~~Table~~UNITED ofSTATES SECURITIES ~~Contents~~AND EXCHANGE COMMISSION

~~UNITED~~Washington, ~~STATES SECURITIES~~DC ~~AND EXCHANGE COMMISSION~~20549

~~Washington,~~FORM ~~DC 20549~~10-Q

~~FORM~~QUARTERLY ~~10-Q~~ REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~QUARTERLY~~For ~~REPORT~~the ~~UNDER~~quarterly ~~SECTION~~period 13ended ORSeptember 1530, ~~(d) OF~~2010 ~~THE SECURITIES~~Commission ~~EXCHANGE~~File ~~ACT~~No.: ~~OF 1934~~000-50301

~~For~~PSB ~~the quarterly period ended June 30~~GROUP, ~~2010~~INC.

~~Commission~~(Exact ~~File~~name ~~No.:~~of ~~000-50301~~registrant as specified in its charter)

~~PSB~~Michigan ~~GROUP,~~(State ~~INC~~or other jurisdiction of incorporation or organization) 42-1591104 (I. R.S. Employer I.D. No.)

~~(Exact~~1800 ~~name~~East ofTwelve ~~registrant~~Mile asRoad, ~~specified~~Madison inHeights, ~~its~~Michigan ~~charter~~48071 (Address of principal executive offices)

Michigan		42-1591104
(State or other jurisdiction of		(I.R.S. Employer I.D. No.)
incorporation or organization)

Registrant’s telephone number: (248) 548-2900

~~1800~~Indicate ~~East~~by ~~Twelve~~check ~~Mile~~mark ~~Road,~~whether ~~Madison~~the ~~Heights,~~registrant ~~Michigan~~(1) has ~~48071~~filed all reports required to be filed by Section 13 or 15(~~Address~~d) of ~~principal~~the ~~executive~~Securities ~~offices~~Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and, (2) has been subject to such filing requirements for past 90 days:

~~Registrant’s~~Yes ~~telephone~~þ No ~~number: (248) 548-2900~~o

Indicate by check mark whether the registrant ~~(1)~~ has ~~filed~~submitted ~~all~~electronically ~~reports~~and ~~required~~posted toon beits corporate ~~filed~~Web ~~by Section 13~~site, orif ~~15(d)~~any, ofevery ~~the~~Interactive ~~Securities~~Data ~~Exchange~~File ~~Act~~required to be submitted and posted pursuant to Rule 405 of ~~1934~~Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to ~~file~~submit ~~such reports)~~ and, ~~(2) has~~post ~~been subject to~~ such ~~filing requirements for past 90 days:~~files).

Yes þ o No o

Indicate by check mark whether the registrant ~~has~~is ~~submitted~~a ~~electronically~~large ~~and~~accelerated ~~posted~~filer, onan ~~its corporate~~accelerated ~~Web site~~filer, ifa non-accelerated ~~any~~filer, ~~every~~or ~~Interactive~~a ~~Data~~smaller ~~File~~reporting ~~required~~company. toSee bethe ~~submitted~~definitions ~~and~~of ~~posted~~“large accelerated ~~pursuant~~filer,” to“accelerated ~~Rule 405~~filer” ofand ~~Regulation S-T~~“smaller ~~during~~reporting ~~the~~company” ~~preceding~~in 12Rule ~~months~~12b-2 ~~(or~~of ~~for such shorter period that~~ the ~~registrant~~Exchange ~~was required to submit and post such files)~~Act.

~~Yes~~Large accelerated filer o NoAccelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company þ

Indicate by check mark whether the registrant is a ~~large accelerated~~shell ~~filer, an accelerated filer, a non-accelerated filer, or a smaller reporting~~ company. ~~See~~(as ~~the~~defined ~~definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”~~ in Rule 12b-2 of the Exchange Act~~. (Check one~~):

~~Large~~Yes ~~accelerated filer~~ o No ~~Accelerated filer o Non-accelerated filer o Smaller reporting company~~ þ ~~(Do not check if a smaller reporting company)~~

~~Indicate~~The byRegistrant ~~check~~had ~~mark~~3,463,963 ~~whether~~shares ~~the~~of ~~registrant~~Common isStock aoutstanding ~~shell company (~~as ~~defined~~of ~~in Rule~~November ~~12b-2~~15, ~~of the Exchange Act):~~ 2010.

~~Yes~~TABLE oOF ~~No þ~~CONTENTS

The Registrant had 3,492,784 shares of Common Stock outstanding as of July 23, 2010.


	PAGE
PART I — FINANCIAL INFORMATION		3
ITEM 1. FINANCIAL STATEMENTS		3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		19
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		27
ITEM 4T: CONTROLS AND PROCEDURES		28

PART II. — OTHER INFORMATION		29
Item 1. Legal Proceedings		29
Item 1A. Risk Factors		29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 3. Defaults Upon Senior Securities		29
Item 4. (RESERVED)		29
Item 5. Other Information		29
Item 6. Exhibits		29
SIGNATURES		30

~~TABLE~~Information OFConcerning ~~CONTENTS~~Forward-Looking Statements

	PAGE
PART I – FINANCIAL INFORMATION		3
ITEM 1. FINANCIAL STATEMENTS		3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		19
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		25
ITEM 4T: CONTROLS AND PROCEDURES		26
PART II. — OTHER INFORMATION		27
Item 1. Legal Proceedings		27
Item 1A. Risk Factors		27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		27
Item 3. Defaults Upon Senior Securities		27
Item 4. (RESERVED)		27
Item 5. Other Information		27
Item 6. Exhibits		27
SIGNATURES		28
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Statements contained in this Form 10-Q which are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve important known and unknown risks, uncertainties and other factors and can be identified by phrases using “estimate,” “anticipate,” “believe,” “project,” “expect,” “intend,” “predict,” “potential,” “future,” “may,” “should” and similar expressions or words. Such forward-looking statements are subject to risk and uncertainties which could cause actual results to differ materially from those projected. Such risks and uncertainties include potential changes in interest rates, competitive factors in the financial services industry, general economic conditions, the effect of new legislation, the failure of assumptions and estimates underlying the establishment of reserves for possible loan losses, the failure of assumptions and estimates used in our reviews of our loan portfolio, changes in the values of residential and commercial real estate, and other risks detailed in documents filed by the Company with the Securities and Exchange Commission from time to time.

~~Information Concerning Forward-Looking Statements~~2

~~Statements~~PART ~~contained~~I in—FINANCIAL ~~this Form 10-Q which are not historical facts are “forward-looking~~INFORMATION statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve important known and unknown risks, uncertainties and other factors and can be identified by phrases using “estimate,” “anticipate,” “believe,” “project,” “expect,” “intend,” “predict,” “potential,” “future,” “may,” “should” and similar expressions or words. Such forward-looking statements are subject to risk and uncertainties which could cause actual results to differ materially from those projected. Such risks and uncertainties include potential changes in interest rates, competitive factors in the financial services industry, general economic conditions, the effect of new legislation, the failure of assumptions and estimates underlying the establishment of reserves for possible loan losses, the failure of assumptions and estimates used in our reviews of our loan portfolio, changes in the values of residential and commercial real estate, and other risks detailed in documents filed by the Company with the Securities and Exchange Commission from time to time.

2ITEM 1. FINANCIAL STATEMENTS

~~Table~~Application of ~~Contents~~Critical Accounting Policies

~~PART~~ Allowance Ifor –Loan ~~FINANCIAL~~Losses ~~INFORMATION~~— The allowance for loan losses is calculated with the objective of maintaining a reserve sufficient to absorb estimated probable loan losses. Loan losses are charged against the allowance when management believes loan balances are uncollectible. Subsequent recoveries, if any, are credited to the allowance. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. This evaluation is inherently subjective as it requires an estimate of the loss content for each risk rating and for each impaired loan, an estimate of the amounts and timing of expected future cash flows and an estimate of the value of collateral.

~~ITEM~~ A 1loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement. ~~FINANCIAL~~Factors ~~STATEMENTS~~considered by management in determining impairment include payment status, collateral value and the probability of collecting principal and interest payments when due. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures.

~~Application~~ Accounting for Deferred Taxes — Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effect of ~~Critical~~the ~~Accounting~~various ~~Policies~~temporary differences between the book value and tax basis of the various balance sheet assets and liabilities, and gives the current recognition of changes in tax rates and laws. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

~~Allowance~~3 for Loan Losses – The allowance for loan losses is calculated with the objective of maintaining a reserve sufficient to absorb estimated probable loan losses. Loan losses are charged against the allowance when management believes loan balances are uncollectible. Subsequent recoveries, if any, are credited to the allowance. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. This evaluation is inherently subjective as it requires an estimate of the loss content for each risk rating and for each impaired loan, an estimate of the amounts and timing of expected future cash flows and an estimate of the value of collateral.

APSB ~~loan is considered impaired when~~Group, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due, according to the contractual terms of the loan agreementInc. ~~Factors considered by management in~~ ~~determining impairment include payment status, collateral value and the probability of collecting~~ ~~principal~~Consolidated ~~and~~Balance ~~interest payments when due. Impairment is measured on a loan-by-loan basis for~~Sheet ~~commercial and construction loans by either the present value of expected future cash flows~~ ~~discounted~~(in ~~at the loan’s effective interest rate~~thousands, ~~the~~except ~~loan’s~~share ~~obtainable market price, or the fair~~data) value of the collateral if the loan is collateral dependent. Large groups of homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures.

Accounting for Deferred Taxes – Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effect of the various temporary differences between the book value and tax basis of the various balance sheet assets and liabilities, and gives the current recognition of changes in tax rates and laws. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.


	September 30,			December 31,
	2010			2009
	(unaudited)
Assets
Cash and cash equivalents	$	30,127		$	29,260
Securities available for sale		52,829			60,031
Loans		333,709			354,263
Less allowance for possible loan loss		(13,853	)		(9,469	)

Net loans		319,856			344,794
Loans held for sale		485			774
Bank premises and equipment		15,010			15,937
Accrued interest receivable		2,101			2,244
Other real estate owned		6,565			6,235
Other assets		2,815			2,754

Total assets	$	429,788		$	462,029

Liabilities
Deposits:
Non-interest bearing	$	58,385		$	54,647
Interest bearing		361,028			388,098

Total deposits		419,413			442,745
Long-term debt		128			282
Accrued taxes, interest and other liabilities		2,162			2,284

Total liabilities		421,703			445,311
Shareholders’ Equity
Common stock — no par value — 10,000,000 authorized — 3,463,963 shares issued and outstanding at September 30, 2010 and 3,480,110 at December 31, 2009		23,367			23,692
Unearned ESOP benefits		(128	)		(282	)
Common stock held in trust		(410	)		(410	)
Deferred compensation obligation		410			410
Additional paid in capital — stock options/awards		1,382			1,096
Unearned compensation		(1,287	)		(1,182	)
Retained earnings		(15,937	)		(6,740	)
Accumulated other comprehensive income		688			134

Total shareholders’ equity		8,085			16,718

Total liabilities and stockholders’ equity	$	429,788		$	462,029

~~Table~~PSB Group, Inc. Consolidated Statement of ~~Contents~~Income (unaudited) (in thousands, except share data)

PSB Group, Inc. Consolidated Balance Sheet (in thousands, except share data)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Interest Income:
Interest and fees on loans	$	4,550		$	5,122		$	14,307		$	16,600
Securities:
Taxable		457			590			1,588			1,784
Tax-exempt		12			54			49			163

Total interest income		5,019			5,766			15,944			18,547
Interest expense:
Deposits		1,139			2,148			3,751			6,630
Interest on borrowings		—			78			—			287

Total interest expense		1,139			2,226			3,751			6,917


Net interest income		3,880			3,540			12,193			11,630
Provision for loan losses		8,562			1,620			10,903			6,378


Net interest income after provision for loan losses		(4,682	)		1,920			1,290			5,252
Other operating income:
Service charges on deposit accounts		624			670			1,828			1,843
Gain on the sale of investment securities		(49	)		866			177			1,974
Other income		315			359			1,322			1,197

Total other income		890			1,895			3,327			5,014
Other operating expense:
Salaries and employee benefits		1,555			1,933			5,271			6,129
Occupancy costs		701			792			1,974			2,361
Legal and professional		682			340			1,678			1,085
Other real estate owned expense		471			231			964			1,103
Marketing expense		28			61			125			251
FDIC insurance		488			294			1,659			1,091
Other operating expense		739			837			2,143			2,126

Total other operating expenses		4,664			4,488			13,814			14,146


Loss — before federal income tax (benefit)		(8,456	)		(673	)		(9,197	)		(3,880	)
Federal income tax benefit		—			—			—			23

Net loss	$	(8,456	)	$	(673	)	$	(9,197	)	$	(3,903	)


Loss per average outstanding share of common stock — Basic	$	(2.42	)	$	(.19	)	$	(2.63	)	$	(1.12	)

Fully diluted		(2.42	)		(.19	)		(2.63	)		(1.12	)

Cash dividends per share	$	.00		$	.00		$	.00		$	.00

	June 30,
	2010 (unaudited)			December 31, 2009
Assets
Cash and cash equivalents	$	42,567		$	29,260
Securities available for sale		39,927			60,031
Loans		343,480			354,263
Less allowance for possible loan loss		(8,061	)		(9,469	)
Net loans		335,419			344,794
Loans held for sale		794			774
Bank premises and equipment		15,253			15,937
Accrued interest receivable		2,108			2,244
Other real estate owned		7,148			6,235
Other assets		2,336			2,754
Total assets	$	445,552		$	462,029
Liabilities
Deposits:
Non-interest bearing	$	57,490		$	54,647
Interest bearing		369,165			388,098
Total deposits		426,655			442,745
Long-term debt		128			282
Accrued taxes, interest and other liabilities		2,335			2,284
Total liabilities		429,118			445,311
Shareholders’ Equity
Common stock – no par value – 10,000,000 authorized — 3,492,784 shares issued and outstanding at June 30, 2010 and 3,480,110 at December 31, 2009		23,604			23,692
Unearned ESOP benefits		(128	)		(282	)
Common stock held in trust		(410	)		(410	)
Deferred compensation obligation		410			410
Additional paid in capital – stock options/awards		1,350			1,096
Unearned compensation		(1,287	)		(1,182	)
Retained earnings		(7,481	)		(6,740	)
Accumulated other comprehensive income		376			134
Total shareholders’ equity		16,434			16,718
Total liabilities and stockholders’ equity	$	445,552		$	462,029

