax-qualified employee plans, and subject to the maximum purchase limitations, each depositor with $50.00 or more on deposit, as of the close of business on June 30, 2004, will receive nontransferable subscription rights to subscribe for up to the greater of:

(i)

$250,000 of common stock;



(ii)

one-tenth of one percent of the total offering of common stock; or



(iii)

15 times the product, rounded down to the nearest whole number, obtained by multiplying the total number of shares of common stock to be issued by a fraction, the numerator of which is the amount of qualifying deposits of the supplemental eligible account holder and the denominator is the total amount of qualifying deposits of all supplemental eligible account holders.

        If the exercise of subscription rights in this category results in an oversubscription, shares of common stock will be allocated among subscribing supplemental eligible account holders so as to permit each supplemental eligible account holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation equal to 100 shares or the number of shares

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actually subscribed for, whichever is less. Thereafter, unallocated shares will be allocated among subscribing supplemental eligible account holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to total qualifying deposits of all subscribing supplemental eligible account holders.

        Category 4: Employees, Officers and Directors.    To the extent that shares remain available for purchase after satisfaction of all subscriptions of the Eligible Account Holders, Tax-Qualified Employee Plans and Supplemental Eligible Account Holders, employees, officers and directors of Putnam Savings Bank or PSB Holdings, Inc. shall have the opportunity to purchase up to $250,000 of the common stock offered; provided that PSB Holdings, Inc. may, in its sole discretion, and without further notice to or solicitation of subscribers or other prospective purchasers, increase such maximum purchase limitation to 5% of the maximum number of shares offered or decrease such maximum purchase limitation to 0.1% of the maximum number of shares offered, subject to the overall purchase limitations as set forth below. In the event that employees, officers and directors subscribe for a number of shares, which, when added to the shares subscribed for by Eligible Account Holders, Tax-Qualified Employee Plans and Supplemental Eligible Account Holders is in excess of the total shares offered, the subscriptions of such persons will be allocated among employees, officers and directors on a pro rata basis based on the size of each person's order.

        PSB Holdings, Inc. will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for shares of common stock pursuant to the stock issuance plan reside. However, no shares of common stock will be offered or sold under the stock issuance plan to any person who resides in a foreign country or resides in a state of the United States in which a small number of persons otherwise eligible to subscribe for shares under the stock issuance plan reside or as to which PSB Holdings, Inc. determines that compliance with the securities laws of the state would be impracticable for reasons of cost or otherwise, including, but not limited to, a requirement that PSB Holdings, Inc. or any of its officers, directors or employees register, under the securities laws of the state, as a broker, dealer, salesman or agent. No payments will be made in lieu of the granting of subscription rights to any person.

        Community Offering.    Any shares of common stock which remain unsubscribed for in the subscription offering will be offered by PSB Holdings, Inc. in a community offering to members of the general public to whom PSB Holdings, Inc. delivers a copy of this prospectus and a stock order form, with preference given to natural persons residing in Windham County, Connecticut. Subject to the maximum purchase limitations, these persons, may purchase up to $250,000 of common stock. The community offering, if any, may be undertaken concurrent with, during, or promptly after the subscription offering, and may terminate at any time without notice, but may not terminate later than                         , 2004, unless extended by PSB Holdings, Inc. and Putnam Savings Bank. Subject to any required regulatory approvals, PSB Holdings, Inc. will determine the advisability of a community offering, the commencement and termination dates of any community offering, and the methods of finding potential purchasers in such offering, in its discretion based upon market conditions. The opportunity to subscribe for shares of common stock in the community offering category is subject to the right of PSB Holdings, Inc. and Putnam Savings Bank, in their sole discretion, to accept or reject these orders in whole or in part either at the time of receipt of an order or as soon as practicable thereafter.

        If there are not sufficient shares of common stock available to fill orders in the community offering, the shares of common stock will be allocated first to each natural person residing in Windham County, Connecticut whose order is accepted by PSB Holdings, Inc., in an amount equal to the lesser of 1,000 shares of common stock or the number of shares of common stock subscribed for by each subscriber residing in Windham County, Connecticut, if possible. Thereafter, unallocated shares of common stock will be allocated among the subscribers residing in Windham County, Connecticut whose orders remain unsatisfied, in the same proportion that the unfilled subscription of each bears to the

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total unfilled subscriptions of all subscribers residing in Windham County, Connecticut whose subscription remains unsatisfied. In the event orders for common stock in any of these categories exceed the number of shares available for sale, shares may be allocated on a pro rata basis within a category based on the amount of the respective orders. In addition, orders received for common stock in the community offering or any syndicated community offering shall first be filled up to a maximum of two percent (2%) of the shares sold and thereafter, remaining shares will be allocated on an equal number of shares basis per order until all orders are filled.

        Syndicated Community Offering.    All shares of common stock not purchased in the subscription and community offerings, if any, may be offered for sale to the general public in a syndicated community offering through a syndicate of registered broker-dealers to be formed and managed by Keefe, Bruyette & Woods, Inc. PSB Holdings, Inc. and Putnam Savings Bank have the right to reject orders in whole or part in their sole discretion in the syndicated community offering. Neither Keefe, Bruyette & Woods, Inc. nor any registered broker-dealer shall have any obligation to take or purchase any shares of common stock in the syndicated community offering; however, in the event Keefe, Bruyette & Woods, Inc. agrees to participate in a syndicated community offering, it will use its best efforts in the sale of shares of common stock in the syndicated community offering.

        The price at which shares of common stock are sold in the syndicated community offering will be the same price as in the subscription and community offerings. Subject to the overall purchase limitations, no person by himself or herself may subscribe for or purchase more than $250,000 or 25,000 shares of common stock.

        Keefe, Bruyette & Woods, Inc. may enter into agreements with selected dealers to assist in the sale of the shares of common stock in the syndicated community offering. No orders may be placed or filled by or for a selected dealer during the subscription offering. After the close of the subscription offering, Keefe, Bruyette & Woods, Inc. will instruct selected dealers as to the number of shares of common stock to be allocated to each selected dealer. Only after the close of the subscription offering and upon allocation of shares to selected dealers may selected dealers take orders from their customers. During the subscription and community offerings, selected dealers may only solicit indications of interest from their customers to place orders with PSB Holdings, Inc. as of a certain order date for the purchase of shares of common stock. When and if PSB Holdings, Inc., in consultation with Keefe, Bruyette & Woods, Inc., believes that enough indications of interest and orders have not been received in the subscription and community offerings to consummate the offering, it will instruct Keefe, Bruyette & Woods, Inc. to request, as of the order date, selected dealers to submit orders to purchase shares for which they have previously received indications of interest from their customers. Selected dealers will send confirmations of the orders to customers on the next business day after the order date. Selected dealers will debit the accounts of their customers on the settlement date, which date will be three business days from the order date. Customers who authorize selected dealers to debit their brokerage accounts are required to have the funds for payment in their account on but not before the settlement date. On the settlement date, selected dealers will remit funds to the account established by Putnam Savings Bank for each selected dealer. Each customer's funds so forwarded to Putnam Savings Bank, along with all other accounts held in the same title, will be insured by the FDIC up to $100,000 in accordance with applicable FDIC regulations. After payment has been received by Putnam Savings Bank from selected dealers, funds will earn interest at Putnam Savings Bank's passbook rate until the completion or termination of the offering. Funds will be promptly returned, with interest, in the event the offering is not completed as described above.

        The syndicated community offering will terminate no more than 45 days following the subscription expiration date, unless extended by PSB Holdings, Inc. and Putnam Savings Bank with the approval of the Office of Thrift Supervision.

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        Limitations on Purchase of Shares.    The plan provides for certain limitations on the purchase of shares of common stock in the offering. These limitations are as follows:

A.

The aggregate amount of outstanding common stock of PSB Holdings, Inc. owned or controlled by persons other than Putnam Bancorp, MHC, at the close of the offering shall be less than 50% of PSB Holdings, Inc.'s total outstanding common stock.



B.

The maximum purchase of common stock in the subscription offering by a person or group of persons through a single deposit account is $250,000. No person by himself, or with an associate or group of persons acting in concert, may purchase more than $500,000 of the common stock offered in the offering, except that: (i) PSB Holdings, Inc. may, in its sole discretion and without further notice to or solicitation of subscribers or other prospective purchasers, increase such maximum purchase limitation to 5% of the number of shares offered in the offering; (ii) the tax-qualified employee plans may purchase up to 10% of the shares offered in the offering; and (iii) shares to be held by any tax-qualified employee plan and attributable to a person shall not be aggregated with other shares purchased directly by or otherwise attributable to such person.



C.

The aggregate amount of common stock acquired in the offering, plus all prior issuances by PSB Holdings, Inc., by any non-tax-qualified employee plan or any management person and his or her associates, exclusive of any shares of common stock acquired by such plan or management person and his or her associates in the secondary market, shall not exceed 4.9% of the outstanding shares of common stock of PSB Holdings, Inc. at the conclusion of the offering. In calculating the number of shares held by any management person and his or her associates under this paragraph, shares held by any tax-qualified employee plan or non-tax-qualified employee plan of PSB Holdings, Inc. or Putnam Savings Bank that are attributable to such person shall not be counted.



D.

The aggregate amount of common stock acquired in the offering, plus all prior issuances by PSB Holdings, Inc., by one or more non-tax-qualified employee plan exclusive of any common stock acquired by such plan or management person and his or her associates in the secondary market, shall not exceed 4.9% of the stockholders' equity of PSB Holdings, Inc. at the conclusion of the offering. In calculating the number of shares held by any management person and his or her associates under this paragraph, shares held by any tax-qualified employee plan or non-tax-qualified employee plan of PSB Holdings, Inc. or Putnam Savings Bank that are attributable to such person shall not be counted.



E.

The aggregate amount of common stock acquired in the offering, plus all prior issuances by PSB Holdings, Inc., by any one or more tax-qualified employee plans, exclusive of any shares of common stock acquired by such plans in the secondary market, shall not exceed 4.9% of the outstanding shares of common stock of PSB Holdings, Inc. at the conclusion of the offering.



F.

The aggregate amount of common stock acquired in the offering, plus all prior issuances by PSB Holdings, Inc., by any one or more tax-qualified employee plans, exclusive of any shares of common stock acquired by such plans in the secondary market, shall not exceed 4.9% of the stockholders' equity of PSB Holdings, Inc. at the conclusion of the offering.



G.

The aggregate amount of common stock acquired in the offering, plus all prior issuances by PSB Holdings, Inc., by all stock benefit plans of PSB Holdings, Inc. or Putnam Savings Bank, other than employee stock ownership plans, shall not exceed 25% of the outstanding common stock of PSB Holdings, Inc. held by persons other than the Putnam Bancorp, MHC.



H.

The aggregate amount of common stock acquired in the offering, plus all prior issuances by PSB Holdings, Inc., by all non-tax-qualified employee plans or management persons and their

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associates, exclusive of any common stock acquired by such plans or management persons and their associates in the secondary market, shall not exceed 25% of the outstanding shares of common stock held by persons other than Putnam Bancorp, MHC, at the conclusion of the offering. In calculating the number of shares held by management persons and their associates under this paragraph or the next paragraph shares held by any tax-qualified employee plan or non-tax-qualified employee plan that are attributable to such persons shall not be counted.

I.

The aggregate amount of common stock acquired in the offering, plus all prior issuances by PSB Holdings, Inc., by all non-tax-qualified employee plans or management persons and their associates, exclusive of any common stock acquired by such plans or management persons and their associates in the secondary market, shall not exceed 25% of the stockholders' equity of PSB Holdings, Inc. held by persons other than Putnam Bancorp, MHC, at the conclusion of the offering.



J.

Notwithstanding any other provision of the stock issuance plan, no person shall be entitled to purchase any common stock to the extent such purchase would be illegal under any federal law or state law or regulation or would violate regulations or policies of the National Association of Securities Dealers, Inc. ("NASD"), particularly those regarding free riding and withholding. PSB Holdings, Inc. and/or its agents may ask for an acceptable legal opinion from any purchaser as to the legality of such purchase and may refuse to honor any purchase order if such opinion is not timely furnished.



K.

The Board of Directors of PSB Holdings, Inc. has the right in its sole discretion to reject any order submitted by a person whose representations the Board of Directors believes to be false or who it otherwise believes, either alone or acting in concert with others, is violating, circumventing, or intends to violate, evade or circumvent the terms and conditions of the stock issuance plan.



L.

A minimum of 25 shares of common stock must be purchased by each person purchasing shares in the offering to the extent those shares are available; provided, however, that in the event the minimum number of shares of common stock purchased times the price per share exceeds $500, then such minimum purchase requirement shall be reduced to such number of shares which when multiplied by the price per share shall not exceed $500, as determined by the Board of Directors.

        For purposes of the plan, the members of the Board of Directors are not deemed to be acting in concert solely by reason of their board membership. The term "associate" is used above to indicate any of the following relationships with a person:

•

any corporation or organization, other than Putnam Bancorp, MHC, PSB Holdings, Inc. or Putnam Savings Bank or a majority-owned subsidiary of PSB Holdings, Inc. or Putnam Savings Bank, of which a person is a senior officer or partner, or beneficially owns, directly or indirectly, 10% or more of any class of equity securities of the corporation or organization;



•

any trust or other estate if the person has a substantial beneficial interest in the trust or estate or is a trustee or fiduciary of the estate. For purposes of Office of Thrift Supervision Regulations Sections 563b.370, 563b.380, 563b.385, 563b.390, 563b.395 and 563b.505, a person who has a substantial beneficial interest in a tax-qualified or non-tax-qualified employee plan, or who is a trustee or fiduciary of the plan is not an associate of the plan. For purposes of Section 563b.370 of the Office of Thrift Supervision Regulations, a tax-qualified employee plan is not an associate of a person;



•

any person who is related by blood or marriage to such person and (i) who lives in the same house as the person; or (ii) who is a director or senior officer of Putnam Bancorp, MHC, PSB Holdings, Inc. or Putnam Savings Bank or a subsidiary thereof; and

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•

any person acting in concert with the persons or entities specified above.

        As used above, the term "acting in concert" means:

•

knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement;



•

a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise; or



•

a person or company which acts in concert with another person or company ("other party") shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any tax-qualified employee plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated.

        Persons or companies who file jointly a Schedule 13D or Schedule 13G with any regulatory agency will be deemed to be acting in concert.

        The Boards of Directors of PSB Holdings, Inc. and Putnam Savings Bank may, in their sole discretion, increase the maximum purchase limitation up to 5.0% of the shares being offered in the offering or decrease it to 0.10% of the shares offered in the offering. Requests to purchase shares of PSB Holdings, Inc. common stock under this provision will be allocated by the boards of directors in accordance with the priority rights and allocation procedures set forth above. Depending upon market and financial conditions, and subject to certain regulatory limitations, the boards of directors of PSB Holdings, Inc. and Putnam Savings Bank, with the approval of the Office of Thrift Supervision and without further approval of the members, may increase or decrease any of the above purchase limitations at any time. To the extent that shares are available, each subscriber must subscribe for a minimum of 25 shares. In computing the number of shares of common stock to be allocated, all numbers will be rounded down to the next whole number.

        Shares of common stock purchased in the offering will be freely transferable except for shares of common stock purchased by executive officers and directors of Putnam Savings Bank or PSB Holdings, Inc. and except as described below. In addition, under NASD guidelines, members of the NASD and their associates are subject to certain restrictions on transfer of securities purchased in accordance with subscription rights and to certain reporting requirements upon purchase of these securities.

Tax Effects of the Stock Offering

        We have received an opinion from our special counsel, Luse Gorman Pomerenk & Schick, P.C., Washington, D.C., as to the material federal income tax consequences of the stock offering on Putnam Savings Bank and PSB Holdings, Inc., and as to the generally applicable material federal income tax consequences of the stock offering on our account holders and persons who purchase common stock in the stock offering. This opinion is based, among other things, on factual representations made by us, on certain assumptions stated in the opinion, and on the Internal Revenue Code, regulations now in effect or proposed, current administrative rulings, practices and judicial authority, all of which are subject to change (which change may be made with retroactive effect). This opinion has been included as an

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exhibit to our registration statement filed with the Securities and Exchange Commission, of which this prospectus is a part. The opinion provides, among other things, that:

1.

we will not recognize gain or loss upon the exchange by our mutual holding company of the shares of our common stock that it presently holds for the shares of our common stock that will be issued to it in connection with our stock offering;



2.

no gain or loss or taxable income will be recognized by eligible account holders or supplemental eligible account holders upon the distribution to them or their exercise of nontransferable subscription rights to purchase our common stock;



3.

it is more likely than not that the tax "basis" of our common stock to persons who purchase shares in the stock offering will be the purchase price thereof, and that their holding period for the shares will commence upon the consummation of the stock offering; and



4.

no gain or loss will be recognized by us on our receipt of cash in exchange for our common stock sold in the stock offering.

        The tax opinions as to items 2 and 3 above are based on the position that subscription rights to be received by eligible account holders and supplemental eligible account holders do not have any economic value at the time of distribution or at the time the subscription rights are exercised. In this regard, Luse Gorman Pomerenk & Schick, P.C. noted that the subscription rights will be granted at no cost to the recipients, are legally non-transferable and of short duration, and will provide the recipient with the right only to purchase shares of common stock at the same price to be paid by members of the general public in any community offering. The firm also noted that the Internal Revenue Service has not in the past concluded that subscription rights have value. However, as stated in the opinion, the issue of whether or not the nontransferable subscription rights have value is based on all the facts and circumstances. If the nontransferable subscription rights granted to eligible subscribers are subsequently found to have an ascertainable value greater than zero, income may be recognized by various recipients of the nontransferable subscription rights (in certain cases, whether or not the rights are exercised) and we could recognize gain on the distribution of the nontransferable subscription rights.

        The opinion of Luse Gorman Pomerenk & Schick, P.C., unlike a letter ruling issued by the Internal Revenue Service, is not binding on the Internal Revenue Service and the conclusions expressed therein may be challenged at a future date. The Internal Revenue Service has issued favorable rulings for transactions substantially similar to the stock offering, but any such ruling may not be cited as precedent by any taxpayer other than the taxpayer to whom the ruling is addressed. We do not plan to apply for a letter ruling concerning the transactions described herein.

        We also have received an opinion from Snyder & Haller, PC, that the Connecticut state income tax consequences of the proposed transaction are consistent with the federal income tax consequences.

        We also have received a letter from RP Financial, LC. stating its belief that the subscription rights do not have any ascertainable fair market value and that the price at which the subscription rights are exercisable will not be more or less than the fair market value of the shares on the date of the exercise. This position is based on the fact that these rights are acquired by the recipients without cost, are nontransferable and of short duration, and afford the recipients the right only to purchase the common stock at the same price as will be paid by members of the general public in any community offering.

        If the subscription rights granted to eligible account holders and supplemental eligible account holders are deemed to have an ascertainable value, receipt of these rights could result in taxable gain to those eligible account holders and supplemental eligible account holders who exercise the subscription rights in an amount equal to the ascertainable value, and we could recognize gain on a distribution. Eligible account holders and supplemental eligible account holders are encouraged to

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consult with their own tax advisors as to the tax consequences in the event that subscription rights are deemed to have an ascertainable value.

Restrictions on Transferability of Subscription Rights

        Subscription rights are nontransferable. PSB Holdings, Inc. may reasonably investigate to determine compliance with this restriction. Persons selling or otherwise transferring their rights to subscribe for shares of common stock in the subscription offering or subscribing for shares of common stock on behalf of another person may forfeit those rights and may face possible further sanctions and penalties imposed by the Office of Thrift Supervision or another agency of the United States Government. Putnam Savings Bank and PSB Holdings, Inc. will pursue any and all legal and equitable remedies in the event they become aware of the transfer of subscription rights and will not honor orders known by them to involve the transfer of these rights. Each person exercising subscription rights will be required to certify that he or she is purchasing shares solely for his or her own account and that he or she has no agreement or understanding with any other person for the sale or transfer of the shares of common stock. In addition, joint stock registration will be allowed only if the qualifying account is so registered. Once tendered, subscription orders cannot be revoked without the consent of Putnam Savings Bank and PSB Holdings, Inc.

Plan of Distribution and Marketing Arrangements

        Offering materials for the offering initially have been distributed to certain persons by mail, with additional copies made available through our Stock Information Center and Keefe, Bruyette & Woods, Inc. All prospective purchasers must send payment directly to Putnam Savings Bank, where such funds will be held in a segregated savings account and not released until the offering is completed or terminated.

        To assist in the marketing of the common stock, we have retained Keefe, Bruyette & Woods, Inc., which is a broker-dealer registered with the NASD. Keefe, Bruyette & Woods, Inc. will assist us in the offering as follows: (i) in training and educating our employees regarding the mechanics of the offering; (ii) in conducting informational meetings for employees, customers and the general public; (iii) in coordinating the selling efforts in our local communities; and (iv) in soliciting orders for shares of common stock in the subscription and community offering. For these services, Keefe, Bruyette & Woods will receive a management fee of $40,000 and a success fee equal to 1.0% of the dollar amount of shares of common stock sold in the subscription and community offerings. The success fee will be reduced by the management fee. No fee will be payable to Keefe, Bruyette & Woods, Inc. with respect to shares purchased by officers, directors and employees or their immediate families, shares purchased by our tax-qualified and non-qualified employee benefit plans, and shares issued to the charitable foundation currently estimated to total 493,152 shares, 579,500 shares and 629,150 shares at the minimum, maximum and adjusted maximum of the offering range, respectively. If there is a syndicated offering, Keefe, Bruyette & Woods, Inc. will receive a fee in an amount competitive with gross underwriting discounts charged at such time for underwritings of comparable amounts of common stock sold at a comparable price per share in a similar market environment. However, the total fees payable to Keefe, Bruyette & Woods, Inc. and other NASD member firms in the syndicated offering shall not exceed 5.5% of the aggregate dollar amount of the common stock sold in the syndicated community offering.

        We also will reimburse Keefe, Bruyette & Woods, Inc. for its reasonable out-of-pocket expenses associated with its marketing effort and for attorney's fees in an amount not to exceed $45,000. We will indemnify Keefe, Bruyette & Woods, Inc. against liabilities and expenses (including legal fees) incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering material for the common stock, including liabilities under the Securities Act of 1933.

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        Our directors and executive officers may participate in the solicitation of offers to purchase shares of common stock. Other trained employees may participate in the offering in ministerial capacities, providing clerical work in effecting a sales transaction or answering questions of a ministerial nature. Other questions of prospective purchasers will be directed to executive officers or registered representatives. We will rely on Rule 3a4-1 of the Exchange Act, so as to permit officers, directors, and employees to participate in the sale of shares of common stock. No officer, director or employee will be compensated for his participation by the payment of commissions or other remuneration based either directly or indirectly on the transactions in the common stock. Keefe, Bruyette & Woods, Inc. will solicit orders and conduct sales of the common stock of PSB Holdings, Inc. in states in which our directors and executive officers are not permitted to offer and sell our common stock.

How We Determined Stock Pricing and the Number of Shares to be Issued

        The stock issuance plan and federal regulations require that the aggregate purchase price of the common stock sold in the offering be based on the appraised pro forma market value of the common stock, as determined on the basis of an independent valuation. We retained RP Financial, LC to make the independent valuation. RP Financial, LC will receive a fee of $23,500, which amount does not include a fee of $6,000 to be paid to RP Financial, LC for assistance in the preparation of a business plan. We have agreed to indemnify RP Financial, LC and its employees and affiliates against certain losses (including any losses in connection with claims under the federal securities laws) arising out of its services as appraiser, except where RP Financial, LC's liability results from its negligence or bad faith.

        The independent valuation was prepared by RP Financial, LC in reliance upon the information contained in this prospectus, including the financial statements. RP Financial, LC also considered the following factors, among others:

•

the present and projected operating results and financial condition of Putnam Savings Bank and the economic and demographic conditions in our existing market area;



•

historical, financial and other information relating to Putnam Savings Bank;



•

a comparative evaluation of the operating and financial statistics of Putnam Savings Bank with those of other publicly traded subsidiaries of holding companies;



•

the aggregate size of the offering;



•

the impact of the offering on our stockholders' equity and earnings potential;



•

the proposed dividend policy of PSB Holdings, Inc.;



•

the trading market for securities of comparable institutions and general conditions in the market for such securities; and



•

the issuance of shares to the charitable foundation.

        On the basis of the foregoing, RP Financial, LC advised us that as of May 21, 2004, the estimated pro forma market value of the common stock on a fully converted basis ranged from a minimum of $44.6 million to a maximum of $60.4 million, with a midpoint of $52.5 million (the estimated valuation range). The board determined to offer the shares of common stock in the offering at the purchase price of $10.00 per share and that 44.5% of the shares issued should be held by purchasers in the offering and 53.7% should be held by Putnam Bancorp, MHC, after giving effect to the issuance of shares to Putnam Savings Foundation. Based on the estimated valuation range and the purchase price of $10.00 per share, the number of shares of common stock that PSB Holdings, Inc. will issue to our mutual holding company will range from 2,397,254 shares to 3,243,344 shares, with a midpoint of 2,820,300 shares, and the number of shares sold in the offering will range from 1,985,813 shares to 2,686,688 shares, with a midpoint of 2,336,250 shares.

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        The board reviewed the independent valuation and, in particular, considered (i) our financial condition and results of operations for the nine months ended March 31, 2004, (ii) financial comparisons to other financial institutions, and (iii) stock market conditions generally and, in particular, for financial institutions, all of which are set forth in the independent valuation. The board also reviewed the methodology and the assumptions used by RP Financial, LC in preparing the independent valuation. The estimated valuation range may be amended with the approval of the Office of Thrift Supervision, if necessitated by subsequent developments in our financial condition or market conditions generally.

        Following commencement of the subscription offering, the maximum of the estimated valuation range may be increased by up to 15%, to up to $69.4 million and the maximum number of shares that will be outstanding immediately following the offering may be increased up to 15% to 6,943,125 shares. Under such circumstances the number of shares sold in the offering will be increased to 3,089,691 shares and the number of shares held by Putnam Bancorp, MHC, will be increased to 3,729,846 shares. The increase in the valuation range may occur to reflect changes in market and financial conditions, demand for the shares, or regulatory considerations, without the resolicitation of subscribers. The minimum of the estimated valuation range and the minimum of the offering range may not be decreased without a resolicitation of subscribers. The purchase price of $10.00 per share will remain fixed. See "Offering of Common Stock-Limitations On Purchase of Shares" as to the method of distribution and allocation of additional shares of common stock that may be issued in the event of an increase in the offering range to fill unfilled orders in the subscription and community offerings.

        The independent valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of common stock. RP Financial, LC did not independently verify the financial statements and other information provided by PSB Holdings, Inc., nor did RP Financial, LC value independently the assets or liabilities of Putnam Savings Bank. The independent valuation considers PSB Holdings, Inc. as a going concern and should not be considered as an indication of its liquidation value. Moreover, because the valuation is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons purchasing shares in the offering will thereafter be able to sell such shares at prices at or above the purchase price.

        The independent valuation will be updated at the time of the completion of the offering. If the update to the independent valuation at the conclusion of the offering results in an increase in the pro forma market value of the common stock to more than $69.4 million or a decrease in the pro forma market value to less than $44.6 million, then PSB Holdings, Inc., after consulting with the Office of Thrift Supervision, may terminate the stock issuance plan and return all funds promptly, with interest on payments made by check, certified or teller's check, bank draft or money order, extend or hold a new subscription offering, community offering, or both, establish a new offering range, commence a resolicitation of subscribers or take such other actions as may be permitted by the Office of Thrift Supervision in order to complete the offering. In the event that a resolicitation is commenced, unless an affirmative response is received within a reasonable period of time, all funds will be promptly returned to investors as described above. A resolicitation, if any, following the conclusion of the subscription and community offerings would not exceed 45 days unless further extended by the Office of Thrift Supervision for periods of up to 90 days not to extend beyond 24 months following the date of the approval by the OTS of the stock issuance plan, or                        , 2006.

        An increase in the independent valuation and the number of shares to be issued in the offering would decrease both a subscriber's ownership interest and PSB Holdings, Inc.'s pro forma earnings and stockholders' equity on a per share basis, while increasing pro forma earnings and stockholders' equity on an aggregate basis. A decrease in the independent valuation and the number of shares of common stock to be issued in the offering would increase both a subscriber's ownership interest and PSB Holdings, Inc.'s pro forma earnings and stockholders' equity on a per share basis, while decreasing pro

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forma net income and stockholders' equity on an aggregate basis. For a presentation of the effects of such changes, see "Pro Forma Data" on page    .

        Copies of the appraisal report of RP Financial, LC and the detailed memorandum of the appraiser setting forth the method and assumptions for such appraisal are available for inspection at the main office of Putnam Savings Bank and the other locations specified under "Where You Can Find More Information" on page    .

        No sale of shares of common stock may occur unless, prior to such sale, RP Financial, LC confirms to Federal Financial Services, Inc. and the Office of Thrift Supervision that, to the best of its knowledge, nothing of a material nature has occurred that, taking into account all relevant factors, would cause RP Financial, LC to conclude that the independent valuation is incompatible with its estimate of the pro forma market value of the common stock of Federal Financial Services, Inc. at the conclusion of the offering. Any change that would result in an aggregate purchase price that is below the minimum or above the maximum of the estimated valuation range would be subject to Office of Thrift Supervision approval. If such confirmation is not received, we may extend the offering, reopen the offering or commence a new offering, establish a new estimated valuation range and commence a resolicitation of all purchasers with the approval of the Office of Thrift Supervision or take such other actions as permitted by the Office of Thrift Supervision in order to complete the offering.

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Prospectus Delivery and Procedure for Purchasing Shares

        Prospectus Delivery.    To ensure that each purchaser receives a prospectus at least 48 hours prior to the end of the offering, in accordance with Rule 15c2-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no prospectus will be mailed later than five days or hand delivered any later than two days prior to the end of the offering. Execution of the order form will confirm receipt or delivery of a prospectus in accordance with Rule 15c2-8. Order forms will be distributed only with a prospectus. Neither we nor Keefe, Bruyette & Woods, Inc. is obligated to deliver a prospectus and an order form by any means other than the U.S. Postal Service.

        Expiration Date.    The offering will terminate at 5:00 p.m., Connecticut time on                         , 2004, unless extended by us for up to 90 days following the date of Office of Thrift Supervision approval of the use of this prospectus, which is August    , 2004, or, if approved by the Office of Thrift Supervision, for an additional period after                        , 2004 (as so extended, the "expiration date"). We are not required to give purchasers notice of any extension unless the expiration date is later than                        , 2004, in which event purchasers will be given the right to increase, decrease, confirm, or rescind their orders.

        Use of Order Forms.    In order to purchase shares of common stock, each purchaser must complete an order form except for certain persons purchasing in the syndicated community offering as more fully described below. Any person receiving an order form who desires to purchase shares of common stock may do so by delivering to a full service office of Putnam Savings Bank, a properly executed and completed order form, together with full payment for the shares of common stock purchased. The order form must be received by Putnam Savings Bank prior to 5:00 p.m., Connecticut time on                        , 2004. Each person ordering shares of common stock is required to represent that they are purchasing such shares for their own account. Our interpretation of the terms and conditions of the plan of reorganization and of the acceptability of the order forms will be final. We are not required to accept copies of order forms.

        To ensure that eligible account holders and supplemental eligible account holders are properly identified as to their stock purchase priorities, such parties must list all deposit accounts on the order form giving all names on each deposit account and/or loan and the account and/or loan numbers at the applicable eligibility date. Failure to list all of your account relationships, which will all be reviewed when taking into consideration relevant account relationships in the event of an allocation of stock, could result in a loss of all or part of your share allocation in the event of an oversubscription. Should an oversubscription result in an allocation of shares, the allocation of shares will be completed in accordance with the Stock Issuance Plan. Our interpretation of the terms and conditions of the Stock Issuance Plan and of the acceptability of the order form will be final. If a partial payment for your shares is required, we will first take the funds from the cash or check you paid with and secondly from any account you wanted funds withdrawn from.

We are not obligated to accept an order submitted on photocopied or telecopied order forms. Orders cannot and will not be accepted without the execution of the certification appearing on the order form. We are not required to notify subscribers of incomplete or improperly executed order forms and we have the right to waive or permit the correction of incomplete or improperly executed order forms as long as it is performed before the expiration of the offering. We do not represent, however, that we will do so and we have no affirmative duty to notify any prospective subscriber of any such defects.

        Payment for Shares.    Full payment for all shares will be required to accompany a completed order form for the purchase to be valid. Payment for shares may be made by (i) cash, if delivered in person, (although we prefer that you exchange cash for a Putnam Savings Bank bank check) (ii) check or money order, or (iii) authorization of withdrawal from a deposit account maintained with Putnam

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Savings Bank. Third party checks will not be accepted as payment for a subscriber's order. Appropriate means by which such withdrawals may be authorized are provided in the order forms.

        Once such a withdrawal amount has been authorized, a hold will be placed on such funds, making them unavailable to the depositor until the offering has been completed or terminated. In the case of payments authorized to be made through withdrawal from deposit accounts, all funds authorized for withdrawal will continue to earn interest at the contract rate until the offering is completed or terminated.

        Interest penalties for early withdrawal applicable to certificate of deposit accounts at Putnam Savings Bank will not apply to withdrawals authorized for the purchase of shares of common stock. However, if a withdrawal results in a certificate of deposit account with a balance less than the applicable minimum balance requirement, the certificate of deposit shall be canceled at the time of withdrawal without penalty, and the remaining balance will earn interest at our passbook rate subsequent to the withdrawal.

        Payments received by Putnam Savings Bank will be placed in a segregated savings account and will be paid interest at our passbook rate from the date payment is received until the offering is completed or terminated. Such interest will be paid by check, on all funds held, including funds accepted as payment for shares of common stock, promptly following completion or termination of the offering.

        If the employee stock ownership plan purchases shares of common stock, it will not be required to pay for such shares until consummation of the offering, provided that there is a loan commitment to lend to the employee stock ownership plan the amount of funds necessary to purchase the number of shares ordered.

        Owners of self-directed IRAs may use the assets of such IRAs to purchase shares of common stock in the offering, provided that the IRA accounts are not maintained at Putnam Savings Bank. Persons with IRAs maintained with us must have their accounts transferred to a self-directed IRA account with an unaffiliated trustee in order to purchase shares of common stock in the offering. In addition, the provisions of ERISA and IRS regulations require that executive officers, trustees, and 10% stockholders who use self-directed IRA funds and/or Keogh plan accounts to purchase shares of common stock in the offering, make such purchase for the exclusive benefit of the IRA and/or Keogh plan participant. The transfer of funds to a new trustee takes time, so please make arrangements as soon as possible.

        Once submitted, an order cannot be modified or revoked unless the offering is terminated or extended beyond                        , 2004.

        Depending on market conditions, the common stock may be offered for sale to the general public on a best efforts basis in a syndicated community offering by a selling group of broker-dealers to be managed by Keefe, Bruyette & Woods, Inc. Keefe, Bruyette & Woods, Inc., in its discretion, will instruct selected broker-dealers as to the number of shares of common stock to be allocated to each selected broker-dealer. Only upon allocation of shares of common stock to selected broker-dealers may they take orders from their customers. Investors who desire to purchase shares of common stock in the syndicated offering directly through a selected broker-dealer, which may include Keefe, Bruyette & Woods, Inc., will be advised that the members of the selling group are required either (a) upon receipt of an executed order form or direction to execute an order form on behalf of an investor, to forward the appropriate purchase price to us for deposit in a segregated account on or before 12:00 noon, Connecticut time, of the business day next following such receipt or execution; or (b) upon receipt of confirmation by such member of the selling group of an investor's interest in purchasing shares of common stock, and following a mailing of an acknowledgment by such member to such investor on the business day next following receipt of confirmation, to debit the account of such investor on the third business day next following receipt of confirmation and to forward the appropriate purchase price to us

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for deposit in the segregated account on or before twelve noon, prevailing time, of the business day next following such debiting. Payment for any shares purchased pursuant to alternative (a) above must be made by check in full payment therefor. Payment for shares of common stock purchased pursuant to alternative (b) above may be made by wire transfer to Putnam Savings Bank.

        Delivery of Stock Certificates.    Certificates representing shares of common stock issued in the offering will be mailed to the persons entitled thereto at the registration address noted on the order form, as soon as practicable following consummation of the offering. Any certificates returned as undeliverable will be held by us until claimed by persons legally entitled thereto or otherwise disposed of in accordance with applicable law. Until certificates for the shares of common stock are available and delivered to purchasers, purchasers may not be able to sell the shares of common stock which they ordered.

Restrictions on Purchase or Transfer of Stock by Directors and Officers

        All shares of the common stock purchased by our directors and officers in the offering will be subject to the restriction that such shares may not be sold or otherwise disposed of for value for a period of one year following the date of purchase, except for any disposition of such shares (i) following the death of the original purchaser or (ii) by reason of an exchange of securities in connection with a merger or acquisition approved by the applicable regulatory authorities. Sales of shares of the common stock by PSB Holdings, Inc.'s directors and officers will also be subject to certain insider trading and other transfer restrictions under the federal securities laws. See "Supervision and Regulation—Federal Securities Laws."

        Purchases of outstanding shares of common stock of PSB Holdings, Inc. by directors, executive officers, or any person who was an executive officer or director of Putnam Savings Bank after adoption of the stock issuance plan, and their associates during the three-year period following the offering may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the Office of Thrift Supervision. This restriction does not apply, however, to negotiated transactions involving more than 1% of PSB Holdings, Inc.'s outstanding common stock or to the purchase of shares of common stock under the stock option plan.

        PSB Holdings, Inc. has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, for the registration of the shares of common stock to be issued in the offering. The registration under the Securities Act of shares of the common stock to be issued in the offering does not cover the resale of the shares of common stock. Shares of common stock purchased by persons who are not affiliates of PSB Holdings, Inc. may be resold without registration. Shares purchased by an affiliate of PSB Holdings, Inc. will have resale restrictions under Rule 144 of the Securities Act of 1933. If PSB Holdings, Inc. meets the current public information requirements of Rule 144 under the Securities Act of 1933, each affiliate of PSB Holdings, Inc. who complies with the other conditions of Rule 144, including those that require the affiliate's sale to be aggregated with those of certain other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of PSB Holdings, Inc. common stock or the average weekly volume of trading in the shares of common stock during the preceding four calendar weeks. Provision may be made in the future by PSB Holdings, Inc. to permit affiliates to have their shares of common stock registered for sale under the Securities Act of 1933 under certain circumstances.

Interpretation, Amendment and Termination

        All interpretations of the stock issuance plan by the Board of Directors will be final, subject to the authority of the Office of Thrift Supervision. The stock issuance plan provides that, if deemed necessary or desirable by the Board of Directors of PSB Holdings, Inc., the stock issuance plan may be

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substantially amended by a majority vote of the Board of Directors as a result of comments from regulatory authorities or otherwise, at any time prior to the approval of the plan by the OTS and at any time thereafter with concurrence of the OTS. The stock issuance plan may be terminated by a majority vote of the Board of Directors of PSB Holdings, Inc. at any time prior to approval of the plan by the Office of Thrift Supervision and may be terminated at any time thereafter with the concurrence of the Office of Thrift Supervision.

Stock Information Center

        If you have any questions regarding the offering, please call the Stock Information Center at (860)             -            , from 9:00 a.m. to 4:00 p.m., Connecticut time, Monday through Friday.

PUTNAM SAVINGS FOUNDATION

General

        In furtherance of our commitment to our local community, the plan of stock issuance provides that we will establish the Putnam Savings Foundation as a non-stock, nonprofit Delaware corporation in connection with the offering. The charitable foundation will be funded with shares of PSB Holdings, Inc. common stock, as further described below. By further enhancing our visibility and reputation in our local community, we believe that the charitable foundation will enhance the long-term value of Putnam Savings' community banking franchise. The stock offering presents us with a unique opportunity to provide a substantial and continuing benefit to our community and to receive the associated tax benefits.

Purpose of the Charitable Foundation

        In connection with the closing of the stock offering, PSB Holdings, Inc. intends to issue an amount equal to 4% of the shares of common stock sold in the offering to the Putnam Savings Foundation. The purpose of the charitable foundation is to enhance the relationship between Putnam Savings Bank and the communities in which we operate and to enable our communities to share in our long-term growth. The Putnam Savings Foundation will be dedicated completely to community activities and the promotion of charitable causes, and may be able to support such activities in manners that are not presently available to us. We believe that the Putnam Savings Foundation will enable us to assist the communities within our market area in areas beyond community development and lending, and will enhance our current activities under the Community Reinvestment Act. Putnam Savings Bank received an "Outstanding" rating in its most recent Community Reinvestment Act examination by the FDIC.

        We further believe that funding the Putnam Savings Foundation with shares of PSB Holdings, Inc. common stock will allow our community to share in the potential growth and success of Putnam Savings Bank long after the stock offering is completed. The Putnam Savings Foundation will accomplish this goal by establishing continued ties between the charitable foundation and Putnam Savings Bank, thereby forming a partnership within the communities in which Putnam Savings Bank operates.

        We do not expect the contribution to Putnam Savings Foundation to take the place of our traditional community lending and charitable activities. For the nine months ended March 31, 2004, Putnam Savings Bank contributed $25,650 to various organizations. After the stock offering, we expect to continue making charitable contributions within our community.

Structure of the Charitable Foundation

        The Putnam Savings Foundation will be incorporated under Delaware law as a non-stock, nonprofit corporation. The certificate of incorporation of the Putnam Savings Foundation will provide

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that the corporation is organized exclusively for charitable purposes as set forth in Section 501(c)(3) of the Internal Revenue Code. The Putnam Savings Foundation's certificate of incorporation will further provide that no part of the net earnings of the charitable foundation will inure to the benefit of, or be distributable to, its directors, officers or members.

        We have selected                        ,                         and                         to serve on the initial board of directors of the charitable foundation. As required by Office of Thrift Supervision regulations, we also will select one additional person to serve on the initial board of directors who will not be one of our officers or directors and who will have experience with local charitable organizations and grant making. While there are no plans to change the size of the initial board of directors during the year following the completion of the stock offering, following the first anniversary of the stock offering, the charitable foundation may alter the size and composition of its board of directors. For five years after the stock offering, one seat on the charitable foundation's board of directors will be reserved for a person from our local community who has experience with local community charitable organizations and grant making and who is not one of our officers, directors or employees, and one seat on the charitable foundation's board of directors will be reserved for one of Putnam Savings Bank's directors.

        The business experience of                        ,                         and                         is described in "Management of PSB Holdings, Inc." on page    .

        The board of directors of the Putnam Savings Foundation will be responsible for establishing its grant and donation policies, consistent with the purposes for which it was established. As directors of a nonprofit corporation, directors of the Putnam Savings Foundation will at all times be bound by their fiduciary duty to advance the charitable foundation's charitable goals, to protect its assets and to act in a manner consistent with the charitable purposes for which the charitable foundation is established. The directors of the Putnam Savings Foundation also will be responsible for directing the activities of the charitable foundation, including the management and voting of the shares of common stock of PSB Holdings, Inc. held by the charitable foundation. However, as required by Office of Thrift Supervision regulations, all shares of common stock held by the Putnam Savings Foundation must be voted in the same ratio as all other shares of the common stock on all proposals considered by stockholders of PSB Holdings, Inc.

        The Putnam Savings Foundation's place of business will be located at our administrative offices. The board of directors of the Putnam Savings Foundation will appoint such officers and employees as may be necessary to manage its operations. To the extent applicable, we will comply with the affiliates restrictions set forth in Sections 23A and 23B of the Federal Reserve Act and the Office of Thrift Supervision regulations governing transactions between Putnam Savings Bank and the foundation.

        The Putnam Savings Foundation will receive working capital from:

(1)

any dividends that may be paid on PSB Holdings, Inc.'s shares of common stock in the future;



(2)

within the limits of applicable federal and state laws, loans collateralized by the shares of common stock; or



(3)

the proceeds of the sale of any of the shares of common stock in the open market from time to time.

        As a private foundation under Section 501(c)(3) of the Internal Revenue Code, the Putnam Savings Foundation will be required to distribute annually in grants or donations a minimum of 5% of the average fair market value of its net investment assets. Legislation has been introduced that, if enacted, could have the impact of increasing the charitable foundation's required annual distribution in grants or donations. One of the conditions imposed on the gift of common stock is that the amount of common stock that may be sold by the Putnam Savings Foundation in any one year shall not exceed 5% of the average market value of the assets held by the Putnam Savings Foundation, except where the

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board of directors of the charitable foundation determines that the failure to sell an amount of common stock greater than such amount would result in a long-term reduction of the value of its assets and/or would otherwise jeopardize its capacity to carry out its charitable purposes.

Tax Considerations

        Our independent tax advisor, Luse Gorman Pomerenk & Schick, P.C., has advised us that an organization created for the above purposes should qualify as a Section 501(c)(3) exempt organization under the Internal Revenue Code and should be classified as a private foundation. The Putnam Savings Foundation will submit a timely request to the Internal Revenue Service to be recognized as an exempt organization. As long as the Putnam Savings Foundation files its application for tax-exempt status within 15 months from the date of its organization, and provided the Internal Revenue Service approves the application, its effective date as a Section 501(c)(3) organization will be the date of its organization. Our independent tax advisor, however, has not rendered any advice on whether the Putnam Savings Foundation's tax exempt status will be affected by the regulatory requirement that all shares of common stock of PSB Holdings, Inc. held by the Putnam Savings Foundation must be voted in the same ratio as all other outstanding shares of common stock of PSB Holdings, Inc. on all proposals considered by stockholders of PSB Holdings, Inc.

        PSB Holdings, Inc. and Putnam Savings Bank are authorized by federal law to make charitable contributions. We believe that the stock offering presents a unique opportunity to establish and fund a charitable foundation given the substantial amount of additional capital being raised. In making such a determination, we considered the dilutive impact to our stockholders of the contribution of shares of common stock to the Putnam Savings Foundation. We believe that the contribution to the Putnam Savings Foundation in excess of the 10% annual limitation on charitable deductions described below is justified given Putnam Savings Bank's capital position and its earnings, the substantial additional capital being raised in the stock offering and the potential benefits of the Putnam Savings Foundation to our community. See "Capitalization," "Historical and Pro Forma Regulatory Capital Compliance" and "Comparison of Valuation and Pro Forma Information With and Without the Foundation." The amount of the contribution will not adversely affect our financial condition. We therefore believe that the amount of the charitable contribution is reasonable given our pro forma capital position, and it does not raise safety and soundness concerns.

        We have received an opinion from our independent tax advisor that PSB Holdings, Inc.'s contribution of its shares of stock to the Putnam Savings Foundation should not constitute an act of self-dealing and that we should be entitled to a deduction in the amount of the fair market value of the stock at the time of the contribution less the nominal amount that the Putnam Savings Foundation is required to pay PSB Holdings, Inc. for such stock. We are permitted to deduct only an amount equal to 10% of our annual taxable income in any one year. We are permitted under the Internal Revenue Code to carry the excess contribution over the five-year period following the contribution to the Putnam Savings Foundation. We estimate that substantially all of the contribution should be deductible over the six-year period. However, we do not have any assurance that the Internal Revenue Service will grant tax-exempt status to the charitable foundation. Furthermore, even if the contribution is deductible, we may not have sufficient earnings to be able to use the deduction in full. We do not expect to make any further contributions to the Putnam Savings Foundation within the first five years following the initial contribution, unless such contributions would be deductible under the Internal Revenue Code. Any such decisions would be based on an assessment of, among other factors, our financial condition at that time, the interests of our stockholders and depositors, and the financial condition and operations of the foundation.

        Although we have received an opinion from our independent tax advisor that we should be entitled to a deduction for the charitable contribution, there can be no assurances that the Internal Revenue Service will recognize the Putnam Savings Foundation as a Section 501(c)(3) exempt

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organization or that the deduction will be permitted. In such event, our contribution to the Putnam Savings Foundation would be expensed without tax benefit, resulting in a reduction in earnings in the year in which the Internal Revenue Service makes such a determination.

        As a private foundation, earnings and gains, if any, from the sale of common stock or other assets are exempt from federal and state income taxation. However, investment income, such as interest, dividends and capital gains, is generally taxed at a rate of 2.0%. Legislation has been introduced that, if enacted, would reduce this rate to 1.0%. The Putnam Savings Foundation will be required to file an annual return with the Internal Revenue Service within four and one-half months after the close of its fiscal year. The Putnam Savings Foundation will be required to make its annual return available for public inspection. The annual return for a private foundation includes, among other things, an itemized list of all grants made or approved, showing the amount of each grant, the recipient, any relationship between a grant recipient and the foundation's managers and a concise statement of the purpose of each grant.

Regulatory Requirements Imposed on the Charitable Foundation

        Office of Thrift Supervision regulations impose the following requirements on the establishment of the charitable foundation:

•

the Office of Thrift Supervision may examine the charitable foundation at the foundation's expense;



•

the charitable foundation must comply with all supervisory directives imposed by the Office of Thrift Supervision;



•

the charitable foundation must provide annually to the Office of Thrift Supervision a copy of the annual report that the foundation submits to the Internal Revenue Service;



•

the charitable foundation must operate according to written policies adopted by its board of directors, including a conflict of interest policy;



•

the charitable foundation may not engage in self-dealing and must comply with all laws necessary to maintain its tax-exempt status under the Internal Revenue Code; and



•

the charitable foundation must vote its shares in the same ratio as all of the other shares voted on each proposal considered by the stockholders of PSB Holdings, Inc.

        Within six months of completing the stock offering, the Putnam Savings Foundation must submit to the Office of Thrift Supervision a three-year operating plan.

RESTRICTIONS ON THE ACQUISITION OF PSB HOLDINGS, INC.
AND PUTNAM SAVINGS BANK

        The principal federal regulatory restrictions which affect the ability of any person, firm or entity to acquire PSB Holdings, Inc., Putnam Savings Bank or their respective capital stock are described below. Also discussed are certain provisions in PSB Holdings, Inc.'s charter and bylaws which may be deemed to affect the ability of a person, firm or entity to acquire PSB Holdings, Inc.

Federal Law

        The Change in Bank Control Act provides that no person, acting directly or indirectly or through or in concert with one or more other persons, may acquire control of a savings institution unless the Office of Thrift Supervision has been given 60 days prior written notice. The Home Owners' Loan Act provides that no company may acquire "control" of a savings institution without the prior approval of the Office of Thrift Supervision. Any company that acquires such control becomes a savings and loan

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holding company subject to registration, examination and regulation by the Office of Thrift Supervision. Pursuant to federal regulations, control of a savings institution is conclusively deemed to have been acquired by, among other things, the acquisition of more than 25% of any class of voting stock of the institution or the ability to control the election of a majority of the directors of an institution. Moreover, control is presumed to have been acquired, subject to rebuttal, upon the acquisition of more than 10% of any class of voting stock, or of more than 25% of any class of stock of a savings institution, where certain enumerated "control factors" are also present in the acquisition.

        The Office of Thrift Supervision may prohibit an acquisition of control if:

•

it would result in a monopoly or substantially lessen competition;



•

the financial condition of the acquiring person might jeopardize the financial stability of the institution; or



•

the competence, experience or integrity of the acquiring person indicates that it would not be in the interest of the depositors or of the public to permit the acquisition of control by such person.

        These restrictions do not apply to the acquisition of a savings institution's capital stock by one or more tax-qualified employee stock benefit plans, provided that the plans do not have beneficial ownership of more than 25% of any class of equity security of the savings institution.

        For a period of three years following completion of the stock issuance, Office of Thrift Supervision regulations generally prohibit any person from acquiring or making an offer to acquire the beneficial ownership of more than 10% of the voting stock of PSB Holdings, Inc. or Putnam Savings Bank without the prior approval of the Office of Thrift Supervision's prior approval.

Corporate Governance Provisions in the Charter and Bylaws of PSB Holdings, Inc.

        The following discussion is a summary of certain provisions of the charter and bylaws of PSB Holdings, Inc. that relate to corporate governance. The description is necessarily general and qualified by reference to the charter and bylaws.

        Classified Board of Directors.    The Board of Directors of PSB Holdings, Inc. is required by the charter and bylaws to be divided into three staggered classes which are as equal in size as is possible. Each year one class is elected by stockholders of PSB Holdings, Inc. for a three-year term. A classified board promotes continuity and stability of management of PSB Holdings, Inc., but makes it more difficult for stockholders to change a majority of the directors because it generally takes at least two annual elections of directors for this to occur.

        Authorized but Unissued Shares of Capital Stock.    Following the stock offering, PSB Holdings, Inc. will have authorized but unissued shares of preferred stock and common stock. See "Description of Capital Stock of PSB Holdings, Inc." Although these shares could be used by the Board of Directors of PSB Holdings, Inc. to make it more difficult or to discourage an attempt to obtain control of PSB Holdings, Inc. through a merger, tender offer, proxy contest or otherwise, it is unlikely that we would use or need to use shares for these purposes since Putnam Bancorp, MHC owns a majority of the common stock.

        No Cumulative Voting.    PSB Holdings, Inc.'s charter provides that there will not be cumulative voting by stockholders for the election of PSB Holdings, Inc.'s directors. No cumulative voting rights means that Putnam Bancorp, MHC, as the holder of a majority of the shares eligible to be voted at a meeting of stockholders, may elect all directors of PSB Holdings, Inc. to be elected at that meeting. This could prevent minority stockholder representation on PSB Holdings, Inc.'s Board of Directors.

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        Procedures for Stockholder Nominations.    PSB Holdings, Inc.'s bylaws provide that any stockholder wanting to make a nomination for the election of directors or a proposal for new business at a meeting of stockholders must send written notice to the Secretary of PSB Holdings, Inc. at least five days before the date of the annual meeting. The bylaws further provide that if a stockholder wanting to make a nomination or a proposal for new business does not follow the prescribed procedures, the proposal will not be considered until an adjourned, special, or annual meeting of the shareholders taking place 30 days or more thereafter. Management believes that it is in the best interests of PSB Holdings, Inc. and its stockholders to provide enough time for management to disclose to stockholders information about a dissident slate of nominations for directors. This advance notice requirement may also give management time to solicit its own proxies in an attempt to defeat any dissident slate of nominations if management thinks it is in the best interest of stockholders generally. Similarly, adequate advance notice of stockholder proposals will give management time to study such proposals and to determine whether to recommend to the stockholders that such proposals be adopted.

Benefit Plans

        In addition to the provisions of PSB Holdings, Inc.'s charter and bylaws described above, certain benefit plans that PSB Holdings, Inc. and Putnam Savings Bank may adopt in connection with or following the stock offering contain provisions which also may discourage hostile takeover attempts which the Board of Directors of Putnam Savings Bank might conclude are not in the best interests of PSB Holdings, Inc. and Putnam Savings Bank or PSB Holdings, Inc.'s stockholders.

DESCRIPTION OF CAPITAL STOCK OF PSB HOLDINGS, INC.

General

        PSB Holdings, Inc. is authorized to issue 12,000,000 shares of common stock having a par value of $0.10 per share and 1,000,000 shares of serial preferred stock. Each share of PSB Holdings, Inc.'s common stock has the same relative rights as, and is identical in all respects with, each other share of common stock. Upon payment of the purchase price for the common stock in accordance with the stock issuance plan, all of the stock will be duly authorized, fully paid and nonassessable. Presented below is a description of PSB Holdings, Inc.'s capital stock which is deemed material to an investment decision with respect to the offering. The common stock of PSB Holdings, Inc. will represent nonwithdrawable capital, will not be an account of an insurable type, and will not be insured by the Federal Deposit Insurance Corporation.

        PSB Holdings, Inc. currently expects that it will have a maximum of up to 6,037,500 shares of common stock outstanding after the stock offering, of which 2,686,688 shares will be held by persons other than Putnam Bancorp, MHC, including 107,468 shares issued to the Putnam Savings Foundation. The Board of Directors can, without stockholder approval, issue additional shares of common stock, although Putnam Bancorp, MHC, so long as it is in existence, must own a majority of PSB Holdings, Inc.'s outstanding shares of common stock. PSB Holdings, Inc.'s issuance of additional shares of common stock could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control. PSB Holdings, Inc. has no present plans to issue additional shares of common stock other than pursuant to the stock benefit plans previously discussed.

114

Common Stock

        Distributions.    PSB Holdings, Inc. can pay dividends if, as and when declared by our Board of Directors, subject to compliance with limitations which are imposed by law. The holders of common stock of PSB Holdings, Inc. will be entitled to receive and share equally in such dividends as may be declared by the Board of Directors of PSB Holdings, Inc. out of funds legally available therefor. If PSB Holdings, Inc. issues preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends.

        Voting Rights.    Upon the effective date of the stock offering, the holders of common stock of PSB Holdings, Inc. will possess exclusive voting rights in PSB Holdings, Inc. Each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. Under certain circumstances, shares in excess of 10% of the issued and outstanding shares of common stock may be considered "Excess Shares" and, accordingly, will not be entitled to vote. See "Restrictions on the Acquisition of PSB Holdings, Inc. and Putnam Savings Bank." If PSB Holdings, Inc. issues preferred stock, holders of the preferred stock may also possess voting rights.

        Liquidation.    In the event of any liquidation, dissolution or winding up of Putnam Savings Bank, PSB Holdings, Inc., as holder of Putnam Savings Bank's capital stock, would be entitled to receive, after payment or provision for payment of all debts and liabilities of Putnam Savings Bank, including all deposit accounts and accrued interest thereon, all assets of Putnam Savings Bank available for distribution. In the event of liquidation, dissolution or winding up of PSB Holdings, Inc., the holders of its common stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities, all of the assets of PSB Holdings, Inc. available for distribution. If preferred stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution.

        Rights to Buy Additional Shares.    Holders of the common stock of PSB Holdings, Inc. will not be entitled to preemptive rights with respect to any shares which may be issued. Preemptive rights are the priority right to buy additional shares if PSB Holdings, Inc. issues more shares in the future. The common stock is not subject to redemption.

Preferred Stock

        None of the shares of PSB Holdings, Inc.'s authorized preferred stock will be issued in the stock issuance. Such stock may be issued with such preferences and designations as the Board of Directors may from time to time determine. The Board of Directors can, without stockholder approval, issue preferred stock with voting, dividend, liquidation and conversion rights which could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control. PSB Holdings, Inc. has no present plans to issue preferred stock.

TRANSFER AGENT AND REGISTRAR

                                will act as the transfer agent and registrar for the common stock.

LEGAL AND TAX MATTERS

        The legality of the common stock and the federal income tax consequences of the offering and the establishment of the charitable foundation have been passed upon for Putnam Savings Bank and PSB Holdings, Inc. by the firm of Luse Gorman Pomerenk & Schick, P.C., Washington, D.C. The Connecticut state income tax consequences of the offering have been passed upon for Putnam Savings Bank and PSB Holdings, Inc. by Snyder & Haller, P.C. Luse Gorman Pomerenk & Schick, P.C. and Snyder & Haller, P.C. have consented to the references in this prospectus to their opinions. Certain

115

legal matters regarding the offering will be passed upon for Keefe, Bruyette & Woods, Inc. by Tyler Cooper & Alcorn, LLP.

EXPERTS

        The consolidated financial statements of PSB Holdings, Inc. at June 30, 2003 and 2002 and for the years then ended, appearing in this prospectus and registration statement have been audited by Snyder & Haller, P.C., independent auditors, as set forth in their respective reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firms as experts in accounting and auditing.

        RP Financial, LC has consented to the publication in this prospectus of the summary of its report to Putnam Savings Bank and PSB Holdings, Inc. setting forth its opinion as to the estimated pro forma market value of the common stock upon the completion of the offering and its valuation with respect to subscription rights.

WHERE YOU CAN FIND MORE INFORMATION

        PSB Holdings, Inc. has filed a registration statement with the Securities and Exchange Commission under the Securities Act of 1933, with respect to the common stock offered hereby. As permitted by the rules and regulations of the Securities and Exchange Commission, this prospectus does not contain all the information set forth in the registration statement. This information can be examined without charge at the public reference facilities of the Securities and Exchange Commission located at 450 Fifth Street, NW, Washington, D.C. 20549, and copies of the material can be obtained from the Securities and Exchange Commission at prescribed rates. The registration statement also is available through the Securities and Exchange Commission's world wide web site on the internet at http://www.sec.gov. The statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement are, of necessity, brief descriptions thereof and are not necessarily complete but do contain all material information regarding the documents; each statement is qualified by reference to the contract or document.

        Putnam Savings Bank has filed an Application MHC-2 with the Office of Thrift Supervision with respect to the offering. Pursuant to the rules and regulations of the Office of Thrift Supervision, this prospectus omits certain information contained in that Application. The Application may be examined at the principal offices of the Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552 and at the Northeast Regional Office of the Office of Thrift Supervision located at Harborside Financial Center Plaza Five, Suite 1600, Jersey City, New Jersey 07311.

