PSB Group, Inc
 The holding company for
 
 2008 Annual Report
 (Portions
of)




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PSB Group, Inc.
 Consolidated Financial Report
 December 31,
2008




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PSB Group, Inc.
 
 ContentsReport Letter
    
    
    1Consolidated Financial StatementsBalance Sheet
    
    
    2Statement of Operations
    
    
    3Statement of Stockholders Equity
    
    
    4Statement of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-39




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PSB Group, Inc.
 Consolidated Balance Sheet
(000s omitted, except per share data)
 December 312008
    
    
    2007AssetsCash and due from banks
    
    $
    12,268
    
    
    $
    11,141Federal funds sold
    
    
    
    
    
    
    1,621Securities  Available for sale (Note 3)
    
    
    52,254
    
    
    
    64,115Loans (Note 4)
    
    
    374,809
    
    
    
    389,312Less allowance for possible loan losses (Note 4)
    
    
    (7,116
    )
    
    
    (5,184
    )Net loans
    
    
    367,693
    
    
    
    384,128Loans held for sale
    
    
    1,082
    
    
    
    882Bank premises and equipment (Note 5)
    
    
    14,107
    
    
    
    13,358Accrued interest receivable
    
    
    2,159
    
    
    
    2,344Goodwill (Note 1)
    
    
    
    
    
    
    4,458Other real estate owned
    
    
    8,459
    
    
    
    5,996Other assets (Note 9)
    
    
    2,494
    
    
    
    4,228Total assets
    
    $
    460,516
    
    
    $
    492,271Liabilities and Stockholders EquityLiabilitiesDeposits:Noninterest-bearing
    
    $
    49,661
    
    
    $
    59,028Interest-bearing (Note 6)
    
    
    362,781
    
    
    
    379,482Total deposits
    
    
    412,442
    
    
    
    438,510Federal Home Loan Bank advances (Note 7)
    
    
    15,000
    
    
    
    10,000ESOP loan debt (Note 7)
    
    
    436
    
    
    
    590Accrued taxes, interest, and other liabilities (Note 9)
    
    
    2,536
    
    
    
    2,980Total liabilities
    
    
    430,414
    
    
    
    452,080Stockholders Equity(Notes 8, 10, 11, 14, and 17)Common stock:Authorized  5,000,000 shares, no par valueIssued and outstanding  3,442,060 shares in 2008 and
3,072,002 shares in 2007
    
    
    23,607
    
    
    
    21,177Unearned ESOP benefits (Note 8)
    
    
    (436
    )
    
    
    (590
    )Common stock held in trust (Note 8)
    
    
    (410
    )
    
    
    (230
    )Deferred compensation obligation (Note 8)
    
    
    410
    
    
    
    230Additional paid in capital  stock options/awards (Note 10)
    
    
    707
    
    
    
    315Unearned compensation (Note 10)
    
    
    (976
    )
    
    
    (756
    )Retained earnings
    
    
    6,191
    
    
    
    20,113Accumulated other comprehensive income(loss) (Note 1)
    
    
    1,009
    
    
    
    (68
    )Total stockholders equity
    
    
    30,102
    
    
    
    40,191Total liabilities and stockholders equity
    
    $
    460,516
    
    
    $
    492,271
   2




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PSB Group, Inc.
 Consolidated Statement of Operations
(000s omitted, except per share data)
 Year Ended December 312008
    
    
    2007
    
    
    2006Interest IncomeLoans, including fees
    
    $
    25,730
    
    
    $
    29,960
    
    
    $
    28,603Securities:Taxable
    
    
    2,418
    
    
    
    1,649
    
    
    
    2,159Tax-exempt
    
    
    282
    
    
    
    945
    
    
    
    1,234Federal funds sold
    
    
    7
    
    
    
    28
    
    
    
    63Total interest income
    
    
    28,437
    
    
    
    32,582
    
    
    
    32,059Interest ExpenseDeposits
    
    
    9,799
    
    
    
    14,205
    
    
    
    12,860Short-term borrowings
    
    
    288
    
    
    
    614
    
    
    
    261Long-term debt
    
    
    347
    
    
    
    
    
    
    
    70Total interest expense
    
    
    10,434
    
    
    
    14,819
    
    
    
    13,191Net Interest Income Before provision for loan losses
    
    
    18,003
    
    
    
    17,763
    
    
    
    18,868Provision for Loan Losses(Note 4)
    
    
    9,956
    
    
    
    7,663
    
    
    
    1,839Net Interest Income After provision for loan losses
    
    
    8,047
    
    
    
    10,100
    
    
    
    17,029Other Operating IncomeService charges on deposit accounts
    
    
    2,370
    
    
    
    2,350
    
    
    
    2,295Gain on sale of mortgages
    
    
    473
    
    
    
    655
    
    
    
    1,041Gain (loss) on sale of available-for-sale securities
    
    
    187
    
    
    
    (41
    )
    
    
    (221
    )Other income
    
    
    1,214
    
    
    
    1,537
    
    
    
    1,888Total other operating income
    
    
    4,244
    
    
    
    4,501
    
    
    
    5,003Other Operating ExpensesSalaries and employee benefits (Note 8)
    
    
    9,563
    
    
    
    9,930
    
    
    
    9,413Occupancy costs (Note 5)
    
    
    3,695
    
    
    
    3,981
    
    
    
    4,100Legal and professional
    
    
    1,353
    
    
    
    1,429
    
    
    
    1,106Other real estate expense
    
    
    3,983
    
    
    
    118
    
    
    
    22Goodwill impairment expense
    
    
    4,458
    
    
    
    
    
    
    
    Other operating expenses
    
    
    3,243
    
    
    
    3,742
    
    
    
    3,609Total other operating expenses
    
    
    26,295
    
    
    
    19,200
    
    
    
    18,250Income(loss) Before federal income tax expense(benefit)
    
    
    (14,004
    )
    
    
    (4,599
    )
    
    
    3,782Federal Income Tax Expense(Benefit)(Note 9)
    
    
    (207
    )
    
    
    (1,857
    )
    
    
    894Net Income(Loss)
    
    $
    (13,797
    )
    
    $
    (2,742
    )
    
    $
    2,888Per Share DataWeighted average shares outstanding
    
    
    3,265,564
    
    
    
    3,064,829
    
    
    
    3,031,618Basic and fully diluted earnings(loss)
    
    $
    (4.22
    )
    
    $
    (0.89
    )
    
    $
    0.95
   3




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##### 



PSB Group, Inc.
 Consolidated Statement of Stockholders Equity
(000s omitted, except per share data)
 Additional Paid inCapital  Stock
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    Accumulated Other
    
    
    TotalUnearned ESOP
    
    
    Options and
    
    
    Unearned
    
    
    Common Stock
    
    
    Compensation
    
    
    
    
    
    
    Comprehensive Income
    
    
    StockholdersNumber of Shares
    
    
    Common Stock
    
    
    Benefits
    
    
    Awards
    
    
    Compensation
    
    
    Held in Trust
    
    
    Obligation
    
    
    Retained Earnings
    
    
    (Loss)
    
    
    EquityBalance  January 1, 2006
    
    
    3,029,152
    
    
    $
    20,406
    
    
    $
    (770
    )
    
    $
    
    
    
    $
    
    
    
    $
    (230
    )
    
    $
    230
    
    
    $
    24,357
    
    
    $
    (813
    )
    
    $
    43,180Comprehensive income (Note 1):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,888
    
    
    
    
    
    
    
    2,888Change in unrealized gain on securities
available for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    257
    
    
    
    257Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,145Stock awards
    
    
    5,000
    
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90Additional paid in capital  stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Cash dividends  $0.72 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,183
    )
    
    
    
    
    
    
    (2,183
    )Earned ESOP benefit
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26Balance  December 31, 2006
    
    
    3,034,152
    
    
    
    20,496
    
    
    
    (744
    )
    
    
    33
    
    
    
    (45
    )
    
    
    (230
    )
    
    
    230
    
    
    
    25,062
    
    
    
    (556
    )
    
    
    44,246Comprehensive loss (Note 1):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,742
    )
    
    
    
    
    
    
    (2,742
    )Change in unrealized gain on securities
available for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    488
    
    
    
    488Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,254
    )Stock awards
    
    
    37,850
    
    
    
    681
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    681Additional paid in capital  stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    282
    
    
    
    (711
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (429
    )Cash dividends  $0.72 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,207
    )
    