4PSB Group, Inc. Consolidated Statement of Comprehensive Income (unaudited) (in thousands, except share data)


	Nine Months Ended
	September 30,
	2010			2009
Net loss	$	(9,197	)	$	(3,903	)

Other comprehensive income (loss):
Change in unrealized loss on securities available for sale, net of tax		731			1,534

Less reclassification adjustment for gains included in net loss		(177	)		(1,974	)


Other comprehensive income (loss)		554			(440	)


Comprehensive loss	$	(8,643	)	$	(4,343	)

~~PSB Group, Inc.~~6 ~~Consolidated Statement of Income (unaudited) (in thousands, except share data)~~

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Interest Income:
Interest and fees on loans	$	4,789		$	5,632		$	9,757		$	11,478
Securities:
Taxable		589			592			1,131			1,194
Tax-exempt		11			54			37			109
Total interest income		5,389			6,278			10,925			12,781
Interest expense:
Deposits		1,223			2,192			2,612			4,482
Interest on borrowings		—			106			—			209
Total interest expense		1,223			2,298			2,612			4,691
Net interest income		4,166			3,980			8,313			8,090
Provision for loan losses		1,955			2,541			2,341			4,758
Net interest income after provision for loan losses		2,211			1,439			5,972			3,332
Other operating income:
Service charges on deposit accounts		596			604			1,204			1,173
Gain on the sale of investment securities		222			847			226			1,108
Other income		480			471			1,007			838
Total other income		1,298			1,922			2,437			3,119
Other operating expense:
Salaries and employee benefits		1,934			2,025			3,716			4,196
Occupancy costs		521			798			1,273			1,569
Legal and professional		430			312			996			745
Other real estate owned expense		201			352			493			872
Marketing expense		46			55			97			190
FDIC insurance		509			602			1,171			797
Other operating expense		692			669			1,404			1,289
Total other operating expenses		4,333			4,813			9,150			9,658
Loss – before federal income tax (benefit)		(824	)		(1,452	)		(741	)		(3,207	)
Federal income tax benefit		—			—			—			23
Net loss	$	(824	)	$	(1,452	)	$	(741	)	$	(3,230	)
Loss per average outstanding share of common stock – Basic	$	(.24	)	$	(.42	)	$	(.21	)	$	(.93	)
Fully diluted		(.24	)		(.42	)		(.21	)		(.93	)
Cash dividends per share	$	.00		$	.00		$	.00		$	.00

PSB Group, Inc.
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)
Nine Months Ended September 30, 2010
(in thousands, except share data)


							Unearned			Common			Deferred		Add’l Paid in										Total
	Number of			Common			ESOP			Stock			Comp.		Capital - Stock		Unearned			Retained			Accumulated		Shareholders’
	Shares			Stock			Benefits			Held in Trust			Obligation		Options/Awards		Compensation			Earnings			OCI		Equity
Balance — December 31, 2009		3,480,110		$	23,692			($282	)		($410	)	$	410	$	1,096		($1,182	)		($6,740	)	$	134	$	16,718

Net loss																					(9,197	)				(9,197	)

Change in Other																								554		554

Comprehensive Income
Comprehensive Income																										(8,643	)

Earned ESOP Benefit								154																		154

Restricted Stock Awards (net of cancellations)		(16,147	)		(325	)																				(325	)

Additional paid in capital stock options and awards																286		(105	)							181


Balance — Sept. 30, 2010		3,463,963		$	23,367			($128	)		($410	)	$	410	$	1,382		($1,287	)		($15,937	)	$	688	$	8,085

~~Table of Contents~~7

PSB Group, Inc. Consolidated Statement of ~~Comprehensive~~Cash ~~Income~~Flows (~~unaudited~~Unaudited) (in thousands, except share data)

	Six Months Ended
	Nine Months Ended
	June 30,
	September 30,
	2010			2009
Net loss	$	(741	)	$	(3,230	)
Net cash provided by operating activities:	$	1,804		$	4,223
Other comprehensive income (loss):
Cash flow from investing activities:
Change in unrealized loss on securities available for sale, net of tax		468			114
Purchase of securities available for sale		(42,267	)		(94,200	)
Less reclassification adjustment for gains included in net loss		(226	)		(1,108	)
Proceeds from maturities of securities available for sale		10,811			8,418
Other comprehensive income (loss)		242			(994	)
Proceeds from sale of securities available for sale		39,129			69,582
Comprehensive loss	$	(499	)	$	(4,224	)
Net decrease in loans		14,324			4,283
Proceeds from sale of fixed assets		585			—
Capital expenditures		(187	)		(2,933	)
Net cash provided by (used in) investing activities		22,395			(14,850	)
Cash flow from financing activities:
Net increase (decrease) in deposits		(23,332	)		27,609
Net increase in short-term borrowings		—			5,500
Net decrease in FHLB Advances		—			(15,000	)
Repurchase of common stock		—			(52	)
Net cash (used in ) provided by financing activities		(23,332	)		18,057
Net increase in cash		867			7,430
Cash and Cash Equivalents — Beginning of period		29,260			12,268
Cash and Cash Equivalents — End of period	$	30,127		$	19,698
Supplemental Information — Cash paid (received) for:
Interest	$	3,823		$	7,027
Taxes	$	—		$	(1,218	)

~~Table~~PSB ofGroup, ~~Contents~~Inc. Notes to Consolidated Financial Statements (unaudited)

~~Six~~Note ~~Months~~1 ~~Ended~~— ~~June 30,~~Basis ~~2010 (in~~of ~~thousands, except share data)~~Presentation

						Unearned			Common			Deferred		Add’l Paid in										Total
	Number of		Common			ESOP			Stock			Comp.		Capital - Stock		Unearned			Retained			Accumulated		Shareholders’
	Shares		Stock			Benefits			Held in Trust			Obligation		Options/Awards		Compensation			Earnings			OCI		Equity
Balance — December 31, 2009		3,480,110	$	23,692		$	(282	)	$	(410	)	$	410	$	1,096	$	(1,182	)	$	(6,740	)	$	134	$	16,718
Net income																				(741	)				(741	)
Change in Other																							242		242
Comprehensive Income
Comprehensive Income																									(499	)
Earned ESOP Benefit							154																		154
Restricted Stock Awards (net of cancellations)		12,674		(88	)																				(88	)
Additional paid in capital stock options and awards															254		(105	)							149
Balance – June 30, 2010		3,492,784	$	23,604		$	(128	)	$	(410	)	$	410	$	1,350	$	(1,287	)	$	(7,481	)	$	376	$	16,434

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. We have condensed or omitted certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles. You should read these condensed financial statements in conjunction with our audited financial statements for the year ended December 31, 2009 and notes thereto included in PSB Group, Inc.’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2010. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations, and cash flows of PSB Group, Inc. as of September 30, 2010 and for the periods then ended have been made. Those adjustments consist only of normal and recurring adjustments. The results of operations for the nine-month period ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year.

7PSB Group, Inc. was formed as a holding company for Peoples State Bank on February 28, 2003 pursuant to a plan of reorganization adopted by Peoples State Bank and its shareholders. Pursuant to the reorganization, each share of the Bank’s stock was exchanged for three shares of stock in the holding company. The reorganization had no material financial impact and is reflected for all prior periods presented. Per share amounts have been retroactively restated to reflect the three-for-one exchange of stock.

~~Table~~In July 2010, the Financial Accounting Standards Board (“FASB”) issued ASU 2010-20, “Receivables (Topic 310): Disclosure about the Credit Quality of ~~Contents~~Financing Receivables and the Allowance for Credit Losses.” This new guidance requires additional disclosures that will allow users to understand the nature of credit risk inherent in a company’s loan portfolio, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and changes and reasons for those changes in the allowance for credit losses. The new disclosures that relate to information as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for the interim and annual reporting periods beginning on or after December 15, 2010.

~~PSB Group, Inc.~~9 ~~Consolidated Statement of Cash Flows (Unaudited) (in thousands, except share data)~~

	Six Months Ended
	June 30,
	2010			2009
Net cash provided by operating activities:	$	1,597		$	2,206
Cash flow from investing activities:
Purchase of securities available for sale		(25,795	)		(67,602	)
Proceeds from maturities of securities available for sale		7,039			6,127
Proceeds from sale of securities available for sale		39,129			33,242
Net decrease (increase) in loans		7,014			(1,044	)
Proceeds from sale of fixed assets		591			—
Capital expenditures		(178	)		(2,884	)
Net cash provided by (used in) investing activities		27,800			(32,161	)
Cash flow from financing activities:
Net increase (decrease) in deposits		(16,090	)		32,830
Repurchase of common stock		—			(52	)
Net cash (used in ) provided by financing activities		(16.090	)		32,778
Net increase in cash		13,307			2,823
Cash and Cash Equivalents – Beginning of period		29,260			12,268
Cash and Cash Equivalents – End of period	$	42,567		$	15,091
Supplemental Information – Cash paid (received) for:
Interest	$	2,666		$	4,747
Taxes	$	—		$	(250	)

Note 2 — Securities

8The amortized cost and estimated market value of securities are as follows (000s omitted):


	September 30, 2010
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
Available—for-sale securities:
U.S. treasury securities and obligations of U.S. government corporations and agencies	$	30,508	$	233	$	(56	)	$	30,685
Obligations of state and political subdivisions		17,532		547		—			18,079
Corporate debt securities		500		—		(50	)		450
Mortgage backed securities		2,070		13		—			2,083
Other		1,532		—		—			1,532

Total available-for-sale securities	$	52,142	$	793	$	(106	)	$	52,829

PSB Group, Inc. Notes to Consolidated Financial Statements (unaudited)


	December 31, 2009
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	39,946	$	302	$	(93	)	$	40,155
Obligations of state and political subdivisions		17,919		116		(141	)		17,894
Corporate debt securities		500		—		(50	)		450
Other		1,532		—		—			1,532

Total available-for-sale securities	$	59,897	$	418	$	(284	)	$	60,031

~~Note~~The 1amortized –cost ~~Basis~~and estimated market value of ~~Presentation~~securities at September 30, 2010, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. As of September 30, 2010, all securities are available for sale (000s omitted).

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10~~-Q and Rule 10-01 of Regulation S-X. We have condensed or omitted~~ certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles. You should read these condensed financial statements in conjunction with our audited financial statements for the year ended December 31, 2009 and notes thereto included in PSB Group, Inc.’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2010. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations, and cash flows of PSB Group, Inc. as of June 30, 2010 and for the periods then ended have been made. Those adjustments consist only of normal and recurring adjustments. The results of operations for the six-month period ended June 30, 2010 are not necessarily indicative of the results to be expected for the full year.

PSB Group, Inc. was formed as a holding company for Peoples State Bank on February 28, 2003 pursuant to a plan of reorganization adopted by Peoples State Bank and its shareholders. Pursuant to the reorganization, each share of the Bank’s stock was exchanged for three shares of stock in the holding company. The reorganization had no material financial impact and is reflected for all prior periods presented. Per share amounts have been retroactively restated to reflect the three-for-one exchange of stock.


	Available for Sale
	Amortized		Market
	Cost		Value
Due in one year or less	$	9,472	$	9,536
Due in one year through five years		7,668		7,838
Due after five years through ten years		2,145		2,159
Due after ten years		7,123		7,474

		26,408		27,007

Federal agency pools		24,202		24,290
Other		1,532		1,532

Total	$	52,142	$	52,829

~~Note~~Securities 2having –a ~~Securities~~carrying value of $28,937,000 (market value of $29,556,000) were pledged at September 30, 2010 to secure public deposits, repurchase agreements, and for other purposes required by law.

~~The~~Note ~~amortized~~3 ~~cost~~— ~~and estimated market value of securities are as follows (000s omitted):~~Loans

	June 30, 2010
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
Available–for-sale securities:
U.S. treasury securities and obligations of U.S. government corporations and agencies	$	20,691	$	149	$	(66	)	$	20,774
Obligations of state and political subdivisions		16.828		362		(19	)		17,171
Corporate debt securities		500		—		(50	)		450
Other		1,532		—		—			1,532
Total available-for-sale securities	$	39,551	$	511	$	(135	)	$	39,927

Major categories of loans included in the portfolio at September 30, 2010 and December 31, 2009 are as follows (dollars in thousands):


	September 30,		December 31,
	2010		2009
Commercial Real Estate	$	222,796	$	230,053
Residential Mortgages		76,186		81,887
Commercial		30,016		36,268
Consumer		4,711		6,055


Total	$	333,709	$	354,263

~~Table~~The Company places loans in non-accrual status when, in the opinion of ~~Contents~~management, uncertainty exists as to the ultimate collection of principal and interest. This typically includes loans that have exceeded 90 days past-due. Management knows of no loans (other than those that are immaterial in amount) which have not been disclosed below which cause it to have doubts as to the ability of the borrowers to comply with the contractual loan terms, or which may have a material effect on the Company’s balance sheet or results from operations. Non-performing assets consist of non-accrual loans, loans past due 90 or more days, restructured loans and real estate that has been acquired in full or partial satisfaction of loan obligations or upon foreclosure. As of September 30, 2010, other real estate owned consisted of 32 properties, compared to 39 properties at December 31, 2009. Other real estate is carried on the books at the lower of fair value less the estimated cost to sell, or the carrying amount of the loan at the date of foreclosure. The following table summarizes non-performing assets (dollars in thousands):

	December 31, 2009
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	39,946	$	302	$	(93	)	$	40,155
Obligations of state and political subdivisions		17,919		116		(141	)		17,894
Corporate debt securities		500		—		(50	)		450
Other		1,532		—		—			1,532
Total available-for-sale securities	$	59,897	$	418	$	(284	)	$	60,031

The amortized cost and estimated market value of securities at June 30, 2010, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. As of June 30, 2010, all securities are available for sale (000s omitted).