        A copy of the charter and bylaws of PSB Holdings, Inc. are available without charge from Putnam Savings Bank.

REGISTRATION REQUIREMENTS

        In connection with the offering, PSB Holdings, Inc. will register the common stock with the Securities and Exchange Commission under Section 12(g) of the Securities Exchange Act of 1934; and, upon this registration, PSB Holdings, Inc. and the holders of its shares of common stock will become subject to the proxy solicitation rules, reporting requirements and restrictions on stock purchases and sales by directors, officers and greater than 10% stockholders, the annual and periodic reporting and certain other requirements of the Securities Exchange Act of 1934. Under the stock issuance plan, PSB Holdings, Inc. has undertaken that it will not terminate this registration for a period of at least three years following the offering.

116

PSB Holdings, Inc.
Consolidated Financial Statements
(With Report of Independent Registered Public Accounting Firm Thereon)

INDEX

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of Financial Condition as of March 31, 2004 (Unaudited), and June 30, 2003 and 2002	F-3
Consolidated Statements of Operations for the Nine Months Ended March 31, 2004 and 2003 (Unaudited) and the Years Ended June 30, 2003 and 2002	F-4
Consolidated Statements of Changes in Capital Accounts for the Nine Months Ended March 31, 2004 (Unaudited) and the Years Ended June 30, 2003 and 2002	F-5
Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2004 and 2003 (Unaudited) and the Years Ended June 30, 2003 and 2002	F-6
Notes to Consolidated Financial Statements	F-7 – F-26

Other schedules are omitted as they are not required or are not applicable or the required information is shown in the consolidated financial statements or related notes.

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors
PSB Holdings, Inc.

        We have audited the accompanying consolidated statements of financial condition of PSB Holdings, Inc. and subsidiaries as of June 30, 2003 and 2002, and the related consolidated statements of operations, changes in capital accounts and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PSB Holdings, Inc. and subsidiaries at June 30, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

Hartford, Connecticut
July 24, 2003 except for Note 13,
as to which the date is April 7, 2004

30 Atwood Street    •    Hartford    •    Connecticut    •    06105-1801    •     860 249-3900    •    860 247-8071    FAX

F-2

PSB Holdings, Inc.

Consolidated Statements of Financial Condition

				March 31,		June 30,
				2004		2003		2002
				(Unaudited)
ASSETS
Cash and due from depository institutions				$	4,042,740	$	5,168,503	$	4,771,799
Interest-bearing deposits					422,178		264,539		45,272
Investment in federal funds					—		7,847,000		3,280,000
Investment securities					107,557,847		102,682,996		98,150,581
Loans receivable, net					132,610,818		120,463,686		112,207,737
Loans held-for-sale					454,800		1,051,434		617,300
Premises and equipment, net					3,937,751		2,726,514		2,669,236
Accrued income receivable					1,306,517		1,273,851		1,331,627
Deferred income taxes					—		—		677,559
Bank owned life insurance					2,123,545		2,056,045		—
Other assets					195,855		168,475		88,607
			Total assets	$	252,652,051	$	243,703,043	$	223,839,718
LIABILITIES AND CAPITAL ACCOUNTS
Liabilities
	Deposits			$	197,281,006	$	191,420,298	$	161,797,475
	Borrowed funds				29,250,000		27,000,000		39,750,000
	Mortgagors' escrow accounts				498,848		851,519		816,548
	Deferred income taxes				109,771		129,133		—
	Other liabilities				1,271,031		1,243,442		844,642
		Total liabilities			228,410,656		220,644,392		203,208,665
Capital accounts
	Retained earnings				22,673,049		21,515,185		20,160,715
	Accumulated other comprehensive income				1,568,346		1,543,466		470,338
		Total capital accounts			24,241,395		23,058,651		20,631,053
			Total liabilities and capital accounts	$	252,652,051	$	243,703,043	$	223,839,718

See notes to consolidated financial statements.

F-3

PSB Holdings, Inc.

Consolidated Statements of Operations

			For the Nine Months Ended March 31,					For the Year Ended June 30,
			2004		2003			2003			2002
			(Unaudited)
Interest income
	Interest on loans		$	5,875,923	$	5,972,169		$	7,851,186		$	7,971,890
	Interest and dividends on investments			3,127,393		3,549,327			4,591,364			4,500,483
		Total interest income		9,003,316		9,521,496			12,442,550			12,472,373
Interest expense
	Deposits and escrow			2,676,422		3,226,777			4,203,384			4,763,260
	Borrowed funds			845,487		1,286,859			1,646,572			2,195,108
		Total interest expense		3,521,909		4,513,636			5,849,956			6,958,368
Net interest income				5,481,407		5,007,860			6,592,594			5,514,005
Provision for loan losses				45,000		45,000			60,000			60,000
Net interest income after provision for loan losses				5,436,407		4,962,860			6,532,594			5,454,005
Noninterest income
	Fees for services			622,539		570,371			791,315			611,035
	Net gain on sale of loans			67,353		251,298			300,598			85,154
	Income on expired options			—		—			—			57,080
	Commissions from brokerage service			111,378		32,154			43,939			64,598
	Other income			123,989		53,575			123,306			73,520
	Net investment security gains (losses)			44,843		(7	)		(111,364	)		(1,999	)
		Total noninterest income		970,102		907,391			1,147,794			889,388
Noninterest expense
	Compensation and benefits			2,824,302		2,564,188			3,383,602			2,875,893
	Occupancy and equipment			492,984		454,191			612,071			587,514
	Data processing			385,750		389,985			499,426			456,427
	Loss on derivative instruments			—		—			—			118,090
	Advertising and marketing			141,292		137,115			194,826			190,821
	Other noninterest expense			914,583		733,183			1,054,000			951,632
		Total noninterest expense		4,758,911		4,278,662			5,743,925			5,180,377
Income before income tax expense				1,647,598		1,591,589			1,936,463			1,163,016
Income tax expense				489,734		496,667			581,993			278,806
	Net income		$	1,157,864	$	1,094,922		$	1,354,470		$	884,210

See notes to consolidated financial statements.

F-4

PSB Holdings, Inc.

Consolidated Statements of Changes in Capital Accounts

		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Capital Accounts
Balance at June 30, 2001		$	19,276,505	$	(8,572	)	$	19,267,933
	Net income		884,210		—			884,210
	Other comprehensive income		—		478,910			478,910
Balance at June 30, 2002		$	20,160,715	$	470,338		$	20,631,053
	Net income		1,354,470		—			1,354,470
	Other comprehensive income		—		1,073,128			1,073,128
Balance at June 30, 2003		$	21,515,185	$	1,543,466		$	23,058,651
	Net income (Unaudited)		1,157,864		—			1,157,864
	Other comprehensive income (Unaudited)		—		24,880			24,880
Balance at March 31, 2004 (Unaudited)		$	22,673,049	$	1,568,346		$	24,241,395

See notes to consolidated financial statements.

F-5

PSB Holdings, Inc.

Consolidated Statements of Cash Flows

				For the Nine Months Ended March 31,						For the Year Ended June 30,
				2004			2003			2003			2002
				(Unaudited)
Cash flows from operating activities
Net income				$	1,157,864		$	1,094,922		$	1,354,470		$	884,210
Adjustments to reconcile net income to cash provided by operating activities:
		Provision for loan losses			45,000			45,000			60,000			60,000
		Depreciation			200,410			187,928			249,333			259,308
		Net amortization on available-for-sale securities			531,980			587,573			777,632			413,394
		Loss on derivative instruments			—			—			—			118,090
		Net (gain) loss on sale and writedown of foreclosed real estate			—			(47,634	)		(47,634	)		4,784
		Net realized investment security (gains) losses			(44,843	)		7			111,364			1,999
		Gain on sale of loans			(67,353	)		(251,298	)		(300,598	)		(85,154	)
		Deferred income tax provision			(77,580	)		46,135			122,032			(73,999	)
		Net change in:
			Accrued income receivable		(32,666	)		34,448			57,776			(81,643	)
			Deferred loan fees		(101,092	)		16,771			(72,557	)		(100,158	)
			Loans held-for-sale		596,634			(1,350,908	)		(434,134	)		(1,600	)
			Other assets		(27,380	)		(118,360	)		(79,868	)		15,088
			Other liabilities		27,591			427,486			398,800			(14,511	)
Net cash provided by operating activities					2,208,565			672,070			2,196,616			1,399,808
Cash flows from investing activities
Proceeds from sales and maturities of available-for-sale securities					26,079,778			20,169,442			31,053,395			20,157,023
Purchase of available-for-sale securities					(31,358,668	)		(21,432,271	)		(34,717,018	)		(49,171,776	)
Loan originations net of principal payments					(22,185,741	)		(20,401,541	)		(28,951,653	)		(17,838,733	)
Proceeds from the sale of mortgages					10,162,053			17,323,764			20,915,563			11,517,324
Investment in bank owned life insurance					(67,500	)		(2,000,000	)		(2,056,045	)		—
Proceeds from the sale foreclosed real estate					—			140,929			140,929			104,468
Purchase of premises and equipment					(1,411,647	)		(137,709	)		(306,611	)		(74,819	)
Net cash used by investing activities					(18,781,725	)		(6,337,386	)		(13,921,440	)		(35,306,513	)
Cash flows from financing activities
Change in savings and demand deposit accounts					9,012,070			20,670,083			29,671,009			27,931,953
Change in time deposit accounts					(3,151,362	)		(1,087,955	)		(48,185	)		3,847,353
Proceeds from long term borrowings					9,500,000			—			—			13,250,000
Repayments of long term borrowings					(6,750,000	)		(9,750,000	)		(12,750,000	)		(12,883,580	)
Net change in short term borrowings					(500,000	)		—			—			—
Change in mortgagors' escrow accounts					(352,672	)		(210,663	)		34,971			64,928
Net cash provided by financing activities					7,758,036			9,621,465			16,907,795			32,210,654
Change in cash and cash equivalents					(8,815,124	)		3,956,149			5,182,971			(1,696,051	)
Cash and cash equivalents at beginning of year					13,280,042			8,097,071			8,097,071			9,793,122
Cash and cash equivalents at end of year				$	4,464,918		$	12,053,220		$	13,280,042		$	8,097,071
Supplemental disclosures
Non-cash investing activities:
	Transfer of loans to foreclosed real estate			$	—		$	93,295		$	93,295		$	—
Cash paid during the year for:
	Interest			$	3,544,223		$	4,562,310		$	5,911,823		$	6,958,306
	Income taxes			$	630,790		$	406,809		$	526,809		$	411,138

See notes to consolidated financial statements.

F-6

PSB Holdings, Inc.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Principles of Business

        PSB Holdings, Inc. (Company) is a state 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.

        The Bank is a state chartered savings bank and provides a full range of banking services to individual and small business customers located primarily in Eastern Connecticut. The Bank is subject to competition from other financial institutions throughout the region.

        Both the Company and the Bank are subject to the regulations of certain state and federal agencies and undergoes periodic examinations by those regulatory authorities.

Basis of presentation and consolidation

        The consolidated financial statements include the accounts of PSB Holdings, Inc. and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Prior to the formation of PSB Holdings, Inc. the amounts reflected are those of the Bank.

        The accounting and reporting policies of the Company and its subsidiaries conform to generally accepted accounting principles in the United States of America and to general practices within the banking industry. Such policies have been followed on a consistent basis.

        In preparing the consolidated 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 income and expenses for the period. Actual results could differ from those estimates.

        Material estimates that are particularly susceptible to significant change 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.

Cash and cash equivalents

        For purposes of reporting cash flows, cash and cash equivalents include cash and amounts due from depository institutions, interest-bearing deposits, and investments in federal funds.

Interest-bearing deposits

        Interest-bearing deposits consist of deposit accounts with the Federal Home Loan Bank of Boston and other institutions, and they generally have maturities of three months or less.

Investment securities

        The Company's management determines the appropriate classification of a security at the time of purchase.

        If management has the intent and the Company has the ability at the time of purchase to hold debt securities until maturity, they are classified as held-to-maturity. These securities are carried at

F-7

historical cost adjusted for the amortization of premiums and accretion of discounts over the estimated term of the securities using a method which approximates the level yield method.

        Securities to be held for indefinite periods of time are classified as available-for-sale and are carried at fair value with unrealized gains and losses reported as a separate component of capital net of estimated income taxes.

        Securities that are bought and held principally for the purpose of selling are classified as trading and reported at fair value, with unrealized gains and losses included in earnings.

        Mortgage-backed securities, which include collateralized mortgage obligations (CMOs), are either U.S. Government Agency securities or are rated in at least the top two ratings categories by at least one of the major rating agencies at the time of purchase. One of the risks inherent when investing in mortgage-backed securities and CMOs is the ability of such instruments to incur prepayments of principal prior to maturity. Because of prepayments, the weighted-average yield of these securities may also change, which could affect earnings. Amortization of premiums and accretion of discounts is done over a continuously evaluated remaining life which approximates the level yield method.

        Gains or losses on the sales of securities are recognized at trade date utilizing the specific identification method.

Loans receivable and allowance for loan losses

        Loans receivable are stated at unpaid principal balance less loans in process, deferred loan fees, and allowances for loan losses.

        Uncollected interest on loans receivable is accrued as earned based on rates applied to principal amounts outstanding. Recognition of income on the accrual basis is discontinued when there is sufficient question as to the collectibility of the interest. In these cases, the interest previously accrued to income is reversed, and the loans are placed on the cash basis.

        Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized on a level-yield basis as an adjustment to the related loan yield over its contractual life. Unamortized net fees are recognized upon early repayment of the loans.

        The allowance for loan losses is established by a provision charged to earnings and is maintained at a level considered adequate to provide for potential loan losses based on management's evaluation of known and inherent risks in the loan portfolio. When a loan or portion of a loan is considered uncollectible, it is charged against the allowance for loan losses. Recoveries of loans previously charged-off are credited to the allowance when collected.

        Management makes regular evaluations of the loan portfolio to determine the adequacy of the level of the allowance for loan losses. Numerous factors are considered in the evaluation, including a review of certain borrowers' current financial status and credit standing, available collateral, loss experience in relation to outstanding loans, the overall loan portfolio quality, management's judgment regarding prevailing and anticipated economic conditions, and other relevant factors.

        In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

F-8

Loans held-for-sale

        Loans held-for-sale are valued at the lower of cost or market as determined by outstanding commitments from investors.

Foreclosed real estate

        Real estate properties acquired through loan foreclosure and other partial or total satisfaction of problem loans are carried at the lower of fair value or the related loan balance at the date of foreclosure. Valuations are periodically performed by management. Losses arising at the time of acquisition of such properties are charged against the allowance for loan losses. Subsequent write-downs in the carrying value and expenses incurred to maintain the properties are charged to expense.

Premises and equipment

        Premises and equipment are stated at cost less accumulated depreciation computed on the straight-line method at rates based on estimated useful lives.

        Expenditures for replacements or major improvements are capitalized. Expenditures for normal maintenance and repairs are charged to expense as incurred. Upon the sale or retirement of premises and equipment, the cost and accumulated depreciation are removed from the respective accounts and any gain or loss is included in income.

Computation of fair values

        SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires disclosure of the estimated fair value of financial instruments, including both assets and liabilities recognized and not recognized in the statement of financial condition, for which it is practicable to estimate fair value.

        The calculation of fair value estimates of financial instruments is dependent upon certain subjective assumptions and involves significant uncertainties. Changes in assumptions could significantly affect the estimates. These estimates do not reflect any possible tax ramifications, estimated transaction costs or any premium or discount that could result from offering the Company's entire holdings of a particular financial instrument.

        The following methods and assumptions were utilized by the Company in estimating the fair values of its on-balance sheet financial instruments:

        Cash and cash equivalents—The carrying amounts reported in the statement of financial condition approximate these assets' fair value.

        Investment securities—Fair values for investment securities are based on quoted market prices where available. If quoted market prices are not available, fair values are based on market prices for comparable instruments. The carrying values of restricted equity securities approximate fair values.

        Loans receivable—For variable rate loans that reprice frequently and without significant change in credit risk, fair values are based on carrying values. The fair value of other loans are estimated by discounted cash flow analyses using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The fair value of nonaccrual loans is estimated using the lesser of loan value or the estimated fair values of the underlying collateral.

F-9

        Loans held-for-sale—The current market price of similar loans sold is used to estimate the fair value of loans held-for-sale.

        Accrued income receivable—The carrying value of accrued income receivable approximates fair value.

        Deposits—The fair values of demand, NOW, and savings deposits are, by definition, equal to the amount payable on demand at the reporting date, i.e., their carrying amounts. Fair values for time certificates of deposit are estimated using a discounted cash flow technique that applies interest rates currently being offered to a schedule of aggregated expected monthly maturities on time deposits.

        Borrowed funds—Fair values are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

        Mortgagors' escrow accounts—The carrying value of escrow accounts approximates fair value.

Income taxes

        The Company accounts for certain income and expense items differently for financial reporting purposes than for income tax purposes. Provisions for deferred taxes are being made in recognition of these temporary differences.

Reclassification

        Prior years' financial statements have been reclassified to conform with changes in the current financial statement presentation.

F-10

2. Investment Securities

        The cost and estimated market values of investment securities were as follows:

					Gross Unrealized
March 31, 2004			Amortized Cost Basis							Estimated Market Value
					Gain		Loss
			(Unaudited)
Debt securities:
US government and agency obligations:
	From one through five years		$	7,053,697	$	60,678	$	—		$	7,114,375
State agency and municipal obligations:
	From five through ten years			608,652		42,968		—			651,620
	After ten years			8,508,634		442,544		—			8,951,178
				9,117,286		485,512		—			9,602,798
Corporate bonds and other obligations:
	Due within one year			2,520,674		55,106		—			2,575,780
	From one through five years			21,162,356		1,015,427		(272	)		22,177,511
	After ten years			8,137,639		407,370		(201,639	)		8,343,370
				31,820,669		1,477,903		(201,911	)		33,096,661
Mortgage-backed securities				46,949,891		618,184		(122,899	)		47,445,176
	Total debt securities		$	94,941,543	$	2,642,277	$	(324,810	)	$	97,259,010
Marketable equity securities:
	Common stock		$	2,880,270	$	234,097	$	(4,905	)	$	3,109,462
	Preferred stock			7,122,360		100,640		(36,000	)		7,187,000
	Mutual funds			2,375		—		—			2,375
	Total equity securities		$	10,005,005	$	334,737	$	(40,905	)	$	10,298,837
		Total available-for-sale securities	$	104,946,548	$	2,977,014	$	(365,715	)	$	107,557,847

F-11

					Gross Unrealized
June 30, 2003			Amortized Cost Basis							Estimated Market Value
					Gain		Loss
Debt securities:
US government and agency obligations:
	From one through five years		$	6,173,012	$	94,778	$	—		$	6,267,790
State agency and municipal obligations:
	From five through ten years			608,510		47,557		—			656,067
	After ten years			8,506,412		473,991		—			8,980,403
				9,114,922		521,548		—			9,636,470
Corporate bonds and other obligations:
	Due within one year			3,164,135		77,620		—			3,241,755
	From one through five years			19,517,957		1,180,208		(4,301	)		20,693,864
	After ten years			8,135,734		432,206		(560,190	)		8,007,750
				30,817,826		1,690,034		(564,491	)		31,943,369
Mortgage-backed securities				46,576,712		726,741		(74,772	)		47,228,681
	Total debt securities		$	92,682,472	$	3,033,101	$	(639,263	)	$	95,076,310
Marketable equity securities:
	Common stock		$	2,880,296	$	67,693	$	(18,562	)	$	2,929,427
	Preferred stock			4,589,669		120,231		(35,000	)		4,674,900
	Mutual funds			2,359		—		—			2,359
	Total equity securities		$	7,472,324	$	187,924	$	(53,562	)	$	7,606,686
		Total available-for-sale securities	$	100,154,796	$	3,221,025	$	(692,825	)	$	102,682,996

F-12

					Gross Unrealized
June 30, 2002			Amortized Cost Basis							Estimated Market Value
					Gain		Loss
Debt securities:
US government and agency obligations:
	From one through five years		$	7,651,544	$	87,367	$	—		$	7,738,911
	From five through ten years			596,161		15,277		—			611,438
				8,247,705		102,644		—			8,350,349
State agency and municipal obligations:
	Due within one year			13,500		—		—			13,500
	From one through five years			54,000		—		—			54,000
	From five through ten years			13,500		—		—			13,500
	After ten years			9,108,283		94,831		(51,241	)		9,151,873
				9,189,283		94,831		(51,241	)		9,232,873
Corporate bonds and other obligations:
	Due within one year			998,344		20,496		—			1,018,840
	From one through five years			17,487,768		510,083		(38,176	)		17,959,675
	After ten years			8,130,682		116,388		(519,500	)		7,727,570
				26,616,794		646,967		(557,676	)		26,706,085
Mortgage-backed securities				44,742,426		808,510		(44,480	)		45,506,456
	Total debt securities		$	88,796,208	$	1,652,952	$	(653,397	)	$	89,795,763
Marketable equity securities:
	Common stock		$	3,171,135	$	44,953	$	(141,156	)	$	3,074,932
	Preferred stock			5,411,140		20,758		(153,699	)		5,278,199
	Mutual funds			1,687		—		—			1,687
	Total equity securities		$	8,583,962	$	65,711	$	(294,855	)	$	8,354,818
		Total available-for-sale securities	$	97,380,170	$	1,718,663	$	(948,252	)	$	98,150,581

        For the nine months ended March 31, 2004 (unaudited), gross gains of $44,843 and no losses were realized. No gains and gross losses of $7 were realized for the nine months ended March 31, 2003 (unaudited).

        For the year ended June 30, 2003 no gains and gross losses of $111,364 were realized on available-for-sale securities. For the year ended June 30, 2002 gross gains of $57,706 and losses of $18,354 were realized on available-for-sale securities, and losses of $41,351 were realized on trading securities.

        At March 31, 2004 (unaudited), and June 30, 2003 and 2002, debt securities with a carrying and market value of $1,522,740, $2,234,620, and $1,325,616 respectively, were pledged as collateral to secure public deposits.

F-13

3. Loans

        The composition of the Company's loan portfolio was as follows:

						For the Year Ended June 30,
			March 31, 2004
						2003			2002
			(Unaudited)
			(Dollars in thousands)
Residential mortgages			$	102,448		$	100,624		$	97,222
Commercial mortgages				23,225			16,753			11,408
Construction mortgages				5,633			2,057			4,528
Commercial				3,486			1,696			1,031
Installment				625			818			761
Collateral				365			483			438
Other				23			24			22
				135,805			122,455			115,410
Unadvanced construction loans				(1,792	)		(696	)		(2,008	)
		Total loans		134,013			121,759			113,402
	Deferred loan costs, net of fees			(134	)		(35	)		12
	Deferred fees on purchased loans			1			4			29
	Allowance for loan losses			(1,269	)		(1,264	)		(1,235	)
		Loans receivable, net	$	132,611		$	120,464		$	112,208
		Weighted average yield		5.91	%		6.32	%		7.06	%

F-14

        The Company's lending activities are conducted principally in Eastern Connecticut. The Company's investment in loans includes both adjustable and fixed rate loans. The composition of the Company's investment in loans was as follows:

					June 30,
			March 31, 2004
					2003		2002
			(Unaudited)
			(In Thousands)
Fixed rate:
	Term to maturity
		One month through one year	$	5,644	$	3,148	$	3,260
		One year through three years		3,687		2,998		1,110
		Three years through five years		10,913		8,178		5,184
		Five years through ten years		6,122		7,098		7,704
		Over ten years		61,655		53,041		39,226
				88,021		74,463		56,484
Adjustable rate:
	Rate adjustment
		One month through one year		29,151		27,623		25,934
		One year through three years		4,377		7,780		14,651
		Three years through five years		9,268		8,490		11,970
		Over five years		3,196		3,403		4,363
				45,992		47,296		56,918
		Total loans	$	134,013	$	121,759	$	113,402

        The adjustable rate loans generally have interest rate adjustment limitations and are generally indexed to the Company's cost of funds, prime rate, or to the U.S. Treasury Bill rate.

        In addition, the Company services loans for other financial institutions and agencies. These loans are originated by the Company and then sold. The Company continues to service these loans and remits the payments received to the purchasing institution. The amounts of these loans were approximately $28,473,000, $28,225,000 and $19,302,000 at March 31, 2004 (unaudited), and June 30, 2003 and 2002, respectively.

F-15

        Transactions in the allowance for loan losses accounts were as follows:

		Nine Months Ended March 31,					Year Ended June 30,
		2004			2003		2003			2002
		(Unaudited)
Balance at beginning of period		$	1,263,689		$	1,234,732	$	1,234,732		$	1,185,215
Provision for loan losses			45,000			45,000		60,000			60,000
Charge offs			(60,484	)		—		(40,026	)		(14,623	)
Recoveries			20,642			2,810		8,983			4,140
	Balance at end of period	$	1,268,847		$	1,282,542	$	1,263,689		$	1,234,732

        Nonperforming loans totaled $874,924, $1,159,161, and $174,630 at March 31, 2004 (unaudited), and June 30, 2003 and 2002, respectively, of which $747,023, $866,518, and $174,630 were accounted for on a nonaccrual basis. The amount of income that was contractually due but not recognized on non-accrual loans totaled $10,086, $22,354, and $6,447 at March 31, 2004 (unaudited), and at June 30, 2003 and 2002, respectively.

        At March 31, 2004 (unaudited), and June 30, 2003 and 2002, the Company did not have any restructured or impaired loans. There are no outstanding commitments to lend to borrowers with loans on which the accrual of interest has been discontinued.

4. Premises and Equipment

        Premises and equipment were summarized as follows:

					June 30,
		March 31, 2004			2003			2002
		(Unaudited)
Building and leasehold improvements		$	3,012,612		$	2,968,249		$	2,972,467
Equipment			1,756,486			1,746,996			1,487,845
Construction in progress			1,348,819			—			—
			6,117,917			4,715,245			4,460,312
Accumulated depreciation			(2,180,166	)		(1,988,731	)		(1,791,076	)
	Premises and equipment, net	$	3,937,751		$	2,726,514		$	2,669,236

        Depreciation expense amounted to $200,410 and $187,928 for the nine months ended March 31, 2004 and 2003 (unaudited). Depreciation expense was $249,333 and $259,308, for the years ended June 30, 2003 and 2002, respectively.

F-16

        The Company leases part of its Pomfret location to other tenants. Rental income was $18,043 and $17,343 for the nine months ended March 31, 2004 and 2003 (unaudited), respectively. For the years ended June 30, 2003 and 2002, rental income was $23,330 and $21,954, respectively.

5. Deposits

        The rates at which the Company paid interest on deposit accounts and the balances were as follows:

			March 31,				June 30,
			2004				2003				2002
			Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate
			(Unaudited)
			(Dollars in Thousands)
Demand deposits			$	20,617	—	%	$	23,075	—	%	$	15,698	—	%
NOW accounts				8,093	0.25			10,105	0.40			8,084	0.75
Regular savings				44,865	0.75			39,283	1.00			34,105	2.00
Money market accounts				47,001	1.57			39,090	1.70			24,009	2.92
Clubs				250	4.17			261	4.17			247	4.17
				120,826	0.92			111,814	0.99			82,143	1.77
Certificate accounts maturing in:
	Less than one year			35,855	2.15			38,461	2.34			56,015	4.11
	One year to two years			17,917	3.45			13,616	3.85			8,126	3.84
	Two years to three years			8,577	3.92			11,917	3.70			7,857	4.75
	Three years to five years			14,106	4.25			15,612	4.59			7,656	5.05
				76,455	3.04			79,606	3.24			79,654	4.24
		Total deposits	$	197,281	1.74	%	$	191,420	1.93	%	$	161,797	2.99	%

        The aggregate amount of individual time deposits of $100,000 or more at March 31, 2004 (unaudited), and June 30, 2003 and 2002, was approximately $24,976,000, $26,359,000, and $25,375,000, respectively.

F-17

6. Federal Home Loan Bank of Boston Advances

        Federal Home Loan Bank of Boston advances outstanding were as follows:

		March 31,				June 30,
		2004				2003				2002
		Amount Due		Weighted Average Rate		Amount Due		Weighted Average Rate		Amount Due		Weighted Average Rate
		(Unaudited)
		(Dollars in Thousands)
Year of maturity:
	2003	$	—	—	%	$	—	—	%	$	12,750	5.61	%
	2004		2,250	1.20			8,250	5.50			8,250	5.50
	2005		10,500	3.33			5,750	4.76			5,750	4.76
	2006		6,500	3.35			3,000	4.60			3,000	4.60
	2007		7,000	4.65			7,000	4.65			7,000	4.65
	2011		3,000	4.88			3,000	4.88			3,000	4.88
Total borrowed funds		$	29,250	3.65	%	$	27,000	4.95	%	$	39,750	5.16	%

        The advances are secured by a blanket lien on qualified collateral consisting primarily of first mortgages on residential property and are at fixed rates. The maturity schedule above reflects final maturity; however, some are callable at earlier dates.

        Additionally, the Bank has a line of credit with Federal Home Loan Bank of Boston for $2,354,000.

F-18

7. Income Taxes

        The components of the income tax expense for the periods indicated were as follows:

			Nine Months Ended March 31,					Years Ended June 30,
			2004			2003		2003		2002
			(Unaudited)
Current:
	Federal		$	429,729		$	351,837	$	353,245	$	285,698
	State			137,585			98,695		106,716		67,107
		Total current		567,314			450,532		459,961		352,805
Deferred:
	Federal			(63,200	)		37,251		86,512		(59,750	)
	State			(14,380	)		8,884		35,520		(14,249	)
		Total deferred		(77,580	)		46,135		122,032		(73,999	)
		Income tax expense	$	489,734		$	496,667	$	581,993	$	278,806

        The principal reasons for the income tax expense differing from the amount of such tax computed by applying the federal statutory tax rate of 34% to reported income before income tax expense were as follows:

			Nine Months Ended March 31,						Years Ended June 30,
			2004			2003			2003			2002
			(Unaudited)
Tax on income at statutory rates			$	560,183		$	541,140		$	658,397		$	395,425
	State taxes net of federal benefit			80,807			71,002			93,874			34,886
	Dividends received deduction			(40,441	)		(43,823	)		(57,805	)		(54,914	)
	Tax-exempt municipal income			(91,461	)		(92,287	)		(122,938	)		(110,728	)
	Other items, net			(19,354	)		20,635			10,465			14,137
		Tax at effective rates	$	489,734		$	496,667		$	581,993		$	278,806

F-19

        The components of deferred taxes included in the balance sheet were as follows:

						June 30,
			March 31, 2004			2003			2002
			(Unaudited)
Current tax receivable (payable)			$	(17,399	)	$	60,426		$	29,820
Deferred tax receivable:
	Reserve for loan losses		$	482,565		$	465,035		$	454,816
	Derivative instruments			211,780			211,780			339,593
	Deferred loan fees			52,061			13,577			—
	Contribution carryforward			—			12,180			52,730
	Deferred compensation			197,420			160,006			123,382
	Depreciation			2,743			5,640			9,503
	Capital loss carryforward			4,743			5,513			—
	Interest receivable on nonaccrual loans			2,270			2,270			2,270
				953,582			876,001			982,294
Deferred tax payable:
	Available-for-sale securities			(1,042,953	)		(984,734	)		(300,074	)
	Deferred loan fees			—			—			(4,661	)
				(1,042,953	)		(984,734	)		(304,735	)
		Net deferred taxes, before valuation allowance		(89,371	)		(108,733	)		677,559
		Valuation allowance		(20,400	)		(20,400	)		—
		Net deferred tax receivable (payable)	$	(109,771	)	$	(129,133	)	$	677,559

        SFAS No. 109 requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company believes that it may not realize all of its tax benefits related to realized and unrealized capital losses and therefore has reserved a portion of its deferred tax assets.

F-20

8. Regulatory Capital

        The Company and its subsidiary, Putnam Savings Bank, are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements.

        Quantitative measures established by regulation to ensure capital adequacy require the Company and its subsidiary to maintain minimum ratios of 4.00% for Tier 1 capital to average assets, 4.00% for Tier 1 capital to risk-weighted assets, and 8.00% for total risk-based capital to risk-weighted assets. As of March 31, 2004 (unaudited), the Company and its subsidiary meets all capital requirements.

        At March 31, 2004 (unaudited), the Company's and its subsidiary's capital ratios were considered well capitalized for regulatory purposes. To be categorized as well capitalized, they must maintain a Tier 1 capital to average assets ratio of 5.0%, a Tier 1 capital to risk-based ratio of at least 6.0%; and a total risk-based capital to risk-weighted assets ratio of at least 10.0%. There have been no subsequent conditions or events which management believes have changed their status.

        The following is a summary of the Company's and its subsidiary's actual capital:

					June 30,
	March 31, 2004
					2003				2002
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Unaudited)
	(Dollars in Thousands)
PSB Holdings, Inc.
Total Capital (to Risk-Weighted Assets)	$	24,056	16.15	%	$	22,839	16.95	%		N/A	N/A
Tier I Capital (to Risk-Weighted Assets)		22,655	15.21	%		21,515	15.97	%		N/A	N/A
Tier I Capital (to Average Assets)		22,655	9.00	%		21,515	9.01	%		N/A	N/A
Putnam Savings Bank
Total Capital (to Risk-Weighted Assets)	$	24,037	16.14	%	$	22,837	16.95	%	$	21,256	17.31	%
Tier I Capital (to Risk-Weighted Assets)		22,636	15.20	%		21,513	15.97	%		20,021	16.30	%
Tier I Capital (to Average Assets)		22,636	8.99	%		21,513	9.01	%		20,021	9.31	%

        The Company's and its subsidiary's capital under generally accepted accounting principles (GAAP) is in agreement with the capital reported to its regulators.

F-21

9. Retained Earnings

        Retained earnings at March 31, 2004 (unaudited) and June 30, 2003 includes approximately $2,284,000 for which no provision for federal income tax has been made. This amount represents aggregate allocations of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses will create income for tax purposes only, which will be subjected to the then current corporate income tax rate.

10. Employee Benefits

        The Company has a defined contribution plan that covers substantially all of the Company's employees. Contributions to the plan are discretionary and are voted on annually by the Directors of the Company. For the nine months ended March 31, 2004 and 2003 (unaudited), the Company expensed $95,045 and $92,533, respectively. Costs expensed were $123,586 and $102,000 for the years ended June 30, 2003 and 2002, respectively.

        The Company has a 401K plan covering each employee who meets the minimum age and length of service requirements. Employees may defer up to 10% of gross compensation. The Company's matching contribution is discretionary. The Company has not determined its matching contribution for the fiscal year ending June 30, 2004. For the year ended June 30, 2003 the Company chose to contribute 25% of the employee's deferral on a maximum of 4% of the employee's salary. The Company contributed $17,508 and $15,118 to the plan during the years ended June 30, 2003 and 2002, respectively.

F-22

11. Other Comprehensive Income

        The Company's source of comprehensive income includes the unrealized gains on investment securities.

        The components and the related tax effects allocated to other comprehensive income for the periods indicated were as follows:

		Nine Months Ended March 31,					Year Ended June 30,
		2004			2003		2003		2002
		(Unaudited)
Net income		$	1,157,864		$	1,094,922	$	1,354,470	$	884,210
Other comprehensive income:
Unrealized holding gains on securities available-for-sale			127,941			989,414		1,646,425		782,453
Reclassification adjustment for (gains) losses recognized in net income			(44,843	)		7		111,364		1,999
Other comprehensive income before tax expense			83,098			989,421		1,757,789		784,452
Income tax expense related to items of other comprehensive income			58,218			385,382		684,661		305,542
Other comprehensive income net of tax			24,880			604,039		1,073,128		478,910
	Total comprehensive income	$	1,182,744		$	1,698,961	$	2,427,598	$	1,363,120

F-23

12. Financial Instruments

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

        The contract or notional amounts of outstanding commitments were as follows:

				June 30,
		March 31, 2004
				2003		2002
		(Unaudited)
Commitments to extend credit:
	Loan commitments	$	3,068,830	$	5,649,817	$	2,807,310
	Unadvanced construction loans		3,678,483		2,120,060		2,112,500
	Unadvanced lines of credit		11,134,503		8,617,960		6,950,994
	Standby letters of credit		144,750		144,750		—
Commitments to purchase securities			—		4,634,571		—
	Outstanding commitments	$	18,026,566	$	21,167,158	$	11,870,804

        The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

        The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held is primarily real property.

        Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in a loan commitment.

        Management does not anticipate any material losses as a result of these commitments.

F-24

        The estimated fair values of the Company's financial instruments were as follows:

						June 30,
		March 31, 2004
						2003				2002
		(Unaudited)
		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
	Cash and cash equivalents	$	4,464,918	$	4,464,918	$	13,280,042	$	13,280,042	$	8,097,071	$	8,097,071
	Investment securities		107,557,847		107,557,847		102,682,996		102,682,996		98,150,581		98,150,581
	Loans receivable		132,610,818		134,506,933		120,463,686		122,030,718		112,207,737		113,197,501
	Loans held-for-sale		454,800		454,800		1,051,434		1,051,434		617,300		617,300
	Accrued income receivable		1,306,517		1,306,517		1,273,851		1,273,851		1,331,627		1,331,627
Financial liabilities
	Deposits		197,281,006		199,000,648		191,420,298		193,261,935		161,797,475		162,460,467
	Borrowed funds		29,250,000		30,059,969		27,000,000		28,287,600		39,750,000		40,526,989
	Mortgagors' escrow accounts		498,848		498,848		851,519		851,519		816,548		816,548

13. Subsequent Events

       On April 7, 2004, the Board of Directors unanimously adopted a plan of stock issuance pursuant to which PSB Holdings, Inc. will sell 44.5% of its common stock to eligible depositors of its subsidiary, Putnam Saving Bank, in a subscription offering and, if necessary to the general public if a community or a syndicated community offering is held. After the offering, 53.7% of PSB Holdings, Inc.'s outstanding common stock will be owned by Putnam Bancorp MHC, a mutual holding company formed in May 2003. The plan is subject to approval by the Office of Thrift Supervision.

        In addition, PSB Holdings, Inc. intends to issue shares of common stock, equal to 4% of the number of shares of common stock sold in the offering, to a charitable foundation to support its ongoing commitment to its community. Putnam Savings Bank has also adopted an Employee Stock Ownership Plan, which will purchase 8% of the common stock issued in connection with the offering, including shares issued to the charitable foundation.

        The initial public offering provides that there shall be established, upon the completion of the conversion, a special "liquidation account" for the benefit of eligible account holders and supplemental eligible account holders in an amount equal to the net worth of Putnam Savings Bank as of the date of its latest statement of financial condition contained in the final offering circular relating to the conversion. Each eligible account holder and supplemental eligible account holder would have an initial interest in the liquidation account for each qualifying deposit account held in Putnam Savings Bank on the qualifying date. An eligible account holder's or supplemental eligible account holder's interest as to each deposit account would be in the same proportion as the balance in his or her account on the applicable eligibility date was to the aggregate balance in all qualifying deposit accounts on that date. For accounts in existence on both dates, separate subaccounts shall be determined on the basis of the qualifying deposits in the accounts on the record dates. However, if an eligible account holder or supplemental eligible account holder should reduce the amount in the qualifying deposit account on any annual closing date of Putnam Savings Bank to a level less than the lowest amount in the account on the applicable eligibility date, and on any subsequent closing date, then the account holder's interest

F-25

in this special liquidation account would be reduced by an amount proportionate to any such reduction, and the account holder's interest would cease to exist if the qualifying deposit account were closed.

        The interest in the special liquidation account would never be increased despite any increase in the balance of the account holder's related accounts after the conversion. The liquidation account is an off-balance sheet memorandum account and will not be reflected on Putnam Savings Bank's financial statements following the conversion.

        In conjunction with the stock issuance plan, Putnam Savings Bank has applied for a federal charter and upon approval will be regulated by the Office of Thrift Supervision.

        The costs associated with the stock offering will be deferred and will be deducted from the proceeds upon sale and issuance of the stock. At March 31, 2004 (unaudited) there were no deferred costs.

F-26

        You should rely only on the information contained in this document or that to which we have referred you. We have not authorized anyone to provide you with information that is different. This document does not constitute an offer to sell, or the solicitation of an offer to buy, any of the securities offered hereby to any person in any jurisdiction in which such offer or solicitation would be unlawful. The affairs of Putnam Savings Bank or PSB Holdings, Inc. may change after the date of this prospectus. Delivery of this document and the sales of shares made hereunder does not mean otherwise.

PSB Holdings, Inc.
Holding Company for Putnam Savings Bank

2,686,688 Shares of Common Stock
(Subject to Increase to up to 3,089,691 Shares)

PROSPECTUS

Keefe, Bruyette & Woods

August    , 2004

Until the later of                        2004 or 25 days after the commencement of the offering, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II: INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers

        Provisions in the Registrant's bylaws provide for indemnification of the Registrant's directors and officers up to the fullest extent authorized by applicable law and regulations of the Office of Thrift Supervision (OTS). Section 545.121 of the OTS regulations are described below.

        Generally, federal regulations define areas for indemnity coverage for federal savings associations as follows:

(a)    Definitions and rules of construction.

        (1)   Definitions for purposes of this Section.

        (i)    Action. The term "action" means any judicial or administrative proceeding, or threatened proceeding, whether civil, criminal, or otherwise, including any appeal or other proceeding for review;

        (ii)   Court. The term "court" includes, without limitation, any court to which or in which any appeal or any proceeding for review is brought;

        (iii)  Final Judgment. The term "final judgment" means a judgment, decree, or order which is not appealable or as to which the period for appeal has expired with no appeal taken;

        (iv)  Settlement. The term "settlement" includes entry of a judgment by consent or confession or a plea of guilty or nolo contendere.

        (2)   References in this section to any individual or other person, including any association, shall include legal representatives, successors, and assigns thereof.

(b)    General. Subject to paragraphs (c) and (g) of this section, a savings association shall indemnify any person against whom an action is brought or threatened because that person is or was a director, officer or employee of the association, for:

(1)    Any amount for which that person becomes liable under a judgment in such action; and

(2)    Reasonable costs and expense, including reasonable attorney's fees, actually paid or incurred by that person in defending or settling such action, or in enforcing his or her rights under this section if he or she attains favorable judgment in such enforcement action.

(c)    Requirements. Indemnification shall be made to such person under paragraph (b) of this section only if:

(1)    Final judgment on the merits is in his or her favor; or

(2)    In case of:

(i)

Settlement,



(ii)

Final judgment against him or her; or



(iii)

Final judgment in his or her favor, other than on the merits, if a majority of the disinterested directors of the savings association determine that he or she was acting in good faith within the scope of his or her employment or authority as he or she could reasonably have perceived it under the circumstances and for a purpose he or she could reasonably have believed under the circumstances was in the best interests of the savings association or its members.

II-1

        However, no indemnification shall be made unless the association gives the Office at least 60 days' notice of its intention to make such indemnification. Such notice shall state the facts on which the action arose, the terms of any settlement, and any disposition of the action by a court. Such notice, a copy thereof, and a certified copy of the resolution containing the required determination by the board of directors shall be sent to the Regional Director, who shall promptly acknowledge receipt thereof. The notice period shall run from the date of such receipt. No such indemnification shall be made if the OTS advises the association in writing, within such notice period, of its objection thereto.

(d)    Insurance. A savings association may obtain insurance to protect it and its directors, officers, and employees from potential losses arising from claims against any of them for alleged wrongful acts, or wrongful acts, committed in their capacity as directors, officers, or employees. However, no savings association may obtain insurance which provides for payment of losses of any person incurred as a consequence of his or her willful or criminal misconduct.

(e)    Payment of expenses. If a majority of the directors of a savings association concludes that, in connection with an action, any person ultimately may become entitled to indemnification under this section, the directors may authorize payment of reasonable costs and expenses, including reasonable attorneys' fees, arising from the defense or settlement of such action. Nothing in this paragraph (e) shall prevent the directors of a savings association from imposing such conditions on a payment of expenses as they deem warranted and in the interests of the savings association. Before making advance payment of expenses under this paragraph (e), the savings association shall obtain an agreement that the savings association will be repaid if the person on whose behalf payment is made is later determined not to be entitled to such indemnification.

(f)    Exclusiveness of provision. No savings association shall indemnify any person referred to in paragraph (b) of this section or obtain insurance referred to in paragraph (d) of this section other than in accordance with this section. However, an association which has a bylaw in effect relating to indemnification of its personnel shall be governed solely by that bylaw, except that its authority to obtain insurance shall be governed by paragraph (d) of this section.

(g)    [Applicability of section 11(n) of the Federal Deposit Insurance Act.] The indemnification provided for in paragraph (b) of this section is subject to and qualified by 12 U.S.C. 1821(k).

Item 25. Other Expenses of Issuance and Distribution

	Amount
*Legal Fees and Expenses	$	230,000
*Accounting Fees and Expenses		45,000
*Conversion Agent and Data Processing Fees		12,000
*Marketing Agent Fees and Expenses, including attorney's fees (1)		229,000
*Appraisal and Business Plan Fees and Expenses		30,000
*Printing, Postage, Mailing and EDGAR		60,000
*Filing Fees (OTS, Nasdaq and SEC)		114,186
*Other		33,814
*Total	$	754,000

*

Estimated

(1)

PSB Holdings, Inc. has retained Keefe, Bruyette & Woods, Inc. to assist in the sale of common stock on a best efforts basis in the offering. Fees are estimated at the midpoint of the offering range.

II-2

Item 26. Recent Sales of Unregistered Securities

        Not Applicable.

Item 27. Exhibits:

        The exhibits filed as part of this registration statement are as follows:

(a)    List of Exhibits

1.1	Engagement Letter between PSB Holdings, Inc. and Keefe, Bruyette & Woods, Inc.
1.2	Form of Agency Agreement between PSB Holdings, Inc. and Keefe, Bruyette & Woods, Inc.*
2	Stock Issuance Plan
3.1	Charter of PSB Holdings, Inc.
3.2	Bylaws of PSB Holdings, Inc.
4	Form of Common Stock Certificate of PSB Holdings, Inc.
5	Opinion of Luse Gorman Pomerenk & Schick regarding legality of securities being registered
8	Form of Federal Tax Opinion of Luse Gorman Pomerenk & Schick
10.1	Employee Stock Ownership Plan
10.2	Deferred Compensation Plan
21	Subsidiaries of Registrant
23.1	Consent of Luse Gorman Pomerenk & Schick (contained in Opinions included as Exhibits 5 and 8)
23.2	Consent of Snyder & Haller, P.C.
23.3	Consent of RP Financial, LC.
24	Power of Attorney (set forth on signature page)
99.1	Appraisal Agreement between PSB Holdings, Inc. and RP Financial, LC.
99.2	Business Plan Agreement between PSB Holdings, Inc. and RP Financial, LC.
99.3	Appraisal Report of RP Financial, LC.**
99.4	Letter of RP Financial, LC. with respect to Subscription Rights
99.5	Marketing Materials*
99.6	Stock Order and Acknowledgment Form*

*

To be filed supplementally or by amendment.

**

Supporting financial schedules filed pursuant to Rule 202 of Regulation S-T.

II-3

Item 28. Undertakings

        The undersigned Registrant hereby undertakes:

        (1)   To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:

        (i)    Include any prospectus required by Section 10(a)(3) of the Securities Act;

        (ii)   Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and

        (iii)  Include any additional or changed material information as the plan of distribution.

        (2)   For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.

        (3)   To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

        Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable.

        In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-4

SIGNATURES

        In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the Town of Putnam, State of Connecticut on June 2, 2004.

PSB HOLDINGS, INC.
By:	/s/  ROBERT G. COCKS, JR. Robert G. Cocks, Jr. President, Chief Executive Officer and Director (Duly Authorized Representative)

POWER OF ATTORNEY

        We, the undersigned directors and officers of PSB Holdings, Inc. (the "Company") hereby severally constitute and appoint Robert G. Cocks, Jr. as our true and lawful attorney and agent, to do any and all things in our names in the capacities indicated below which said Robert G. Cocks, Jr. may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form SB-2 relating to the offering of the Company's common stock, including specifically, but not limited to, power and authority to sign for us in our names in the capacities indicated below the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby approve, ratify and confirm all that said Robert G. Cocks, Jr. shall do or cause to be done by virtue thereof.

        In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates indicated.

Signatures	Title	Date
/s/  ROBERT G. COCKS, JR. Robert G. Cocks, Jr.	President, Chief Executive Officer and Director (Principal Executive Officer)	June 2, 2004
/s/  JOHN T. KNIERIM John T. Knierim	Vice President and Treasurer (Principal Financial and Accounting Officer)	June 2, 2004
/s/  THOMAS A. BORNER Thomas A. Borner	Chairman of the Board	June 2, 2004
/s/  A. LEON ARCHAMBAULT A. Leon Archambault	Director	June 2, 2004

II-5

/s/  MAURICE P. BEAULAC Maurice P. Beaulac	Director	June 2, 2004
/s/  PAUL M. KELLY Paul M. Kelly	Director	June 2, 2004
/s/  RICHARD A. LOOMIS Richard A. Loomis	Director	June 2, 2004
/s/  WILBUR D. NEUMANN Wilbur D. Neumann	Director	June 2, 2004
/s/  MARY E. PATENAUDE Mary E. Patenaude	Director	June 2, 2004
/s/  CHARLES H. PUFFER Charles H. Puffer	Director	June 2, 2004

II-6

As filed with the Securities and Exchange Commission on June 10, 2004

Registration No. 333-            

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM SB-2

PSB Holdings, Inc.
Putnam, Connecticut

EXHIBIT INDEX

1.1	Engagement Letter between PSB Holdings, Inc. and Keefe, Bruyette & Woods, Inc.
1.2	Form of Agency Agreement between PSB Holdings, Inc. and Keefe, Bruyette & Woods, Inc.*
2	Stock Issuance Plan
3.1	Charter of PSB Holdings, Inc.
3.2	Bylaws of PSB Holdings, Inc.
4	Form of Common Stock Certificate of PSB Holdings, Inc.
5	Opinion of Luse Gorman Pomerenk & Schick regarding legality of securities being registered
8	Form of Federal Tax Opinion of Luse Gorman Pomerenk & Schick
10.1	Employee Stock Ownership Plan
10.2	Deferred Compensation Plan
21	Subsidiaries of Registrant
23.1	Consent of Luse Gorman Pomerenk & Schick (contained in Opinions included as Exhibits 5 and 8)
23.2	Consent of Snyder & Haller, P.C.
23.3	Consent of RP Financial, LC.
24	Power of Attorney (set forth on signature page)
99.1	Appraisal Agreement between PSB Holdings, Inc. and RP Financial, LC.
99.2	Business Plan Agreement between PSB Holdings, Inc. and RP Financial, LC.
99.3	Appraisal Report of RP Financial, LC.**
99.4	Letter of RP Financial, LC. with respect to Subscription Rights
99.5	Marketing Materials*
99.6	Stock Order and Acknowledgment Form*

*

To be filed supplementally or by amendment.

**

Supporting financial schedules filed pursuant to Rule 202 of Regulation S-T.

QuickLinks

TABLE OF CONTENTS
SUMMARY
RISK FACTORS
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
REGULATORY CAPITAL COMPLIANCE
CAPITALIZATION
PRO FORMA DATA
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH AND WITHOUT THE FOUNDATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS OF PSB HOLDINGS, INC.
BUSINESS OF PUTNAM SAVINGS BANK
FEDERAL AND STATE TAXATION
SUPERVISION AND REGULATION
MANAGEMENT
THE STOCK OFFERING
PUTNAM SAVINGS FOUNDATION
RESTRICTIONS ON THE ACQUISITION OF PSB HOLDINGS, INC. AND PUTNAM SAVINGS BANK
DESCRIPTION OF CAPITAL STOCK OF PSB HOLDINGS, INC.
TRANSFER AGENT AND REGISTRAR
LEGAL AND TAX MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
REGISTRATION REQUIREMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition
Consolidated Statements of Operations
Consolidated Statements of Changes in Capital Accounts
Consolidated Statements of Cash Flows
PSB Holdings, Inc. Notes to Consolidated Financial Statements
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
SIGNATURES
POWER OF ATTORNEY
EXHIBIT INDEX

EX-1.1

                                                                     Exhibit 1.1

March 4, 2004


Mr. Thomas A. Borner, Chairman
PSB Holdings, Inc.
c/o Borner, Scola, Hill, Baruti & Smith
155 Providence Street
Putnam, CT  06260

Dear Mr. Borner:

This proposal is being submitted in connection with the proposed minority stock
(the "Offering") by PSB Holdings, Inc. (the "Company"), the mid-tier stock
holding company of Putnam Savings Bank (the "Bank"). The Company and the Bank
are referred to collectively as the "Company". The Offering will be made
pursuant to the Company's Stock Issuance Plan (the "Plan") to eligible
depositors and others in a Subscription Offering, with any remaining shares
offered to the general public in a Community Offering.

Keefe, Bruyette and Woods, Inc. ("KBW") will act as the Company's exclusive
financial advisor and marketing agent in connection with the Offering. This
letter sets forth selected terms and conditions of our engagement.

1.   ADVISORY/OFFERING SERVICES. As the Company's financial advisor and
marketing agent, KBW will provide the Company with a comprehensive program of
services designed to promote an orderly, efficient, cost-effective and long-term
stock distribution. KBW will provide financial and logistical advice to Company
concerning the Conversion and related issues. KBW will provide Offering
enhancement services intended to maximize stock sales in the Subscription
Offering and to residents of the Bank's market area, if necessary, in the
Community Offering.

KBW shall provide financial advisory services to the Company which are typical
in connection with an equity offering and include, but are not limited to,
overall financial analysis of the Company with a focus on identifying factors
which impact the valuation of the common stock.

Additionally, post Offering financial advisory services will include advice on
shareholder relations, after-market trading, dividend policy (for both regular
and special dividends), stock repurchase strategies and communication with
market makers. Prior to the closing of the Offering, KBW shall furnish to client
a Post-Offering reference manual, which will include specifics relative to these
items. (The nature of the services to be provided by KBW as the Company's
financial advisor and marketing agent is further described in Exhibit A attached
hereto.)



Mr. Thomas A. Borner
March 4, 2004
Page 2 of 5

2.   PREPARATION OF OFFERING DOCUMENTS. The Company and its counsel will draft
the registration statement, Ooffering application, prospectus and other
documents to be used in connection with the Offering. KBW will attend meetings
to review these documents and will advise you on their form and content. KBW and
its counsel will draft an appropriate agency agreement and related documents as
well as marketing materials other than the prospectus.

3.   DUE DILIGENCE REVIEW. Prior to filing the registration statement, Offering
application or any offering or other documents naming KBW as the Company's
financial advisor and marketing agent, KBW and its representatives will
undertake substantial investigations to learn about the Bank's and Company's
business and operations ("due diligence review") in order to confirm information
provided to us and to evaluate information to be contained in the Company's
offering documents. The Company and the Bank agree that they will make available
to KBW all relevant information, whether or not publicly available, which KBW
reasonably requests, and will permit KBW to discuss with management the
operations and prospects of the Bank. KBW will treat all material non-public
information as confidential. The Company acknowledges that KBW will rely upon
the accuracy and completeness of all information received from the Company, its
officers, directors, employees, agents and representatives, accountants and
counsel including this letter to serve as the Company's financial advisor and
marketing agent.

4.   REGULATORY FILINGS. The Bank and/or the Company will cause appropriate
Offering documents to be filed with all regulatory agencies including, the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), the Office of Thrift Supervision ("OTS"), and such
state securities commissioners as may be determined by the Company.

5.   AGENCY AGREEMENT. The specific terms of KBW's services, including stock
offering enhancement and syndicated offering services contemplated in this
letter shall be set forth in a mutually agreed upon Agency Agreement between KBW
and the Bank and the Company to be executed prior to commencement of the
Offering, and dated the date that the Company's prospectus is declared effective
and/or authorized to be disseminated by the appropriate regulatory agencies, the
SEC, the NASD, the OTS and such state securities commissioners and other
regulatory agencies as required by applicable law.

6.   REPRESENTATIONS, WARRANTIES AND COVENANTS. The Agency Agreement will
     include representations, warranties and covenants mutually agreeable to the
     Company and KBW, and will provide that the Company will indemnify KBW and
     its controlling persons (and, if applicable, the members of the selling
     group and their controlling persons), and that KBW will indemnify the Bank
     and the Company against certain liabilities, including, without limitation,
     liabilities under the Securities Act of 1933.

7.   FEES.  For the services hereunder, the Company shall pay the following fees
     to KBW at



Mr. Thomas A. Borner
March 4, 2004
Page 3 of 5

     closing unless stated otherwise:

     (a)  MANAGEMENT FEE. A Management Fee of $40,000 payable in four
          consecutive monthly installments of $10,000 commencing with the
          adoption of the Plan. Such fees shall be deemed to have been earned
          when due. Should the Offering be terminated for any reason not
          attributable to the action or inaction of KBW, KBW shall have earned
          and be entitled to be paid fees accruing through the stage at which
          point the termination occurred.

     (b)  SUCCESS FEE: A Success Fee of 1.00% shall be charged based on the
          aggregate Purchase Price of Common Stock sold in the Offering
          excluding shares purchased by the Bank's officers, directors, or
          employees (or members of their immediate family) plus any ESOP,
          tax-qualified or stock based compensation plans (except IRA's) or
          similar plan created by the Bank or the Company for some or all of
          their directors or employees. The Management Fee described in 7(a)
          will be applied against the Success Fee.

     (c)  BROKER-DEALER PASS-THROUGH. If any shares of the Company's stock
          remain available after the Subscription Offering and Community
          Offering, at the request of the Company, KBW will seek to form a
          syndicate of registered broker-dealers to assist in the sale of such
          common stock on a best efforts basis, subject to the terms and
          conditions set forth in the selected dealers agreement. KBW will
          endeavor to distribute the common stock among dealers in a fashion
          which best meets the distribution objectives of the Company and the
          Plan. KBW will be paid a fee not to exceed 5.5% of the aggregate
          Purchase Price of the shares of common stock sold by them. From this
          fee, KBW will pass onto selected broker-dealers, who assist in the
          syndicated community, an amount competitive with gross underwriting
          discounts charged at such time for comparable amounts of stock sold at
          a comparable price per share in a similar market environment. Fees
          with respect to purchases effected with the assistance of a
          broker/dealer other than KBW shall be transmitted by KBW to such
          broker/dealer. THE DECISION TO UTILIZE SELECTED BROKER-DEALERS WILL BE
          MADE BY THE COMPANY upon consultation with KBW. In the event, with
          respect to any stock purchases, fees are paid pursuant to this
          subparagraph 7(c), such fees shall be in lieu of, and not in addition
          to, payment pursuant to subparagraph 7(b).

8.   ADDITIONAL SERVICES. KBW FURTHER AGREES TO PROVIDE FINANCIAL ADVISORY
ASSISTANCE TO THE COMPANY AND THE BANK FOR A PERIOD OF ONE YEAR FOLLOWING
COMPLETION OF THE OFFERING, INCLUDING FORMATION OF A DIVIDEND POLICY AND
SHARE REPURCHASE PROGRAM, ASSISTANCE WITH SHAREHOLDER REPORTING AND
SHAREHOLDER RELATIONS MATTERS, GENERAL ADVICE ON MERGERS AND ACQUISITIONS AND
OTHER RELATED FINANCIAL MATTERS, WITHOUT THE PAYMENT BY THE COMPANY OR THE
BANK OF ANY FEES IN ADDITION TO THOSE SET FORTH IN SECTION 7 HEREOF. Nothing
in this



Mr. Thomas A. Borner
March 4, 2004
Page 4 of 5

Agreement shall require the Company or the Bank to obtain such services from
KBW. Following this initial one year term, if both parties wish to continue the
relationship, a fee will be negotiated and an agreement entered into at that
time.

9.   EXPENSES. The Company will bear those expenses of the proposed Offering
customarily borne by issuers, including, without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the
Company's accountants, attorneys, appraiser, transfer agent and registrar,
printing, mailing and marketing and syndicate expenses associated with the
Offering; the fees set forth in Section 7; and fees for "Blue Sky" legal work.
If KBW incurs expenses on behalf of Company, the Company will reimburse KBW for
such expenses.

KBW shall be reimbursed for reasonable out-of-pocket expenses, including costs
of travel, meals and lodging, photocopying, telephone, facsimile and couriers,
provided such expenses do not to exceed $15,000. The selection of KBW's counsel
will be done by KBW, with the approval of the Company. The Company will
reimburse KBW for the fees and expenses of its counsel which will not exceed
$30,000.