    
    
    
    
    
    (2,207
    )Earned ESOP benefit
    
    
    
    
    
    
    
    
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154Balance  December 31, 2007
    
    
    3,072,002
    
    
    
    21,177
    
    
    
    (590
    )
    
    
    315
    
    
    
    (756
    )
    
    
    (230
    )
    
    
    230
    
    
    
    20,113
    
    
    
    (68
    )
    
    
    40,191Comprehensive loss (Note 1):
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,797
    )
    
    
    
    
    
    
    (13,797
    )Change in unrealized gain on securities
available for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,077
    
    
    
    1,077Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,720
    )Sale of stock
    
    
    320,893
    
    
    
    2,034
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,034Stock awards
    
    
    49,165
    
    
    
    396
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    396Additional paid in capital  stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    (220
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172Cash dividends  $0.04 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (125
    )
    
    
    
    
    
    
    (125
    )Purchase of stock by trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (180
    )
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    Earned ESOP benefit
    
    
    
    
    
    
    
    
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154Balance  December 31, 2008
    
    
    3,442,060
    
    
    $
    23,607
    
    
    $
    (436
    )
    
    $
    707
    
    
    $
    (976
    )
    
    $
    (410
    )
    
    $
    410
    
    
    $
    6,191
    
    
    $
    1,009
    
    
    $
    30,102
    4




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PSB Group, Inc.
 Consolidated Statement of Cash Flows
 Year Ended December 312008
    
    
    2007
    
    
    2006Cash Flows from Operating ActivitiesNet income(loss)
    
    $
    (13,797
    )
    
    $
    (2,742
    )
    
    $
    2,888Adjustments to reconcile net income(loss) to net cash from operating activities:Depreciation and amortization
    
    
    1,290
    
    
    
    1,379
    
    
    
    1,392Goodwill impairment
    
    
    4,458
    
    
    
    
    
    
    
    Provision for loan loss
    
    
    9,956
    
    
    
    7,663
    
    
    
    1,839Non-cash stock options/awards expense
    
    
    568
    
    
    
    252
    
    
    
    78Accretion and amortization of securities
    
    
    (33
    )
    
    
    20
    
    
    
    65Deferred income taxes
    
    
    888
    
    
    
    (802
    )
    
    
    (53
    )(Gain) loss on sale of available-for-sale securities
    
    
    (187
    )
    
    
    41
    
    
    
    221Origination and purchase of loans held for sale
    
    
    (28,930
    )
    
    
    (43,789
    )
    
    
    (83,276
    )Sale of loans held for sale
    
    
    28,730
    
    
    
    46,600
    
    
    
    85,818(Increase)decrease in accrued interest receivable
    
    
    185
    
    
    
    432
    
    
    
    (370
    )(Increase) decrease in other assets
    
    
    (1,651
    )
    
    
    (7,883
    )
    
    
    49Increase (decrease) in accrued interest payable and other liabilities
    
    
    (444
    )
    
    
    1,571
    
    
    
    446Net cash provided by operating activities
    
    
    1,033
    
    
    
    2,742
    
    
    
    9,097Cash Flows from Investing ActivitiesPurchase of securities available for sale
    
    
    (25,841
    )
    
    
    (18,519
    )
    
    
    (9,338
    )Proceeds from maturities of securities available for sale
    
    
    14,083
    
    
    
    4,011
    
    
    
    16,388Proceeds from sale of securities available for sale
    
    
    24,950
    
    
    
    14,820
    
    
    
    22,951Net (increase)decrease in loans
    
    
    6,479
    
    
    
    2,296
    
    
    
    (34,503
    )Capital expenditures
    
    
    (2,039
    )
    
    
    (2,006
    )
    
    
    (1,460
    )Net cash provided by (used in) investing activities
    
    
    17,632
    
    
    
    602
    
    
    
    (5,962
    )Cash Flows from Financing ActivitiesNet increase in time deposits
    
    
    11,935
    
    
    
    7,322
    
    
    
    30,548Net decrease in other deposits
    
    
    (38,003
    )
    
    
    (2,772
    )
    
    
    (21,246
    )Net increase (decrease) in short-term borrowings
    
    
    (10,000
    )
    
    
    (6,875
    )
    
    
    (3,565
    )Net increase (decrease) in long-term debt
    
    
    15,000
    
    
    
    
    
    
    
    Principal payments on long-term debt
    
    
    
    
    
    
    
    
    
    
    (5,000
    )Sale of common stock
    
    
    2,034
    
    
    
    
    
    
    
    Cash dividends
    
    
    (125
    )
    
    
    (2,207
    )
    
    
    (2,183
    )Net cash provided by (used in) financing activities
    
    
    (19,159
    )
    
    
    (4,532
    )
    
    
    (1,446
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (494
    )
    
    
    (1,188
    )
    
    
    1,689Cash and Cash Equivalents  Beginning of year
    
    
    12,762
    
    
    
    13,950
    
    
    
    12,261Cash and Cash Equivalents  End of year
    
    $
    12,268
    
    
    $
    12,762
    
    
    $
    13,950Supplemental Information  Cash paid forInterest
    
    $
    10,493
    
    
    $
    14,794
    
    
    $
    13,052Income taxes
    
    $
    (1,803
    )
    
    $
    400
    
    
    $
    880
   5




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##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 1  Summary of Significant Accounting Policies
 Basis of Presentation and Consolidation
  Use of Estimates
 Nature of Operations
 Significant Group Concentrations of Credit Risk
 Cash and Cash Equivalents
 6




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##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 1  Summary of Significant Accounting Policies (Continued)
 Securities
   Loans
   Note 1  Summary of Significant Accounting Policies (Continued)
 Loans Held for Sale
 7




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##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Allowance for Loan Losses
   8




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##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 1  Summary of Significant Accounting Policies (Continued)
    Off-balance-sheet Instruments
 Foreclosed Assets
 Bank Premises and Equipment
 Note 1  Summary of Significant Accounting Policies (Continued)
 Income Taxes
 9




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##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
  Earnings Per Common Share
 Employee Stock Ownership Plan (ESOP)
 Comprehensive Income (Loss)
  Note 1  Summary of Significant Accounting Policies (Continued)
 10




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##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 2008
    
    
    2007
    
    
    2006Unrealized holding gains(losses) on
available-for-sale securities
    
    $
    1,111
    
    
    $
    (103
    )
    
    $
    (842
    )Reversal of tax effect
    
    
    (102
    )Tax effect
    
    
    
    
    
    
    (35
    )
    
    
    (286
    )Accumulated other comprehensive
income
    
    $
    1,009
    
    
    $
    (68
    )
    
    $
    (556
    )
 Reclassification
 Goodwill th
 Stock Compensation Plans
 11




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##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 1  Summary of Significant Accounting Policies (Continued)
 2008
    
    2007Dividend yield
    
    
    3.47
    %
    
    
    3.95
    %Expected average life (years)
    
    
    7.00
    
    
    
    7.00Volatility
    
    
    40.80
    %
    
    
    14.87
    %Risk-free interest rate
    
    
    3.78
    %
    
    
    4.51
    %
 Fair Value Measurements  Fair
Value Measurements
 Note 2  Restrictions on Cash and Amounts Due from Banks
  12




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##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 3  Securities
  2008Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-sale securities:U.S. Treasury securities and obligations of U.S.
government corporations and agencies
    
    $
    43,833
    
    
    $
    1,318
    
    
    $
    (5
    )
    
    $
    45,146Obligations of state and political
subdivisions
    
    
    5,380
    
    
    
    6
    
    
    
    (260
    )
    
    
    5,126Corporate debt securities
    
    
    500
    
    
    
    
    
    
    
    (50
    )
    
    
    450Federal Home Loan Bank Stock
    
    
    1,532
    
    
    
    
    
    
    
    
    
    
    
    1,532Total available-for-sale securities
    
    $
    51,245
    
    
    $
    1,324
    
    
    $
    (315
    )
    
    $
    52,254
 2007Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-sale securities:U.S. Treasury securities and obligations of U.S.
government corporations and agencies
    
    $
    48,147
    
    
    $
    167
    
    
    $
    (161
    )
    
    $
    48,153Obligations of state and political
subdivisions
    
    
    14,039
    
    
    
    12
    
    
    
    (111
    )
    
    
    13,940Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    500
    
    
    
    
    
    
    
    (10
    )
    
