SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

Annual Report Pursuant to Section 13 or 15(d) of the  Securities Exchange Act of
1934
                   For the Fiscal Year Ended December 31, 2001


                          Commission File No. 333-44161


                               PSB BANCGROUP, INC.

       A Florida Corporation (IRS Employer Identification No. 59-3454146)
                              500 South 1st Street
                               Lake City, FL 32025
                                 (386) 754-0002

Securities Registered Pursuant  to Section 12(b)  of the Securities Exchange Act
of 1934:

                                      NONE
                                      ----

Securities Registered Pursuant  to Section 12(g)  of the Securities Exchange Act
of 1934:

                                      NONE
                                      ----

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X ___ No ___

Check if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not  contained  in this  form,  and  will  not be  contained,  to the best of
Registrant's   knowledge,   in  definitive   proxy  or  information   statements
incorporated  by  reference  in Part III of the Firm 10-KSB or any  amendment to
this Form 10-KSB. [ ]

Revenues for the fiscal year ended December 31, 2001: $1,805,635

The  aggregate  market  value  of the  common  stock of the  Registrant  held by
nonaffiliates  of the  Registrant  (234,691  shares)  on  March  18,  2002,  was
approximately  $2,112,219.  As of such date, no organized trading market existed
for the common stock of the Registrant.  The aggregate market value was computed
by reference to recent trading activity of the common stock of the registrant at
$9.00 per share.  For the  purposes of this  response,  directors,  officers and
holders  of 5% or more of the  Registrant's  common  stock  are  considered  the
affiliates of the Registrant at that date.

The  number  of shares  outstanding  of the  Registrant's  common  stock,  as of
February 18, 2002: 518,200 shares of $0.01 par value common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------

     1.   Portions of the Audited  Consolidated  Financial Statements at and for
          the years ended December 31, 2001 and 2000. (Part II)

     2.   Portions  of  Proxy   Statement   for  the  2002  Annual   Meeting  of
          Shareholders. (Part III)




<PAGE>

                                TABLE OF CONTENTS

Consolidated -- PSB  BancGroup,  Inc.,  and its  subsidiary  are  referred to as
("Registrant").

<TABLE>
                                                                                                   Page Number
                                                                                                   -----------
     PART I
     <S>        <C>                                                                                      <C>         <C>
     Item 1     Business ................................................................................ 3
     Item 2     Description of Property ................................................................ 11
     Item 3     Legal Proceedings ...................................................................... 11
     Item 4     Submission of Matters to a Vote of Security Holders .................................... 11

     PART II
     Item 5     Market for Common Equity and Related Stockholder Matters ............................... 12
     Item 6     Management's Discussion and Analysis of Financial Condition and
                Results of Operations .................................................................. 12
     Item 7     Financial Statements and Supplementary Data ............................................ 20(1)
     Item 8     Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure .................................................... 20

     PART III
     Item 9     Directors and Executive Officers of the Registrant ..................................... 20(2)
     Item 10    Executive Compensation ................................................................. 20(2)
     Item 11    Security Ownership of Certain Beneficial Owners and Management ......................... 20(2)
     Item 12    Certain Relationships and Related Transactions ......................................... 21

     PART IV
     Item 13    Exhibits and Reports on Form 8-K ....................................................... 21

--------------------------------
<FN>
(1)  These  items  are  incorporated  by  reference  from  Registrant's  Audited
     Consolidated  Financial  Statements at and for the years ended December 31,
     2001 and 2000.

(2)  The  material  required  by Items 9 through  11 is hereby  incorporated  by
     reference  from  Registrant's   definitive  Proxy  Statement   pursuant  to
     Instruction G of Form 10-KSB.
</FN>
</TABLE>








                                       2
<PAGE>
                                     PART I
ITEM 1. - BUSINESS

     General

     PSB BancGroup, Inc. ("PSB") is a one-bank holding company as defined by the
     Bank Holding Company Act of 1956, as amended.  PSB, which is  headquartered
     in Lake City, Florida, owns 100% of the issued and outstanding common stock
     of Peoples State Bank ("Bank"). Collectively, PSB and the Bank are referred
     to as the "Company."

     PSB was  incorporated  under the laws of the State of  Florida  on June 30,
     1997,  to acquire 100 percent of the shares to be issued by the Bank during
     its  organizational  stage and to enhance  the Bank's  ability to serve its
     future  customers'   requirements  for  financial  services.  PSB  provides
     flexibility  for  expansion  of  the  Company's  banking  business  through
     possible  acquisitions  of  other  financial  institutions  and to  provide
     additional banking-related services which a traditional commercial bank may
     not provide under present laws.

     Subsidiaries

     As of December  31, 2001,  PSB had one  subsidiary,  Peoples  State Bank, a
     state-chartered  commercial bank. The Bank opened for business on April 28,
     1999.

     The Bank is a full service  commercial bank, without trust powers. The Bank
     provides such consumer  services as U.S. Savings Bonds,  travelers  checks,
     bank  checks  and  cashier's  checks.  The  Bank  offers  a full  range  of
     interest-bearing and noninterest-bearing deposit accounts, which include:

                     Commercial and Retail Checking Accounts
                   Competitively Priced Money Market Accounts
                         Individual Retirement Accounts
               Regular Interest Bearing Statement Savings Accounts
                          U.S. Certificates of Deposit

     The Bank also offers a wide range of loan products, which include:

                                Commercial Loans
                                Real Estate Loans
                               Construction Loans
                                 Consumer Loans

     Forward-Looking Statements

     This report contains certain "forward-looking"  statements, as such term is
     defined in the Private  Securities  Litigation Reform Act of 1995 or by the
     Securities and Exchange Commission in its rules,  regulations and releases,
     which represent the Company's expectations or beliefs,  including,  but not
     limited  to,  statements  concerning  the  Company's  operations,  economic
     performance,   financial  condition,  growth  and  acquisition  strategies,
     investments and future operational plans. For this purpose,  any statements
     contained  herein that are not statements of historical  fact may be deemed
     to be  forward-looking  statements.  Without limiting the generality of the
     foregoing, words such as "may", "will", "expect", "relieve",  "anticipate",
     "intent", "could",  "estimate",  "might", or "continue", or the negative or
     other variations thereof or comparable terminology are intended to identify
     forward-looking  statements.  These  statements  by  their  nature  involve
     substantial  risks  and  uncertainties,  certain  of which are  beyond  our
     control,  and actual results may differ materially,  depending on a variety
     of important  factors,  including  uncertainty  related to our  operations,
     mergers or acquisitions,  governmental regulation,  the value of the assets
     and any other factors  discussed in this and other Company filings with the
     Securities and Exchange Commission.


                                       3
<PAGE>

                             SELECTED FINANCIAL DATA

                   At December 31, or for the Year then Ended
                (Dollars in thousands, except per share figures)

<TABLE>
                                                                              2001             2000
                                                                             ------           ------
<S>                                                                      <C>              <C>
At Year End:
Cash and Cash Equivalents .........................................      $       911      $       600
Securities ........................................................            7,232            3,896
Loans, Net ........................................................           18,924           11,154
All Other Assets ..................................................            2,461            2,090
                                                                          ----------       ----------
         Total Assets .............................................      $    29,528      $    17,740
                                                                          ==========       ==========
Deposit Accounts...................................................      $    24,022      $    13,102
Other Borrowings...................................................            1,200              245
All Other Liabilities..............................................              482              425
Stockholders' Equity...............................................            3,824            3,968
                                                                          ----------       ----------
         Total Liabilities and Stockholders' Equity................      $    29,528      $    17,740
                                                                          ==========       ==========

For the Year:
Total Interest Income .............................................      $     1,640      $       990
Total Interest Expense ............................................              923              470
                                                                          ----------       ----------
Net Interest Income ...............................................              717              520
Provision for Loan Losses .........................................              161              101
                                                                          ----------       ----------
Net Interest Income After Provision for Loan Losses ...............              556              419
Noninterest Income ................................................              165               75
Noninterest Expenses ..............................................              985              936
                                                                          ----------       ----------
Loss Before Income Tax Benefit.....................................             (264)            (442)
Income Tax Benefit ................................................             (101)            (169)
                                                                          ----------       ----------
Net Loss ..........................................................      $      (163)     $      (273)
                                                                          ==========       ==========
Basic Loss Per Share ..............................................      $      (.31)     $      (.53)
                                                                          ==========       ==========
Diluted Loss Per Share  ...........................................      $      (.31)     $      (.53)
                                                                          ==========       ==========