	September 30,			December 31,
	2010			2009
Non-accrual loans	$	41,558		$	38,026
Loans past due 90 or more days and still accruing		1,221			8
Restructured debt		30,998			25,118

Total non-performing loans		73,777			63,152
Other real estate owned		6,565			6,235

Total non-performing assets	$	80,342		$	69,387


Total non-performing loans to total loans		22.11	%		17.83	%

Total non-performing assets to total assets		18.69	%		15.02	%

	Available for Sale
	Amortized		Market
	Cost		Value
Due in one year or less	$	10,800	$	10,896
Due in one year through five years		8,690		8,740
Due after five years through ten years		75		75
Due after ten years		7,126		7,262
		26,691		26,973
Federal agency pools		11,328		11,422
Other		1,532		1,532
Total	$	39,551	$	39,927

Note 4 — Allowance for Possible Loan Losses

~~Securities~~Activity ~~having~~in athe ~~carrying~~allowance ~~value~~for ofpossible ~~$30,305,000~~loan ~~(market~~losses ~~value~~is ofas ~~$30,610,000)~~follows ~~were~~(dollars ~~pledged~~in atthousands): ~~June 30, 2010 to secure public deposits, repurchase agreements, and for other purposes required by law.~~


	Nine Months Ended			Year Ended
	September 30, 2010			December 31, 2009
Loan loss balance — Beginning of period	$	9,469		$	7,116

Provision for loan losses		10,903			16,169
Charge-offs		(6,844	)		(14,270	)
Recoveries		325			454


Loan loss balance — End of period	$	13,853		$	9,469


Allowance as a % of total loans		4.15	%		2.67	%
Allowance as a % of total non-performing loans		18.78	%		14.99	%

~~Table~~The allowance for possible loan losses is maintained at a level believed adequate by management to absorb potential losses from impaired loans as well as the remainder of ~~Contents~~the loan portfolio. The allowance for loan losses is based upon periodic analysis of the portfolio, economic conditions and trends, historical credit loss experience, borrowers’ ability to repay and collateral values.

~~Note 3 – Loans~~12

~~Major~~Note ~~categories~~5 of— ~~loans~~Fair ~~included~~Value ~~in the portfolio at June 30, 2010 and December 31, 2009 are as~~Measurements ~~follows (dollars in thousands):~~

	June 30,		December 31,
	2010		2009
Commercial Real Estate	$	226,612	$	230,053
Residential Mortgages		78,956		81,887
Commercial		32,305		36,268
Consumer		5,607		6,055
Total	$	343,480	$	354,263

The following tables contain information about the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2010, and the valuation techniques used by the Company to determine those fair values.

~~The~~In ~~Company places loans in non-accrual status when~~general, infair ~~the~~values ~~opinion~~determined ofby ~~management,~~Level ~~uncertainty exists~~1 asinputs touse ~~the~~quoted ~~ultimate~~prices ~~collection of principal and interest. This typically includes loans that have exceeded 90 days past-due. Management knows of no loans (other than those that are immaterial~~ in ~~amount)~~active ~~which~~markets ~~have not been disclosed below which cause it to have doubts as to the ability of~~for ~~the~~identical ~~borrowers to comply with the contractual loan terms, or which may have a material effect on the Company’s balance sheet or results from operations. Non-performing~~ assets ~~consist of non-accrual loans, loans past due 90~~ or ~~more~~liabilities ~~days, restructured loans and real estate~~ that has been acquired in full or partial satisfaction of loan obligations or upon foreclosure. As of June 30, 2010, other real estate owned consisted of 36 properties, compared to 39 properties at December 31, 2009. Other real estate is carried on the ~~books~~Company athas the ~~lower~~ability ~~of fair value less the estimated cost~~ to ~~sell,~~ ~~or the carrying amount of the loan at the date of foreclosure~~access. ~~The following table~~ ~~summarizes non-performing assets (dollars in thousands):~~

	June 30,			December 31,
	2010			2009
Non-accrual loans	$	41,980		$	38,026
Loans past due 90 or more days and still accruing		33			8
Restructured debt		32,485			25,118
Total non-performing loans		74,498			63,152
Other real estate owned		7,148			6,235
Total non-performing assets	$	81,646		$	69,387
Total non-performing loans to total loans		21.69	%		17.83	%
Total non-performing assets to total assets		18.33	%		15.02	%

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

11Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

~~Table~~In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of ~~Contents~~the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

~~Note~~Disclosures 4concerning –assets ~~Allowance~~and ~~for~~liabilities ~~Possible~~at ~~Loan~~fair ~~Losses~~value are as follows:

Activity in the allowance for possible loan losses is as follows (dollars in thousands):


	Quoted Prices
	in Active Markets		Significant Other		Significant
	for Identical Assets		Observable Inputs		Unobservable Inputs		Balance at
	(Level 1)		(Level 2)		(Level 3)		Sept. 30, 2010
Assets:
Investment securities available-for-sale:
U.S. treasury securities	$	1,006	$	—	$	—	$	1,006

U.S. government corporations and agencies		—		29,679		—		29,679

Obligations of state and political subdivisions		—		18,079		—		18,079

Corporate debt securities		—		—		450		450

Mortgage backed securities		—		2,083		—		2,083

Other		—		1,532		—		1,532


Total available-for-sale securities	$	1,006	$	51,373	$	450	$	52,829

	Six Months			Year Ended
	Ended			December 31,
	June 30, 2010			2009
Loan loss balance – Beginning of period	$	9,469		$	$7,116
Provision for loan losses		2,341			16,169
Charge-offs		(4,011	)		(14,270	)
Recoveries		262			454
Loan loss balance – End of period	$	8,061		$	9,469
Allowance as a % of total loans		2.35	%		2.67	%
Allowance as a % of total non-performing loans		10.82	%		14.99	%

~~The~~Changes ~~allowance~~in ~~for~~Level ~~possible~~3 ~~loan~~Assets ~~losses~~and isLiabilities ~~maintained~~Measured at aFair ~~level~~Value ~~believed~~on ~~adequate~~a byRecurring ~~management to~~Basis ~~absorb~~(dollars ~~potential~~in ~~losses from impaired loans as well as the remainder of the loan portfolio. The~~thousands) ~~allowance for loan losses is based upon periodic analysis of the portfolio, economic conditions and trends, historical credit loss experience, borrowers’ ability to repay and collateral values.~~

Note 5 – Fair Value Measurements


	Investment
	securities - available-
	for-sale
Balance at December 31, 2009	$	450
Total realized and unrealized gains (losses) included in income		—
Total unrealized gains (losses) included in other comprehensive income		—
Net purchases, sales, calls and maturities		—
Net transfers in/out of Level 3		—

Balance at September 30, 2010	$	450

~~The~~Investment ~~following~~Securities ~~tables~~Available ~~contain~~for ~~information~~Sale. ~~about~~Investment ~~the~~securities ~~Company’s~~available ~~assets~~for ~~and~~sale ~~liabilities~~are ~~measured~~recorded at fair value on a recurring basis. atFair ~~June 30~~value measurement is based upon quoted prices for similar assets, ~~2010~~if available. If quoted prices are not available, ~~and~~fair ~~the~~values are measured using matrix pricing models, or other model-based valuation techniques ~~used~~requiring observable inputs other than quoted prices such as yield curves, prepayment speeds, and default rates. Recurring Level 1 securities would include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter ~~Company~~markets. Recurring Level 2 securities include U.S. government agency securities, toU.S. ~~determine~~government ~~those~~sponsored agency securities, mortgage-backed securities, collateralized mortgage obligations and municipal bonds. Where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Changes in fair ~~values~~market value are recorded in other comprehensive income as the securities are available for sale.

InOf ~~general,~~the ~~fair~~Level ~~values~~3 ~~determined~~assets that were still held by ~~Level~~the 1Company ~~inputs~~at ~~use~~September 30, ~~quoted~~2010, ~~prices~~there were $50,000 in ~~active~~unrealized ~~markets~~losses ~~for~~recognized in other comprehensive income in the consolidated balance sheet. ~~identical~~There ~~assets~~were no gains or ~~liabilities~~losses ~~that~~realized through the ~~Company~~income ~~has~~statement for these assets during the nine ~~ability~~months toended ~~access~~September 30, 2010.

~~Fair~~Both ~~values~~observable ~~determined~~and byunobservable ~~Level 2~~ inputs ~~use~~may ~~other~~be ~~inputs~~used ~~that~~to ~~are~~determine ~~observable,~~the ~~either~~fair ~~directly~~value orof positions ~~indirectly.~~classified ~~These~~as Level 23 ~~inputs~~assets ~~include~~and ~~quoted~~liabilities. ~~prices~~As ~~for~~a ~~similar~~result, ~~assets~~the unrealized gains and ~~liabilities~~losses infor ~~active~~these ~~markets,~~assets and ~~other~~liabilities ~~inputs~~presented ~~such~~in asthe ~~interest~~tables ~~rates~~above ~~and~~may ~~yield~~include ~~curves~~changes in the fair value that ~~are~~were attributable to both observable ~~at commonly~~and ~~quoted~~unobservable ~~intervals~~inputs.

Available-for-sale investment securities categorized as Level 3 ~~inputs~~assets ~~are~~consist ~~unobservable~~of ~~inputs,~~a ~~including~~trust ~~inputs~~preferred investment ~~that~~issued ~~are~~by ~~available~~a inlocal ~~situations~~area ~~where there~~bank isholding ~~little,~~company. ifThe ~~any,~~Company ~~market~~estimates ~~activity~~fair ~~for~~value of these investments on the ~~related~~present ~~asset~~value orof ~~liability~~expected future cash flows using management’s best estimate of key assumptions.

InThe ~~instances~~Company ~~where~~also ~~inputs~~has ~~used~~assets that under certain conditions are subject to ~~measure~~measurement at fair value on ~~fall~~a ~~into~~non-recurring ~~different~~basis. ~~levels~~These inassets ~~the~~are ~~above~~impaired ~~fair value~~loans ~~hierarchy,~~accounted ~~fair~~for ~~value~~under ~~measurements~~FASB inASC ~~their~~Topic ~~entirety~~310: Accounting ~~are~~by ~~categorized~~Creditors ~~based~~for onImpairment ~~the~~of ~~lowest level~~a ~~input~~Loan, ~~that~~and isOther ~~significant~~Real toEstate ~~the valuation~~Owned. The Company’s ~~assessment~~has estimated the fair value of ~~the~~these ~~significance~~assets using Level 3 inputs, including discounted cash flow projections and estimated realizable value of the underlying collateral (typically based on ~~particular~~outside appraisals).

1214

~~Table~~Assets ofMeasured ~~Contents~~at Fair Value on a Nonrecurring Basis at September 30, 2010 (dollars in thousands)

inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.


					Significant				Total
			Quoted Prices in		Other		Significant		Losses
	Balance		Active Markets		Observable		Unobservable		YTD
	Sept. 30,		For Identical		Inputs		Inputs		Sept. 30,
	2010		Assets (Level 1)		(Level 2)		(Level 3)		2010
Assets
Impaired loans accounted for under FAS 114	$	53,876	$	—	$	—	$	53,876	$	3,427

Other Real Estate Owned	$	6,565	$	—	$	—	$	6,565	$	556

~~Disclosures~~Impaired ~~concerning~~Loans. ~~assets~~The ~~and~~Company ~~liabilities~~does not record loans at fair value ~~are~~on a recurring basis. However, on occasion, a loan is considered impaired and an allowance for loan loss is established. A loan is considered impaired when it is probable that all of the principal and interest due under the original terms of the loan may not be collected. Once a loan is identified as ~~follows~~individually impaired, management measures impairment in accordance with FASB ASC Topic 310: Accounting by Creditors for Impairment of a Loan. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. In accordance with FASB ASC Topic 825: The Fair Value Option for Financial Assets and Liabilities, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

	Ouoted Prices
	in Active Markets		Significant Other		Significant
	for Identical Assets		Observable Inputs		Unobservable Inputs		Balance at
	(Level 1)		(Level 2)		(Level 3)		June 30, 2010
Assets:
Investment securities available-for-sale:
U.S. treasury securities	$	1,006	$	—	$	—	$	1,006
U.S. governnment corporations and agencies		—		19,768		—	$	19,768
Obligations of state and political subdivisions		—		17,171		—		17,171
Corporate debt securities		—		—		450		450
Other		—		1,532		—		1,532
Total available-for-sale securities	$	1,006	$	38,471	$	450	$	39,927

Other Real Estate. Other real estate is carried at the lower of (1) the fair value of the asset, determined by current appraisal, less the estimated costs to sell the asset or (2) the remaining balance of the related loan.

~~Changes~~Other assets, including goodwill and other intangible assets, are also subject to periodic impairment assessments under other accounting principles generally accepted in ~~Level~~the 3United ~~Assets~~States ~~and~~of America. ~~Liabilities~~These ~~Measured~~assets atare ~~Fair~~not ~~Value~~considered onfinancial ainstruments. ~~Recurring~~Accordingly, ~~Basis~~these assets have ~~(dollars~~been inomitted ~~thousands)~~from the above disclosures.

	Investment
	securities - available-
	for-sale
Balance at December 31, 2009	$	450
Total realized and unrealized gains (losses) included in income		—
Total unrealized gains (losses) included in other comprehensive income		—
Net purchases, sales, calls and maturities		—
Net transfers in/out of Level 3		—
Balance at June 30, 2010	$	450

~~Investment~~Note ~~Securities~~6 ~~Available~~— ~~for~~Earnings ~~Sale.~~per ~~Investment securities available for sale are recorded at~~Share fair value on a recurring basis. Fair value measurement is based upon quoted prices for similar assets, if available. If quoted prices are not available, fair values are measured using matrix pricing models, or other model-based valuation techniques requiring observable inputs other than quoted prices such as yield curves, prepayment speeds, and default rates. Recurring Level 1 securities would include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. Recurring Level 2 securities include U.S. government agency securities, U.S. government sponsored

13Basic earnings per share are calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate to outstanding stock options.