    
    490Federal Home Loan Bank Stock
    
    
    1,532
    
    
    
    
    
    
    
    
    
    
    
    1,532Total available-for-sale securities
    
    $
    64,218
    
    
    $
    179
    
    
    $
    (282
    )
    
    $
    64,115
 13




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 3  Securities (Continued)
  Available for SaleAmortized
    
    
    MarketCost
    
    
    ValueDue in one year or less
    
    $
    85
    
    
    $
    86Due in one through five years
    
    
    460
    
    
    
    463Due after five years through ten years
    
    
    4,631
    
    
    
    4,642Due after ten years
    
    
    3,907
    
    
    
    3,635Total
    
    
    9,083
    
    
    
    8,826Federal agency pools
    
    
    40,630
    
    
    
    41,896Federal Home Loan Bank Stock
    
    
    1,532
    
    
    
    1,532Total
    
    $
    51,245
    
    
    $
    52,254
  14




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 3  Securities (Continued)
  2008Less Than Twelve Months
    
    
    Over Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    UnrealizedLosses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale securities:U.S. Treasury securities and obligations
of U.S. government corporations
and agencies
    
    $
    5
    
    
    $
    375
    
    
    $
    
    
    
    $
    Obligations of state and political
subdivisions
    
    
    242
    
    
    
    3,653
    
    
    
    18
    
    
    
    396Corporate debt securities
    
    
    50
    
    
    
    450
    
    
    
    
    
    
    
    Federal Home Loan Bank Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total available-for-sale
securities
    
    $
    297
    
    
    $
    4,478
    
    
    $
    18
    
    
    $
    396
 15




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 3  Securities (Continued)
 2007Less Than Twelve Months
    
    
    Over Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    UnrealizedLosses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale securities:U.S. Treasury securities and obligations
of U.S. government corporations and
agencies
    
    $
    18
    
    
    $
    1,841
    
    
    $
    143
    
    
    $
    20,672Obligations of state and political
subdivisions
    
    
    20
    
    
    
    1,432
    
    
    
    91
    
    
    
    9,927Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    490Federal Home Loan Bank Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total available-for-sale
securities
    
    $
    38
    
    
    $
    3,273
    
    
    $
    244
    
    
    $
    31,089
  16




---



##### 



PSB Group, Inc.
 
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 4  Loans
 A summary of the balances of loans at December 31, 2008 and 2007 is as follows
(000s omitted):
 2008
    
    
    2007Mortgage loans on real estate:Residential 1-4 family
    
    $
    58,399
    
    
    $
    56,176Commercial
    
    
    234,121
    
    
    
    213,775Construction
    
    
    14,964
    
    
    
    29,040Second mortgages
    
    
    9,918
    
    
    
    8,487Equity lines of credit
    
    
    13,260
    
    
    
    13,611Total mortgage loans
    
    
    330,662
    
    
    
    321,089Commercial loans
    
    
    37,305
    
    
    
    60,064Consumer installment loans
    
    
    7,296
    
    
    
    8,727Subtotal
    
    
    375,263
    
    
    
    389,880Less allowances for loan losses
    
    
    (7,116
    )
    
    
    (5,184
    )Net deferred loan fees
    
    
    (454
    )
    
    
    (568
    )Loans  Net
    
    $
    367,693
    
    
    $
    384,128
 17




---



##### 



PSB Group, Inc.
 
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 4  Loans (Continued)
 An analysis of the allowance for loan losses is as follows (000s omitted):
 2008
    
    
    2007
    
    
    2006Balance  Beginning of year
    
    $
    5,184
    
    
    $
    4,257
    
    
    $
    3,670Loan loss provision
    
    
    9,956
    
    
    
    7,663
    
    
    
    1,839Loan losses
    
    
    (8,387
    )
    
    
    (7,185
    )
    
    
    (1,716
    )Loan loss recoveries
    
    
    363
    
    
    
    449
    
    
    
    464Balance  End of year
    
    $
    7,116
    
    
    $
    5,184
    
    
    $
    4,257As a percentage of total loans
    
    
    1.90
    
    
    
    1.33
    
    
    
    1.07
 The following is a summary of information pertaining to impaired loans (000s omitted):
 2008
    
    
    2007Impaired loans without a valuation allowance
    
    $
    8,245
    
    
    $
    6,134Impaired loans with a valuation allowance
    
    
    8,260
    
    
    
    9,677Total impaired loans
    
    $
    16,505
    
    
    $
    15,811Valuation allowance related to impaired loans
    
    $
    2,334
    
    
    $
    1,632Total non-accrual loans
    
    $
    11,955
    
    
    $
    18,245Total loans past due 90 days or more and still accruing
    
    $
    575
    
    
    $
    1,280
 18




---



##### 



PSB Group, Inc.
 
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 4  Loans (Continued)
 2008
    
    
    2007
    
    
    2006Average investment in impaired loans
    
    $
    13,174
    
    
    $
    12,809
    
    
    $
    3,375Interest income recognized on impaired loans
    
    $
    815
    
    
    $
    637
    
    
    $
    305Interest income recognized on a cash basis on
impaired loans
    
    $
    815
    
    
    $
    637
    
    
    $
    167
 No additional funds are committed to be advanced in connection with impaired loans.
 19




---



##### 



PSB Group, Inc.
 
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 5  Bank Premises and Equipment
 Bank premises and equipment at December 31, 2008 and 2007 consisted of the following
(000s omitted):
 2008
    
    
    2007Land
    
    $
    3,480
    
    
    $
    1,879Buildings and improvements
    
    
    12,382
    
    
    
    12,569Construction in process
    
    
    
    
    
    
    152Furniture, fixtures, and equipment
    
    
    12,153
    
    
    
    11,528Total bank premises and equipment
    
    
    28,015
    
    
    
    26,128Less accumulated depreciation and amortization
    
    
    13,908
    
    
    
    12,770Net carrying amount
    
    $
    14,107
    
    
    $
    13,358
 Depreciation expense totaled $1,290,000, $1,379,000 and $1,392,000 during 2008, 2007,
and 2006, respectively.Pursuant to the terms of non-cancelable lease agreements in effect at December 31, 2008
pertaining to banking premises and equipment, future minimum rent commitments under
various operating leases are as follows (000s omitted):
 2009
    
    $
    4882010
    
    
    4852011
    
    
    4702012
    
    
    3752013
    
    
    368Thereafter
    
    
    762Total
    
    $
    2,948
 Total rent expense for the years ended December 31, 2008, 2007, and 2006 amounted to
$928,000, $778,000 and $771,000, respectively.
 20




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 6  Deposits
  2008
    
    
    2007NOW accounts
    
    $
    29,128
    
    
    $
    33,750Savings
    
    
    110,707
    
    
    
    132,588Money market demand
    
    
    15,898
    
    
    
    18,030Time:$100,000 and over
    
    
    102,835
    
    
    
    113,668Under $100,000
    
    
    104,213
    
    
    
    81,446Total interest-bearing deposits
    
    $
    362,781
    
    
    $
    379,482
  Under
    
    
    $100,000$100,000
    
    
    and Over2009
    
    $
    77,939
    
    
    $
    86,3562010
    
    
    15,221
    
    
    
    7,5482011
    
    
    7,629
    
    
    
    5,6982012
    
    
    1,086
    
    
    
    1,757Thereafter
    
    
    2,338
    
    
    
    1,476Total
    
    $
    104,213
    
    
    $
    102,835
 21




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 7  Borrowing Arrangements
   2009
    
    $
    1542010
    
    
    1542011
    
    
    128Total
    
    $
    436
  Note 8  Benefit Plans
  22




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 8  Benefit Plans (Continued)
   Allocated
    
    
    55,802Committed to be allocated
    
    
    Unallocated
    
    
    21,817Total
    
    
    77,619
   23




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 9  Federal Income Taxes
  2008
    
    
    2007
    
    
    2006Current (benefit) expense
    
    $
    (1,095
    )
    
    $
    (1,055
    )
    
    $
    947Deferred (benefit) expense
    
    
    (2,225
    )
    
    
    (802
    )
    
    
    (53
    )Change in valuation allowance
    
    
    3,113
    
    
    
    
    
    
    
    Total income tax expense(benefit)
    
    $
    (207
    )
    
    $
    (1,857
    )
    
    $
    894
  Percent of Pretax Income2008
    
    
    2007
    
    
    2006Amount computed at statutory rates
    
    
    (34
    )
    