10.  CONDITIONS. KBW's willingness and obligation to proceed hereunder shall be
subject to, among other things, satisfaction of the following conditions in
KBW's opinion, which opinion shall have been formed in good faith by KBW after
reasonable determination and consideration of all relevant factors: (a) full and
satisfactory disclosure of all relevant material, financial and other
information in the disclosure documents and a determination by KBW, in its sole
discretion, that the sale of stock on the terms proposed is reasonable given
such disclosures; (b) no material adverse change in the condition or operations
of the Bank subsequent to the execution of the agreement; and (c) no adverse
market conditions at the time of offering which in KBW's opinion make the sale
of the shares by the Company inadvisable.

11.  BENEFIT. This Agreement shall inure to the benefit of the parties hereto
and their respective successors and to the parties indemnified pursuant to the
terms and conditions of the Agency Agreement and their successors, and the
obligations and liabilities assumed hereunder by the parties hereto shall be
binding upon their respective successors provided, however, that this Agreement
shall not be assignable by KBW.

12.  DEFINITIVE AGREEMENT. This letter reflects KBW's present intention of
proceeding to work with the Company on its proposed Offering and minority stock
issuance. It does not create a binding obligation on the part of the Bank, the
Company or KBW except as to the agreement to maintain the confidentiality of
non-public information set forth in Section 3, the payment of certain fees as
set forth in Section 7(a) and 7(b) and the assumption of expenses as set forth
in Section 9, all of which shall constitute the binding obligations of the
parties hereto and which shall survive the termination of this Agreement or the
completion of the services furnished hereunder and shall remain operative and in
full force and effect. You further acknowledge that any report or analysis
rendered by KBW pursuant to this engagement is rendered for use solely



Mr. Thomas A. Borner
March 4, 2004
Page 5 of 5

by the Company and its agents in connection with the Offering. Accordingly, you
agree that you will not provide any such information to any other person without
our prior written consent.

KBW acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related offering materials filed as part of a
registration statement to be declared effective in connection with the offering.
Accordingly, KBW agrees that in connection with the Offering it will not give
any unauthorized information or make any unauthorized representation. We will be
pleased to elaborate on any of the matters discussed in this letter at your
convenience.

If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned.

Very truly yours,

KEEFE, BRUYETTE & WOODS, INC.


By:  /s/ Patricia A. McJoynt
     -----------------------
      Patricia A. McJoynt
      Managing Director

PSB HOLDINGS, INC.


By:  /s/ Thomas A. Borner               Date:  /s/ 3/24/04
     --------------------                      -----------
      Thomas A. Borner
       Chairman


PUTNAM SAVINGS BANK


By:   /s/ Thomas A. Borner              Date: /s/ 3/24/04
      --------------------                    -----------
      Thomas A. Borner
      Chairman



                                    EXHIBIT A

                        STOCK OFFERING SERVICES PROPOSAL
                             TO PUTNAM SAVINGS BANK


KBW provides thrift institutions converting from the mutual to stock form of
ownership or conducting mutual holding company minority stock offerings with a
comprehensive program of stock issuance services designed to promote an orderly,
efficient, cost-effective and long-term stock distribution. The following list
is representative of the stock issuance services, if appropriate, we propose to
perform on behalf of the Company.

GENERAL SERVICES

Assist management and legal counsel in structuring the transaction.

Review and comment on the Stock Issuance Plan.

Analyze and make recommendations on bids from printing, transfer agent, and
appraisal firms.

Assist officers and directors in obtaining bank loans to purchase stock, if
requested.

Assist in drafting and distribution of press releases as required or
appropriate.

Review and comment on the prospectus and any business plan prepared in
connection with the Offering.

STOCK OFFERING ENHANCEMENT SERVICES

Establish and manage Stock Information Center at the Bank. Stock Information
Center personnel will track prospective investors; record stock orders; mail
order confirmations; provide the Bank's senior management with daily reports;
answer customer inquiries; and handle special situations as they arise.

Assign KBW's personnel to be at the Bank through completion of the Subscription
and Community Offerings to manage the Stock Information Center, meet with
prospective shareholders at individual and community information meetings (if
applicable), solicit local investor interest through a tele-marketing campaign,
answer inquiries, and otherwise assist in the sale of stock in the Subscription
and Community Offerings. This effort will be lead by a Principal of KBW.

Create target investor list based upon review of the Bank's depositor base.

Provide intensive financial and marketing input for drafting of the prospectus.



STOCK  OFFERING ENHANCEMENT SERVICES- CONTINUED

Prepare other marketing materials, including prospecting letters and brochures,
and media advertisements.

Arrange logistics of community information meeting(s) as required.

Prepare audio-visual presentation by senior management for community information
meeting(s).

Prepare management for question-and-answer period at community information
meeting(s).

Attend and address community information meeting(s) and be available to answer
questions.

BROKER-ASSISTED SALES SERVICES.

Arrange for broker information meeting(s) as required.

Prepare audio-visual presentation for broker information meeting(s).

Prepare script for presentation by senior management at broker information
meeting(s).

Prepare management for question-and-answer period at broker information
meeting(s).

Attend and address broker information meeting(s) and be available to answer
questions.

Produce confidential broker memorandum to assist participating brokers in
selling the Bank's common stock.

AFTER-MARKET SUPPORT SERVICES.

KBW will use their best efforts to secure trading and on-going research
commitment from at least two NASD firms, one of which will be Keefe, Bruyette &
Woods, Inc.

EX-2

                                                                       Exhibit 2

                               PSB HOLDINGS, INC.
                               STOCK ISSUANCE PLAN



                                TABLE OF CONTENTS



                                                                             Page
                                                                             ----
                                                                           
1.   Introduction..............................................................1

2.   Definitions...............................................................2

3.   Number of Shares to be Offered............................................7

4.   Independent Valuation and Purchase Price of Shares........................7

5.   Method of Offering Shares and Rights to Purchase Stock....................8

6.   Additional Limitations on Purchases of Common Stock......................11

7.   Payment for Stock........................................................14

8.   Manner of Exercising Subscription Rights Through Order Forms.............15

9.   Undelivered, Defective or Late Order Form; Insufficient Payment..........16

10.  Completion of the Stock Offering.........................................16

11.  Establishment and Funding of Charitable Foundation.......................16

12.  Market for Common Stock..................................................17

13.  Stock Purchases by Management Persons After the Stock Offering...........17

14.  Resales of Stock by Directors and Officers...............................18

15.  Stock Certificates.......................................................18

16.  Restriction on Financing Stock Purchases.................................18

17.  Stock Benefit Plans......................................................18

18.  Post-Stock Issuance Filing and Market Making.............................19

19.  Payment of Dividends and Repurchase of Stock.............................19

20.  Stock Offering Expenses..................................................19

21.  Employment and Other Severance Agreements................................19

22.  Interpretation...........................................................19

23.  Amendment or Termination of the Plan.....................................20




1.   INTRODUCTION

     The Board of Directors of PSB Holdings, Inc., the mid-tier stock holding
company (the "Holding Company") and the sole stockholder of Putnam Savings Bank
(the "Bank"), has adopted this Stock Issuance Plan (the "Plan") pursuant to
which the Holding Company proposes to offer and sell up to 49.9% of its Common
Stock in the Stock Offering pursuant to regulations of the Office of Thrift
Supervision (the "OTS"). The Common Stock will be offered on a priority basis to
eligible depositors, the Tax-Qualified Employee Plans of the Bank and to
employees, officers and directors of the Holding Company or the Bank, with any
remaining shares offered to the public in a Community Offering or a Syndicated
Community offering, or a combination thereof. The Stock Offering will be
conducted in accordance with 12 C.F.R. Part 563g, Part 575 and, to the extent
applicable, Form OC of the Regulations. Upon completion of the Stock Offering,
Putnam Bancorp MHC, Inc. (the "MHC"), the mutual holding company of the Holding
Company, will continue to own at least a majority of the Common Stock of the
Holding Company.

     Prior to the completion of the Stock Offering, the Holding Company and the
MHC will convert to a federal mid-tier stock holding company charter and a
federal mutual holding company charter, respectively, and will be chartered and
regulated by the OTS. The Bank may elect to remain as a Connecticut-chartered
stock savings bank, in which case it shall make an election to be regulated as
if a savings association under Section 10(l) of the HOLA. Alternatively, the
Bank may elect to convert to a federal savings bank charter prior to the closing
of the Stock Offering, in which case the MHC, the Holding Company and the Bank
will be chartered and regulated by the OTS.

     The primary purpose of the Stock Offering is to raise capital to support
the future growth of the Bank, both internally and through the acquisition of
other financial institutions. The Bank intends to remain an independent
community-oriented savings bank. After the Stock Offering, the MHC will continue
to control the Bank since only a minority of the Holding Company's Common Stock
is being offered for sale pursuant to this Plan.

     As part of the Stock Offering and consistent with its Bank's ongoing
commitment to remain an independent community-oriented savings bank, the Bank
may establish a charitable foundation or trust. The charitable foundation would
complement the Bank's existing community reinvestment and charitable activities
in a manner that will allow the community to share in the growth and success of
the Bank. Accordingly, concurrently with the completion of the Stock Offering,
the Holding Company may contribute to a new charitable foundation or to the
Bank's existing charitable foundation, Common Stock in an amount up to 4% of the
shares of Common Stock issued in the Stock Offering and/or cash, provided the
total contribution of Common Stock and/or cash to the charitable foundation does
not exceed 8% of the gross proceeds of the Stock Offering.



2.   DEFINITIONS

     As used in this Plan, the terms set forth below have the following
meanings:

     ACTING IN CONCERT: The term Acting in Concert means (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. A
Person or company which acts in concert with another Person or company ("other
party") shall also be deemed to be acting in concert with any Person or company
who is also acting in concert with that other party, except that any
Tax-Qualified Employee Plan will not be deemed to be acting in concert with its
trustee or a Person who serves in a similar capacity solely for the purpose of
determining whether stock held by the trustee and stock held by the plan will be
aggregated.

     ACTUAL PURCHASE PRICE: The price per share, determined as provided in this
Plan, at which the Common Stock will be sold in the Stock Offering.

     AFFILIATE: Any Person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with
another Person.

     APPLICATION: The Application for Approval of a Minority Stock Issuance by a
Subsidiary of a Mutual Holding Company to be submitted by the Holding Company to
the OTS in connection with the Stock Offering.

     ASSOCIATE: The term "Associate," when used to indicate a relationship with
any Person, means: (i) any corporation or organization (other than the Bank, the
Holding Company, the MHC or a majority-owned subsidiary of any thereof) of which
such Person is a senior officer or partner, or beneficially owns, directly or
indirectly, 10% or more of any class of equity securities of the corporation or
organization; (ii) any trust or other estate, if the Person has a substantial
beneficial interest in the trust or estate or is a trustee or fiduciary of the
trust or estate (for purposes of Sections 563b.370, 563b.380, 563b.385,
563b.390, 563b.395 and 563b.505 of the Regulations, a Person who has a
substantial beneficial interest in a Tax-Qualified or Non-Tax Qualified Employee
Plan, or who is a trustee or a fiduciary of the plan, is not an associate of the
plan. For purposes of Section 563b.370 of the Regulations, a Tax-Qualified
Employee Plan is not an associate of a Person); (iii) any Person who is related
by blood or marriage to such Person and (a) who lives in the same house as the
Person or (b) who is a director or senior officer of the Bank, the Holding
Company, the MHC or a subsidiary thereof.

     BANK:  Putnam Savings Bank.

     CAPITAL STOCK: Any and all authorized stock of the Bank or the Holding
Company.

     CHARTER CONVERSIONS: The Conversion of the MHC, the Holding Company and/or
the Bank to federal charters subject to the regulation and supervision of the
OTS, which shall occur prior to the completion of the Stock Offering.

                                        2


     COMMON STOCK: Common stock, par value $0.10 per share, issuable by the
Holding Company in connection with the Stock Offering, including securities
convertible into Common Stock, pursuant to its stock charter.

     COMMUNITY:  The Connecticut County of Windham.

     COMMUNITY OFFERING: The offering to certain members of the general public
of any unsubscribed shares in the Subscription Offering. The Community Offering
may include a Syndicated Community Offering or public offering.

     CONTROL: (including the terms "controlling," "controlled by" and "under
common control with") means the direct or indirect power to direct or exercise a
controlling influence over the management and policies of a person, whether
through the ownership of voting securities, by contract, or otherwise as
described in Part 574 of the Regulations.

     CONVERSION TRANSACTION: A conversion of the MHC from the mutual to the
stock form of organization.

     DEPOSIT ACCOUNT(s): Any withdrawable account as defined in Section 561.42
of the Regulations, and shall include all demand deposit accounts as defined in
Section 561.16 of the Regulations and certificates of deposit.

     EFFECTIVE DATE: The date upon which all necessary approvals have been
obtained to complete the Stock Offering, and the Stock Offering has been
completed.

     ELIGIBLE ACCOUNT HOLDER: Any person holding a Qualifying Deposit on the
Eligibility Record Date for purposes of determining subscription rights.

     ELIGIBILITY RECORD DATE: March 31, 2003, the date for determining who
qualifies as an Eligible Account Holder of the Bank.

     EMPLOYEE PLANS: The Tax-Qualified and Non-Tax Qualified Employee Plans of
the Bank and/or the Holding Company.

     ESOP: The Bank's employee stock ownership plan and related trust.

     ESTIMATED VALUATION RANGE: The range of the estimated pro forma market
value of the total number of shares of Common Stock to be issued by the Holding
Company to the MHC and to Minority Stockholders, as determined by the
Independent Appraiser prior to the Subscription Offering and as it may be
amended from time to time thereafter.

     EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.

     FDIC: The Federal Deposit Insurance Corporation.

     FOUNDATION: Any new and/or existing charitable foundation intended to
qualify as an exempt organization under Section 501(c)(3) of the Internal
Revenue Code that will receive Common Stock and/or cash in connection with the
Stock Offering.

                                        3


     HOLA: The Home Owners' Loan Act, as amended.

     HOLDING COMPANY: PSB Holdings, Inc., a Connecticut corporation or PSB
Holdings, Inc., a federal corporation upon completion of the Charter Conversion,
as indicated by the context, which will be majority-owned by the MHC after the
completion of the Stock Offering and which will own 100% of the common stock of
the Bank, and any successor to such corporation that may be established in
connection with a Conversion Transaction.

     INDEPENDENT APPRAISER: The appraiser retained by the Holding Company and
the Bank to prepare an appraisal of the pro forma market value of the Bank and
the Holding Company.

     MANAGEMENT PERSON: Any Officer or director of the Bank or any Affiliate of
the Bank, and any person acting in concert with any such Officer or director.

     MARKET MAKER: A dealer (I.E., any person who engages directly or indirectly
as agent, broker, or principal in the business of offering, buying, selling or
otherwise dealing or trading in securities issued by another person) who, with
respect to a particular security, (1) regularly publishes BONA FIDE competitive
bid and offer quotations on request, and (2) is ready, willing and able to
effect transactions in reasonable quantities at the dealer's quoted prices with
other brokers or dealers.

     MHC: Putnam Bancorp MHC, Inc., a Connecticut-chartered mutual holding
company or Putnam Bancorp MHC, Inc., a federally-chartered mutual holding
company upon completion of the Charter Conversion (as indicated by the context),
which will own at least a majority of the Common Stock of the Holding Company
upon completion of the Stock Offering.

     MINORITY OWNERSHIP INTEREST: The shares of the Holding Company's Common
Stock owned by persons other than the MHC, expressed as a percentage of the
total shares of Holding Company Common Stock outstanding.

     MINORITY STOCKHOLDER: Any owner of the Holding Company's Common Stock,
other than the MHC.

     NON-VOTING STOCK: Any Capital Stock other than Voting Stock.

     OFFERING RANGE: The aggregate purchase price of the Common Stock to be sold
in the Stock Offering based on the Independent Valuation expressed as a range,
which may vary within 15% above or 15% below the midpoint of such range, with a
possible adjustment by up to 15% above the maximum of such range. The Offering
Range will be based on the Estimated Valuation Range, but will represent a
Minority Ownership Interest equal to up to 49.9% of the Common Stock.

     OFFICER: An executive officer of the Holding Company or the Bank, including
the Chief Executive Officer, President, Senior Vice Presidents in charge of
principal business functions, Secretary, Treasurer and any other person
performing similar functions.

     ORDER FORM: Any form (together with any attached cover letter and/or
certifications or acknowledgements), sent by the Holding Company to any Person
containing among other things

                                        4


a description of the alternatives available to such Person under the Plan and by
which any such Person may make elections regarding purchases of Common Stock in
the Subscription and Community Offerings.

     OTS: The Office of Thrift Supervision, and any successor thereto.

     PERSON:  An individual, corporation, partnership, association, joint-stock
company, limited liability company, trust, unincorporated organization, or a
government or political subdivision of a government.

     PLAN: This Stock Issuance Plan.

     QUALIFYING DEPOSIT:  The aggregate balance of each Deposit Account of an
Eligible Account Holder as of the close of business on the Eligibility Record
Date or of a Supplemental Eligible Account Holder as of the close of business on
the Supplemental Eligibility Record Date, as the case may be, provided such
aggregate balance is not less than $50.

     REGULATIONS:  The rules and regulations of the OTS, including the OTS rules
and regulations regarding mutual holding companies.

     RESIDENT: The terms "resident," "residence," "reside," "resided" or
"residing" as used herein with respect to any person shall mean any person who
occupied a dwelling within the Bank's Community, has an intent to remain with
the Community for a period of time, and manifests the genuineness of that intent
by establishing an ongoing physical presence within the Community together with
an indication that such presence within the Community is something other than
merely transitory in nature. To the extent the Person is a corporation or other
business entity, the principal place of business or headquarters shall be in the
Community. To the extent a person is a personal benefit plan, the circumstances
of the beneficiary shall apply with respect to this definition. In the case of
all other benefit plans, the circumstances of the trustee shall be examined for
purposes of this definition. The Bank may utilize deposit or loan records or
such other evidence provided to it to make a determination as to whether a
person is a resident. In all cases, however, such a determination shall be in
the sole discretion of the Bank.

     SEC: The Securities and Exchange Commission.

     STOCK OFFERING: The offering of Common Stock of the Holding Company to
persons other than the MHC, in a Subscription Offering and, to the extent shares
remain available, in a Community Offering or a Syndicated Community Offering.

     SUBSCRIPTION OFFERING: The offering of Common Stock of the Holding Company
for subscription and purchase pursuant to Section 5A of this Plan.

     SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER: Any Person holding a Qualifying
Deposit on the Supplemental Eligibility Record Date, who is not an Eligible
Account Holder, a Tax-Qualified Employee Plan or an Officer or director of the
Bank.

     SUPPLEMENTAL ELIGIBILITY RECORD DATE: The last day of the calendar quarter
preceding approval of the Plan by the OTS.

                                        5


     SYNDICATED COMMUNITY OFFERING: The offering of Common Stock following or
contemporaneously with the Community Offering through a syndicate of
broker-dealers.

     TAX-QUALIFIED EMPLOYEE PLAN: Any defined benefit plan or defined
contribution plan (including any employee stock ownership plan, stock bonus
plan, profit-sharing plan, or other plan) of the Bank, the Holding Company, the
MHC or any of their affiliates, which, with its related trusts, meets the
requirements to be qualified under Section 401 of the Internal Revenue Code. The
term "Non-Tax-Qualified Employee Plan" means any stock benefit plan which is not
so qualified under Section 401 of the Internal Revenue Code.

     VOTING STOCK:

     (1)  Voting Stock means common stock or preferred stock, or similar
          interests if the shares by statute, charter or in any manner, entitle
          the holder:

          (i)     To vote for or to select directors of the Bank or the Holding
                  Company; and

          (ii)    To vote on or to direct the conduct of the operations or other
                  significant policies of the Bank or the Holding Company.

     (2)  Notwithstanding anything in paragraph (1) above, preferred stock is
          not "Voting Stock" if:

          (i)     Voting rights associated with the preferred stock are limited
                  solely to the type customarily provided by statute with regard
                  to matters that would significantly and adversely affect the
                  rights or preferences of the preferred stock, such as the
                  issuance of additional amounts or classes of senior
                  securities, the modification of the terms of the preferred
                  stock, the dissolution of the Bank, or the payment of
                  dividends by the Bank when preferred dividends are in arrears;

          (ii)    The preferred stock represents an essentially passive
                  investment or financing device and does not otherwise provide
                  the holder with control over the issuer; and

          (iii)   The preferred stock does not at the time entitle the holder,
                  by statute, charter, or otherwise, to select or to vote for
                  the selection of directors of the Bank or the Holding Company.

     (3)  Notwithstanding anything in paragraphs (1) and (2) above, "Voting
          Stock" shall be deemed to include preferred stock and other securities
          that, upon transfer or otherwise, are convertible into Voting Stock or
          exercisable to acquire Voting Stock where the holder of the stock,
          convertible security or right to acquire Voting Stock has the
          preponderant economic risk in the underlying Voting Stock. Securities
          immediately convertible into Voting Stock at the option of the holder
          without payment of additional consideration shall be deemed to
          constitute the Voting Stock into which they are convertible; other
          convertible securities and rights to acquire Voting Stock shall not be
          deemed to vest the holder with the

                                        6


          preponderant economic risk in the underlying Voting Stock if the
          holder has paid less than 50% of the consideration required to
          directly acquire the Voting Stock and has no other economic interest
          in the underlying Voting Stock.

3.   NUMBER OF SHARES TO BE OFFERED

     The total number of shares (or range thereof) of Common Stock to be issued
and offered for sale pursuant to the Plan shall be determined initially by the
Board of Directors of the Holding Company in conjunction with the determination
of the Independent Appraiser. The number of shares to be offered may be adjusted
prior to completion of the Stock Offering. The total number of shares of Common
Stock that may be issued to persons other than the MHC at the close of the Stock
Offering must be less than 50% of the issued and outstanding shares of Common
Stock of the Holding Company.

4.   INDEPENDENT VALUATION AND PURCHASE PRICE OF SHARES

     All shares of Common Stock sold in the Stock Offering shall be sold at a
uniform price per share. The purchase price and number of shares to be
outstanding shall be determined by the Board of Directors of the Holding Company
on the basis of the estimated pro forma market value of the Holding Company and
the Bank. The aggregate purchase price for the Common Stock will not be
inconsistent with such market value of the Holding Company and the Bank. The pro
forma market value of the Holding Company and the Bank will be determined for
such purposes by the Independent Appraiser.

     Prior to the commencement of the Stock Offering, an Estimated Valuation
Range will be established, which range may vary within 15% above to 15% below
the midpoint of such range, and up to 15% greater than the maximum of such
range, as determined by the Board of Directors at the time of the Stock Offering
and consistent with OTS regulations. The Holding Company intends to issue up to
49.9% of its Common Stock in the Stock Offering. The number of shares of Common
Stock to be issued and the ownership interest of the MHC may be increased or
decreased by the Holding Company, taking into consideration any change in the
independent valuation and other factors, at the discretion of the Board of
Directors of the Holding Company.

     Based upon the independent valuation as updated prior to the commencement
of the Stock Offering, the Board of Directors may establish the minimum and
maximum percentage of shares of Common Stock that will be offered for sale in
the Stock Offering, or it may fix the percentage of shares that will be offered
for sale in the Stock Offering. In the event the percentage of the shares
offered for sale in the Minority Stock Offering is not fixed in the Stock
Offering, the Minority Ownership Interest resulting from the Stock Offering will
be determined as follows: (a) the product of (x) the total number of shares of
Common Stock sold by the Holding Company and (y) the purchase price per share,
divided by (b) the aggregate pro forma market value of the Bank and the Holding
Company upon the closing of the Stock Offering and sale of all the Common Stock.

     Notwithstanding the foregoing, no sale of Common Stock may be consummated
unless, prior to such consummation, the Independent Appraiser confirms to the
Holding Company, the Bank and to the OTS that, to the best knowledge of the
Independent Appraiser, nothing of a

                                        7


material nature has occurred which, taking into account all relevant factors,
would cause the Independent Appraiser to conclude that the aggregate value of
the Common Stock sold in the Stock Offering at the Actual Purchase Price is
incompatible with its estimate of the aggregate consolidated pro forma market
value of the Holding Company and the Bank. If such confirmation is not received,
the Holding Company may cancel the Stock Offering, extend the Stock Offering and
establish a new price range and/or estimated price range, extend, reopen or hold
a new Stock Offering or take such other action as the OTS may permit.

     The estimated market value of the Holding Company and the Bank shall be
determined for such purpose by an Independent Appraiser on the basis of such
appropriate factors as are not inconsistent with OTS regulations. The Common
Stock to be issued in the Stock Offering shall be fully paid and non-assessable.

     If there is a Community Offering or Syndicated Community Offering of shares
of Common Stock not subscribed for in the Subscription Offering, the price per
share at which the Common Stock is sold in such Community Offering or Syndicated
Community Offering shall be the Actual Purchase Price which will be equal to the
purchase price per share at which the Common Stock is sold to persons in the
Subscription Offering. Shares sold in the Community Offering or Syndicated
Community Offering will be subject to the same limitations as shares sold in the
Subscription Offering.

5.   METHOD OF OFFERING SHARES AND RIGHTS TO PURCHASE STOCK

     In descending order of priority, the opportunity to purchase Common Stock
shall be given in the Subscription Offering to: (1) Eligible Account Holders;
(2) Tax-Qualified Employee Plans; (3) Supplemental Eligible Account Holders; and
(4) employees, officers and directors of the Bank or the Holding Company. Any
shares of Common Stock that are not subscribed for in the Subscription Offering
may at the discretion of the Bank and the Holding Company be offered for sale in
a Community Offering or a Syndicated Community Offering. The minimum purchase by
any Person shall be 25 shares. The Holding Company shall determine in its sole
discretion whether each prospective purchaser is a "resident," "associate," or
"acting in concert" as defined in the Plan, and shall interpret all other
provisions of the Plan in its sole discretion. All such determinations are in
the sole discretion of the Holding Company, and may be based on whatever
evidence the Holding Company chooses to use in making any such determination.

     In addition to the priorities set forth below, the Board of Directors may
establish other priorities for the purchase of Common Stock, subject to the
approval of the OTS. The priorities for the purchase of shares in the Stock
Offering are as follows:

     A.   SUBSCRIPTION OFFERING

     PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder shall
receive non-transferable subscription rights to subscribe for shares of Common
Stock offered in the Stock Offering in an amount equal to the greater of
$250,000, one-tenth of one percent (.1%) of the total shares offered in the
Stock Offering, or 15 times the product (rounded down to the nearest whole
number) obtained by multiplying the total number of shares of Common Stock to be
issued in the Stock Offering by a fraction, of which the numerator is the
Qualifying Deposit of

                                        8


the Eligible Account Holder and the denominator is the total amount of
Qualifying Deposits of all Eligible Account Holders, in each case on the
Eligibility Record Date and subject to the provisions of Section 6; PROVIDED
that the Holding Company may, in its sole discretion and without further notice
to or solicitation of subscribers or other prospective purchasers, increase such
maximum purchase limitation to 5% of the maximum number of shares offered in the
Stock Offering or decrease such maximum purchase limitation to 0.1% of the
maximum number of shares offered in the Stock Offering, subject to the overall
purchase limitations set forth in Section 6. If there are insufficient shares
available to satisfy all subscriptions of Eligible Account Holders, shares will
be allocated to Eligible Account Holders so as to permit each such subscribing
Eligible Account Holder to purchase a number of shares sufficient to make his
total allocation equal to the lesser of 100 shares or the number of shares
subscribed for. Thereafter, unallocated shares will be allocated pro rata to
remaining subscribing Eligible Account Holders whose subscriptions remain
unfilled in the same proportion that each such subscriber's Qualifying Deposit
bears to the total amount of Qualifying Deposits of all subscribing Eligible
Account Holders whose subscriptions remain unfilled. To ensure proper allocation
of stock, each Eligible Account Holder must list on his subscription order form
all accounts in which he or she had an ownership interest as of the Eligibility
Record Date. Officers, directors, and their Associates may be Eligible Account
Holders. However, if an officer, director, or his or her Associate receives
subscription rights based on increased deposits in the year before the
Eligibility Record Date, subscription rights based upon these deposits are
subordinate to the subscription rights of other Eligible Account Holders.

     PRIORITY 2: TAX-QUALIFIED EMPLOYEE PLANS. The Tax-Qualified Employee Plans
shall be given the opportunity to purchase in the aggregate up to 10% of the
shares issued in the Stock Offering. In the event of an oversubscription in the
Stock Offering, subscriptions for shares by the Tax-Qualified Employee Plans may
be satisfied, in whole or in part, out of authorized but unissued shares of the
Holding Company subject to the maximum purchase limitations applicable to such
plans as set forth in Section 6, or may be satisfied, in whole or in part,
through open market purchases by the Tax-Qualified Employee Plans subsequent to
the closing of the Stock Offering. If the final valuation exceeds the maximum of
the Offering Range, up to 10% of the Common Stock issued in the Stock Offering
may be sold to the Tax-Qualified Employee Plans notwithstanding any
oversubscription by Eligible Account Holders.

     PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, and the Tax-Qualified Employee Plans, each Supplemental
Eligible Account Holder shall receive non-transferable subscription rights to
subscribe for shares of Common Stock offered in the Stock Offering in an amount
equal to the greater of $250,000, one-tenth of one percent (.1%) of the total
shares offered in the Stock Offering, or 15 times the product (rounded down to
the nearest whole number) obtained by multiplying the total number of shares of
Common Stock to be issued in the Stock Offering by a fraction, of which the
numerator is the Qualifying Deposit of the Supplemental Eligible Account Holder
and the denominator is the total amount of Qualifying Deposits of all
Supplemental Eligible Account Holders, in each case on the Supplemental
Eligibility Record Date and subject to the provisions of Section 6; PROVIDED
that the Holding Company may, in its sole discretion and without further notice
to or solicitation of subscribers or other prospective purchasers, increase such
maximum purchase limitation to 5% of the maximum number of shares offered in the
Stock Offering or decrease such maximum purchase

                                        9


limitation to 0.1% of the maximum number of shares offered in the Stock
Offering, subject to the overall purchase limitations set forth in Section 6. In
the event Supplemental Eligible Account Holders subscribe for a number of shares
which, when added to the shares subscribed for by Eligible Account Holders and
the Tax-Qualified Employee Plans, is in excess of the total shares offered in
the Stock Offering, the subscriptions of Supplemental Eligible Account Holders
will be allocated among subscribing Supplemental Eligible Account Holders so as
to permit each subscribing Supplemental Eligible Account Holder to purchase a
number of shares sufficient to make his total allocation equal to the lesser of
100 shares or the number of shares subscribed for. Thereafter, unallocated
shares will be allocated to each subscribing Supplemental Eligible Account
Holder whose subscription remains unfilled in the same proportion that such
subscriber's Qualifying Deposits on the Supplemental Eligibility Record Date
bear to the total amount of Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders whose subscriptions remain unfilled.

     PRIORITY 4: EMPLOYEES, OFFICERS AND DIRECTORS. To the extent that shares
remain available for purchase after satisfaction of all subscriptions of the
Eligible Account Holders, Tax-Qualified Employee Plans and Supplemental Eligible
Account Holders, employees, officers and directors of the Bank or the Holding
Company shall have the opportunity to purchase up to $250,000 of the Common
Stock offered in the Stock Offering; provided that the Holding Company may, in
its sole discretion, and without further notice to or solicitation of
subscribers or other prospective purchasers, increase such maximum purchase
limitation to 5% of the maximum number of shares offered in the Stock Offering
or decrease such maximum purchase limitation to 0.1% of the maximum number of
shares offered in the Stock Offering, subject to the overall purchase
limitations set forth in Section 6. In the event that employees, officers and
directors subscribe for a number of shares, which, when added to the shares
subscribed for by Eligible Account Holders, Tax-Qualified Employee Plans and
Supplemental Eligible Account Holders is in excess of the total shares offered
in the Stock Offering, the subscriptions of such Persons will be allocated among
employees, officers and directors on a pro rata basis based on the size of each
Person's order.

     B.   COMMUNITY OFFERING

     Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a Community Offering. This will involve an offering
of all unsubscribed shares directly to the general public with a preference to
those natural persons residing in the Community. The Community Offering, if any,
shall be for a period of not more than 45 days unless extended by the Holding
Company, and shall commence concurrently with, during or promptly after the
Subscription Offering. The Holding Company and the Bank may use one or
investment banking firms on a best efforts basis to sell the unsubscribed shares
in the Subscription and Community Offering. The Holding Company and the Bank may
pay a commission or other fee to such investment banking firm(s) as to the
shares sold by such firm(s) in the Subscription and Community Offering and may
also reimburse such firm(s) for expenses incurred in connection with the sale.
The Community Offering may include a syndicated community offering managed by
such investment banking firm(s). The Common Stock will be offered and sold in
the Community Offering, in accordance with the Regulations, so as to achieve the
widest distribution of the Common Stock. No Person may purchase more than
$250,000 of Common Stock in the Community Offering, subject to the overall
purchase

                                       10


limitations set forth in Section 6. In the event orders for Common Stock in the
Community Offering exceed the number of shares available for sale, shares will
be allocated (to the extent shares remain available) first to cover orders of
natural persons residing in the Community, and thereafter to cover orders of
other members of the general public, so that each Person in such category of the
Community Offering may receive 100 shares. In the event orders for Common Stock
in any of these categories exceed the number of shares available for sale,
shares may be allocated on a pro rata basis within a category based on the
amount of the respective orders. In addition, orders received for Common Stock
in the Community Offering or any Syndicated Community Offering shall first be
filled up to a maximum of two percent (2%) of the shares sold and thereafter,
remaining shares will be allocated on an equal number of shares basis per order
until all orders are filled.

     The Holding Company, in its sole discretion, may reject subscriptions, in
whole or in part, received from any Person under this Section 5(B).

     C.   SYNDICATED COMMUNITY OFFERING

     Any shares of Common Stock not sold in the Subscription Offering or in the
Community Offering, if any, may be offered for sale to the general public by a
selling group of broker-dealers in a Syndicated Community Offering, subject to
terms, conditions and procedures, including the timing of the offering, as may
be determined by the Holding Company in a manner that is intended to achieve the
widest distribution of the Common Stock subject to the rights of the Holding
Company to accept or reject in whole or in part all orders in the Syndicated
Community Offering. It is expected that the Syndicated Community Offering would
commence as soon as practicable after termination of the Subscription Offering
and the Community Offering, if any. The Syndicated Community Offering shall be
completed within 45 days after the termination of the Subscription Offering,
unless such period is extended as provided herein. No Person may purchase more
than $250,000 of Common Stock in the Syndicated Community Offering, subject to
the overall purchase limitations set forth in Section 6.

     If for any reason a Syndicated Community Offering of unsubscribed shares of
Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and the Community Offering, if any, the Board of Directors
of the Holding Company will seek to make other arrangements for the sale of the
remaining shares. Such other arrangements will be subject to the approval of the
OTS and to compliance with applicable securities laws.

6.   ADDITIONAL LIMITATIONS ON PURCHASES OF COMMON STOCK

     Purchases of Common Stock in the Stock Offering will be subject to the
following purchase limitations:

     A.   The aggregate amount of outstanding Common Stock of the Holding
          Company owned or controlled by persons other than MHC at the close of
          the Stock Offering shall be less than 50% of the Holding Company's
          total outstanding Common Stock.

     B.   The maximum purchase of Common Stock in the Subscription Offering by a
          Person or group of Persons through a single Deposit Account is
          $250,000. No

                                       11


          Person by himself, or with an Associate or group of Persons acting in
          concert, may purchase more than $500,000 of the Common Stock offered
          in the Stock Offering, except that: (i) the Holding Company may, in
          its sole discretion and without further notice to or solicitation of
          subscribers or other prospective purchasers, increase such maximum
          purchase limitation to 5% of the number of shares offered in the Stock
          Offering; (ii) the Tax-Qualified Employee Plans may purchase up to 10%
          of the shares offered in the Stock Offering; and (iii) for purposes of
          this subsection 6(B) shares to be held by any Tax-Qualified Employee
          Plan and attributable to a person shall not be aggregated with other
          shares purchased directly by or otherwise attributable to such person.

     C.   The aggregate amount of Common Stock acquired in the Stock Offering,
          plus all prior issuances by the Holding Company, by any
          Non-Tax-Qualified Employee Plan or any Management Person and his or
          her Associates, exclusive of any shares of Common Stock acquired by
          such plan or Management Person and his or her Associates in the
          secondary market, shall not exceed 4.9% of the outstanding shares of
          Common Stock of the Holding Company at the conclusion of the Stock
          Offering. In calculating the number of shares held by any Management
          Person and his or her Associates under this paragraph, shares held by
          any Tax-Qualified Employee Plan or Non-Tax-Qualified Employee Plan of
          the Holding Company or the Bank that are attributable to such Person
          shall not be counted.

     D.   The aggregate amount of Common Stock acquired in the Stock Offering,
          plus all prior issuances by the Holding Company, by any
          Non-Tax-Qualified Employee Plan or any Management Person and his or
          her Associates, exclusive of any Common Stock acquired by such plan or
          Management Person and his or her Associates in the secondary market,
          shall not exceed 4.9% of the stockholders' equity of the Holding
          Company at the conclusion of the Stock Offering. In calculating the
          number of shares held by any Management Person and his or her
          Associates under this paragraph, shares held by any Tax-Qualified
          Employee Plan or Non-Tax-Qualified Employee Plan of the Holding
          Company or the Bank that are attributable to such Person shall not be
          counted.

     E.   The aggregate amount of Common Stock acquired in the Stock Offering,
          plus all prior issuances by the Holding Company, by any one or more
          Tax-Qualified Employee Plans, exclusive of any shares of Common Stock
          acquired by such plans in the secondary market, shall not exceed 4.9%
          of the outstanding shares of Common Stock of the Holding Company at
          the conclusion of the Stock Offering.

     F.   The aggregate amount of Common Stock acquired in the Stock Offering,
          plus all prior issuances by the Holding Company, by any one or more
          Tax-Qualified Employee Plans, exclusive of any shares of Common Stock
          acquired by such plans in the secondary market, shall not exceed 4.9%
          of the stockholders' equity of the Holding Company at the conclusion
          of the Stock Offering

     G.   The aggregate amount of Common Stock acquired in the Stock Offering,
          plus all prior issuances by the Holding Company, by all stock benefit
          plans of the Holding

                                       12


          Company or the Bank, other than employee stock ownership plans, shall
          not exceed 25% of the outstanding common stock of the Holding Company
          held by persons other than the MHC.

     H.   The aggregate amount of Common Stock acquired in the Stock Offering,
          plus all prior issuances by the Holding Company, by all
          Non-Tax-Qualified Employee Plans or Management Persons and their
          Associates, exclusive of any Common Stock acquired by such plans or
          Management Persons and their Associates in the secondary market, shall
          not exceed 25% of the outstanding shares of Common Stock held by
          persons other than the MHC at the conclusion of the Stock Offering. In
          calculating the number of shares held by Management Persons and their
          Associates under this paragraph or paragraph I. below, shares held by
          any Tax-Qualified Employee Plan or Non-Tax-Qualified Employee Plan
          that are attributable to such persons shall not be counted.

     I.   The aggregate amount of Common Stock acquired in the Stock Offering,
          plus all prior issuances by the Holding Company, by all
          Non-Tax-Qualified Employee Plans or Management Persons and their
          Associates, exclusive of any Common Stock acquired by such plans or
          Management Persons and their Associates in the secondary market, shall
          not exceed 25% of the stockholders' equity of the Holding Company held
          by persons other than the MHC at the conclusion of the Stock Offering.

     J.   Notwithstanding any other provision of this Plan, no person shall be
          entitled to purchase any Common Stock to the extent such purchase
          would be illegal under any federal law or state law or regulation or
          would violate regulations or policies of the National Association of
          Securities Dealers, Inc., particularly those regarding free riding and
          withholding. The Holding Company and/or its agents may ask for an
          acceptable legal opinion from any purchaser as to the legality of such
          purchase and may refuse to honor any purchase order if such opinion is
          not timely furnished.

     K.   The Board of Directors of the Holding Company has the right in its
          sole discretion to reject any order submitted by a person whose
          representations the Board of Directors believes to be false or who it
          otherwise believes, either alone or acting in concert with others, is
          violating, circumventing, or intends to violate, evade or circumvent
          the terms and conditions of this Plan.

     L.   A minimum of 25 shares of Common Stock must be purchased by each
          Person purchasing shares in the Stock Offering to the extent those
          shares are available; provided, however, that in the event the minimum
          number of shares of Common Stock purchased times the price per share
          exceeds $500, then such minimum purchase requirement shall be reduced
          to such number of shares which when multiplied by the price per share
          shall not exceed $500, as determined by the Board.

                                       13


     SUBSCRIPTION RIGHTS AFFORDED UNDER THIS PLAN AND BY OTS REGULATIONS ARE
NON-TRANSFERABLE. NO PERSON MAY TRANSFER, OFFER TO TRANSFER, OR ENTER INTO ANY
AGREEMENT OR UNDERSTANDING TO TRANSFER, THE LEGAL OR BENEFICIAL OWNERSHIP OF ANY
SUBSCRIPTION RIGHTS UNDER THIS PLAN. NO PERSON MAY TRANSFER, OFFER TO TRANSFER
OR ENTER INTO AN AGREEMENT OR UNDERSTANDING TO TRANSFER LEGAL OR BENEFICIAL
OWNERSHIP OF ANY SHARES OF COMMON STOCK EXCEPT PURSUANT TO THIS PLAN.

     EACH PERSON PURCHASING COMMON STOCK IN THE STOCK OFFERING WILL BE DEEMED TO
CONFIRM THAT SUCH PURCHASE DOES NOT CONFLICT WITH THE PURCHASE LIMITATIONS IN
THIS PLAN. ALL QUESTIONS CONCERNING WHETHER ANY PERSONS ARE ASSOCIATES OR A
GROUP ACTING IN CONCERT OR WHETHER ANY PURCHASE CONFLICTS WITH THE PURCHASE
LIMITATIONS IN THIS PLAN OR OTHERWISE VIOLATES ANY PROVISION OF THIS PLAN SHALL
BE DETERMINED BY THE BANK IN ITS SOLE DISCRETION. SUCH DETERMINATION SHALL BE
CONCLUSIVE, FINAL AND BINDING ON ALL PERSONS, AND THE BANK MAY TAKE ANY REMEDIAL
ACTION INCLUDING, WITHOUT LIMITATION, REJECTING THE PURCHASE OR REFERRING THE
MATTER TO THE OTS FOR ACTION, AS THE BANK MAY IN ITS SOLE DISCRETION DEEM
APPROPRIATE.

7.   PAYMENT FOR STOCK

     All payments for Common Stock subscribed for or ordered in the Stock
Offering must be delivered in full to the Holding Company or the Bank, together
with a properly completed and executed order form, or purchase order in the case
of the Syndicated Community Offering, on or prior to the expiration date
specified on the order form or purchase order, as the case may be, unless such
date is extended by the Holding Company; PROVIDED, that if the Employee Plans
subscribe for shares of Common Stock during the Subscription Offering, such
plans may pay for such shares at the Actual Purchase Price upon consummation of
the Stock Offering. The Holding Company or the Bank may make scheduled
discretionary contributions to the ESOP provided such contributions from the
Bank, if any, do not cause the Bank to fail to meet its regulatory capital
requirement.

     Payment for Common Stock shall be made either by check or money order, or
if a purchaser has a Deposit Account in the Bank, such purchaser may pay for the
shares subscribed for by authorizing the Bank to make a withdrawal from the
purchaser's Deposit Account at the Bank in an amount equal to the purchase price
of such shares. Such authorized withdrawal, whether from a savings passbook or
certificate account, shall be without penalty as to premature withdrawal. If the
authorized withdrawal is from a certificate account, and the remaining balance
does not meet the applicable minimum balance requirements, the certificate shall
be canceled at the time of withdrawal, without penalty, and the remaining
balance will earn interest at the Bank's passbook rate. Funds for which a
withdrawal is authorized will remain in the purchaser's Deposit Account but may
not be used by the purchaser until the Common Stock has been sold or the 45-day
period (or such longer period as may be approved by the OTS) following the Stock
Offering has expired, whichever occurs first. Thereafter, the withdrawal will be
given effect only to the extent necessary to satisfy the subscription (to the
extent it can be filled) at the Actual Purchase Price per share. Interest will
continue to be earned on any amounts authorized for withdrawal until such
withdrawal is given effect. The Bank or the Holding Company will

                                       14


pay interest, at a rate no less than the Bank's passbook rate, for all amounts
paid by check or money order to purchase Common Stock. Such interest will be
earned from the date payment is received by the Bank or the Holding Company
until consummation or termination of the Stock Offering. If for any reason the
Stock Offering is not consummated, all payments made by subscribers in the Stock
Offering will be refunded to them with interest. In case of amounts authorized
for withdrawal from Deposit Accounts, refunds will be made by canceling the
authorization for withdrawal.

8.   MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS

     As soon as practicable after the prospectus prepared by the Holding Company
and the Bank has been declared effective by the OTS and the SEC, copies of the
prospectus and order forms will be distributed to all Eligible Account Holders,
Tax-Qualified Employee Plans, Supplemental Eligible Account Holders, and
employees, officers and directors of the Bank or the Holding Company at their
last known addresses appearing on the records of the Bank for the purpose of
subscribing for shares of Common Stock in the Subscription Offering and will be
made available to those persons that purchase Common Stock in the Community
Offering.

     Each order form will be preceded or accompanied by the prospectus
describing the Holding Company, the Bank, the Common Stock and the Subscription
and Community Offerings. Each order form will contain, among other things, the
following:

     A.   A specified date by which all order forms must be received by the
          Bank, which date shall be not less than 20, nor more than 45 days,
          following the date on which the order forms are mailed by the Holding
          Company or the Bank, and which date will constitute the termination of
          the Subscription Offering;

     B.   The purchase price per share for shares of Common Stock to be sold in
          the Subscription and Community Offerings;

     C.   A description of the minimum and maximum number of shares of Common
          Stock that may be subscribed for pursuant to the exercise of
          Subscription Rights or otherwise purchased in the Community Offering;

     D.   Instructions as to how the recipient of the order form must indicate
          thereon the number of shares of Common Stock for which such Person
          elects to subscribe and the available alternative methods of payment
          therefor;

     E.   An acknowledgment that the recipient of the order form has received a
          final copy of the prospectus prior to execution of the order form;

     F.   A statement indicating the consequences of failing to properly
          complete and return the order form, including a statement to the
          effect that all subscription rights are nontransferable, will be void
          at the end of the Subscription Offering, and can only be exercised by
          delivering to the Holding Company or the Bank within the subscription
          period such properly completed and executed order form, together with
          a check or money order in the full amount of the purchase price as
          specified in the order form for the shares of Common Stock for which
          the

                                       15


          recipient elects to subscribe in the Subscription Offering (or by
          authorizing on the order form that the Bank withdraw said amount from
          the subscriber's Deposit Account at the Bank); and

     G.   A statement to the effect that the executed order form, once received
          by the Holding Company or the Bank, may not be modified or amended by
          the subscriber without the consent of the Holding Company or the Bank.

     Notwithstanding the above, the Holding Company reserves the right in its
sole discretion to accept or reject orders received on photocopied or facsimiled
order forms.

9.   UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT

     In the event order forms (a) are not delivered and are returned to the
Holding Company or the Bank by the United States Postal Service or the Holding
Company is unable to locate the addressee, (b) are not received back by the
Holding Company or the Bank or are received by the Holding Company or the Bank
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment for the shares of
Common Stock subscribed for (including cases in which Deposit Accounts from
which withdrawals are authorized are insufficient to cover the amount of the
required payment), or (e) are not mailed pursuant to a "no mail" order placed in
effect by the account holder, the subscription rights of the Person to whom such
rights have been granted will lapse as though such Person failed to return the
completed order form within the time period specified thereon; PROVIDED, that
the Holding Company may, but will not be required to, waive any immaterial
irregularity on any order form or require the submission of corrected order
forms or the remittance of full payment for subscribed shares by such date as
the Holding Company may specify. The interpretation by the Holding Company of
terms and conditions of this Plan and of the order forms will be final, subject
to the authority of the OTS.

10.  COMPLETION OF THE STOCK OFFERING

     The Stock Offering will be terminated if not completed within 90 days from
the date on which the prospectus is declared effective by the OTS unless an
extension is approved by the OTS.

11.  ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION

     As part of the Stock Offering, the Holding Company and the Bank intend to
establish the Foundation which will qualify as an exempt organization under
Section 501(c)(3) of the Internal Revenue Code and contribute to the Foundation
(i) up to 4% of the number of shares of Common Stock issued in the Stock
Offering, and/or (ii) cash, provided that the total contribution to the
Foundation does not exceed 8% of the gross proceeds from the sale of Common
Stock in the Stock Offering. The Company and the Bank may elect to contribute
the foregoing amounts to the Bank's existing charitable foundation rather than
establishing a new foundation. Contributions to the Foundation in connection
with the Stock Offering are intended to complement the Bank's existing community
reinvestment activities and to permit the communities in which the Bank operates
to share in financial success of the Bank as a locally headquartered,
community-oriented savings bank.

                                       16


     The Foundation will be dedicated to the promotion of charitable purposes
within the communities in which the Bank operates, including, but not limited
to, grants or donations to support housing assistance, scholarships, local
education, not-for-profit medical facilities, not-for-profit community groups
and other types of organizations or civic minded projects. The Foundation will
distribute annually total grants to assist charitable organizations or to fund
projects within its local community of not less than 5% of the average fair
value of Foundation assets each year. In order to serve the purposes for which
it was formed and maintain its 501(c)(3) qualification, the Foundation may sell,
on an annual basis, a limited portion of the Common Stock contributed to it by
the Holding Company.

     The board of directors of the Foundation will be responsible for
establishing the policies of the Foundation with respect to grants or donations,
consistent with the stated purposes of the Foundation. The Foundation will
comply with applicable federal banking laws and regulations.

     The establishment and funding of the Foundation as part of the Stock
Offering may be subject to the approval of the Bank's depositors or the MHC's
corporators by an affirmative vote of a majority of the votes eligible to be
cast by depositors in person or by proxy or by a majority of the MHC's
corporators at a special meeting to consider such proposal. In the event that
the Bank's depositors or the MHC's corporators are required to approve, but do
not approve the establishment of the Foundation, the Holding Company may
determine to complete the Stock Offering without the establishment of the
Foundation and may do so without amending this Plan or obtaining any further
vote of the Bank's depositors or the MHC's corporators. For comparison purposes,
if a vote of depositors or corporators is required, such persons will be
provided with a projection of the pro forma market value of the Common Stock, an
Estimated Valuation Range and certain selected pro forma financial data that
would result if the Stock Offering were consummated with and without
establishment of the Foundation.

12.  MARKET FOR COMMON STOCK

     If at the close of the Stock Offering the Holding Company has more than 100
shareholders of any class of stock, the Holding Company shall use its best
efforts to:

     (i)  encourage and assist a market maker to establish and maintain a market
          for that class of stock; and

     (ii) list that class of stock on a national or regional securities
          exchange, or on the Nasdaq quotation system.

13.  STOCK PURCHASES BY MANAGEMENT PERSONS AFTER THE STOCK OFFERING

     For a period of three years after the Stock Offering, no Management Person
or his or her Associates may purchase, without the prior written approval of the
OTS, any Common Stock of the Holding Company, except from a broker-dealer
registered with the SEC, except that the foregoing shall not apply to:

     A.   Negotiated transactions involving more than 1% of the outstanding
          stock in the class of stock; or

                                       17


     B.   Purchases of stock made by and held by any Tax-Qualified or Non-Tax
          Qualified Employee Plan even if such stock is attributable to
          Management Persons or their Associates.

14.  RESALES OF STOCK BY DIRECTORS AND OFFICERS

     Common Stock purchased by Management Persons and their Associates in the
Stock Offering may not be resold for a period of at least one year following the
date of purchase, except in the case of death of a Management Person or an
Associate.

15.  STOCK CERTIFICATES

     Each stock certificate shall bear a legend giving appropriate notice of the
restrictions set forth in Section 14 above. Appropriate instructions shall be
issued to the Holding Company's transfer agent with respect to applicable
restrictions on transfers of such stock. Any shares of stock issued as a stock
dividend, stock split or otherwise with respect to such restricted stock, shall
be subject to the same restrictions as apply to the restricted stock.

16.  RESTRICTION ON FINANCING STOCK PURCHASES

     The Holding Company and the Bank will not loan funds to any Person to
purchase Common Stock in the Stock Offering, and will not knowingly offer or
sell any of the Common Stock to any Person whose purchase would be financed by
funds loaned to the Person by the Holding Company, the Bank or any Affiliate.

17.  STOCK BENEFIT PLANS

     The Board of Directors of the Bank and/or the Holding Company intend to
adopt one or more stock benefit plans for employees, officers and directors,
including an ESOP, stock award plans and stock option plans, which will be
authorized to purchase Common Stock and grant options for Common Stock. However,
only the Tax-Qualified Employee Plans will be permitted to purchase Common Stock
in the Stock Offering, subject to the purchase priorities set forth in this
Plan. The Board of Directors of the Bank intends to establish the ESOP and
authorize the ESOP and any other Tax-Qualified Employee Plans to purchase in the
aggregate up to 10% of the shares issued in the Stock Offering. The Bank or the
Holding Company may make scheduled discretionary contributions to one or more
Tax-Qualified Employee Plans to purchase Common Stock issued in the Stock
Offering, or to purchase issued and outstanding shares of Common Stock in the
open market or from authorized but unissued shares of Common Stock or treasury
shares from the Holding Company subsequent to the completion of the Stock
Offering; PROVIDED such contributions do not cause the Bank to fail to meet any
of its regulatory capital requirements. In addition to shares purchased by one
or more Tax-Qualified Employee Plans in this Stock Offering, any subsequent
stock offering, and/or from authorized but unissued shares or treasury shares of
the Holding Company, this Plan also specifically authorizes the Holding Company
to grant awards under one or more stock benefit plans, including stock
recognition and award plans and stock option plans, in an amount up to 25% of
the shares of Common Stock held by persons other than the MHC.

                                       18


18.  POST-STOCK ISSUANCE FILING AND MARKET MAKING

     If the Holding Company has more than 35 stockholders of any class of stock,
the Holding Company shall register its Common Stock with the SEC pursuant to the
Exchange Act, and shall undertake not to deregister such Common Stock for a
period of three years thereafter.

19.  PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK

     The Holding Company may not declare or pay a cash dividend on its Common
Stock if the effect thereof would cause the regulatory capital of the Bank to be
reduced below the amount required under Section 567.2 of the Regulations.
Otherwise, the Holding Company may declare dividends or make other capital
distributions in accordance with Section 563b.520 of the Regulations. Following
completion of the Stock Offering, the Holding Company may repurchase its Common
Stock consistent with Section 563b.510 and Section 563b.515 of the Regulations
relating to stock repurchases, as long as such repurchases do not cause the
regulatory capital of the Bank to be reduced below the amount required under
Section 563b.550. of the Regulations. The MHC may from time to time purchase
Common Stock of the Holding Company. Subject to any notice or approval
requirements of the OTS under the Regulations, the MHC may waive its right to
receive dividends declared by the Holding Company.

20.  STOCK OFFERING EXPENSES

     The Regulations require that the expenses of any Stock Offering must be
reasonable. The Bank will use its best efforts to assure that the expenses
incurred by the Bank and the Holding Company in effecting the Stock Offering
will be reasonable.

21.  EMPLOYMENT AND OTHER SEVERANCE AGREEMENTS

     Following or contemporaneously with the Stock Offering, the Bank and/or the
Holding Company may enter into employment and/or severance arrangements with one
or more executive officers of the Bank and/or the Holding Company. It is
anticipated that any employment contracts entered into by the Bank and/or the
Holding Company will be for terms not exceeding three years and that such
contracts will provide for annual renewals of the term of the contracts, subject
to approval by the Board of Directors. The Bank and/or the Holding Company also
may enter into severance arrangements with one or more executive officers which
provide for the payment of severance compensation in the event of a change in
control of the Bank and/or the Holding Company. The significant terms of such
employment and severance arrangements have not been determined as of this time,
but will be described in any prospectus circulated in connection with the Stock
Offering and will be subject to and comply with all regulations of the OTS.

22.  INTERPRETATION

     All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the Holding
Company shall be final, subject to the authority of the OTS.

                                       19


23.  AMENDMENT OR TERMINATION OF THE PLAN

     If necessary or desirable, the terms of the Plan may be substantially
amended by a majority vote of the Holding Company's Board of Directors as a
result of comments from regulatory authorities or otherwise at any time prior to
the approval of the Plan by the OTS and at any time thereafter with the
concurrence of the OTS. The Plan may be terminated by a majority vote of the
Board of Directors at any time prior to the approval of the Plan by the OTS and
may be terminated by a majority vote of the Board of Directors at any time
thereafter with the concurrence of the OTS.

Dated:  April 7, 2004

                                       20

EX-3.1

                                                                     Exhibit 3.1

                               PSB HOLDINGS, INC.

                          STOCK HOLDING COMPANY CHARTER

     SECTION 1. CORPORATE TITLE. The full corporate title of the mutual holding
company subsidiary holding company is PSB Holdings, Inc. (the "Company").

     SECTION 2. DOMICILE. The domicile of the Company shall be located in the
Town of Putnam in the State of Connecticut.

     SECTION 3. DURATION. The duration of the Company is perpetual.

     SECTION 4. PURPOSE AND POWERS. The purpose of the Company is to pursue any
or all of the lawful objectives of a federal mutual holding company chartered
under Section 10(o) of the Home Owners' Loan Act, 12 U.S.C. 1467a(o), and to
exercise all of the express, implied, and incidental powers conferred thereby
and by all acts amendatory thereof and supplemental thereto, subject to the
Constitution and laws of the United States as they are now in effect, or as they
may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision (the "Office").

     SECTION 5. CAPITAL STOCK. The total number of shares of all classes of
the capital stock that the Company has authority to issue is 13,000,000
shares of which 12,000,000 shares shall be common stock, par value $0.10 per
share, and of which 1,000,000 shares shall be serial preferred stock, par
value $0.10 per share. The shares may be issued from time to time as
authorized by the board of directors without the approval of its
shareholders, except as otherwise provided in this Section 5 or to the extent
that such approval is required by governing law, rule, or regulation. The
consideration for the issuance of the shares shall be paid in full before
their issuance and shall not be less than the par or stated value. Neither
promissory notes nor future services shall constitute payment or part payment
for the issuance of shares of the Company. The consideration for the shares
shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted to the Company), labor, or
services actually performed for the Company, or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of
such property, labor, or services, as determined by the board of directors of
the Company, shall be conclusive. Upon payment of such consideration, such
shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, that part of the retained earnings of the Company that is
transferred to common stock or paid in capital accounts upon the issuance of
shares as a stock dividend shall be deemed to be the consideration for their
issuance.

     Except for shares issued in the initial organization of the Company, no
shares of capital stock (including shares issuable upon conversion, exchange, or
exercise of other securities) shall be issued, directly or indirectly, to
officers, directors, or controlling persons (except for shares issued to the
parent mutual holding company) of the Company other than as part of a general
public offering or as qualifying shares to a director, unless their issuance or
the plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.

     Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, and there
shall be no cumulation of votes for the election of directors. PROVIDED, that
this restriction on voting separately by class or series shall not apply:

     (i)    To any provision which would authorize the holders of preferred
            stock, voting as a class or series, to elect some members of the
            board of directors, less than a majority thereof, in the event of
            default in the payment of dividends on any class or series of
            preferred stock;

     (ii)   To any provision which would require the holders of preferred stock,
            voting as a class or series, to approve the merger or consolidation
            of the Company with another corporation or the sale, lease, or



            conveyance (other than by mortgage or pledge) of properties or
            business in exchange for securities of a corporation other than the
            Company if the preferred stock is exchanged for securities of such
            other corporation: PROVIDED, that no provision may require such
            approval for transactions undertaken with the assistance or pursuant
            to the direction of the Office or the Federal Deposit Insurance
            Corporation;

     (iii)  To any amendment which would adversely change the specific terms of
            any class or series of capital stock as set forth in this Section 5
            (or in any supplementary sections hereto), including any amendment
            which would create or enlarge any class or series ranking prior
            thereto in rights and preferences. An amendment which increases the
            number of authorized shares of any class or series of capital stock,
            or substitutes the surviving Company in a merger or consolidation
            for the Company, shall not be considered to be such an adverse
            change.