~~Table~~Earnings ofper ~~Contents~~common share have been computed based on the following (in thousands, except per share data):

agency securities, mortgage-backed securities, collateralized mortgage obligations and municipal bonds. Where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Changes in fair market value are recorded in other comprehensive income as the securities are available for sale.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Net income (loss)	$	(8,456	)	$	(673	)	$	(9,197	)	$	(3,903	)

Average number of common shares outstanding used to calculate basic earnings per common share		3,488,795			3,476,310			3,492,488			3,476,149

Effect of dilutive securities		—			—			—			—


Average number of common shares outstanding used to calculate diluted earnings per common share		3,488,795			3,476,310			3,492,488			3,476,149


Number of anti-dilutive stock options excluded from diluted earnings per share computation		118,793			145,293			118,793			145,293

OfNote ~~the~~7 ~~Level~~— 3Fair ~~assets~~Value ~~that~~of ~~were~~Financial ~~still held by the Company at June 30, 2010, there were no~~Instruments unrealized gains or losses recognized in other comprehensive income in the consolidated balance sheet. There were no gains or losses realized through the income statement for these assets during the six months ended June 30, 2010.

~~Both~~The ~~observable~~fair ~~and~~value ~~unobservable~~of ~~inputs~~a ~~may~~financial instrument is the current amount that would be ~~used~~exchanged tobetween willing ~~determine~~parties, ~~the~~other ~~fair~~than in a forced liquidation. Fair value ofis ~~positions~~best determined based on quoted ~~classified~~market asprices. ~~Level~~However, 3in ~~assets~~many ~~and~~instances, ~~liabilities~~there are no quoted market prices for the Corporation’s various financial instruments. AsIn acases ~~result~~where quoted market prices are not available, ~~the~~fair ~~unrealized~~values are ~~gains~~based ~~and~~on ~~losses~~estimates ~~for~~using present value or other valuation techniques. Those techniques are ~~these~~significantly ~~assets~~affected by the assumptions used, including the discount rate and ~~liabilities~~estimates ~~presented~~of infuture cash flows. Accordingly, the ~~tables~~fair ~~above~~value estimates may ~~include~~not ~~changes~~be realized in an immediate settlement of the instrument. FASB ASC 825-10-50: Financial Instruments excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value ~~that~~ ~~were~~amounts ~~attributable~~presented tomay ~~both~~not ~~observable~~necessarily ~~and~~represent ~~unobservable~~the ~~inputs~~underlying fair value of the Corporation.

~~Available-for-sale~~The ~~investment~~following ~~securities~~methods ~~categorized~~and asassumptions ~~Level~~were 3used ~~assets consist of a trust preferred investment issued~~ by athe ~~local~~Corporation ~~area~~in ~~bank~~estimating ~~holding company. The Company estimates~~ fair value ~~of these~~ ~~investments~~disclosures onfor ~~the~~financial ~~present value of expected future cash flows using management’s best estimate of~~instruments: ~~key assumptions.~~

~~The~~Cash Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are impaired loans accounted for under FASB ASC Topic 310: Accounting by Creditors for Impairment of a Loan, and ~~Other~~Cash ~~Real~~Equivalents ~~Estate~~— ~~Owned.~~ The ~~Company~~carrying ~~has estimated~~amounts ~~the fair value~~ of ~~these assets using Level 3 inputs, including discounted~~ cash ~~flow projections~~ and ~~estimated~~short-term ~~realizable~~instruments ~~value of the underlying collateral (typically based on outside~~approximate ~~appraisals)~~fair values.

~~Assets~~Securities ~~Measured~~— ~~at Fair Value on a Nonrecurring Basis at June 30, 2010~~ (~~dollars~~See inNote ~~thousands~~5)

									Total
					Significant				Losses for
			Quoted Prices in		Other		Significant		the period
	Balance		Active Markets		Observable		Unobservable		ended
	June 30,		For Identical		Inputs		Inputs		June 30,
	2010		Assets (Level 1)		(Level 2)		(Level 3)		2010
Assets
Impaired loans accounted for under FAS 114	$	46,328	$	—	$	—	$	46,328	$	1,587
Other Real Estate Owned	$	7,148	$	—	$	—	$	7,148	$	212

14Loans Held for Sale - Fair values for loans held for sale are based on commitments on hand from investors or prevailing market prices.

~~Table~~Loans Receivable - For variable-rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (e.g., one-to four-family residential), credit card loans, and other consumer loans are based on quoted market prices of ~~Contents~~similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for other loans (e.g., commercial real estate and investment property, mortgage loans, commercial, and industrial loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

~~Impaired~~Deposit ~~Loans.~~Liabilities - The ~~Company does not record loans at~~ fair ~~value~~values ondisclosed afor ~~recurring~~demand ~~basis.~~deposits ~~However~~(e.g., ~~on occasion,~~interest ~~a loan is considered impaired~~ and ~~an allowance for loan loss is established. A loan is~~noninterest ~~considered~~checking, ~~impaired~~passbook ~~when~~savings, itand iscertain ~~probable~~types ~~that all~~ of ~~the~~money ~~principal~~market ~~and~~accounts) ~~interest~~are, ~~due~~by ~~under~~definition, ~~the~~equal ~~original~~to ~~terms of~~ the ~~loan~~amount ~~may~~payable ~~not~~on bedemand ~~collected.~~at ~~Once~~the areporting ~~loan~~date ~~is identified as individually impaired~~(i.e., ~~management~~their ~~measures~~carrying ~~impairment in accordance with FASB ASC Topic 310: Accounting by Creditors for Impairment of a Loan~~amounts). The ~~fair~~carrying amounts ~~value~~ of ~~impaired loans is estimated using one of several methods~~variable-rate, ~~including~~fixed-term ~~collateral~~money ~~value,~~ market ~~value~~accounts ~~of similar debt, enterprise value, liquidation value~~ and ~~discounted~~certificates ~~cash~~of ~~flows.~~deposit ~~Those impaired loans not requiring an allowance~~approximate ~~represent~~their ~~loans for which the~~ fair ~~value~~values ofat the ~~expected~~reporting ~~repayments or collateral exceed the recorded investments in such loans~~date. ~~In accordance with FASB ASC Topic 825: The~~ Fair ~~Value~~values ~~Option~~ for ~~Financial~~fixed-rate ~~Assets~~certificates ~~and~~of ~~Liabilities,~~deposit ~~impaired loans where an allowance is established based on the~~are ~~fair~~estimated ~~value~~using ofa ~~collateral~~discounted ~~require~~cash ~~classification~~flow incalculation ~~the~~that ~~fair~~applies ~~value~~interest ~~hierarchy.~~rates ~~When~~currently ~~the fair value of~~being ~~the~~offered ~~collateral is based~~ on ancertificates ~~observable~~to ~~market price or~~ a ~~current~~schedule ~~appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value~~ of ~~the~~aggregated ~~collateral~~expected ismonthly ~~further~~maturities ~~impaired~~on ~~below~~time ~~the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3~~deposits.

~~Other~~Long-term ~~Real~~Borrowings ~~Estate.~~- ~~Other~~The ~~real~~fair ~~estate~~values ~~is carried at the lower~~ of ~~(1)~~ the ~~fair~~Corporation’s ~~value~~long-term ofborrowings ~~the~~are ~~asset,~~estimated ~~determined~~using bydiscounted ~~current~~cash ~~appraisal,~~flow ~~less~~analyses ~~the~~based ~~estimated~~on ~~costs~~the toBank’s ~~sell~~current ~~the~~incremental ~~asset~~borrowing orrates ~~(2) the remaining~~for ~~balance~~similar types of ~~the~~borrowing ~~related loan~~arrangements.

~~Other~~Short-term ~~assets,~~Borrowings ~~including~~- ~~goodwill~~The ~~and~~carrying ~~other~~amounts ~~intangible~~of ~~assets,~~federal ~~are~~funds ~~also~~purchased, ~~subject~~borrowings ~~to periodic~~under ~~impairment~~repurchase ~~assessments~~agreements, ~~under~~and other ~~accounting~~short-term ~~principles~~borrowings ~~generally~~maturing ~~accepted~~within in90 days ~~the~~approximate ~~United States of~~their ~~America~~fair values. ~~These~~Fair ~~assets~~values ~~are~~of ~~not~~other ~~considered~~short-term ~~financial~~borrowings ~~instruments.~~are ~~Accordingly,~~estimated ~~these~~using ~~assets~~discounted ~~have~~cash flow ~~been~~analyses ~~omitted~~based ~~from~~on the ~~above~~Corporation’s ~~disclosures~~current incremental borrowing rates for similar types of borrowing arrangements.

~~Note~~Accrued 6Interest –- ~~Earnings~~The ~~per~~carrying ~~Share~~amounts of accrued interest approximate fair value.

~~Basic~~Other ~~earnings~~Instruments ~~per~~— ~~share~~The ~~are~~fair ~~calculated~~values ~~by dividing net income by the weighted average number~~ of ~~common~~ ~~shares~~other ~~outstanding~~financial ~~during~~instruments, ~~the~~including ~~period.~~loan ~~Diluted~~commitments ~~earnings per share reflect additional common~~and ~~shares~~unfunded ~~that~~letters ~~would~~of ~~have~~credit, ~~been~~based ~~outstanding~~on ifa ~~dilutive~~discounted ~~potential~~cash ~~common~~flow ~~shares~~analysis, ~~had~~are ~~been~~not ~~issued~~material. ~~Potential common shares that may be issued by the Company relate to outstanding stock options.~~

~~Earnings~~The ~~per~~estimated ~~common~~fair ~~share~~values ~~have~~and ~~been~~related ~~computed~~carrying ~~based~~values onor notional amounts of the ~~following~~Corporation’s financial ~~(in~~instruments ~~thousands,~~are ~~except~~as ~~per~~follows ~~share data~~(000s omitted):

1517


	September 30, 2010				December 31, 2009
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Assets:
Cash and short-term investments	$	30,127	$	30,127	$	29,260	$	29,260
Securities		52,829		52,829		60,031		60,031
Loans		319,856		329,526		344,794		357,800
Loans held for sale		485		494		774		794
Accrued interest receivable		2,101		2,101		2,244		2,244

Liabilities:
Noninterest-bearing deposits		58,385		58,385		54,647		54,647
Interest-bearing deposits		361,028		364,705		388,098		390,331
Long-term debt		128		128		282		282
Accrued interest payable		149		149		221		221

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Net income (loss)	$	(824	)	$	(1,452	)	$	(741	)	$	(3,230	)
Average number of common shares outstanding used to calculate basic earnings per common share		3,493,682			3,476,267			3,494,365			3,476,067
Effect of dilutive securities		—			—			—			—
Average number of common shares outstanding used to calculate diluted earnings per common share		3,493,682			3,476,267			3,494,365			3,476,067
Number of anti-dilutive stock options excluded from		131,293			145,293			131,293			145,293

~~Note~~ITEM 72. –MANAGEMENT’S ~~Fair~~DISCUSSION ~~Value~~AND ofANALYSIS ~~Financial~~OF ~~Instruments~~ FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~The fair value of a financial instrument is the current amount that would be exchanged between~~Overview willing parties, other than in a forced liquidation. Fair value is best determined based on quoted market prices. However, in many instances, there are no quoted market prices for the Corporation’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. FASB ASC 825-10-50: Financial Instruments excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Corporation.

~~The~~PSB ~~following~~Group, ~~methods~~Inc. ~~and~~(the ~~assumptions~~“Company”) ~~were~~was ~~used~~formed on February 28, 2003 as a bank holding company for the purpose of owning Peoples State Bank (the “Bank”) pursuant to a plan of reorganization adopted by the Bank and its shareholders. Pursuant to the ~~Corporation~~reorganization, ineach ~~estimating~~share ~~fair~~of ~~value~~Bank stock held by ~~disclosures~~existing shareholders was exchanged for three shares of common stock of PSB Group, Inc. The reorganization had no consolidated financial ~~instruments:~~statement impact. Share amounts for all prior periods presented have been restated to reflect the reorganization.

~~Cash~~The Bank was incorporated and ~~Cash~~chartered ~~Equivalents~~under -the laws of the state of Michigan in 1909. The ~~carrying~~Bank operated ~~amounts~~as a unit bank until July 20, 1992, when we opened our first branch office in Sterling Heights, Michigan. In May 1998, the Bank acquired Madison National Bank, Madison Heights, Michigan (“Madison”). On May 1, 2000, the Bank acquired 100% of ~~cash~~the ~~and~~common ~~short-term~~stock ~~instruments~~of ~~approximate~~Universal Mortgage ~~fair~~Corporation, ~~values~~a southeast Michigan based mortgage lender. Today we operate 11 banking offices.

~~Securities~~The –Bank provides customary retail and commercial banking services to our customers, including checking and savings accounts, time deposits, safe deposit facilities, commercial loans, real estate mortgage loans, installment loans, IRAs and night depository facilities. Our deposits are insured by the Federal Deposit Insurance Corporation (~~See~~“FDIC”) ~~Note~~to 5applicable legal limits and we are supervised and regulated by the FDIC and Michigan Office of Financial and Insurance Regulation (“OFIR”).

~~Loans~~The ~~Held~~Bank ~~for~~provides ~~Sale~~a –full ~~Fair~~range ~~values~~of ~~for~~retail ~~loans~~and ~~held~~commercial ~~for~~banking ~~sale~~services designed to meet the borrowing and depository needs of small and medium-sized businesses and consumers in local areas. Substantially all of our loans are ~~based~~to oncustomers ~~commitments~~located onwithin ~~hand~~our ~~from~~service area. The Bank has no ~~investors~~foreign loans or ~~prevailing~~highly ~~market~~leveraged ~~prices~~transaction loans, as defined by the Federal Reserve Board (“FRB”). The Bank conducts our lending activities pursuant to the loan policies adopted by our Board of Directors. These loan policies grant individual loan officers authority to make secured and unsecured loans in specific dollar amounts; senior officers or various loan committees must approve larger loans. Our management information systems and loan review policies are designed to monitor lending sufficiently to ensure adherence to our loan policies.