    
    (34
    )
    
    
    34Decrease resulting from:Change in valuation allowance
    
    
    22
    
    
    
    
    
    
    
    Tax-exempt municipal interest
    
    
    (1
    )
    
    
    (6
    )
    
    
    (11
    )Other
    
    
    12
    
    
    
    
    
    
    
    1Effective tax rate
    
    
    (1
    )
    
    
    (40
    )
    
    
    24
 24




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 9  Federal Income Taxes (Continued)
  2008
    
    
    2007Deferred tax assets:Provision for loan losses
    
    $
    2,008
    
    
    $
    1,234Net deferred loan fees
    
    
    152
    
    
    
    190Accrued employee benefits
    
    
    63
    
    
    
    35Deferred compensation
    
    
    279
    
    
    
    271Unrealized losses on investment securities
available for sale
    
    
    
    
    
    
    35Other real estate owned
    
    
    1,230
    
    
    
    306Other
    
    
    730
    
    
    
    181Total deferred tax assets
    
    
    4,462
    
    
    
    2,252Deferred tax liabilities:Property and equipment
    
    
    361
    
    
    
    504Original issue discount
    
    
    552
    
    
    
    525Other
    
    
    436
    
    
    
    300Total deferred tax liabilities
    
    
    1,349
    
    
    
    1,329Total deferred tax asset
    
    
    3,113
    
    
    
    923Valuation allowance
    
    
    (3,113
    )
    
    
    Net deferred tax asset
    
    $
    
    
    
    $
    923
 Note 10  Stock-based Compensation
  25




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 10  Stock-based Compensation (Continued)
   WeightedAverageWeighted
    
    RemainingNumber
    
    Average
    
    Contractualof
    
    Exercise
    
    Term (inShares
    
    Price
    
    years)2007Options outstanding  January 1, 2007
    
    
    62,100
    
    
    $
    21.11
    
    
    
    9.0Options granted
    
    
    44,793
    
    
    
    18.00
    
    
    
    9.5Options exercised
    
    
    
    
    
    
    
    
    
    
    Options forfeited
    
    
    12,000
    
    
    
    21.21
    
    
    
    8.5Options outstanding  December 31, 2007
    
    
    94,893
    
    
    $
    19.72
    
    
    
    8.5Exercisable at December 31, 2007
    
    
    27,734
    
    
    $
    22.18
    
    
    
    7.52008Options outstanding  January 1, 2008
    
    
    94,893
    
    
    $
    19.70
    
    
    
    8.5Options granted
    
    
    61,400
    
    
    
    10.50
    
    
    
    9.5Options exercised
    
    
    
    
    
    
    
    
    
    
    Options forfeited
    
    
    11,000
    
    
    
    14.49
    
    
    
    9.5Options outstanding  December 31, 2008
    
    
    145,293
    
    
    $
    16.21
    
    
    
    8.5Exercisable at December 31, 2008
    
    
    54,365
    
    
    $
    20.85
    
    
    
    7.5
 26




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 10  Stock-based Compensation (Continued)
  Options OutstandingWeighted
    
    OptionsAverage
    
    ExercisableExercise
    
    Number
    
    Remaining
    
    NumberPrice
    
    Outstanding
    
    Contractual Life
    
    Outstanding$24.42
    
    
    24,100
    
    
    
    6.5
    
    
    
    24,100$18.00
    
    
    65,793
    
    
    
    8.5
    
    
    
    16,667$10.50
    
    
    55,400
    
    
    
    9.5
    
    
    
    13,598
  Year Ended December 31,2008
    
    2007Beginning of period
    
    
    39,650
    
    
    
    2,500Granted
    
    
    20,950
    
    
    
    40,150Vested
    
    
    (3,686
    )
    
    
    (700
    )Forfeited
    
    
    (3,150
    )
    
    
    (2,300
    )Non-vested, end of period
    
    
    53,764
    
    
    
    39,650
  27




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 11  Off-balance-sheet Activities
 Credit-related Financial Instruments
   2008
    
    2007Commitments to grant loans
    
    $
    3,139
    
    
    $
    10,064Unfunded commitments under lines of credit
    
    
    32,541
    
    
    
    42,562Commercial and standby letters of credit
    
    
    2,606
    
    
    
    2,021
    Note 11  Off-balance-sheet Activities (Continued)
  28




---



##### 



PSB Group, Inc
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
  Collateral
Requirements
 Note 12  Legal Contingencies
  Note 13  Restrictions on Dividends, Loans, and Advances
   29




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 13  Restrictions on Dividends, Loans, and Advances (Continued)
   Note 14  Related Party Transactions
   30




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 15  Fair Value of Financial Instruments
   Cash and Cash Equivalents
 Securities
 Loans Held for Sale
 Loans Receivable
 31




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 15  Fair Value of Financial Instruments (Continued)
 Deposit Liabilities
 Long-term Borrowings
 Short-term Borrowings
 Accrued Interest
 Other Instruments
 32




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 15  Fair Value of Financial Instruments (Continued)
  2008
    
    2007Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueAssets:Cash and short-term
investments
    
    $
    12,268
    
    
    $
    12,268
    
    
    $
    12,762
    
    
    $
    12,762Securities
    
    
    52,254
    
    
    
    52,254
    
    
    
    64,115
    
    
    
    64,115Loans
    
    
    367,693
    
    
    
    380,415
    
    
    
    384,128
    
    
    
    384,833Loans held for sale
    
    
    1,082
    
    
    
    1,100
    
    
    
    882
    
    
    
    894Accrued interest receivable
    
    
    2,159
    
    
    
    2,159
    
    
    
    2,344
    
    
    
    2,344Liabilities:Noninterest-bearing deposits
    
    
    49,661
    
    
    
    49,661
    
    
    
    59,028
    
    
    
    59,028Interest-bearing deposits
    
    
    362,781
    
    
    
    366,465
    
    
    
    379,482
    
    
    
    379,802Short-term borrowings
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    10,096Long-term debt
    
    
    15,436
    
    
    
    15,924
    
    
    
    590
    
    
    
    590Accrued interest payable
    
    
    398
    
    
    
    398
    
    
    
    458
    
    
    
    458
 Note 16  Regulatory Matters
   33




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 16  Regulatory Matters (Continued)
   For Capital
    
    To Be Well-Actual
    
    Adequacy Purposes
    
    capitalizedAmount
    
    Ratio
    
    Amount
    
    
    
    
    
    Ratio
    
    Amount
    
    
    
    
    
    RatioAs of December 31, 2008:Total capital(to risk-weighted assets)PSB Group, Inc.
    
    $
    33,812
    
    
    
    9.01
    %
    
    $
    30,300
    
    
    
    >
    
    
    
    8.0
    %
    
    
    N/A
    
    
    
    >
    
    
    
    N/APeoples State Bank
    
    $
    34,236
    
    
    
    9.13
    %
    
    $
    30,300
    
    
    
    >
    
    
    
    8.0
    %
    
    $
    37,900
    
    
    
    >
    
    
    
    10.0
    %Tier I capital(to risk-weighted assets)PSB Group, Inc.
    
    $
    29,093
    
    
    
    7.76
    %
    
    $
    15,100
    
    
    
    >
    
    
    
    4.0
    %
    
    
    N/A
    
    
    
    >
    
    
    
    N/APeoples State Bank
    
    $
    29,518
    
    
    
    7.87
    %
    
    $
    15,100
    
    
    
    >
    
    
    
    4.0
    %
    
    $
    22,700
    
    
    
    >
    
    
    
    6.0
    %Tier I capital(to average assets)PSB Group, Inc.
    
    $
    29,093
    
    
    
    6.19
    %
    
    $
    18,700
    
    
    
    >
    
    
    
    4.0
    %
    
    
    N/A
    
    
    
    >
    
    
    
    N/APeoples State Bank
    
    $
    29,518
    
    
    
    6.29
    %
    
    $
    18,700
    
    
    
    >
    
    
    
    4.0
    %
    
    $
    23,300
    
    
    
    >
    
    
    
    5.0
    %As of December 31, 2007:Total capital(to risk-weighted assets)PSB Group, Inc.
    