     A description of the different classes and series of the Company's capital
stock and a statement of the designations, and the relative rights, preferences
and limitations of the shares of each class of and series of capital stock are
as follows:

     A.     COMMON STOCK. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder.

     Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to payment of dividends, the full amount of dividends
and of sinking fund, retirement fund or other retirement payments, if any, to
which such holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or series of
stock entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends.

     In the event of any liquidation, dissolution, or winding up of the Company,
the holders of the common stock (and the holders of any class or series of stock
entitled to participate with the common stock in the distribution of assets)
shall be entitled to receive, in cash or in kind, the assets of the Company
available for distribution remaining after: (i) payment or provision for payment
of the Company's debts and liabilities; (ii) distributions or provision for
distributions in settlement of its liquidation account; and (iii) distributions
or provisions for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation, dissolution, or
winding up of the Company. Each share of common stock shall have the same
relative rights as and be identical in all respects with all the other shares of
common stock.

     B.     PREFERRED STOCK. The Company may provide in supplementary sections
to its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into and issued in
series, with each series separately designated so as to distinguish the shares
thereof from the shares of all other series and classes. The terms of each
series shall be set forth in a supplementary section to the charter. All shares
of the same class shall be identical, except as to the following relative rights
and preferences, as to which there may be variations between different series:

     (a)    The distinctive serial designation and the number of shares
            constituting such series;

     (b)    The dividend rate or the amount of dividends to be paid on the
            shares of such series, whether dividends shall be cumulative and, if
            so, from which date(s), the payment date(s) for dividends, and the
            participating or other special rights, if any, with respect to
            dividends;

     (c)    The voting powers, full or limited, if any, of shares of such
            series;

     (d)    Whether the shares of such series shall be redeemable and, if so,
            the price(s) at which, and the terms and conditions on which, such
            shares may be redeemed;

                                        2


     (e)    The amount(s) payable upon the shares of such series in the event of
            voluntary or involuntary liquidation, dissolution, or winding up of
            the Company;

     (f)    Whether the shares of such series shall be entitled to the benefit
            of a sinking or retirement fund to be applied to the purchase or
            redemption of such shares, and if so entitled, the amount of such
            fund and the manner of its application, including the price(s) at
            which such shares may be redeemed or purchased through the
            application of such fund;

     (g)    Whether the shares of such series shall be convertible into, or
            exchangeable for, shares of any other class or classes of stock of
            the Company and, if so, the conversion price(s) or the rate(s) of
            exchange, and the adjustments thereof, if any, at which such
            conversion or exchange may be made, and any other terms and
            conditions of such conversion or exchange;

     (h)    The price or other consideration for which the shares of such series
            shall be issued; and

     (i)    Whether the shares of such series which are redeemed or converted
            shall have the status of authorized but unissued shares of serial
            preferred stock and whether such shares may be reissued as shares of
            the same or any other series of serial preferred stock.

     Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.

     The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.

     Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the board of directors, the Company
shall file with the Secretary to the Office a dated copy of that supplementary
section of this charter establishing and designating the series and fixing and
determining the relative rights and preferences thereof.

     SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the Company
shall not be entitled to preemptive rights with respect to any shares of the
Company which may be issued.

     SECTION 7. DIRECTORS. The Company shall be under the direction of a board
of directors. The authorized number of directors, as stated in the Company's
bylaws, shall not be fewer than five nor more than fifteen except when a greater
or lesser number is approved by the Director of the Office, or his or her
delegate.

     SECTION 8. CUMULATIVE VOTING LIMITATION. Shareholders shall not be
permitted to cumulate their votes for election of directors.

     SECTION 9. CALL FOR SPECIAL MEETING. Special meetings of shareholders
relating to changes in control of the Company or amendments to its charter shall
be called only upon direction of the board of directors.

     SECTION 10. AMENDMENT OF CHARTER. Except as provided in Section 5, no
amendment, addition, alteration, change or repeal of this charter shall be made,
unless such is proposed by the board of directors of the Company, approved by
the shareholders by a majority of the votes eligible to be cast at a legal
meeting, unless a higher vote is otherwise required, and approved or preapproved
by the Office.

                                        3


PSB HOLDINGS, INC.


ATTEST:
                ------------------------------------------------
                Barbara L. McGarry
                Corporate Secretary


BY:
                ------------------------------------------------
                Robert G. Cocks, Jr.
                President and Chief Executive Officer


OFFICE OF THRIFT SUPERVISION


ATTEST:
                ------------------------------------------------
                Secretary of Office of Thrift Supervision


BY:
                ------------------------------------------------
                Director of Office of Thrift Supervision


Effective Date:
                ------------------------------------------------

                                        4

EX-3.2

                                                                     Exhibit 3.2

                               PSB HOLDINGS, INC.

                                     BYLAWS

                             ARTICLE I - HOME OFFICE

     The home office of PSB Holdings, Inc. (the "Company") shall be at 40 Main
Street, in the Town of Putnam, in the County of Windham, in the State of
Connecticut.

                            ARTICLE II - SHAREHOLDERS

     SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the Company or at such other
convenient place as the board of directors may determine.

     SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the Company for
the election of directors and for the transaction of any other business of the
Company shall be held annually at such place, on such date and at such time as
the board of directors may determine.

     SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision (the "Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Company entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Company addressed to the
chairman of the board, the president, or the secretary.

     SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted by the chairman of the annual or special meeting in accordance with
the written procedures agreed to by the board of directors.

     SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day, and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than twenty (20) nor more than fifty (50) days before the
date of the meeting, either personally or by mail, by or at the direction of the
chairman of the board, the president, or the secretary, or the directors calling
the meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the Company as of the record date prescribed in Section 6 of
this Article II with postage prepaid. When any shareholders' meeting, either
annual or special, is adjourned for thirty (30) days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for less than thirty (30) days or of the business to be transacted at
the meeting, other than an announcement at the meeting at which such adjournment
is taken.

     SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
sixty (60) days and, in case of a meeting of shareholders, not fewer than ten
(10) days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment.

     SECTION 7. VOTING LISTS. At least twenty (20) days before each meeting of
the shareholders, the officer or agent having charge of the stock transfer books
for shares of the Company shall make a complete list of the shareholders of
record entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order,



with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Company and shall
be subject to inspection by any shareholder of record or the shareholder's agent
at any time during usual business hours for a period of twenty (20) days prior
to such meeting. Such list also shall be produced and kept open at the time and
place of the meeting and shall be subject to inspection by any shareholder of
record or the shareholder's agent during the entire time of the meeting. The
original stock transfer book shall constitute PRIMA FACIE evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.

     In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in Section 552.6(d) of the Office's
regulations as now or hereafter in effect.

     SECTION 8. QUORUM. A majority of the outstanding shares of the Company
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If a quorum is present at a meeting of shareholders and the withdrawal
of shareholders results in the presence of less than a quorum, the shareholders
present may continue to transact business until adjournment. If a quorum is
present the affirmative vote of the majority of the shares represented at the
meeting and entitled to vote on the subject matter shall be the act of the
shareholders, unless the vote of a greater number of shareholders voting
together or voting by classes is required by law or the charter. Directors,
however, are elected by a plurality of the votes cast at an election of
directors.

     SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his or her duly authorized
attorney in fact. Proxies may be given telephonically or electronically as long
as the holder uses a procedure for verifying the identity of the shareholder.
Proxies solicited on behalf of the management shall be voted as directed by the
shareholder or, in the absence of such direction, as determined by a majority of
the board of directors. No proxy shall be valid more than eleven months from the
date of its execution except for a proxy coupled with an interest.

     SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Company to the contrary, at any meeting of the shareholders of
the Company any one or more of such shareholders may cast, in person or by
proxy, all votes to which such ownership is entitled. In the event an attempt is
made to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such stock and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.

     SECTION 11. VOTING OF SHARES OF CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares held in trust in an IRA or Keogh Account, however, may be voted by the
Company if no other instructions are received. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer into his or her
name if authority to do so is contained in an appropriate order of the court or
other public authority by which such receiver was appointed.

     A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.

     Neither treasury shares of its own stock held by the Company nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the

                                        2


Company, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.

     SECTION 12. CUMULATIVE VOTING. Stockholders may not cumulate their votes
for election of directors.

     SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.

     Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.

     SECTION 14. NOMINATING COMMITTEE. The board of directors shall act as a
nominating committee for selecting the nominees for election as directors.
Except in the case of a nominee substituted as a result of the death or other
incapacity of a management nominee, the nominating committee shall deliver
written nominations to the secretary at least twenty (20) days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Company. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the Company at least five days prior to the date
of the annual meeting. Such shareholder's notice shall set forth: (A) as to each
person whom the shareholder proposes to nominate for election or reelection as a
director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, and (iii)
such person's written consent to serve as a director, if elected; and (B) as to
the shareholder giving the notice (i) the name and address of such shareholder
and (ii) the class and number of shares of the Company that are owned of record
by such shareholder. At the request of the board of directors, any person
nominated by the board of directors for election as a director shall furnish to
the secretary that information required to be set forth in a shareholder's
notice of nomination which pertains to the nominee together with the required
written consents. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Company. Ballots bearing the names of
all persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least twenty (20) days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.

     SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the Company
at least five days prior to the date of the annual meeting, and all business so
stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
five (5) days before the meeting, such proposal shall be laid over for action at
an adjourned, special or annual meeting of the shareholders taking place 30 days
or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors,
and committees; but in connection with such reports, no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided. A
shareholder's notice to the secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (A) a brief description
of the proposal desired to be brought before the annual meeting, (B) the
business, as well as the name and address of such shareholder and the class and
number of shares of the Company that are owned of record by such shareholder.

                                        3


                        ARTICLE III - BOARD OF DIRECTORS

     SECTION 1. GENERAL POWERS. The business and affairs of the Company shall be
under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board from among its members and shall
designate, when present, either the chairman of the board or the president to
preside at its meetings.

     SECTION 2. NUMBER AND TERM. The board of directors shall consist of nine
(9) members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
by ballot annually.

     SECTION 3. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without notice other than this bylaw following the annual meeting
of shareholders. The board of directors may provide, by resolution, the time and
place for the holding of additional regular meetings without other notice than
such resolution. Directors may participate in a meeting by means of a conference
telephone or similar communications device through which all persons
participating can hear each other at the same time. Participation by such means
shall constitute presence in person for all purposes.

     SECTION 4. QUALIFICATION. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Company
unless the Company is a wholly-owned subsidiary of a holding company.

     SECTION 5. SPECIAL MEETINGS. Special meetings of the board of directors may
be called by or at the request of the chairman of the board, the president, or
one-third of the directors. The persons authorized to call special meetings of
the board of directors may fix any place, within the United States, as the place
for holding any special meeting of the board of directors called by such
persons.

     Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person for all purposes.

     SECTION 6. NOTICE. Written notice of any special meeting shall be given to
each director at least three days prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if sent by mail, when delivered to the telegraph company if sent by
telegram or when the Company receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.

     SECTION 7. QUORUM. A majority of the number of directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the board of directors; but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time. Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 6 of this Article III.

     SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.

     SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken by the board of directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.

     SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Company addressed
to the chairman of the board or the president. Unless

                                        4


otherwise specified, such resignation shall take effect upon receipt by the
chairman of the board or the president. More than six (6) consecutive absences
from regular meetings of the board of directors, unless excused by resolution of
the board of directors, shall automatically constitute a resignation, effective
when such resignation is accepted by the board of directors.

     SECTION 11. VACANCIES. Any vacancy occurring on the board of directors may
be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.

     SECTION 12. COMPENSATION. Directors, as such, may receive a stated salary
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
attendance at committee meetings as the board of directors may determine.

     SECTION 13. PRESUMPTION OF ASSENT. A director of the Company who is present
at a meeting of the board of directors at which action on any Company matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent or abstention shall be entered in the minutes of the meeting or unless
he or she shall file a written dissent to such action with the person acting as
the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the Company within five days
after the date a copy of the minutes of the meeting is received. Such right to
dissent shall not apply to a director who voted in favor of such action.

     SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed only for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. Whenever the holders of the shares of any class are entitled to
elect one or more directors by the provisions of the charter or supplemental
sections thereto, the provisions of this section shall apply, in respect to the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.

     For purposes of this section, removal for cause includes, as defined in 12
C.F.R. Section 563.39, or any successor regulation enacted by the Office,
"personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, [or a]
willful violation of any law, rule or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order."

     SECTION 15. AGE LIMITATION. The office of any director who shall reach the
age of seventy-two (72) shall terminate at the first annual meeting following
his/her seventy-second birthday. No person seventy-two (72) years of age shall
be eligible for election, reelection, appointment or reappointment to the board
of the Company.

     SECTION 16. INTEGRITY OF DIRECTORS. A person is not qualified to serve as
director if he or she: (1) is under indictment for, or has ever been convicted
of, a criminal offense involving dishonesty or breach of trust and the penalty
for such offense could be imprisonment for more than one year, or (2) is a
person against who a banking agency has, within the past ten years, issued a
cease and desist order for conduct involving dishonesty or breach of trust and
that order is final and not subject to appeal, or (3) has been found either by a
regulatory agency whose decision is final and not subject to appeal or by a
court to have (i) breached a fiduciary duty involving personal profit or (ii)
committed a willful violation of any law, rule or regulation governing banking,
securities, commodities or insurance, or any final cease and desist order issued
by a banking, securities, commodities or insurance regulatory agency.

                   ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES

     SECTION 1. APPOINTMENT. The board of directors, by resolution adopted by a
majority of the full board, may designate the chairman, the chief executive
officer and two or more of the other directors to constitute an

                                        5


executive committee. The designation of any committee pursuant to this
Article IV and the delegation of authority shall not operate to relieve the
board of directors, or any director, of any responsibility imposed by law or
regulation.

     SECTION 2. AUTHORITY. The executive committee, when the board of directors
is not in session, shall have and may exercise all of the authority of the board
of directors except to the extent, if any, that such authority shall be limited
by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the Company or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease, or other disposition of all or
substantially all of the property and assets of the Company otherwise than in
the usual and regular course of its business; a voluntary dissolution of the
Company; a revocation of any of the foregoing; or the approval of a transaction
in which any member of the executive committee, directly or indirectly, has any
material beneficial interest.

     SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.

     SECTION 4. MEETINGS. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.

     SECTION 5. QUORUM. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.

     SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee.

     SECTION 7. VACANCIES. Any vacancy in the executive committee may be filled
by a resolution adopted by a majority of the full board of directors.

     SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the president or secretary of the Company. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.

     SECTION 9. PROCEDURE. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.

     SECTION 10. OTHER COMMITTEES. The board of directors shall by resolution
establish an audit, loan, or other committees composed of directors as it may
determine to be necessary or appropriate for the conduct of the business of the
Company and may prescribe the duties, constitution, and procedures thereof, and
the chairman or the board of directors shall appoint the members of such
committees.

                                        6


                              ARTICLE V - OFFICERS

     SECTION 1. POSITIONS. The officers of the Company shall be a chairman,
president, one or more vice presidents, a secretary, and a treasurer or
comptroller, each of whom shall be elected by the board of directors. The
chairman shall be an ex-officio member of all committees of the board of
directors, except an audit committee if the board of directors establishes such
committee. The offices of the secretary and treasurer or comptroller may be held
by the same person and a vice president also may be either the secretary or the
treasurer or comptroller. The board of directors may designate one or more vice
presidents as executive vice president or senior vice president. The board of
directors also may elect or authorize the appointment of such other officers as
the business of the Company may require. The officers shall have such authority
and perform such duties as the board of directors may from time to time
authorize or determine. In the absence of action by the board of directors, the
officers shall have such powers and duties as generally pertain to their
respective offices.

     SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Company shall
be elected annually at the first meeting of the board of directors held after
each annual meeting of the shareholders. If the election of officers is not held
at such meeting, such election shall be held as soon thereafter as possible.
Each officer shall hold office until a successor has been duly elected and
qualified or until the officer's death, resignation, or removal in the manner
hereinafter provided. Election or appointment of an officer, employee, or agent
shall not of itself create contractual rights. The board of directors may
authorize the Company to enter into an employment contract with any officer in
accordance with regulations of the Office; but no such contract shall impair the
right of the board of directors to remove any officer at any time in accordance
with Section 3 of this Article V.

     SECTION 3. REMOVAL. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Company will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.

     For purposes of this section, removal for cause includes, as defined in 12
C.F.R. Section 563.39 or any successor regulation enacted by the Office, removal
because of the officer's "personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, [or a] willful violation of any law, rule or regulation
(other than traffic violations or similar offenses) or final cease-and-desist
order."

     SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.

     SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the board of directors.

               ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS

     SECTION 1. CONTRACTS. To the extent permitted by regulations of the Office,
and except as otherwise prescribed by these bylaws with respect to certificates
for shares, the board of directors may authorize any officer, employee or agent
of the Company to enter into any contract or execute and deliver any instrument
in the name of and on behalf of the Company. Such authority may be general or
confined to specific instances.

     SECTION 2. LOANS. No loans shall be contracted on behalf of the Company and
no evidence of indebtedness shall be issued in its name unless authorized by the
board of directors. Such authority may be general or confined to specific
instances.

     SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the Company shall be signed by one or more officers, employees, or agents of
the Company in such manner as shall from time to time be determined by the board
of directors.

                                        7


     SECTION 4. DEPOSITS. All funds of the Company not otherwise employed shall
be deposited from time to time to the credit of the Company in any duly
authorized depositories as the board of directors may select.

            ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER

     SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the Company shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be signed
by the chief executive officer or by any other officer of the Company authorized
by the board of directors, attested by the secretary or an assistant secretary,
and sealed with the corporate seal or a facsimile thereof. The signatures of
such officers upon a certificate may be facsimiles if the certificate is
manually signed on behalf of a transfer agent or a registrar other than the
Company itself or one of its employees. Each certificate for shares of capital
stock shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares are issued, with the number of shares
and date of issue, shall be entered on the stock transfer books of the Company.
All certificates surrendered to the Company for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares has been surrendered and cancelled, except that in the case of
a lost or destroyed certificate, a new certificate may be issued upon such terms
and indemnity to the Company as the board of directors may prescribe.

     SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
Company shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Company. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Company shall be deemed by the Company to be the
owner for all purposes.

                           ARTICLE VIII - FISCAL YEAR

     The fiscal year of the Company shall end on the last day of June of each
year. The appointment of accountants shall be subject to annual ratification by
the shareholders.

                             ARTICLE IX - DIVIDENDS

     Subject only to the terms of the Company's charter and the regulations and
orders of the Office, the board of directors may, from time to time, declare,
and the Company may pay, dividends on its outstanding shares of capital stock.

                           ARTICLE X - CORPORATE SEAL

     The board of directors shall provide a Company seal which shall be two
concentric circles between which shall be the name of the Company. The year of
incorporation or an emblem may appear in the center.

                             ARTICLE XI - AMENDMENTS

     These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a majority
vote of the authorized board of directors, or by a majority vote of the votes
cast by the shareholders of the Company at any legal meeting; and (ii) receipt
of any applicable regulatory approval. When the Company fails to meet its quorum
requirements, solely due to vacancies on the board, then the affirmative vote of
a majority of the sitting board will be required to amend the bylaws.

                          ARTICLE XII - INDEMNIFICATION

     The Company shall indemnify all officers, directors and employees of the
Company, and their heirs, executors and administrators, to the fullest extent
permitted under federal law against all expenses and liabilities reasonable
incurred by them in connection with or arising out of any action, suit or
proceeding in which they may be involved by reason of their having been a
director or officer of the Company, whether or not they continue to be a

                                        8


director or officer at the time of incurring such expenses or liabilities, such
expenses and liabilities to include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements.

             ARTICLE XIII - RELIANCE UPON BOOKS, REPORTS AND RECORDS

     Each director, each member of any committee designated by the board of
directors, and each officer of the Company shall, in the performance of his or
her duties, be fully protected in relying in good faith upon the books of
account or other records of the Company and upon such information, opinions,
reports or statements presented to the Company by any of its officers or
employees, or committees of the board of directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Company.

                                       9

EX-4

                                                                       Exhibit 4

            CHARTERED UNDER THE LAWS OF THE UNITED STATES OF AMERICA

     No.                                                             Shares

                               PSB HOLDINGS, INC.


                               PUTNAM, CONNECTICUT

                          FULLY PAID AND NON-ASSESSABLE
                      PAR VALUE TEN CENTS ($0.10) PER SHARE

                 THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
                    SUBJECT TO RESTRICTIONS, SEE REVERSE SIDE

THIS CERTIFIES that                                              is the owner of
                            SHARES OF COMMON STOCK OF

                               PSB HOLDINGS, INC.
                              a federal corporation

     The shares evidenced by this certificate are transferable only on the books
of PSB Holdings, Inc. by the holder hereof, in person or by attorney, upon
surrender of this certificate properly endorsed.

     The interest in PSB Holdings, Inc. evidenced by this certificate may not be
retired or withdrawn except as provided in the Rules and Regulations promulgated
by the Office of Thrift Supervision and the charter and bylaws of PSB Holdings,
Inc. THE CAPITAL STOCK EVIDENCED HEREBY IS NOT AN ACCOUNT OF AN INSURABLE TYPE
AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
FEDERAL OR STATE GOVERNMENTAL AGENCY.

     This certificate is not valid unless countersigned and registered by the
Registrar and Transfer Agent.

     IN WITNESS WHEREOF, PSB Holdings, Inc. has caused this certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused its seal to be hereunto affixed.


By                                   [SEAL]  By
     ----------------------------                 ------------------------------
     BARBARA L. MCGARRY                           ROBERT G. COCKS, JR.
     CORPORATE SECRETARY                          PRESIDENT AND CHIEF EXECUTIVE
                                                  OFFICER



     The Board of Directors of PSB Holdings, Inc. (the "Company") is authorized
by resolution or resolutions, from time to time adopted, to provide for the
issuance of more than one class of stock, including preferred stock in series,
and to fix and state the voting powers, designations, preferences, limitations
and restrictions thereof. The Company will furnish to any shareholder upon
request and without charge a full description of each class of stock and any
series thereof.

     The shares represented by this certificate may not be cumulatively voted on
any matter.

     Special meetings of the stockholders shall be called upon the written
request of the holders of not less than one-tenth of all of the outstanding
capital stock of the Company entitled to vote at the meeting.

     The following abbreviations when used in the inscription on the face of
this certificate shall be construed as though they were written out in full
according to applicable laws or regulations.

                                             
  TEN COM   - as tenants in common                UNIF GIFT MIN ACT  -  ___________Custodian___________
                                                                        (CUST)              (MINOR)
  TEN ENT   - as tenants by the entireties
                                                                     Under Uniform Gifts to Minors Act
  JT TEN    - as joint tenants with right
              of survivorship and not as
              tenants in common                                     ___________________________________
                                                                                  (STATE)

  

     Additional abbreviations may also be used though not in the above list


For value received, ___________________________ hereby sell, assign and
transfer unto

                 ______________________________________________

        PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER

   ___________________________________________________________________________

    (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
                                    ASSIGNEE)

   ___________________________________________________________________________

___________________Shares of the Common Stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint___________________
Attorney to transfer the said shares on the books of the within named
corporation with full power of substitution in the premises.

Dated, _____________________________

In the presence of                                Signature:


- -------------------------------                   ----------------------------

NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.

EX-5

                                                                       Exhibit 5

(202) 274-2000

June 10, 2004

The Board of Directors
PSB Holdings, Inc.
40 Main Street
Putnam, Connecticut 06260

          RE:   PSB HOLDINGS, INC.
                COMMON STOCK, PAR VALUE $0.10 PER SHARE

Ladies and Gentlemen:

     You have requested the opinion of this firm as to certain matters in
connection with the offer and sale (the "Offering") of the shares of common
stock, par value $0.10 per share ("Common Stock") of PSB Holdings, Inc. (the
"Company"). We have reviewed the Company's Charter, Registration Statement on
Form SB-2 (the "Form SB-2"), as well as applicable statutes and regulations
governing the Company and the offer and sale of the Common Stock.

     We are of the opinion that the Common Stock is duly authorized and, upon
the declaration of effectiveness of the Form SB-2, the Common Stock, when sold,
will be legally issued, fully paid and non-assessable.

     We have relied on the laws of the United States of America in providing
this opinion. We hereby consent to our firm being referenced under the caption
"Legal and Tax Matters" and to the filing of this opinion as an exhibit to the
Form SB-2.

                           Very truly yours,

                           /s/ Luse Gorman Pomerenk & Schick

                           LUSE GORMAN POMERENK & SCHICK
                           A PROFESSIONAL CORPORATION

EX-8

                                                                       Exhibit 8

                           FORM OF FEDERAL TAX OPINION

(202) 274-2000


June __, 2004

Boards of Directors
Putnam Bancorp MHC, Inc.
PSB Holdings, Inc.
40 Main Street
Putnam, Connecticut 06260

Ladies and Gentlemen:

     You have requested this firm's opinion regarding the material federal
income tax consequences which will result from a stock offering of the shares of
common stock of PSB Holdings, Inc., a federal mid-tier holding company (the
"Company") and the wholly owned subsidiary of Putnam Bancorp MHC, Inc., a
federal mutual holding company (the "Mutual Holding Company"). The Company owns
all of the outstanding common stock of Putnam Savings Bank, a federally
chartered savings bank (the "Bank").

     In connection therewith, we have made such investigations as we have deemed
relevant or necessary for the purpose of this opinion. In our examination, we
have assumed the authenticity of original documents, the accuracy of copies and
the genuineness of signatures. We have further assumed the absence of adverse
facts not apparent from the face of the instruments and documents we examined
and have relied upon the accuracy of the factual matters set forth in the PSB
Holdings, Inc. Stock Issuance Plan (the "Stock Issuance Plan") and the
Registration Statement filed on Form SB-2 by the Company with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933.

     Our opinion is based upon the existing provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), and regulations thereunder (the "Treasury
Regulations"), and upon current Internal Revenue Service ("IRS") published
rulings and existing court decisions, any of which could be changed at any time.
Any such changes may be retroactive and could significantly modify the
statements and opinions expressed herein. Similarly, any change in the facts and
assumptions stated below, upon which this opinion is based, could modify the
conclusions. This opinion is as of the date hereof, and we disclaim any
obligation to advise you of any change in any matter considered herein after the
date hereof.

     We, of course, opine only as to the matters we expressly set forth, and no
opinions should be inferred as to any other matters or as to the tax treatment
of the transactions that we do not specifically address. We express no opinion
as to other federal laws and regulations, or as to



Boards of Directors
Putnam Bancorp MHC, Inc.
PSB Holdings, Inc.
June __, 2004
Page 2

laws and regulations of other jurisdictions, or as to factual or legal matters
other than as set forth herein.

     For purposes of this opinion, we have relied on the representations as to
certain factual matters provided to us by the Company, as set forth in the
affidavit of its authorized officer. Capitalized terms used but not defined
herein shall have the same respective meanings as set forth in the Stock
Issuance Plan.

DESCRIPTION OF PROPOSED TRANSACTIONS

     Based solely upon our review of the documents described above, and in
reliance upon such documents, we understand that the relevant facts are as
follows.

     In May 2003, pursuant to the Amended Plan of Reorganization of Putnam
Savings Bank, the Bank reorganized from a Connecticut-chartered mutual savings
bank into the mutual holding company structure (the "Reorganization"). As part
of the Reorganization, the Bank became a Connecticut-chartered stock savings
bank wholly owned by the Company. Simultaneously, the Company became wholly
owned by the Mutual Holding Company.

     In connection with the Stock Issuance Plan, the Company and the Mutual
Holding Company converted to a federally-chartered stock holding company and a
federally-chartered mutual holding company, respectively, and the Bank converted
from a Connecticut-chartered savings bank to a federally-chartered savings bank.

     The Company currently has 100 shares of common stock ("Common Stock")
outstanding, which are 100% owned by the Mutual Holding Company. On April 7,
2004, the Board of Directors of the Company adopted the Stock Issuance Plan
which provides for the offer and sale of up to 49.9% of the shares of Common
Stock to qualified depositors, the Bank's tax-qualified employee plans
("Employee Plans"), employees officers and directors of the Bank and, to the
extent shares remain available, members of the public in a community offering
("Community Offering") or a syndicated community offering ("Syndicated Community
Offering"), or a combination thereof. It is contemplated that in connection with
the offering, the number of shares of Common Stock that the Company will issue
to the Mutual Holding Company will be approximately 53.7% of the outstanding
shares. The 100 shares of Company common stock now held by the Mutual Holding
Company will be cancelled. The Company is offering from 1,985,813 shares up to
2,686,688 shares of its Common Stock for sale in the offering (with a mid point
of 2,336,250 shares and an adjusted maximum of 3,089,691 shares), which will
represent approximately 44.5% of its outstanding shares. All shares of Common
Stock sold in the offering will be issued from authorized but unissued shares of
the Company.



Boards of Directors
Putnam Bancorp MHC, Inc.
PSB Holdings, Inc.
June __, 2004
Page 3

     Pursuant to the terms set forth in the Stock Issuance Plan, the Company
will offer shares of Common Stock to Eligible Account Holders, the Employee
Plans, Supplemental Eligible Account Holders and employees, officers and
directors of the Bank or the Company in the respective priorities set forth in
the Stock Issuance Plan. Any shares of Common Stock not subscribed for by the
foregoing classes of persons may be offered for sale to certain members of the
general public, with preference first given to natural persons residing in
Windham County, Connecticut. Any shares of Common Stock not purchased in the
Community Offering may be offered for sale to the general public in a Syndicated
Community Offering. The offering will have no impact on depositors, borrowers or
other customers of the Bank.

     In furtherance of the Bank's commitment to its community, the Stock
Issuance Plan provides for the establishment of a charitable foundation
("Foundation") in connection with the offering. The Foundation is intended to
complement the Bank's existing community reinvestment activities in a manner
that will allow the Bank's local communities to share in the growth and
profitability of the Company and the Bank over the long term. Consistent with
the Bank's goal, the Company intends to donate to the Foundation cash and shares
of Common Stock, in an aggregate amount up to 4% of the value of the shares of
Company Common Stock being offered for sale (or 1.8% of the Company's
outstanding shares.

     The offering will be effected as follows, or in any other manner approved
by the OTS. Each of the steps shall be deemed to occur in such order as is
necessary to consummate the offering pursuant to the Stock Issuance Plan and the
intent of the Board of Directors of the Company.

     1.   In connection with the offering, the Company will issue to the Mutual
          Holding Company between 2,397,254 shares and 3,243,344 shares of its
          Common Stock (at the minimum and maximum of the offering range), in
          exchange for the 100 shares of Company Common Stock that the Mutual
          Holding Company presently holds.

     2.   The Company will offer for sale in the offering, from 1,985,813 shares
          up to 2,686,688 shares of its Common Stock (at the minimum and maximum
          of the offering range). All shares sold in the offering will be issued
          by the Company from authorized but unissued shares of Common Stock.
          All Common Stock will be offered for sale in the offering on a
          priority basis as set forth in the Stock Issuance Plan.



Boards of Directors
Putnam Bancorp MHC, Inc.
PSB Holdings, Inc.
June __, 2004
Page 4

OPINIONS

     Based on the foregoing description of the offering, and subject to the
qualifications and limitations set forth in this letter, we are of the opinion
that the following are the material federal income tax consequences of the
offering:

     1.   Neither the Mutual Holding Company nor the Company will recognize gain
or loss upon the exchange by the Mutual Holding Company of 100 shares of the
Company Common Stock it presently holds for the shares of the Company Common
Stock issued in connection with the offering. See Section 1036 of the Code.

     2.   It is more likely than not that the fair market value of the
non-transferable subscription rights to purchase the Company Common Stock will
be zero. Accordingly, no gain or loss will be recognized by Eligible Account
Holders, Supplemental Eligible Account Holders, or the employees, officers and
directors of the Bank and the Company upon the distribution to them of the
nontransferable subscription rights to purchase the Company Common Stock. No
taxable income will be realized by the Eligible Account Holders, Supplemental
Eligible Account Holders, or the employees, officers and directors of the Bank
and the Company as a result of the exercise of the nontransferable subscription
rights. Rev. Rul. 56-572, 1956-2 C.B. 182.

     3.   It is more likely than not that the basis of the Company Common Stock
to persons who purchase in the offering will be the purchase price thereof.
Section 1012 of the Code. The holding period of a stockholder who purchases
shares in the offering will commence upon the consummation of the sale of such
Common Stock to such stockholder pursuant to the exercise of the subscription
rights. Section 1223(6) of the Code.

     4.   No gain or loss will be recognized by the Company on the receipt of
money in exchange for the Company Common Stock sold in the offering.
Section 1032 of the Code.

     Our opinion under 2 above is predicated on the representation that no
person shall receive any payment, whether in money or property, in lieu of the
issuance of subscription rights. Our opinions under 2 and 3 are based on the
assumption that nontransferable subscription rights do not have any economic
value at the time of distribution or at the time the subscription rights are
exercised. In this regard, we note that the subscription rights will be granted
at no cost to the recipients, will be legally non-transferable and of short
duration, and will provide the recipient with the right only to purchase shares
of common stock at the same price to be paid by the general public in the
offering. We also note that the Internal Revenue Service has not in the past
concluded that the subscription rights have value. Based on the foregoing, we
believe that it is more likely than not that the nontransferable subscription
rights to purchase common stock have no value. However, the issue of whether or
not the subscription rights have value is based on all the facts and
circumstances. If the nontransferable subscription rights are subsequently found
to



Boards of Directors
Putnam Bancorp MHC, Inc.
PSB Holdings, Inc.
June __, 2004
Page 5

have an ascertainable value greater than zero, income may be recognized by
various recipients of the nontransferable subscription rights (in certain cases,
whether or not the rights are exercised) and the Company could recognize gain on
the distribution of the nontransferable subscription rights. Unlike private
rulings, an opinion of Luse Gorman Pomerenk & Schick, P.C., is not binding on
the Internal Revenue Service and the Internal Revenue Service could disagree
with the conclusions reached herein.

     We hereby consent to the filing of the opinion as an exhibit to the
Company's Registration Statement on Form SB-2 as filed with the SEC and the
Company's Form MHC-2 as filed with the Office of Thrift Supervision. We also
consent to the references to our firm in the Prospectus contained in the Form
SB-2 and the Form MHC-2 under the caption "Legal and Tax Matters."

                                Very truly yours,

                                LUSE GORMAN POMERENK & SCHICK,
                                A PROFESSIONAL CORPORATION


                                By:
                                   --------------------------

EX-10.1

                                                                    Exhibit 10.1

                               PUTNAM SAVINGS BANK

                          EMPLOYEE STOCK OWNERSHIP PLAN


                        (adopted effective July 1, 2004)



                               PUTNAM SAVINGS BANK
                          EMPLOYEE STOCK OWNERSHIP PLAN

     This Employee Stock Ownership Plan, is executed on the ________ day of
______________, 2004, by Putnam Savings Bank, a federally chartered stock
savings bank (the "Association"),

                                 WITNESSETH THAT

     WHEREAS, the board of directors of the Association has resolved to adopt an
employee stock ownership plan for eligible employees of the Association and
subsidiaries of the Association, in accordance with the terms and conditions
presented set forth herein;

     NOW, THEREFORE, the Association hereby adopts the following Plan setting
forth the terms and conditions pertaining to contributions by the Employer and
the payment of benefits to Participants and Beneficiaries.

     IN WITNESS WHEREOF, the Association has adopted this Plan and caused this
instrument to be executed by its duly authorized officers as of the above date.


ATTEST:


                                            By:
- ------------------------------------              ----------------------------
Secretary                                         President



                                    CONTENTS



                                                                        PAGE NO.
                                                                        --------
                                                                           
Section 1. Plan Identity.......................................................1
        1.1    Name............................................................1
        1.2    Purpose.........................................................1
        1.3    Effective Date..................................................1
        1.4    Fiscal Period...................................................1
        1.5    Single Plan for All Employers...................................1
        1.6    Interpretation of Provisions....................................1
Section 2. Definitions.........................................................1
Section 3.     Eligibility for Participation...................................6
        3.1    Initial Eligibility.............................................6
        3.2    Definition of Eligibility Year..................................6
        3.3    Terminated Employees............................................7
        3.4    Certain Employees Ineligible....................................7
        3.5    Participation and Reparticipation...............................7
        3.6    Omission of Eligible Employee...................................7
Section 4.     Contributions and Credits.......................................7
        4.1    Discretionary Contributions.....................................7
        4.2    Contributions for Stock Obligations.............................8
        4.3    Conditions as to Contributions..................................8
        4.4    Rollover Contributions..........................................8
Section 5.     Limitations on Contributions and Allocations....................8
        5.1    Limitation on Annual Additions..................................8
        5.2    Effect of Limitations..........................................10
        5.3    Limitations as to Certain Participants.........................10
Section 6.     Trust Fund and Its Investment..................................11
        6.1    Creation of Trust Fund.........................................11
        6.2    Stock Fund and Investment Fund.................................11
        6.3    Acquisition of Stock...........................................11
        6.4    Participants' Option to Diversify..............................12
Section 7.     Voting Rights and Dividends on Stock...........................13
        7.1    Voting and Tendering of Stock..................................13
        7.2    Dividends on Stock.............................................13
Section 8.     Adjustments to Accounts........................................14
        8.1    Adjustments for Transactions...................................14
        8.2    Valuation of Investment Fund...................................14
        8.3    Adjustments for Investment Experience..........................14
Section 9.     Vesting of Participants' Interests.............................15
        9.1    Deferred Vesting in Accounts...................................15
        9.2    Computation of Vesting Years...................................15
        9.3    Full Vesting Upon Certain Events...............................16
        9.4    Full Vesting Upon Plan Termination.............................16
        9.5    Forfeiture, Repayment, and Restoral............................16
        9.6    Accounting for Forfeitures.....................................17
        9.7    Vesting and Nonforfeitability..................................17
Section 10.    Payment of Benefits............................................17
        10.1   Benefits for Participants......................................17


                                       (i)



                                                                           
        10.2   Time for Distribution..........................................18
        10.3   Marital Status.................................................19
        10.4   Delay in Benefit Determination.................................19
        10.5   Accounting for Benefit Payments................................19
        10.6   Options to Receive Stock or Cash...............................19
        10.7   Restrictions on Disposition of Stock...........................20
        10.8   Continuing Loan Provisions; Creations of Protections
                and Rights....................................................20
        10.9   Direct Rollover of Eligible Distribution.......................20
        10.10  Waiver of 30-Day Period After Notice of Distribution...........21
Section 11.    Rules Governing Benefit Claims and Review of Appeals...........21
        11.1   Claim for Benefits.............................................21
        11.2   Notification by Committee......................................22
        11.3   Claims Review Procedure........................................22
Section 12.    The Committee and its Functions................................22
        12.1   Authority of Committee.........................................22
        12.2   Identity of Committee..........................................22
        12.3   Duties of Committee............................................23
        12.4   Valuation of Stock.............................................23
        12.5   Compliance with ERISA..........................................23
        12.6   Action by Committee............................................23
        12.7   Execution of Documents.........................................23
        12.8   Adoption of Rules..............................................23
        12.9   Responsibilities to Participants...............................24
        12.10  Alternative Payees in Event of Incapacity......................24
        12.11  Indemnification by Employers...................................24
        12.12  Nonparticipation by Interested Member..........................24
Section 13.    Adoption, Amendment, or Termination of the Plan................24
        13.1   Adoption of Plan by Other Employers............................24
        13.2   Plan Adoption Subject to Qualification.........................24
        13.3   Right to Amend or Terminate....................................25
Section 14.    Miscellaneous Provisions.......................................25
        14.1   Plan Creates No Employment Rights..............................25
        14.2   Nonassignability of Benefits...................................25
        14.3   Limit of Employer Liability....................................25
        14.4   Treatment of Expenses..........................................25
        14.5   Number and Gender..............................................25
        14.6   Nondiversion of Assets.........................................26
        14.7   Separability of Provisions.....................................26
        14.8   Service of Process.............................................26
        14.9   Governing State Law............................................26
        14.10  Employer Contributions Conditioned on Deductibility............26
        14.11  Unclaimed Accounts.............................................26
        14.12  Qualified Domestic Relations Order.............................26
Section 15.    Top-Heavy Provisions...........................................27
        15.1   Top-Heavy Plan.................................................27
        15.2   Super Top-Heavy Plan...........................................27
        15.3   Definitions....................................................28
        15.4   Top-Heavy Rules of Application.................................28
        15.5   Minimum Contributions..........................................29
        15.6   Top-Heavy Provisions Control in Top-Heavy Plan.................30



                                      (ii)



                               PUTNAM SAVINGS BANK
                          EMPLOYEE STOCK OWNERSHIP PLAN

SECTION 1.  PLAN IDENTITY.

        1.1    NAME. The name of this Plan is "Putnam Savings Bank Employee
Stock Ownership Plan."

        1.2    PURPOSE. The purpose of this Plan is to describe the terms and
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.

        1.3    EFFECTIVE DATE. The Effective Date of this Plan is July 1, 2004.

        1.4    FISCAL PERIOD. This Plan shall be operated on the basis of a
July 1 to June 30 fiscal year for the purpose of keeping the Plan's books and
records and distributing or filing any reports or returns required by law.

        1.5    SINGLE PLAN FOR ALL EMPLOYERS. This Plan shall be treated as a
single plan with respect to all participating Employers for the purpose of
crediting contributions and forfeitures and distributing benefits, determining
whether there has been any termination of Service, and applying the limitations
set forth in Section 5.

        1.6    INTERPRETATION OF PROVISIONS. The Employers intend this Plan and
the Trust to be a qualified stock bonus plan under Section 401(a) of the Code
and an employee stock ownership plan within the meaning of Section 407(d)(6) of
ERISA and Section 4975(e)(7) of the Code. The Plan is intended to have its
assets invested primarily in qualifying employer securities of one or more
Employers within the meaning of Section 407(d)(3) of ERISA, and to satisfy any
requirement under ERISA or the Code applicable to such a plan.

        Accordingly, the Plan and Trust Agreement shall be interpreted and
applied in a manner consistent with this intent and shall be administered at all
times and in all respects in a nondiscriminatory manner.

SECTION 2.  DEFINITIONS.

        The following capitalized words and phrases shall have the meanings
specified when used in this Plan and in the Trust Agreement, unless the context
clearly indicates otherwise:

        "ACCOUNT" means a Participant's interest in the assets accumulated under
this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.

        "ACTIVE PARTICIPANT" means a Participant who has satisfied the
eligibility requirements under Section 3 and who has at least 1,000 Hours of
Service during the current Plan Year. However, a Participant shall not qualify
as an Active Participant unless (i) he is in active Service with an Employer as
of the last day of the Plan Year, or (ii) he is on a Recognized Absence as of
that date, or (iii) his Service terminated during the Plan Year by reason of
Disability, death, Early or Normal Retirement.

        "ASSOCIATION" means Putnam Savings Bank and any entity which succeeds to
the business of Putnam Savings Bank and adopts this Plan as its own pursuant to
Section 13.1 of the Plan.

        "BENEFICIARY" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the



Participant's Beneficiary shall be his surviving Spouse, if any, or his estate
if he is not survived by a Spouse. The Committee may rely upon the advice of the
Participant's executor or administrator as to the identity of the Participant's
Spouse.

        "BREAK IN SERVICE" means any Plan Year, or, for the initial eligibility
computation period under Section 3.2, the 12-consecutive month period beginning
on the first day of which an Employee has an Hour of Service, in which an
Employee has 500 or fewer Hours of Service. Solely for this purpose, an Employee
shall be considered employed for his normal hours of paid employment during a
Recognized Absence (said Employee shall not be credited with more than 501 Hours
of Service to avoid a Break in Service), unless he does not resume his Service
at the end of the Recognized Absence. Further, if an Employee is absent for any
period (i) by reason of the Employee's pregnancy, (ii) by reason of the birth of
the Employee's child, (iii) by reason of the placement of a child with the
Employee in connection with the Employee's adoption of the child, or (iv) for
purposes of caring for such child for a period beginning immediately after such
birth or placement, the Employee shall be credited with the Hours of Service
which would normally have been credited but for such absence, up to a maximum of
501 Hours of Service.

        "CODE" means the Internal Revenue Code of 1986, as amended.

        "COMMITTEE" means the committee responsible for the administration of
this Plan in accordance with Section 12.

        "COMPANY" means PSB Holdings, Inc., the holding company of the
Association, and any successor entity which succeeds to the business of the
Company.

        "DISABILITY" means only a disability which renders the Participant
totally unable, as a result of bodily or mental disease or injury, to perform
any duties for an Employer for which he is reasonably fitted, which disability
is expected to be permanent or of long and indefinite duration. However, this
term shall not include any disability directly or indirectly resulting from or
related to habitual drunkenness or addiction to narcotics, a criminal act or
attempt, service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which is intentionally self-inflicted.
Further, this term shall apply only if (i) the Participant is sufficiently
disabled to qualify for the payment of disability benefits under the federal
Social Security Act or Veterans Disability Act, or (ii) the Participant's
disability is certified by a physician selected by the Committee. Unless the
Participant is sufficiently disabled to qualify for disability benefits under
the federal Social Security Act or Veterans Disability Act, the Committee may
require the Participant to be appropriately examined from time to time by one or
more physicians chosen by the Committee, and no Participant who refuses to be
examined shall be treated as having a Disability. In any event, the Committee's
good faith decision as to whether a Participant's Service has been terminated by
Disability shall be final and conclusive.

        "EARLY RETIREMENT" means retirement on or after a Participant's
attainment of age 55 and the completion of ten (10) years of employment with an
Employer. If the Participant terminates employment before satisfying the age
requirement, but has satisfied the employment requirement, the Participant will
be entitled to elect early retirement upon satisfaction of the age requirement.

        "EFFECTIVE DATE" means July 1, 2004.

        "EMPLOYEE" means any individual who is or has been employed or
self-employed by an Employer. "Employee" also means an individual employed by a
leasing organization who, pursuant to an agreement between an Employer and the
leasing organization, has performed services for the Employer and any related
persons (within the meaning of Section 414(n)(6) of the Code) on a substantially
full-time basis for more than

                                        2


one year, if such services are performed under the primary direction or control
of the Employer. However, such a "leased employee" shall not be considered an
Employee if (i) he participates in a money purchase pension plan sponsored by
the leasing organization which provides for immediate participation, immediate
full vesting, and an annual contribution of at least 10 percent of the
Employee's 415 Compensation, and (ii) leased employees do not constitute more
than 20 percent of the Employer's total work force (including leased employees,
but excluding Highly Paid Employees and any other Employees who have not
performed services for the Employer on a substantially full-time basis for at
least one year).

        "EMPLOYER" means the Association or any affiliate within the purview of
section 414(b), (c) or (m) and 415(h) of the Code, any other corporation,
partnership, or proprietorship which adopts this Plan with the Association's
consent pursuant to Section 13.1, and any entity which succeeds to the business
of any Employer and adopts the Plan pursuant to Section 13.2.

        "ENTRY DATE" means the Effective Date of the Plan and each January 1 and
July 1 of each Plan Year after the Effective Date.

        "ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).

        "415 COMPENSATION"

               (a)     means wages, as defined in Code Section 3401(a) for
        purposes of income tax withholding at the source. For Plan Years
        beginning after December 31, 1997, any elective deferral as defined in
        Code Section 402(g)(3) (any employer contributions made on behalf of a
        Participant to the extent not includible in gross income and any
        Employer contributions to purchase an annuity contract under Code
        Section 403(b) under a salary reduction agreement) and any amount which
        is contributed or deferred by the Employer at the election of the
        Participant and which is not includible in gross income of the
        Participant by reason of Code Section 125 (Cafeteria Plan) shall also be
        included in the definition of 415 Compensation. For purposes of "415
        Compensation," for purposes of applying the limitation is described in
        Code Section 415, compensation paid or made available during such
        limitation years (that is, calendar years) shall include elective
        amounts that are not includible in the gross income of an Employee by
        reason of Section 132(f)(4) of the Code.

               (b)     415 Compensation in excess of $200,000 (as indexed) shall
        be disregarded for all Participants. For purposes of this sub-section,
        the $200,000 limit shall be referred to as the "applicable limit" for
        the Plan Year in question. The $200,000 limit shall be adjusted for
        increases in the cost of living in accordance with Section 401(a)(17)(B)
        of the Code, effective for the Plan Year which begins within the
        applicable calendar year. For purposes of the applicable limit, 415
        Compensation shall be prorated over short Plan Years.

        "HIGHLY PAID EMPLOYEE" for any Plan Year means an Employee who, during
either that or the immediately preceding Plan Year was at any time a five
percent owner of the Employer (as defined in Code Section 416(i)(1)) or, during
the immediately preceding Plan Year, had 415 Compensation exceeding $90,000 and
was among the most highly compensated one-fifth of all Employees (the $90,000
amount is adjusted at the same time and in the same manner as under Code Section
415(d), provided, however, the base period is the calendar quarter ending
September 30, 1996). For these purposes, "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all individuals
working for all related Employer entities described in the definition of
"Service", but excluding any individual who has not completed six months of
Service, who normally works fewer than 17-1/2 hours per week or in fewer than
six months per year, who has not reached age 21, whose employment is covered by
a collective bargaining agreement, or who is a nonresident alien who receives no
earned income from United States sources. The applicable year for

                                        3


which a determination is being made is called a "determination year" and the
preceding 12-month period is called a look-back year.

        "HOURS OF SERVICE" means hours to be credited to an Employee under the
following rules:

               (a)     Each hour for which an Employee is paid or is entitled to
        be paid for services to an Employer is an Hour of Service.

               (b)     Each hour for which an Employee is directly or indirectly
        paid or is entitled to be paid for a period of vacation, holidays,
        illness, disability, lay-off, jury duty, temporary military duty, or
        leave of absence is an Hour of Service. However, except as otherwise
        specifically provided, no more than 501 Hours of Service shall be
        credited for any single continuous period which an Employee performs no
        duties. No more than 501 Hours of Service will be credited under this
        paragraph for any single continuous period (whether or not such period
        occurs in a single computation period). Further, no Hours of Service
        shall be credited on account of payments made solely under a plan
        maintained to comply with worker's compensation, unemployment
        compensation, or disability insurance laws, or to reimburse an Employee
        for medical expenses.

               (c)     Each hour for which back pay (ignoring any mitigation of
        damages) is either awarded or agreed to by an Employer is an Hour of
        Service. However, no more than 501 Hours of Service shall be credited
        for any single continuous period during which an Employee would not have
        performed any duties. The same Hours of Service will not be credited
        both under paragraph (a) or (b) as the case may be, and under this
        paragraph (c). These hours will be credited to the employee for the
        computation period or periods to which the award or agreement pertains
        rather than the computation period in which the award agreement or
        payment is made.

               (d)     Hours of Service shall be credited in any one period only
        under one of the foregoing paragraphs (a), (b) and (c); an Employee may
        not get double credit for the same period.

               (e)     If an Employer finds it impractical to count the actual
        Hours of Service for any class or group of non-hourly Employees, each
        Employee in that class or group shall be credited with 45 Hours of
        Service for each weekly pay period in which he has at least one Hour of
        Service. However, an Employee shall be credited only for his normal
        working hours during a paid absence.

               (f)     Hours of Service to be credited on account of a payment
        to an Employee (including back pay) shall be recorded in the period of
        Service for which the payment was made. If the period overlaps two or
        more Plan Years, the Hours of Service credit shall be allocated in
        proportion to the respective portions of the period included in the
        several Plan Years. However, in the case of periods of 31 days or less,
        the Administrator may apply a uniform policy of crediting the Hours of
        Service to either the first Plan Year or the second.

               (g)     In all respects an Employee's Hours of Service shall be
        counted as required by Section 2530.200b-2(b) and (c) of the Department
        of Labor's regulations under Title I of ERISA.

        "INVESTMENT FUND" means that portion of the Trust Fund consisting of
assets other than Stock. Notwithstanding the above, assets from the Investment
Fund may be used to purchase Stock in the open market or otherwise, or used to
pay on the Stock Obligation, and shares so purchased will be allocated to a
Participant's Stock Fund.

        "NORMAL RETIREMENT" means retirement on or after the Participant's
Normal Retirement Date.

                                        4


        "NORMAL RETIREMENT DATE" means the date on which a Participant attains
age 65.

        "PARTICIPANT" means any Employee who is an Active Participant
participating in the Plan, or Employee or former Employee who was previously an
Active Participant and still has a balance credited to his Account.

        "PLAN YEAR" means the twelve-month period commencing July 1, 2004 and
ending June 30, 2005 and each period of 12 consecutive months beginning on
January 1 of each succeeding year.

        "RECOGNIZED ABSENCE" means a period for which -

               (a)     an Employer grants an Employee a leave of absence for a
        limited period, but only if an Employer grants such leave on a
        nondiscriminatory basis; or

               (b)     an Employee is temporarily laid off by an Employer
        because of a change in business conditions; or

               (c)     an Employee is on active military duty, but only to the
        extent that his employment rights are protected by the Military
        Selective Service Act of 1967 (38 U.S.C. Sec. 2021).

        "SERVICE" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in which
the individual was a nonresident alien and did not receive from an Employer any
earned income which constituted income from sources within the United States. An
Employee's Service shall include any Service which constitutes Service with a
predecessor Employer within the meaning of Section 414(a) of the Code, provided,
however, that Service with an acquired entity shall not be considered Service
under the Plan unless required by applicable law or agreed to by the parties to
such transaction. An Employee's Service shall also include any Service with an
entity which is not an Employer, but only either (i) for a period after 1975 in
which the other entity is a member of a controlled group of corporations or is
under common control with other trades and businesses within the meaning of
Section 414(b) or 414(c) of the Code, and a member of the controlled group or
one of the trades and businesses is an Employer, (ii) for a period after 1979 in
which the other entity is a member of an affiliated service group within the
meaning of Section 414(m) of the Code, and a member of the affiliated service
group is an Employer, or (iii) all Employers aggregated with the Employer under
Section 414(o) of the Code (but not until the Proposed Regulations under Section
414(o) become effective). Notwithstanding any provision of this Plan to the
contrary, contributions, benefits and service credit with respect to qualified
military service will be provided in accordance with Section 414(u) of the Code.

        "SPOUSE" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier. A former Spouse shall be treated as
the Spouse or surviving Spouse to the extent provided under a qualified domestic
relations order as described in section 414(p) of the Code.

        "STOCK" means shares of the Company's voting common stock or preferred
stock meeting the requirements of Section 409(e)(3) of the Code issued by an
Employer which is a member of the same controlled group of corporations within
the meaning of Code Section 414(b).

        "STOCK FUND" means that portion of the Trust Fund consisting of Stock.

                                        5


        "STOCK OBLIGATION" means an indebtedness arising from any extension of
credit to the Plan or the Trust which satisfies the requirements set forth in
Section 6.3 and which was obtained for any or all of the following purposes:

               (i)     to acquire qualifying Employer securities as defined in
                       Treasury Regulations Section 54.4975-12;

               (ii)    to repay such Stock Obligation; or

               (iii)   to repay a prior exempt loan.

        "TRUST" OR "TRUST FUND" means the trust fund created under this Plan.

        "TRUST AGREEMENT" means the agreement between the Association and the
Trustee concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
co-mingled trust fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of Article II of
the Trust Agreement are incorporated herein by reference.

        "TRUSTEE" means one or more corporate persons or individuals selected
from time to time by the Association to serve as trustee or co-trustees of the
Trust Fund.

        "UNALLOCATED STOCK FUND" means that portion of the Stock Fund consisting
of the Plan's holding of Stock which have been acquired in exchange for one or
more Stock obligations and which have not yet been allocated to the
Participant's Accounts in accordance with Section 4.2.

        "VALUATION DATE" means the last day of the Plan Year and each other date
as of which the Committee shall determine the investment experience of the
Investment Fund and adjust the Participants' Accounts accordingly.

        "VALUATION PERIOD" means the period following a Valuation Date and
ending with the next Valuation Date.

        "VESTING YEAR" means a unit of Service credited to a Participant
pursuant to Section 9.2 for purposes of determining his vested interest in his
Account.

SECTION 3.     ELIGIBILITY FOR PARTICIPATION.

        3.1    INITIAL ELIGIBILITY. An Employee who has satisfied the
requirements set forth below as of the Effective Date shall enter the Plan
retroactively on January 1 of the first Plan Year. All other Employees shall
enter the Plan as of the Entry Date coincident with or next following the later
of the following dates:

               (a)     the last day of the Employee's first Eligibility Year,
        and

               (b)     the Employee's 21st birthday. However, if an Employee is
        not in active Service with an Employer on the date he would otherwise
        first enter the Plan, his entry shall be deferred until the next day he
        is in Service.

        3.2    DEFINITION OF ELIGIBILITY YEAR. An "Eligibility Year" means an
applicable eligibility period (as defined below) in which the Employee has
completed 1,000 Hours of Service for the Employer. For this purpose:

                                        6


               (a)     an Employee's first "eligibility period" is the
        12-consecutive month period beginning on the first day on which he has
        an Hour of Service, and

               (b)     his subsequent eligibility periods will be 12-consecutive
        month periods beginning on each July 1 after that first day of Service.

        3.3    TERMINATED EMPLOYEES. No Employee shall have any interest or
rights under this Plan if he is never in active Service with an Employer on or
after the Effective Date.

        3.4    CERTAIN EMPLOYEES INELIGIBLE.

               (a)     No Employee shall participate in the Plan while his
        Service is covered by a collective bargaining agreement between an
        Employer and the Employee's collective bargaining representative if (i)
        retirement benefits have been the subject of good faith bargaining
        between the Employer and the representative and (ii) the collective
        bargaining agreement does not provide for the Employee's participation
        in the Plan.

               (b)     Leased Employees are not eligible to participate in the
        Plan.

               (c)     An eligible Employee may elect not to participate in the
        Plan, provided, however, such election is made solely to meet the
        requirements of Code Section 409(n). For an election to be effective for
        a particular Plan Year, the Employee or Participant must file the
        election in writing with the Plan Administrator no later than the last
        day of the Plan Year for which the election is to be effective. The
        Employer may not make a contribution under the Plan for the Employee or
        for the Participant for the Plan Year for which the election is
        effective, nor for any succeeding Plan Year, unless the Employee or
        Participant re-elects to participate in the Plan. The Employee or
        Participant may elect again not to participate, but not earlier than the
        first Plan Year following the Plan Year in which the re-election was
        first effective.

        3.5    PARTICIPATION AND REPARTICIPATION. Subject to the satisfaction of
the foregoing requirements, an Employee shall participate in the Plan during
each period of his Service from the date on which he first becomes eligible
until his termination. For this purpose, an Employee who returns before five (5)
consecutive Breaks in Service who previously satisfied the initial eligibility
requirements or who returns after five (5) consecutive one year Breaks in
Service with a vested Account balance in the Plan shall re-enter the Plan as of
the date of his return to Service with an Employer.

        3.6    OMISSION OF ELIGIBLE EMPLOYEE. If, in any Plan Year, any Employee
who should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution by his
Employer for the year has been made, the Employer shall make a subsequent
contribution with respect to the omitted Employee in the amount which the said
Employer would have contributed regardless of whether or not it is deductible in
whole or in part in any taxable year under applicable provisions of the Code.

SECTION 4.     CONTRIBUTIONS AND CREDITS.

        4.1    DISCRETIONARY CONTRIBUTIONS. The Employer shall from time to time
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. The Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employer's
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of 415 Compensation earned during that portion of
the Plan Year that such persons are Participants in the Plan.

                                        7


        4.2    CONTRIBUTIONS FOR STOCK OBLIGATIONS. If the Trustee, upon
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer may contribute for each Plan Year an amount sufficient to
cover all payments of principal and interest as they come due under the terms of
the Stock Obligation. If there is more than one Stock Obligation, the Employer
shall designate the one to which any contribution is to be applied. Investment
earnings realized on Employer contributions and any dividends paid by the
Employer on Stock held in the Unallocated Stock Account, shall be applied to the
Stock Obligation related to that Stock, subject to Section 7.2.

        In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.

        At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.

        4.3    CONDITIONS AS TO CONTRIBUTIONS. Employers' contributions shall in
all events be subject to the limitations set forth in Section 5. Contributions
may be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be reduced
to take account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less that
it would have been if the contribution had never been made.

        4.4    ROLLOVER CONTRIBUTIONS. This Plan shall not accept a direct
rollover or rollover contribution of an "eligible rollover distribution" as such
term is defined in Section 10.9-1 of the Plan.

SECTION 5.     LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS.

        5.1    LIMITATION ON ANNUAL ADDITIONS. Notwithstanding anything herein
to the contrary, allocation of Employer contributions for any Plan Year shall be
subject to the following:

               5.1-1   If allocation of Employer contributions in accordance
        with Section 4.1 will result in an allocation of more than one-third the
        total contributions for a Plan Year to the Accounts of Highly Paid
        Employees, then allocation of such amount shall be adjusted so that such
        excess will not occur.