Ratios and Other Data:
Return on Average Assets ..........................................           (0.66%)          (1.96%)
Return on Average Equity ..........................................           (4.18%)          (7.10%)
Average Equity to Average Assets ..................................           15.78%           27.60%
Interest-Rate Spread During the Period ............................            2.58%            3.25%
Net Yield on Average Interest-Earning Assets ......................            3.32%            4.47%
Noninterest Expenses to Average Assets ............................            3.99%            6.72%
Ratio of Average Interest-Earning Assets to
   Average Interest-Bearing Liabilities ...........................             1.17             1.30
Nonperforming Loans and Foreclosed Real Estate as
   A Percentage of Total Assets at End of Year ....................            0.85%                -
Allowance for Loan Losses as a Percentage
   Of Total Loans at End of Year ..................................            1.20%            1.23%
Total Number of Banking Offices ...................................                1                1
Total Shares Outstanding at End of Year ...........................          517,884          515,784
Book Value Per Share at End of Year ...............................      $      7.38      $      7.69

</TABLE>


                                       4
<PAGE>

Market Area and Competition

Our primary service area is Lake City, Florida.  Lake City has been experiencing
steady growth in both population and banking deposits in recent years and is the
primary  commercial  and  residential  center  located in the  Northern  part of
Columbia  County,  Florida.  Columbia  County  maintains  a  steady  commercial,
industrial and agricultural  base, which has been expanding in recent years. The
largest employers in the County include:

  o  Columbia County School                  o  Homes of Merit
  o  VA Medical Center                       o  TIMCO - Lake City
  o  Florida Department of Transportation    o  Wal-Mart
  o  Columbia Correctional Center            o  Board of County Commissioners

Agricultural  activities in Columbia County center around the cattle, timber and
other  farming   operations.   There  is  strong   competition  among  financial
institutions  in Lake City.  There are six  commercial  banking  offices and one
savings  and loan  office  within  our  primary  service  area.  There  are five
commercial  banks with a total of 11 branches  operating in Lake City.  Of these
five banks,  one is affiliated with a major bank holding  company.  There are no
savings   associations   headquartered  in  Lake  City,  however,   one  savings
association  and one credit  union  operate  two  branches  in Lake City and one
credit  union is  headquartered  here.  Financial  products  are now provided by
financial  institutions  located outside of the primary service area through the
Internet.  The Company also competes  with  non-financial  institutions  such as
insurance  companies,  consumer  finance  companies,  brokerage houses and other
business entities that now target once traditional banking business.

We believe that we can meet these  competitive  challenges by providing  prompt,
personalized service to our customers. "People" answer our telephones, not voice
mail and customers are notified promptly as to whether we can satisfy their loan
requests.

Investments

As of December 31, 2001, investment securities, Federal Home Loan Bank Stock and
federal funds sold comprised  approximately  25.6% of the Company's assets.  Net
loans comprised  approximately  64.1% of the Company's  assets. To date, we have
invested primarily in obligations of the United States or obligations guaranteed
as to principal  and  interest by the United  States.  In addition,  the Company
enters into Federal Funds transactions with its principal  correspondent  banks,
and acts as a seller of such funds.

Deposits

We  offer a wide  range  of  interest-bearing  and  noninterest-bearing  deposit
accounts,  including  commercial  and retail  checking  accounts,  money  market
accounts,  individual  retirement  accounts,  regular interest bearing statement
savings accounts and certificate of deposits with fixed and variable rates and a
range of maturity  date  options.  The sources of our  deposits  are  residents,
businesses  and  employees of  businesses  within our market area.  Deposits are
generated  through the personal  solicitation  of our  officers  and  directors,
direct mail solicitation and advertisements published in the local media. We pay
competitive interest rates on time and savings deposits to meet our loan funding
needs.  See  "ITEM  6. -  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, Asset and Liability Management."

Loan Portfolio

We offer a full  complement  of  lending  services,  which  include  commercial,
consumer/installment and real estate loans.


                                       5
<PAGE>

Commercial  lending is directed  principally toward businesses whose demands for
funds fall  within our legal  lending  limits  and which are  potential  deposit
customers of the Bank. This category of loans includes loans made to individual,
partnership  or corporate  borrowers.  These loans are obtained for a variety of
business  purposes.  Particular  emphasis  is  placed  on  loans  to  small  and
medium-sized businesses.

Real  estate  loans  consist  of  residential  and  commercial  first and second
mortgage loans.

Construction loans consist of commercial and residential construction projects.

Consumer  loans  consist  primarily  of  installment  loans to  individuals  for
personal,   family  and  household  purposes,   including  automobile  loans  to
individuals  and  pre-approved  lines of  credit.  This  category  of loans also
includes term loans secured by second  mortgages on the  residences of borrowers
for a variety of  purposes  including  home  improvements,  education  and other
personal expenditures.

Our general practice is to not accrue interest on loans delinquent over 90 days,
unless fully  secured and in the process of  collection.  The accrued and unpaid
interest  is  reversed  against  current  income  and  thereafter   interest  is
recognized  only to the extent  payments  are  received.  Non-accrual  loans are
restored to accrual basis when  interest and principal  payments are current and
prospects for recovery are no longer in doubt.

As of December  31,  2001,  the Company had  $249,766 in  nonperforming  assets,
consisting of $231,203 in  foreclosed  assets and $18,563 in loans on nonaccrual
status.

The  majority  of our loans are  secured  by real  estate  in  Columbia  County,
Florida.  Accordingly,  the ultimate  collectibility of a substantial portion of
the loan portfolio is susceptible to changes in market conditions in the County.
See "ITEM 6. - MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS, Asset and Liability Management."

Loan Loss Reserves

In considering the adequacy of our allowance for loan losses, we considered that
as of December 31, 2001,  45.3% of our  outstanding  loans are in the commercial
loan category,  including  loans secured by commercial  real estate.  Commercial
loans are  generally  considered  by  management to have greater risk than other
categories  of loans in our  loan  portfolio.  However,  the  majority  of these
commercial  loans at  December  31,  2001,  were made on a secured  basis,  with
collateral consisting primarily of real estate, accounts receivable,  inventory,
assignment of mortgages and equipment.  We believe that the secured condition of
the  preponderant  portion of our commercial loan portfolio  reduces any risk of
loss inherently present in commercial loans.

Construction  loans  comprised  21.0% of out total loan portfolio as of December
31, 2001. Our consumer loan portfolio at December 31, 2001,  consisted primarily
of lines of credit and installment loans secured by automobiles, boats and other
consumer  goods.  We believe that the risk  associated with these types of loans
has been adequately provided for in our loan loss reserve.

Residential real estate mortgage loans constituted 18.9% of outstanding loans at
December 31, 2001.  These loans are  considered  to have minimal risk due to the
fact that they represent  conventional  residential  real estate mortgages where
the amount of the original  loan does not exceed 80% of the  appraisal  value of
the collateral or is otherwise covered by private mortgage insurance.

The Bank's Board of Directors  monitors the loan  portfolio  monthly in order to
enable it to  evaluate  the  adequacy  of the  allowance  for loan  losses.  The
allowance for loan losses represents the cumulative total of monthly  provisions
for loan losses plus  recoveries  of amounts  previously  charged off,  less net
charge-offs.  The allowance for loan losses is  established  through a provision
for loan losses charged to expense.  Loans are charged off against the allowance
when management believe the collectibility of principal is unlikely.


                                       6
<PAGE>

The  monthly  provision  for  loan  losses  is  based  on  our  judgment,  after
considering  known and inherent risks in the portfolio,  past loss experience of
the Company, adverse situations that may affect the borrower's ability to repay,
assumed values of the underlying  collateral securing the loans, the current and
prospective  financial  condition  of  the  borrower,  and  the  prevailing  and
anticipated economic condition of the local market.

The Company maintains an allowance for loan losses at a level that we believe is
sufficient to absorb all estimated  losses in the loan portfolio.  The allowance
for loan losses is made up of two primary  components:  (i) amounts allocated to
loans based on collateral type; and (ii) amounts allocated for loans reviewed on
an individual basis in accordance with a credit risk grading system. At December
31, 2001,  $230,106 or 1.20% of  outstanding  loans had been  allocated for loan
losses.

Correspondent Banking

Correspondent  banking involves the providing of services by one bank to another
bank which cannot  provide that service for itself from an economic or practical
standpoint.   We  purchase  correspondent  services  offered  by  larger  banks,
including  check  collections,  purchase  or sale  of  Federal  Funds,  security
safekeeping,  investment  services,  coin and  currency  supplies,  overline and
liquidity  loan  participations  and  sales of loans to or  participations  with
correspondent banks.