    $
    40,520
    
    
    
    10.24
    %
    
    $
    31,700
    
    
    
    >
    
    
    
    8.0
    %
    
    
    N/A
    
    
    
    >
    
    
    
    N/APeoples State Bank
    
    $
    41,658
    
    
    
    10.53
    %
    
    $
    31,700
    
    
    
    >
    
    
    
    8.0
    %
    
    $
    39,600
    
    
    
    >
    
    
    
    10.0
    %Tier I capital(to risk-weighted assets)PSB Group, Inc.
    
    $
    35,570
    
    
    
    8.99
    %
    
    $
    15,800
    
    
    
    >
    
    
    
    4.0
    %
    
    
    N/A
    
    
    
    >
    
    
    
    N/APeoples State Bank
    
    $
    36,709
    
    
    
    9.28
    %
    
    $
    15,800
    
    
    
    >
    
    
    
    4.0
    %
    
    $
    23,700
    
    
    
    >
    
    
    
    6.0
    %Tier I capital(to average assets)PSB Group, Inc.
    
    $
    35,570
    
    
    
    7.13
    %
    
    $
    19,900
    
    
    
    >
    
    
    
    4.0
    %
    
    
    N/A
    
    
    
    >
    
    
    
    N/APeoples State Bank
    
    $
    36,709
    
    
    
    7.36
    %
    
    $
    19,900
    
    
    
    >
    
    
    
    4.0
    %
    
    $
    24,900
    
    
    
    >
    
    
    
    5.0
    %
 34




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 17  Fair Value Measurement
  Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2008
(dollars in thousands)
 Quoted Prices inActive Markets
    
    
    Signifcant Other
    
    
    Significantfor Identical Assets
    
    
    Observable Inputs
    
    
    Unobservable Inputs
    
    
    Balance at(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2008AssetsInvestment
securities 
available for sale
    
    $
    
    
    
    $
    51,524
    
    
    $
    730
    
    
    $
    52,254
     35




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 17  Fair Value Measurement (Continued)
 Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
(dollars in thousands)
 Investment Securities available for saleBalance at December 31, 2007
    
    $
    795Total realized and unrealized gains (losses) included in income
    
    
    Total unrealized gains (losses) included in other comprehensive income
    
    
    (40
    )Net purchases, sales, calls, and maturities
    
    
    (25
    )Net transfers in/out of Level 3
    
    
    Balance at December 31, 2008
    
    $
    730
    Assets Measured at Fair Value on a Recurring Basis at December 31, 2008
(dollars in thousands)
 Quoted Prices in
    
    
    
    
    
    
    
    
    
    
    Total LossesActive Markets
    
    
    Signifcant Other
    
    
    Significant
    
    
    for the periodBalance at
    
    
    for Identical Assets
    
    
    Observable Inputs
    
    
    Unobservable Inputs
    
    
    endedDecember 31, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2008AssetsImpaired loans
accounted for underFAS 114
    
    $
    8,260
    
    
    $
    
    
    
    $
    
    
    
    $
    8,260
    
    
    $
    3,551
 36




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 17  Fair Value Measurement (Continued)
  Note 18  Condensed Financial Statements of Parent Company
   2008
    
    
    2007AssetsCash at subsidiary bank
    
    $
    308
    
    
    $
    137Investment in subsidiaries
    
    
    30,528
    
    
    
    41,148Other
    
    
    111
    
    
    
    64Total assets
    
    $
    30,947
    
    
    $
    41,349LiabilitiesBorrowings  ESOP
    
    $
    436
    
    
    $
    590Deferred Compensation
    
    
    409
    
    
    
    568Total liabilities
    
    
    845
    
    
    
    1,158Stockholders Equity
    
    
    30,102
    
    
    
    40,191Liabilities and Stockholders Equity
    
    $
    30,947
    
    
    $
    41,349
 37




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 18  Condensed Financial Statements of Parent Company (Continued)
  2008
    
    
    2007
    
    
    2006Operating income  dividends from subsidiaries
    
    $
    
    
    
    $
    1,560
    
    
    $
    2,150Operating expense
    
    
    (300
    )
    
    
    (352
    )
    
    
    (223
    )Income  Before income taxes and equity in
undistributed income of subsidiaries
    
    
    (300
    )
    
    
    1,208
    
    
    
    1,927Income tax benefit
    
    
    102
    
    
    
    120
    
    
    
    76Income  Before equity in undistibuted
income of subsidiaries
    
    
    (198
    )
    
    
    1,328
    
    
    
    2,003Equity in undistributed income(loss) of subsidiaries
    
    
    (13,599
    )
    
    
    (4,070
    )
    
    
    885Net income(loss)
    
    $
    (13,797
    )
    
    $
    (2,742
    )
    
    $
    2,888
 38




---



##### 



PSB Group, Inc.
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 18  Condensed Financial Statements of Parent Company (Continued)
  2008
    
    
    2007
    
    
    2006Cash Flows from Operating ActivitiesNet income(loss)
    
    $
    (13,797
    )
    
    $
    (2,742
    )
    
    $
    2,888Adjustments to reconcile net income to net cash
from operating activities:Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    Equity in income of subsidiaries
    
    
    13,599
    
    
    
    2,510
    
    
    
    (3,035
    )Net change in other assets
    
    
    (47
    )
    
    
    232
    
    
    
    (74
    )Net change in other liabilities
    
    
    (159
    )
    
    
    111
    
    
    
    111Net cash (used in) provided
by operating activities
    
    
    (404
    )
    
    
    111
    
    
    
    (110
    )Cash
Flows from Investing Activities Dividend from subsidiaries
    
    
    
    
    
    
    1,560
    
    
    
    2,150Investment in subsidiaries
    
    
    (1,334
    )
    
    
    
    
    
    
    Net cash (used in) provided
by investing activities
    
    
    (1,334
    )
    
    
    1,560
    
    
    
    2,150Cash Flows from Financing ActivitiesSale of common stock
    
    
    2,070
    
    
    
    
    
    
    
    Repurchase of common stock
    
    
    (36
    )
    
    
    
    
    
    
    Cash dividends
    
    
    (125
    )
    
    
    (2,207
    )
    
    
    (2,183
    )Net cash (used in) provided
by financing activities
    
    
    1,909
    
    
    
    (2,207
    )
    
    
    (2,183
    )Net Increase (Decrease) in Cash and
Cash Equivalents
    
    
    171
    
    
    
    (536
    )
    
    
    (143
    )Cash and Cash Equivalents Beginning of year
    
    
    137
    
    
    
    673
    
    
    
    816Cash and Cash Equivalents End of year
    
    $
    308
    
    
    $
    137
    
    
    $
    673
 39




---



##### 



PSB Group, Inc.
 
 Management Financial Report
 December 31, 2008
 Table of ContentsQuarterly Results of Operations
    
    
    41Selected Financial Information
    
    
    42Managements Discussion and Analysis
    
    
    43-54Market Information
    
    
    55Performance Graph
    
    
    56
 Information Concerning Forward-Looking Statements
 Statements contained in this report which are not historical facts are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements involve important known and unknown risks, uncertainties and
other factors and can be identified by phrases using estimate, anticipate, believe, project,
expect, intend, predict, potential, future, may, should and similar expressions or
words. Such forward-looking statements are subject to risk and uncertainties which could cause
actual results to differ materially from those projected. Such risks and uncertainties include
potential changes in interest rates, competitive factors in the financial services industry, general economic conditions, the effect of new legislation and
other risks detailed in documents filed by the Company with the Securities and Exchange Commission from time to
time.
 40




---



##### 



PSB Group, Inc.
 Quarterly Results of Operations
 (unaudited)
  Year Ended December 31, 20081st Qtr
    
    
    2nd Qtr
    
    
    3rd Qtr
    
    
    4th QtrInterest income
    
    $
    7,467
    
    
    $
    7,193
    
    
    $
    6,985
    
    
    $
    6,792Interest expense
    
    
    3,129
    
    
    
    2,473
    
    
    
    2,346
    
    
    
    2,486Net interest income
    
    
    4,338
    
    
    
    4,720
    
    
    
    4,639
    
    
    
    4,306Provision for loan losses
    
    
    2,063
    
    
    
    1,553
    
    
    
    2,350
    
    
    
    3,990Net interest income after
provision for loan losses
    
    
    2,275
    
    
    
    3,167
    
    
    
    2,289
    
    
    
    316Non-interest income
    
    
    1,315
    
    
    
    1,073
    
    
    
    919
    
    
    
    937Non-interest expense
    
    
    5,909
    
    
    
    5,244
    
    
    
    6,306
    
    
    