                                        8


               5.1-2   After adjustment, if any, required by the preceding
        paragraph, the annual additions during any Plan Year to any
        Participant's Account under this and any other defined contribution
        plans maintained by the Employer or an affiliate (within the purview of
        Section 414(b), (c) and (m) and Section 415(h) of the Code, which
        affiliate shall be deemed the Employer for this purpose) shall not
        exceed the lesser of $40,000 (or such other dollar amount which results
        from cost-of-living adjustments under Section 415(d) of the Code) (the
        "dollar limitation") or 100 percent of the Participant's 415
        Compensation for such limitation year (the "percentage limitation"). The
        percentage limitation shall not apply to any contribution for medical
        benefits after separation from service (within the meaning of Section
        401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as
        an annual addition. In the event that annual additions exceed the
        aforesaid limitations, they shall be reduced in the following priority:

               (i)     Any excess amount at the end of the Plan Year that cannot
        be allocated to the Participant's Account shall be reallocated to the
        remaining Participants who are eligible for an allocation of Employer
        contributions for the Plan Year. The reallocation shall be made in
        accordance with Section 4.1 of the Plan as if the Participant whose
        Account otherwise would receive the excess amount is not eligible for an
        allocation of Employer contributions.

               (ii)    If the allocation or reallocation of the excess amounts
        causes the limitations of Code section 415 to be exceeded with respect
        to each Participant for the limitation year, then the excess amount will
        be held unallocated in a suspense account. The suspense account will be
        applied to reduce future Employer contributions for all remaining
        Participants in the next limitation year and each succeeding limitation
        year if necessary.

               (iii)   If a suspense account is in existence at any time during
        a limitation year, it will not participate in any allocation of
        investment gains and losses. All amounts held in suspense accounts must
        be allocated to Participants' Accounts before any contributions may be
        made to the Plan for the limitation year.

               (iv)    If a suspense account exists at the time of Plan
        termination, amounts held in the suspense account that cannot be
        allocated shall revert to the Employer.

               5.1-3   For purposes of this Section 5.1, the "annual addition"
        to a Participant's Accounts means the sum of (i) Employer contributions,
        (ii) Employee contributions, if any, and (iii) forfeitures. Annual
        additions to a defined contribution plan also include amounts allocated,
        after March 31, 1984, to an individual medical account, as defined in
        Section 415(l)(2) of the Internal Revenue Code, which is part of a
        pension or annuity plan maintained by the Employer, amounts derived from
        contributions paid or accrued after December 31, 1985, in taxable years
        ending after such date, which are attributable to post-retirement
        medical benefits allocated to the separate account of a Key Employee
        under a welfare benefit fund, as defined in Section 419A(d) of the
        Internal Revenue Code, maintained by the Employer. For these purposes,
        annual additions to a defined contribution plan shall not include the
        allocation of the excess amounts remaining in the Unallocated Stock Fund
        subsequent to a sale of stock from such fund in accordance with a
        transaction described in Section 8.1 of the Plan.

               5.1-4   Notwithstanding the foregoing, if no more than one-third
        of the Employer contributions to the Plan for a year which are
        deductible under Section 404(a)(9) of the Code are allocated to Highly
        Paid Employees (within the meaning of Section 414(q) of the Internal
        Revenue Code), the limitations imposed herein shall not apply to:

                                        9


               (i)     forfeitures of Employer securities (within the meaning of
        Section 409 of the Code) under the Plan if such securities were acquired
        with the proceeds of a loan described in Section 404(a)(9)(A) of the
        Code), or

               (ii)    Employer contributions to the Plan which are deductible
        under Section 404(a)(9)(B) and charged against a Participant's Account.

               5.1-5   If the Employer contributes amounts, on behalf of
        Employees covered by this Plan, to other "defined contribution plans" as
        defined in Section 3(34) of ERISA, the limitation on annual additions
        provided in this Section shall be applied to annual additions in the
        aggregate to this Plan and to such other plans. Reduction of annual
        additions, where required, shall be accomplished first by reductions
        under such other plan pursuant to the directions of the named fiduciary
        for administration of such other plans or under priorities, if any,
        established under the terms of such other plans and then by allocating
        any remaining excess for this Plan in the manner and priority set out
        above with respect to this Plan.

               5.1-6   A limitation year shall mean each 12 consecutive month
        period beginning each July 1.

        5.2    EFFECT OF LIMITATIONS. The Committee shall take whatever action
may be necessary from time to time to assure compliance with the limitations set
forth in Section 5.1. Specifically, the Committee shall see that each Employer
restrict its contributions for any Plan Year to an amount which, taking into
account the amount of available forfeitures, may be completely allocated to the
Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
corrected in accordance with Section 5.1-2 of the Plan. If it is determined at
any time that the Committee and/or Trustee has erred in accepting and allocating
any contributions or forfeitures under this Plan, or in allocating net gain or
loss pursuant to Sections 8.2 and 8.3, then the Committee, in a uniform and
nondiscriminatory manner, shall determine the manner in which such error shall
be corrected and shall promptly advise the Trustee in writing of such error and
of the method for correcting such error. The Accounts of any or all Participants
may be revised, if necessary, in order to correct such error.

        5.3    LIMITATIONS AS TO CERTAIN PARTICIPANTS. Aside from the
limitations set forth in Section 5.1, if the Plan acquires any Stock in a
transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.

        This restriction shall apply at all times to a Participant who owns
(taking into account the attribution rules under Section 318(a) of the Code,
without regard to the exception for employee plan trusts in Section
318(a)(2)(B)(i) more than 25 percent of any class of stock of a corporation
which issued the Stock acquired by the Plan, or another corporation within the
same controlled group, as defined in Section 409(l)(4) of the Code (any such
class of stock hereafter called a "Related Class"). For this purpose, a
Participant who owns more than 25 percent of any Related Class at any time
within the one year preceding the Plan's purchase of the Stock shall be subject
to the restriction as to all allocations of the Stock, but any other Participant
shall be subject to the restriction only as to allocations which occur at a time
when he owns more than 25 percent of any Related Class.

                                       10


        Further, this restriction shall apply to the selling shareholder
claiming the benefit of Section 1042 and any other Participant who is related to
such a shareholder within the meaning of Section 267(b) of the Code, during the
period beginning on the date of sale and ending on the later of (1) the date
that is ten years after the date of sale, or (2) the date of the Plan allocation
attributable to the final payment of acquisition indebtedness incurred in
connection with the sale.

        This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.

        5.4    ERRONEOUS ALLOCATIONS. No Participant shall be entitled to any
annual additions or other allocations to his Account in excess of those
permitted under Section 5. If it is determined at any time that the
administrator and/or Trustee have erred in accepting and allocating any
contributions or forfeitures under this Plan, or in allocating investment
adjustments, or in excluding or including any person as a Participant, then the
administrator, in a uniform and nondiscriminatory manner, shall determine the
manner in which such error shall be corrected and shall promptly advise the
Trustee in writing of such error and of the method for correcting such error.
The Accounts of any or all Participants may be revised, if necessary, in order
to correct such error.

SECTION 6.     TRUST FUND AND ITS INVESTMENT.

        6.1    CREATION OF TRUST FUND. All amounts received under the Plan from
Employers and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Association and the Trustee.
The benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Association, any other Employer, its board of
directors or trustees, its stockholders, its officers, its employees, the
Committee, and the Trustee shall be liable for payment of any benefit under this
Plan except from the Trust Fund.

        6.2    STOCK FUND AND INVESTMENT FUND. The Trust Fund held by the
Trustee shall be divided into the Stock Fund, consisting entirely of Stock, and
the Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the extent
such responsibility may be delegated from time to time to one or more investment
managers pursuant to Section 2.3 of the Trust Agreement, or to the extent the
Committee directs the Trustee to purchase Stock with the assets in the
Investment Fund.

        6.3    ACQUISITION OF STOCK. From time to time the Committee may, in its
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for
such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may direct
the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party which indebtedness shall be called a
"Stock Obligation." The term "Stock Obligation" shall refer to a loan made to
the Plan by a disqualified person within the meaning of Section 4975(e)(2) of
the Code, or a loan to the Plan which is guaranteed by a disqualified person. A
Stock Obligation includes a direct loan of cash, a purchase-money transaction,
and an assumption of an obligation of a tax-qualified employee stock ownership
plan under Section 4975(e)(7) of the Code ("ESOP"). For these purposes, the term
"guarantee" shall include an unsecured guarantee and the use of assets of a
disqualified person as collateral for a loan, even though the use of assets may
not be a guarantee under applicable state law.

                                       11


An amendment of a Stock Obligation in order to qualify as an "exempt loan" is
not a refinancing of the Stock Obligation or the making of another Stock
Obligation. The term "exempt loan" refers to a loan that satisfies the
provisions of this paragraph. A "non-exempt loan" fails to satisfy this
paragraph. Any Stock Obligation shall be subject to the following conditions and
limitations:

               6.3-1   A Stock Obligation shall be for a specific term, shall
        not be payable on demand except in the event of default, and shall bear
        a reasonable rate of interest.

               6.3-2   A Stock Obligation may, but need not, be secured by a
        collateral pledge of either the Stock acquired in exchange for the Stock
        Obligation, or the Stock previously pledged in connection with a prior
        Stock Obligation which is being repaid with the proceeds of the current
        Stock Obligation. No other assets of the Plan and Trust may be used as
        collateral for a Stock Obligation, and no creditor under a Stock
        Obligation shall have any right or recourse to any Plan and Trust assets
        other than Stock remaining subject to a collateral pledge.

               6.3-3   Any pledge of Stock to secure a Stock Obligation must
        provide for the release of pledged Stock in connection with payments on
        the Stock obligations in the ratio prescribed in Section 4.2.

               6.3-4   Repayments of principal and interest on any Stock
        Obligation shall be made by the Trustee only from Employer cash
        contributions designated for such payments, from earnings on such
        contributions, and from cash dividends received on Stock, in the last
        case, however, subject to the further requirements of Section 7.2.

               6.3-5   In the event of default of a Stock Obligation, the value
        of Plan assets transferred in satisfaction of the Stock Obligation must
        not exceed the amount of the default. If the lender is a disqualified
        person within the meaning of Section 4975 of the Code, a Stock
        Obligation must provide for a transfer of Plan assets upon default only
        upon and to the extent of the failure of the Plan to meet the payment
        schedule of said Stock Obligation. For purposes of this paragraph, the
        making of a guarantee does not make a person a lender.

        6.4    PARTICIPANTS' OPTION TO DIVERSIFY. The Committee shall provide
for a procedure under which each Participant may, during the qualified election
period, elect to "diversify" a portion of the Employer Stock allocated to his
Account, as provided in Section 401(a)(28)(B) of the Code. An election to
diversify must be made on the prescribed form and filed with the Committee
within the period specified herein. For each of the first five (5) Plan years in
the qualified election period, the Participant may elect to diversify an amount
which does not exceed 25% of the number of shares allocated to his Account since
the inception of the Plan, less all shares with respect to which an election
under this Section has already been made. For the last year of the qualified
election period, the Participant may elect to have up to 50 percent of the value
of his Account committed to other investments, less all shares with respect to
which an election under this Section has already been made. The term "qualified
election period" shall mean the six (6) Plan Year period beginning with the
first Plan Year in which a Participant has both attained age 55 and completed 10
years of participation in the Plan. A Participant's election to diversify his
Account may be made within each year of the qualified election period and shall
continue for the 90-day period immediately following the last day of each year
in the qualified election period. Once a Participant makes such election, the
Plan must complete diversification in accordance with such election within 90
days after the end of the period during which the election could be made for the
Plan Year. In the discretion of the Committee, the Plan may satisfy the
diversification requirement by any of the following methods:

                                       12


               6.4-1   The Plan may distribute all or part of the amount subject
        to the diversification election.

               The Plan may offer the Participant at least three other distinct
        investment options, if available under the Plan. The other investment
        options shall satisfy the requirements of Regulations under Section
        404(c) of the Employee Retirement Income Security Act of 1974, as
        amended ("ERISA").

               The Plan may transfer the portion of the Participant's Account
        subject to the diversification election to another qualified defined
        contribution plan of the Employer that offers at least three investment
        options satisfying the requirements of the Regulations under Section
        404(c) of ERISA.

SECTION 7.     VOTING RIGHTS AND DIVIDENDS ON STOCK.

        7.1    VOTING AND TENDERING OF STOCK. The Trustee generally shall vote
all shares of Stock held under the Plan in accordance with the written
instructions of the Committee. However, if any Employer has registration-type
class of securities within the meaning of Section 409(e)(4) of the Code, or if a
matter submitted to the holders of the Stock involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, or sale of
substantially all assets of an entity, then (i) the shares of Stock which have
been allocated to Participants' Accounts shall be voted by the Trustee in
accordance with the Participants' written instructions, and (ii) the Trustee
shall vote any unallocated Stock and allocated Stock for which it has received
no voting instructions in the same proportions as it votes the allocated Stock
for which it has received instructions from Participants; provided, however,
that if an exempt loan, as defined in Section 4975(d) of the Code, is
outstanding and the Plan is in default on such exempt loan, as default is
defined in the loan documents, then to the extent that such loan documents
require the lender to exercise voting rights with respect to the unallocated
shares, the loan documents will prevail. In the event no shares of Stock have
been allocated to Participants' Accounts at the time Stock is to be voted and
any exempt loan which may be outstanding is not in default, each Participant
shall be deemed to have one share of Stock allocated to his or her Account for
the sole purpose of providing the Trustee with voting instructions.

        Notwithstanding any provision hereunder to the contrary, all unallocated
shares of Stock must be voted by the Trustee in a manner determined by the
Trustee to be for the exclusive benefit of the Participants and Beneficiaries.
Whenever such voting rights are to be exercised, the Employers shall provide the
Trustee, in a timely manner, with the same notices and other materials as are
provided to other holders of the Stock, which the Trustee shall distribute to
the Participants. The Participants shall be provided with adequate opportunity
to deliver their instructions to the Trustee regarding the voting of Stock
allocated to their Accounts. The instructions of the Participants' with respect
to the voting of allocated shares hereunder shall be confidential.

               7.1-1   In the event of a tender offer, Stock shall be tendered
        by the Trustee in the same manner as set forth above with respect to the
        voting of Stock. Notwithstanding any provision hereunder to the
        contrary, Stock must be tendered by the Trustee in a manner determined
        by the Trustee to be for the exclusive benefit of the Participants and
        Beneficiaries.

        7.2    DIVIDENDS ON STOCK. Dividends on Stock which are received by the
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Employer paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Stock Fund Account balance (iii) be distributed to the Participants within 90
days of the close of the Plan Year in which paid in proportion with the
Participants'

                                       13


Stock Fund Account balance or (iv) be used to make payments on the Stock
Obligation. If dividends on Stock allocated to a Participant's Account are used
to repay the Stock Obligation, Stock with a fair market value equal to the
dividends so used must be allocated to such Participant's Account in lieu of the
dividends. Dividends on Stock held in the Unallocated Stock Fund which are
received by the Trustee in the form of cash shall be allocated to Participants'
Investment Fund Accounts (pro rata based on the Participant's Account balance in
relation to all Participants' Account balances) and shall be applied as soon as
practicable to payments of principal and interest under the Stock Obligation
incurred with the purchase of the Stock.

SECTION 8.     ADJUSTMENTS TO ACCOUNTS.

        8.1    ADJUSTMENTS FOR TRANSACTIONS. An Employer contribution pursuant
to Section 4.1 shall be credited to the Participants' Accounts as of the last
day of the Plan Year for which it is contributed, in accordance with Section
4.1. Stock released from the Unallocated Stock Fund upon the Trust's repayment
of a Stock Obligation pursuant to Section 4.2 shall be credited to the
Participants' Accounts as of the last day of the Plan Year in which the
repayment occurred, pro rata based on the cash applied from such Participant's
Account relative to the cash applied from all Participants' Accounts. Any excess
amounts remaining in the suspense account following a sale of Stock from the
Unallocated Stock Fund to repay a Stock Obligation shall be allocated as of the
last day of the Plan Year in which the repayment occurred among the
Participants' Accounts in proportion to 415 Compensation. Any benefit which is
paid to a Participant or Beneficiary pursuant to Section 10 shall be charged to
the Participant's Account as of the first day of the Valuation Period in which
it is paid. Any forfeiture or restoral shall be charged or credited to the
Participant's Account as of the first day of the Valuation Period in which the
forfeiture or restoral occurs pursuant to Section 9.6.

        8.2    VALUATION OF INVESTMENT FUND. As of each Valuation Date, the
Trustee shall prepare a balance sheet of the Investment Fund, recording each
asset (including any contribution receivable from an Employer) and liability at
its fair market value. Any liability with respect to short positions or options
and any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.

        8.3    ADJUSTMENTS FOR INVESTMENT EXPERIENCE. Any net gain or loss of
the Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account. Any cash
dividends received on Stock credited to Participant's Accounts shall be
allocated as of the last day of the Valuation Period among the Participants'
Accounts based on the opening balance in each Participant's Stock Fund Account.

                                       14


SECTION 9.     VESTING OF PARTICIPANTS' INTERESTS.

        9.1    DEFERRED VESTING IN ACCOUNTS. A Participant's vested interest in
his Account shall be based on his Vesting Years in accordance with the following
table, subject to the balance of this Section 9:



                         Vesting               Percentage of
                          Years               Interest Vested
                         -------              ---------------
                                                 
                       Fewer than 7                   0%
                        7 or more                   100%


        9.2    COMPUTATION OF VESTING YEARS. For purposes of this Plan, a
"Vesting Year" means generally a Plan Year in which an Employee has at least
1,000 Hours of Service, beginning with the first Plan Year in which the Employee
has completed an Hour of Service with the Employer, and including Service with
other Employers as provided in the definition of "Service." Notwithstanding the
above, an Employee who was employed with the Association in its pre-conversion
mutual form (the "Mutual Association") shall receive credit for vesting purposes
for each calendar year of continuous employment with the Mutual Association in
which such Employee completed 1,000 Hours of Service (such years shall also be
referred to as "Vesting Years"), up to two years. However, a Participant's
Vesting Years shall be computed subject to the following conditions and
qualifications:

               9.2-1   A Participant's Vesting Years shall not include any
        Service prior to the date on which an Employee attains age 18.

               9.2-2   A Participant's vested interest in his Account
        accumulated before five (5) consecutive Breaks in Service shall be
        determined without regard to any Service after such five consecutive
        Breaks in Service. Further, if a Participant has five (5) consecutive
        Breaks in Service before his interest in his Account has become vested
        to some extent, pre-Break years of Service shall not be required to be
        taken into account for purposes of determining his post-Break vested
        percentage.

               9.2-3   In the case of a Participant who has 5 or more
        consecutive 1-year Breaks in Service, the Participant's pre-Break
        Service will count in vesting of the Employer-derived post-break accrued
        benefit only if either:

               (i)     such Participant has any nonforfeitable interest in the
        accrued benefit attributable to Employer contributions at the time of
        separation from Service, or

               (ii)    upon returning to Service the number of consecutive
        1-year Breaks in Service is less than the number of years of Service.

               9.2-4   Notwithstanding any provision of the Plan to the
        contrary, effective January 1, 1998, calculation of service for
        determining Vesting Years with respect to qualified military service
        will be provided in accordance with Section 414(u) of the Code.

               9.2-5   If any amendment changes the vesting schedule, including
        an automatic change to or from a top-heavy vesting schedule, any
        Participant with three (3) or more Vesting Years may, by filing a
        written request with the Employer, elect to have his vested percentage
        computed under the vesting schedule in effect prior to the amendment.
        The election period must begin not later than the later of sixty (60)
        days after the amendment is adopted, the amendment becomes effective, or
        the Participant is issued written notice of the amendment by the
        Employer or the Committee.

                                       15


        9.3    FULL VESTING UPON CERTAIN EVENTS.

               9.3-1   Notwithstanding Section 9.1, a Participant's interest in
        his Account shall fully vest on the Participant's Normal Retirement
        Date. The Participant's interest shall also fully vest in the event that
        his Service is terminated by Early Retirement, Disability or by death.

               9.3-2   The Participant's interest in his Account shall also
        fully vest in the event of a "Change in Control" of the Association, or
        the Company. For these purposes, "Change in Control" shall mean an event
        of a nature that (i) would be required to be reported in response to
        Item 1a of the current report on Form 8-K, as in effect on the date
        hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act
        of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of
        the Association or the Company within the meaning of the Home Owners
        Loan Act, as amended, and applicable rules and regulations promulgated
        thereunder as in effect at the time of the Change in Control
        (collectively, the "HOLA"); or (iii) without limitation such a Change in
        Control shall be deemed to have occurred at such time as (a) any
        "Person" (as the term is used in Sections 13(d) and 14(d) of the
        Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
        13d-3 under the Exchange Act), directly or indirectly, of securities of
        the Association or the Company representing 25% or more of the
        Association's or the Company's outstanding securities except for any
        securities of the Association purchased by the Company in connection
        with the conversion of the Association to the stock form and any
        securities purchased by the Association's employee stock ownership plan
        and trust; or (b) individuals who constitute the Board on the date
        hereof (the "Incumbent Board") cease for any reason to constitute at
        least a majority thereof, PROVIDED, HOWEVER, that this sub-section (b)
        shall not apply if the Incumbent Board is replaced by the appointment by
        a Federal banking agency of a conservator or receiver for the
        Association and, PROVIDED FURTHER that any person becoming a director
        subsequent to the date hereof whose election was approved by a vote of
        at least two-thirds of the directors comprising the Incumbent Board or
        whose nomination for election by the Company's stockholders was approved
        by the same Nominating Committee serving under an Incumbent Board, shall
        be, for purposes of this clause (b), considered as though he were a
        member of the Incumbent Board; or (c) a reorganization, merger,
        consolidation, sale of all or substantially all the assets of the
        Association or the Company, or similar transaction in which the
        Association or Company is not the surviving institution occurs.
        Notwithstanding anything herein to the contrary, the reorganization of
        the Company by way of a second step conversion shall not be considered a
        "Change in Control."

               9.3-3   Upon a Change in Control described in 9.3-2, the Plan
        shall be terminated and the Plan Administrator shall direct the Trustee
        to sell a sufficient amount of Stock from the Unallocated Stock Fund to
        repay any outstanding Stock Obligation in full. The proceeds of such
        sale shall be used to repay such Stock Obligation. After repayment of
        the Stock Obligation, all remaining shares in the Unallocated Stock Fund
        (or the proceeds thereof, if applicable) shall be deemed to be earnings
        and shall be allocated in accordance with the requirements of Section
        8.1.

        9.4    FULL VESTING UPON PLAN TERMINATION. Notwithstanding Section 9.1,
a Participant's interest in his Account shall fully vest upon termination of
this Plan or upon the permanent and complete discontinuance of contributions by
his Employer. In the event of a partial termination, the interest of each
affected Participant shall fully vest with respect to that part of the Plan
which is terminated.

        9.5    FORFEITURE, REPAYMENT, AND RESTORAL. If a Participant's Service
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested interest pursuant to Section 10.1, or (ii) incurs a
one-year Break in Service. If a Participant's Service terminates prior to having
any portion of his Account become vested, such

                                       16


Participant shall be deemed to have received a distribution of his vested
interest as of the Valuation Date next following his termination of Service.

        If a Participant who has suffered a forfeiture of the nonvested portion
of his Account returns to Service before he has five (5) consecutive Breaks in
Service, the nonvested portion shall be restored, provided that, if the
Participant had received a distribution of his vested Account balance, the
amount distributed shall be repaid prior to such restoral. The Participant may
repay such amount at any time within five years after he has returned to
Service. The amount repaid shall be credited to his Account at the time it is
repaid; an additional amount equal to that portion of his Account which was
previously forfeited shall be restored to his Account at the same time from
other Employees' forfeitures and, if such forfeitures are insufficient, from a
special contribution by his Employer for that year. If the Participant did not
receive a distribution of his vested Account balance, any forfeiture restored
shall include earnings that would have been credited to the Account but for the
forfeiture. A Participant who was deemed to have received a distribution of his
vested interest in the Plan shall have his Account restored as of the first day
on which he performs an Hour of Service after his return.

        9.6    ACCOUNTING FOR FORFEITURES. If a portion of a Participant's
Account is forfeited, Stock allocated to said Participant's Account shall be
forfeited only after other assets are forfeited. If interests in more than one
class of Stock have been allocated to a Participant's Account, the Participant
must be treated as forfeiting the same proportion of each class of Stock. A
forfeiture shall be charged to the Participant's Account as of the first day of
the first Valuation Period in which the forfeiture becomes certain pursuant to
Section 9.5. Except as otherwise provided in that Section, a forfeiture shall be
added to the contributions of the terminated Participant's Employer which are to
be credited to other Participants pursuant to Section 4.1 as of the last day of
the Plan Year in which the forfeiture becomes certain.

        9.7    VESTING AND NONFORFEITABILITY. A Participant's interest in his
Account which has become vested shall be nonforfeitable for any reason.

SECTION 10.    PAYMENT OF BENEFITS.

        10.1   BENEFITS FOR PARTICIPANTS. For a Participant whose Service ends
for any reason, distribution will be made to or for the benefit of the
Participant or, in the case of the Participant's death, his Beneficiary, by
payment in a lump sum, in accordance with Section 10.2, either, or a combination
of the following methods:

               By payment in a lump sum, in accordance with Section 10.2; or

               By payment in a series of substantially equal annual
        installments over a period not to exceed five (5) years, provided the
        maximum period over which the distribution of a Participant's Account
        may be made shall be extended by 1 year, up to five (5) additional
        years, for each $145,000 (or fraction thereof) by which such
        Participant's Account balance exceeds $725,000 (the aforementioned
        figures are subject to cost-of-living adjustments prescribed by the
        Secretary of the Treasury pursuant to Section 409(o)(2) of the Code).

                The Participant shall elect the manner in which his vested
        Account balance will be distributed to him. If a Participant so desires,
        he may direct how his benefits are to be paid to his Beneficiary. If a
        deceased Participant did not file a direction with the Committee, the
        Participant's benefits shall be distributed to his Beneficiary in a lump
        sum. Notwithstanding any provision to the contrary, if the value of a
        Participant's vested Account balance at the time of any distribution,
        does not equal or exceed $5,000, then such Participant's vested Account
        shall be distributed in a lump sum within 60 days after the end of the
        Plan Year in which employment terminates. If the value of a
        Participant's

                                       17


        vested Account balance is, or has ever been, in excess of $5,000, then
        his benefits shall not be paid prior to the later of the time he has
        attained Normal Retirement or age 62 unless he elects an early payment
        date in a written election filed with the Committee. A Participant may
        modify such an election at any time, provided any new benefit payment
        date is at least 30 days after a modified election is delivered to the
        Committee. Failure of a Participant to consent to a distribution prior
        to the later of Normal Retirement or age 62 shall be deemed to be an
        election to defer commencement of payment of any benefit under this
        section.

        10.2   TIME FOR DISTRIBUTION.

               10.2.1  If the Participant and, if applicable, with the consent
        of the Participant's spouse, elects the distribution of the
        Participant's Account balance in the Plan, distribution shall commence
        as soon as practicable following his termination of Service, but no
        later than one year after the close of the Plan Year:

               (i)     in which the Participant separates from service by reason
        of attainment of Normal Retirement Age under the Plan, Disability, or
        death; or

               (ii)    which is the fifth Plan Year following the year in which
        the Participant resigns or is dismissed, unless he is reemployed before
        such date.

               10.2.2  Unless the Participant elects otherwise, the distribution
        of the balance of a Participant's Account shall commence not later than
        the 60th day after the latest of the close of the Plan Year in which -

               (i)     the Participant attains the age of 65;

               (ii)    occurs the tenth anniversary of the year in which the
        Participant commenced participation in the Plan; or

               (iii)   the Participant terminates his Service with the Employer.

               10.2.3  Notwithstanding anything to the contrary, (1) with
        respect to a 5-percent owner (as defined in Code Section 416),
        distribution of a Participant's Account shall commence (whether or not
        he remains in the employ of the Employer) not later than the April 1 of
        the calendar year next following the calendar year in which the
        Participant attains age 70 1/2, and (2) with respect to all other
        Participants, payment of a Participant's benefit will commence not later
        than April 1 of the calendar year following the calendar year in which
        the Participant attains age 70 1/2, or, if later, the year in which the
        Participant retires. A Participant's benefit from that portion of his
        Account committed to the Investment Fund shall be calculated on the
        basis of the most recent Valuation Date before the date of payment.

               10.2.4  Distribution of a Participant's Account balance after his
        death shall comply with the following requirements:

               (i)     If a Participant dies before his distributions have
        commenced, distribution of his Account to his Beneficiary shall commence
        not later than one year after the end of the Plan Year in which the
        Participant died; however, if the Participant's Beneficiary is his
        surviving Spouse, distributions may commence on the date on which the
        Participant would have attained age 702. In either case, distributions
        shall be completed within five years after they commence.

                                       18


               (ii)    If the Participant dies after distribution has commenced
        pursuant to Section 10.1.2 but before his entire interest in the Plan
        has been distributed to him, then the remaining portion of that interest
        shall, in accordance with Section 401(a)(9) of the Code, be distributed
        at least as rapidly as under the method of distribution being used under
        Section 10.1.2 at the date of his death.

               (iii)   If a married Participant dies before his benefit payments
        begin, then unless he has specifically elected otherwise the Committee
        shall cause the balance in his Account to be paid to his Spouse. No
        election by a married Participant of a different Beneficiary shall be
        valid unless the election is accompanied by the Spouse's written
        consent, which (i) must acknowledge the effect of the election, (ii)
        must explicitly provide either that the designated Beneficiary may not
        subsequently be changed by the Participant without the Spouse's further
        consent, or that it may be changed without such consent, and (iii) must
        be witnessed by the Committee, its representative, or a notary public.
        (This requirement shall not apply if the Participant establishes to the
        Committee's satisfaction that the Spouse may not be located.)

               10.2.5  All distributions under this section shall be determined
        and made in accordance with final and temporary regulations Sections
        1.401(a)(9)-1 through 1.401(a)(9)-9, as promulgated under Code Section
        401(a)(9), including the minimum distribution incidental benefit
        requirements of Code Section 401(a)(9)(G) and Section 1.401(a)(9)-2 of
        the proposed regulations. These provisions override any distribution
        options in the Plan inconsistent with Code Section 401(a)(9).

        10.3   MARITAL STATUS. The Committee, the Plan, the Trustee, and the
Employers shall be fully protected and discharged from any liability to the
extent of any benefit payments made as a result of the Committee's good faith
and reasonable reliance upon information obtained from a Participant and his
Employer as to his marital status.

        10.4   DELAY IN BENEFIT DETERMINATION. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.

        10.5   ACCOUNTING FOR BENEFIT PAYMENTS. Any benefit payment shall be
charged to the Participant's Account as of the first day of the Valuation Period
in which the payment is made.

        10.6   OPTIONS TO RECEIVE STOCK OR CASH. Unless ownership of virtually
all Stock is restricted to active Employees and qualified retirement plans for
the benefit of Employees pursuant to the certificates of incorporation or
by-laws of the Employers issuing Stock, a terminated Participant or the
Beneficiary of a deceased Participant may instruct the Committee to distribute
the Participant's entire vested interest in his Account in the form of cash or
Stock or a combination thereof. In the event the Participant elects to receive
all Stock, the Committee shall apply the Participant's vested interest in the
Investment Fund to purchase sufficient Stock from the Stock Fund or from any
owner of Stock to make the required distribution.

        Any Participant who receives Stock pursuant to Section 10.1, and any
person who has received Stock from the Plan or from such a Participant by reason
of the Participant's death or incompetency, by reason of divorce or separation
from the Participant, or by reason of a rollover contribution described in
Section 402(a)(5) of the Code, shall have the right to require the Employer
which issued the Stock to purchase the Stock for its current fair market value
(hereinafter referred to as the "put right"). The put right shall be exercisable
by written notice to the Committee during the first 60 days after the Stock is
distributed by the Plan, and, if not exercised in that period, during the first
60 days in the following Plan Year after the Committee has communicated to the
Participant its determination as to the Stock's current fair market value.

                                       19


However, the put right shall not apply to the extent that the Stock, at the time
the put right would otherwise be exercisable, may be sold on an established
market in accordance with federal and state securities laws and regulations.
Similarly, the put option shall not apply with respect to the portion of a
Participant's Account which the Employee elected to have reinvested under Code
Section 401(a)(28)(B). If the put right is exercised, the Trustee may, if so
directed by the Committee in its sole discretion, assume the Employer's rights
and obligations with respect to purchasing the Stock. Notwithstanding anything
herein to the contrary, in the case of a plan established by a bank (as defined
in Code Section 581), the put option shall not apply if prohibited by a federal
or state law and Participants are entitled to elect their benefits be
distributed in cash.

        If a Participant elects to receive his distribution in the form of a
lump sum pursuant to Section 10.1.1 of the Plan, the Employer or the Trustee, as
the case may be, may elect to pay for the Stock in equal periodic installments,
not less frequently than annually, over a period not longer than five years from
the day after the put right is exercised, with adequate security and interest at
a reasonable rate on the unpaid balance, all such terms to be set forth in a
promissory note delivered to the seller with normal terms as to acceleration
upon any uncured default.

        If a Participant elects to receive his distribution in the form of an
installment payment pursuant to Section 10.1.2 of the Plan, the Employer or the
Trustee, as the case may be, shall pay for the Stock distributed in the
installment distribution over a period which shall not exceed 30 days after the
exercise of the put right.

        Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right shall be nonterminable. The put right for Stock
acquired through a Stock Obligation shall continue with respect to such Stock
after the Stock Obligation is repaid or the Plan ceases to be an employee stock
ownership plan.

        10.7   RESTRICTIONS ON DISPOSITION OF STOCK. Except in the case of Stock
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(a)(5) of the Code, shall, prior to any
sale or other transfer of the Stock to any other person, first offer the Stock
to the issuing Employer and to the Plan at the greater of (i) its current fair
market value, or (ii) the purchase price offered in good faith by an independent
third party purchaser. This restriction shall apply to any transfer, whether
voluntary, involuntary, or by operation of law, and whether for consideration or
gratuitous. Either the Employer or the Trustee may accept the offer within 14
days after it is delivered. Any Stock distributed by the Plan shall bear a
conspicuous legend describing the right of first refusal under this Section
10.7, as well as any other restrictions upon the transfer of the Stock imposed
by federal and state securities laws and regulations.

        10.8   CONTINUING LOAN PROVISIONS; CREATIONS OF PROTECTIONS AND RIGHTS.
Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no
shares of Employer Stock held or distributed by the Trustee may be subject to a
put, call or other option, or buy-sell arrangement. The provisions of this
Section shall continue to be applicable to such Stock even if the Plan ceases to
be an employee stock ownership plan under Section 4975(e)(7) of the Code.

        10.9   DIRECT ROLLOVER OF ELIGIBLE DISTRIBUTION. A Participant or
distributee may elect, at the time and in the manner prescribed by the Trustee
or the Committee, to have any portion of an eligible rollover

                                       20


distribution paid directly to an eligible retirement plan specified by the
Participant or distributee in a direct rollover.

               10.9-1  An "eligible rollover" is any distribution that does not
        include: any distribution that is one of a series of substantially equal
        periodic payments (not less frequently than annually) made for the life
        (or life expectancy) of the distributee or the joint lives (or joint
        life expectancies) of the Participant and the Participant's Beneficiary,
        or for a specified period of ten years or more; any distribution to the
        extent such distribution is required under Code Section 401(a)(9); any
        hardship distribution described in Section 401(k)(2)(B)(i)(IV) of the
        Code; and the portion of any distribution that is not included in gross
        income (determined without regard to the exclusion for net unrealized
        appreciation with respect to employer securities). A portion of a
        distribution shall not fail to be an eligible rollover distribution
        merely because the portion consists of after-tax employee contributions
        which are not includible in gross income. However, such portion may be
        transferred only to an individual retirement account or annuity
        described in section 408(a) or (b) of the Code, or to a qualified
        defined contribution plan described in section 401(a) or 403(a) of the
        Code that agrees to separately accounting for the portion of such
        distribution which is includible in gross income and the portion of such
        distribution which is not so includible.

               10.9-2  An "eligible retirement plan" is an individual retirement
        account described in Code Section 408(a), an individual retirement
        annuity described in Code Section 408(b), an annuity plan described in
        Code Section 403(a), or a qualified trust described in Code Section
        401(a), that accepts the distributee's eligible rollover distribution.
        In the case of distributions after December 31, 2001, an eligible
        retirement plan shall also include an annuity contract described in
        Section 403(b) of the Code and an eligible plan under Section 457(b) of
        the Code which is maintained by a state, or any agency or
        instrumentality of a state or political subdivision of a state and which
        agrees to separately account for amounts transferred into such plan from
        this plan. In the case of an eligible rollover distribution to a
        surviving Spouse, an eligible retirement plan is an individual
        retirement account or individual retirement annuity.

               10.9-3  A "direct rollover" is a payment by the Plan to the
        eligible retirement plan specified by the distributee.

               10.9-4  The term "distributee" shall refer to a deceased
        Participant's Spouse or a Participant's former Spouse who is the
        alternate payee under a qualified domestic relations order, as defined
        in Code Section 414(p).

        10.10  WAIVER OF 30-DAY PERIOD AFTER NOTICE OF DISTRIBUTION. If a
distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that:

               (i)     the Trustee or Committee, as applicable, clearly informs
        the Participant that the Participant has a right to a period of at least
        30 days after receiving the notice to consider the decision of whether
        or not to elect a distribution (and, if applicable, a particular
        option), and

               (ii)    the Participant, after receiving the notice,
        affirmatively elects a distribution.

SECTION 11.    RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS.

        11.1   CLAIM FOR BENEFITS. Any Participant or Beneficiary who qualifies
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any election
of an alternative benefit form, shall be filed at least 30 days before the date
on which the

                                       21


benefits are to begin. If a Participant or Beneficiary fails to file a claim by
the day before the date on which benefits become payable, he shall be presumed
to have filed a claim for payment for the Participant's benefits in the standard
form prescribed by Sections 10.1 or 10.2.

        11.2   NOTIFICATION BY COMMITTEE. Within 90 days after receiving a claim
for benefits (or within 180 days, if special circumstances require an extension
of time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
approved or denied. If the Committee denies a claim in any respect, the
Committee shall set forth in a written notice to the Participant or Beneficiary:

               (i)     each specific reason for the denial;

               (ii)    specific references to the pertinent Plan provisions on
        which the denial is based;

               (iii)   a description of any additional material or information
        which could be submitted by the Participant or Beneficiary to support
        his claim, with an explanation of the relevance of such information; and

               (iv)    an explanation of the claims review procedures set forth
        in Section 11.3.

        11.3   CLAIMS REVIEW PROCEDURE. Within 60 days after a Participant or
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination. In
connection with his appeal the Participant or Beneficiary or his representative
may inspect or purchase copies of pertinent documents and records to the extent
not inconsistent with other Participants' and Beneficiaries' rights of privacy.
Within 60 days after receiving a notice of appeal from a prior determination (or
within 120 days, if special circumstances require an extension of time and
written notice of the extension is given to the Participant or Beneficiary and
his representative within 60 days after receiving the notice of appeal), the
Committee shall furnish to the Participant or Beneficiary and his
representative, if any, a written statement of the Committee's final decision
with respect to his claim, including the reasons for such decision and the
particular Plan provisions upon which it is based.

SECTION 12.    THE COMMITTEE AND ITS FUNCTIONS.

        12.1   AUTHORITY OF COMMITTEE. The Committee shall be the "plan
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Association, the Employers, or the Trustee
under the Plan and Trust Agreement, (ii) delegated in writing to other persons
by the Association, the Employers, the Committee, or the Trustee, or (iii)
allocated to other parties by operation of law. The Committee shall have
exclusive responsibility regarding decisions concerning the payment of benefits
under the Plan. The Committee shall have no investment responsibility with
respect to the Investment Fund except to the extent, if any, specifically
provided in the Trust Agreement. In the discharge of its duties, the Committee
may employ accountants, actuaries, legal counsel, and other agents (who also may
be employed by an Employer or the Trustee in the same or some other capacity)
and may pay their reasonable expenses and compensation.

        12.2   IDENTITY OF COMMITTEE. The Committee shall consists of three or
more individuals selected by the Association. Any individual, including a
director, trustee, shareholder, officer, or Employee of an Employer, shall be
eligible to serve as a member of the Committee. The Association shall have the
power to

                                       22


remove any individual serving on the Committee at any time without cause upon 10
days written notice, and any individual may resign from the Committee at any
time upon 10 days written notice to the Association. The Association shall
notify the Trustee of any change in membership of the Committee.

        12.3   DUTIES OF COMMITTEE. The Committee shall keep whatever records
may be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Association. The Committee shall furnish to
the Trustee whatever information may be necessary to properly administer the
Trust. The Committee shall see to the filing with the appropriate government
agencies of all reports and returns required of the Plan under ERISA and other
laws.

        Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Association's long-term intention that the
Plan, as an employee stock ownership plan, be invested primarily in Stock.
Subject to the direction of the board as to the application of Employer
contributions to Stock Obligations, and subject to the provisions of Sections
6.4 and 10.6 as to Participants' rights under certain circumstances to have
their Accounts invested in Stock or in assets other than Stock, the Committee
shall determine in its sole discretion the extent to which assets of the Trust
shall be used to repay Stock Obligations, to purchase Stock, or to invest in
other assets to be selected by the Trustee or an investment manager. No
provision of the Plan relating to the allocation or vesting of any interests in
the Stock Fund or the Investment Fund shall restrict the Committee from changing
any holdings of the Trust, whether the changes involve an increase or a decrease
in the Stock or other assets credited to Participants' Accounts. In determining
the proper extent of the Trust's investment in Stock, the Committee shall be
authorized to employ investment counsel, legal counsel, appraisers, and other
agents and to pay their reasonable expenses and compensation.

        12.4   VALUATION OF STOCK. If the valuation of any Stock is not
established by reported trading on a generally recognized public market, the
Committee shall have the exclusive authority and responsibility to determine its
value for all purposes under the Plan, subject to the requirements of Code
Section 401(a)(28)(c). Such value shall be determined as of each Valuation Date,
and on any other date as of which the Plan purchases or sells such Stock. The
Committee shall use generally accepted methods of valuing stock of similar
corporations for purposes of arm's length business and investment transactions,
and in this connection the Committee shall obtain, and shall be protected in
relying upon, the valuation of such Stock as determined by an independent
appraiser experienced in preparing valuations of similar businesses.

        12.5   COMPLIANCE WITH ERISA. The Committee shall perform all acts
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.

        12.6   ACTION BY COMMITTEE. All actions of the Committee shall be
governed by the affirmative vote of a number of members which is a majority of
the total number of members currently appointed, including vacancies.

        12.7   EXECUTION OF DOCUMENTS. Any instrument executed by the Committee
shall be signed by any member or employee of the Committee.

        12.8   ADOPTION OF RULES. The Committee shall adopt such rules and
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.

                                       23


        12.9   RESPONSIBILITIES TO PARTICIPANTS. The Committee shall determine
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.

        12.10  ALTERNATIVE PAYEES IN EVENT OF INCAPACITY. If the Committee finds
at any time that an individual qualifying for benefits under this Plan is a
minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, or a custodian for him
under the Uniform Gifts to Minors Act, or, in the case of an incompetent, to his
spouse, or his legal guardian, the payments to be used for the individual's
benefit. The Committee and the Trustee shall not be obligated to inquire as to
the actual use of the funds by the person receiving them under this Section
12.10, and any such payment shall completely discharge the obligations of the
Plan, the Trustee, the Committee, and the Employers to the extent of the
payment.

        12.11  INDEMNIFICATION BY EMPLOYERS. Except as separately agreed in
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employer, jointly and severally, to the
fullest extent permitted by ERISA, and subject to and conditioned upon
compliance with 12 C.F.R. Section 545.121, to the extent applicable, against any
and all costs, damages, expenses, and liabilities reasonably incurred by or
imposed upon it or him in connection with any claim made against it or him or in
which it or he may be involved by reason of its or his being, or having been,
the Committee, or a member or employee of the Committee, to the extent such
amounts are not paid by insurance.

        12.12  NONPARTICIPATION BY INTERESTED MEMBER. Any member of the
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits, unless
his abstention would leave the Committee incapable of acting on the matter.

SECTION 13.    ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN.

        13.1   ADOPTION OF PLAN BY OTHER EMPLOYERS. With the consent of the
Association, any entity may become a participating Employer under the Plan by
(i) taking such action as shall be necessary to adopt the Plan, (ii) becoming a
party to the Trust Agreement establishing the Trust Fund, and (iii) executing
and delivering such instruments and taking such other action as may be necessary
or desirable to put the Plan into effect with respect to the entity's Employees.

        13.2   PLAN ADOPTION SUBJECT TO QUALIFICATION. Notwithstanding any other
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification under Section 401(a). If this Plan is held by the
Internal Revenue Service not to qualify initially under Section 401(a) either as
originally adopted or as amended, each Employer's contributions to the Trust
under this Plan (including any earnings thereon) shall be returned to it

                                       24


and this Plan shall be terminated. In the event that this Plan is amended after
its initial qualification and the Plan as amended is held by the Internal
Revenue Service not to qualify under Section 401(a), the amendment may be
modified retroactively to the earliest date permitted by U.S. Treasury
Regulations in order to secure approval of the amendment under Section 401(a).

        13.3   RIGHT TO AMEND OR TERMINATE. The Association intends to continue
this Plan as a permanent program. However, each participating Employer
separately reserves the right to suspend, supersede, or terminate the Plan at
any time and for any reason, as it applies to that Employer's Employees, and the
Association reserves the right to amend, suspend, supersede, merge, consolidate,
or terminate the Plan at any time and for any reason, as it applies to the
Employees of each Employer. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall (i) reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, (ii) reduce or restrict,
either directly or indirectly, the benefit provided any Participant prior to the
amendment, or (iii) divert any portion of the Trust Fund to purposes other than
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan. Moreover, there shall not be any
transfer of assets to a successor plan or merger or consolidation with another
plan unless, in the event of the termination of the successor plan or the
surviving plan immediately following such transfer, merger, or consolidation,
each participant or beneficiary would be entitled to a benefit equal to or
greater than the benefit he would have been entitled to if the plan in which he
was previously a participant or beneficiary had terminated immediately prior to
such transfer, merger, or consolidation. Following a termination of this Plan by
the Association, the Trustee shall continue to administer the Trust and pay
benefits in accordance with the Plan as amended from time to time and the
Committee's instructions.

SECTION 14.    MISCELLANEOUS PROVISIONS.

        14.1   PLAN CREATES NO EMPLOYMENT RIGHTS. Nothing in this Plan shall be
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.

        14.2   NONASSIGNABILITY OF BENEFITS. No assignment, pledge, or other
anticipation of benefits from the Plan will be permitted or recognized by the
Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a state domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code, as more fully
set forth in Section 14.12 hereof.

        14.3   LIMIT OF EMPLOYER LIABILITY. The liability of the Employer with
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.

        14.4   TREATMENT OF EXPENSES. All expenses incurred by the Committee and
the Trustee in connection with administering this Plan and Trust Fund shall be
paid by the Trustee from the Trust Fund to the extent the expenses have not been
paid or assumed by the Employer or by the Trustee.

        14.5   NUMBER AND GENDER. Any use of the singular shall be interpreted
to include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.

                                       25


        14.6   NONDIVERSION OF ASSETS. Except as provided in Sections 5.2 and
14.12, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.

        14.7   SEPARABILITY OF PROVISIONS. If any provision of this Plan is held
to be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.

        14.8   SERVICE OF PROCESS. The agent for the service of process upon the
Plan shall be the president of the Association, or such other person as may be
designated from time to time by the Association.

        14.9   GOVERNING STATE LAW. This Plan shall be interpreted in accordance
with the laws of the State of Connecticut to the extent those laws are
applicable under the provisions of ERISA.

        14.10  EMPLOYER CONTRIBUTIONS CONDITIONED ON DEDUCTIBILITY. Employer
Contributions to the Plan are conditioned on deductibility under Code Section
404. In the event that the Internal Revenue Service shall determine that all or
any portion of an Employer Contribution is not deductible under that Section,
the nondeductible portion shall be returned to the Employer within one year of
the disallowance of the deduction.

        14.11  UNCLAIMED ACCOUNTS. Neither the Employer nor the Trustees shall
be under any obligation to search for, or ascertain the whereabouts of, any
Participant or Beneficiary. The Employer or the Trustees, by certified or
registered mail addressed to his last known address of record with the Employer,
shall notify any Participant or Beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or Beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven
(7) calendar years after the date of notification, the benefits of the
Participant or Beneficiary under the Plan will be disposed of as follows:

               (a)     If the whereabouts of the Participant is unknown but the
        whereabouts of the Participant's Beneficiary is known to the Trustees,
        distribution will be made to the Beneficiary.

               (b)     If the whereabouts of the Participant and his Beneficiary
        are unknown to the Trustees, the Plan will forfeit the benefit, provided
        that the benefit is subject to a claim for reinstatement if the
        Participant or Beneficiary make a claim for the forfeited benefit.

               Any payment made pursuant to the power herein conferred upon the
        Trustees shall operate as a complete discharge of all obligations of the
        Trustees, to the extent of the distributions so made.

        14.12  QUALIFIED DOMESTIC RELATIONS ORDER. Section 14.2 shall not apply
to a "qualified domestic relations order" defined in Code Section 414(p), and
such other domestic relations orders permitted to be so treated under the
provisions of the Retirement Equity Act of 1984. Further, to the extent provided
under a "qualified domestic relations order," a former Spouse of a Participant
shall be treated as the Spouse or surviving Spouse for all purposes under the
Plan.

        In the case of any domestic relations order received by the Plan:

               (a)     The Employer or the Committee shall promptly notify the
        Participant and any other alternate payee of the receipt of such order
        and the Plan's procedures for determining the qualified status of
        domestic relations orders, and

                                       26


               (b)     Within a reasonable period after receipt of such order,
        the Employer or the Committee shall determine whether such order is a
        qualified domestic relations order and notify the Participant and each
        alternate payee of such determination. The Employer or the Committee
        shall establish reasonable procedures to determine the qualified status
        of domestic relations orders and to administer distributions under such
        qualified orders.

        During any period in which the issue of whether a domestic relations
order is a qualified domestic relations order is being determined (by the
Employer or Committee, by a court of competent jurisdiction, or otherwise), the
Employer or the Committee shall segregate in a separate account in the Plan or
in an escrow account the amounts which would have been payable to the alternate
payee during such period if the order had been determined to be a qualified
domestic relations order. If within eighteen (18) months the order (or
modification thereof) is determined to be a qualified domestic relations order,
the Employer or the Committee shall pay the segregated amounts (plus any
interest thereon) to the person or persons entitled thereto. If within eighteen
(18) months it is determined that the order is not a qualified domestic
relations order, or the issue as to whether such order is a qualified domestic
relations order is not resolved, then the Employer or the Committee shall pay
the segregated amounts (plus any interest thereon) to the person or persons who
would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only. The term "alternate payee" means any Spouse, former Spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of, the benefit
payable under a Plan with respect to such Participant.

SECTION 15.    TOP-HEAVY PROVISIONS.

        15.1   TOP-HEAVY PLAN. This Plan is top-heavy if any of the following
conditions exist:

               (a)     If the top-heavy ratio for this Plan exceeds sixty
        percent (60%) and this Plan is not part of any required aggregation
        group or permissive aggregation group;

               (b)     If this Plan is a part of a required aggregation group
        (but is not part of a permissive aggregation group) and the aggregate
        top-heavy ratio for the group of Plans exceeds sixty percent (60%); or

               (c)     If this Plan is a part of a required aggregation group
        and part of a permissive aggregation group and the aggregate top-heavy
        ratio for the permissive aggregation group exceeds sixty percent (60%).

        15.2   SUPER TOP-HEAVY PLAN. This Plan will be a super top-heavy Plan if
any of the following conditions exist:

               (a)     If the top-heavy ratio for this Plan exceeds ninety
        percent (90%) and this Plan is not part of any required aggregation
        group or permissive aggregation group.

               (b)     If this Plan is a part of a required aggregation group
        (but is not part of a permissive aggregation group) and the aggregate
        top-heavy ratio for the group of Plans exceeds ninety percent (90%), or

               (c)     If this Plan is a part of a required aggregation group
        and part of a permissive aggregation group and the aggregate top-heavy
        ratio for the permissive aggregation group exceeds ninety percent (90%).

                                       27


        15.3   DEFINITIONS.

        In making this determination, the Committee shall use the following
        definitions and principles:

               15.3-1  The "Determination Date", with respect to the first Plan
        Year of any plan, means the last day of that Plan Year, and with respect
        to each subsequent Plan Year, means the last day of the preceding Plan
        Year. If any other plan has a Determination Date which differs from this
        Plan's Determination Date, the top-heaviness of this Plan shall be
        determined on the basis of the other plan's Determination Date falling
        within the same calendar years as this Plan's Determination Date.

               15.3-2  A "Key Employee" means any employee or former employee
        (including any deceased employee) who at any time during the plan year
        that includes the determination date was an officer of the employer
        having annual compensation greater than $130,000 (as adjusted under
        section 416(i)(1) of the Code for plan years beginning after December
        31, 2002, a 5-percent owner of the employer, or a 1-percent owner of the
        employer having annual compensation of more than $150,000. For this
        purpose, annual compensation means compensation within the meaning of
        section 415(c)(3) of the Code. The determination of who is a key
        employee will be made in accordance with section 416(i)(1) of the Code
        and the applicable regulations and other guidance of general
        applicability issued thereunder.

               15.3-3  A "Non-key Employee" means an Employee who at any time
        during the five years ending on the top-heavy Determination Date for the
        Plan Year has received compensation from an Employer and who has never
        been a Key Employee, and the Beneficiary of any such Employee.

               15.3-4  A "required aggregation group" includes (a) each
        qualified Plan of the Employer in which at least one Key Employee
        participates in the Plan Year containing the Determination Date and (b)
        any other qualified Plan of the Employer which enables a Plan described
        in (a) to meet the requirements of Code Sections 401(a)(4) and 410. For
        purposes of the preceding sentence, a qualified Plan of the Employer
        includes a terminated Plan maintained by the Employer within the period
        ending on the Determination Date. In the case of a required aggregation
        group, each Plan in the group will be considered a top-heavy Plan if the
        required aggregation group is a top-heavy group. No Plan in the required
        aggregation group will be considered a top-heavy Plan if the required
        aggregation group is not a top-heavy group. All Employers aggregated
        under Code Sections 414(b), (c) or (m) or (o) (but only after the Code
        Section 414(o) regulations become effective) are considered a single
        Employer.

               15.3-5  A "permissive aggregation group" includes the required
        aggregation group of Plans plus any other qualified Plan(s) of the
        Employer that are not required to be aggregated but which, when
        considered as a group with the required aggregation group, satisfy the
        requirements of Code Sections 401(a)(4) and 410 and are comparable to
        the Plans in the required aggregation group. No Plan in the permissive
        aggregation group will be considered a top-heavy Plan if the permissive
        aggregation group is not a top-heavy group. Only a Plan that is part of
        the required aggregation group will be considered a top-heavy Plan if
        the permissive aggregation group is top-heavy.

        15.4   TOP-HEAVY RULES OF APPLICATION.

        For purposes of determining the value of Account balances and the
present value of accrued benefits the following provisions shall apply:

               15.4-1  The value of Account balances and the present value of
        accrued benefits will be determined as of the most recent Valuation Date
        that falls within or ends with the twelve (12) month period ending on
        the Determination Date.

                                       28


               15.4-2  For purposes of testing whether this Plan is top-heavy,
         the present value of an individual's accrued benefits and an
        individual's Account balances is counted only once each year.

               15.4-3  The Account balances and accrued benefits of a
        Participant who is not presently a Key Employee but who was a Key
        Employee in a Plan Year beginning on or after January 1, 1984 will be
        disregarded.

               15.4-4  Employer contributions attributable to a salary reduction
        or similar arrangement will be taken into account. Employer matching
        contributions also shall be taken into account for purposes of
        satisfying the minimum contribution requirements of Section 416(c)(2) of
        the Code and the Plan.

               15.4-5  When aggregating Plans, the value of Account balances and
        accrued benefits will be calculated with reference to the Determination
        Dates that fall within the same calendar year.

               15.4-6  The present values of accrued benefits and the amounts of
        account balances of an employee as of the determination date shall be
        increased by the distributions made with respect to the employee under
        the plan and any plan aggregated with the plan under Section 416(g)(2)
        of the Code during the 1-year period ending on the determination date.
        The preceding sentence shall also apply to distributions under a
        terminated plan which, had it not been terminated, would have been
        aggregated with the plan under Section 416(g)(2)(A)(i) of the Code. In
        the case of a distribution made for a reason other than separation from
        service, death, or disability, this provision shall be applied by
        substituting "five (5) year period" for "one (1) year period."

               15.4-7  Accrued benefits and Account balances of an individual
        shall not be taken into account for purposes of determining the
        top-heavy ratios if the individual has performed no services for the
        Employer during the one (1) year period ending on the applicable
        Determination Date. Compensation for purposes of this subparagraph shall
        not include any payments made to an individual by the Employer pursuant
        to a qualified or non-qualified deferred compensation plan.

               15.4-8  The present value of the accrued benefits or the amount
        of the Account balances of any Employee participating in this Plan shall
        not include any rollover contributions or other transfers voluntarily
        initiated by the Employee except as described below. If this Plan
        transfers or rolls over funds to another Plan in a transaction
        voluntarily initiated by the Employee, then this Plan shall count the
        distribution for purposes of determining Account balances or the present
        value of accrued benefits. A transfer incident to a merger or
        consolidation of two or more Plans of the Employer (including Plans of
        related Employers treated as a single Employer under Code Section 414),
        or a transfer or rollover between Plans of the Employer, shall not be
        considered as voluntarily initiated by the Employee.

        15.5   MINIMUM CONTRIBUTIONS. For any Top-Heavy Year, each Employer
shall make a special contribution on behalf of each Participant to the extent
that the total allocations to his Account pursuant to Section 4 is less than the
lesser of:

               (i)     three percent of his 415 Compensation for that year, or

               (ii)    the highest ratio of such allocation to 415 Compensation
        received by any Key Employee for that year. For purposes of the special
        contribution of this Section 15.2, a Key Employee's 415 Compensation
        shall include amounts the Key Employee elected to defer under a
        qualified 401(k) arrangement. Such a special contribution shall be made
        on behalf of each Participant who is employed by an Employer on the last
        day of the Plan Year, regardless of the number of his Hours of Service,
        and shall be allocated to his Account.

                                       29


        If the Employer maintains a qualified plan in addition to this Plan and
more than one such plan is determined to be Top-Heavy, a minimum contribution or
a minimum benefit shall be provided in one of such other plans, including a plan
that consists solely of a cash or deferred arrangement which meets the
requirements of Section 401(k)(12) of the Code and matching contributions with
respect to which the requirements of Section 401(m)(11) of the Code are met. If
the Employer has both a Top-Heavy defined benefit plan and a Top-Heavy defined
contribution plan and a minimum contribution is to be provided only in the
defined contribution plan, then the sum of the Employer contributions and
forfeitures allocated to the Account of each Non-key Employee shall be equal to
at least five percent (5%) of such Non-key Employee's 415 Compensation for that
year.

        15.6   TOP-HEAVY PROVISIONS CONTROL IN TOP-HEAVY PLAN. In the event this
Plan becomes top-heavy and a conflict arises between the top-heavy provisions
herein set forth and the remaining provisions set forth in this Plan, the
top-heavy provisions shall control.