~~Loans~~The ~~Receivable~~Bank –also ~~For~~offers ~~variable-rate~~a ~~loans~~full ~~that~~range ~~re-price~~of ~~frequently~~deposit and ~~with~~personal nobanking ~~significant~~services ~~change~~insured by the FDIC, inincluding ~~credit~~(i) commercial ~~risk~~checking and small business checking products, ~~fair~~(ii) retirement ~~values~~accounts such ~~are~~as ~~based~~Individual onRetirement ~~carrying~~Accounts ~~values.~~(“IRA”), ~~Fair~~(iii) retail ~~values~~deposit ~~for~~services ~~certain~~such ~~mortgage~~as ~~loans~~certificates ~~(e.g.~~of deposits, ~~one-~~money tomarket ~~four-family~~accounts, ~~residential)~~savings accounts, ~~credit~~checking ~~card~~account ~~loans~~products and Automated Teller Machines (“ATMs”), Point of Sale and other ~~consumer~~electronic ~~loans~~services, ~~are~~and ~~based~~(iv) other onpersonal ~~quoted~~miscellaneous ~~market~~services ~~prices~~such ofas ~~similar~~safe ~~loans~~deposit ~~sold~~boxes, inforeign ~~conjunction~~drafts, ~~with~~foreign ~~securitization~~currency ~~transactions~~exchanges, ~~adjusted~~night ~~for~~depository ~~differences~~services, intravelers ~~loan~~checks, ~~characteristics.~~merchant ~~Fair~~credit ~~values~~cards, ~~for~~direct ~~other~~deposit ~~loans~~of (epayroll, U.gS. savings bonds, ~~commercial real~~official ~~estate~~bank checks and ~~investment~~money ~~property,~~orders. ~~mortgage~~The ~~loans,~~Bank also offers third party credit cards and internet banking. The Bank provides commercial, and ~~industrial~~public ~~loans)~~fund ~~are~~accounts with money ~~estimated~~market ~~using~~sweep ~~discounted~~accounts ~~cash~~through ~~flow~~Federated ~~analyses~~Investments, ~~using~~a ~~interest~~third ~~rates~~party ~~currently~~vendor. ~~being~~The ~~offered~~Bank ~~for~~also provides ~~loans~~investment ~~with~~services ~~similar~~through ~~terms~~Primevest toFinancial ~~borrowers~~Services, Inc. Full-time representatives work at various branch offices and offer a full range of ~~similar~~investment ~~credit~~products.

16The consolidated financial statements include the accounts of PSB Group, Inc. and its wholly owned subsidiaries, Peoples State Bank and PSB Capital, Inc. PSB Insurance Agency, Inc. is a wholly owned subsidiary of Peoples State Bank. PSB Capital, Inc. was formed in October, 2004. Through

~~Table of Contents~~19

~~quality.~~September 30, ~~Fair~~2010, ~~values~~there ~~for~~has ~~nonperforming~~been ~~loans~~no ~~are~~business ~~estimated~~transacted ~~using~~by ~~discounted~~PSB ~~cash~~Capital, ~~flow~~Inc. ~~analyses~~All orsignificant ~~underlying~~inter-company ~~collateral~~transactions ~~values,~~are ~~where~~eliminated ~~applicable~~in consolidation.

~~Deposit~~Net ~~Liabilities~~income –is ~~The~~derived ~~fair~~primarily ~~values~~from ~~disclosed~~net ~~for demand deposits (e.g.,~~ interest ~~and noninterest checking~~income, ~~passbook~~which ~~savings,~~is ~~and~~the ~~certain~~difference ~~types~~between ~~of money market accounts) are, by definition, equal~~interest toearned ~~the amount payable~~ on ~~demand at~~ the ~~reporting~~Bank’s ~~date~~loan ~~(i.e.,~~and ~~their~~investment ~~carrying~~portfolios ~~amounts).~~and ~~The~~its ~~carrying amounts~~cost of ~~variable-rate~~funds, ~~fixed-term~~primarily ~~money~~interest ~~market~~paid on ~~accounts~~deposits and ~~certificates of deposit approximate their fair values at the reporting date~~borrowings. ~~Fair~~The ~~values~~volume ~~for fixed-rate certificates~~ of, ~~deposit~~and ~~are estimated~~yields ~~using~~earned, aon ~~discounted~~loans ~~cash~~and ~~flow~~investments ~~calculation~~and ~~that~~the volume ~~applies~~of, ~~interest~~and rates ~~currently~~paid, ~~being offered~~ on ~~certificates~~deposits todetermine anet ~~schedule~~interest ~~of aggregated expected monthly maturities on time deposits~~income.

~~Long-term~~Recent ~~Borrowings – The fair values of the Corporation’s long-term borrowings are estimated~~Events ~~using discounted cash flow analyses based on the Bank’s current incremental borrowing rates for similar types of borrowing arrangements.~~

~~Short-term~~Stipulation ~~Borrowings – The carrying amounts of federal funds purchased, borrowings under repurchase agreements,~~ and ~~other short-term borrowings maturing within 90 days approximate their~~Order ~~fair values. Fair values of other short-term borrowings are estimated using discounted cash flow~~ ~~analyses based on the Corporation’s current incremental borrowing rates for similar types of borrowing arrangements.~~

~~Accrued~~On ~~Interest~~September 28, –2009, ~~The~~the ~~carrying~~Bank ~~amounts~~entered into a Stipulation and Consent to the Issuance of ~~accrued~~an Order ~~interest~~to ~~approximate~~Cease ~~fair~~and ~~value~~Desist with the FDIC and the OFIR (the “Stipulation and Order.”)

~~Other~~Prior ~~Instruments~~to –the ~~The~~issuance ~~fair values~~ of ~~other~~the ~~financial~~Stipulation ~~instruments~~and Order, ~~including~~the ~~loan~~Bank’s ~~commitments~~board and management had already ~~unfunded~~commenced ~~letters~~initiatives and strategies to address the issues noted in the Stipulation and Order. The Bank continues to work in cooperation with its regulators to satisfy all of ~~credit,~~the ~~based~~points oncontained in the Stipulation and Order. The Bank continues to pursue plans to increase capitalization through a combination ~~discounted~~of ~~cash~~capital ~~flow~~raising ~~analysis~~efforts, ~~are~~which include conventional efforts in public and private markets, although such efforts have not ~~material~~been successful to date.

The ~~estimated~~Stipulation ~~fair values~~ and ~~related~~Order ~~carrying~~requires ~~values or notional amounts of~~ the ~~Corporation’s financial~~Bank ~~instruments~~to ~~are~~take asaction ~~follows~~in ~~(000s~~the ~~omitted)~~following areas:

17 • The Bank shall have and retain qualified management.

~~Table~~• The Board of ~~Contents~~Directors shall assume full responsibility for the approval of sound policies and objectives and for the supervision of all of the Bank’s activities.

	June 30, 2010				December 31, 2009
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Assets:
Cash and short-term investments	$	42,567	$	42,567	$	29,260	$	29,260
Securities		39,927		39,927		60,031		60,031
Loans		335,419		345,013		344,794		357,800
Loans held for sale		794		815		774		794
Accrued interest receivable		2,108		2,108		2,244		2,244
Liabilities:
Noninterest-bearing deposits		57,490		57,490		54,647		54,647
Interest-bearing deposits		369,165		371,137		388,098		390,331
Long-term debt		128		128		282		282
Accrued interest payable		167		167		221		221

•

Increase the Bank’s level of Tier 1 capital as a percentage of total assets to at least 8 percent.

18 • Charge off any loans classified as “loss”.

~~Table~~• Prohibit the extension of ~~Contents~~credit to borrowers that have had loans with the Bank that were classified “substandard”, “doubtful” or “special mention” without prior board approval.

~~ITEM~~• 2.Prohibit ~~MANAGEMENT’S~~the ~~DISCUSSION~~extension ~~AND~~of ~~ANALYSIS~~credit OFto ~~FINANCIAL~~borrowers ~~CONDITION~~that ~~AND~~have ~~RESULTS~~had OFloans ~~OPERATIONS~~ charged off or classified as “loss” in exam reports.

~~Overview~~ • The Bank may not declare or pay any cash dividend without prior written consent of the FDIC and OFIR.

~~PSB~~• ~~Group,~~Prior ~~Inc.~~to ~~(the~~submission ~~“Company”)~~or ~~was~~publication ~~formed~~of onall ~~February 28,~~Reports ~~2003~~of asCondition, ~~a bank holding company for~~ the ~~purpose~~ ofBoard ~~owning~~shall ~~Peoples~~review ~~State Bank (~~the ~~“Bank”)~~adequacy ~~pursuant to a plan~~ of ~~reorganization adopted by~~ the Bank’s ~~and~~Allowance ~~its shareholders. Pursuant to the reorganization, each share of Bank stock held by existing shareholders was exchanged~~ for ~~three~~Loan ~~shares~~and ofLease ~~common stock of PSB Group, Inc~~Losses. ~~The reorganization had no consolidated financial statement impact. Share amounts for all prior periods presented have been restated to reflect the reorganization.~~

~~The~~• ~~Bank~~Within ~~was~~30 ~~incorporated~~days ~~and chartered under the laws~~ of the ~~state~~effective date of ~~Michigan in 1909. The Bank operated as a unit bank until July 20, 1992, when we opened our first branch office in Sterling Heights, Michigan. In May 1998,~~ the ~~Bank~~Stipulation ~~acquired~~and ~~Madison National Bank~~Order, ~~Madison Heights, Michigan (“Madison”). On May 1, 2000,~~ the Bank ~~acquired~~shall ~~100%~~eliminate ofand/or ~~the~~correct ~~common~~all ~~stock~~violations of ~~Universal~~law, ~~Mortgage Corporation~~rule, aand ~~southeast Michigan based mortgage lender~~regulations. ~~Today we operate 11 banking offices.~~

~~The~~• ~~Bank~~Within ~~provides~~60 ~~customary~~days ~~retail~~from ~~and~~the ~~commercial~~effective ~~banking~~date ~~services~~of tothe ~~our~~Stipulation ~~customers, including checking~~ and ~~savings accounts~~Order, ~~time~~the ~~deposits,~~Bank ~~safe~~shall ~~deposit~~correct ~~facilities,~~all ~~commercial~~deficiencies ~~loans,~~in ~~real estate~~the ~~mortgage~~ loans, ~~installment~~listed ~~loans,~~for ~~IRAs and night depository facilities. Our deposits are insured by the Federal Deposit Insurance Corporation (~~“~~FDIC”)~~Special ~~to applicable legal limits and we are supervised and regulated by the FDIC and Michigan Office of Financial and Insurance Regulation~~Mention”.

~~The~~• ~~Bank~~Prepare ~~provides a full range of retail~~ and ~~commercial~~submit ~~banking~~progress ~~services~~reports ~~designed to meet~~ the ~~borrowing~~ ~~and~~FDIC ~~depository needs of small~~ and ~~medium-sized businesses and consumers in local areas~~OFIR. Substantially all of our loans are to customers located within our service area. The Bank has no foreign loans or highly leveraged transaction loans, as defined by the Federal Reserve Board (“FRB”). The Bank conducts our lending activities pursuant to the loan policies adopted by our Board of Directors. These loan policies grant individual loan officers authority to make secured and unsecured loans in specific dollar amounts; senior officers or various loan committees must approve larger loans. Our management information systems and loan review policies are designed to monitor lending sufficiently to ensure adherence to our loan policies.

The ~~Bank~~Stipulation ~~also~~and ~~offers~~Order awill ~~full~~remain ~~range~~in ofeffect ~~deposit~~until ~~and~~modified ~~personal~~or ~~banking~~terminated ~~services insured~~ by the FDIC~~, including~~ ~~(i) commercial checking~~ and ~~small business checking products, (ii) retirement accounts~~OFIR. ~~such~~The asBank ~~Individual~~expects ~~Retirement~~to ~~Accounts~~serve ~~(“IRA”),~~its ~~(iii) retail~~customers ~~deposit~~in ~~services~~all ~~such~~areas asincluding ~~certificates of~~making ~~deposits~~loans, ~~money~~establishing ~~market~~lines ~~accounts~~of credit, ~~savings~~accepting ~~accounts,~~deposits ~~checking account products~~ and ~~Automated Teller~~processing ~~Machines~~banking ~~(“ATMs”),~~transactions. ~~Point~~As of ~~Sale and other electronic services, and (iv)~~September ~~other personal miscellaneous services such as safe deposit boxes~~30, ~~foreign drafts~~2010, ~~foreign currency exchanges,~~the ~~night~~Bank’s ~~depository~~Tier ~~services,~~1 ~~travelers~~capital ~~checks,~~to ~~merchant~~average ~~credit~~assets ~~cards,~~ratio ~~direct~~(leverage ~~deposit~~ratio) ofwas ~~payroll, U~~1.S78%. ~~savings~~ ~~bonds,~~Failure ~~official~~of ~~bank~~the ~~checks and money orders. The~~ Bank ~~also offers third party credit~~to cards and internet banking. The Bank provides commercial and public fund accounts with money market sweep accounts through Federated Investments, a third party vendor. The Bank also provides investment services through Primevest Financial Services, Inc. Full-time representatives work at various branch offices and offer a full range of investment products.

~~The consolidated financial statements include the accounts of PSB Group, Inc. and its wholly owned~~20 ~~subsidiaries, Peoples State Bank and PSB Capital, Inc. PSB Insurance Agency, Inc. is a wholly owned subsidiary of Peoples State Bank. PSB Capital, Inc. was formed in October, 2004. Through~~

19comply with the terms of the Stipulation and Order may subject the Bank to further enforcement action by the FDIC and OFIR, which could have a material adverse effect on the Company. Please refer to our annual report on Form 10-K for the year ended December 31, 2009 for additional information.

~~Table~~Prompt ofCorrective ~~Contents~~Action Directive

~~June 30,~~ In August 2010, ~~there~~the ~~has~~FDIC ~~been~~issued noa ~~business~~Prompt ~~transacted~~Corrective byAction ~~PSB~~Directive ~~Capital,~~to ~~Inc.~~the ~~All~~Bank ~~significant~~notifying the Bank ~~inter-company~~that ~~transactions~~the ~~are~~provisions ~~eliminated~~applicable into ~~consolidation~~a significantly undercapitalized bank now apply to the Bank since the Bank failed to submit an acceptable capital restoration plan to the FDIC.