    8,836Income(loss) before income tax expense(benefit)
    
    
    (2,319
    )
    
    
    (1,004
    )
    
    
    (3,098
    )
    
    
    (7,583
    )Income tax expense(benefit)
    
    
    (816
    )
    
    
    (359
    )
    
    
    (1,068
    )
    
    
    2,036Net income(loss)
    
    $
    (1,503
    )
    
    $
    (645
    )
    
    $
    (2,030
    )
    
    $
    (9,619
    )Earnings(loss) per share:Basic
    
    $
    (0.49
    )
    
    $
    (0.20
    )
    
    $
    (0.61
    )
    
    $
    (2.92
    )Diluted
    
    $
    (0.49
    )
    
    $
    (0.20
    )
    
    $
    (0.61
    )
    
    $
    (2.92
    )Cash dividends declared per share
    
    $
    0.04
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
 Year Ended December 31, 20071st Qtr
    
    
    2nd Qtr
    
    
    3rd Qtr
    
    
    4th QtrInterest income
    
    $
    8,280
    
    
    $
    8,320
    
    
    $
    7,948
    
    
    $
    8,034Interest expense
    
    
    3,531
    
    
    
    3,694
    
    
    
    3,821
    
    
    
    3,773Net interest income
    
    
    4,749
    
    
    
    4,626
    
    
    
    4,127
    
    
    
    4,261Provision for loan losses
    
    
    120
    
    
    
    1,840
    
    
    
    2,525
    
    
    
    3,178Net interest income after
provision for loan losses
    
    
    4,629
    
    
    
    2,786
    
    
    
    1,602
    
    
    
    1,083Non-interest income
    
    
    1,255
    
    
    
    1,167
    
    
    
    862
    
    
    
    1,217Non-interest expense
    
    
    4,657
    
    
    
    4,596
    
    
    
    4,812
    
    
    
    5,135Income before income taxes
    
    
    1,227
    
    
    
    (643
    )
    
    
    (2,348
    )
    
    
    (2,835
    )Income tax
    
    
    325
    
    
    
    (304
    )
    
    
    (874
    )
    
    
    (1,004
    )Net income
    
    $
    902
    
    
    $
    (339
    )
    
    $
    (1,474
    )
    
    $
    (1,831
    )Earnings per share:Basic
    
    $
    0.30
    
    
    $
    (0.11
    )
    
    $
    (0.48
    )
    
    $
    (0.60
    )Diluted
    
    $
    0.30
    
    
    $
    (0.11
    )
    
    $
    (0.48
    )
    
    $
    (0.60
    )Cash dividends declared per share
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.18
 41




---



##### 



PSB Group, Inc.
 Selected Financial Information
 For the years ended December 31(Dollars in Thousands)2008
    
    2007
    
    2006
    
    2005
    
    2004Summary of IncomeInterest income
    
    
    28,437
    
    
    
    32,582
    
    
    
    32,059
    
    
    
    27,518
    
    
    
    22,633Interest expense
    
    
    10,434
    
    
    
    14,819
    
    
    
    13,191
    
    
    
    9,369
    
    
    
    5,831Net Interest income
    
    
    18,003
    
    
    
    17,763
    
    
    
    18,868
    
    
    
    18,149
    
    
    
    16,802Provision (credit) for possible loan losses
    
    
    9,956
    
    
    
    7,663
    
    
    
    1,839
    
    
    
    1,554
    
    
    
    1,200Net interest income after provision for
possible loan losses
    
    
    8,047
    
    
    
    10,100
    
    
    
    17,029
    
    
    
    16,595
    
    
    
    15,602Non-interest income
    
    
    4,244
    
    
    
    4,501
    
    
    
    5,003
    
    
    
    6,289
    
    
    
    5,826Non-interest expense
    
    
    26,295
    
    
    
    19,200
    
    
    
    18,250
    
    
    
    17,372
    
    
    
    15,647Income before income tax expense
    
    
    (14,004
    )
    
    
    (4,599
    )
    
    
    3,782
    
    
    
    5,512
    
    
    
    5,781Income tax expense
    
    
    (207
    )
    
    
    (1,857
    )
    
    
    894
    
    
    
    1,507
    
    
    
    1,563Net income
    
    
    (13,797
    )
    
    
    (2,742
    )
    
    
    2,888
    
    
    
    4,005
    
    
    
    4,218Per Share DataBasic earnings per common share
    
    
    (4.22
    )
    
    
    (0.89
    )
    
    
    0.95
    
    
    
    1.32
    
    
    
    1.39Diluted earnings per common share
    
    
    (4.22
    )
    
    
    (0.89
    )
    
    
    0.95
    
    
    
    1.32
    
    
    
    1.39Cash dividends
    
    
    0.04
    
    
    
    0.72
    
    
    
    0.72
    
    
    
    0.70
    
    
    
    0.66Period end book value per common share
    
    
    8.75
    
    
    
    13.08
    
    
    
    14.58
    
    
    
    14.25
    
    
    
    14.19Weighted average number of common
shares outstanding
    
    
    3,265,564
    
    
    
    3,064,829
    
    
    
    3,031,618
    
    
    
    3,025,727
    
    
    
    3,029,152Selected Balances (at period end)Securities
    
    
    52,254
    
    
    
    64,115
    
    
    
    63,748
    
    
    
    93,645
    
    
    
    91,125Loans, net
    
    
    367,693
    
    
    
    384,128
    
    
    
    394,087
    
    
    
    361,423
    
    
    
    335,280Total assets
    
    
    460,516
    
    
    
    492,271
    
    
    
    497,234
    
    
    
    495,011
    
    
    
    461,342Total deposits
    
    
    412,442
    
    
    
    438,510
    
    
    
    433,960
    
    
    
    424,658
    
    
    
    411,132Borrowings
    
    
    15,436
    
    
    
    10,590
    
    
    
    17,619
    
    
    
    26,210
    
    
    
    5,000Total stockholders equity
    
    
    30,102
    
    
    
    40,191
    
    
    
    44,246
    
    
    
    42,950
    
    
    
    42,981Selected RatiosReturn on average assets
    
    
    (2.88
    )
    
    
    (0.54
    )
    
    
    0.58
    %
    
    
    0.83
    %
    
    
    0.99
    %Return on average total stockholders equity
    
    
    (35.23
    )
    
    
    (6.30
    )
    
    
    6.65
    %
    
    
    9.22
    %
    
    
    10.08
    %Average equity to average assets
    
    
    8.18
    %
    
    
    8.63
    %
    
    
    8.74
    %
    
    
    8.97
    %
    
    
    9.79
    %Net interest margin (1)
    
    
    4.08
    %
    
    
    3.76
    %
    
    
    4.04
    %
    
    
    3.99
    %
    
    
    4.19
    %Efficiency ratio (2)
    
    
    118.20
    %
    
    
    86.24
    %
    
    
    76.45
    %
    
    
    71.09
    %
    
    
    69.15
    %Dividend payout ratio (3)
    
    
    (0.91
    )
    
    
    (80.49
    )
    
    
    76
    %
    
    
    53
    %
    
    
    47
    %Asset Quality RatiosAllowance for possible loan losses to:Ending total loans
    
    
    1.90
    %
    
    
    1.33
    %
    
    
    1.07
    %
    
    
    1.00
    %
    
    
    1.00
    %Non-performing assets
    
    
    24.63
    %
    
    
    19.29
    %
    
    
    53.03
    %
    
    
    81.27
    %
    
    
    84.62
    %Non-performing assets to ending total loans
    
    
    7.71
    %
    
    
    6.90
    %
    
    
    2.02
    %
    
    
    1.24
    %
    
    
    1.18
    %Net loan charge-offs to average loans
    
    
    2.09
    %
    
    
    1.64
    %
    
    
    0.33
    %
    
    
    0.36
    %
    
    
    0.49
    %Capital RatiosTotal capital to risk-weighted assets
    
    
    9.01
    %
    
    
    10.24
    %
    
    
    11.22
    %
    
    
    11.74
    %
    
    
    12.54
    %Tier 1 capital to risk-weighted assets
    
    
    7.76
    %
    
    
    8.99
    %
    
    
    10.14
    %
    
    
    10.73
    %
    
    
    11.54
    %Tier 1 capital to average assets
    
    
    6.19
    %
    
    
    7.13
    %
    
    
    8.21
    %
    
    
    8.07
    %
    
    
    8.62
    %
 
 (1)
    