Data Processing

Our data  processing  servicing  agreement  is with  The  InterCept  Group.  The
servicing  agreement  provides us with a full range of data processing  services
including an automated  general ledger,  deposit  accounting,  commercial,  real
estate and installment lending data processing, central information file ("CIF")
and ATM processing.  Under our data processing servicing agreement,  the Company
pays a  monthly  fee  based on the  type,  kind and  volume  of data  processing
services provided, priced at a stipulated rate schedule.

Employees

The Company  currently  employs  eleven  full-time and two part-time  employees,
including four officers. Additional employees will be hired as needed.

Monetary Policies

The  results  of  operations  of the Bank are  affected  by credit  policies  of
monetary authorities, particularly the Federal Reserve Board. The instruments of
monetary  policy  employed  by the Federal  Reserve  Board  include  open market
operations in U.S. Government securities, changes in the discount rate on member
bank borrowings,  changes in reserve  requirements  against member bank deposits
and limitations on interest rates which member banks may pay on time and savings
deposits.  In view of changing  conditions  in the  national  economy and in the
money  market,  as  well  as  the  effect  of  action  by  monetary  and  fiscal
authorities,  including the Federal  Reserve Board, no prediction can be made as
to possible future changes in interest rates,  deposit levels,  loan demands, or
the business and earnings of the Company.

Supervision and Regulation

General.  The Company operates in a highly regulated  environment.  Our business
-------
activities,  which  are  governed  by  statute,  regulation  and  administrative
policies, are supervised by the Federal Reserve Board, the Florida Department of
Banking and Finance ("Department") and the Federal Deposit Insurance Corporation
("FDIC").


                                       7
<PAGE>

The banking industry is highly  regulated,  with numerous federal and state laws
and regulations  governing its  activities.  The following is a brief summary of
the more recent legislation which affect the Company:

In 1999,  financial  services  regulation  was  significantly  reformed with the
adoption  of the  Gramm-Leach-  Bliley Act  ("GLA").  The GLA  provides  for the
streamlining  of the  regulatory  oversight  functions  of the  various  federal
banking  regulators.  Of  significance,  the GLA permits Bank Holding  Companies
("BHC")  that are  well  managed,  well  capitalized  and  that  have at least a
satisfactory  Community  Reinvestment Act rating to operate as Financial Holding
Companies  ("FHC").  In addition to activities that are permissible for BHCs and
their  subsidiaries,  the GLA permits FHCs and their subsidiaries to engage in a
wide  variety  of  other  activities  that  are  "financial  in  nature"  or are
incidental to financial activities.  These new activities may enable the Company
to consider and engage in new lines of business.

The GLA also requires  financial  institutions  to permit,  with few exceptions,
their  customers to "opt out" of having  their  personal  financial  information
shared with  nonaffiliated  third parties.  The GLA bars financial  institutions
from disclosing  customer  account numbers to direct marketers and mandates that
institutions   provide  annual  disclosure  to  their  customers  regarding  the
institution's privacy policies and procedures.

PSB is regulated by the Federal  Reserve Board under the BHC Act, which requires
every BHC to obtain the prior  approval  of the  Federal  Reserve  Board  before
acquiring more than 5% of the voting shares of any bank or all or  substantially
all of the assets of a bank,  and before merging or  consolidating  with another
BHC. The Federal  Reserve  Board  (pursuant to regulation  and published  policy
statements)  has  maintained  that a BHC must  serve as a  source  of  financial
strength to its  subsidiary  banks.  In adhering  to the Federal  Reserve  Board
policy,  PSB may be required to provide financial support for the Bank at a time
when, absent such Federal Reserve Board policy, PSB may not deem it advisable to
provide such assistance.

As a BHC,  PSB is  required  to file with the  Federal  Reserve  Board an annual
report of its  operations  at the end of each  fiscal  year and such  additional
information  as the Federal  Reserve Board may require  pursuant to the BHC Act.
The Federal Reserve Board may also make examinations of PSB and the Bank.

Having  completed a public  offering with its shares of common stock  registered
under  the  Securities  Act of 1933,  PSB has  chosen  to file  periodic  public
disclosure reports with the Securities and Exchange  Commission  pursuant to the
Securities Exchange Act of 1934, and the regulations promulgated thereunder.

Form 10-KSB is a required annual report that must contain a complete overview of
the Company's business, financial, management,  regulatory, legal, ownership and
organizational status. PSB must file Form 10-KSB by March 31 of each year.

Similarly,  Form 10-QSB, must contain information  concerning PSB on a quarterly
basis.  Although  Form 10- KSB  requires  the  inclusion  of  audited  financial
statements,  unaudited  statements  are sufficient for inclusion on Form 10-QSB.
Any significant  non-recurring  events that occur during the subject quarter, as
well as changes in securities,  any defaults and the submission of any maters to
a vote of security holders, must also be reported on Form 10-QSB.

Additionally,  if any  of six  significant  events  (a  change  in  control,  an
acquisition or disposition of significant assets, bankruptcy or receivership,  a
change in certifying  accountant,  any  resignation  of directors or a change in
fiscal year end) occurs in a period  between the filing of Form 10-KSB or a Form
10-QSB, such event must be reported on a Form 8-KSB within 15 days of the event.

When communicating with shareholders,  PSB's proxy  solicitations for its Annual
Meetings of Shareholders must contain certain detailed disclosures regarding the
current  status of PSB. In addition,  PSB's Annual  Report must contain  certain
information, including audited financial statements, similar to what is found on
Form 10-KSB.


                                       8
<PAGE>

Individual  directors,  officers  and  owners of more  than 10% of PSB's  common
stock,  must also file  individual  disclosures  of the amount of PSB securities
(stock,  options or warrants) they  beneficially  own and of any transactions in
such  securities  to which  they are  parties.  The  initial  status of all such
individuals was reported on Form 3, securities transactions are reported on Form
4 as they  occur,  and an  annual  report  of  ownership  is filed on Form 5. In
certain instances,  the filing of a Form 4 or a Form 5 can relieve the reporting
individual of their duty to file the other.

As a state-chartered  bank, we are subject to the supervision of the Department,
the FDIC and the Federal Reserve Board. With respect to expansion,  the Bank may
establish branch offices anywhere within the State of Florida.  The Bank is also
subject to the Florida banking and usury laws restricting the amount of interest
which it may  charge  in  making  loans  or other  extensions  of  credit.  As a
subsidiary  of PSB,  the Bank is subject to  restrictions  under  federal law in
dealing  with PSB and other  affiliates,  if any.  These  restrictions  apply to
extensions  of credit  to an  affiliate,  investments  in the  securities  of an
affiliate and the purchase of assets from an affiliate.

Loans and  extensions  of credit by state  banks are  subject  to legal  lending
limitations.  Under  state  law,  a state  bank may  grant  unsecured  loans and
extensions  of  credit  in an amount  up to 15% of its  unimpaired  capital  and
surplus to any person. In addition,  a state bank may grant additional loans and
extensions of credit to the same person up to 10% of its unimpaired  capital and
surplus,  provided that the transactions are fully secured.  This 10% limitation
is separate from,  and in addition to, the 15%  limitation for unsecured  loans.
Loans and  extensions  of credit may exceed the  general  lending  limit if they
qualify under one of several exceptions.

The Company is subject to regulatory capital requirements imposed by the Federal
Reserve Board,  the FDIC and the Department.  Both the Federal Reserve Board and
the FDIC  have  established  risk-based  capital  guidelines  for  bank  holding
companies and banks which make regulatory capital requirements more sensitive to
differences  in risk  profiles  of various  banking  organizations.  The capital
adequacy  guidelines  issued by the  Federal  Reserve  Board are applied to bank
holding  companies on a  consolidated  basis with the banks owned by the holding
company.  The FDIC's  risk  capital  guidelines  apply  directly  to state banks
regardless  of whether they are a subsidiary  of a bank  holding  company.  Both
agencies'  requirements  (which are substantially  similar) provide that banking
organizations  must have capital  equivalent to 8% of weighted risk assets.  The
risk weights  assigned to assets are based primarily on credit risks.  Depending
upon the riskiness of a particular asset, it is assigned to a risk category. For
example,  securities  with  an  unconditional  guarantee  by the  United  States
government  are  assigned to the lowest risk  category.  A risk weight of 50% is
assigned  to loans  secured by  owner-occupied  one to four  family  residential
mortgages.  The  aggregate  amount of assets  assigned to each risk  category is
multiplied  by the risk  weight  assigned  to that  category  to  determine  the
weighted  values,  which are added  together to  determine  total  risk-weighted
assets.  At  December  31,  2001,  our total  risk-based  capital  and Tier 1 to
risk-weighted assets capital ratios were 15.23% and 14.18%,  respectively.  Both
the Federal  Reserve Board and the FDIC have also  implemented  minimum  capital
leverage ratios to be used in tandem with the risk-based guidelines in assessing
the overall  capital  adequacy of bank and bank holding  companies.  Under these
rules,  banking  institutions  are  required  to  maintain  a ratio of 3% Tier 1
capital  to total  assets  (net of  goodwill).  Tier 1 capital  includes  common
stockholders  equity,  noncumulative  perpetual  preferred  stock  and  minority
interests in the equity accounts of consolidated subsidiaries.