                                       30

EX-10.2

                                                                    Exhibit 10.2

                               PUTNAM SAVINGS BANK
                      DEFERRED COMPENSATION RETIREMENT PLAN



                                Table of Contents

                                                                                                 
ARTICLE ONE--DEFINITIONS............................................................................... 2
     1.1     Account
     1.2     Administrator
     1.3     Beneficiary
     1.4     Code
     1.5     Compensation
     1.6     Director
     1.7     Effective Date
     1.8     Employee
     1.9     Employer
     1.10    Normal Retirement Date
     1.11    Participant
     1.12    Plan
     1.13    Plan Year
     1.14    Valuation Date

ARTICLE TWO--PLAN PARTICIPATION........................................................................ 4
     2.1     Participation

ARTICLE THREE--COMPENSATION DEFERRALS AND EMPLOYER CONTRIBUTIONS....................................... 5
     3.1     Compensation Deferrals
     3.2     Employer Discretionary Contributions
     3.3     Timing of Contributions

ARTICLE FOUR--ACCOUNTING RULES......................................................................... 6
     4.1     Investment of Accounts and Accounting Rules

ARTICLE FIVE--VESTING, RETIREMENT AND DISABILITY BENEFITS.............................................. 7
     5.1     Vesting
     5.2     Normal Retirement
     5.3     Permanent and Total Disability

ARTICLE SIX--MANNER AND TIME OF DISTRIBUTING BENEFITS.................................................. 8
     6.1     Manner of Payment
     6.2     Time of Commencement of Benefit Payments
     6.3     Furnishing Information
     6.4     Death Benefit
     6.5     Designation of Beneficiary
     6.6     Time and Mode of Distributing Death Benefits

ARTICLE SEVEN--ADMINISTRATION OF THE PLAN............................................................. 10
     7.1 ....Plan Administrator
     7.2 ....Claims Procedure





                                                                                                 
ARTICLE EIGHT--AMENDMENT AND TERMINATION.............................................................. 11
     8.1     Amendment
     8.2     Termination of the Plan

ARTICLE NINE--HARDSHIP DISTRIBUTIONS.................................................................. 12
     9.1     Hardship Distributions

ARTICLE TEN--MISCELLANEOUS PROVISIONS................................................................. 13
     10.1    Benefits Unfunded
     10.2    ERISA Compliance
     10.3    Plan Does Not Affect Employment
     10.4    Successor to the Employer
     10.5    Benefits not Assignable
     10.6    Source of Payments
     10.7    Distribution to Legally Incapacitated Person
     10.8    Construction
     10.9    Governing Documents
     10.10   Governing Law
     10.11   Headings
     10.12   Counterparts

SIGNATURE PAGE........................................................................................ 16



                                        3


                               PUTNAM SAVINGS BANK
                      DEFERRED COMPENSATION RETIREMENT PLAN

WHEREAS, Putnam Savings Bank (hereinafter referred to as the "Employer") wishes
to adopt an unfunded, nonqualified deferred compensation plan for the benefit of
members of its Board of Directors and a select group of its management or highly
compensated employees; and

WHEREAS, the Board of Directors of the Employer has authorized the adoption of
the Putnam Savings Bank Deferred Compensation Retirement Plan (hereinafter
referred to as the "Plan"), effective as of July 1, 1997; and

WHEREAS, it is the intention of the Employer and the Participants that the Plan
is an unfunded deferred compensation plan and that the Participants have the
status of general unsecured creditors of the Employer; and

WHEREAS, it is intended that the Plan is to be for the benefit of the
Participants;

NOW, THEREFORE, the Plan is hereby adopted as follows:



                            ARTICLE ONE--DEFINITIONS

For purposes of this Plan, unless the context or an alternative definition
specified within another Article provides otherwise, the following words and
phrases shall have the meanings indicated:

1.1 "ACCOUNT" shall mean the individual bookkeeping accounts maintained for a
Participant under the Plan which shall record (a) the amounts of Compensation
deferred to the Plan pursuant to the Participant's election in accordance with
Section 3.1, if any, (b) the Participant's allocations of Employer discretionary
contributions, if any, pursuant to Section 3.2, and (c) the allocation of
investment experience.

1.2 "ADMINISTRATOR" shall mean the Plan Administrator appointed in accordance
with the provisions of Section 7.1.

1.3 "BENEFICIARY" shall mean any person, trust, organization or estate entitled
to receive benefits under the terms of the Plan upon the death of a Participant.

1.4 "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to
time.

1.5 "COMPENSATION" shall mean the compensation paid to a Participant by the
Employer for the Plan Year. In the case of an Employee, Compensation shall
include any amounts deferred under a salary reduction agreement in either a Code
Section 401(k) plan or under a Code Section 125 plan maintained by the Employer.

1.6 "DIRECTOR" shall mean a member of the Board of Directors of the Employer.

1.7 "EFFECTIVE DATE" The Effective Date of this Plan is July 1, 1997.

1.8 "EMPLOYEE" shall mean a management or highly compensated employee of the
Employer.

1.9 "EMPLOYER" shall mean the Employer named as party to the Plan and shall
include any successor(s) thereto which adopts the Plan.

1.10 "NORMAL RETIREMENT DATE" shall mean the later of a Participant's 65th
birthday or his termination of employment.

1.11 "PARTICIPANT" shall mean any Director or Employee who is participating in
the Plan.

1.12 "PLAN" shall mean this Plan as set forth herein and as it may be amended
from time to time.



1.13 "PLAN YEAR" shall mean the twelve (12)-consecutive-month period beginning
July 1 and ending June 30.

1.14  "VALUATION DATE" shall mean the last day of the Plan Year and such other
date(s) as specified by the Administrator.

                                        3


                         ARTICLE TWO--PLAN PARTICIPATION

2.1  PARTICIPATION. A Director or Employee shall become a Participant under the
Plan effective as of the first day of the Plan Year in which he is designated by
the Board of Directors of the Employer to be a Participant in the Plan. For
purposes of Section 3.1, a Director or Employee shall become a Participant under
the Plan effective as of the July 1 of the Plan Year for which he elects to
defer a portion of his Compensation and completes a Compensation Reduction
Authorization Form, provided that the Board of Directors of the Employer, in its
sole discretion, determines that the Director or Employee may make a
compensation deferral election pursuant to Section 3.1. The Compensation
Reduction Authorization Form must be completed, executed and returned to the
Administrator prior to the July 1 of the Plan Year for which it is applicable.
Notwithstanding the foregoing provisions of this Section 2.1, a Director or
Employee shall become a Participant in the Plan for purposes of Section 3.1
during the first Plan Year in which the Board of Directors of the Employer
determines that the Director or Employee may make a compensation deferral
election pursuant to Section 3.1 provided that the Participant's election is
made within thirty (30) days after his or her participation begins.

                                        4


        ARTICLE THREE--COMPENSATION DEFERRALS AND EMPLOYER CONTRIBUTIONS

3.1  COMPENSATION DEFERRALS.

     (a)  ELECTIONS. The Employer, in its sole discretion, may permit a
Participant to elect in writing to defer a portion of his Compensation for any
Plan Year. The election once made for a Plan Year is irrevocable for that Plan
Year. The election is made by the Participant by completing and executing a
Compensation Reduction Authorization Form within thirty (30) days of first
becoming a Participant for purposes of this Section 3.1. The amount of a
Participant's Compensation that is deferred in accordance with the Participant's
election shall be withheld by the Employer from the Participant's Compensation
on a ratable basis throughout the Plan Year and/or on nonratable, single-sum
basis. The amount deferred on behalf of each Participant shall be contributed by
the Employer to the Plan and allocated to the Participant's Account.

     (b)  CHANGES IN ELECTION. If elective compensation deferrals are permitted
by the Employer pursuant to Section 3.1(a), a Participant may prospectively
elect to change or revoke the amount (or percentage) of his elective deferral by
filing a written election with the Employer prior to July 1 of the Plan Year.
The Participant shall be entitled to change the amount (or percentage) of his
elective deferral which change shall be effective as of July 1, provided that
the change is made in writing prior to such July l. A change in election is only
permitted to be made prior to July 1 of the Plan Year for which it is
applicable.

3.2  EMPLOYER DISCRETIONARY CONTRIBUTIONS. The Employer, in its sole discretion,
may make an Employer contribution to the Account of any Participant for any Plan
Year. The Employer is not required to make an Employer contribution pursuant to
this Section 3.2 for any Plan Year. The Employer may, in its sole discretion,
make an Employer contribution to the Account of any one Participant, or to the
Accounts of any number of Participants, without making an Employer contribution
to the Accounts of other Participants.

3.3  TIMING OF CONTRIBUTIONS. Employer contributions shall be made at least
annually as of the last day of the Plan Year for which the contributions are
made.

                                        5


                         ARTICLE FOUR--ACCOUNTING RULES

4.1  INVESTMENT OF ACCOUNTS AND ACCOUNTING RULES.

(a)  ALLOCATION OF INVESTMENT EXPERIENCE. As of each Valuation Date, the
Participants' Accounts shall be credited with an investment return equal to the
New York prime rate of interest compounded monthly. Adjustment of Accounts for
investment experience shall be deemed to be made as of the Valuation Date to
which the adjustment relates, even if actually made on a later date.

(b)  MANNER AND TIME OF, DEBITING DISTRIBUTIONS. For any Participant who
receives a distribution from his Account, distribution shall be made in
accordance with the provisions dealing with the timing of commencement of
benefit payments in Section 6.2. The distribution shall be equal to the fair
market value of the Participant's Account as of the Valuation Date preceding
the distribution.

                                        6


            ARTICLE FIVE--VESTING, RETIREMENT AND DISABILITY BENEFITS

5.1  VESTING. A Participant shall at all times have a nonforfeitable (vested)
right to 100% of his Account.

5.2  NORMAL RETIREMENT. A Participant who is in the employment of the Employer
or is a Director at his Normal Retirement Date shall have a nonforfeitable
interest in 100% of his Account. A Participant who continues in employment after
his Normal Retirement Date shall continue to participate under the Plan.

5.3  PERMANENT AND TOTAL DISABILITY. If a Participant incurs a permanent and
total disability while in the employ of the Employer, the Participant shall have
a nonforfeitable interest in 100% of his Account. Payment of his Account balance
will be made at the time and in a manner specified in Article Six, following
receipt by the Plan Administrator of the Participant's written distribution
request. "Permanent and total disability" shall mean suffering from a physical
or mental condition that has existed for a period of at least three (3) months
and that, in the opinion of the Administrator and based upon appropriate medical
advice and examination, prevents a Participant from engaging in the occupation
in which he was employed prior to suffering from this condition.

                                        7


              ARTICLE SIX--MANNER AND TIME OF DISTRIBUTING BENEFITS

6.1  MANNER OF PAYMENT. The Participant's Account shall be distributed to the
Participant (or to the Participant's Beneficiary in the event of the
Participant's death) in periodic installments (at least annually), as elected by
the Participant or, when applicable, the Participant's Beneficiary at least
thirty (30) days prior to the commencement of the distributions. In the event
that any annual installment exceeds $10,000.00, the maximum distribution period
shall be no more than ten (10) years. Notwithstanding the foregoing provisions
of this Section 6.1, if the Participant's Account balance is less than
$10,000.00 on the date of commencement of distribution to the Participant (or
the Participant's Beneficiary), the Participant's Account shall be distributed
to the Participant (or to the Participant's Beneficiary in the event of the
Participant's death) in a single lump-sum payment.

6.2  TIME OF COMMENCEMENT OF BENEFIT PAYMENTS.

     (a)  NORMAL OR LATE RETIREMENT. Participants whose employment has
terminated shall have distribution of their Account commence within sixty (60)
days following their Normal Retirement Date, unless the Participant elects to
defer receipt of his Account.

     (b)  DISABILITY RETIREMENT. A Participant whose employment has terminated
due to total and permanent disability may request in writing the distribution of
his Account to commence within 60 days following the close of the Plan Year in
which his termination of employment occurs and following receipt by the
Administrator of his valid election.

     (c)  PRE-RETIREMENT TERMINATION OF EMPLOYMENT. If a Participant terminates
employment for any reason other than Normal Retirement, disability or death,
distribution of his vested Account balance shall commence no later than the
latest of:

          (1) The 60th day following the close of the Plan Year in which he
terminated employment; or

          (2) The 60th day after a Participant's written election to commence
payment is delivered to the Administrator.

6.3  FURNISHING INFORMATION. Prior to the payment of any benefit under the Plan,
each Participant or Beneficiary may be required to complete such administrative
forms and furnish such proof as is deemed necessary or appropriate by the
Employer and/or Administrator.

6.4  DEATH BENEFIT.

     (a)  DEATH WHILE AN EMPLOYEE. In the event of the death of a Participant
while in the employ of the Employer, the Participant's Account shall constitute
the Participant's death benefit to be distributed under this Article to the
Participant's Beneficiary.

     (b)  DEATH AFTER TERMINATION OF EMPLOYMENT. In the event of the death of a
former Participant after termination of employment but prior to the complete
distribution of his vested

                                        8


Account balance, the undistributed balance of the Participant's vested Account
shall be paid to the Participant's Beneficiary.

6.5  DESIGNATION OF BENEFICIARY. Each Participant shall file with the
Administrator a designation of Beneficiary to receive payment of death benefits
payable hereunder if such Beneficiary should survive the Participant.
Beneficiary designations may include primary and contingent Beneficiaries, and
may be revoked or amended at any time in similar manner or form, and the most
recent designation shall govern. In the absence of an effective designation of
Beneficiary, or if the Beneficiary dies before complete distribution of the
Participant's benefits, all amounts shall be paid to the surviving spouse of the
Participant, if living, or otherwise equally to the Participant's then-surviving
children, whether by marriage or adopted, and the surviving issue of any
deceased children, per stirpes, or, if none, to the Participant's estate.
Notification to Participants of the death benefits under the Plan and the method
of designating a Beneficiary shall be given at the time and in the manner
provided by regulations and rulings under the Code.

6.6 TIME AND MODE OF DISTRIBUTING DEATH BENEFITS. The Beneficiary shall be
allowed to designate both the time and the mode of receiving benefits in
accordance with Section 6.1 unless the Participant had designated a method or
time in writing and indicated that either was not to be revocable by the
Beneficiary. The Beneficiary's election shall be in writing and delivered to the
Administrator no later than sixty (60) days following the close of the Plan Year
in which the Participant died. If such election is not made, payments to the
Beneficiary shall commence within a reasonable period of time and shall be paid
in annual installments over a period of three (3) years.

                                        9


                    ARTICLE SEVEN--ADMINISTRATION OF THE PLAN

7.1  PLAN ADMINISTRATION. The Employer shall be the Plan Administrator,
hereinbefore and hereinafter called the Administrator, unless the Employer, by
action of its Board of Directors, shall designate a person or committee of
persons to be the Administrator. The administration of the Plan, as provided
herein, including a determination of the payment of benefits to Participants and
their Beneficiaries, shall be the responsibility of the Administrator. In the
event more than one party shall act as Administrator, all actions shall be made
by majority decisions. In the administration of the Plan, the Administrator may
(a) employ agents to carry out responsibilities and (b) consult with counsel,
who may be counsel to the Employer.

The expenses of administering the Plan and the compensation of all employees,
agents, or counsel of the Administrator, including the accounting fees, the
recordkeeper's fees, and the fees of any benefit consulting firm, shall be paid
by the Plan, or shall be paid by the Employer if the Employer so elects. No
compensation may be paid by the Plan to full-time Employees of the Employer.

The Administrator shall administer the Plan and adopt such rules and regulations
as, in the opinion of the Administrator, are necessary or advisable to implement
and administer the Plan and to transact its business.

7.2  CLAIMS PROCEDURE. Pursuant to procedures established by the Administrator,
adequate notice in writing shall be provided to any Participant or Beneficiary
whose claim for benefits under the Plan has been denied within ninety (90) days
of receipt of such claim. Such notice shall set forth the specific reason for
such denial, shall be written in a manner calculated to be understood by the
claimant, and shall advise of the right to administrative review. If such review
is requested by the claimant or his authorized representative within ninety (90)
days after receipt by the claimant of written notification of denial of his
claim, the Administrator shall afford a reasonable opportunity for a full and
fair review by the Administrator of the decision denying the claim. The review
shall focus on the additional facts, legal interpretations or material, if any,
presented by the claimant. A hearing at its place of business may be scheduled
by the Administrator, but a hearing is not required under the review procedure.

                                       10


                    ARTICLE EIGHT--AMENDMENT AND TERMINATION

8.1  AMENDMENT. The Board of Directors of the Employer shall have the right to
amend, alter, or modify the Plan at any time, or from time to time, in whole or
in part. Any such amendment shall become effective under its terms upon adoption
by the Employer. No amendment shall be made to the Plan which would deprive any
Participant of any nonforfeitable portion of his Account.

8.2  TERMINATION OF THE PLAN. The Board of Directors of the Employer reserves
the right at any time and in its sole discretion to terminate the Plan. The
Employer shall distribute the Accounts in accordance with the Plan's
distribution provisions to the Participants and their Beneficiaries, each
Participant or Beneficiary receiving his Account as of the date of distribution.
The distribution of the Participants' Account shall be made in such time and
such manner as though the Plan had not terminated, or by any other appropriate
method.

                                       11


                      ARTICLE NINE--HARDSHIP DISTRIBUTIONS

9.1  HARDSHIP DISTRIBUTIONS. The Administrator may distribute to any Participant
or his Beneficiary in any one Plan Year up to 100% of his Account, valued as of
the preceding Valuation Date, in the case of an unforeseeable emergency.

For purposes of this Section 9.1, an unforeseeable emergency is defined as
severe financial hardship to the Participant resulting from a sudden and
unexpected illness or accident of the Participant or of a dependent (as defined
in Section 152(a) of the Code) of the Participant, loss of the Participant's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant. Distribution shall not be made to the extent that such hardship is
or may be relieved through reimbursement or compensation by insurance or
otherwise, by liquidation of the Participant's assets to the extent the
liquidation of such assets would not itself cause severe financial hardship, or
by cessation of salary deferrals under the Plan. Such distribution shall only be
made to the extent reasonably needed to satisfy the emergency need.

The Administrator shall require that requests for hardship distributions be made
under procedures which include the Participant's signed statement of the facts
causing the unforeseeable emergency, the amount of the financial need and any
other information required to ascertain the facts.

                                       12


                      ARTICLE TEN--MISCELLANEOUS PROVISIONS

10.1 BENEFITS UNFUNDED. It is the intention of the parties that this Plan is an
unfunded deferred compensation plan and that the benefits payable hereunder are
not to be included in the gross income of the Participant until the taxable year
in which the benefits are actually received or otherwise made available,
whichever occurs earlier. The Participant has the status of an unsecured general
creditor of the Employer and the Plan constitutes a mere promise by the Employer
to make benefit payments in the future. In the event there is an amendment to
the Code or the Department of Treasury issues regulations which would require
the Participant to include the benefits payable hereunder in gross income before
they are actually received or otherwise made available, the Employer, with the
consent of the Participant, shall revise and amend this Plan and/or adopt
another method of retirement compensation for the Participant which is
consistent with the deferral purposes contained in this Plan.

10.2 ERISA COMPLIANCE. This Plan is being established by the Employer with the
express intention that the Plan constitutes an unfunded pension benefit plan
maintained by the Employer for the purpose of providing benefits for a select
group of management or highly compensated employees ("unfunded top-hat plan")
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Accordingly, this Plan is being treated as a plan exempt from the participation,
vesting, funding and fiduciary requirements of Title I of ERISA, but subject to
the reporting and disclosure requirements. The Employer intends to comply with
the reporting and disclosure requirements by filing a notice with the United
States Department of Labor, Office of Pension and Welfare Benefit Programs,
pursuant to 29 C.F.R. Section 2520.104-23(b). This notice states that the Plan
information will be available to the Secretary of Labor upon request.

In the event there is an amendment to ERISA or the Department of Labor issues
revised regulations governing the application of Title I of ERISA to unfunded
top-hat plans and such amendment or regulations require the Plan to comply with
ERISA's participation, vesting, funding and/or fiduciary requirements, the
Employer reserves the right to revise and amend this Plan or to adopt another
method of retirement compensation consistent with the unfunded nature of this
Plan.

10.3 PLAN DOES NOT AFFECT EMPLOYMENT. Neither the creation of this Plan nor any
amendment thereto nor the creation of any fund nor the payment of benefits
hereunder shall be construed as giving any legal or equitable right to any
Employee or Participant against the Employer, its officers or Employees.
Participation in the Plan shall not give any Participant any right to be
retained in the employ of the Employer, and the Employer hereby expressly
retains the right to hire and discharge any Employee at any time with or without
cause, as if the Plan had not been adopted, and any such discharged Participant
shall have only such rights or interests in his Account as may be specified
herein.

10.4 SUCCESSOR TO THE EMPLOYER. In the event of the merger, consolidation,
reorganization or sale of assets of the Employer, under circumstances in which a
successor person, firm, or corporation shall carry on all or a substantial part
of the business of the

                                       13


Employer, and such successor shall employ a substantial number of Employees of
the Employer and shall elect to carry on the provisions of the Plan, such
successor shall be substituted for the Employer under the terms and provisions
of the Plan upon the filing in writing of its election to do so.

10.5 BENEFITS NOT ASSIGNABLE. The benefits under this Plan are not subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment or garnishment by creditors of the Participant or the
Participant's Beneficiary, or liable for the debts, contracts, liabilities,
engagements or torts of the Participant or his Beneficiary.

10.6 SOURCE OF PAYMENTS. Any funds which may be contributed and invested under
the provisions of this Plan shall continue to be subject to the unsecured
general creditors of the Employer. To the extent that any person acquires a
right to receive payments from the Employer under this Plan, such right shall be
no greater than the right of any unsecured general creditor of the Employer.

10.7 DISTRIBUTION TO LEGALLY INCAPACITATED PERSON. In the event any benefit is
payable to a minor or to a person deemed to be incompetent or to a person
otherwise under legal disability, or who is by sole reason of advanced age,
illness, or other physical or mental incapacity incapable of handling the
disposition of his property, the Administrator may apply all or any portion of
such benefit directly to the care, comfort, maintenance, support, education or
use of such person or to pay or distribute the whole or any part of such benefit
to (a) the spouse of such person, (b) the parent of such person, (c) the
guardian, committee, or other legal representative, wherever appointed, of such
person, (d) the person with whom such person shall reside, (e) any other person
having the care and control of such person, or (f) such person. The receipt of
any such payment or distribution is a complete discharge of liability for Plan
obligations.

10.8 CONSTRUCTION. Wherever appropriate, the use of the masculine gender shall
be extended to include the feminine and/or neuter or vice versa; and the
singular form of words shall be extended to include the plural; and the plural
shall be restricted to mean the singular.

10.9 GOVERNING DOCUMENTS. A Participant's rights shall be determined under the
terms of the Plan as in effect at the Participant's date of separation from
employment with the Employer.

10.10 GOVERNING LAW. The provisions of this Plan shall be construed under the
laws of the State of Connecticut, except to the extent such laws are preempted
by Federal law.

10.11 HEADINGS. The Article headings and Section numbers are included solely for
ease of reference. If there is any conflict between such headings or numbers and
the text of the Plan, the text shall control.

                                       14


10.12 COUNTERPARTS. This Plan may be executed in any number of counterparts,
each of which shall be deemed an original; said counterparts shall constitute
but one and the same instrument, which may be sufficiently evidenced by any one
counterpart.

                                       15


IN WITNESS WHEREOF, the Employer, by its duly authorized officer, has caused
this Plan to be executed on the 18TH day of FEBRUARY, 1998.


                              PUTNAM SAVINGS BANK


                              By:

                              Authorized Officer
                              Kenneth R. Lacasse

                                       16

EX-21

                                                                      Exhibit 21


                         SUBSIDIARIES OF THE REGISTRANT

     The following is a list of the subsidiaries of PSB Holdings, Inc.



     Name                                    State of Incorporation
     ----                                    ----------------------
                                                 
Putnam Savings Bank                                 Federal

EX-23.2

                                                                    Exhibit 23.2


SNYDER & HALLER, P.C.
CERTIFIED PUBLIC ACCOUNTANTS


                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

We consent to the use in the Registration Statement on Form SB-2, as amended,
filed with the Securities and Exchange Commission and the Form MHC-2, as
amended, filed with the Office of Thrift Supervision of our report dated July
24, 2003, except for Note 13 which is dated April 7, 2004, on the consolidated
statements of financial condition of PSB Holdings, Inc. as of June 30, 2003 and
2002, and the related consolidated statements of operations, changes in capital
accounts and cash flows for the years then ended. We also consent to the
references to us under the headings "Putnam Savings Foundation - Tax
Considerations", "Tax Effects of the Stock Offering", "Experts" and "Legal and
Tax Matters" in the Registration Statement on Form SB-2 and Form MHC-2.


                                                     /s/ Snyder & Haller, P.C.

                                                     Snyder & Haller, P.C.


Hartford, Connecticut
June 7, 2004


30 ATWOOD STREET - HARTFORD - CONNECTICUT - 06105-1801 - 860 249-3900
- - 860 247-8071 FAX

EX-23.3

                                                                    Exhibit 23.3


                                              June 7, 2004



Board of Directors
Putnam Bancorp, MHC
PSB Holdings, Inc.
Putnam Savings Bank
40 Main Street
Putnam, Connecticut 06260


Members of the Boards of Directors:

         We hereby consent to the use of our firm's name in the Form MHC-2, and
any amendments thereto, and in the Registration Statement on Form SB-2, and any
amendments thereto. We also hereby consent to the inclusion of, summary of and
references to our Appraisal and our statement concerning subscription rights in
such filings including the prospectus of PSB Holdings, Inc.


                                                     Sincerely,

                                                     RP FINANCIAL, LC.

                                                     /s/ Gregory E. Dunn

                                                     Gregory E. Dunn
                                                     Senior Vice President

EX-99.1

                                                                    Exhibit 99.1


[RP Financial, LC. Letterhead]


                                                                  March 23, 2004



Mr. Thomas A. Borner, Chairman
PSB Holdings, Inc.
Putnam Savings Bank
40 Main Street
Putnam, Connecticut  06260

Dear Mr. Borner:

         This letter sets forth the agreement between PSB Holdings, Inc.,
Putnam, Connecticut (the "Company"), Putnam Savings Bank, Putnam, Connecticut
(the "Bank", the Bank and the Company are referred to collectively as "Putnam"),
and RP(R) Financial, LC. ("RP Financial") for independent appraisal services for
the Company's minority stock offering (the "Stock Offering"). The specific
appraisal services to be rendered by RP Financial are described below. These
appraisal services will be rendered by a team of consultants on staff and will
be directed by the undersigned.


DESCRIPTION OF CONVERSION APPRAISAL SERVICES

         Prior to preparing the valuation report, RP Financial will conduct a
financial due diligence, including on-site interviews of senior management and
reviews of financial and other documents and records, to gain insight into
Putnam's operations, financial condition, profitability, market area, risks and
various internal and external factors which impact the pro forma value of
Putnam. RP Financial will prepare a written detailed valuation report of Putnam
that will be fully consistent with applicable regulatory guidelines and standard
pro forma valuation practices. The appraisal report will include an in-depth
analysis of Putnam's financial condition and operating results, as well as an
assessment of Putnam's interest rate risk, credit risk and liquidity risk. The
appraisal report will describe Putnam's business strategies, market area,
prospects for the future and the intended use of proceeds both in the short term
and over the longer term. A peer group analysis relative to publicly-traded
savings institutions will be conducted for the purpose of determining
appropriate valuation adjustments relative to the group. We will review
pertinent sections of the applications and offering documents to obtain
necessary data and information for the appraisal, including the impact of key
deal elements on the appraised value, such as dividend policy, use of proceeds
and reinvestment rate, tax rate, conversion expenses and characteristics of
stock plans. The appraisal report will conclude with a pro forma value to
establish the range of value, and reflect the Stock Offering size determined by
the Company's Board of Directors. The appraisal report may be periodically
updated throughout the conversion process and there will be at least one updated
valuation prepared at the time of the closing of the Stock Offering.

- -------------------------------------------------------------------------------
WASHINGTON HEADQUARTERS
Rosslyn Center                                        Telephone: (703) 528-1700
1700 North Moore Street, Suite 2210                     Fax No.: (703) 528-1788
Arlington, VA 22209                               Toll-Free No.: (866) 723-0594
www.rpfinancial.com                         E-Mail: wpommerening@rpfinancial.com




MR. THOMAS A. BORNER
MARCH 23, 2004
PAGE 2


         RP Financial agrees to deliver the valuation appraisal and subsequent
updates, in writing, to the Company at the above address in conjunction with the
filing of the regulatory application. Subsequent updates will be filed promptly
as certain events occur which would warrant the preparation and filing of such
valuation updates. Further, RP Financial agrees to perform such other services
as are necessary or required in connection with the regulatory review of the
appraisal and respond to the regulatory comments, if any, regarding the
valuation appraisal and subsequent updates.


FEE STRUCTURE AND PAYMENT SCHEDULE

         The Company agrees to pay RP Financial fees for preparation and
delivery of the original appraisal report and subsequent appraisal updates as
shown in the detail below, plus reimbursable expenses. Payment of these fees
shall be made according to the following schedule:

          o    $5,000 upon execution of the letter of agreement engaging RP
               Financial's appraisal services;

          o    $15,000 upon delivery of the completed original appraisal report;
               and

          o    $3,500 upon delivery of each subsequent appraisal update report.
               There will be at least one appraisal update report, to be filed
               upon completion of the Stock Offering.

         The Company will reimburse RP Financial for out-of-pocket expenses
incurred in preparation of the valuation. Such out-of-pocket expenses will
likely include travel, printing, telephone, facsimile, shipping, computer and
data services. RP Financial will agree to limit reimbursable expenses in
connection with this engagement and in connection with the preparation of a
regulatory business plan as described in the accompanying letter to $6,000
subject to written authorization from the Company to exceed such level.

         In the event the Company shall, for any reason, discontinue the
proposed Stock Offering prior to delivery of the completed documents set forth
above and payment of the respective progress payment fees, the Company agrees to
compensate RP Financial according to RP Financial's standard billing rates for
consulting services based on accumulated and verifiable time expenses, not to
exceed the respective fee caps noted above, after giving full credit to the
initial retainer fee. RP Financial's standard billing rates range from $75 per
hour for research associates to $275 per hour for managing directors.

         If during the course of the proposed transaction, unforeseen events
occur so as to materially change the nature or the work content of the services
described in this contract, the terms of said contract shall be subject to
renegotiation by the Company and RP Financial. Such unforeseen events shall
include, but not be limited to, major changes in the conversion regulations,
appraisal guidelines or processing procedures as they relate to appraisals,
major changes in management or procedures, operating policies or philosophies,
and excessive delays or suspension




MR. THOMAS A. BORNER
MARCH 23, 2004
PAGE 3


of processing of conversion applications by the regulators such that completion
of the transaction requires the preparation by RP Financial of a new appraisal
or financial projections.


REPRESENTATIONS AND WARRANTIES

         Putnam and RP Financial agree to the following:

             1. Putnam agrees to make available or to supply to RP Financial
such information with respect to its business and financial condition as RP
Financial may reasonably request in order to provide the aforesaid valuation.
Such information heretofore or hereafter supplied or made available to RP
Financial shall include: annual financial statements, periodic regulatory
filings and material agreements, debt instruments, off balance sheet assets or
liabilities, commitments and contingencies, unrealized gains or losses and
corporate books and records. All information provided by Putnam to RP Financial
shall remain strictly confidential (unless such information is otherwise made
available to the public), and if the Stock Offering is not consummated or the
services of RP Financial are terminated hereunder, RP Financial shall upon
request promptly return to Putnam the original and any copies of such
information.

             2. Putnam hereby represents and warrants to RP Financial that any
information provided to RP Financial does not and will not, to the best of
Putnam's knowledge, at the times it is provided to RP Financial, contain any
untrue statement of a material fact or fail to state a material fact necessary
to make the statements therein not false or misleading in light of the
circumstances under which they were made.

             3. (a) Putnam agrees that it will indemnify and hold harmless RP
Financial, any affiliates of RP Financial, the respective directors, officers,
agents and employees of RP Financial or their successors and assigns who act for
or on behalf of RP Financial in connection with the services called for under
this agreement (hereinafter referred to as "RP Financial"), from and against any
and all losses, claims, damages and liabilities (including, but not limited to,
all losses and expenses in connection with claims under the federal securities
laws) brought by third parties and attributable to (i) any untrue statement or
alleged untrue statement of a material fact contained in the financial
statements or other information furnished or otherwise provided by Putnam to RP
Financial, either orally or in writing; (ii) the omission or alleged omission of
a material fact from the financial statements or other information furnished or
otherwise made available by Putnam to RP Financial; or (iii) any action or
omission to act by Putnam, or Putnam's respective officers, Directors, employees
or agents which action or omission is willful or negligent. Putnam will be under
no obligation to indemnify RP Financial hereunder if a court determines that RP
Financial was negligent or acted in bad faith with respect to any actions or
omissions of RP Financial related to a matter for which indemnification is
sought hereunder. Any time devoted by employees of RP Financial to situations
for which indemnification is provided hereunder, shall be an indemnifiable cost
payable by Putnam at the normal hourly professional rate chargeable by such
employee.

                (b) RP Financial shall give written notice to Putnam of such
claim or facts within thirty days of the assertion of any claim or discovery of
material facts upon which RP Financial intends to base a claim for
indemnification hereunder. In the event Putnam elects,




MR. THOMAS A. BORNER
MARCH 23, 2004
PAGE 4


within ten business days of the receipt of the original notice thereof, to
contest such claim by written notice to RP Financial, RP Financial will be
entitled to be paid any amounts payable by Putnam hereunder within five days
after the final determination of such contest either by written acknowledgement
of Putnam or a final judgment (including all appeals therefrom) of a court of
competent jurisdiction. If Putnam does not so elect, RP Financial shall be paid
promptly and in any event within thirty days after receipt by Putnam of the
notice of the claim.

                (c) Putnam shall pay for or reimburse the reasonable expenses,
including attorneys' fees, incurred by RP Financial in advance of the final
disposition of any proceeding within thirty days of the receipt of such request
if RP Financial furnishes Putnam: (1) a written statement of RP Financial's good
faith belief that it is entitled to indemnification hereunder; and (2) a written
undertaking to repay the advance if it ultimately is determined in a final
adjudication of such proceeding that it or he is not entitled to such
indemnification; provided, however, that Putnam shall not be required to make
any such advance payment if Putnam furnishes to RP Financial a written statement
of Putnam's reasonable good faith belief that RP Financial is not entitled to
indemnification hereunder. Putnam may assume the defense of any claim (as to
which notice is given in accordance with 3(b)) with counsel reasonably
satisfactory to RP Financial, and after notice from Putnam to RP Financial of
its election to assume the defense thereof, Putnam will not be liable to RP
Financial for any legal or other expenses subsequently incurred by RP Financial
(other than reasonable costs of investigation and assistance in discovery and
document production matters). Notwithstanding the foregoing, RP Financial shall
have the right to employ its own counsel in any action or proceeding if RP
Financial shall have concluded that a conflict of interest exists between Putnam
and RP Financial which would materially impact the effective representation of
RP Financial. In the event that RP Financial concludes that a conflict of
interest exists, RP Financial shall have the right to select counsel reasonably
satisfactory to Putnam which will represent RP Financial in any such action or
proceeding and Putnam shall reimburse RP Financial for the reasonable legal fees
and expenses of such counsel and other expenses reasonably incurred by RP
Financial. In no event shall Putnam be liable for the fees and expenses of more
than one counsel, separate from its own counsel, for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same allegations or circumstances. Putnam
will not be liable under the foregoing indemnification provision in respect of
any compromise or settlement of any action or proceeding made without its
consent, which consent shall not be unreasonably withheld.

                (d) In the event Putnam does not pay any indemnified loss or
make advance reimbursements of expenses in accordance with the terms of this
agreement, RP Financial shall have all remedies available at law or in equity to
enforce such obligation.

         It is understood that, in connection with RP Financial's
above-mentioned engagement, RP Financial may also be engaged to act for Putnam
in one or more additional capacities, and that the terms of the original
engagement may be incorporated by reference in one or more separate agreements.
The provisions of Paragraph 3 herein shall apply to the original engagement, any
such additional engagement, any modification of the original engagement or such
additional engagement and shall remain in full force and effect following the
completion or termination of RP Financial's engagement(s). This agreement
constitutes the entire understanding of Putnam and RP Financial concerning the
subject matter addressed herein, and such contract shall be governed




MR. THOMAS A. BORNER
MARCH 23, 2004
PAGE 5


and construed in accordance with the laws of the Commonwealth of Virginia. This
agreement may not be modified, supplemented or amended except by written
agreement executed by both parties.

         Putnam and RP Financial are not affiliated, and neither Putnam nor RP
Financial has an economic interest in, or is held in common with, the other and
has not derived a significant portion of its gross revenues, receipts or net
income for any period from transactions with the other.

                              * * * * * * * * * * *

         Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to RP Financial a signed copy of this letter,
together with the initial retainer fee of $5,000.


                                                   Very truly yours,

                                                   /s/ William E. Pommerening

                                                   William E. Pommerening
                                                   Chief Executive Officer and
                                                     Managing Director




Agreed To and Accepted By:        Thomas A. Borner /s/ Thomas A. Borner
                                                   ---------------------------
                                  Chairman, PSB Holdings, Inc.


                                  Thomas A. Borner /s/ Thomas A. Borner
                                                   ---------------------------
                                  Chairman, Putnam Savings Bank



Date Executed:                  3/30/2004
                  --------------------------------------------

EX-99.2

                                                                    Exhibit 99.2


[RP Financial, LC. Letterhead]


                                                  March 23, 2004


Mr. Thomas A. Borner, Chairman
PSB Holdings, Inc.
Putnam Savings Bank
40 Main Street
Putnam, Connecticut  06260

Dear Mr. Borner:

         This letter sets forth the agreement between PSB Holdings, Inc. and
Putnam Savings Bank, Putnam, Connecticut (collectively, Putnam"), and RP(R)
Financial, LC. ("RP Financial"), whereby Putnam has engaged RP Financial to
prepare the regulatory business plan and financial projections to be adopted by
Putnam's Board of Directors in conjunction with a minority stock offering. These
services are described in greater detail below.


DESCRIPTION OF PROPOSED SERVICES

         RP Financial's business planning services will include the following
areas: (1) evaluating Putnam's current financial and operating condition,
business strategies and anticipated strategies in the future; (2) analyzing and
quantifying the impact of business strategies, incorporating the use of net
offering proceeds both in the short and long term; (3) preparing detailed
financial projections on a quarterly basis for a period of at least three fiscal
years to reflect the impact of Board approved business strategies and use of
proceeds; (4) preparing the written business plan document which conforms with
applicable regulatory guidelines including a description of the use of proceeds
and how the convenience and needs of the community will be addressed; and (5)
preparing the detailed schedules of the capitalization of Putnam and mutual
holding company and related cash flows.

         Contents of the business plan will include: Executive Summary;
Description of Business; Marketing Plan; Management Plan; Records, Systems and
Controls; Financial Management Plan; Monitoring and Revising the Plan; and
Alternative Business Strategy.

         RP Financial agrees to prepare the business plan and accompanying
financial projections in writing such that the business plan can be filed with
the appropriate regulatory agencies prior to filing the appropriate
applications.

- -------------------------------------------------------------------------------
WASHINGTON HEADQUARTERS
Rosslyn Center                                        Telephone: (703) 528-1700
1700 North Moore Street, Suite 2210                     Fax No.: (703) 528-1788
Arlington, VA 22209                               Toll-Free No.: (866) 723-0594
www.rpfinancial.com                         E-Mail: wpommerening@rpfinancial.com




MR. THOMAS A. BORNER
MARCH 23, 2004
PAGE 2


FEE STRUCTURE AND PAYMENT SCHEDULE

         Putnam agrees to compensate RP Financial for preparation of the
business plan on a fixed fee basis of $10,000. Payment of the professional fees
shall be made upon delivery of the completed business plan. Putnam also agrees
to reimburse RP Financial for those direct out-of-pocket expenses necessary and
incidental to providing the business planning services. Reimbursable expenses
will likely include shipping, telephone/facsimile printing, computer and data
services, and shall be paid to RP Financial as incurred and billed Reimbursable
expenses are limited as described in the accompanying letter to engage RP
Financial to provide appraisal services.

         In the event Putnam shall, for any reason, discontinue this planning
engagement prior to delivery of the completed business plan and payment of the
progress payment fee, Putnam agrees to compensate RP Financial according to RP
Financial's standard billing rates for consulting services based on accumulated
and verifiable time expenses, not to exceed the fixed fee described above, plus
reimbursable expenses incurred.

         If during the course of the planning engagement, unforeseen events
occur so as to materially change the nature or the work content of the business
planning services described in this contract, the terms of said contract shall
be subject to renegotiation by Putnam and RP Financial. Such unforeseen events
may include changes in regulatory requirements as it specifically relates to
Putnam or potential transactions that will dramatically impact Putnam such as a
pending acquisition or branch transaction.

                              * * * * * * * * * * *

         Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to RP Financial a signed copy of this letter.


                                                  Very truly yours,

                                                   /s/ William E. Pommerening

                                                   William E. Pommerening
                                                   Chief Executive Officer and
                                                     Managing Director




Agreed To and Accepted By:        Thomas A. Borner /s/ Thomas A. Borner
                                                   ---------------------------
                                  Chairman, PSB Holdings, Inc.


                                  Thomas A. Borner /s/ Thomas A. Borner
                                                   ---------------------------
                                  Chairman, Putnam Savings Bank



Date Executed:                  3/30/2004
                  --------------------------------------------

EX-99.3

                                                                    Exhibit 99.3

                               PRO FORMA VALUATION
                             MUTUAL HOLDING COMPANY
                                 STOCK OFFERING

                               PSB HOLDINGS, INC.
                               PUTNAM, CONNECTICUT

                                  DATED AS OF:
                                  MAY 21, 2004


                                  PREPARED BY:

                                RP FINANCIAL, LC.
                             1700 NORTH MOORE STREET
                                   SUITE 2210
                            ARLINGTON, VIRGINIA 22209



                                                   May 21, 2004

Board of Directors
Putnam Bancorp, MHC
PSB Holdings, Inc.
Putnam Savings Bank
40 Main Street
Putnam, Connecticut 06260

Members of the Boards of Directors:

     At your request, we have completed and hereby provide an independent
appraisal ("Appraisal") of the estimated pro forma market value of the common
stock which is to be offered in connection with the plan of stock issuance
described below.

     This Appraisal is furnished pursuant to the conversion regulations
promulgated by the Office of Thrift Supervision ("OTS"). Specifically, this
Appraisal has been prepared in accordance with the "Guidelines for Appraisal
Reports for the Valuation of Savings and Loan Associations Converting from
Mutual to Stock Form of Organization" as set forth by the OTS, and applicable
regulatory interpretations thereof.

DESCRIPTION OF REORGANIZATION AND PLAN OF STOCK ISSUANCE

     In May 2003, Putnam Savings Bank ("Putnam Savings" or the "Bank")
reorganized into the two-tier mutual holding company structure. As part of the
reorganization, Putnam Savings formed PSB Holdings, Inc. ("PSB Holdings" or the
"Company") and Putnam Bancorp MHC, Inc. (the "MHC"), a Connecticut-chartered
mid-tier stock holding company and mutual holding company, respectively. Putnam
Savings became a Connecticut-chartered capital stock savings bank, and a
wholly-owned subsidiary of PSB Holdings, and PSB Holdings became the
wholly-owned subsidiary of the MHC.

     On April 7, 2004, the Board of Directors of PSB Holdings adopted a plan of
stock issuance. Pursuant to the plan of stock issuance, PSB Holdings will issue
a majority of its common stock to the MHC and sell a minority of its common
stock to the public. Concurrent with the completion of the public stock
offering, the Company will retain up to 50% of the net stock proceeds. The MHC
will own a controlling interest in the Company of at least 51%, and the Company
will be the sole subsidiary of the MHC. The Company will own 100% of the Bank's
outstanding stock. The Company's initial activity will be ownership of its
subsidiary, Putnam Savings, investment of the net cash proceeds retained at the
holding company level and extending a loan to the employee stock ownership plan
("ESOP"). In connection with the public stock offering, Putnam Savings, PSB
Holdings and the MHC are converting to federal charters and will be chartered
and regulated by the OTS. Putnam Bancorp MHC, Inc. will change its name to
Putnam Bancorp, MHC.



BOARDS OF DIRECTORS
MAY 21, 2004
PAGE 2

     It is anticipated that the public shares will be offered in a subscription
offering to the Bank's Eligible Account Holders, Tax-Qualified Employee Plans
including the ESOP, Supplemental Eligible Account Holders and employees,
officers and directors of Putnam Savings. To the extent that shares remain
available for purchase after satisfaction of all subscriptions received in the
subscription offering, the shares may be offered for sale in a community
offering. The total shares offered for sale to the public will constitute a
minority interest of the Company's stock (49% or less).

     The plan of stock issuance provides for the establishment of the Putnam
Savings Foundation (the "Foundation") as a non-stock, nonprofit Delaware
corporation. The Foundation will be funded with authorized but unissued shares
of common stock contributed by PSB Holdings in an amount equal to 4.0% of the
shares sold in the public stock offering. The purpose of the Foundation is to
enhance the relationship between Putnam Savings and the communities in which the
Bank operates and to enable the communities served by the Bank to share in the
Bank's long-term growth.

RP FINANCIAL, LC.

     RP Financial, LC. ("RP Financial") is a financial consulting firm serving
the financial services industry nationwide that, among other things, specializes
in financial valuations and analyses of business enterprises and securities,
including the pro forma valuation for savings institutions converting from
mutual-to-stock form. The background and experience of RP Financial is detailed
in Exhibit V-1. We believe that, except for the fee we will receive for our
appraisal and assisting in the preparation of the business plan to reflect the
public stock offering, we are independent of the Bank, the Company and the MHC
and the other parties engaged by the Bank to assist in the stock issuance
process.

VALUATION METHODOLOGY

     In preparing our appraisal, we have reviewed the Bank's, the Company's and
MHC's regulatory applications, including the prospectus as filed with the OTS
and the Securities and Exchange Commission ("SEC"). We have conducted a
financial analysis of the Company and the Bank that has included a review of its
audited financial information for the fiscal years ended June 30, 1999 through
June 30, 2003, various unaudited information and internal financial reports
through March 31, 2004 and due diligence related discussions with the Bank's
management; Snyder & Haller, P.C., the Company's independent auditor; Luse
Gorman Pomerenk & Schick, P.C., the Company's counsel in connection with the
plan of stock issuance; and Keefe, Bruyette & Woods, Inc., the Company's
financial and marketing advisor in connection with the stock offering. All
conclusions set forth in the Appraisal were reached independently from such
discussions. In addition, where appropriate, we have considered information
based on other available published sources that we believe are reliable. While
we believe the information and data gathered from all these sources are
reliable, we cannot guarantee the accuracy and completeness of such information.



BOARD OF DIRECTORS
MAY 21, 2004
PAGE 3

     We have investigated the competitive environment within which the Company
operates and have assessed the Company's relative strengths and weaknesses. We
have kept abreast of the changing regulatory and legislative environment for
financial institutions and analyzed the potential impact on the Company and the
industry as a whole. We have analyzed the potential effects of the minority
stock offering on the Company's operating characteristics and financial
performance as they relate to the pro forma market value. We have reviewed the
economy in the Company's primary market area and have compared the Company's
financial performance and condition with publicly-traded thrifts in mutual
holding company form, as well as all publicly-traded thrifts. We have reviewed
market conditions for stocks in general and market conditions for thrift stocks
in particular, including the market for existing thrift issues and the market
for initial public offerings by thrifts. We have considered the market for the
stocks of all publicly-traded mutual holding companies. We have also considered
the expected market for the Company's public shares. We have excluded from such
analyses thrifts subject to announced or rumored acquisition, mutual holding
company institutions that have announced their intent to pursue second step
conversions, and/or those institutions that exhibit other unusual
characteristics.

     Our Appraisal is based on the Company's representation that the information
contained in the regulatory applications and additional information furnished to
us by the Company, its independent auditors, legal counsel and other authorized
agents are truthful, accurate and complete. We did not independently verify the
financial statements and other information provided by the Company, its
independent auditors, legal counsel and other authorized agents nor did we
independently value the assets or liabilities of the Company. The valuation
considers the Company only as a going concern and should not be considered as an
indication of the Company's liquidation value.

     Our appraised value is predicated on a continuation of the current
operating environment for the Bank, the MHC and the Company and for all thrifts
and their holding companies. Changes in the local, state and national economy,
the legislative and regulatory environment for financial institutions and mutual
holding companies, the stock market, interest rates, and other external forces
(such as natural disasters or significant world events) may occur from time to
time, often with great unpredictability, and may materially impact the value of
thrift stocks as a whole or the Company's value alone. It is our understanding
that there are no current plans for pursuing a second step conversion or for
selling control of the Company or the Bank following the offering. To the extent
that such factors can be foreseen, they have been factored into our analysis.

     Pro forma market value is defined as the price at which the Company's
stock, immediately upon completion of the offering, would change hands between a
willing buyer and a willing seller, neither being under any compulsion to buy or
sell and both having reasonable knowledge of relevant facts.



BOARDS OF DIRECTORS
MAY 21, 2004
PAGE 4

VALUATION CONCLUSION

     It is our opinion that, as of May 21, 2004, the estimated aggregate pro
forma market value of the shares to be issued immediately following the
conversion, both shares issued publicly as well as to the MHC, equaled
$52,500,000 at the midpoint, equal to 5,250,000 shares offered at a per share
value of $10.00. Pursuant to conversion guidelines, the 15% offering range
indicates a minimum value of $44.625 million and a maximum value of $60.375
million. Based on the $10.00 per share offering price determined by the Board,
this valuation range equates to total shares outstanding of 4,462,500 at the
minimum and 6,037,500 at the maximum. In the event the appraised value is
subject to an increase, the aggregate pro forma market value may be increased up
to a supermaximum value of $69.431 million without a resolicitation. Based on
the $10.00 per share offering price, the supermaximum value would result in
total shares outstanding of 6,943,125. The Board of Directors has established a
public offering range such that the public ownership of the Company will
constitute a 44.5% ownership interest prior to the issuance of shares to the
Foundation. Accordingly, the offering to the public of the minority stock will
equal $19.858 million at the minimum, $23.363 million at the midpoint, $26.867
million at the maximum and $30.897 million at the supermaximum of the valuation
range. Based on the public offering range and inclusive of the shares issued to
the Foundation, equal to 4.0% of the offering shares, the public ownership of
shares will represent 46.28% of the total shares issued throughout the valuation
range.

LIMITING FACTORS AND CONSIDERATIONS

     Our valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing shares of the
common stock. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons who purchase
shares of common stock in the conversion will thereafter be able to buy or sell
such shares at prices related to the foregoing valuation of the pro forma market
value thereof.

     RP Financial's valuation was determined based on the financial condition
and operations of PSB Holdings as of March 31, 2004, the date of the financial
data included in the regulatory applications and prospectus.

     RP Financial is not a seller of securities within the meaning of any
federal and state securities laws and any report prepared by RP Financial shall
not be used as an offer or solicitation with respect to the purchase or sale of
any securities. RP Financial maintains a policy which prohibits the company, its
principals or employees from purchasing stock of its client institutions.

     The valuation will be updated as provided for in the conversion regulations
and guidelines. These updates will consider, among other things, any
developments or changes in the Company's financial performance and condition,
management policies, and current conditions in the equity markets for thrift
stocks. These updates may also consider changes in other external factors which
impact value including, but not limited to: various changes in the



BOARD OF DIRECTORS
MAY 21, 2004
PAGE 5

legislative and regulatory environment, the stock market and the market for
thrift stocks, and interest rates. Should any such new developments or changes
be material, in our opinion, to the valuation of the shares, appropriate
adjustments to the estimated pro forma market value will be made. The reasons
for any such adjustments will be explained in the update at the date of the
release of the update.

                                         Respectfully submitted,
                                         RP FINANCIAL, LC.

                                         /s/ William E. Pommerening

                                         William E. Pommerening
                                         Chief Executive Officer

                                         /s/ Gregory E. Dunn

                                         Gregory E. Dunn
                                         Senior Vice President



RP FINANCIAL, LC.

                                TABLE OF CONTENTS
                               PSB HOLDINGS, INC.
                               PUTNAM, CONNECTICUT



                                                                                                         PAGE
     DESCRIPTION                                                                                        NUMBER
     -----------                                                                                        ------
                                                                                                      
  CHAPTER ONE         OVERVIEW AND FINANCIAL ANALYSIS

     Introduction                                                                                        1.1
     Plan of Stock Issuance                                                                              1.1
     Strategic Overview                                                                                  1.2
     Balance Sheet Trends                                                                                1.5
     Income and Expense Trends                                                                           1.9
     Interest Rate Risk Management                                                                       1.13
     Lending Activities and Strategy                                                                     1.14
     Asset Quality                                                                                       1.18
     Funding Composition and Strategy                                                                    1.19
     Subsidiaries and Other Activities                                                                   1.20
     Legal Proceedings                                                                                   1.20

  CHAPTER TWO         MARKET AREA

     Introduction                                                                                        2.1
     Market Area Demographics                                                                            2.1
     National Economic Factors                                                                           2.3
     Local Economy                                                                                       2.8
     Market Area Deposit Characteristics and Competition                                                 2.9

  CHAPTER THREE       PEER GROUP ANALYSIS

     Peer Group Selection                                                                                3.1
     Basis of Comparison                                                                                 3.2
     PSB Holdings' Peer Group                                                                            3.3
     Financial Condition                                                                                 3.6
     Income and Expense Components                                                                       3.9
     Loan Composition                                                                                    3.12
     Interest Rate Risk                                                                                  3.14
     Credit Risk                                                                                         3.16
     Summary                                                                                             3.16




RP FINANCIAL, LC.

                                TABLE OF CONTENTS
                               PSB HOLDINGS, INC.
                               PUTNAM, CONNECTICUT
                                   (CONTINUED)



                                                                                                         PAGE
     DESCRIPTION                                                                                        NUMBER
     -----------                                                                                        ------
                                                                                                      
  CHAPTER FOUR        VALUATION ANALYSIS

     Introduction                                                                                        4.1
     Appraisal Guidelines                                                                                4.1
     RP Financial Approach to the Valuation                                                              4.2
     Valuation Analysis                                                                                  4.3
        1.  Financial Condition                                                                          4.3
        2.  Profitability, Growth and Viability of Earnings                                              4.5
        3.  Asset Growth                                                                                 4.7
        4.  Primary Market Area                                                                          4.7
        5.  Dividends                                                                                    4.8
        6.  Liquidity of the Shares                                                                      4.9
        7.  Marketing of the Issue                                                                       4.10
              A.   The Public Market                                                                     4.10
              B.   The New Issue Market                                                                  4.14
              C.   The Acquisition Market                                                                4.18
        8.  Management                                                                                   4.18
        9.  Effect of Government Regulation and Regulatory Reform                                        4.19
     Summary of Adjustments                                                                              4.19
     Basis of Valuation - Fully-Converted Pricing Ratios                                                 4.20
     Valuation Approaches:  Fully-Converted Basis                                                        4.21
        1.  Price-to-Earnings ("P/E")                                                                    4.23
        2.  Price-to-Book ("P/B")                                                                        4.26
        3.  Price-to-Assets ("P/A")                                                                      4.26
     Comparison to Recent Offerings                                                                      4.26
     Valuation Conclusion                                                                                4.27




RP FINANCIAL, LC.

                                 LIST OF TABLES
                               PSB HOLDINGS, INC.
                               PUTNAM, CONNECTICUT



TABLE
NUMBER      DESCRIPTION                                                                  PAGE
- ------      -----------                                                                  ----
                                                                                   
   1.1    Historical Balance Sheets                                                      1.6
   1.2    Historical Income Statements                                                   1.10

   2.1    Summary Demographic Data                                                       2.2
   2.2    Windham County Employment Sectors                                              2.8
   2.3    Market Area Unemployment Trends                                                2.9
   2.4    Deposit Summary                                                                2.10
   2.5    Market Area Deposit Competitors                                                2.11

   3.1    Peer Group of Publicly-Traded Thrifts                                          3.5
   3.2    Balance Sheet Composition and Growth Rates                                     3.7
   3.3    Income as a Percent of Average Assets and Yields, Costs, Spreads               3.10
   3.4    Loan Portfolio Composition Comparative Analysis                                3.13
   3.5    Interest Rate Risk Measures and Net Interest Income Volatility                 3.15
   3.6    Credit Risk Measures and Related Information                                   3.17

   4.1    Market Area Unemployment Rates                                                 4.8
   4.2    Recent Conversion Pricing Characteristics                                      4.16
   4.3    Market Pricing Comparatives                                                    4.17
   4.4    Calculation of Implied Per Share Data                                          4.22
   4.5    MHC Institutions - Implied Pricing Ratios, Full Conversion Basis               4.25
   4.6    Pricing Table:  MHC Public Market Pricing                                      4.29




RP FINANCIAL, LC.
PAGE 1.1

                       I. OVERVIEW AND FINANCIAL ANALYSIS

INTRODUCTION

     PSB Holdings serves northeastern Connecticut through its main office in
Putnam, three branch offices located in the towns of Pomfret, Danielson and
Plainfield, and a loan center also located in Putnam. The markets served by the
Company's offices are all part of Windham County. A map of the Company's branch
offices is provided in Exhibit I-1. The Company's wholly-owned subsidiary,
Putnam Savings, is a member of the Federal Home Loan Bank ("FHLB") system, and
its deposits are insured up to the regulatory maximums by the Bank Insurance
Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC"). At March 31,
2004, PSB Holdings had $252.7 million in assets, $197.3 million in deposits and
consolidated equity of $24.2 million equal to 9.6% of total assets. PSB
Holdings' audited financial statements are included by reference as Exhibit I-2.

PLAN OF STOCK ISSUANCE

     On April 7, 2004, the Board of Directors of PSB Holdings adopted a plan to
stock issuance (the "plan"). Pursuant to the plan, PSB Holdings will issue a
majority of its common stock to the MHC and sell a minority of its common stock
to the public. Concurrent with the completion of the public stock offering, the
Company will retain up to 50.0% of the net stock proceeds.

     The MHC will own a controlling interest in the Company of at least 51%, and
the Company will be the sole subsidiary of the MHC. The Company will own 100% of
the Bank's outstanding stock. The Company's initial activity will be ownership
of its subsidiary, Putnam Savings, investment of the net cash proceeds retained
at the holding company level (initially in short- and intermediate-term
investment securities) and extending a loan to the employee stock ownership plan
("ESOP"). Subsequent activities of the Company may include payment of regular or
special dividends, acquisitions of other financial institutions, acquisitions of
other financial service providers and/or stock repurchases.



RP FINANCIAL, LC.
PAGE 1.2

     In connection with the public stock offering, a charitable foundation will
be established (the "Foundation"). The Foundation will be funded with authorized
but unissued shares of common stock contributed by PSB Holdings in an amount
equal to 4.0% of the shares sold in the public stock offering. The purpose of
the Foundation is to enhance the relationship between Putnam Savings and the
communities in which the Bank operates and to enable the communities served by
the Bank to share in the Bank's long-term growth.

STRATEGIC OVERVIEW

     PSB Holdings maintains a local community banking emphasis, with a primary
strategic objective of meeting the borrowing and savings needs of its local
customer base. Historically, PSB Holdings' operating strategy has been fairly
reflective of a traditional thrift operating strategy in which 1-4 family
residential mortgage loans and retail deposits have constituted the principal
components of the Company's assets and liabilities, respectively. Beyond 1-4
family permanent mortgage loans, the Company's loan portfolio includes
diversification in construction, commercial real estate, consumer, home equity
and commercial business loans. Pursuant to the Company's current strategic plan,
PSB Holdings will continue to emphasize 1-4 family lending, but will also
continue to pursuer greater diversification in which growth of commercial real
estate and commercial business loans will be emphasized.

     Investments serve as a supplement to the Company's lending activities and
the investment portfolio is considered to be indicative of a low risk investment
philosophy. The investment portfolio is comprised primarily of mortgage-backed
securities, with the balance of the portfolio consisting of U.S. Government and
agency securities, corporate bonds, marketable equity securities, municipal
bonds and FHLB stock.

     Retail deposits have consistently served as the primary interest-bearing
funding source for the Company. In recent years, growth of transaction and
savings accounts has constituted the primary source of deposit growth for the
Company. Factors contributing to growth of the Company's core deposits include
realizing growth in checking accounts as the result of developing commercial
account relationships and offering an attractive money market rate on accounts
with balances of $25,000 or more. The low interest rate environment is also
believed to



RP FINANCIAL, LC.
PAGE 1.3

have contributed to the increase in transaction and savings accounts maintained
by the Company, as the general decline in CD rates has increased depositor
preference to hold funds in liquid transaction accounts. The Company utilizes
borrowings as a supplemental funding source to facilitate management of funding
costs and interest rate risk. FHLB advances constitute the Company's only source
of borrowings, which have fixed rate terms with laddered maturities. Following
the conversion, the Company may use additional borrowings to facilitate
leveraging of its higher capital position that will result from the stock
offering, in which borrowings would be utilized to fund purchases of investment
securities at a positive spread to improve earnings and return on equity. To the
extent additional borrowings are utilized by the Company, FHLB advances would
likely continue to be the principal source of such borrowings.