~~Net~~Under ~~income~~the isPrompt ~~derived~~Corrective ~~primarily~~Action ~~from~~framework ~~net~~established ~~interest~~under ~~income, which is~~ the ~~difference~~Federal ~~between~~Deposit ~~interest~~Corporation ~~earned~~Improvement onAct ~~the Bank’s loan and investment portfolios and its cost~~ of ~~funds,~~1991 ~~primarily interest paid on deposits and borrowings. The volume of~~(“FDICIA”), ~~and~~there ~~yields~~are ~~earned,~~five oncapital ~~loans~~tiers ~~and~~for ~~investments and the~~banks: ~~volume of, and rates paid, on deposits determine net interest income.~~

Recent Events

Total Risk-Based

Tier 1 Risk-Based

Capital Ratio

Leverage Ratio

Well capitalized

10% or above

6% or above

5% or above

Adequately capitalized

8% or above

4% or above

Undercapitalized

Less than 8%

Less than 4%

Significantly undercapitalized

Less than 6%

Less than 3%

Critically undercapitalized

—

A ratio of tangible equity to total assets of 2% or less

OnPursuant ~~September 28,~~to ~~2009,~~ the ~~Bank~~Prompt ~~entered~~Corrective ~~into~~Action aDirective ~~Stipulation~~issued ~~and~~to ~~Consent~~the toBank, the ~~Issuance~~Bank ofis ~~an Order~~directed to take ~~Cease~~one ~~and~~or ~~Desist~~both ~~with~~of the ~~FDIC~~following ~~and~~actions ~~the~~to ~~OFIR~~recapitalize (the ~~“Stipulation and Order.”)~~Bank:

~~Prior~~1. toThe ~~the issuance of the Stipulation and Order, the~~ Bank’s ~~board~~shall ~~and~~sell ~~management~~enough ~~had~~voting ~~already commenced~~shares ~~initiatives~~or ~~and~~obligations ~~strategies~~of ~~to address~~ the ~~issues~~Bank ~~noted~~so inthat the ~~Stipulation and Order. The~~ Bank ~~continues~~will tobe ~~work~~adequately incapitalized ~~cooperation~~after ~~with its regulators and expects to satisfy all of~~ the ~~points contained~~sale; ~~in the Stipulation~~ and Order. The Bank continues to pursue plans to increase capitalization through a combination of capital raising efforts, which include conventional efforts in public and private markets, although such efforts have not been successful to date. /or

2. The ~~Stipulation~~Bank ~~and~~shall ~~Order~~accept ~~requires~~an ~~the~~offer ~~Bank~~to be acquired by a depository institution holding company or to ~~take~~combine ~~action~~with inanother ~~the~~insured ~~following~~depository ~~areas:~~ institution.

nUnder ~~The~~the ~~Bank~~Prompt ~~shall~~Corrective ~~have~~Action ~~and~~framework ~~retain~~established ~~qualified~~under ~~management.~~FDICIA, nthe ~~The~~failure ~~Board~~to ofmeet ~~directors~~minimum capital ~~shall~~requirements ~~assume~~can ~~full~~initiate ~~responsibility~~both ~~for~~mandatory ~~the~~and ~~approval~~additional ofdiscretionary ~~sound~~actions ~~policies~~by ~~and~~regulators that ~~objectives~~could ~~and~~have ~~for~~a ~~the~~material ~~supervision~~adverse ofeffect ~~all~~on of the Bank’s ~~activities.~~and ~~n Increase~~ the ~~Bank’s~~Company. ~~level~~Each of ~~Tier~~the 1categories above ~~capital~~subjects asbanks ain ~~percentage~~such ofcondition ~~total assets~~ to atincreasing ~~least~~levels 8of ~~percent.~~regulatory nscrutiny ~~Charge~~which ~~off~~frequently includes ~~any~~increased ~~loans~~supervision; ~~classified~~restrictions ason ~~“loss”.~~operations, nrestrictions ~~Prohibit~~on the ~~extension~~expansion of activities ~~credit~~and togrowth; ~~borrowers~~civil ~~that~~penalties, ~~have~~in ~~had~~some ~~loans~~instances; ~~with~~and in the ~~Bank~~case ~~that~~of ~~were~~critically undercapitalized ~~classified “substandard”~~banks, ~~“doubtful” or “special mention” without prior board approval. n Prohibit~~ the ~~extension~~appointment of ~~credit~~a ~~to borrowers that have had loans charged off or classified as “loss” in exam reports~~conservator. n The ~~Bank~~Prompt ~~may~~Corrective ~~not~~Action ~~declare~~framework generally orrequires ~~pay any cash dividend without prior written consent of~~ the FDIC ~~and OFIR. n Prior~~ to ~~submission~~resolve ~~or publication of all Reports of Condition,~~ the ~~Board~~institution ~~shall~~if ~~review~~ the ~~adequacy~~institution ofis ~~the~~unable ~~Bank’s~~to ~~Allowance~~raise sufficient ~~for~~capital ~~Loan~~within ~~and Lease Losses. n Within 30~~ 90 days of the ~~effective~~ date ofon ~~the~~which ~~Stipulation~~it ~~and~~was ~~Order,~~determined ~~the~~that ~~Bank shall eliminate and/or correct all violations of law, rule, and regulations. n Within 60 days from~~ the ~~effective~~institution ~~date~~was critically ~~of the Stipulation and Order, the Bank shall correct all deficiencies in the loans listed for “Special Mention”~~undercapitalized. ~~n Prepare and submit progress reports the FDIC and OFIR.~~

~~The~~Management ~~Stipulation~~of ~~and Order will remain in effect until modified or terminated by~~ the ~~FDIC~~Company ~~and~~is ~~OFIR. The~~committed ~~Bank expects~~ to ~~serve~~exploring ~~its customers in~~ all ~~areas~~feasible ~~including~~alternatives ~~making~~in ~~loans,~~order ~~establishing~~to ~~lines of~~comply ~~credit,~~with ~~accepting~~the ~~deposits~~Prompt ~~and~~Corrective ~~processing~~Action ~~banking transactions~~Directive. AsThe ofCompany ~~June 30,~~recently ~~2010,~~engaged the ~~Bank’s~~investment banking ~~Tier~~firm 1of ~~capital~~Cappello toCapital ~~assets ratio was 3~~Corp.~~62%~~, ~~versus~~Santa ~~the~~Monica, 8%California, ~~required~~to byassist ~~the~~it ~~Stipulation~~in ~~and~~its ~~Order~~efforts. In ~~Failure~~addition, of the ~~Bank~~Company torecently ~~comply~~distributed ~~with~~invitations ~~the terms~~ of ~~the~~interest ~~Stipulation~~to ~~and~~select ~~Order may subject the Bank to~~bank ~~further~~

2021

~~Table~~holding companies that it believes are capable of ~~Contents~~completing a transaction. To-date, the Company’s efforts to recapitalize the Bank have not been successful and in light of the Bank’s current critically undercapitalized status, management does not view the prospects of recapitalization as being likely given the timeframe for completion.

~~enforcement~~On ~~action~~November 4, by2010 the Bank received a written notice from the FDIC ~~and~~officially ~~OFIR,~~confirming ~~which~~that ~~could~~the Bank ~~have~~is anow ~~material~~considered ~~adverse~~Critically ~~effect~~Undercapitalized onfor purposes of the ~~Company~~prompt corrective action provisions of Section 38 of Part 325 of the FDIC’s regulations. In addition to the restrictions on ~~Please~~its ~~refer~~operations to ~~our~~which ~~annual~~it ~~report~~was onalready subject (as described in the Company’s Current Report on Form 108-K filed on September 24, 2010), the Bank, as a result of its “critically undercapitalized” status, is prohibited from doing any of the following without the prior written approval of the FDIC: entering into material transactions outside the usual course of business; extending credit for highly leveraged transactions; amending the ~~year~~Bank’s ~~ended~~charter ~~December~~or bylaws; making a change to accounting methods; engaging in any “covered transaction” (as defined in Section 3123A(b) of the Federal Reserve Act) with an affiliate; paying excessive compensation or bonuses; paying interest on new or renewed liabilities at a rate that would increase the Bank’s weighted average cost of funds to a level significantly exceeding the prevailing rates on interest on deposits in the Bank’s normal market areas; and making any principal or interest payment on subordinated debt beginning 60 days after becoming critically undercapitalized. The notice also stated that the FDIC will be required to place Peoples State Bank in receivership by January 26, ~~2009~~2011, ~~for~~unless ~~additional~~it is determined ~~information~~that a different action would better carry out the purposes of section 38.

Financial Condition

Company assets consist of customer loans, investment securities, bank premises and equipment, cash and other operating assets. Total assets decreased approximately $1632.42 million to $~~445~~429.68 million at ~~June~~September 30, 2010 from $462 million at December 31, 2009. We reduced our ~~investment~~ investment portfolio by approximately $207.12 million to $3952.98 million at ~~June~~September 30, 2010 as compared to $60 million at December 31, 2009. Our loan portfolio decreased approximately $1020.8 6 million to $~~343~~333.5 7 million at ~~June~~September 30, 2010. This was the result of a $37.43 million decrease in commercial real estate loans, a $46.3 million decrease in other commercial loans, a $25.97 million decrease in residential mortgages and a $~~448~~1.3 million ~~thousand~~ decrease in other consumer loans. Loans held for sale ~~increased slightly~~decreased to $~~794~~485 thousand at ~~June~~September 30, 2010 from $774 thousand at December 31, 2009. Other Real Estate Owned (repossessed properties) increased $~~913~~330 thousand since the end of 2009. Bank Premises and Equipment decreased $~~684~~927 thousand in the first ~~six~~nine months of 2010 due mainly to the sale of one of our branch facilities in June.

During the first ~~six~~nine months of 2010, we experienced net loan charge-offs of $36.75 million. This compares to net charge-offs of $46.82 million during the first ~~six~~nine months of 2009 ~~and $9~~.~~0 million during~~ ~~the second half of 2009.~~ In addition, at ~~June~~ September 30, 2010, we were carrying $7473.58 million in non-performing loans compared to $63.2 million at December 31, 2009. This high level of net charge-offs and non-performing loans is the direct result of the continuing unfavorable economic conditions in the state of Michigan, combined with the ongoing problems related to the residential real estate market in southeast Michigan. ~~Through our commercial loan portfolio, we have had a~~ ~~number of relationships with residential real estate developers who have encountered severe problems.~~ During the first ~~half~~nine months of 2010, we recorded a loan loss provision of $210.39 million ~~compared~~ compared to a $46.84 million provision during the first ~~half~~nine months of 2009. Our loan loss reserve as a percentage ~~of total loans is 2.35% as of June 30, 2010, compared to 2.67% at December 31, 2009.~~ Management believes the reserve is sufficient to meet anticipated future loan losses. The discussions set forth in “Note 3 – Loans” and “Note 4 – Allowance for Possible Loan Losses” in the Financial Statements contained in this report are hereby incorporated by this reference.

~~Total liabilities decreased $16.2 million to $429.1 million at June 30, 2010 from $445.3 million at~~22 December 31, 2009. Total deposits decreased $16 million to $426.7 million at June 30, 2010 from $442.7 at December 31, 2009. This was mainly due to a $4.3 million decrease in certificates of deposit and a $15.3 million decrease in interest bearing demand deposits, partially offset, partially offset by a $2.8 million increase in non-interest bearing demand balances and a $762 thousand increase in low cost savings deposits.

21of total loans is 4.15% as of September 30, 2010, compared to 2.67% at December 31, 2009. Management believes the reserve is sufficient to meet anticipated future loan losses. The discussions set forth in “Note 3 — Loans” and “Note 4 — Allowance for Possible Loan Losses” in the Financial Statements contained in this report are hereby incorporated by this reference.

~~Table~~Total liabilities decreased $23.6 million to $421.7 million at September 30, 2010 from $445.3 million at December 31, 2009. Total deposits decreased $23.3 million to $419.4 million at September 30, 2010 from $442.7 at December 31, 2009. This was mainly due to a $3.2 million decrease in certificates of ~~Contents~~deposit, a $23.3 million decrease in interest bearing demand deposits and a $517 thousand decrease in low cost savings deposits, partially offset by a $3.7 million increase in non-interest bearing demand balances. The discussion under the caption “Recent Events” is hereby incorporated by reference.

Financial Results

Three Months Ended ~~June~~September 30, 2010

For the three months ended ~~June~~September 30, 2010, we realized a net loss of $~~824~~8.5 million ~~thousand~~ compared to a ~~net~~ net loss of $~~1.452 million~~673 thousand for the same period in 2009. Total interest income decreased $~~889 thousand~~747 thousand in the ~~second~~third quarter of 2010 compared to the ~~second~~third quarter of 2009. Interest and fees on ~~loans~~ loans decreased $~~843~~572 thousand in the ~~second~~third quarter ~~of010~~of 2010 compared to the same period in 2009. ~~The~~ The decrease in interest and fees on loans was due to the overall decrease in the size of our loan portfolio and to a decrease in the yield. We realized a $1927.8 million decrease in our average loans in the ~~second~~third quarter of 2010 compared to the ~~second~~third quarter of 2009. This was the result of a a $2421.~~1 million~~2 decrease in our average commercial loans, ~~and~~ a $14.97 million decrease in ~~average consumer loans, partially offset by a $6.2 million increase in~~ our average residential ~~real estate~~ ~~portfolio. The increase in the average residential~~ real estate portfolio isand ~~primarily~~a ~~the result of the purchase of~~ $71.89 million indecrease ~~residential mortgages~~ in ~~the~~average ~~third~~consumer ~~quarter of 2009~~loans. In addition to the decrease in average loan balances, we have seen our yield on loans decrease 6222 basis points in the third ~~second~~ quarter of 2010 compared to the ~~second~~third quarter of 2009. This drop in yield is due to ~~the~~ the lower overall interest rate environment experienced in 2010 and also to a $1330.35 million increase in non-performing loans over the ~~June~~September 30, 2009 level. Interest on investment securities also declined between the two periods. Our average investment in securities decreased $815.57 million compared to the ~~second~~ third quarter of 2009,. ~~but~~The ~~the~~ effect of the decrease in the average investment was ~~partially~~compounded ~~offset~~ by ana 834 basis points ~~increase~~decrease in yield on those securities. The net result was a $46175 thousand decrease in interest income from securities.