Both the  risk-based  capital  guidelines  and the  leverage  ratio are  minimum
requirements,  applicable only to top-rated banking  institutions.  Institutions
operating at or near these levels are expected to have well-  diversified  risk,
excellent asset quality,  high liquidity,  good earnings and in general, have to
be considered strong banking  organizations,  rated composite 1 under the CAMELS
rating system for banks or the BOPEC rating  system for bank holding  companies.
Institutions  with lower  ratings and  institutions  with high levels of risk or
experiencing  or anticipating  significant  growth would be expected to maintain
ratios 100 to 200 basis points above the stated minimums.


                                       9
<PAGE>

The Federal Deposit  Insurance  Corporation  Improvement Act of 1991 ("FDICIA"),
created five "capital categories" ("well capitalized," "adequately capitalized,"
"undercapitalized,"    "significantly    undercapitalized"    and    "critically
undercapitalized")  which  are  defined  in the  FDICIA  and  which  are used to
determine the severity of corrective  action the appropriate  regulator may take
in the event an institution  reaches a given level of  undercapitalization.  For
example, an institution which becomes  "undercapitalized"  must submit a capital
restoration plan to the appropriate  regulator  outlining the steps it will take
to become  adequately  capitalized.  Upon approving the plan, the regulator will
monitor the institution's compliance.  Before a capital restoration plan will be
approved,  any entity controlling a bank (i.e., a BHC) must guarantee compliance
with the plan until the  institution  has been  adequately  capitalized for four
consecutive calendar quarters. The liability of the BHC is limited to the lesser
of 5% of the  institution's  total  assets or the amount  which is  necessary to
bring the institution into compliance with all capital  standards.  In addition,
"undercapitalized"  institutions will be restricted from paying management fees,
dividends  and other  capital  distributions,  will be subject to certain  asset
growth  restrictions  and will be required  to obtain  prior  approval  from the
appropriate regulator to open new branches or expand into new lines of business.
As an  institution  drops to lower  capital  levels,  the extent of action to be
taken  by  the  appropriate  regulator  increases,   restricting  the  types  of
transactions in which the  institution  may engage and ultimately  providing for
the appointment of a receiver for certain  institutions  deemed to be critically
undercapitalized.

The FDICIA  requires  each federal  banking  agency to prescribe for all insured
depository  institutions  and their  holding  companies  standards  relating  to
internal controls,  information  systems and audit systems,  loan documentation,
credit underwriting,  interest rate risk exposure,  asset growth,  compensation,
fees and benefits and such other  operational  and  managerial  standards as the
agency deems appropriate.  In addition,  the federal banking regulatory agencies
are required to prescribe by regulation standards specifying:

     o    maximum classified assets to capital ratios;
     o    minimum  earnings   sufficient  to  absorb  losses  without  impairing
          capital;
     o    to the extent feasible,  a minimum ratio of market value to book value
          for  publicly   traded  shares  of  depository   institutions  or  the
          depository institution holding companies; and
     o    such other standards relating to asset quality, earnings and valuation
          as the agency deems appropriate.

Finally,  each federal  banking  agency is required to prescribe  standards  for
employment contracts and other compensation  arrangements of executive officers,
employees,   directors  and  principal   shareholders   of  insured   depository
institutions   that  would   prohibit   compensation   and  benefits  and  other
arrangements that are excessive or that could lead to a material  financial loss
for the institution. If an insured depository institution or its holding company
fails to meet any of its  standards  described  above,  it will be  required  to
submit to the  appropriate  federal  banking agency a plan  specifying the steps
that will be taken to cure the deficiency.  If an institution fails to submit an
acceptable plan or fails to implement the plan, the appropriate  federal banking
agency will require the institution or holding company to correct the deficiency
and, until corrected,  may impose restrictions on the institution or the holding
company including any of the restrictions applicable under the prompt corrective
action provisions of the FDICIA.

In response  to the  directive  issued  under the FDICIA,  the  regulators  have
adopted regulations which, among other things,  prescribe the capital thresholds
for each of the five capital categories established by the FDICIA. The following
table reflects the capital thresholds:


<TABLE>
                                                      Total Risk -          Tier I Risk -        Tier I
                                                      Based Capital          Based Capital        Leverage
                                                         Ratio                  Ratio              Ratio
                                                    ------------------     -----------------    -----------
   <S>                                                   <C>                    <C>               <C>
   Well capitalized (1)                                    10%                     6%                5%
   Adequately capitalized (1)                               8%                     4%               4%(2)
   Undercapitalized (3)                                  <  8%                  <  4%             <  4%
   Significantly Undercapitalized (3)                    <  6%                  <  3%             <  3%
   Critically Undercapitalized                              -                      -              <  2%


                                          (Footnotes to follow this page)

                                       10
<PAGE>


-------------------------
<FN>
(1) An institution must meet all three minimums.
(2) 3% for  composite  1-rated  institutions,  subject  to  appropriate  federal
    banking agency guidelines.
(3) An institution falls into this category if it is below the specified capital
    level for any of the three capital measures.
</FN>
</TABLE>

     Basedupon the above  regulatory  ratios,  the Bank is considered to be well
     capitalized.

     The FDICIA  also  provided  that  banks must meet new safety and  soundness
     standards.  In order to comply with the FDICIA,  the Federal  Reserve Board
     and  the  FDIC  adopted  a  rule  which  institutes   guidelines   defining
     operational and managerial  standards relating to internal  controls,  loan
     documentation,  credit underwriting,  interest rate exposure, asset growth,
     director  and  officer  compensation,  asset  quality,  earnings  and stock
     valuation.  Both  the  capital  standards  and  the  safety  and  soundness
     standards which the Act implements were designed to bolster and protect the
     deposit insurance fund.

     Under the Riegle-Neal  Interstate  Banking and Branching  Efficiency Act of
     1994 ("Riegle Act"),  restrictions  on interstate  acquisitions of banks by
     BHCs were repealed on September 29, 1995,  such that any  out-of-state  BHC
     would be able to acquire and consolidate any Florida-based bank, subject to
     certain deposit percentage and other restrictions on or after the effective
     date of the Riegle Act.  The  legislation  also  provides  that,  unless an
     individual state elected beforehand either:

          o    to accelerate the effective date; or
          o    to prohibit out-of-state banks from operating interstate branches
               within its territory.

     Currently,  adequately capitalized and managed BHCs are able to consolidate
     multiple  interstate  banks. De novo branching by an  out-of-state  bank is
     permitted only if it is expressly  permitted by the laws of the host state.
     The  authority of a bank to establish and operate  branches  within a state
     continues to be subject to applicable  state  branching  laws.  Florida has
     adopted  legislation which permits  interstate  acquisitions and interstate
     branching.  Florida  law  prohibits  de  novo  branching  into  Florida  by
     out-of-state banks.

     The scope of  regulation  and  permissible  activities  of the  Company  is
     subject to change by future federal and state legislation.

ITEM 2. - DESCRIPTION OF PROPERTY

     The Bank's  permanent  facility is located at 500 South First Street,  Lake
     City,  Florida.  The  facility  is a one-  story,  5,487  square  foot bank
     building.

ITEM 3. - LEGAL PROCEEDINGS

     There are no material  proceedings  known to the Company to be contemplated
     by any governmental authority;  nor are there material proceedings known to
     the  Company,  pending or  contemplated,  in which any  director,  officer,
     affiliate or any principal security holder of the Company, or any associate
     of any of the  foregoing  is a  party  or has an  interest  adverse  to the
     Company.

ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.


                                       11
<PAGE>
                                     PART II

ITEM 5. - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

     During the period  covered  by this  report and to date,  there has been no
     established public trading market for Registrant's common stock.