    Net interest margin is net interest income divided by average earning assets.(2)
    
    Efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income plus non-interest income.(3)
    
    Dividend payout ratio is calculated by dividing dividends paid during the period by net income for the period. 42




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview .
   Financial Condition
  Loans
  43




---



##### 



December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(in thousands)Mortgages on real estate
    
    $
    330,271
    
    
    $
    320,641
    
    
    $
    335,809
    
    
    $
    306,586
    
    
    $
    272,756Commercial
    
    
    37,244
    
    
    
    59,945
    
    
    
    51,827
    
    
    
    46,294
    
    
    
    47,608Consumer
    
    
    7,294
    
    
    
    8,726
    
    
    
    10,708
    
    
    
    12,213
    
    
    
    18,310Total Loans
    
    $
    374,809
    
    
    $
    389,312
    
    
    $
    398,344
    
    
    $
    365,093
    
    
    $
    338,674
  One year
    
    
    
    
    
    
    
    
    
    Loans maturingOne year
    
    to five
    
    After five
    
    
    
    
    
    More than one yearor less
    
    years
    
    years
    
    Total
    
    Fixed
    
    Variable(in thousands)Mortgages on real estate
    
    $
    81,282
    
    
    $
    175,635
    
    
    $
    73,354
    
    
    $
    330,271
    
    
    $
    188,412
    
    
    $
    60,577Commercial
    
    
    14,985
    
    
    
    16,963
    
    
    
    5,296
    
    
    
    37,244
    
    
    
    13,036
    
    
    
    9,222Consumer
    
    
    2,186
    
    
    
    2,342
    
    
    
    2,766
    
    
    
    7,294
    
    
    
    4,811
    
    
    
    298Total Loans
    
    $
    98,453
    
    
    $
    194,940
    
    
    $
    81,416
    
    
    $
    374,809
    
    
    $
    206,259
    
    
    $
    70,097
  44




---



##### 



2008
    
    2007
    
    2006
    
    2005
    
    2004(in thousands)Nonaccrual loans
    
    $
    11,955
    
    
    $
    18,245
    
    
    $
    3,069
    
    
    $
    1,651
    
    
    $
    2,297Loans past due 90 or more days
    
    
    575
    
    
    
    1,280
    
    
    
    4,148
    
    
    
    2,044
    
    
    
    717Renegotiated loans
    
    
    7,903
    
    
    
    1,347
    
    
    
    486
    
    
    
    515
    
    
    
    586Total non-performing loans
    
    
    20,433
    
    
    
    20,872
    
    
    
    7,703
    
    
    
    4,210
    
    
    
    3,600Other real estate owned
    
    
    8,459
    
    
    
    5,996
    
    
    
    325
    
    
    
    306
    
    
    
    411Total non-p erforming assets
    
    $
    28,892
    
    
    $
    26,868
    
    
    $
    8,028
    
    
    $
    4,516
    
    
    $
    4,011Total non-performing loans to total loans
    
    
    5.45
    %
    
    
    5.36
    %
    
    
    1.93
    %
    
    
    1.15
    %
    
    
    1.06
    %Total non-performing assets to total assets
    
    
    6.27
    %
    
    
    5.46
    %
    
    
    1.61
    %
    
    
    0.91
    %
    
    
    0.87
    %
   45




---



##### 



2008
    
    2007
    
    2006
    
    2005
    
    2004(in thousands)Balance  Beginning of year
    
    $
    5,184
    
    
    $
    4,257
    
    
    
    $3,670
    
    
    $
    3,394
    
    
    
    $3,887Loans charged off:Mortgages on real estate
    
    
    (6,813
    )
    
    
    (5,470
    )
    
    
    (205
    )
    
    
    (536
    )
    
    
    (287
    )Commercial
    
    
    (1,261
    )
    
    
    (1,054
    )
    
    
    (1,229
    )
    
    
    (702
    )
    
    
    (1,089
    )Consumer
    
    
    (313
    )
    
    
    (661
    )
    
    
    (282
    )
    
    
    (642
    )
    
    
    (942
    )Total Charge offs
    
    
    (8,387
    )
    
    
    (7,185
    )
    
    
    (1,716
    )
    
    
    (1,880
    )
    
    
    (2,318
    )Recoveries on loans previously charged off:Mortgages on real estate
    
    
    109
    
    
    
    36
    
    
    
    
    
    
    
    80
    
    
    
    1Commercial
    
    
    55
    
    
    
    209
    
    
    
    241
    
    
    
    225
    
    
    
    315Consumer
    
    
    199
    
    
    
    204
    
    
    
    223
    
    
    
    297
    
    
    
    309Total Recoveries
    
    
    363
    
    
    
    449
    
    
    
    464
    
    
    
    602
    
    
    
    625Provision for loan losses
    
    
    9,956
    
    
    
    7,663
    
    
    
    1,839
    
    
    
    1,554
    
    
    
    1,200Balance  End of year
    
    $
    7,116
    
    
    $
    5,184
    
    
    $
    4,257
    
    
    $
    3,670
    
    
    $
    3,394
  December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(in thousands)Percent of
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent ofLoans in
    
    
    
    
    
    Loans in
    
    
    
    
    
    Loans in
    
    
    
    
    
    Loans in
    
    
    
    
    
    Loans inEach
    
    
    
    
    
    Each
    
    
    
    
    
    Each
    
    
    
    
    
    Each
    
    
    
    
    
    EachCategory
    
    
    
    
    
    Category
    
    
    
    
    
    Category
    
    
    
    
    
    Category
    
    
    
    
    
    CategoryAllocated
    
    to Total
    
    Allocated
    
    to Total
    
    Allocated
    
    to Total
    
    Allocated
    
    to Total
    
    Allocated
    
    to TotalAmount
    
    Loans
    
    Amount
    
    Loans
    
    Amount
    
    Loans
    
    Amount
    
    Loans
    
    Amount
    
    LoansMortgages
    
    $
    6,418
    
    
    
    88.11
    %
    
    $
    4,239
    
    
    
    82.36
    %
    
    $
    716
    
    
    
    84.30
    %
    
    $
    609
    
    
    
    84.09
    %
    
    $
    839
    
    
    
    80.50
    %Commercial
    
    
    539
    
    
    
    9.94
    %
    
    
    675
    
    
    
    15.40
    %
    
    
    2,895
    
    
    
    13.01
    %
    
    
    2,221
    
    
    
    12.56
    %
    
    
    1,478
    
    
    
    14.10
    %Consumer
    
    
    158
    
    
    
    1.95
    %
    
    
    266
    
    
    
    2.24
    %
    
    
    528
    
    
    
    2.69
    %
    
    
    690
    
    
    
    3.35
    %
    
    
    551
    
    
    
    5.40
    %Unallocated
    
    
    1
    
    
    
    n/a
    
    
    
    4
    
    
    
    n/a
    
    
    
    118
    
    
    
    n/a
    
    
    
    150
    
    
    
    n/a
    
    
    
    526
    
    
    
    n/aTotal
    
    $
    7,116
    
    
    
    100.00
    %
    
    $
    5,184
    
    
    
    100.00
    %
    
    $
    4,257
    
    
    
    100.00
    %
    
    $
    3,670
    
    
    
    100.00
    %
    
    $
    3,394
    
    
    
    100.00
    %
 Investment securities
 46




---



##### 



December 31,2008
    
    2007Amortized
    
    Fair
    
    Amortized
    
    FairCost
    
    Value
    
    Cost
    
    Value(in thousands)Available-for-sale securities:U. S. treasury securities and
obligations of other U.S.
government agencies
    
    $
    43,834
    
    
    $
    45,146
    
    
    $
    48,147
    
    
    $
    48,153Obligations of states and
political subdivisions
    
    
    5,380
    
    
    
    5,126
    
    
    
    14,039
    
    
    
    13,940Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    500
    
    
    
    450
    
    
    
    500
    
    
    
    490Equities
    
    
    1,532
    
    
    
    1,532
    
    
    
    1,532
    
    
    
    1,532Total available-for-sale
securities
    
    $
    51,246
    
    
    $
    52,254
    
    
    $
    64,218
    
    
    $
    64,115
  From one to
    
    From five to
    
    After tenOne year or less
    
    five years
    
    ten years
    
    years
    
    Equity
    
    TotalDollar
    
    Yield
    
    Dollar
    
    Yield
    
    Dollar
    
    Yield
    
    Dollar
    
    Yield
    
    Dollar
    
    Yield
    
    Dollar
    
    Yield(in thousands)Obligations of U.S.
government agencies
    
    $
    2
    
    
    