More than offsetting the decrease in interest income was a $1.~~075~~1 million decrease in interest expense in the ~~second~~third quarter of 2010 compared to the ~~second~~third quarter of 2009. The result was a ~~$186~~ $340 thousand increase in net interest income comparing the two quarters. Interest on deposits decreased $~~969~~1 million ~~thousand~~ comparing the two quarters. Average interest bearing balances were $824.18 million lower in the ~~second~~third quarter of 2010 than in the ~~second~~third quarter of 2009, and, through disciplined pricing, we were able to lower the rates paid and reduce the interest expense on these deposits. Comparing the ~~second~~third quarter of 2010 to the ~~second~~third quarter of 2009 our average ~~certificate~~ certificate of deposit balances decreased $36.5 million, and we reduced the rate paid on these deposits by ~~124~~ 122 basis points, resulting in a decrease in the interest on certificates of deposit of $~~867~~848 thousand. Our average savings balances decreased $~~1.5 million~~560 thousand between the two quarters and we paid 109 basis points less in the ~~second~~third quarter of 2010 than in the ~~second~~third quarter of 2009, resulting in aan $98 thousand decrease in interest expense on these balances. Our average interest bearing demand balances increased $3011.8 million between the two quarters but we paid 4550 basis points less on these balances resulting in a $93152 thousand decrease ~~in interest expense from the second~~ ~~quarter of 2009 to the second quarter of 2010. The decrease~~ in interest ~~expense on deposits was~~ ~~supplemented by a $106 thousand decrease in interest on borrowed funds as we decreased our average borrowings by approximately $15 million. We have had no borrowed funds so far in 2010.~~

~~During the second quarter of 2010, we recorded a $2.0 million provision for loan losses compared to~~23 a $2.5 million provision in the second quarter of 2009. This level of provision is necessary due to the high net charge-offs we have realized in 2010 and the increase in non-performing loans. Management believes this provision is necessary to maintain the loan loss reserve at an appropriate level.

~~Total~~expense ~~other~~from ~~operating~~the ~~income~~third ~~decreased~~quarter ~~$624~~of ~~thousand~~2009 into the ~~second~~third quarter of 2010. ~~compared~~The todecrease ~~the~~in ~~second~~interest ~~quarter~~expense ofon ~~2009.~~deposits ~~This decrease~~ was ~~the~~supplemented ~~result~~by of a $~~625~~79 thousand decrease in ~~the~~interest ~~gains~~ on borrowed ~~the~~funds ~~sale~~as ofwe ~~investment~~decreased ~~securities~~our ~~between~~average ~~the~~borrowings ~~two~~by ~~periods~~approximately $11 million. We have had no borrowed funds in 2010.

22During the third quarter of 2010, we recorded an $8.6 million provision for loan losses compared to a $1.6 million provision in the third quarter of 2009. This level of provision is partly due to the high net charge-offs we have realized in 2010 and the high level of non-performing loans, but the majority of the provision reflects the decline in real estate values, particularly residential construction and land development and hotels, that has been revealed in recent appraisals obtained by the Bank. Management believes this provision is necessary to maintain the loan loss reserve at an appropriate level.

~~Table~~Total other operating income decreased $1 million in the third quarter of ~~Contents~~2010 compared to the third quarter of 2009. This decrease was mainly the result of a $915 thousand decrease in the gains on the sale of investment securities between the two periods.

Total other operating expenses were reduced by $~~480~~176 thousand when comparing the ~~second~~ third quarters of 2010 and 2009. Salary and benefits expense decreased $91378 thousand. This is mainly due to to additional staff cuts made in December 2009, April 2010 and ~~April~~August 2010. Occupancy costs have been ~~reduced~~ reduced by $~~277~~91 thousand due primarily to a $~~227~~43 thousand ~~gain~~decrease ~~on the sale of one of our branch facilities~~ in ~~June 2010~~depreciation expense and ~~also to~~ a $6325 thousand decrease in rent expense that resulted from the June 2009 purchase of land at two branch facilities that had previously been leased. Legal and professional expenses were $342 thousand higher in the third quarter of 2010 than the third quarter of 2009 due mainly to higher legal expenses related to increased collection efforts on problem loans. Other real estate ~~owned~~ owned expenses ~~decreased~~increased $~~151~~240 thousand comparing the ~~second~~third quarter of 2010 to the ~~second~~third quarter of 2009, due ~~mainly~~ to ~~lower~~a ~~taxes~~$264 ~~and~~increase ~~maintenance~~in ~~expenses~~the onwrite-down in the value of the repossessed properties. ~~Marketing~~ Marketing expense was reduced $933 thousand as we continue efforts to control costs. FDIC insurance expense increased ~~decreased~~ $93194 thousand comparing the two quarters. This was the result of ahigher ~~$232~~premium ~~special~~rates ~~assessment~~charged ~~by the FDIC~~ in ~~May~~2010. ofOther ~~2009,~~operating ~~partially~~expense ~~offset~~decreased by$98 ~~higher~~thousand ~~premium~~comparing ~~rates~~the ~~charged~~two ~~in 2010~~quarters. This ~~These~~is ~~decreases~~largely indue ~~non-interest~~to ~~expenses were partially offset by~~ a $~~118~~184 thousand ~~increase~~pre-payment penalty incurred in ~~legal and~~September ~~professional~~of ~~fees,~~2009 when the ~~result~~Bank paid ofoff ~~increased~~FHLB ~~collection~~advances ~~efforts~~early. ~~related~~This toreduction ~~problem~~was ~~loans,~~partially ~~and~~offset by a $2379 thousand increase in commercial ~~other~~loan ~~operating~~collection expenses ~~which~~in ~~included~~the athird ~~$76~~quarter ~~thousand~~of ~~increase~~2010 ~~in fidelity~~over ~~and~~the ~~liability~~third ~~insurance~~quarter ~~premiums~~of 2009.

~~Six~~Nine Months Ended ~~June~~September 30, 2010

For the ~~six~~nine months ended ~~June~~September 30, 2010, we realized a net loss of $~~741~~9.2 million ~~thousand~~ compared to a ~~net~~ net loss of $3.29 million for the same period in 2009 ~~and a net loss of $9~~.~~7 million~~ ~~in the second half of 2009.~~ Total interest income decreased $12.96 million in the first ~~half~~nine months of 2010 compared to the first ~~half~~nine months of 2009. Interest and fees on loans decreased $12.73 million in the first ~~half~~nine months of 2010 over the same period in 2009. The decrease in interest and fees on loans was due to the overall decrease in the size of our loan portfolio and to a decrease in the yield. Average total loans decreased $1922.53 million comparing the first ~~half~~nine months of 2010 to the first ~~half~~nine months of 2009. We realized a $2322.68 million decrease in the average balance of our commercial loan portfolio. Lending volumes remain low as quality loan opportunities are scarce. This decrease in commercial loan balances, combined with a 58 71 basis points drop in yield resulted in a $12.73 million decrease in interest income on our commercial loans. The drop in yield is due to the lower overall interest rate environment in 2010, as well as ana $1130.35 million increase in non-performing loans. The average balance of our consumer loan portfolio also contracted, decreasing by $21.9 million. The drop in consumer loan balances combined with aan ~~17 basis points drop in yield resulted in a $68 thousand~~18 decrease in interest income on consumer loans. We were able to increase the average balance in our residential real estate portfolio by $6.1 million over the June 2009 level, but the positive effect of the increase in loan balances was partially offset by a 25 basis points drop in yield~~. The~~ ~~result was an $84 thousand decrease in interest income on our residential real estate loans.~~

~~During the first half of 2010, we were able to increase our average investment in securities by~~24 ~~$1.2 million. However, the yield on the investment portfolio decreased 37 basis points, resulting in a $135 thousand decease in interest income on the securities portfolio.~~

Asresulted ~~was~~in ~~the~~a ~~case~~$102 ~~for~~thousand ~~the second quarter of 2010, the~~ decrease in interest ~~expense~~income ~~for~~on ~~the first half~~consumer ofloans. ~~the~~We ~~year~~were ~~more~~able ~~than~~to ~~offset~~increase the ~~decrease~~average balance in ~~interest~~our ~~income.~~residential ~~Total~~real ~~interest~~estate ~~expense~~portfolio ~~decreased~~by $2.14 million inover the ~~first~~September 2009 ~~half~~level, ofbut ~~2010 compared to~~ the ~~first~~positive ~~half~~effect of ~~2009.~~the ~~Interest~~increase onin ~~deposits~~loan ~~decreased~~balances ~~$1.9 million.~~was ~~Our~~partially ~~average~~offset ~~balance~~by ofa ~~interest~~7 ~~bearing~~basis ~~deposits~~points ~~actually~~drop ~~increased~~in $2yield.~~1 million,~~ ~~but~~The ~~again,~~result ~~through~~was ~~disciplined~~a ~~pricing,~~$62 wethousand increase ~~were~~in ~~able to reduce total~~ interest ~~expense. Comparing~~income ~~the~~on ~~first half of 2010 to the first half of 2009,~~ our ~~average~~residential ~~certificate~~real ofestate ~~deposit balances decreased $31~~loans.~~9 million, and we reduced the rate paid on these deposits by 125 basis~~ ~~points, resulting in a decrease in~~

23During the first nine months of 2010, we reduced our average investment in securities by $4.5 million. The yield on the investment portfolio decreased 34 basis points, resulting in a $310 thousand decrease in interest income on the securities portfolio.

~~Table~~As was the case for the third quarter of ~~Contents~~2010, the decrease in interest expense for the first nine months of the year more than offset the decrease in interest income. Total interest expense decreased $3.2 million in the first nine months of 2010 compared to the first nine months of 2009. Interest on deposits decreased $2.9 million. Our average balance of interest bearing deposits decreased $6.6 million, and again, through disciplined pricing, we were able to reduce rates paid on these deposits. Comparing the first nine months of 2010 to the first nine months of 2009, our average certificate of deposit balances decreased $33.3 million, and we reduced the rate paid on these deposits by 124 basis points, resulting in a decrease in the interest on certificates of deposit of $2.6 million. Our average savings balances decreased $1.2 million between the two periods and we paid 9 basis points less in the first nine months of 2010 than in the first nine months of 2009, resulting in a $25 thousand decrease in interest expense on these balances. We increased our low cost interest bearing demand balances by $27.8 million between the two periods, but because we paid 48 basis points less on these balances, we realized a $318 thousand decrease in interest expense from the first nine months of 2009 to the first nine months of 2010. The year-to-date decrease in interest expense on deposits was supplemented by a $287 thousand decrease in interest on borrowed funds as we decreased our average borrowings by approximately $14 million. We have had no borrowed funds so far in 2010.

During the ~~interest~~first onnine ~~certificates~~months of ~~deposit~~2010, ofwe recorded a $110.79 million. ~~Our~~provision ~~average~~for ~~savings~~loan ~~balances~~losses compared ~~decreased~~to a $2 6.4 million ~~between~~provision ~~the~~recorded ~~two periods and we paid 9 basis points less~~ in the first ~~half~~nine ofmonths ~~2010 than in the first half~~ of 2009,. ~~resulting~~This inlevel ~~a $17 thousand decrease in interest expense on these balances.~~of Weprovision ~~increased~~is ~~our~~necessary ~~interest~~due ~~bearing~~to ~~demand balances by $36 million between~~ the ~~two~~level ~~periods,~~of ~~but because~~net wecharge-offs ~~paid 48 basis points less on these balances,~~ we have realized ~~a $166 thousand decrease~~ in ~~interest~~ ~~expense~~2010 ~~from~~and the ~~first~~high level ~~half~~ of ~~2009~~non-performing toloans. ~~the~~Management ~~first~~believes ~~half~~this ofprovision ~~2010.~~is ~~The~~necessary ~~year-~~to~~-date~~ ~~decrease in~~maintain ~~interest expense on deposits was supplemented by a $208 thousand decrease in interest on~~the ~~borrowed~~reserve ~~funds~~at asan weappropriate ~~decreased our average borrowings by approximately $15 million~~level.

~~During~~Total other operating income decreased $1.7 million in the first ~~half~~nine ofmonths 2010, wecompared ~~recorded~~to athe first ~~$2.3 million~~nine ~~provision~~months ~~for~~of ~~loan~~2009 ~~losses~~This ~~compared~~is primarily due to a $41.8 million ~~provision~~decrease ~~recorded~~ in ~~the~~gains ~~first~~on ~~half~~the sale of securities in 2010 compared to 2009. ~~While~~Partially weoffsetting ~~did~~this ~~realize~~drop in securities gains was a ~~significant~~$125 ~~improvement~~thousand increase in ~~the~~other ~~provision~~income ~~comparing~~which ~~the~~included ~~first~~a ~~half~~$159 ofthousand ~~2010~~increase toin ~~the~~investment ~~first~~referral income ~~half~~and ofa ~~2009,~~$253 ~~this~~thousand ~~level~~ decrease in losses on the sale of ~~provision~~other isreal ~~necessary~~estate ~~due~~(included toin ~~the~~other income) ~~level~~partially ofoffset ~~net~~by ~~charge-offs~~a we$291 ~~have~~thousand ~~realized~~decrease in ~~2010~~gains ~~and~~on the ~~increase~~ insale ~~non-performing~~of ~~loans.~~mortgages ~~Management~~and ~~believes~~mortgage related ~~this~~fee ~~provision~~income. isService ~~necessary~~charges toon ~~maintain~~deposit ~~the reserve~~accounts atremained anstrong ~~appropriate~~at ~~level~~$1.8 million.

~~Total~~We reduced total other operating ~~income~~expenses ~~decreased~~by $~~682~~332 thousand in the first ~~half~~nine ~~2010~~months of 2010 compared to the ~~first half~~same ofperiod in 2009, ~~This~~even isthough ~~primarily~~our ~~due~~FDIC toinsurance anexpense ~~$882~~increased $568 thousand. ~~decrease~~The inFDIC ~~gains~~increase onwas the ~~sale~~result of ~~securities~~ an increase in ~~the~~our ~~first~~basic ~~half~~assessment ofrate. ~~2010~~Salary and ~~compared~~benefits toexpense ~~the~~was ~~first~~reduced ~~half~~by of$858 ~~2009~~thousand. ~~Partially~~This ~~offsetting~~was ~~this~~mainly ~~drop~~due ~~in securities~~to ~~gains~~the ~~was~~additional astaff cuts ~~$169~~mentioned ~~thousand~~earlier. ~~increase~~In inaddition, ~~other~~there ~~income~~was ~~which included~~ a $~~144~~107 thousand ~~increase~~ decrease in ~~investment~~accrued ~~referral~~incentives expense, ~~income and~~ a $~~156~~67 thousand decrease in ~~losses~~medical onand ~~the~~dental ~~sale~~expenses of(related ~~other real~~to ~~estate~~the ~~(included~~decrease in ~~other income~~FTE), and ~~partially offset by~~ a $~~144~~120 thousand decrease in ~~gains~~accrued onpension expense related to the ~~sale~~ resignation of ~~mortgages~~our former President.