     As of March 18, 2002, the approximate  number of holders of record of PSB's
     common  stock was 200.  The exact  number  is not known  since  some of the
     shares are held by brokers in street  name.  To date,  PSB has not paid any
     dividends  on its common  stock.  It is the present  policy of the Board of
     Directors  to reinvest  earnings for such period of time as is necessary to
     ensure the success of the  operations of the Company.  There are no current
     plans to initiate  payment of cash  dividends,  and future  dividend policy
     will depend on our earnings, capital requirements,  financial condition and
     other factors considered relevant by the Board of Directors of the Company.

     The Bank is  restricted  in its  ability  to pay  dividends  under  Florida
     banking  laws  and  by  regulations  of  the  Federal   Deposit   Insurance
     corporation. Pursuant to Section 658.37, Florida Statutes, a state bank may
     not pay dividends  from its capital.  All dividends must be paid out of net
     profits then on hand, after charging off bad debts, depreciation, and other
     worthless  assets.  Payment  of  dividends  out of net  profits  is further
     limited by Federal regulation which prohibits the payment of dividends,  if
     such payment would bring the Bank's capital below required levels.

ITEM 6. - MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
          RESULTS OF OPERATIONS

                     Years Ended December 31, 2001 and 2000
General

     PSB BancGroup,  Inc.  ("PSB") was  incorporated  on June 30, 1997. PSB owns
     100% of the  outstanding  common stock of Peoples  State Bank (the "Bank").
     Collectively, PSB and the Bank are referred to as the "Company." PSB's only
     business is the ownership and operation of the Bank.

     The Bank is a Florida state-chartered  commercial bank and its deposits are
     insured by the Federal  Deposit  Insurance  Corporation.  The Bank provides
     community  banking  services  to  businesses  and  individuals  in Columbia
     County, Florida.

Credit Risk

     Our primary  business is making  commercial,  business,  consumer  and real
     estate loans. That activity entails potential loan losses, the magnitude of
     which depend on a variety of economic factors affecting borrowers which are
     beyond  our  control.  While  underwriting  guidelines  and  credit  review
     procedures  have been  instituted  to protect  the Company  from  avoidable
     credit losses, some losses will inevitably occur. At December 31, 2001, the
     Company  had  $249,766  in  nonperforming  assets.  During  the year  ended
     December 31, 2001, the Company had net charge offs of $69,911 in loans. The
     Company charged-off $3,976 in loans during 2000.

     The following  table  presents  information  regarding the Company's  total
     allowance  for losses,  as well as the  allocation  of such  amounts to the
     various categories of loans (dollars in thousands):


                           (Table to follow this page)


                                       12
<PAGE>

<TABLE>
                                                                                                    At December 31,
                                                                                ----------------------------------------------------
                                                                                          2001                        2000
                                                                                -------------------------    -----------------------
                                                                                              % Loans                    % Loans
                                                                                              to Total                   to Total
                                                                                 Amount         Loans         Amount       Loans
                                                                                --------      --------       --------    --------
<S>                                                                             <C>              <C>         <C>            <C>
Commercial Real Estate Loans ...........................                        $    62          25.9%       $    56        31.0%
Residential Real Estate Loans ..........................                             35          18.9             34        24.8
Commercial Loans .......................................                             47          19.4             37        23.4
Construction Loans......................................                             50          21.0              7         4.8
Consumer and Other Loans ...............................                             36          14.8              5        16.0
                                                                                --------      --------       --------    --------

Total Allowance for Loan Losses ........................                        $   230         100.0%       $   139       100.0%
                                                                                ========      ========       ========    ========
</TABLE>


The allowance for loan losses  represented  1.20% of the total loans outstanding
at December 31, 2001.

The following  table sets forth the  composition of the Company's loan portfolio
(dollars in thousands):


<TABLE>
                                                                                     At December 31,              At December 31,
                                                                                          2001                          2000
                                                                                     ---------------              ---------------
                                                                                                % of                         % of
                                                                                   Amount       Total           Amount       Total
                                                                                   ------       ------           ------       -----
<S>                                                                             <C>              <C>          <C>             <C>
Commercial Real Estate ......................................                   $  4,974         25.9%        $  3,506        31.0%
Residential Real Estate .....................................                      3,625         18.9            2,810        24.8
Commercial ..................................................                      3,721         19.4            2,646        23.4
Construction.................................................                      4,028         21.0              543         4.8
Consumer and Other...........................................                      2,854         14.8            1,816        16.0
                                                                                  -------       ------           ------       -----

                                                                                  19,202        100.0%          11,321       100.0%
                                                                                                ======                       =====

Less:
     Net Deferred Loan Fees .................................                        (48)                          (28)
     Allowance for Loan Losses ..............................                       (230)                         (139)
                                                                                  -------                       -------

Loans, net ..................................................                   $ 18,924                      $ 11,154
                                                                                  =======                       =======
</TABLE>

Liquidity and Capital Resources

The Company's  primary  source of cash during the year ended  December 31, 2001,
was from net  deposit  inflows  of $10.9  million.  Cash was used  primarily  to
originate  loans  and  to  purchase  investment  securities.   Outstanding  loan
commitments  at December  31,  2001,  totaled  $3.3  million and we exceeded our
regulatory liquidity requirements.

The following  table sets forth the carrying  value of the Company's  securities
portfolio:


                                       13
<PAGE>

<TABLE>
                                                                                          At December 31
                                                                                          (In thousands)
                                                                                   2001                  2000
                                                                                   ----                  ----
Securities Available for Sale -
     <S>                                                                        <C>                   <C>
     U.S. Government Agency Securities ..................................       $ 5,247               $ 3,566
     Mortgage-backed Security ...........................................           295                   330
     Collateralized mortgage obligations.................................         1,179                     -
     U.S. Treasury Securities............................................           511                     -
                                                                                -------               -------
     Total...............................................................         7,232               $ 3,896
                                                                                =======               =======
</TABLE>

The following  table sets forth,  by maturity  distribution at December 31, 2001
and 2000, certain information  pertaining to the securities portfolio as follows
(dollars in thousands):


<TABLE>

                                                                                After One Year
At December 31, 2001:                            One Year or Less                to Five Years                     Total
                                                 ----------------                -------------              -------------------
                                              Carrying       Average        Carrying        Average       Carrying        Average
                                               Value          Yield          Value           Yield          Value          Yield
                                               -----          -----          -----           -----          -----          -----
<S>                                           <C>             <C>           <C>               <C>           <C>             <C>
U.S. Government Agency
Securities...............................     $ 1,512         6.25%         $ 3,735           5.67%         5,247           5.84%
U.S. Treasury Securities.................           -            -              511           4.25            511           4.25
                                              --------       -------        --------          ----
Collateralized mortgage
obligations..............................                                                                   1,179           5.63
Mortgage backed security.................                                                                     295           5.50
                                                                                                           -------

     Total...............................     $ 1,512         6.25%         $ 4,246           5.50%         7,232           5.68%
                                              ========        ======        ========          ======       =======         ======
</TABLE>




<TABLE>
                                                                                After One Year
At December 31, 2000:                            One Year or Less                to Five Years                     Total
                                                 ----------------                -------------              -------------------
                                              Carrying       Average        Carrying        Average       Carrying        Average
                                               Value          Yield          Value           Yield          Value          Yield
                                               -----          -----          -----           -----          -----          -----
     <S>                                      <C>             <C>           <C>               <C>         <C>               <C>
     U.S. Government Agency
         Securities......................     $1,000          5.94%         $ 2,566           6.35%       $ 3,566           6.21%
                                              =======         =====         ========          ======
     Mortgage-backed Security............                                                                    330            5.50
                                                                                                            ----
     Total...............................                                                                 $ 3,896           6.17%
                                                                                                          ========         ======
</TABLE>

Results of Operations

Our operating  results  depend  primarily on the Company's net interest  income,
which is the difference between interest income on  interest-earning  assets and
interest  expense  on  interest-bearing  liabilities,  consisting  primarily  of
deposits.  Net interest  income is determined by the  difference  between yields
earned on interest-earning assets and rates paid on interest-bearing liabilities
("interest-rate spread") and the relative amounts of interest-earning assets and
interest-bearing   liabilities.   Our   interest-rate   spread  is  affected  by
regulatory, economic and competitive factors that influence interest rates, loan
demand and deposit flows. In addition, our net earnings are also affected by the
level of nonperforming loans and foreclosed real estate, as well as the level of
its  noninterest  income,  and its  noninterest  expense,  such as salaries  and
employee benefits, occupancy and equipment costs and income taxes.