     PSB Holdings' earnings base is largely dependent upon net interest income
and operating expense levels, although sources of non-interest operating have
become a more significant earnings contributor in recent years. Overall, PSB
Holdings' operating strategy has provided for a relatively low but stable net
interest margin. In particular, the Company's emphasis on managing the interest
rate risk and credit risk associated with the net interest margin has somewhat
limited the earnings potential that can be realized from the yield-cost spread.
Growth of non-interest operating income has been primarily realized through
increased fee income. Operating expenses represent the other major component of
the Company's earnings and, in recent years, operating expenses have in general
creased as a percent of average assets. Higher operating expenses have been
attributable to expansion of staff to support and manage the Company's growth
and diversification of products and services. Higher operating expenses have
also resulted from opening a fourth branch in the fiscal year ended June 30,
2000, as well as from growth of transaction and savings account deposits that
are more costly to service than time deposits.

     The Company's business plan following the public stock offering is expected
to continue to focus on products and services which have facilitated PSB
Holdings' recent growth. Specifically, PSB Holdings will continue to be an
independent community-oriented financial institution with a commitment to local
real estate and non-mortgage financing with operations funded by retail
deposits, borrowings, equity capital and internal cash flows. In addition, the
Company will emphasize increasing the diversification of its loan portfolio
composition into



RP FINANCIAL, LC.
PAGE 1.4

commercial real estate and commercial business loans, as well as expansion and
diversification of other products and services.

     The Company's Board of Directors has elected to complete a public stock
offering to improve the competitive position of PSB Holdings. The capital
realized from the minority stock offering will increase the operating
flexibility and overall financial strength of PSB Holdings. The additional
capital realized from stock proceeds will increase liquidity to support funding
of future loan growth and other interest-earning assets. PSB Holdings' higher
capital position resulting from the infusion of stock proceeds will also serve
to reduce interest rate risk, through enhancing the Company's
interest-earning-assets-to-interest-bearing-liabilities ("IEA/IBL") ratio. The
additional funds realized from the stock offering will provide an alternative
funding source to deposits and borrowings in meeting the Company's future
funding needs, which may facilitate a reduction in PSB Holdings' funding costs.
Additionally, PSB Holdings' higher equity-to-assets ratio will also better
position the Company to take advantage of expansion opportunities as they arise.
Such expansion would most likely occur through the establishment or acquisition
of additional banking offices or customer facilities that would provide for
further penetration in the markets currently served by the Company or nearby
surrounding markets. The Company will also be bettered position to pursue growth
through acquisition of other financial service providers following the stock
offering, given its strengthened capital position. At this time, the Company has
no specific plans for expansion other than through establishing additional
branches. The projected use of proceeds are highlighted below.

     -    PSB HOLDINGS The Company is expected to retain up to 50% of the net
          offering proceeds. At present, funds at the Company level, net of the
          loan to the ESOP, are expected to be primarily invested initially into
          short-term investment grade securities. Over time, the funds may be
          utilized for various corporate purposes, possibly including
          acquisitions, infusing additional equity into the Bank, repurchases of
          common stock, and the payment of regular and/or special cash
          dividends.

     -    PUTNAM SAVINGS. Approximately 50% of the net conversion proceeds will
          be infused into the Bank. Cash proceeds (i.e., net proceeds less
          deposits withdrawn to fund stock purchases) infused into the Bank are
          anticipated to become part of general operating funds, and are
          expected to be primarily utilized to fund growth of loans and
          investments.



RP FINANCIAL, LC.
PAGE 1.5

     Overall, it is the Company's objective to pursue growth that will serve to
increase returns, while, at the same time, growth will not be pursued that could
potentially compromise the overall risk associated with PSB Holdings'
operations. The Company has acknowledged that it intends to operate with excess
capital in the near term, operating with a below market return on equity
("ROE"), until such time as the new capital can be leveraged in a safe and sound
manner over an extended period of time.

BALANCE SHEET TRENDS

     Table 1.1 shows the Company's historical balance sheet data for the past
five and three-quarter fiscal years. From June 30, 1999 through March 31, 2004,
PSB Holdings' assets increased at an 11.1% annual rate. Asset growth was mostly
realized through growth of interest-earning assets, which was fairly evenly
disturbed between investments and loans. Asset growth has been funded with a
combination of deposits and borrowings, as well as retained earnings. A summary
of PSB Holdings' key operating ratios for the past five and three-quarter fiscal
years is presented in Exhibit I-3.

     PSB Holdings' loans receivable portfolio increased at a 9.7% annual rate
from fiscal year end 1999 through March 31, 2004, with the portfolio exhibiting
positive growth throughout the period. The Company's lower loan growth rate
compared to its asset growth rate served to reduce the loans-to-assets ratio
from 55.7% at fiscal year end 1999 to 52.5% at March 31, 2004. PSB Holdings'
historical emphasis on 1-4 family lending is reflected in its loan portfolio
composition, as 75.4% of total loans receivable consisted of 1-4 family
permanent mortgage loans at March 31, 2004. Trends in the Company's loan
portfolio composition over the past five and three-quarter fiscal years show
that the concentration of 1-4 family permanent mortgage loans comprising total
loans declined from a high of 90.2% at fiscal year end 2000 to a low of 75.4% at
March 31, 2004. Over the past five and one-quarter years lending diversification
by the Company has emphasized origination of commercial real estate loans, with
the level of permanent commercial real estate loans comprising total loans
increasing from a low of 5.9% at fiscal year end 2000 to a high of 17.1% at
March 31, 20004. Construction loans represent the second largest area of lending
diversification for the Company, equaling 4.2% of the total loan portfolio at
March 31, 2004. Commercial business lending has also been an area of loan growth



RP FINANCIAL, LC.
PAGE 1.7

for the Company, as the Company did not offering commercial business loans prior
to fiscal 2001. As of March 31, 2004, commercial business loans equaled 2.6% of
the total loan portfolio. Consumer lending, other than home equity loans which
are included in the 1-4 family loan portfolio, has not been an area of lending
emphasis for the Company, with such loans ranging from a high of 2.4% of total
loans at fiscal year end 1999 to a low of 0.8% of total loans at March 31, 2004.

     The intent of the Company's investment policy is to provide adequate
liquidity and to generate a favorable return within the context of supporting
PSB Holdings' overall credit and interest rate risk objectives. It is
anticipated that proceeds retained at the holding company level will primarily
be invested into investments with short-term maturities. Over the past five and
three-quarter fiscal years, the Company's level of cash and investment
securities (inclusive of FHLB stock) ranged from a low of 41.2% of assets at
fiscal year end 2001 to a high of 47.6% of assets at fiscal year end 2003. As of
March 31, 2004, cash and investments maintained by the Company equaled 44.3% of
assets. Mortgage-backed securities comprise the most significant component of
the Company's investment portfolio, with the portfolio consisting substantially
of securities guaranteed or insured by a federal agency. The portfolio also
includes collateralized mortgage obligations ("CMOs") of private issuers
(approximately $1.9 million at March 31, 2004). Mortgage-backed securities are
generally purchased as a means to deploy excess liquidity at more favorable
yields than other investment alternatives that are consistent with PSB Holdings'
investment philosophy. As of March 31, 2004, the portfolio consisted mostly of
fixed rate mortgage pass through securities with blended maturities ranging
between three and fifteen years. The mortgage-backed securities portfolio
totaled $47.4 million at March 31, 2004 and was classified as available for
sale. As of March 31, 2004, the net unrealized gain on the mortgage-backed
securities portfolio equaled $495,000.

     Beyond the Company's investment in mortgage-backed securities, investment
securities held by the Company at March 31, 2004 consisted of U.S. Government
and agency securities ($7.1 million), corporate bonds ($33.1 million),
marketable equity securities ($8.0 million), municipal bonds ($9.6 million) and
FHLB stock ($2.3 million). To facilitate management of interest rate risk, most
of the investment portfolio matures or reprices within five years and the entire
portfolio is maintained as available for sale. As of March 31, 2004, the net
unrealized gain



RP FINANCIAL, LC.
PAGE 1.8

on the Company's investment portfolio, excluding mortgage-backed securities and
CMOs, equaled $2.1 million. The Company also maintained cash and cash
equivalents of $4.5 million as of March 31, 2004, which equaled 1.8% of assets.
Exhibit I-4 provides historical detail of the Company's investment portfolio.

     The Company also maintains an investment in bank-owned life insurance
("BOLI") policies, which cover the lives of some of the Company's officers and
directors. The purpose of the investment is to provide funding for employee and
director benefit plans. The life insurance policies earn tax-exempt income
through cash value accumulation and death proceeds. As of March 31, 2004, the
cash surrender value of the Company's BOLI equaled $2.1 million.

     Over the past five and three-quarter fiscal years, PSB Holdings' funding
needs have been substantially met through retail deposits, internal cash flows,
borrowings and retained earnings. From fiscal year end 1999 through March 31,
2004, the Company's deposits increased at an annual rate of 13.0%. Positive
deposit growth was sustained throughout the period covered in Table 1.1, with
the most significant growth realized during fiscal years 2001 through 2003. The
Company's stronger deposit growth relative to asset growth served to increase
the ratio of deposits-to-assets from 72.1% at fiscal year end 1999 to 78.1% at
March 31, 2004. Transaction and savings accounts equaled 61.3% of the Company's
total deposits at March 31, 2004, versus a comparable ratio of 41.7% at fiscal
year end 2001. Money market accounts have been the largest source of deposit
growth for the Company since fiscal year end 2001 and at March 31, 2004 money
market accounts comprised the largest component of the Company's transaction and
savings account deposits. As of March 31, 2004, money market deposits totaled
$47.0 million, equal to 37.1% of PSB Holdings' total transaction and savings
account deposits.

     Borrowings serve as an alternative funding source for the Company to
address funding needs for growth and to support control of deposit costs.
Borrowings have become a less prominent funding source for the Company since
peaking at 24.1% of total assets at fiscal year end 2000. Comparatively, as of
March 31, 2004, the Company's borrowings-to-assets ratio equaled 11.6%. The
Company's use of borrowings has generally been limited to FHLB advances. The
Company held $29.3 million of FHLB advances at March 31, 2004, which have
laddered terms of up to ten years.



RP FINANCIAL, LC.
PAGE 1.9

     Since fiscal year end 1999, retention of earnings and the adjustment for
accumulated other comprehensive income translated into an annual capital growth
rate of 7.7% for the Company. Asset growth outpaced the Company's equity growth
rate, as PSB Holdings' equity-to-assets ratio declined from 11.1% at fiscal year
end 1999 to 9.6% percent at March 31, 2004. All of the Company's capital is
tangible capital, and the Bank maintained capital surpluses relative to all of
its regulatory capital requirements at March 31, 2004. The addition of stock
proceeds will serve to strengthen the Company's capital position and competitive
posture within its primary market area, as well as possibly support expansion
into other nearby markets if favorable growth opportunities are presented. At
the same time, as the result of the Company's relatively high pro forma capital
position, PSB Holdings' ROE can be expected to be below industry averages
following its conversion.

INCOME AND EXPENSE TRENDS

     Table 1.2 shows the Company's historical income statements for the past
five fiscal years and for the twelve months ended March 31, 2004. The Company
reported positive earnings over the past five and three-quarter fiscal years,
ranging from a low of 0.18% of average assets during fiscal 2001 to a high of
0.83% of average assets during fiscal 2000. For the twelve months ended March
31, 2004, the Company's reported net income of $1.4 million equaled 0.58% of
average assets. The lower return posted in fiscal 2001 was in part attributable
to losses incurred from investment in derivative instruments, in which the
Company recorded an unrealized loss on stocks with expired options during fiscal
2001. The higher return posted in fiscal 2000 was supported by gains on the sale
of investments. Net interest income and operating expenses represent the primary
components of PSB Holdings' core earnings. Non-interest operating income is a
less a significant contributor to the Company's core earnings, but has been a
source of earnings growth. The amount of loan loss provisions established over
the past five and three-quarter fiscal years has varied, but in general loss
provisions have not been a significant factor in the Company's earnings. Gains
realized from the sale of fixed rate loans have increased in recent years,
reflecting an increase in the demand for longer term fixed rate loans, while
gains and loss on the sale of investments typically have not been a significant
factor in the Company's earnings.



RP FINANCIAL, LC.
PAGE 1.11

     PSB Holdings has maintained a relatively low net interest margin throughout
the period shown in Table 1.2, reflecting the Company's emphasis on managing
interest rate risk and credit risk at the expense of potentially realizing wider
yield-cost spreads in certain interest rate environments. Over the past five and
three-quarter years, the Company's net interest income to average assets ratio
ranged from a low of 2.65% during fiscal 2001 to a high of 3.06% during fiscal
1999. For the twelve months ended March 31, 2004, the Company's net interest
income to average assets ratio equaled 2.89%. The increase realized in the
Company's net interest income ratio since fiscal 2001 has been facilitated by a
widening of the yield-cost spread, which has resulted from the more immediate
impact that the decline in short-term interest rates has had on the Company's
funding costs relative to asset yields. Accordingly, the Company's net interest
spread increased from 2.21% in 2001 to 2.73% for the twelve months ended March
31, 2004. Over the same time period, the Company's interest income ratio
declined by 192 basis points, versus a more significant decline of 215 basis
points for the interest expense ratio. The Company's historical net interest
rate spreads and yields and costs are set forth in Exhibits I-3 and I-5.

     Non-interest operating income has trended higher over the past five and
three-quarter fiscal years, increasing from a low of 0.26% of average assets
during fiscal 2000 to a high of 0.47% of average assets during the twelve months
ended March 31, 2004. Growth of non-interest operating income has been mostly
realized through increased service fees generated from transaction deposits and
other products and services offered to the Bank's retail customers. The increase
in non-interest operating income also reflects growth of commission income
generated through the sale of non-deposit investment products. The major portion
of the Company's non-interest operating income is derived through service fees,
which increased from $357,000 during fiscal 2000 to $843,000 for the twelve
months ended March 31, 2004.

     Operating expenses represent the other major component of the Company's
earnings, ranging from a low of 2.28% of average assets during fiscal 1999 to a
high of 2.55% of average assets during the twelve months ended March 31, 2004.
The upward trend in the operating expense ratio reflects the impact of opening a
fourth branch in fiscal 2000, deposit growth consisting most of transaction and
savings accounts that are more cost to service than CDs, and expansion of staff
to facilitate implementation of a more diversified lending strategy,
particularly



RP FINANCIAL, LC.
PAGE 1.12

in the area of commercial loan production. Upward pressure will be placed on the
Company's operating expense ratio following the stock offering, due to expenses
associated with operating as a publicly-traded company, including expenses
related to the stock benefit plans. At the same, the increase in capital
realized from the stock offering will increase the Company's capacity to
leverage operating expenses through pursuing a more aggressive growth strategy.

     Overall, the general trends in the Company's net interest margin and
operating expense ratio since fiscal 1999 reflect a decline in core earnings, as
indicated by the Company's expense coverage ratio (net interest income divided
by operating expenses). PSB Holdings' expense coverage ratio equaled 1.34 times
in fiscal 1999, versus a comparable ratio of 1.13 times for the twelve months
ended March 31, 2004. The decline in the expense coverage ratio was the result
of both a decline in the net interest income ratio and an increase in the
operating expense ratio. Similarly, PSB Holdings' efficiency ratio (operating
expenses, net of amortization of intangibles, as a percent of the sum of net
interest income and other operating income) of 67.3% in fiscal 1999 was more
favorable than the 75.9% efficiency ratio maintained for the twelve months ended
March 31, 2004.

     Over the past five and three-quarter fiscal years, maintenance of generally
favorable credit quality measures has served to limit the amount of loss
provisions established during the period. Loan loss provisions established by
the Company ranged from a low of 0.02% of average assets for the twelve months
ended March 31, 2004 to a high of 0.09% of average assets during fiscal 1999. As
of March 31, 2004, the Company maintained valuation allowances of $1.3 million,
equal to 0.96% of net loans receivable and 169.9% of non-accruing loans. Exhibit
I-6 sets forth the Company's loan loss allowance activity during the past five
and three-quarter fiscal years.

     The Company records gains on the sale of loans from the sale of fixed rate
loan originations to the secondary market. Most loans are sold with servicing
retained. Gains realized from the sale of loans were a larger source of earnings
in fiscal 2003, as historically low mortgage rates supported a significant
increase in the Company's lending volume for longer term 1-4 family fixed rate
loans. Gains on the sale of loans equaled 0.13% of average assets in fiscal 2003
and then declined to 0.05% of average assets during the twelve months ended
March 31,



RP FINANCIAL, LC.
PAGE 1.13

2004. The Company recorded gains and losses from the sale of investment
securities throughout past five and three-quarter fiscal years, reflecting
ongoing management of the investment portfolio for purposes of enhancing returns
and managing interest rate risk. With the exception of fiscal 2000, gains and
losses from the sale of investments have not been a significant factor in the
Company's earnings. During fiscal 2000, gains realized from the sale of
investments equaled $481,000 or 0.30% of average assets. The gains and losses
realized from the sale of investment securities are viewed as non-recurring
income items, while gains generated from the sale of fixed rate loan
originations have been an ongoing activity for the Company particularly in the
prevailing low interest rate environment. However, gains realized through
secondary market activities are subject to a certain degree of volatility as
well, given the dependence of such gains on the interest rate environment and
resulting demand for longer term fixed rate loans.

     During fiscal years 2000 through 2002, the Company engaged in sale of
covered options for the purpose of generating income. The Company's investment
in derivative instruments provided income equal to 0.11% of average assets
during fiscal 2000, while losses equal to 0.20% of average assets and 0.03% of
average were recognized from the Company's investment in derivative instruments
during fiscal years 2001 and 2002, respectively. The program was discontinued on
December 31, 2001. The Company's earnings were negatively impacted by one time
expenses recorded in fiscal 1999 and fiscal 2001. The one time expense recorded
in fiscal 1999 was a legal settlement expense equal to 0.12% of average assets
and the one time expense recorded in fiscal 2001 was the cumulative effect of a
change in accounting principle in accounting for derivative instruments equal to
0.08% of average assets.

     The Company's effective tax equaled 28.9% for the twelve months ended March
31, 2004, which was less than the effective statutory rate as the result of tax
exempt income and dividends earned on certain investments that are subject to a
lower effective tax rate. As set forth in the prospectus, the Company's
effective statutory tax rate equals 39.9%.

INTEREST RATE RISK MANAGEMENT

     The Company's balance sheet is liability-sensitive in the short-term (less
than one year) and, thus, the net interest margin will typically be adversely
affected during periods of rising and



RP FINANCIAL, LC.
PAGE 1.14

higher interest rates. As of March 31, 2004, the Company's net portfolio value
("NPV") under a 200 basis point instantaneous and sustained rise in interest
rates reflected a decline of 3.9% (see Exhibit I-7).

     The Company pursues a number of strategies to manage interest rate risk,
particularly with respect to seeking to limit the repricing mismatch between
interest rate sensitive assets and liabilities. The Company manages interest
rate risk from the asset side of the balance sheet through selling originations
of 1-4 family fixed rate loans with 30-year terms and monthly payments,
maintaining investments as available for sale, emphasizing investments that
mature or reprice in less than five years and diversifying into other types of
lending beyond 1-4 family permanent mortgage loans which consists primarily of
short-term and adjustable rate loans. As of June 30, 2003, of the Company's
total loans due after June 30, 2004, ARM loans comprised 20.2% of those loans
(see Exhibit I-8). On the liability side of the balance sheet, management of
interest rate risk has been pursued through utilizing fixed rate FHLB advances
with laddered maturities out to ten years and emphasizing growth of lower cost
and less interest rate sensitive transaction and savings accounts. Transaction
and savings accounts comprised 61.3% of the Company's deposits at March 31,
2004.

     The infusion of stock proceeds will serve to further limit the Company's
interest rate risk exposure, as most of the net proceeds will be redeployed into
interest-earning assets and the increase in the Company's capital will lessen
the proportion of interest rate sensitive liabilities funding assets.

LENDING ACTIVITIES AND STRATEGY

     PSB Holdings' lending activities have traditionally emphasized 1-4 family
permanent mortgage loans and such loans continue to comprise the largest
component of the Company's loan portfolio. Beyond 1-4 family loans, lending
diversification by the Company has emphasized commercial real estate, home
equity, construction, land and commercial business loans. To a lesser extent,
the Company's lending activities include consumer loans. Going forward, the
Company's lending strategy is to pursue further diversification of the loan
portfolio, whereby growth of commercial real estate and commercial business
loans will be emphasized.



RP FINANCIAL, LC.
PAGE 1.15

However, the origination of 1-4 family permanent mortgage loans is expected to
remain as the Company's most prominent lending activity. It is anticipated that
growth of the 1- 4 family portfolio will be slowed somewhat by the sale of a
portion of the fixed rate originations, thereby providing for a gradual shift in
the Company's loan portfolio composition towards a higher concentration of
commercial real estate and commercial business loans. Exhibit I-9 provides
historical detail of PSB Holdings' loan portfolio composition over the past five
and three-quarter fiscal years and Exhibit I-10 provides the contractual
maturity of the Company's loan portfolio by loan type as of June 30, 2003.

     PSB Holdings' originates both fixed rate and adjustable rate 1-4 family
permanent mortgage loans. The Company's current practice is to sell originations
of conforming fixed rate 30-year monthly payment loans and to hold originations
of 30-year bi-weekly fixed rate loans, as well as to hold originations of fixed
rate loans with terms of 15 years or less and adjustable rate loans. The Company
retains the servicing on loans that are sold, with the exception of loans
insured by the Federal Housing Authority ("FHA"), Veterans Administration
("VA"), Connecticut Housing Finance Authority ("CHFA") and USDA Rural Housing
loans. In the current interest rate environment, most of the Company's 1-4
family lending volume consists of fixed rate loans. ARM loans offered by the
Company include loans with repricing terms of one, three, five, seven or ten
years and are indexed to U.S. Treasury notes of comparable maturities as the
repricing term. Initial rates on ARM loans are typically discounted from the
fully-indexed rate. After the initial repricing period, ARM loans convert to a
one-year ARM loan for the balance of the mortgage term. The Company typically
requires a loan-to-value ("LTV") ratio of 80.0% or less for 1-4 family loans,
but will lend up to a 95.0% LTV ratio with private mortgage insurance ("PMI").
The substantial portion of the Company's 1-4 family permanent mortgage loans are
underwritten to secondary market standards specified by Fannie Mae.

     The Company offers fixed-term home improvement loans, as well as variable
rate home equity lines of credit ("HELOCs") in its primary market area. Fixed
term home improvement loans are offered up to a LTV ratio of 100.0% inclusive of
other liens on the property, while HELOCs are offered up to a 90.0% LTV ratio
inclusive of other liens on the property. Fixed term home improvements loans are
offered for terms of up to ten years. HELOCS with LTV ratios of 80.0% or less
have a maximum draw period of ten years followed by a ten year



RP FINANCIAL, LC.
PAGE 1.16

repayment term. HELOCs with LTV ratios above 80.0% have a maximum draw period of
five years followed by a ten year repayment term.

     The residential mortgage loan portfolio includes land loans that are
extended to finance lots that will be used for residential development. Land
development loans generally require a loan-to-value ("LTV") ratio of 75.0% or
less and are offered as fixed rate loans with a maximum term of 15 years. As of
March 31, 2004, the Company's portfolio of residential mortgage loans, including
home equity loans and residential land loans, totaled $102.4 million or 75.4% of
total loans outstanding.

     Construction loans originated by the Company consist mostly of loans to
finance the construction of 1-4 family residences and, to a lesser extent,
financing for the construction of multi-family and commercial properties.
Construction loans extended for 1-4 family properties are typically for the
construction of pre-sold homes. In addition, the Company makes construction
loans to home builders on a speculative basis, but such loans are typically
limited to one loan per builder and do not constitute a significant part of the
Company's construction lending activities. Construction/permanent loans are
offered on comparable terms as 1-4 family permanent mortgage loan rates and
require payment of interest only during the construction period. The Company
will originate construction/permanent loans up to a LTV ratio of 95.0% for
properties with completed values of $150,000 or less and up to a LTV ratio of
90.0% for properties with completed values greater than $150,000. Commercial
real estate and multi-family construction loans are generally originated as
construction/permanent loans and are subject to the same underwriting criteria
as required for permanent mortgage loans, as well as submission of completed
plans, specifications and cost estimates related to the proposed construction.
Loans for the construction of commercial real estate and multi-family loans are
extended up to a LTV ratio of 80.0% based on the lesser of the appraised value
of the property or cost of construction. As of March 31, 2004, PSB Holdings'
outstanding balance of construction loans totaled $5.6 million or 4.2% of total
loans outstanding.

     The balance of the mortgage loan portfolio consists of commercial real
estate loans, which are collateralized by properties in the Company's primary
market area. PSB Holdings' originates commercial real estate loans up to a
maximum LTV ratio of 80.0% and requires a minimum debt-coverage ratio of 1.25
times. Loan terms typically provide for up to 20-year



RP FINANCIAL, LC.
PAGE 1.17

amortizations and are offered as fixed rate or adjustable rate loans with a
balloon provision of five years. Commercial real estate loans are generally
priced off of the comparable FHLB advance term plus a 300 basis point margin.
Properties securing the commercial real estate loan portfolio consist primarily
of retail properties, a hotel, industrial buildings and apartment buildings.
Growth of commercial real estate lending is currently an area of lending
emphasis for the Company. As of March 31, 2004, the Company's commercial real
estate loan portfolio totaled $23.2 million or 17.1% of the total loan
portfolio.

     The Company's diversification into non-mortgage loans consists primarily of
commercial business loans and, to a lesser extent, consumer loans. The Company
offers commercial business loans and lines of credit to small and medium sized
companies in its market area. Commercial business loans offered by the Company
consist of floating rate loans indexed to the prime rate and fixed rate terms
loans for terms of up to seven years. The commercial business loan portfolio
consists primarily of secured loans, while the portfolio also includes a minor
amount of unsecured loans for purposes of financing expansion or providing
working capital for general business purposes. Commercial business lending is
being emphasized as a source of loan growth for the Company. As of March 31,
2004, PSB Holdings' outstanding balance of commercial business loans totaled
$3.5 million or 2.6% of total loans outstanding.

     Consumer lending has been a minor area of lending diversification for the
Company, with the consumer loan portfolio consisting primarily of installment
loans extended directly to the end borrower. Consumer lending is expected to
remain as a limited area of loan diversification for the Company. As of March
31, 2004, the Company's consumer loan portfolio totaled $1.0 million or 0.8% of
total loans outstanding.

     Exhibit I-11 provides a summary of the Company's lending activities over
the past three and three-quarter fiscal years. The Company's lending volume
increased significantly over the past three fiscal years, which was supported by
increased originations of residential mortgage loans. Originations of
residential mortgage loans increased from $26.6 million in fiscal 2001 to $68.7
million in fiscal 2003, as borrowers took advantage of historically low mortgage
rates to finance new home purchases or to refinance their existing mortgages.
During the past three fiscal years, originations of residential mortgage loans
accounted for 78.3% of the total loans originated by the Company. The Company's
implementation of a more diversified lending



RP FINANCIAL, LC.
PAGE 1.18

strategy that has emphasized growth of commercial real estate and commercial
business loans is reflected by the upward trend in originations of both
commercial real estate loans and commercial business loans. Originations of
commercial real estate loans increased from $3.0 million during fiscal 2001 to
$11.2 million during the nine months ended March 31, 2004 and originations of
commercial business loans increased from $761,000 to $4.8 million over the same
time period. While the Company's lending volume increased notably in fiscal 2002
and 2003, loan growth was less significant than the pick-up in loan volume as
loan repayments and loan sales increased as well. For the nine months ended
March 31, 2004, the Company's residential lending volume declined slightly from
the comparable year ago period, but total lending volume was higher for most
recent nine month period due to increased originations of commercial real estate
loans, construction loans and commercial business loans.

ASSET QUALITY

     The Company's 1-4 family lending emphasis has generally supported favorable
credit quality measures. Over the past five and three-quarter fiscal years, PSB
Holdings' balance of non-performing assets ranged from a low of 0.29% of assets
at fiscal year end 2001 to a high of 0.74% of assets at fiscal year end 1999.
The Company held $925,000 of non-performing assets at March 31, 2004, equal to
0.37% of assets. The higher ratio of non-performing assets maintained at fiscal
year end 1999 consisted mostly of non-accruing residential mortgage loans. As
shown in Exhibit I-12, the Company's balance of non-performing assets at March
31, 2004 consisted of $747,000 of non-accruing loans, $128,000 of accruing loans
under 90 days past due and $50,000 of accruing loans past due 90 days or more.

     To track the Company's asset quality and the adequacy of valuation
allowances, PSB Holdings has established detailed asset classification policies
and procedures which are consistent with regulatory guidelines. Detailed asset
classifications are reviewed monthly by senior management and quarterly by the
Board. Additionally, the Company has retained an independent consulting firm to
perform a semi-annual review of the loan portfolio. Pursuant to these
procedures, when needed, the Company establishes additional valuation allowances
to cover anticipated losses in classified or non-classified assets. As of March
31, 2004, the



RP FINANCIAL, LC.
PAGE 1.19

Company maintained valuation allowances of $1.3 million, equal to 0.96% of net
loans receivable and 137.2% percent of non-performing loans.

FUNDING COMPOSITION AND STRATEGY

     Deposits have consistently accounted for the substantial portion of the
Company's interest-bearing funding composition and at March 31, 2004 deposits
equaled 87.1% of PSB Holdings' interest-bearing funding composition. Exhibit
I-13 sets forth the Company's deposit composition for the past three and
three-quarter fiscal years and Exhibit I-14 provides the interest rate and
maturity composition of the CD portfolio at March 31, 2004. Transaction and
savings account deposits constitute the largest portion of the Company's deposit
base, which in aggregate equaled $120.8 million or 61.2% of total deposits at
March 31, 2004. Factors contributing to growth of the Company's core deposits
include realizing growth in checking accounts as the result of developing
commercial account relationships and offering an attractive money market rate on
accounts with balances of $25,000 or more. The low interest rate environment is
also believed to have contributed to the increase in transaction and savings
accounts maintained by the Company, as the general decline in CD rates has
increased depositor preference to hold funds in liquid transaction accounts. CDs
comprise the balance of the Company's deposits, equaling $76.5 million or 38.8%
of total deposits at March 31, 2004. As of March 31, 2004, 46.9% of the
Company's CDs were scheduled to mature in one year or less. As of March 31,
2004, jumbo CDs (CD accounts with balances of $100,000 or more) amounted to
$25.0 million or 32.7% of total CDs. PSB Holdings does not maintain any brokered
CDs.

     Borrowings serve as an alternative funding source for the Company to
facilitate management of funding costs and interest rate risk. Borrowings held
by the Company consist of FHLB advances with laddered terms of up to ten years.
As of March 31, 2004, the Company maintained $29.3 million of FHLB advances.
Exhibit I-15 provides further detail of PSB Holdings' borrowing activities
during the past three and three-quarter fiscal years. Following the stock
offering, the Company may add borrowings for purposes of leveraging the balance
sheet, in which borrowings would be utilized to fund purchases of investment
securities at a positive spread to improve ROE. To the extent borrowings are
added by the Company, FHLB advances would likely continue to be the primary
source of borrowings utilized.



RP FINANCIAL, LC.
PAGE 1.20

SUBSIDIARIES AND OTHER ACTIVITIES

     PSB Holdings' only subsidiary is Putnam Savings. Putnam Savings has two
subsidiaries, Windham North Properties, LLC and PSB Realty, LLC. Windham North
Properties, LLC is used to acquire title to selected properties on which the
Bank forecloses. As of March 31, 2004, Windham North Properties, LLC, did not
own any such properties. PBS Realty, LLC owns a single parcel of real estate
located immediately adjacent to Putnam Savings' main office. This real estate is
utilized as a loan center for the Bank and there are no outside tenants that
occupy the premises.

     Putnam Savings also maintains a partnership with Infinex Investments, Inc.
("Infinex") to provide non-depository investment services and products to the
Bank's customers. Products and services offered through Infinex include
annuities, mutual funds, life insurance, long term care insurance, brokerage
accounts, stock and bond mutual funds, 529 College Savings Plans, and estate
planning.

LEGAL PROCEEDINGS

     PSB Holdings is involved in routine legal proceedings occurring in the
ordinary course of business which, in the aggregate, are believed by management
to be immaterial to the financial condition of the Company.



RP FINANCIAL, LC.
PAGE 2.1

                                 II. MARKET AREA

INTRODUCTION

     PSB Holdings serves northeastern Connecticut through its main office in
Putnam, three branch offices located in the towns of Pomfret, Danielson and
Plainfield, and a loan center also located in Putnam. The markets served by the
Company's offices are all part of Windham County. The major portion of the
Company's activities is conducted within the markets served by the retail
branches and surrounding contiguous markets. Exhibit II-1 provides information
on the Company's office facilities.

     The primary market area served by the Company, which is centrally located
between the cities of Hartford, Connecticut and Providence, Rhode Island, is
largely suburban and rural in nature. The Company's competitive environment
includes a large number of thrifts, commercial banks and other financial service
providers, some of which have a regional or national presence. Due to its small
size, the Company has more limited resources and a smaller market presence than
many of its competitors. The primary market area economy is fairly diversified,
with services, wholesale/retail trade and manufacturing constituting the basis
of the primary market area economy.

     Future business and growth opportunities will be partially influenced by
economic and demographic characteristics of the markets served by the Company,
particularly the future growth and stability of the regional economy,
demographic growth trends, and the nature and intensity of the competitive
environment for financial institutions. These factors have been examined to help
determine the growth potential that exists for the Company and the relative
economic health of the Company's market area.

MARKET AREA DEMOGRAPHICS

     Key demographic and economic indicators in the Company's market include
population, number of households and household/per capita income levels.
Demographic data for Windham County, as well as comparative data for Connecticut
and the U.S., is provided in Table 2.1. From 2000 through 2003, Windham County's
population increased at a 0.5% annual rate, which



RP FINANCIAL, LC.
PAGE 2.3

was comparable to Connecticut's annual population growth rate of 0.4%. Both the
county and state population growth rates lagged the U.S. population growth rate
of 1.2%. Growth in the number of households paralleled the population growth
rates, with the U.S. household growth rate exceeding both the Connecticut and
Windham County household growth rates. Projected five year population and
household growth rates for Windham County reflect no change from the 2000 to
2003 growth rates. Similarly, the projected population and household rates for
Connecticut and the U.S. are consistent with their recent historical growth
rates.

     Median household income in Windham County was slightly above median
household income for the U.S., but well below Connecticut's median household
income as certain regions of the state contain highly affluent markets
particularly with respect to markets in the southwestern region of the state.
Windham County's per capita income was lower than both the U.S. and Connecticut
per capita income measures, which is indicative of the market area's more rural
nature that provides for a lower cost of living than the more heavily populated
markets within the state. Household income distribution measures show that in
comparison to Windham County, both the U.S. and Connecticut maintain a higher
percentage of households with incomes of $100,000 or more. From 2000 to 2003,
household income and per capita income increased at a slower rate in Windham
County compared to the U.S. and Connecticut. Over the next five years, growth in
household income for Windham County is projected to remain below the comparable
Connecticut and U.S. growth rates.

NATIONAL ECONOMIC FACTORS

     The future success of the Company's operations is partially dependent upon
various national and local economic trends. In assessing economic trends over
the past year, the beginning of the second quarter of 2003 provided mixed
economic signals. Initial jobless claims hit a one-year high in late-April, but
consumer sentiment also edged higher in April. Despite the improvement in
consumer sentiment, which was expected to support an increase in spending, the
outlook for job growth remained dim. Job losses continued in April for the third
month in a row and the national unemployment rate rose to 6.0% in April. The
manufacturing sector also continued to struggle in April, as industrial
production declined for the second straight month



RP FINANCIAL, LC.
PAGE 2.4

and factories were operating at their lowest rate in 20 years. Comparatively,
economic data for May exhibited some positive signs, as a regional manufacturing
report showed factory expansion and May consumer sentiment improved from April.
Factory orders and retail sales also increased in May, but business investment
and the labor market remained weak. Despite growing expectations for a rebound
in the economy, the manufacturing sector continued to contract in June. Job
losses concentrated in the manufacturing sector pushed the nation's unemployment
rate to 6.4% in June, the highest level in more than nine years. The housing
market remained a bright spot in the economy during the second quarter, as low
mortgage rates continued to fuel strong demand for purchases of new and existing
homes.

     The national economy showed signs of strengthening at the beginning of the
third quarter of 2003, as the U.S. economy grew at a stronger-than-expected 3.1%
annual rate in the second quarter. Second quarter growth was fueled by brisk
consumer and business spending, as well as a surge in defense expenditures.
Manufacturing activity increased for the second straight month in August and
retail sales were stronger in August as well. However, despite the apparent
improvement in the U.S. economy, the number of employed fell in August for the
seventh consecutive month. The August unemployment rate of 6.1% reflected a
slight decline from the July rate of 6.2%, which was attributable to contraction
in the size of the labor force as opposed to jobs being added. However,
employment data for September reflected a more promising outlook for the
economy, as non-farm payrolls rose for the first time in eight months. The
national unemployment rate for September remained at 6.1%, as the increase in
jobs was offset by a larger increase in new labor force entrants. Despite higher
mortgage rates, sales of new and existing homes were strong in September.

     Third quarter GDP growth of 8.2% and data reflecting that the recovery was
starting to translate into gains in employment provided further evidence that
the national economy was gaining momentum. Job growth pushed the national
unemployment rate down to 6.0% in October and 5.9% in November. Employment gains
were aided by a pick-up in manufacturing activity, which was attributable to a
surge in new orders. Despite the pick-up in economic activity, inflation
remained low as core consumer prices fell in November for the first time since
1982. The December national unemployment rate unexpectedly dropped to a 14-month
low of 5.7%; however, the decline was attributable to workers exiting the labor
force rather than new



RP FINANCIAL, LC.
PAGE 2.5

jobs beings created.

     Economic data for January 2004 suggested that the economic recovery was
gaining traction, as evidenced by a strong increase in U.S. industrial
production for the month of January. Factory activity continued to rise in
January and non-manufacturing activity grew for a tenth consecutive month in
January 2004. The U.S. unemployment rate fell to a two-year low of 5.6% in
January, as the pace of job growth picked-up. However, consumer confidence
slipped in February, as hiring activity continued to lag the pace of the
economic expansion. Employment data for February showed that jobs were added but
well below expectations and the unemployment rate was unchanged at 5.6%. A
stronger than expected increase in U.S. industrial production in February and
initial jobless claims falling to their lowest level in three years in mid-March
provided further indications that the U.S. economy was improving. Housing starts
slowed in February for a second straight month, but demand for new homes
remained strong.

     The March unemployment rate edged up to 5.7%, although job growth for the
month was the strongest in four years and for the first time in 44 months there
was no decline in manufacturing jobs. March economic data also showed
manufacturing activity accelerating, a strong increase in retail sales, a surge
in housing starts and new home sales, and a strong increase in durable-goods
orders. While first quarter GDP rose at a slower than expected 4.2% annual rate,
the economy in general showed signs of accelerating going into the second
quarter. Job growth in April exceeded expectations, as the economy created
288,000 new jobs and the national unemployment rate fell to 5.6% in April. Some
other economic data for April was not as strong, as higher interest rates slowed
new housing starts and sales of new homes. Orders for durable goods also
declined in April. However, fears of higher interest rates fueled a strong
increase in home resales during April.

     In terms of interest rate trends over the past year, Treasury prices moved
lower at the beginning of the second quarter of 2003 as the bond market ignored
weak economic data and focused mainly on news of U.S. war successes in Iraq that
sparked a rally in stocks. Weak economic data provided support for Treasury
prices in mid-April, as the yield on the 10-year U.S. Treasury note stabilized
at slightly below 4.0% through the end of April. The Federal Reserve concluded
to leave short-term interest rates unchanged at its meeting in early-May.



RP FINANCIAL, LC.
PAGE 2.6

However, in a major shift, the central bank signaled the possibility of a rate
cut later to ward off deflation, which served to boost Treasury prices following
the Federal Reserve meeting. Amid more signs of economic sluggishness and
growing concerns of deflation, Treasury yields plunged to their lowest levels in
45 years through the end of May and into early-June. Treasury yields declined
further in mid-June on news of a shake-up among Freddie Mac's top executives due
to accounting concerns and growing expectations that the Federal Reserve would
cut rates again. A smaller than hoped for 0.25% rate cut by the Federal Reserve
in late-June prompted a sell-off in Treasury issues at the close of the second
quarter.

     The decline in bond prices became more pronounced at the beginning of the
third quarter of 2003, with the yield on the 10-year Treasury increasing from
3.56% on July 1, 2003 to 4.43% on July 31, 2003. Investors dumped bonds in favor
of stocks during July on growing optimism of an economic recovery that would
lead to an end of further rate cuts by the Federal Reserve. The Federal Reserve
kept its interest rate target at a 45-year low of 1.0% at its mid-August meeting
and predicted that rates would stay near that level for some time. Treasury
yields continued to climb higher through the balance of August, as the U.S. and
global economy showed signs of improving and the Dow Jones Industrial Average
rose to a 14-month high. However, weak employment data for August provided a
boost to the bond market in early-September. U.S. Treasury bonds continued to
strengthen through mid-September, as the Federal Reserve left interest rates
unchanged and indicated they would remain low, as government data showed
underlying inflation at a 37-year low. Weaker than expected economic data that
showed a decline in consumer confidence and a slow down in manufacturing
activity further contributed to the decline in Treasury yields at the close of
the third quarter.

     The decline in interest rates was reversed in the fourth quarter, as data
indicating that the economic recovery was strengthening pushed Treasury yields
higher during October and early-November 2003. Indications that the Federal
Reserve would keep interest rates low and favorable inflation data served to
push interest rates lower in mid-November. Treasury yields moved up again in
early-December, largely on the basis of economic data that showed an increase in
manufacturing activity and the Federal Reserve's more upbeat assessment of the
economy. The Federal Reserve concluded its December meeting with no change in
the federal funds target rate of 1% and indicated that low interest rate levels
could be maintained for a



RP FINANCIAL, LC.
PAGE 2.7

considerable period. Favorable inflation data supported a relatively stable
interest rate environment at the close of 2003.

     Treasury bonds rallied at the beginning of 2004 on news of a weaker than
expected December employment report, which showed job creation far below
forecasted levels. In late-January, the Federal Reserve concluded to leave
short-term interest rates unchanged at a 45-year low of 1%, but dropped its
commitment to keep rates low for a considerable period of time. The change in
the Federal Reserve's wording pushed Treasury yields higher at the end of
January and into early-February. Following the spike-up in bond yields, interest
rates eased lower into mid-February as January employment data showed that job
growth remained less than robust. Interest rates stabilized during the second
half of February, with the yield on the 10-year Treasury note edging below 4.0%
at the end of the month. A weaker than expected employment report for February
sparked a rally in Treasury bonds in early-March, as the lack of meaningful job
growth raised expectations that the Federal Reserve would not increase rates
anytime soon. The Federal Reserve left rates unchanged at its mid-March meeting,
indicating that it could be patient about increasing rates because of low
inflation, unused factory capacity and limited jog growth. Treasury yields
dropped to an eight month low following the Federal Reserve meeting and then
eased higher through the end of March on indications that the economy was
getting stronger.

     The upward trend in interest rates continued into the beginning of the
second quarter of 2004, as strong economic data increased expectations that the
Federal Reserve would increase interest rates. Bond yields were also pushed
higher by signs of inflation coming back into the economy, as the consumer price
index for March rose 0.5%. March economic data that showed a strengthening
economy pressured bond yields higher through the end of April. Robust job growth
in April, combined with rising oil prices, sharpened the sell-off in long-term
Treasurys during the first half of May, reflecting increased expectations that
the Federal Reserve would raise interest rates soon. Treasury yields eased lower
during mid-May, as investors shifted money to the relative safety of bonds in
reaction to India's election results and the assassination of the head of the
Iraqi Governing Council. As of May 21, 2004, one- and 10-year U.S. government
bonds were yielding 1.73% and 4.71%, respectively, versus comparable year ago
yields of 1.13% and 3.39%. Exhibit II-2 provides historical interest rate trends
from 1995



RP FINANCIAL, LC.
PAGE 2.8

through May 21, 2004.

LOCAL ECONOMY

     The Company's primary market area has a fairly diversified local economy,
with employment in services, wholesale/retail trade and manufacturing serving as
the basis of the local economy. As shown in Table 2.2, service jobs represent
the largest employer in Windham County, followed by employment in the
wholesale/retail and manufacturing sectors. Most sectors of the Windham County
economy added jobs from 1996 through 2000 and similar to national trends, the
service industry experienced the strongest job growth during the period.
However, manufacturing jobs, which tend to be higher paying jobs, contracted
slightly from 1996 to 2000.

                                    Table 2.2
                      Windham County Employment Sectors(1)



     EMPLOYMENT SECTORS                                         % OF LABOR FORCE
     ------------------                                         ----------------
                                                                   
     Services                                                          27.2%
     Wholesale/Retail Trade                                            22.9
     Manufacturing                                                     19.0
     Government                                                        14.3
     Construction                                                       5.7
     Finance, insurance and real estate                                 4.6
     Other                                                              6.3
                                                                      -----
                                                                      100.0%


     (1)  As of 2000.

     Source: Regional Economic Information System Bureau of Economic Analysis.

     Comparative unemployment rates for Windham County, as well as for the U.S.
and Connecticut, are shown in Table 2.3. Windham County's March 2004
unemployment rate of 6.0% was higher than the comparable Connecticut
unemployment rate of 5.2% and equal to the national unemployment rate.
Consistent with the U.S. and Connecticut unemployment trends, Windham County's
March 2004 unemployment rate was lower compared to the year ago rate of 6.9%.



RP FINANCIAL, LC.
PAGE 2.9

                                    Table 2.3
                             Unemployment Trends(1)



                                     MARCH 2003                MARCH 2004
     REGION                         UNEMPLOYMENT              UNEMPLOYMENT
     ------                         ------------              --------------
                                                             
     United States                       6.2%                      6.0%
     Connecticut                         5.9                       5.2
     Windham County                      6.9                       6.0


     (1)  Unemployment rates have not been seasonally adjusted.

     Source:  U.S. Bureau of Labor Statistics.

MARKET AREA DEPOSIT CHARACTERISTICS AND COMPETITION

     The Company's retail deposit base is closely tied to the economic fortunes
of Windham County and, in particular, the areas of the county that are nearby to
one of PSB Holdings' four branches. Table 2.4 displays deposit market trends
from June 30, 2000 through June 30, 2003 for PSB Holdings, as well as for all
commercial bank and savings institution branches located in Windham County and
the State of Connecticut. The data indicates that bank and thrift deposits in
Windham County increased at a 9.9% annual rate from June 30, 2000 through June
30, 2003, which exceeded the 6.1% deposit growth rate posted by all Connecticut
banks and thrifts. Consistent with the state of Connecticut, savings
institutions maintained a larger market share of deposits than commercial banks
in Windham County. The larger deposit market share maintained by savings
institutions was supported by their larger branch presence, as savings
institution branches accounted for 58% of the total branches in Connecticut and
60% of the total branches in Windham County. During the period covered in Table
2.4, savings institutions experienced a decline in deposit market share in both
Windham County and the state of Connecticut, reflecting a decline in savings
institution branches in both the county and the state. Comparatively, commercial
banks added branches in both Windham County and Connecticut during the three
year period.

     The Company's $192.3 million of deposits at June 30, 2003 represented a
15.1% market share of the Windham County thrift and bank deposits. PSB Holdings'
deposits increased at a 20.1% annual rate from June 30, 2000 through June 30,
2003, which served to increase its



RP FINANCIAL, LC.
PAGE 2.11

market share of Windham County deposits from 10.5% at June 30, 2000 to
15.1% at June 30, 2003. PSB Holdings' stronger deposit growth rate was
facilitated by the opening of its fourth branch office during the three year
period covered in Table 2.4.

     The Company faces notable competition in both deposit gathering and lending
activities, including direct competition with several financial institutions
that primarily have a local or regional presence. Securities firms, credit
unions and mutual funds also represent major sources of competition in raising
deposits. In many cases, these competitors are also seeking to provide some or
all of the community-oriented services as PSB Holdings'. With regard to lending
competition, the Company encounters the most significant competition from the
same institutions providing deposit services. In addition, the Company competes
with mortgage companies, independent mortgage brokers, and credit unions in
originating mortgage loans. Table 2.5 lists the Company's largest competitors in
Windham County, based on deposit market share as noted parenthetically. As of
June 30, 2003, the Company maintained a 15.1% market share of deposits in
Windham County, which represented the 3rd largest market share of deposits in
the county.

                                    Table 2.5
                                  PSB Holdings
                         Market Area Deposit Competitors



     LOCATION                                         NAME
     --------                                         ----
                                          
     Windham County                          SI Bancorp (17.3%)
                                             Bank of America Corp. (16.0%)
                                             Citizens National Bancorp (11.7%)
                                             PSB Holdings (15.1%) - Rank of 3


     Sources: SNL Financial and FDIC.



RP FINANCIAL, LC.
PAGE 3.1

                            III. PEER GROUP ANALYSIS

     This chapter presents an analysis of PSB Holdings' operations versus a
group of comparable companies (the "Peer Group") selected from the universe of
all publicly-traded savings institutions. The primary basis of the pro forma
market valuation of PSB Holdings is provided by these public companies. Factors
affecting the Company's pro forma market value such as financial condition,
credit risk, interest rate risk, and recent operating results can be readily
assessed in relation to the Peer Group. Current market pricing of the Peer
Group, subject to appropriate adjustments to account for differences between PSB
Holdings and the Peer Group, will then be used as a basis for the valuation of
PSB Holdings' to-be-issued common stock.

PEER GROUP SELECTION

     The mutual holding company form of ownership has been in existence in its
present form since 1991. As of the date of this appraisal, there were
approximately 20 publicly-traded institutions operating as subsidiaries of MHCs.
We believe there are a number of characteristics of MHC shares that make them
different from the shares of fully-converted companies. These factors include:
(1) lower aftermarket liquidity in the MHC shares since less than 50% of the
shares are available for trading; (2) guaranteed minority ownership interest,
with no opportunity of exercising voting control of the institution in the MHC
form of organization; (3) the potential impact of "second-step" conversions on
the pricing of public MHC institutions; (4) the regulatory policies regarding
the dividend waiver by MHC institutions; and (5) most MHCs have formed mid-tier
holding companies, facilitating the ability for stock repurchases, thus
improving the liquidity of the stock on an interim basis. We believe that each
of these factors has an impact on the pricing of the shares of MHC institutions,
and that such factors are not reflected in the pricing of fully-converted public
companies.

     Given the unique characteristics of the MHC form of ownership, RP Financial
concluded that the appropriate Peer Group for PSB Holdings' valuation should be
comprised of subsidiary institutions of mutual holding companies. The selection
of publicly-traded mutual holding companies for the Company's Peer Group is
consistent with the regulatory guidelines and other recently completed MHC
transactions. Further, the Peer Group should be comprised of only



RP FINANCIAL, LC.
PAGE 3.2

those MHC institutions whose common stock is either listed on a national
exchange or is NASDAQ listed, since the market for companies trading in this
fashion is regular and reported. We believe non-listed MHC institutions are
inappropriate for the Peer Group, since the trading activity for thinly-traded
stocks is typically highly irregular in terms of frequency and price and may not
be a reliable indicator of market value. We have excluded from the Peer Group
those public MHC institutions that are currently pursuing a "second-step"
conversion and/or companies whose market prices appear to be distorted by
speculative factors or unusual operating conditions. MHCs which have recently
completed a minority stock offering have been excluded as well, due to the lack
of a seasoned trading history and insufficient quarterly financial data that
includes the impact of the offering proceeds. The universe of all
publicly-traded institutions is included as Exhibit III-1.

BASIS OF COMPARISON

     This appraisal includes two sets of financial data and ratios for the Peer
Group institutions. The first set of financial data reflects the actual book
value, earnings, assets and operating results reported by the Peer Group
institutions in its public filings inclusive of the minority ownership interest
outstanding to the public. The second set of financial data, discussed at length
in the following chapter, places the Peer Group institutions on equal footing by
restating their financial data and pricing ratios on a "fully-converted" basis
through assuming the sale of the majority shares held by the MHCs in public
offerings based on their current trading prices and standard assumptions for a
thrift conversion offering. Throughout the appraisal, the adjusted figures will
be specifically identified as being on a "fully-converted" basis. Unless so
noted, the figures referred to in the appraisal will be actual financial data
reported by the Peer Group institutions.

     Both sets of financial data have their specific use and applicability to
the appraisal. The actual financial data, as reported by the Peer Group
companies and reflective of the minority interest outstanding, will be used in
Chapter III to make financial comparisons between the Peer Group and the
Company. The differences between the Peer Group's reported financial data and
the financial data of PSB Holdings are not significant enough to distort the
conclusions of the



RP FINANCIAL, LC.
PAGE 3.3

comparison (in fact, such differences are greater in a standard conversion
appraisal). The adjusted financial data (fully-converted basis) will be more
fully described and quantified in the pricing analysis discussed in Chapter IV.
The fully-converted pricing ratios are considered critical to the valuation
analysis in Chapter IV, because they place each Peer Group institution on a
fully-converted basis (making their pricing ratios comparable to the pro forma
valuation conclusion reached herein), eliminate distortion in pricing ratios
between Peer Group institutions that have sold different percentage ownership
interests to the public, and reflect the implied pricing ratios being placed on
the Peer Group institutions in the market today to reflect the unique trading
characteristics of publicly-traded MHC institutions.

PSB HOLDINGS' PEER GROUP

     Under ideal circumstances, the Peer Group would be comprised of ten
publicly-traded Connecticut-based MHC institutions with capital, earnings,
credit quality and interest rate risk comparable to PSB Holdings. However, given
the limited number of publicly-traded institutions in the MHC form of ownership,
the selection criteria was necessarily broad-based and not confined to a
particular geographic market area. In light of the relatively small asset size
of the Company, the selection criteria used for the Peer Group was the ten
smallest publicly-traded MHCs in terms of asset size. The asset sizes of the
Peer Group companies ranged from $95 million to $795 million. The universe of
all publicly-traded MHC institutions, exclusive of institutions that have
announced second-step conversions, is included as Exhibit III-2 and Exhibit
III-3 provides summary demographic and deposit market share data for the primary
market areas served by each of the Peer Group companies.

     Unlike the universe of fully-converted publicly-traded thrifts, which
includes approximately 203 companies, the universe of public MHC institutions is
small, thereby reducing the prospects of a highly comparable Peer Group.
Nonetheless, because the trading characteristics of public MHC institution
shares are significantly different from those of fully-converted companies,
public MHC institutions were the most appropriate group to consider as Peer
Group candidates for this valuation. Relying solely on full stock public
companies for the Peer Group would not capture the difference in current market
pricing for public MHC



RP FINANCIAL, LC.
PAGE 3.4

institutions and thus could lead to distorted valuation conclusions. The federal
regulatory agencies have previously concurred with this selection procedure of
the Peer Group for MHC valuations. To account for differences between PSB
Holdings and the MHC Peer Group in reaching a valuation conclusion, it will be
necessary to make certain valuation adjustments. The following discussion
addresses financial similarities and differences between PSB Holdings Federal
and the Peer Group.

     Table 3.1 on the following page lists key general characteristics of the
Peer Group companies. Although there are differences among several of the Peer
Group members, by and large they are well-capitalized and profitable
institutions and their decision to reorganize in MHC form suggests a commonality
of operating philosophy. Importantly, the trading prices of the Peer Group
companies reflect the unique operating and other characteristics of public MHC
institutions. While the Peer Group is not exactly comparable to PSB Holdings, we
believe such companies form a good basis for the valuation of PSB Holdings,
subject to certain valuation adjustments.

     In aggregate, the Peer Group companies maintain a higher level of
capitalization relative to the universe of all public thrifts (12.41% of assets
versus 10.86% for the all public average), generate lower earnings on a return
on average assets basis (0.61% ROAA versus 0.84% for the all public average),
and generate a lower return on equity (4.93% ROE versus 9.10% for the all public
average). The summary table below underscores the key differences, particularly
in the average pricing ratios between full stock and MHC institutions (both as
reported and on a fully-converted basis).



                                                                                     FULLY
                                                                      PEER GROUP   CONVERTED
                                                           ALL         REPORTED      BASIS
                                                     PUBLICLY-TRADED     BASIS    (PRO FORMA)
                                                     ---------------  ----------  -----------
                                                                            
     FINANCIAL CHARACTERISTICS (AVERAGES)
     Assets ($Mil)                                        2,615           361          404
     Equity/Assets (%)                                    10.86%        12.41%       22.61
     Return on Assets (%)                                  0.84          0.61         0.66
     Return on Equity (%)                                  9.10          4.93         2.94




RP FINANCIAL, LC.
PAGE 3.6



                                                                                     FULLY
                                                                      PEER GROUP   CONVERTED
                                                           ALL         REPORTED      BASIS
                                                     PUBLICLY-TRADED     BASIS    (PRO FORMA)
                                                     ---------------  ----------  -----------
                                                                            
     PRICING RATIOS (AVERAGES)(1)
     Price/Earnings (x)                                   17.29x         23.07x      25.37x
     Price/Book (%)                                      152.21%        186.39%      95.38%
     Price/Assets (%)                                     16.65          25.92       22.21


     (1)  Based on market prices as of May 21, 2004.

     The following sections present a comparison of PSB Holdings' financial
condition, income and expense trends, loan composition, interest rate risk and
credit risk versus the figures reported by the Peer Group. The conclusions drawn
from the comparative analysis are then factored into the valuation analysis
discussed in the final chapter.

FINANCIAL CONDITION

     Table 3.2 shows comparative balance sheet measures for PSB Holdings and the
Peer Group. PSB Holdings' and the Peer Group's ratios reflect balances as of
March 31, 2004, unless otherwise indicated for the Peer Group companies. PSB
Holdings' net worth base of 9.6% was below the Peer Group's average net worth
ratio of 12.4%. However, the Bank's pro forma capital position will increase
with the addition of stock proceeds and will be comparable to or exceed the Peer
Group's ratio following the conversion. Tangible equity-to-assets ratios for the
Company and the Peer Group equaled 9.6% and 11.8%, respectively, as goodwill and
intangibles maintained by the Peer Group equaled 0.6% of assets. The increase in
PSB Holdings' pro forma capital position will be favorable from a risk
perspective and in terms of future earnings potential that could be realized
through leverage and lower funding costs. At the same time, the Company's higher
pro forma capitalization will also result in a relatively low return on equity.
Both Putnam Savings' and the Peer Group's capital ratios reflected capital
surpluses with respect to the regulatory capital requirements, with the Peer
Group's ratios currently exceeding the Bank's ratios. On a pro forma basis, the
Bank's regulatory surpluses will likely be comparable to or more significant
than indicated for the Peer Group.



RP FINANCIAL, LC.
PAGE 3.8

     The interest-earning asset compositions for the Company and the Peer Group
were somewhat similar, with loans constituting the bulk of interest-earning
assets for both PSB Holdings and the Peer Group. The Company's loans-to-assets
ratio of 52.7% was less than the comparable Peer Group ratio of 58.6%.
Comparatively, the Company's cash and investments-to-assets ratio of 44.4%
exceeded the comparable ratio for the Peer Group of 36.3%, as the Company's
higher ratio of investment securities more than offset the Peer Group's higher
ratio of cash and cash equivalents. Overall, PSB Holdings' interest-earning
assets amounted to 97.1% of assets, which exceeded the comparable Peer Group
ratio of 94.9%.

     PSB Holdings' funding liabilities reflected a funding strategy that was
somewhat similar to that of the Peer Group's funding composition. The Company's
deposits equaled 78.1% of assets, which was slightly above the Peer Group's
ratio of 75.9%. Similarly, borrowings accounted for a higher portion of the
Company's interest-bearing funding composition, as indicated by
borrowings-to-assets ratios of 11.6% and 10.1% for PSB Holdings and the Peer
Group, respectively. Total interest-bearing liabilities maintained by the
Company and the Peer Group, as a percent of assets, equaled 89.7% and 86.0%,
respectively. Following the increase in capital provided by the net proceeds of
the stock offering, the Company's ratio of interest-bearing liabilities as a
percent of assets will likely be less than the Peer Group's ratio.

     A key measure of balance sheet strength for a thrift institution is its
IEA/IBL ratio. Presently, the Peer Group's IEA/IBL ratio is slightly stronger
than the Company's ratio, based on IEA/IBL ratios of 110.4% and 108.3%,
respectively. The additional capital realized from stock proceeds should serve
to provide PSB Holdings with an IEA/IBL ratio that exceeds the Peer Group's
ratio, as the increase in capital provided by the infusion of stock proceeds
will serve to lower the level of interest-bearing liabilities funding assets and
will be primarily deployed into interest-earning assets.