~~We reduced total other operating expenses by $508 thousand in the first six months of 2010 compared~~25 to the same period in 2009, even though our FDIC insurance expense increased $374 thousand. The FDIC increase resulted from an increase in our basic assessment rate. Salary and benefits expense was reduced by $480 thousand. This was mainly due to the additional staff cuts mentioned earlier. In addition, there was a $124 thousand decrease in accrued incentives expense, a $97 thousand decrease in medical and dental expenses (related to the decrease in FTE), and a $120 thousand decrease in accrued pension expense related to the resignation of our former President. Occupancy costs have been reduced by $296 thousand, including a $121 thousand reduction in rent expense related to the June 2009 purchase of land at two branch facilities that had previously been leased and a $227 thousand gain on the sale of one of our branch facilities. Legal and professional expenses increased $251 thousand due increased collection efforts related to problem loans. Other real estate owned expenses decreased $379 thousand due mainly to lower write-downs in the value of the repossessed properties in 2010 as well as lower taxes and maintenance expenses on the repossessed properties. We reduced marketing expenses by $93 thousand comparing the first six months of 2010 to the same period in 2009. Other operating expenses increased $115 thousand including a $137 thousand increase in fidelity and liability insurance.

~~Liquidity~~Occupancy costs have been reduced by $387 thousand, including a $134 thousand reduction in rent expense related to the June 2009 purchase of land at two branch facilities that had previously been leased and a $227 thousand gain on the sale of one of our branch facilities. Legal and professional expenses increased $593 thousand due increased collection efforts related to problem loans. Other real estate owned expenses decreased $139 thousand due mainly to lower taxes and maintenance expenses on the repossessed properties. We reduced marketing expenses by $126 thousand comparing the first nine months of 2010 to the same period in 2009. Other operating expenses remained relatively flat at $2.1 million as specific components of this item moved in opposite directions. Fidelity and liability insurance premiums increased approximately $203 thousand and loan related expenses increased almost $93 thousand due to increased commercial loan collection efforts. On the other hand, administrative expenses such as telephone, postage, travel and stationery were reduced by approximately $97 thousand. In addition, in September of 2009, we incurred a $184 thousand pre-payment penalty for the early pay-off of our FHLB advances. We had no such expense in 2010.

~~The Company manages its liquidity position with the objective of maintaining sufficient funds to~~Liquidity ~~respond to the needs of depositors and borrowers and to take advantage of earnings enhancement opportunities. In addition to the normal inflow of funds from core-deposit growth, together with~~

24The Bank manages its liquidity position with the objective of maintaining sufficient funds to respond to the needs of depositors and borrowers and to take advantage of earnings enhancement opportunities. In addition to the normal inflow of funds from core-deposit growth, together with repayments and maturities of loans and investments, the Bank utilizes other short-term funding sources such as Federal Home Loan Bank advances and the Federal Reserve Discount Window. Because of the deterioration of the Bank’s capital ratios, on November 1, 2010, the Federal Reserve informed the Bank that it would no longer be able to borrow funds through the Discount Window. At this time, management does not expect there to be a liquidity issue but there is less liquidity available with the closing of the Bank’s line at the Discount Window. During the nine months ended September 30, 2010, the Bank generated $49.9 million in cash from the sale and maturity of investment securities. This plus the $14.3 million generated from the pay-down of the loan portfolio, $1.8 million generated by operating activities and $.6 million from the sale of one of our branch facilities was used to fund the purchase of $42.3 million in new investment securities, the run-off of $23.3 million in deposits and $.2 million in capital expenditures. As a result, as of September 30, 2010 we had $30.1 million in cash and cash equivalents, a figure that management considers sufficient to meet the Bank’s future liquidity needs.

~~Table~~The Company has much more limited sources of ~~Contents~~liquidity. The Company’s main source of liquidity has always been dividends paid from the Bank. However, as mentioned above under the caption “Recent Events — Stipulation and Order”, the Bank may not pay a dividend to the Company without prior regulatory approval. As of September 30, 2010, the Company had liquid assets of $43 thousand which should last until February of 2011 at the current expense rate.

~~repayments~~Off ~~and~~Balance ~~maturities~~Sheet ofArrangements ~~loans~~ and ~~investments,~~Contractual ~~the Company utilizes other short-term~~Obligations funding sources such as Federal Home Loan Bank advances and the Federal Reserve Discount Window. During the six months ended June 30, 2010, the Bank generated $46.2 million in cash from the sale and maturity of investment securities. This plus the $7.0 million generated from the pay-down of the loan portfolio, $1.6 million generated by operating activities and $.6 million from the sale of one of our branch facilities was used to fund the purchase of $25.8 million in new investment securities, the run-off of $16.1 million in deposits and $.2 million in capital expenditures. As a result, as of June 30, 2010 we had $42.6 million in cash and cash equivalents, a figure that management considers sufficient to meet our future liquidity needs.

~~Off~~The ~~Balance~~only ~~Sheet~~significant ~~Arrangements~~off-balance sheet obligations incurred routinely by the Company are its commitments to extend credit and ~~Contractual~~its ~~Obligations~~stand-by letters of credit. At September 30, 2010, the Company had commitments to extend credit of $25.1 million and stand-by letters of credit of $3.3 million compared to $29.9 million and $2.5 million, respectively, at December 31, 2009.

~~The only significant off-balance sheet obligations incurred routinely by the Company are its~~26 commitments to extend credit and its stand-by letters of credit. At June 30, 2010, the Company had commitments to extend credit of $28.5 million and stand-by letters of credit of $5.3 million compared to $29.9 million and $2.5 million, respectively, at December 31, 2009.

Capital Resources

Under applicable FDIC risk-based capital standards, banks are expected to meet a minimum risk-based capital to risk-weighted assets ratio of 8%, of which at least one-half (4%) must be in the form of Tier 1 (core) capital. The remaining one-half may be in the form of Tier 1 or Tier 2 (supplemental) capital. The amount of loan loss allowance that may be included in capital is limited to 1.25% of risk-weighted assets. The following table shows the capital totals and ratios for the Bank as of ~~June~~September 30, 2010:

Tier 1 capital	$	167,~~537~~925
Total capital	$	2012,~~895~~131
Tier 1 capital to risk-weighted assets		42.7942	%
Total capital to risk-weighted assets		63.0671	%
Tier 1 capital to average assets		31.6278	%

In addition, as described in the Company’s Form 8-K filed on October 30, 2009, under a stipulation and consent to the issuance of an order to cease and desist (the “Stipulation and Order”) entered into with the FDIC and Michigan’s Office of Financial and Insurance Regulation, the Bank is required to maintain its Tier 1 capital to assets ratio at not less than 8%. Therefore, the Bank is currently out of compliance. The Bank continues to pursue plans to increase capitalization through a combination of capital raising efforts, which include conventional efforts in public and private markets, although such efforts have not been successful to date. Failure of the Bank to comply with the terms of the Stipulation and Order may subject the Bank to further enforcement action by the FDIC and OFIR, which could have a material adverse effect on the Company. ~~For~~The discussion above under the caption, “Recent Events — Prompt Corrective Action Directive” is incorporated herein by reference. Also, for additional information, please refer to our annual report on Form 10-K for the year ended December 31, 2009.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This item is not required of smaller reporting companies.

2527

~~Table~~ITEM of4T: ~~Contents~~CONTROLS AND PROCEDURES

~~ITEM~~ (a) Disclosure ~~4T:~~controls ~~CONTROLS~~and ~~AND~~procedures. ~~PROCEDURES~~We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2010. Our disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner, the information we must disclose in reports that we file with, or submit to the SEC. Henry R. Thiemann, our President and Chief Executive Officer, and David A. Wilson, our Senior Vice President and Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Thiemann and Wilson concluded that, as of the date of their evaluation, our disclosure controls were effective.

(ab) ~~Disclosure~~Internal controls ~~and procedures~~. WeThere ~~evaluated~~have ~~the~~not ~~effectiveness~~been ofany ~~the design~~significant ~~and~~changes ~~operation~~in of our ~~disclosure controls and procedures as of June 30, 2010. Our disclosure~~internal ~~controls~~accounting ~~and procedures are the~~ controls ~~and~~or ~~other procedures that we designed to ensure that we record, process, summarize and report~~ in aother ~~timely~~factors ~~manner, the information we must disclose in reports~~ that wecould ~~file~~significantly ~~with,~~affect orthose ~~submit~~controls toduring the ~~SEC. Henry R. Thiemann, our President and Chief~~ ~~Executive~~quarter ~~Officer,~~ended ~~and David A. Wilson, our Senior Vice President and Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs.~~September ~~Thiemann and Wilson concluded that~~30, ~~as of the date of their evaluation, our disclosure controls were effective~~2010.

~~(b) Internal controls. There have not been any significant changes in our internal~~28 ~~accounting controls or in other factors that could significantly affect those controls during the quarter ended June 30, 2010.~~

26PART II. OTHER INFORMATION

~~Table~~ Item 1. ofLegal ~~Contents~~Proceedings

~~PART~~ The IICompany may from time-to-time be involved in legal proceedings occurring in the ordinary course of business which, in the aggregate, involve amounts which are believed by management to be immaterial to the financial condition of the Company. ~~OTHER~~The ~~INFORMATION~~Company is not currently involved in any legal proceedings which management believes are of a material nature.

Item 11A. ~~Legal~~Risk ~~Proceedings~~Factors

~~The~~This ~~Company~~item may from time-to-time be involved in legal proceedings occurring in the ordinary course of business which, in the aggregate, involve amounts which are believed by management to be immaterial to the financial condition of the Company. The Company is not ~~currently~~required ~~involved in any legal proceedings which management believes are~~ of asmaller ~~material~~reporting ~~nature~~companies.

Item 1A2. ~~Risk~~Unregistered ~~Factors~~Sales of Equity Securities and Use of Proceeds

~~This~~ Not ~~item is not required of smaller reporting companies~~applicable.

Item 23. ~~Unregistered~~Defaults ~~Sales~~Upon ofSenior ~~Equity~~ Securities ~~and Use of Proceeds~~

Not applicable.

Item 34. ~~Defaults Upon Senior Securities~~(RESERVED)

~~Not applicable~~ Item 5. Other Information

~~Item 4.~~ Not ~~(RESERVED)~~ applicable.

Item 56. ~~Other Information~~Exhibits

~~Not applicable~~a. Exhibits

Item 6. Exhibits


Exhibit 10.1		Second Amendment to Employment Agreement dated July 17, 2010 (Henry R. Thiemann)

Exhibit 31.1		Certification of Henry R. Thiemann required by Rule 13a — 14(a)

Exhibit 31.2		Certification of David A. Wilson required by Rule 13a — 14(a)

Exhibit 32.1		Certification of Henry R. Thiemann required by Rule 13a — 14(b) and Section 906 of the Sarbanes — Oxley Act of 2002, 18 U.S.C. Section 1350

Exhibit 32.2		Certification of David A. Wilson required by Rule 13a — 14(b) and Section 906 of the Sarbanes — Oxley Act of 2002, 18 U.S.C. Section 1350

~~a. Exhibits~~29

		Exhibit 10.1		Employment Agreement with Henry R. Thiemann (incorporated by reference from current report on Form 8-K filed on April 27, 2010)
		Exhibit 10.2		First Amendment to Employment Agreement dated June 30, 2010 (Henry R. Thiemann)
		Exhibit 31.1		Certification of Henry R. Thiemann required by Rule 13a – 14(a)
		Exhibit 31.2		Certification of David A. Wilson required by Rule 13a – 14(a)
		Exhibit 32.1		Certification of Henry R. Thiemann required by Rule 13a – 14(b) and Section 906 of the Sarbanes – Oxley Act of 2002, 18 U.S.C. Section 1350
		Exhibit 32.2		Certification of David A. Wilson required by Rule 13a – 14(b) and Section 906 of the Sarbanes – Oxley Act of 2002, 18 U.S.C. Section 1350

SIGNATURES

27 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	PSB GROUP, INC.
Date: November 15, 2010	/s/ Henry R. Thiemann
	Henry R. Thiemann
	President and Chief Executive Officer

SIGNATURES



Date: November 15, 2010	/s/ David A. Wilson
	David A. Wilson
	Chief Financial Officer

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly~~30 ~~caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~

	PSB GROUP, INC.
Date: July 26, 2010	/s/ Henry R. Thiemann
	Henry R. Thiemann
	President and Chief Executive Officer
Date: July 26, 2010	/s/ David A. Wilson
	David A. Wilson
	Chief Financial Officer

EXHIBIT INDEX

28Exhibit 10.1 Second Amendment to Employment Agreement dated July 17, 2010 (Henry R. Thiemann)

~~Table~~Exhibit 31.1 Certification of ~~Contents~~Henry R. Thiemann required by Rule 13a — 14(a)

~~EXHIBIT~~Exhibit 31.2 ~~INDEX~~Certification of David A. Wilson required by Rule 13a — 14(a)

Exhibit 10.1		Employment Agreement with Henry R. Thiemann (incorporated by reference from current report on Form 8-K filed on April 27, 2010)
Exhibit 10.2		First Amendment to Employment Agreement dated June 30, 2010 (Henry R. Thiemann)
Exhibit 31.1		Certification of Henry R. Thiemann required by Rule 13a – 14(a)
Exhibit 31.2		Certification of David A. Wilson required by Rule 13a – 14(a)
Exhibit 32.1		Certification of Henry R. Thiemann required by Rule 13a – 14(b) and Section 906 of the Sarbanes – Oxley Act of 2002, 18 U.S.C. Section 1350
Exhibit 32.2		Certification of David A. Wilson required by Rule 13a – 14(b) and Section 906 of the Sarbanes – Oxley Act of 2002, 18 U.S.C. Section 1350

Exhibit 32.1 Certification of Henry R. Thiemann required by Rule 13a — 14(b) and Section 906 of the Sarbanes — Oxley Act of 2002, 18 U.S.C. Section 1350

Exhibit 32.2 Certification of David A. Wilson required by Rule 13a — 14(b) and Section 906 of the Sarbanes — Oxley Act of 2002, 18 U.S.C. Section 1350

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