The  following  table  sets  forth,  for  the  periods  indicated,   information
regarding:  (i) the total dollar  amount of interest and dividend  income of the
Company from  interest-earning  assets and the resultant average yield; (ii) the
total dollar amount of interest expense on interest-bearing  liabilities and the
resultant average costs; (iii) net interest/dividend  income; (iv) interest rate
spread; and (v) net interest margin. Average balances are based on average daily
balances.

                           (Table to follow this page)


                                       14
<PAGE>


<TABLE>
                                                        Year Ended December 31, 2001              Year Ended December 31, 2000
                                                        ----------------------------              ----------------------------

                                                   Average    Interest and     Average        Average    Interest and     Average
                                                   Balance     Dividends      Yield/Rate      Balance     Dividends      Yield/Rate
                                                   -------     ---------      ----------      -------     ---------      ----------
                                                                                  (Dollars in thousands)
Interest-Earning Assets:
  <S>                                              <C>          <C>               <C>         <C>          <C>              <C>
  Loans .......................................    $14,988      $  1,284          8.57%       $ 7,305      $    716         9.80%
  Securities ..................................      4,856           285          5.87          3,226           207         6.42%
  Other Interest-Earning Assets (1)............      1,761            71          4.03          1,090            67         6.15%
                                                   --------     ---------                     -------         -----
     Total Interest-Earning Assets ............     21,605         1,640          7.59         11,621           990         8.52%
                                                                                                              -----
Noninterest-Earning Assets ....................      3,079                                      2,313
                                                   --------                                   -------
     Total Assets .............................     24,684                                     13,934
                                                   ========                                   =======
Interest-Bearing Liabilities:
   Savings, Money Market and NOW
       Deposits ...............................      3,902            95          2.43          2,424            74         3.05%
   Time Deposits ..............................     14,254           816          5.72          6,443           394         6.11%
   Other Borrowings ...........................        258            12          4.65             38             2         5.26%
                                                   --------     ---------                     --------     --------
     Total Interest-Bearing Liabilities .......     18,414           923          5.01          8,905           470         5.27%
                                                                                                                          -------


Noninterest Bearing Demand Deposits ...........      1,749                                      1,056

Other Noninterest-Bearing Liabilities .........        625                                        127

Stockholders' Equity ..........................      3,896                                      3,846
                                                   --------                                   --------

     Total Liabilities and Stockholders'
     Equity ...................................    $24,684                                    $13,934
                                                   ========                                   ========
Net Interest/Dividend Income ..................                 $   717                                    $    520
                                                                ========                                   ========
Interest-Rate Spread (2) ......................                                   2.58%                                     3.25%
                                                                                  ======                                    =====
Net Interest Margin (3) .......................                                   3.32%                                     4.47%
                                                                                  ======                                    =====
Ratio of Average Interest -Earning Assets to
Average
   Interest-Bearing Liabilities ...............      1.17                                        1.30
                                                     ====                                        ====

-----------------------------
<FN>
(1) Includes interest-bearing deposits, federal funds sold and federal home loan
    bank stock.
(2) Interest-rate spread represents the  difference between the average yield on
    interest-earning assets and the average cost of interest-bearing liabilities.
(3) Net interest  margin is  net  interest  income  ividend by average interest-
    earning assets.
</FN>
</TABLE>

     Rate/Volume Analysis

     The following  table sets forth certain  information  regarding  changes in
     interest income and interest  expense for the periods  indicated.  For each
     category  of  interest-earning  assets  and  interest-bearing  liabilities,
     information  is  provided on changes  attributable  to: (1) changes in rate
     (change in rate multiplied by prior volume);  (2) changes in volume (change
     in volume multiplied by prior rate); and (3) changes in rate-volume (change
     in rate multiplied by change in volume).



                           (Table to follow this page)


                                       15
<PAGE>

<TABLE>
                                                                                       Year Ended December 31, 2001 vs. 2000:
                                                                                              Increase (Decrease) Due to
                                                                                  Rate         Volume          Rate/         Total
                                                                                  ----         ------          -----         -----
                                                                                                              Volume
                                                                                                              ------
                                                                                                   (In thousands)
<S>                                                                             <C>            <C>            <C>           <C>
Interest-earning assets:
     Loans...............................................................       $   (90)       $   753        $   (95)      $   568
     Securities..........................................................           (18)           105             (9)           78
     Other interest-earning assets.......................................           (23)            41            (14)            4


         Total...........................................................          (131)           899           (118)          650
                                                                                ----------     ----------     ---------     --------

Interest-bearing liabilities:
   Deposits:
     Savings, money-market and NOW deposits..............................           (15)            45             (9)           21
     Time deposits.......................................................           (25)           477            (30)          422
     Other Borrowings....................................................             -             12             (2)           10
                                                                                ----------     ----------     ---------     --------

         Total...........................................................           (40)            534           (41)          453
                                                                                ----------     ----------     ----------    --------

Net change in net interest income........................................       $   (91)       $    365       $   (77)      $   197
                                                                                ==========     ==========     ==========    ========
</TABLE>

Results of Operations For the Years Ended December 31, 2001 and 2000

General. Net loss for the year ended December 31, 2001, was $162,553 or $.31 per
basic and diluted share compared to a net loss of $273,110 or $.53 per basic and
diluted share for the comparable  period in 2000. For most of 2001, based on its
operating  expenses,  the  Company  had not  achieved  the asset size to operate
profitably. The Company, however, was profitable in the fourth quarter of 2001.

Interest Income and Expense.  Interest income  increased  $650,143 from $990,456
for the year ended  December 31, 2000 to $1,640,599  for the year ended December
31, 2001.  Interest  income on loans  increased  $568,276,  primarily  due to an
increase in the average loan portfolio  balance.  Interest  income on securities
increased  $77,881  primarily  due  to an  increase  in the  average  securities
portfolio balance.

Interest  expense on deposits  increased  $443,194,  from  $468,022 for the year
ended  December  31,  2000 to $911,216  for the year ended  December  31,  2001.
Interest  expense on  deposits  increased  primarily  due to an  increase in the
average balance of deposit accounts.

Provision  for  Loan  Losses.  The  provision  for loan  losses  is  charged  to
operations  to increase the total  allowance to a level  deemed  appropriate  by
management  and is based upon the volume  and type of lending  conducted  by the
Company,  industry  standards,  the amount of  nonperforming  loans and  general
economic conditions,  particularly as they relate to the Company's market areas,
and other factors related to the collectibility of the Company's loan portfolio.
The Company recorded a provision for loan losses for the year ended December 31,
2001 of $160,793 and the  allowance for loan losses was $230,106 at December 31,
2001. Management believes the allowance is adequate at December 31, 2001.

Noninterest Income.  Noninterest income was $165,036 for the year ended December
31, 2001,  compared to $75,240 for 2000.  This  increase was primarily due to an
increase in service charges on deposit accounts.

Noninterest  Expense.  Noninterest  expense  was  $985,019  for the  year  ended
December  31, 2001,  compared to $936,459 for the year ended  December 31, 2000.
Noninterest  expense  increased  primarily  due to  the  overall  growth  of the
Company.


                                       16
<PAGE>

Income Tax Benefit. The income tax benefit for the year ended December 31, 2001
was $101,000 (an effective rate of 38.3%) compared to $169,000 (an effective tax
rate of 38.2%) for the year ended December 31, 2000.

Asset and Liability Management

As part of our  asset and  liability  management,  the  Company  has  emphasized
establishing and implementing internal  asset-liability  decision processes,  as
well as communications  and control  procedures to aid in managing our earnings.
We believe that these  processes and procedures  provide the Company with better
capital planning, asset mix and volume controls,  loan-pricing  guidelines,  and
deposit  interest-rate  guidelines,  which should result in tighter controls and
less exposure to interest-rate risk.

The matching of assets and  liabilities  may be analyzed by examining the extent
to which such  assets and  liabilities  are  "interest  rate  sensitive"  and by
monitoring  an  institution's  interest  rate  sensitivity  "gap."  An  asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest-rate sensitivity
gap  is  defined  as  the  difference   between   interest-earning   assets  and
interest-bearing  liabilities  maturing or repricing within a given period.  The
gap  ratio  is  computed  as  RSA/RSL.  A gap  ratio of 1.0  represents  perfect
matching.  A gap  is  considered  negative  when  the  amount  of  interest-rate
sensitive liabilities exceeds interest-rate sensitive assets. During a period of
rising  interest  rates,  a negative  gap would  adversely  affect net  interest
income, while a positive gap would result in an increase in net interest income.
During a period of falling  interest  rates,  a negative  gap would result in an
increase in net interest income, while a positive gap would adversely affect net
interest income.