     The growth rate section of Table 3.2 shows annual growth rates for key
balance sheet items. PSB Holdings' growth rates are based on annualized growth
for the nine month period ended March 31, 2004, while the Peer Group's growth
rates are based on annual growth for the twelve months ended March 31, 2004 or
the most recent period available. PSB Holdings' assets increased at a 4.9%
annualized rate, which approximated the Peer Group's asset growth rate of



RP FINANCIAL, LC.
PAGE 3.9

4.4%. Asset growth for the Company was largely the result of loan growth, which
was in part funded a decline in cash and investments. Asset growth for the Peer
Group was realized through a combination of loan growth as well as growth of
cash and investments.

     A combination of deposits and borrowings were used by both the Company and
the Peer Group to fund asset growth, with the Company's deposit and borrowing
growth rates being above and below the respective Peer Group growth rates for
deposits and borrowings. Capital growth rates posted by the Company and the Peer
Group equaled 6.9% and 1.0%, respectively. Factors contributing to the Company's
higher capital growth rate included its lower level of capital as well as
retention of all of its earnings. Comparatively, despite recording a slightly
higher return on assets than the Company, the Peer Group's capital growth rate
was slowed by dividend payments as well as stock repurchases. The increase in
capital realized from stock proceeds, as well as possible dividend payments and
stock repurchases, will depress the Company's capital growth rate following the
stock offering.

INCOME AND EXPENSE COMPONENTS

     Table 3.3 displays comparable statements of operations for the Company and
the Peer Group, based on earnings for the twelve months ended March 31, 2004,
unless otherwise indicated for the Peer Group companies. PSB Holdings and the
Peer Group reported net income to average assets ratios of 0.58% and 0.61%,
respectively. Higher levels of net interest income, non-interest operating
income and net gains accounted for the Peer Group's higher return. The Company's
earnings reflected comparative earnings advantages with respect to lower levels
of operating expenses and loan loss provisions.

     The Peer Group's stronger net interest margin was realized through
maintenance of a higher interest income ratio and a lower interest expense
ratio. The Peer Group's higher interest income ratio was realized through
earning a higher yield on interest-earning assets (5.39% versus 5.16% for the
Company), which was supported by the Peer Group's interest-earning asset
composition that reflected a high concentration of loans than maintained by the
Company. Interest expense ratios for the Company and the Peer Group equaled
1.99% and 1.90% of average assets, respectively. The Peer Group's lower interest
expense ratio was supported by a lower cost of funds (2.21% versus 2.43% for the
Company) and a lower level of interest-bearing



RP FINANCIAL, LC.
PAGE 3.11

liabilities funding assets. Overall, PSB Holdings and the Peer Group reported
net interest income to average assets ratios of 2.89% and 3.23%, respectively.

     In another key area of core earnings strength, the Peer Group maintained a
higher level of operating expenses than the Company. For the period covered in
Table 3.3, the Company and the Peer Group reported operating expense to average
assets ratios of 2.55% and 2.92%, respectively. The Company's lower operating
expense ratio was achieved despite maintaining a comparable number of employees
as the Peer Group relative to their respective asset sizes. Assets per full time
equivalent employee equaled $3.5 million for the both the Company and the Peer
Group. On a post-offering basis, the Company's operating expenses can be
expected to increase with the addition of stock benefit plans and certain
expenses that result from being a publicly traded company, with such expenses
already impacting the Peer Group's operating expenses. At the same time, PSB
Holdings' capacity to leverage operating expenses will be comparable to or
greater than the Peer Group's leverage capacity following the increase in
capital realized from the infusion of net stock proceeds.

     When viewed together, net interest income and operating expenses provide
considerable insight into a thrift's earnings strength, since those sources of
income and expenses are typically the most prominent components of earnings and
are generally more predictable than losses and gains realized from the sale of
assets or other non-recurring activities. In this regard, as measured by their
expense coverage ratios (net interest income divided by operating expenses), the
Company's and the Peer Group's earnings strength were comparable. Expense
coverage ratios posted by PSB Holdings and the Peer Group equaled 1.13x and
1.11x, respectively. An expense coverage ratio of greater than 1.0x indicates
that an institution is able to sustain pre-tax profitability without having to
rely on non-interest sources of income.

     Sources of non-interest operating income provided a larger contribution to
the Peer Group's earnings, with such income amounting to 0.68% and 0.47% of the
Peer Group's and PSB Holdings' average assets, respectively. Taking non-interest
operating income into account in comparing the Company's and the Peer Group's
earnings, PSB Holdings' efficiency ratio (operating expenses, net of
amortization of intangibles, as a percent of the sum of non-interest operating
income and net interest income) of 75.9% was slightly less favorable than the
Peer



RP FINANCIAL, LC.
PAGE 3.12

Group's efficiency ratio of 74.4%. The Peer Group's more favorable efficiency
ratio was realized through earning a higher level of non-interest operating
income and maintaining a higher net interest income ratio, which more than
Company's lower operating expense ratio.

     Loan loss provisions had a larger impact on the Peer Group's earnings, with
loss provisions established by PSB Holdings and the Peer Group equaling 0.02%
and 0.16% of average assets, respectively. The higher level of loss provisions
established by the Peer Group was consistent with its greater degree of
diversification into higher risk types of lending (see Table 3.4), as well as
the Peer Group's higher ratio of total loans-to-assets.

     Net gains realized from the sale of assets were a slightly larger
contributor to the Peer Group's earnings, with such gains amounting to 0.07% and
0.02% of average assets for the Peer Group and PSB Holdings, respectively. Given
the generally non-recurring nature of gains and losses resulting from the sale
of loans, investments and other assets, the net gains reflected in the Company's
and the Peer Group's earnings will be discounted in evaluating the relative
strengths and weaknesses of their respective earnings. Extraordinary items were
not a factor in either the Company's or the Peer Group's earnings.

     Taxes had a slightly larger impact on the Company's earnings, as PSB
Holdings and the Peer Group posted effective tax rates of 28.9% and 27.7%,
respectively.

LOAN COMPOSITION

     Table 3.4 presents data related to the Company's and the Peer Group's loan
portfolio compositions and investment in mortgage-backed securities. The
Company's loan portfolio composition reflected a higher concentration of 1-4
family permanent mortgage loans and mortgage-backed securities than maintained
by the Peer Group (59.3% versus 47.4% for the Peer Group). The Company's higher
ratio was attributable to maintaining higher concentrations of both 1-4 family
loans and mortgage-backed securities relative to the comparable Peer Group
ratios. Loans serviced for others equaled 11.3% and 10.0% of the Company's and
the Peer Group's assets, respectively, thereby indicating a comparable influence
of mortgage banking activities on their respective operations. The Peer Group's
balance of loans serviced for others translated into a modest balance of
servicing intangibles, versus a zero balance for the Company.



RP FINANCIAL, LC.
PAGE 3.14

     Diversification into higher risk types of lending was more significant for
the Peer Group companies on average. Commercial real estate/multi-family loans
represented the most significant area of lending diversification for the Peer
Group (11.1% of assets), followed by commercial business loans (5.6% of assets).
The Company's lending diversification consisted primarily of commercial real
estate/multi-family loans and construction/land loans, with those portfolios
equaling 9.2% and 1.5% of assets, respectively. Construction/land loans
accounted for the only lending area where the Company maintained a greater
degree of lending diversification than the Peer Group. Notwithstanding the Peer
Group's more significant diversification into higher risk types of lending, the
Company maintained a slightly higher risk-weighted assets-to-assets ratio than
maintained by the Peer Group (58.90% versus 56.12% for the Peer Group).

INTEREST RATE RISK

     Table 3.5 reflects various key ratios highlighting the relative interest
rate risk exposure of the Company versus the Peer Group companies. In terms of
balance sheet composition, PSB Holdings' interest rate risk characteristics were
considered to be slightly less favorable than the Peer Group's. Most notably,
PSB Holdings' lower tangible capital position and lower IEA/IBL ratio indicate a
greater dependence on the yield-cost spread to sustain the net interest margin.
However, a lower level of non-interest earning assets represented an advantage
for the Company with respect to capacity to generate net interest income and, in
turn, limit the interest rate risk associated with the balance sheet. On a pro
forma basis, the infusion of stock proceeds should provide the Company with
comparable or slightly more favorable balance sheet interest rate risk
characteristics than currently maintained by the Peer Group, particularly with
respect to the increases that will be realized in Company's equity-to-assets and
IEA/IBL ratios.

     To analyze interest rate risk associated with the net interest margin, we
reviewed quarterly changes in net interest income as a percent of average assets
for PSB Holdings and the Peer Group. In general, the was a slightly greater
degree of volatility reflected in the quarterly changes in the Company's net
interest income ratios, based on the interest rate environment that prevailed
during the period covered in Table 3.5. However, the stability of the Company's
net



RP FINANCIAL, LC.
PAGE 3.16

interest margin should be enhanced by the infusion of stock proceeds, since
interest rate sensitive liabilities will be funding a lower portion of the
Company's assets.

CREDIT RISK

     Overall, the credit risk associated with the Company's loan portfolio was
considered to be slightly less than the Peer Group's, as implied by the
Company's more favorable credit quality measures for non-performing loans and
less significant diversification into higher risk types of lending. As shown in
Table 3.6, PSB Holdings' ratio of non-performing assets and accruing loans that
are more than 90 days past due as a percent of assets was less than the
comparable Peer Group ratio (0.32% versus 0.61% for the Peer Group). Likewise,
PSB Holdings' non-performing loans-to-loans ratio, which does not include
accruing loans that are more than 90 days past due, was lower than the Peer
Group's ratio (0.56% versus 0.71% for the Peer Group). The Company's credit risk
exposure was also considered to be more favorable with respect to the less
significant impact of net charge-offs recorded for the twelve month period, as
net loan charge-offs equaled 0.06% and 0.15% of net loans receivable for the
Company and the Peer Group, respectively. However, the greater credit risk
exposure implied by the Peer Group's less favorable credit quality measures was
somewhat offset by the Peer Group's maintenance of stronger reserve ratios, as
the Peer Group maintained a higher level of loss reserves as a percent of
non-performing assets and accruing loans that are more than 90 days past due
(175.0% versus 159.2% for the Company) and a slightly higher level of reserves
as a percent of loans (1.01% versus 0.96% for the Company).

SUMMARY

     Based on the above analysis, RP Financial concluded that the Peer Group
forms a reasonable basis for determining the pro forma market value of PSB
Holdings. Such general characteristics as asset size, capital position,
interest-earning asset composition, funding composition, core earnings measures,
loan composition, credit quality and exposure to interest rate risk all tend to
support the reasonability of the Peer Group from a financial standpoint. Those
areas where differences exist will be addressed in the form of valuation
adjustments to the extent necessary.



RP FINANCIAL, LC.
PAGE 4.1

                             IV. VALUATION ANALYSIS

INTRODUCTION

     This chapter presents the valuation analysis and methodology used to
determine PSB Holdings' estimated pro forma market value for purposes of pricing
the minority stock. The valuation incorporates the appraisal methodology
promulgated by the OTS and adopted in practice by the FDIC for standard
conversions and mutual holding company offerings, particularly regarding
selection of the Peer Group, fundamental analysis on both the Company and the
Peer Group, and determination of the Company's pro forma market value utilizing
the market value approach.

APPRAISAL GUIDELINES

     The OTS written appraisal guidelines specify the market value methodology
for estimating the pro forma market value of an institution. The FDIC, state
banking agencies and other Federal agencies have endorsed the OTS appraisal
guidelines as the appropriate guidelines involving mutual-to-stock conversions.
As previously noted, the appraisal guidelines for MHC offerings is somewhat
different, particularly in the Peer Group selection process. Specifically, the
regulatory agencies have indicated that the Peer Group should be based on the
pro forma fully-converted pricing characteristics of publicly-traded MHCs,
rather than on already fully-converted publicly-traded stock thrifts, given the
unique differences in stock pricing of MHCs and fully-converted stock thrifts.
Pursuant to this methodology: (1) a peer group of comparable publicly-traded MHC
institutions is selected; (2) a financial and operational comparison of the
subject company to the peer group is conducted to discern key differences; and
(3) the pro forma market value of the subject company is determined based on the
market pricing of the peer group, subject to certain valuation adjustments based
on key differences. In addition, the pricing characteristics of recent
conversions and MHC offerings must be considered.



RP FINANCIAL, LC.
PAGE 4.2

RP FINANCIAL APPROACH TO THE VALUATION

     The valuation analysis herein complies with such regulatory approval
guidelines. Accordingly, the valuation incorporates a detailed analysis based on
the Peer Group, discussed in Chapter III, which constitutes "fundamental
analysis" techniques. Additionally, the valuation incorporates a "technical
analysis" of recently completed conversions and stock offerings of comparable
MHCs, including closing pricing and aftermarket trading of such offerings. It
should be noted that these valuation analyses, based on either the Peer Group or
the recent conversions and MHC transactions, cannot possibly fully account for
all the market forces which impact trading activity and pricing characteristics
of a stock on a given day.

     The pro forma market value determined herein is a preliminary value for the
Company's to-be-issued stock. Throughout the MHC process, RP Financial will: (1)
review changes in the Company's operations and financial condition; (2) monitor
the Company's operations and financial condition relative to the Peer Group to
identify any fundamental changes; (3) monitor the external factors affecting
value including, but not limited to, local and national economic conditions,
interest rates, and the stock market environment, including the market for
thrift stocks; and (4) monitor pending MHC offerings, and to a lesser extent,
standard conversion offerings, both regionally and nationally. If material
changes should occur prior to close of the offering, RP Financial will evaluate
if updated valuation reports should be prepared reflecting such changes and
their related impact on value, if any. RP Financial will also prepare a final
valuation update at the closing of the offering to determine if the prepared
valuation analysis and resulting range of value continues to be appropriate.

     The appraised value determined herein is based on the current market and
operating environment for the Company and for all thrifts. Subsequent changes in
the local and national economy, the legislative and regulatory environment, the
stock market, interest rates, and other external forces (such as natural
disasters or major world events), which may occur from time to time (often with
great unpredictability) may materially impact the market value of all thrift
stocks, including PSB Holdings' value, the market value of the stocks of public
MHC institutions, or PSB Holdings' value alone. To the extent a change in
factors impacting the



RP FINANCIAL, LC.
PAGE 4.3

Company's value can be reasonably anticipated and/or quantified, RP Financial
has incorporated the estimated impact into its analysis.

VALUATION ANALYSIS

     A fundamental analysis discussing similarities and differences relative to
the Peer Group was presented in Chapter III. The following sections summarize
the key differences between the Company and the Peer Group and how those
differences affect the pro forma valuation. Emphasis is placed on the specific
strengths and weaknesses of the Company relative to the Peer Group in such key
areas as financial condition, profitability, growth and viability of earnings,
asset growth, primary market area, dividends, liquidity of the shares, marketing
of the issue, management, and the effect of government regulations and/or
regulatory reform. We have also considered the market for thrift stocks, in
particular new issues, to assess the impact on value of PSB Holdings coming to
market at this time.

1.   FINANCIAL CONDITION

     The financial condition of an institution is an important determinant in
pro forma market value because investors typically look to such factors as
liquidity, capital, asset composition and quality, and funding sources in
assessing investment attractiveness. The similarities and differences in the
Company's and the Peer Group's financial strength are noted as follows:

  -  OVERALL A/L COMPOSITION. Loans funded by retail deposits were the primary
     components of both PSB Holdings' and the Peer Group's balance sheets. The
     Peer Group's interest-earning asset composition exhibited a higher
     concentration of loans and the Peer Group's loan portfolio composition
     reflected a greater degree of diversification into higher risk and higher
     yielding types of loans. Despite the Peer Group's more notable
     diversification into higher risk types of loans, the Company maintained a
     slightly higher risk weighted assets-to-assets ratio than the Peer Group.
     PSB Holdings' funding composition reflected similar concentrations of
     deposits and borrowings relative to the Peer Group's ratios. Overall, as a
     percent of assets, the Company maintained a higher level of
     interest-earning assets and a higher level of interest-bearing liabilities
     than indicated for the Peer Group, which resulted in a slightly lower
     IEA/IBL ratio for the Company. The infusion of stock proceeds should serve
     to increase the Company's IEA/IBL ratio and, thus, eliminate the
     comparative advantage currently indicated in the Peer Group's IEA/IBL
     ratio. For



RP FINANCIAL, LC.
PAGE 4.4

     valuation purposes, RP Financial concluded no adjustment was warranted for
     the Company's overall asset/liability composition.

  -  CREDIT QUALITY. The Company maintained lower ratios of non-performing
     assets-to-assets and non-performing loans-to-loans. Reserve coverage ratios
     were stronger for the Peer Group, both as a percent of loans and as a
     percent of non-performing loans. Net loan charge-offs were slightly higher
     for the Peer Group, while the Company maintained a slightly higher risk
     weighted assets-to-assets ratio. Overall, in comparison to the Peer Group,
     the Company's measures imply a lower degree of credit exposure and, thus,
     RP Financial concluded that a slight upward adjustment was warranted for
     the Company's credit quality.

  -  BALANCE SHEET LIQUIDITY. The Company operated with a higher level of cash
     and investment securities relative to the Peer Group (44.4% of assets
     versus 36.3% for the Peer Group). PSB Holdings' future borrowing capacity
     was considered to be comparable to the Peer Group's, in light of the
     similar level of borrowings that were maintained by the Company and the
     Peer Group. Overall, balance sheet liquidity for the Company and the Peer
     Group were not viewed as being materially different and, thus, RP Financial
     concluded that no adjustment was warranted for the Company's balance sheet
     liquidity.

  -  FUNDING LIABILITIES. Retail deposits and borrowings comprised a similar
     portion of the Company's and the Peer Group's respective funding
     compositions. The Company's overall funding composition provided for a
     slightly higher cost of funds than maintained by the Peer Group. In total,
     the Company maintained a higher level of interest-bearing liabilities than
     the Peer Group, which was attributable to PSB Holdings' lower capital
     position. Following the stock offering, the increase in the Company's
     capital position should provide PSB Holdings' with a comparable or lower
     level of interest-bearing liabilities than maintained by the Peer Group.
     Overall, RP Financial concluded that no adjustment was warranted for PSB
     Holdings' funding composition.

 -   CAPITAL. The Peer Group operates with a higher equity-to-assets ratio than
     the Company. However, following the stock offering, PSB Holdings' pro forma
     capital position will likely exceed the Peer Group's equity-to-assets
     ratio. The Company's higher pro forma capital position will result in
     greater leverage potential and reduce the level of interest-bearing
     liabilities utilized to fund assets. At the same time, the Company's more
     significant capital surplus will likely result in a depressed ROE. Overall,
     RP Financial concluded that a slight upward adjustment was warranted for
     the Company's pro forma capital position.

     On balance, PSB Holdings' balance sheet strength was considered to be
slightly more favorable than Peer Group's, as implied by the Company's slightly
more favorable credit quality and slightly stronger pro forma capital position.
Accordingly, we concluded that a slight upward valuation adjustment was
warranted for the Company's financial condition.



RP FINANCIAL, LC.
PAGE 4.5

2.   PROFITABILITY, GROWTH AND VIABILITY OF EARNINGS

     Earnings are a key factor in determining pro forma market value, as the
level and risk characteristics of an institution's earnings stream and the
prospects and ability to generate future earnings heavily influence the multiple
that the investment community will pay for earnings. The major factors
considered in the valuation are described below.

     -    REPORTED EARNINGS. The Company reported slightly lower earnings on a
          ROAA basis (0.58% of average assets versus 0.61% for the Peer Group).
          Higher levels of net interest income and non-interest operating income
          supported the Peer Group's higher return, which was largely offset by
          the Company's lower level of loss provisions and operating expenses. A
          lower effective tax rate and higher net gains also represented modest
          earnings advantages for the Peer Group. Reinvestment and leveraging of
          the net stock proceeds should enhance returns for the Company, but the
          pick-up in earnings will be somewhat offset by the increase in
          operating expenses that will result from the implementation of the
          stock benefit plans and expenses related to operating as a
          publicly-traded company with shareholders to report to. Overall, the
          Company's and the Peer Group's reported earnings were considered to be
          fairly comparable and, thus, RP Financial concluded that no adjustment
          was appropriate for the Company's reported earnings.

     -    CORE EARNINGS. The Company's and the Peer Group's earnings were
          derived largely from recurring sources, including net interest income,
          operating expenses, and non-interest operating income. In these
          measures, the Company operated with a lower net interest margin, a
          lower operating expense ratio and a lower level of non-interest
          operating income. The Company's lower net interest margin and lower
          level of operating expenses translated into an expense coverage ratio
          that was comparable to the Peer Group's ratio (1.13x versus 1.11x for
          the Peer Group). PSB Holdings' efficiency ratio of 75.9% was also
          comparable to the Peer Group's efficiency ratio of 74.4%. Loss
          provisions had a larger impact on the Peer Group's earnings, which was
          consistent with the Peer Group's slightly less favorable credit
          quality measures and greater diversification into higher risk types of
          lending. Overall, these measures, as well as the expected earnings
          benefits the Company should realize from the redeployment of stock
          proceeds into interest-earning assets, which will somewhat be negated
          by expenses associated with the stock benefit plans and operating as a
          publicly-traded company, indicate that the Company's and the Peer
          Group's core are fairly comparable. Therefore, RP Financial concluded
          that no adjustment was necessary for core earnings.

     -    INTEREST RATE RISK. Quarterly changes in the Company's and the Peer
          Group's net interest income to average assets ratios indicated that a
          slightly higher degree of volatility was associated with the Company's
          net interest margin. The Peer Group's stronger capital and IEA/IBL
          ratios, partially offset by the Company's lower level of



RP FINANCIAL, LC.
PAGE 4.6

          non-interest earning assets, implied a lower dependence on the
          yield-cost spread to sustain net interest income. On a pro forma
          basis, the Company's capital position and IEA/IBL ratio will be
          enhanced by the infusion of stock proceeds and should eliminate the
          current advantages indicated for the Peer Group's ratios. Overall, RP
          Financial concluded that the interest rate risk associated with the
          Company's earnings was comparable to the Peer Group's earnings
          interest rate risk exposure and no valuation adjustment was necessary
          for this factor.

     -    CREDIT RISK. Loan loss provisions were a larger factor in the Peer
          Group's earnings, as only a modest amount of loss provisions were
          established by the Company for the twelve months ended March 31, 2004.
          In terms of future exposure to credit quality related losses, the
          Company's and the Peer Group's credit quality measures generally
          implied a comparable degree of earnings credit risk exposure. In
          particular, the lower earnings credit risk associated with the
          Company's lower ratios of non-performing assets and non-performing
          loans was considered to be offset by the lower earnings credit risk
          associated with the Peer Group's stronger reserve coverage ratios as a
          percent of loans and non-performing loans. Overall, RP Financial
          concluded that no adjustment was warranted for this factor.

     -    EARNINGS GROWTH POTENTIAL. Several factors were considered in
          assessing earnings growth potential. First, the Company's and the Peer
          Group's recent historical balance sheet growth was comparable. Second,
          the infusion of stock proceeds will increase the Company's earnings
          growth potential with respect to leverage capacity, as the Company's
          pro forma leverage capacity should be comparable to or greater than
          the Peer Group's. Lastly, the Peer Group's more diversified operations
          into areas that generate non-interest operating income provides
          greater earnings growth potential and sustainability of earnings
          during periods when net interest margins come under pressure as the
          result of higher interest rates. Overall, the Company's earnings
          growth potential appears to be comparable to the Peer Group's, and,
          thus, we concluded that no adjustment was warranted for this factor.

     -    RETURN ON EQUITY. As the result of the increase in capital that will
          be realized from the infusion of net stock proceeds, the Company's
          return on equity will be below the comparable averages for the Peer
          Group and all publicly-traded thrifts. In view of the lower capital
          growth rate that will be imposed by PSB Holdings' lower ROE, we
          concluded that a slight downward adjustment was warranted for the
          Company's ROE.

     Overall, no adjustment was applied for the Company's profitability, growth
and viability of earnings.



RP FINANCIAL, LC.
PAGE 4.7

3.   ASSET GROWTH

     PSB Holdings' asset growth rate was similar to the Peer Group's during the
period covered in our comparative analysis (4.9% versus 4.4% for the Peer
Group). Additionally, both the Company's and the Peer Group's asset growth was
realized through growth of loans, as opposed to lower yielding cash and
investments. On a pro forma basis, the Company's tangible equity-to-assets ratio
will be above the Peer Group's tangible equity-to-assets ratio, indicating
greater leverage capacity for the Company. On average, the demographic
characteristics of the Company's primary market area were considered to be
comparable to the markets served by the Peer Group companies with respect to
supporting lending and deposit growth opportunities. On balance, we concluded
that a slight upward adjustment was warranted for this factor.

4.   PRIMARY MARKET AREA

     The general condition of an institution's market area has an impact on
value, as future success is in part dependent upon opportunities for profitable
activities in the local market served. PSB Holdings' primary market area for
loans and deposits is considered to be Windham County, where the main office and
all of its branches are located. Windham County has experienced growth in
population and household income since 2000, with such growth being comparable to
the Connecticut growth rates but lower than the U.S. growth rates. Household and
per capita income measures for Windham County were less than Connecticut
measures, reflecting the more rural characteristics of the Company's market
area.

     Overall, the markets served by the Peer Group companies were viewed as
being comparable with respect to supporting growth opportunities. Windham
County's population growth was stronger than the markets served by the Peer
Group companies, but, on average, the Peer Group companies serve more populous
markets than Windham County. Per capita income for the markets served by the
Peer Group companies was on average comparable to Windham County's per capita
income. The average deposit market share maintained by the Peer Group companies
was comparable to the Company's market share of deposits in Windham County. In
general, the degree of competition faced by the Peer Group companies was viewed
as being comparable to the Company's competitive environment. Summary
demographic and deposit



RP FINANCIAL, LC.
PAGE 4.8

market share data for the Company and the Peer Group companies is provided in
Exhibit III-3. As shown in Table 4.1, March 2004 unemployment rates for the
majority of the markets served by the Peer Group companies were higher than the
unemployment rate reflected for Windham County. On balance, we concluded that no
adjustment was appropriate for the Company's market area.

                                    Table 4.1
                         Market Area Unemployment Rates
               PSB Holdings, Inc. and the Peer Group Companies(1)



                                                                                               MARCH 2004
                                                            COUNTY                           UNEMPLOYMENT
                                                            ------                           ------------
                                                                                           
     PSB Holdings - CT                                      Windham                               6.0%

     THE PEER GROUP

     Alliance Bank MHC - PA                                 Delaware                              5.0%
     BCSB Bankcorp MHC - MD                                 Baltimore                             4.3
     Gouverneur Bancorp MHC - NY                            St. Lawrence                         10.4
     Greene Co. Bancorp MHC - NY                            Greene                                6.3
     Jacksonville SB MHC - IL                               Morgan                                6.0
     Oneida Financial MHC - NY                              Madison                               7.9
     Pathfinder Bancorp MHC - NY                            Oswego                               10.2
     Rome Bancorp MHC - NY                                  Oneida                                6.2
     Westfield Financial Group MHC- MA                      Hampden                               6.7
     Webster City Fed Bancorp MHC - IA                      Hamilton                              4.1


     (1)  Unemployment rates are not seasonally adjusted.

     Source: U.S. Bureau of Labor Statistics.

5.   DIVIDENDS

     At this time the Company has not established a dividend policy. Future
declarations of dividends by the Board of Directors will depend upon a number of
factors, including investment opportunities, growth objectives, financial
condition, profitability, tax considerations, minimum capital requirements,
regulatory limitations, stock market characteristics and general economic
conditions.

     All ten of the Peer Group companies pay regular cash dividends, with
implied dividend yields ranging from 1.00% to 4.86%. The average dividend yield
on the stocks of the Peer



RP FINANCIAL, LC.
PAGE 4.9

Group institutions equaled 2.59% as of May 21, 2004. As of May 21, 2004,
approximately 89% of all publicly-traded thrifts had adopted cash dividend
policies (see Exhibit IV-1), exhibiting an average yield of 2.18%. The dividend
paying thrifts generally maintain higher than average profitability ratios,
facilitating their ability to pay cash dividends.

     Our valuation adjustment for dividends for PSB Holdings also considered the
regulatory policy with regard to waiver of dividends by the MHC. Under current
policy, any waiver of dividends by an FDIC regulated MHC requires that the
minority stockholders' ownership interest be reduced in a second-step conversion
to reflect the cumulative waived dividend account. Comparatively, no adjustment
for waived dividends is required for OTS regulated companies in a second-step
conversion. As an MHC operating under OTS regulation, the Company will be
subject to the same regulatory dividend policy as a large majority of the Peer
Group companies (nine of the Peer Group companies operate under OTS regulation).
Accordingly, we believe that to the extent PSB Holdings' pro forma market value
would be influenced by the OTS' dividend policy regarding MHC institutions, it
has been sufficiently captured in the pricing of the Peer Group companies.

     While the Company has not established a definitive dividend policy prior to
converting, the Company will have the capacity to pay a dividend comparable to
the Peer Group's average dividend yield based on pro forma earnings and
capitalization. On balance, we concluded that no adjustment was warranted for
purposes of the Company's dividend policy.

6.   LIQUIDITY OF THE SHARES

     The Peer Group is by definition composed of companies that are traded in
the public markets. Eight of the Peer Group members trade on the NASDAQ system
and two of the Peer Group members trade on the AMEX. Typically, the number of
shares outstanding and market capitalization provides an indication of how much
liquidity there will be in a particular stock. The market capitalization of the
Peer Group companies, based on the shares issued and outstanding to public
shareholders (i.e., excluding the majority ownership interest owned by the
respective MHCs) ranged from $11.8 million to $97.5 million as of May 21, 2004,
with average and median market values of $31.7 million and $24.0 million,
respectively. The shares issued



RP FINANCIAL, LC.
PAGE 4.10

and outstanding to the public shareholders of the Peer Group members ranged from
688,000 to 4.9 million, with average and median shares outstanding of 1.8
million and 1.2 million, respectively. The Company's minority stock offering is
expected to have a pro forma market value that is comparable to the Peer Group
average, while public shares outstanding for the Company is expected to be in
the upper end of the range of shares outstanding maintained by the individual
Peer Group companies. Like the majority of the Peer Group companies, the
Company's stock will be quoted on the NASDAQ National Market System following
the stock offering. Overall, we anticipate that the Company's public stock will
have a comparable trading market as the Peer Group companies on average and,
therefore, concluded no adjustment was necessary for this factor.

7.   MARKETING OF THE ISSUE

     Three separate markets exist for thrift stocks: (1) the after-market for
public companies, both fully-converted stock companies and MHCs, in which
trading activity is regular and investment decisions are made based upon
financial condition, earnings, capital, ROE, dividends and future prospects; (2)
the new issue market in which converting thrifts are evaluated on the basis of
the same factors but on a pro forma basis without the benefit of prior
operations as a publicly-held company and stock trading history; and (3) the
thrift acquisition market. All three of these markets were considered in the
valuation of the Company's to-be-issued stock.

     A.   THE PUBLIC MARKET

          The value of publicly-traded thrift stocks is easily measurable, and
is tracked by most investment houses and related organizations. Exhibit IV-1
provides pricing and financial data on all publicly-traded thrifts. In general,
thrift stock values react to market stimuli such as interest rates, inflation,
perceived industry health, projected rates of economic growth, regulatory issues
and stock market conditions in general. Exhibit IV-2 displays historical stock
market trends for various indices and includes historical stock price index
values for thrifts and commercial banks. Exhibit IV-3 displays historical stock
price indices for thrifts only.



RP FINANCIAL, LC.
PAGE 4.11

          In terms of assessing general stock market conditions, the performance
of the overall stock market has been mixed over the past year. The broader stock
market sustained a positive trend through the second half of May and into
early-June 2003, as the Dow Jones Industrial Average ("DJIA") moved above 9000
on investor optimism that low interest rates, the tax-cut plan and improving
consumer confidence would boost the economy. After experiencing a mild set back
following an earnings warning from Motorola and news of a shake-up in Freddie
Mac's top management due to accounting concerns, the stock market recovered in
mid-June on growing expectations that the Federal Reserve would cut rates
further to stimulate the economy. Stocks eased lower at the close of the second
quarter largely on profit taking.

          The broader stock market surged higher at the beginning of the third
quarter of 2003 on growing optimism about the economy and the sustainability of
the bull market. The NASDAQ posted a 14-month high in early-July, before
declining slightly on profit taking and disappointing economic data related to
an increase in jobless claims. Generally upbeat second quarter earnings and more
signs of an economic upturn provided for a positive trend in the broader stock
market in mid- and late-July, as the DJIA posted its fifth straight monthly
gain. Economic data that showed a strengthening economy, particularly in the
manufacturing sector, sustained the upward momentum in stocks through August and
into-early September, as the DJIA and NASDAQ posted respective 14-month and
16-month highs. Stocks retreated following the release of August employment data
which showed further job losses, but then recovered in mid-September as the
Federal Reserve indicated that it would not raise rates in the near term. Weaker
than expected numbers for consumer confidence and manufacturing activity pulled
the boarder market lower at the close of the third quarter, which ended a streak
of six monthly gains in the DJIA.

          Comparatively, at the start of the fourth quarter stocks showed
renewed strength, as optimism about third quarter earnings and employment data
for September provided a boost to stocks. In mid-October, the DJIA and the
NASDAQ hit 16- and 19-month highs, respectively, primarily on the basis of some
favorable third quarter earnings reports. The broader stock market rally cooled
in mid-October, as the result of profit taking and the posting of some less
favorable third quarter earnings by some of the bellwether technology and
manufacturing stocks. Indications that the economic recovery was gaining
momentum, including an annualized GDP



RP FINANCIAL, LC.
PAGE 4.12

growth rate of 8.2% in the third quarter, as well as the Federal Reserve's
statement that it would not raise its target interest rates for a considerable
period, supported a stock market rally during late-October and into
early-November. Despite upbeat economic news, including employment data that
showed the size of the U.S. workforce increased in October, stocks edged lower
in mid-November on profit taking and concerns over increased terrorism in the
Middle East. In late-November and early-December 2003, positive economic news
such as improved third quarter corporate profits and a strong start to the
Christmas shopping season provided a boost to stocks. Stocks continued to move
higher at the close of 2003, as key sectors of the economy continued to show
signs of strengthening.

          Year end momentum in the stock market was sustained at the beginning
of 2004, reflecting generally favorable fourth quarter earnings and an increase
in consumer confidence. Profit taking and slower than expected GDP growth in the
fourth quarter of 2003 caused stocks to falter in late-January. However, aided
by January employment data that showed jobs were added and a decline in the
national unemployment rate to 5.6%, the broader stock market moved higher during
the first half of February. Stocks generally declined during the balance of
February and during the first half of March, reflecting valuation concerns
following a year of strong gains and weaker than expected job growth during
February. Concerns about terrorism and higher oil prices caused stocks to tumble
in late-March, before rebounding at the close of the first quarter on more
attractive fundamentals and optimism about first quarter earnings.

          Stocks moved higher in early April 2004, as investors reacted
favorably to a strong employment report for March. For the balance of April
trading in the broader market produced uneven results, as generally favorable
first quarter earnings and strong economic data weighed against the growing
threat of inflation and higher interest rates. The DJIA closed below 10000 for
the first time in 2004 in the second week of May, as strong job growth during
April raised expectations of a rate increase by the Federal Reserve. The
downward trend in stocks prevailed through most of May, on concerns about higher
oil prices, violence in the Middle East and higher interest rates. As an
indication of the general trends in the nation's stock markets over the past
year, as of May 21, 2004, the DJIA closed at 9966.74 an increase of 15.9% from
one year ago and a decline of 4.7% year-to-date, and the NASDAQ closed at
1912.09, an increase of 26.6% from one year ago and a decline of 4.6%
year-to-date. The Standard & Poors 500 Index



RP FINANCIAL, LC.
PAGE 4.13

closed at 1093.56 on May 21, 2004 an increase of 17.2% from one year ago and a
decline of 1.7% year-to-date.

          The market for thrift stocks has been mixed during the past twelve
months, but, in general, thrift stocks have appreciated in conjunction with the
broader market. Thrift stocks participated in the broader stock market rally in
late-May and the first half of June 2003, largely on the basis of recent deal
activity in the thrift sector and some favorable economic data. Freddie Mac's
management shake-up had a negative ripple effect throughout the thrift sector,
but the pullback was only temporary as thrift issues recovered in conjunction
with the broader stock market. Profit taking pulled the thrift sector lower in
late-June. However, thrift issues recovered modestly at the close of the second
quarter, which was supported by merger speculation following New York Community
Bancorp's announced acquisition of Roslyn Bancorp.

          The rally in the broader stock market combined with acquisition
speculation in certain regional markets lifted thrift issues higher at the
beginning of the third quarter of 2003. Thrift issues traded in a narrow range
through most of July, reflecting mixed earnings in the sector. Higher mortgage
rates and strength in technology stocks pushed thrift stocks lower in
early-August, as investors rotated into sectors that were expected to benefit
the most from an economic recovery. After edging higher in mid-August, thrift
stocks eased lower at the end of August on expectations that interest rates
would continue to move higher as the economic recovery gained momentum. Merger
activity and acquisition speculation in the thrift sector provided a boost to
thrift prices in early-September. After easing lower into mid-September on data
that showed a slow down in refinancing activity, thrift stocks strengthened
following the Federal Reserve's decision to leave interest rates unchanged at
its mid-September meeting.

          After following the broader stock market lower in late-September 2003,
thrift issues posted solid gains at the beginning of the fourth quarter. A rally
in the broader stock market and acquisition activity were noteworthy factors
that supported the positive trend in thrift stocks. Following a two week run-up,
thrift stocks declined in mid-October on profit taking and a pullback in the
broader market. Merger activity, most notably Bank America's announced
acquisition of FleetBoston Financial Corp., along with strength in the broader
market, provided for gains in the thrift sector during late-October. The
positive trend in thrift stocks carried into



RP FINANCIAL, LC.
PAGE 4.14

early-November, reflecting expectations of improving net interest margins and
more consolidation among thrift stocks. Thrifts stocks eased lower in
mid-November in conjunction with the decline in the broader market. In
late-November and early-December 2003, thrift stocks followed the broader market
higher and then stabilized at the close of the fourth quarter.

          After trading in a narrow range at the beginning of 2004, thrift
issues trended higher in late-January and the first half of February. The
positive trend was supported by further consolidation in the thrift sector,
including GreenPoint Financial's agreement to sell to North Fork Bancorp, as
well as generally favorable fourth quarter earnings. Indications that interest
rates would continue to remain low provided further support to thrift prices.
Thrift stocks followed the broader market lower in mid-February, before
recovering in late-February following a dip in long term Treasury yields. Thrift
issues generally experienced some selling pressure during the first half of
March, reflecting profit taking and weakness in the broader stock market. Higher
interest rates and weakness in the broader market pressured thrift issues lower
in late-March, which was followed by an upward move in thrift prices at the
close of the first quarter.

          Thrifts stocks generally traded lower at the start of the second
quarter of 2004, as a strong employment report for March pushed interest rates
higher. Higher interest rates and inflation worries pressured interest rate
sensitive issues lower through most of April, with the sell-off sharpening in
early-May following another strong employment report for April. Thrift stocks
recovered modestly in mid-May as the yield on 10-year Treasury note declined
slightly. On May 21, 2004, the SNL Index for all publicly-traded thrifts closed
at 1,468.1, an increase of 22.1% from one year ago and a decline of 1.0%
year-to-date. The SNL MHC Index closed at 2,550.7 on May 21, 2004, an increase
of 34.2% from one year ago and a decline of 4.2% year-to-date.

     B.   THE NEW ISSUE MARKET

          In addition to thrift stock market conditions in general, the new
issue market for converting thrifts is also an important consideration in
determining the Company's pro forma market value. The new issue market is
separate and distinct from the market for seasoned thrift stocks in that the
pricing ratios for converting issues are computed on a pro forma basis,



RP FINANCIAL, LC.
PAGE 4.15

specifically: (1) the numerator and denominator are both impacted by the
conversion offering amount, unlike existing stock issues in which price change
affects only the numerator; and (2) the pro forma pricing ratio incorporates
assumptions regarding source and use of proceeds, effective tax rates, stock
plan purchases, etc. which impact pro forma financials, whereas pricing for
existing issues are based on reported financials. The distinction between
pricing of converting and existing issues is perhaps no clearer than in the case
of the price/tangible book ("P/TB") ratio in that the P/TB ratio of a converting
thrift will typically result in a discount to tangible book value whereas in the
current market for existing thrifts the P/TB ratio often reflects a premium to
tangible book value. Therefore, it is appropriate to also consider the market
for new issues, both at the time of the conversion and in the aftermarket.

          Thrift offerings completed in 2004 have generally been well received,
with most offerings being oversubscribed and trading higher in initial trading
activity. However, reflecting the general pull back in thrift stocks, the most
recent stand conversion, SE Financial Corp., traded below its IPO price in
initial trading activity and the recently completed MHC offerings have traded
down from their initial price appreciation following the close of their
respective offerings. As shown in Table 4.2, two standard conversion offerings
and five mutual holding company offerings were completed during the past three
months. The mutual holding company offerings are considered to be more relevant
for purposes of our analysis. All five of the MHC offerings were closed at the
top of the super range. On a fully-converted basis, the average closing pro
forma price/tangible book ratio of the recent MHC offerings equaled 88.5%. On
average, the prices of the recent MHC offerings reflected price appreciation of
29.0% after the first week of trading and then reflected lower price
appreciation of 17.6% after one month of trading.

     Shown in Table 4.3 are the current pricing ratios of NewAlliance
Bancshares, which is the only NASDAQ or Exchange listed fully-converted offering
that has been completed within the past three months. NewAlliance's closing
market price of $13.75 on May 21, 2004 represented a 37.5% increase from its IPO
price.



RP FINANCIAL, LC.
PAGE 4.18

     C.   THE ACQUISITION MARKET

          Also considered in the valuation was the potential impact on PSB
Holdings' stock price of recently completed and pending acquisitions of other
savings institutions operating in Connecticut. As shown in Exhibit IV-4, there
were eight Connecticut thrift acquisitions completed from 2001 through
year-to-date 2004, and there are currently no pending acquisitions of a
Connecticut savings institution. To the extent that acquisition speculation may
impact the Company's valuation, we have largely taken this into account in
selecting companies which operate in the MHC form of ownership. Accordingly, the
Peer Group companies are considered to be subject to the same type of
acquisition speculation that may influence PSB Holdings' trading price.

                              * * * * * * * * * * *

          In determining our valuation adjustment for marketing of the issue, we
considered trends in both the overall thrift market, the new issue market
including the new issue market for MHC shares and the local acquisition market
for thrift stocks. Taking these factors and trends into account, RP Financial
concluded that no adjustment was appropriate in the valuation analysis for
purposes of marketing of the issue.

8.   MANAGEMENT

     PSB Holdings' management team appears to have experience and expertise in
all of the key areas of the Company's operations. Exhibit IV-5 provides summary
resumes of PSB Holdings' Board of Directors and senior management. While the
Company does not have the resources to develop a great deal of management depth,
given its asset size and the impact it would have on operating expenses,
management and the Board have been effective in implementing an operating
strategy that can be well managed by the Company's present organizational
structure.

     Similarly, the returns, capital positions and other operating measures of
the Peer Group companies are indicative of well-managed financial institutions,
which have Boards and management teams that have been effective in implementing
competitive operating strategies.



RP FINANCIAL, LC.
PAGE 4.19

Therefore, on balance, we concluded no valuation adjustment relative to the Peer
Group was appropriate for this factor.

9.   EFFECT OF GOVERNMENT REGULATION AND REGULATORY REFORM

     In summary, as a federally-insured savings bank operating in the MHC form
of ownership, Putnam Savings will operate in substantially the same regulatory
environment as the Peer Group members -- all of whom are adequately capitalized
institutions and are operating with no apparent restrictions. Exhibit IV-6
reflects the Bank's pro forma regulatory capital ratios. The one difference
noted between PSB Holdings' and the small minority of Peer Group companies that
operate as FDIC regulated institutions was in the area of regulatory policy
regarding dividend waivers (see the discussion above for "Dividends"). Since
this factor was already accounted for in the "Dividends" section of this
appraisal, no further adjustment has been applied for the effect of government
regulation and regulatory reform.

SUMMARY OF ADJUSTMENTS

     Overall, based on the factors discussed above, we concluded that the
Company's pro forma market value should reflect the following valuation
adjustments relative to the Peer Group:



     KEY VALUATION PARAMETERS:                                                     VALUATION ADJUSTMENT
     ------------------------                                                      --------------------
                                                                                
     Financial Condition                                                           Slight Upward
     Profitability, Growth and Viability of Earnings                               No Adjustment
     Asset Growth                                                                  Slight Upward
     Primary Market Area                                                           No Adjustment
     Dividends                                                                     No Adjustment
     Liquidity of the Shares                                                       No Adjustment
     Marketing of the Issue                                                        No Adjustment
     Management                                                                    No Adjustment
     Effect of Government Regulations and Regulatory Reform                        No Adjustment




RP FINANCIAL, LC.
PAGE 4.20

BASIS OF VALUATION - FULLY-CONVERTED PRICING RATIOS

     As indicated in Chapter III, the valuation analysis included in this
section places the Peer Group institutions on equal footing by restating their
financial data and pricing ratios on a "fully-converted" basis. We believe there
are a number of characteristics of MHC shares that make them different from the
shares of fully-converted companies. These factors include: (1) lower
aftermarket liquidity in the MHC shares since less than 50% of the shares are
available for trading; (2) no opportunity for public shareholders to exercise
voting control; (3) the potential pro forma impact of second-step conversions on
the pricing of MHC institutions; (4) the regulatory policies regarding the
dividend waiver policy by MHC institutions; and (5) the middle-tier structure
maintained by most MHCs facilitates the ability for stock repurchases. The above
characteristics of MHC shares have provided MHC shares with different trading
characteristics versus fully-converted companies. To account for the unique
trading characteristics of MHC shares, RP Financial has placed the financial
data and pricing ratios of the Peer Group on a fully-converted basis to make
them comparable for valuation purposes. Using the per share and pricing
information of the Peer Group on a fully-converted basis accomplishes a number
of objectives. First, such figures eliminate distortions that result when trying
to compare institutions that have different public ownership interests
outstanding. Secondly, such an analysis provides ratios that are comparable to
the pricing information of fully-converted public companies, and more
importantly, are directly applicable to determining the pro forma market value
range of the 100% ownership interest in PSB Holdings as an MHC. Lastly, such an
analysis allows for consideration of the potential dilutive impact of dividend
waiver policies adopted by the Federal agencies. This technique is validated by
the investment community's evaluation of MHC pricing, which also incorporates
the pro forma impact of a second-step conversion based on the current market
price.

     To calculate the fully-converted pricing information for MHCs, the reported
financial information for the public MHCs must incorporate the following
assumptions, based on completed second step conversions to date: (1) all shares
owned by the MHC are assumed to be sold at the current trading price in a second
step-conversion; (2) the gross proceeds from such a sale were adjusted to
reflect reasonable offering expenses and standard stock based benefit plan
parameters that would be factored into a second-step conversion of MHC
institutions; (3) net



RP FINANCIAL, LC.
PAGE 4.21

proceeds are assumed to be reinvested at market rates on a tax effected basis;
and (4) the public ownership interest is adjusted to reflect the pro forma
impact of the waived dividends pursuant to applicable regulatory policy. Book
value per share and earnings per share figures for the public MHCs were adjusted
by the impact of the assumed second step-conversion, resulting in an estimation
of book value per share and earnings per share figures on a fully-converted
basis. Table 4.4 on the following page shows the calculation of per share
financial data (fully-converted basis) for each of the ten public MHC
institutions that form the Peer Group.

VALUATION APPROACHES: FULLY-CONVERTED BASIS

     In applying the accepted valuation methodology promulgated by the OTS and
adopted by the FDIC, i.e., the pro forma market value approach, including the
fully-converted analysis described above, we considered the three key pricing
ratios in valuing PSB Holdings' to-be-issued stock -- price/earnings ("P/E"),
price/book ("P/B"), and price/assets ("P/A") approaches -- all performed on a
pro forma basis including the effects of the stock proceeds. In computing the
pro forma impact of the conversion and the related pricing ratios, we have
incorporated the valuation parameters disclosed in PSB Holdings' prospectus for
reinvestment rate, effective tax rate, stock benefit plan assumptions and the
Foundation (summarized in Exhibits IV-7 and IV-8). Pursuant to the minority
stock offering, we have also incorporated the valuation parameters disclosed in
PSB Holdings' prospectus for offering expenses. The assumptions utilized in the
pro forma analysis in calculating the Company's full conversion value were
consistent with the assumptions utilized for the minority stock offering, except
expenses were assumed to equal 2.0% of gross proceeds.

     In our estimate of value, we assessed the relationship of the pro forma
pricing ratios relative to the Peer Group, recent conversions and MHC offerings.

     RP Financial's valuation placed an emphasis on the following:

     -    P/E APPROACH. The P/E approach is generally the best indicator of
          long-term value for a stock. Given the similarities between the
          Company's and the Peer Group's earnings composition and overall
          financial condition, the P/E approach was carefully considered in this
          valuation. At the same time, recognizing that (1) the earnings



RP FINANCIAL, LC.
PAGE 4.23

          multiples will be evaluated on a pro forma fully-converted basis for
          the Company as well as for the Peer Group; and (2) the Peer Group on
          average has had the opportunity to realize the benefit of reinvesting
          the minority offering proceeds, we also gave weight to the other
          valuation approaches.

     -    P/B APPROACH. P/B ratios have generally served as a useful benchmark
          in the valuation of thrift stocks, particularly in the context of an
          initial public offering, as the earnings approach involves assumptions
          regarding the use of proceeds. RP Financial considered the P/B
          approach to be a valuable indicator of pro forma value taking into
          account the pricing ratios under the P/E and P/A approaches. We have
          also modified the P/B approach to exclude the impact of intangible
          assets (i.e., price/tangible book value or "P/TB"), in that the
          investment community frequently makes this adjustment in its
          evaluation of this pricing approach.

     -    P/A APPROACH. P/A ratios are generally a less reliable indicator of
          market value, as investors typically assign less weight to assets and
          attribute greater weight to book value and earnings. Furthermore, this
          approach as set forth in the regulatory valuation guidelines does not
          take into account the amount of stock purchases funded by deposit
          withdrawals, thus understating the pro forma P/A ratio. At the same
          time, the P/A ratio is an indicator of franchise value, and, in the
          case of highly capitalized institutions, high P/A ratios may limit the
          investment community's willingness to pay market multiples for
          earnings or book value when ROE is expected to be low.

     The Company will adopt Statement of Position ("SOP") 93-6, which will cause
earnings per share computations to be based on shares issued and outstanding
excluding unreleased ESOP shares. For purposes of preparing the pro forma
pricing analyses, we have reflected all shares issued in the offering, including
all ESOP shares, to capture the full dilutive impact, particularly since the
ESOP shares are economically dilutive, receive dividends and can be voted.
However, we did consider the impact of the adoption of SOP 93-6 in the
valuation.

     Based on the application of the three valuation approaches, taking into
consideration the valuation adjustments discussed above, RP Financial concluded
that as of May 21, 2004, the pro forma market value of PSB Holdings' full
conversion offering, taking into account the dilutive impact of the stock
contribution to the Foundation, equaled $52,500,000 at the midpoint, equal to
5,250,000 shares at $10.00 per share.

          1.   PRICE-TO-EARNINGS ("P/E"). The application of the P/E valuation
     method requires calculating the Company's pro forma market value by
     applying a valuation P/E multiple (fully-converted basis) to the pro forma
     earnings base. In applying this



RP FINANCIAL, LC.
PAGE 4.24

     technique, we considered both reported earnings and a recurring earnings
     base, that is, earnings adjusted to exclude any one-time non-operating
     items, plus the estimated after-tax earnings benefit of the reinvestment of
     the net proceeds. The Company's reported earnings equaled $1.417 million
     for the twelve months ended March 31, 2004. In deriving PSB Holdings' core
     earnings, the only adjustments made to reported earnings were to eliminate
     net gains on the sale of loans and net losses on the sale of investments,
     which equaled $117,000 and $67,000, respectively, for the twelve months
     ended March 31, 2004. As shown below, on a tax effected basis, assuming an
     effective marginal tax rate of 39.9% for the gains and losses eliminated,
     the Company's core earnings were determined to equal $1.387 million for the
     twelve months ended March 31, 2004. (Note: see Exhibit IV-9 for the
     adjustments applied to the Peer Group's earnings in the calculation of core
     earnings).



                                                   AMOUNT
                                                  -------
                                                   ($000)
                                               
     Net income                                   $  1,417
     Gain on sale of loans(1)                          (70)
     Loss on sale of investments(1)                     40
                                                  --------
       Core earnings estimate                     $  1,387


     (1)  Tax effected at 39.9%.

     Based on PSB Holdings' reported and estimated core earnings, and
incorporating the impact of the pro forma assumptions discussed previously, the
Company's pro forma reported and core P/E multiples (fully-converted basis) at
the $52.5 million midpoint value equaled 38.90 times and 39.78 times,
respectively, which provided for premiums of 53.3% and 43.7% relative to the
Peer Group's average reported and core P/E multiples (fully-converted basis) of
25.37 times and 27.69 times, respectively (see Table 4.5). The implied premiums
reflected in the Company's pro forma P/E multiples take into consideration the
Company's pro forma P/B and P/A ratios. It also should be noted that in
assessing the relative premiums indicated for the Company's P/E multiples, the
P/E multiples for the Peer Group excluded multiples above 35



RP FINANCIAL, LC.
PAGE 4.26

times which accounted for half of the Peer Group companies and are shown as "NM"
in Table 4.5.

     2.   PRICE-TO-BOOK ("P/B"). The application of the P/B valuation method
requires calculating the Company's pro forma market value by applying a
valuation P/B ratio, as derived from the Peer Group's P/B ratio (fully-converted
basis), to PSB Holdings' pro forma book value (fully-converted basis). Based on
the $52.5 million midpoint valuation, PSB Holdings' pro forma P/B and P/TB
ratios both equaled 76.96%. In comparison to the average P/B and P/TB ratios for
the Peer Group of 95.38% and 99.00%, the Company's ratios reflected a discount
of 19.3% on a P/B basis and a discount of 22.3% on a P/TB basis. RP Financial
considered the discounts under the P/B approach to be reasonable, in light of
the previously referenced valuation adjustments, the nature of the calculation
of the P/B ratio which mathematically results in a ratio discounted to book
value and the resulting premium pricing ratios indicated under the earnings
approach.

     3.   PRICE-TO-ASSETS ("P/A"). The P/A valuation methodology determines
market value by applying a valuation P/A ratio (fully-converted basis) to the
Company's pro forma asset base, conservatively assuming no deposit withdrawals
are made to fund stock purchases. In all likelihood there will be deposit
withdrawals, which results in understating the pro forma P/A ratio which is
computed herein. At the midpoint of the valuation range, PSB Holdings' full
conversion value equaled 17.70% of pro forma assets. Comparatively, the Peer
Group companies exhibited an average P/A ratio (fully-converted basis) of
22.21%, which implies a discount of 20.3% has been applied to the Company's pro
forma P/A ratio (fully-converted basis).

COMPARISON TO RECENT OFFERINGS

          As indicated at the beginning of this chapter, RP Financial's analysis
of recent conversion and MHC offering pricing characteristics at closing and in
the aftermarket has been limited to a "technical" analysis and, thus, the
pricing characteristics of recent conversion offerings can not be a primary
determinate of value. Particular focus was placed on the P/TB approach in this
analysis, since the P/E multiples do not reflect the actual impact of
reinvestment



RP FINANCIAL, LC.
PAGE 4.27

and the source of the stock proceeds (i.e., external funds vs. deposit
withdrawals). The five recently completed MHC offerings closed at a
price/tangible book ratio of 88.5% (fully-converted basis) and, on average,
appreciated 29.0% during the first week of trading and then reflected lower
price appreciation of 17.6% after one month of trading. In comparison, the
Company's P/TB ratio of 77.0% at the midpoint value reflects an implied discount
of 13.0% relative to the average closing P/TB ratio of the recent MHC offerings.
At the top of the super range, the Company's P/TB ratio of 84.3% reflected an
implied discount of 4.7% relative to the average closing P/TB ratio of the
recent MHC offerings. Of the five recent MHC offerings, only K-Fed Bancorp and
Clifton Savings Bancorp were traded on NASDAQ. Based on K-Fed Bancorp's and
Clifton Savings Bancorp's average current P/TB ratio of 99.4% (fully-converted
basis), the Company's P/TB ratio at the midpoint reflects an implied discount of
22.6% and at the top of the super range reflects an implied discount of 15.2%.

VALUATION CONCLUSION

     Based on the foregoing, it is our opinion that, as of May 21, 2004, the
estimated aggregate pro forma market value of the shares to be issued
immediately following the conversion, both shares issued publicly as well as to
the MHC, equaled $52,500,000 at the midpoint, equal to 5,250,000 shares offered
at a per share value of $10.00. Pursuant to conversion guidelines, the 15%
offering range indicates a minimum value of $44.625 million and a maximum value
of $60.375 million. Based on the $10.00 per share offering price determined by
the Board, this valuation range equates to total shares outstanding of 4,462,500
at the minimum and 6,037,500 at the maximum. In the event the appraised value is
subject to an increase, the aggregate pro forma market value may be increased up
to a supermaximum value of $69.431 million without a resolicitation. Based on
the $10.00 per share offering price, the supermaximum value would result in
total shares outstanding of 6,943,125. The Board of Directors has established a
public offering range such that the public ownership of the Company will
constitute a 44.5% ownership interest prior to the issuance of shares to the
Foundation. Accordingly, the offering to the public of the minority stock will
equal $19.858 million at the minimum, $23.363 million at the midpoint, $26.867
million at the maximum and $30.897 million at the supermaximum of the valuation
range. Based on the public offering range and



RP FINANCIAL, LC.
PAGE 4.28

inclusive of the shares issued to the Foundation, equal to 4.0% of the offering
shares, the public ownership of shares will represent 46.28% of the shares
issued throughout the valuation range. The pro forma valuation calculations
relative to the Peer Group (fully-converted basis) are shown in Table 4.5 and
are detailed in Exhibit IV-7 and Exhibit IV-8; the pro forma valuation
calculations relative to the Peer Group based on reported financials are shown
in Table 4.6 and are detailed in Exhibits IV-10 and IV-11.

EX-99.4

                                                                    Exhibit 99.4


                                       June 7, 2004


Board of Directors
Putnam Bancorp, MHC
PSB Holdings, Inc.
Putnam Savings Bank
40 Main Street
Putnam, Connecticut  06260

Re:   Plan of Stock Issuance:
      PSB Holdings, Inc.

Members of the Boards of Directors:

         All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Pan of Stock Issuance adopted by the Board of
Directors of PSB Holdings, Inc. ("PSB Holdings" or the "Company"). Pursuant to
the Plan of Stock Issuance, PSB Holdings will issue a majority of its common
stock to the Putnam Bancorp, MHC and sell a minority of its stock to the public.

         We understand that in accordance with the Plan of Stock Issuance,
subscription rights to purchase shares of common stock in the Company are to be
issued to: (1) Eligible Account Holders; (2) Tax-Qualified Employee Plans; (3)
Supplemental Eligible Account Holders; and (4) Other Members. Based solely upon
our observation that the subscription rights will be available to such parties
without cost, will be legally non-transferable and of short duration, and will
afford such parties the right only to purchase shares of common stock at the
same price as will be paid by members of the general public in the community
offering, but without undertaking any independent investigation of state or
federal law or the position of the Internal Revenue Service with respect to this
issue, we are of the belief that, as a factual matter:

         (1)      the subscription rights will have no ascertainable market
                  value; and

         (2)      the price at which the subscription rights are exercisable
                  will not be more or less than the pro forma market value of
                  the shares upon issuance.

         Changes in the local and national economy, the legislative and
regulatory environment, the stock market, interest rates, and other external
forces (such as natural disasters or significant world events) may occur from
time to time, often with great unpredictability and may materially impact the
value of thrift stocks as a whole or the Company's value alone. Accordingly, no
assurance can be given that persons who subscribe to shares of common stock in
the subscription offering will thereafter be able to buy or sell such shares at
the same price paid in the subscription offering.

                                                Sincerely,


                                                /s/ RP Financial, LC.


                                                RP FINANCIAL, LC.