In order to minimize the potential for adverse effects of material and prolonged
increases in interest rates on the results of operations, we continue to monitor
asset and  liability  management  policies to better  match the  maturities  and
repricing terms of its interest-earning assets and interest-bearing liabilities.
Such policies have consisted  primarily of: (i)  emphasizing  the origination of
adjustable-rate  loans;  (ii)  maintaining a stable core deposit base; and (iii)
maintaining  a  significant  portion  of  liquid  assets  (cash  and  short-term
securities).

The  following  table sets froth certain  information  relating to the Company's
interest-earning  assets and interest-bearing  liabilities at December 31, 2001,
that are estimated to mature or are scheduled to reprice within the period shown
(dollars in thousands):

<TABLE>
                                                       More Than       More Than      More Than       More
                                            Up To       Three         Six Months      One Year        Than       Over
                                            Three      Months to        to One         to Five        Five        Ten
                                           Months      Six Months        Year           Years         Years      Years      Total
                                           ------      ----------        ----           -----         -----      -----      -----
<S>                                        <C>          <C>           <C>             <C>            <C>       <C>         <C>
Loans (1):
     Variable Rate ......................  $ 4,284      $    666      $   1,142       $   6,418      $   113   $     -     $ 12,623
     Fixed Rate .........................      440           462            683           3,785          369       840        6,579
                                               ---           ---            ---           -----          ---       ---        -----

        Total Loans ..................       4,724         1,128          1,825          10,203          482       840       19,202
Federal Funds Sold ......................      273             -              -               -            -         -          273
Securities (2) ..........................      161         1,020            541           5,570            -         -        7,292
           --                                  ---         -----            ---           -----          ---       ---        -----


        Total Rate-Sensitive Assets ..     $ 5,158      $  2,148      $   2,366       $  15,773      $   482   $   840     $ 26,767
                                           =======      ========      =========       =========      =======   =======     ========

Deposit Accounts (3):
   Savings, NOW and Money Market
     Deposits ...........................  $ 4,571      $      -      $       -       $       -      $     -   $     -     $  4,571
   Time Deposits ........................    5,090         4,472          5,697           1,855            -         -       17,114
   Other Borrowings......................        -             -              -           1,200            -         -        1,200
                                               ---           ---            ---           -----          ---       ---        -----

        Total Rate-Sensitive Liabilities   $ 9,661      $  4,472      $   5,697       $   3,055      $     -   $     -     $ 22,885
                                           =======      ========      =========       =========      =======   =======     ========

GAP Repricing Differences................  $(4,503)     $ (2,324)     $  (3,331)      $  12,718      $   482   $   840     $  3,882
                                           =======      ========      =========       =========      =======   =======     ========
Cumulative GAP ..........................  $(4,503)     $ (6,827)     $ (10,158)      $   2,560      $ 3,042   $ 3,882
                                           =======      ========      =========       =========      =======   =======
Cumulative GAP/Total Assets .............  (15.25)%      (23.12)%       (34.40)%          8.67%       10.30%    13.15%
                                           =======      ========      =========       =========      =======   =======


                         (Footnotes to follow this page)

                                       17
<PAGE>

--------------------------

<FN>
(1) In preparing the table above, adjustable-rate  loans  are  included  in  the
    period  in which  the interest  rates are  next  scheduled to adjust, rather
    than  in  the  period  in  which  the  loans  mature.   Fixed-rate loans are
    scheduled, including repayment, according to their maturities.
(2) Securities  are  scheduled through the maturity dates, includes Federal Home
    Loan Bank stock.
(3) Money market, NOW,  and savings deposits are regarded as readily accessible,
    withdrawable accounts.  All  other  time  deposits are scheduled through the
    maturity dates.
</FN>
</TABLE>


     The following table reflects the contractual principal repayments by period
     of the Company's loan portfolio at December 31, 2001 (in thousands):

<TABLE>
                                                       Residential       Commercial                           Consumer
                                      Commercial        Mortgage        Real Estate       Construction       and Other
Years Ending December 31,               Loans             Loans            Loans              Loans            Loans          Total
-------------------------              -------           -------          -------            -------          -------        ------
<C>                                  <C>               <C>              <C>               <C>                <C>           <C>
2002.............................    $     1,746       $      104       $       5         $       183        $      807    $   2,895
2003 ............................            398              119              33                 529               731        1,810
2004 ............................            354              121             533                  77               630        1,715
2005 ............................            331              124             270                  22               360        1,107
2006 & Beyond ...................            892            3,157           4,083               3,217               326       11,675
                                    ---------------    -------------   -------------     --------------    ------------    ---------
     Total ......................    $     3,721       $    3,625       $   4,974         $     4,028        $    2,854    $  19,202
                                    ===============    =============   =============     ==============    ============    =========
</TABLE>

Of the $16.3  million of loans due after  2002,  58.7% of these loans have fixed
interest rates and 41.3% have adjustable interest rates.

The following  table sets forth total loans  originated  and repaid at the dates
indicated (in thousands):

<TABLE>
                                                                            Year Ended December 31,
                                                                             2001             2000
                                                                            -----             ----
<S>                                                                      <C>              <C>
Originations:
     Commercial Loans ............................................       $    3,975       $    1,437
     Commercial Real Estate Loans ................................            4,139            2,923
     Residential Mortgage Loans ..................................            4,564            2,201
     Consumer and Other Loans ....................................            2,352            1,697
                                                                          ----------       ----------
         Total Loans Originated ..................................           15,030            8,258
Principal Reductions .............................................           (7,149)          (1,221)
                                                                          ----------       ----------
Increase In Total Loans ..........................................       $    7,881       $    7,037
                                                                          ==========       ==========
</TABLE>


The  following  table sets forth  information  with  respect to  activity in the
Company's allowance for loan losses during the period indicated:

<TABLE>

                                                                           Year Ended December 31,
                                                                           2001               2000
                                                                          -----               ----
                                                                               (In thousands)

<S>                                                                      <C>              <C>
Allowance of beginning of period .................................       $      139       $       42
                                                                          ----------       ----------
Charge-offs:
     Commercial real estate loans.................................       $        -       $        -
     Residential real estate loans................................                -                -
     Commercial loans.............................................              (62)               -
     Consumer loans...............................................              (11)              (4)
                                                                          ----------       ----------
         Total charge-offs........................................              (73)              (4)
                                                                          ----------       ----------
Recoveries:
     Commercial real estate loans.................................       $        -       $        -
     Residential real estate loans................................                -                -
     Commercial loans.............................................                3                -
     Consumer loans...............................................                -                -
                                                                          ----------       ----------
         Total recoveries.........................................                3                -
                                                                          ----------       ----------
Provision for loan losses charged to operations...................       $      161       $      101
                                                                          ----------       ----------
Allowance at end of period........................................       $      230       $      139
                                                                          ==========       ==========
Ratio of net charge-offs during the period
to average loans outstanding during period........................             .47%             .05%
                                                                          ==========       ==========
Allowance for loan losses as a percentage
of non-performing loans...........................................          1239.1%              N/A
                                                                          ==========       ==========
</TABLE>


                                       18
<PAGE>

The following  table shows the  distribution  of, and certain other  information
relating to, the Company's deposit accounts by type (dollars in thousands):


<TABLE>
                                                                                  At December 31,
                                                                ---------------------------------------------------------
                                                                         2001                             2000
                                                                        ------                           ------
                                                                                 % of                             % of
                                                                  Amount        Deposits           Amount        Deposits
                                                                  ------        --------           ------        --------
<S>                                                              <C>               <C>            <C>               <C>
Noninterest-Bearing Demand Deposits .......................      $   2,337         9.7%           $   1,211         9.3%
NOW Deposits ..............................................          1,344         5.6                  789         6.0
Money Market Deposits .....................................          2,739        11.4                1,885        14.4
Savings Deposits ..........................................            488         2.1                  280         2.1
                                                                       ---         ---                  ---         ---

     Subtotal .............................................          6,908        28.8                4,165        31.8
                                                                     -----        ----                -----        ----

Time Deposits:
     2.00% - 2.99% ........................................          2,022         8.4                    -           -
     3.00% - 3.99% ........................................          2,720        11.3                    -           -
     4.00% - 4.99% ........................................          6,198        25.8                    -           -
     5.00% - 5.99% ........................................          3,798        15.8                   579        4.4
     6.00% - 6.99% ........................................          2,162         9.0                 8,145       62.2
     7.00% - 7.99% ........................................            214         0.9                   213        1.6
     ----    ----                                                      ---         ---                   ---        ---

Total Time Deposits (1) ...................................         17,114        71.2                 8,937       68.2
                    --                                              ------        ----                 -----       ----

Total Deposits ............................................      $  24,022       100.0%           $   13,102      100.0%
                                                                 =========       =====            ==========      =====

--------------------------
<FN>
(1) Included individual  retirement  accounts  ("IRAs")  totaling $1,091,000 and
    $653,000 at December 31, 2001 and 2000, respectively.
</FN>
</TABLE>


Jumbo certificates ($100,000 and over) mature as follows (in thousands):

<TABLE>
                                                                                  At December 31,
                                                                                  ---------------
                                                                                    (In thousands)
                                                                               2001               2000
                                                                               ----               ----
<S>                                                                         <C>                 <C>
Due Three Months or Less ................................................   $   1,756           $    323
Due Over Three Months to Six Months .....................................       1,445                730
Due Over six Months to One Year .........................................       1,298                978
Due Over One Year .......................................................         800                200
                                                                                  ---                ---

     Total ..............................................................   $   5,299           $  2,231
                                                                            =========           ========
</TABLE>


The following  table sets forth the net deposit flows of the Company  during the
year indicated:

<TABLE>
                                                                               Year Ended December 31,
                                                                             -----------------------
                                                                                    (In thousands)
                                                                                2001               2000
                                                                                ----               ----
<S>                                                                           <C>                <C>
Net increase before interest credited...................................      $  10,268          $   6,200

Net interest credited ..................................................            652                342
                                                                                    ---                ---

Net deposit increase ...................................................      $  10,920          $   6,542
                                                                              =========          =========
</TABLE>

                                       19
<PAGE>

     Impact of Inflation and Changing Prices

     The  financial  statements  and  related  data  presented  herein have been
     prepared  in  accordance  with GAAP,  which  requires  the  measurement  of
     financial  position and operating  results in terms of historical  dollars,
     without  considering changes in the relative purchasing power of money over
     time, due to inflation. Unlike most industrial companies, substantially all
     of the assets and  liabilities of the Company are monetary in nature.  As a
     result,  interest  rates have a more  significant  impact on the  Company's
     performance than the effects of general levels of inflation. Interest rates
     do not  necessarily  move in the same direction or in the same magnitude as
     the  prices of goods and  services,  since  such  prices  are  affected  by
     inflation to a larger extent than interest rates.

ITEM 7. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Registrant  hereby  incorporates by reference the Report of the Independent
     Auditors and the 2001 and 2000 Audited  Consolidated  Financial  Statements
     filed as Exhibit 22.1 under Item 13 herein.

ITEM 8. - CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
          FINANCIAL DISCLOSURE MATTERS

None.
                                    PART III

ITEM 9. - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

     Registrant hereby incorporates by reference the sections entitled "Election
     of  Directors"  and  "Board of  Directors  Meetings"  contained  at pages 4
     through  7 of the Proxy  Statement  filed as  Exhibit  99.1  under  Item 13
     herein.

ITEM 10. - EXECUTIVE COMPENSATION

     Registrant hereby incorporates by reference the section entitled "Executive
     Compensation"  contained at pages 7 through 10 of the Proxy Statement filed
     as Exhibit 99.1 under Item 13 herein.

ITEM 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     (a)  Security  Ownership of Certain  Beneficial  Owners  Registrant  hereby
          incorporates by reference the sections entitled "Security Ownership of
          Certain  Beneficial  Owners" and "Election of Directors"  contained at
          pages 3 through 7 of the Proxy  Statement  filed as Exhibit 22.1 under
          Item 13 herein.

     (b)  Security  Ownership of Management  Registrant  hereby  incorporates by
          reference the section  entitled  "Election of Directors"  contained at
          pages 4 through 7 of the Proxy  Statement  filed as Exhibit 22.1 under
          Item 13 herein.

     (c)  Changes  in  Control  Management  is not  aware  of any  arrangements,
          including any pledge by any person of securities of Registrant,  which
          the  operation  of may, at a  subsequent  date,  result in a change of
          control of the Company.


                                       20
<PAGE>

ITEM 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Bank has $1,421,000 of loans  outstanding  to the Company's  directors,
     executive officers,  their associates and members of the immediate families
     of such directors and executive officers.

                                     PART IV

ITEM 13. - EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits.  The following  exhibits are filed with or  incorporated  by
          --------
          reference into this report. The exhibit(s) marked by a single asterisk
          (*)  were  previously  filed  as a  part  of  the  PSB's  Registration
          Statement  on Form  SB-2,  filed  with  the  Securities  and  Exchange
          Commission ("SEC") on January 13, 1998, Registration No. 333-44161 and
          are hereby incorporated by reference.  The exhibits marked by a double
          asterisk (**) were  previously  filed as a part of the PSB's Amendment
          No. 3 to the  Registration  Statement  on Form SB-2 as filed  with the
          Securities and Exchange  Commission on May 20, 1998,  Registration No.
          333-44161 and hereby incorporated by reference.  The exhibit marked by
          a triple  asterisk  (***) were  previously  filed as part of the PSB's
          Form 10-QSB as filed with the  Securities  and Exchange  Commission on
          May 15, 2000 and are hereby  incorporated  by  reference.  The exhibit
          marked by the quadruple  asterisk (****) was previously  filed as part
          of the PSB's  Definitive  Form 14-A, as filed with the  Securities and
          Exchange  Commission on March 16, 2000 and is hereby  incorporated  by
          reference.  The  exhibit  marked  by the  five  asterisk  (*****)  was
          previously  filed with PSB's Form 14-A filed with the SEC on March 19,
          2002.  The exhibit  numbers  correspond to the exhibit  numbers in the
          referenced documents.

          Exhibit No.        Description of Exhibit

          *     3.1          Articles of Incorporation of PSB
          *     3.2          Bylaws of PSB
          *     4.1          Specimen Common Stock Certificate
          *     4.2          Specimen Warrant Certificate
          **    4.5          Amended and Restated Warrant Plan
          *    10.1          Employment Agreement by and among PSB, the Bank and
                             Robert W. Woodard
          *    10.2          Land Purchase Agreement
          **   10.3          Addendum to Land Purchase Agreement
          **   10.4          Amended Employment Agreement with Robert W. Woodard
          ***  10.6          Employment Agreement with Wesley T. Small
          **** 10.7          Amended 1998  Employee  Stock  Option  and  Limited
                             Rights Plan
               22.1          Audited Consolidated Financial Statements at and
                             for the years ended December 31, 2001 and 2000
          *****99.1          PSB's 2001 Annual Meeting Proxy Statement

     (b)  Reports on Form 8-KSB.  Registrant  did  not  file any reports on Form
          ---------------------
          8-KSB during the last quarter of 2001.


                                       21
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 15(d) 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 BancGroup, Inc.


Dated: March 26, 2002           By:  /s/ Alton C. Milton, Sr.
                                     ------------------------------------
                                              Alton C. Milton, Sr.
                                              Chairman of the Board


Dated: March 26, 2002           By:  /s/ Thomas M. Riherd, II
                                     ------------------------------------
                                              Thomas M. Riherd, II
                                              Principal Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the Registrant and in
the capacities and on the dates indicated:


/s/ John W. Burns, III                              March 26, 2002
----------------------------------------------
JOHN W. BURNS, III
Class I Director


/s/ Robert M. Eadie                                 March 26, 2002
----------------------------------------------
ROBERT M. EADIE
Class I Director


/s/ Shipla U. Mhatre                                March 26, 2002
----------------------------------------------
SHIPLA U. MHATRE
Class II Director


/s/ Alton C. Milton, Jr.                            March 26, 2002
----------------------------------------------
ALTON C. MILTON, JR.
Class II Director


/s/ Alton C. Milton, Sr.                            March 26, 2002
----------------------------------------------
ALTON C. MILTON, SR.
Chairman of the Board and Class III Director


/s/ Andrew T. Moore                                 March 26, 2002
----------------------------------------------
ANDREW T. MOORE
Class III Director


/s/ Robert W. Woodard                               March 26, 2002
----------------------------------------------
ROBERT W. WOODARD
Chief Executive Officer, President
       and Principal Financial Officer


                                       22
<PAGE>

SUPPLEMENTAL  INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

                 PSB's Audited Consolidated Financial Statements
                  are included as Exhibits 22.1 of this filing.






































<PAGE>

                                                                    EXHIBIT 22.1





                              Audited Consolidated
                              Financial Statements
                           at and for the years ended
                           December 31, 2001 and 2000





































                                       24
<PAGE>