    5.00
    %
    
    $
    37,407
    
    
    
    4.99
    %
    
    $
    6,688
    
    
    
    4.85
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    44,097
    
    
    
    4.97
    %Obligations of states and
political subdivisions
    
    
    85
    
    
    
    8.03
    %
    
    
    460
    
    
    
    8.29
    %
    
    
    1,425
    
    
    
    5.59
    %
    
    
    3,380
    
    
    
    5.69
    %
    
    
    
    
    
    
    
    
    
    
    5,350
    
    
    
    5.92
    %Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    5.03
    %
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    5.03
    %Equity securities & others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,532
    
    
    
    5.21
    %
    
    
    1,532
    
    
    
    5.21
    %Total
    
    $
    87
    
    
    
    7.96
    %
    
    $
    37,867
    
    
    
    5.03
    %
    
    $
    8,113
    
    
    
    4.98
    %
    
    $
    3,880
    
    
    
    5.60
    %
    
    $
    1,532
    
    
    
    5.21
    %
    
    $
    51,479
    
    
    
    5.08
    %
 Deposits
  47




---



##### 



December 31,2008
    
    
    2007
    
    
    2006(in thousands)Noninterest bearing
demand deposits
    
    $
    49,661
    
    
    $
    59,028
    
    
    $
    59,320NOW accounts
    
    
    29,128
    
    
    
    33,750
    
    
    
    35,872Savings
    
    
    110,707
    
    
    
    132,588
    
    
    
    124,676Money market demand
    
    
    15,898
    
    
    
    18,030
    
    
    
    26,300Time under $100,000
    
    
    104,213
    
    
    
    81,446
    
    
    
    97,958Time over $100,000
    
    
    102,835
    
    
    
    113,668
    
    
    
    89,834Total deposits
    
    $
    412,442
    
    
    $
    438,510
    
    
    $
    433,960
  December 31, 2008(in thousands)Time Deposits Over $100,000
Maturing in:Less than three m onths
    
    $
    25,528Three through six months
    
    
    21,460Six months through one year
    
    
    39,368Over one year
    
    
    16,479Total deposits
    
    $
    102,835
 Borrowings
  Outstanding as of12/31/2008
    
    
    12/31/2007(dollars in thousands)Type
    
    Matures
    
    
    Dollar
    
    
    Rate
    
    
    Dollar
    
    
    RateFHLB Advance
    
    
    2/1/2010
    
    
    $
    5,000
    
    
    2.97% Fixed
    
    
    
    
    
    
    FHLB Advance
    
    
    3/25/2010
    
    
    $
    10,000
    
    
    2.66% Fixed
    
    $
    10,000
    
    
    4.68% FixedESOP Note Payable
    
    
    2011
    
    
    $
    436
    
    
    5.81% Variable
    
    $
    590
    
    
    6.9% VariableTotal
    
    
    
    
    
    $
    15,436
    
    
    
    
    
    
    $
    10,590
 48




---



##### 



Contractual Obligations
 Payments due - as of December 31, 2008(in thousands)0-12 Months
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 Years
    
    
    TotalOperating Leases
    
    $
    488
    
    
    $
    955
    
    
    $
    743
    
    
    $
    762
    
    
    $
    2,948Federal Funds
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    ESOP N ote Payable
    
    $
    154
    
    
    $
    282
    
    
    $
    
    
    
    $
    
    
    
    $
    436FHLB Advances
    
    $
    
    
    
    $
    15,000
    
    
    $
    
    
    
    $
    
    
    
    $
    15,000Total
    
    $
    642
    
    
    $
    16,237
    
    
    $
    743
    
    
    $
    762
    
    
    $
    18,384
 Off Balance Sheet Obligations
 Results of Operations
    49




---



##### 



Year ended December 31,2008
    


    2007

    
    2006Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    

    

    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(dollars in thousands)Federal funds sold
    
    $
    306
    
    
    $
    7
    
    
    
    2.29
    %
    
    $
    598
    
    
    $
    28
    
    
    
    4.68
    %
    
    $
    1,311
    
    
    $
    63
    
    
    
    4.81
    %Investment securities  taxable
    
    $
    49,062
    
    
    $
    2,418
    
    
    
    4.93
    %
    
    $
    36,091
    
    
    $
    1,649
    
    
    
    4.57
    %
    
    $
    52,846
    
    
    $
    2,159
    
    
    
    4.09
    %Investment securities  tax-exempt
    
    $
    6,818
    
    
    $
    282
    
    
    
    4.14
    %
    
    $
    24,073
    
    
    $
    945
    
    
    
    3.93
    %
    
    $
    31,063
    
    
    $
    1,234
    
    
    
    3.97
    %Loans, net of unearned income
    
    $
    385,174
    
    
    $
    25,730
    
    
    
    6.68
    %
    
    $
    412,274
    
    
    $
    29,960
    
    
    
    7.27
    %
    
    $
    381,569
    
    
    $
    28,603
    
    
    
    7.50
    %Total earning assets
    
    $
    441,360
    
    
    $
    28,437
    
    
    
    6.44
    %
    
    $
    473,036
    
    
    $
    32,582
    
    
    
    6.89
    %
    
    $
    466,789
    
    
    $
    32,059
    
    
    
    6.87
    %Interest bearing deposits
    
    $
    358,920
    
    
    $
    9,799
    
    
    
    2.73
    %
    
    $
    385,758
    
    
    $
    14,205
    
    
    
    3.68
    %
    
    $
    385,217
    
    
    $
    12,860
    
    
    
    3.34
    %Funds borrowed
    
    $
    22,695
    
    
    $
    635
    
    
    
    2.80
    %
    
    $
    12,334
    
    
    $
    614
    
    
    
    4.98
    %
    
    $
    7,384
    
    
    $
    331
    
    
    
    4.48
    %Total interest bearing liabilities
    
    $
    381,615
    
    
    $
    10,434
    
    
    
    2.73
    %
    
    $
    398,092
    
    
    $
    14,819
    
    
    
    3.72
    %
    
    $
    392,601
    
    
    $
    13,191
    
    
    
    3.36
    %Net interest income
    
    
    
    
    
    $
    18,003
    
    
    
    
    
    
    
    
    
    
    $
    17,763
    
    
    
    
    
    
    
    
    
    
    $
    18,868Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.71
    %
    
    
    
    
    
    
    
    
    
    
    3.17
    %
    
    
    
    
    
    
    
    
    
    
    3.51
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.08
    %
    
    
    
    
    
    
    
    
    
    
    3.76
    %
    
    
    
    
    
    
    
    
    
    
    4.04
    %
  2008 compared to 2007
    
    2007 compared to 2006Change
    
    Change
    
    Change
    
    
    
    
    
    Change
    
    Change
    
    Changedue to
    
    due to
    
    due to
    
    Total
    
    due to
    
    due to
    
    due to
    
    TotalRate
    
    Volume
    
    Mix
    
    Change
    
    Rate
    
    Volume
    
    Mix
    
    Change(in thousands)Federal funds sold
    
    $
    (14
    )
    
    $
    (14
    )
    
    $
    7
    
    
    $
    (21
    )
    
    $
    (2
    )
    
    $
    (34
    )
    
    $
    1
    
    
    $
    (35
    )Investment securities  taxable
    
    $
    129
    
    
    $
    593
    
    
    $
    47
    
    
    $
    769
    
    
    $
    254
    
    
    $
    (685
    )
    
    $
    (79
    )
    
    $
    (510
    )Investment securities  tax-exempt
    
    $
    49
    
    
    $
    ( 678
    )
    
    $
    (34
    )
    
    $
    (663
    )
    
    $
    (12
    )
    
    $
    (278
    )
    
    $
    1
    
    
    $
    (289
    )Loans, net of unearned income
    
    $
    (2,432
    )
    
    $
    (1,970
    )
    
    $
    172
    
    
    $
    (4,230
    )
    
    $
    (878
    )
    
    $
    2,303
    
    
    $
    (68
    )
    
    $
    1,357Total interest income
    
    $
    (2,268
    )
    
    $
    (2,069
    )
    
    $
    192
    
    
    $
    (4,145
    )
    
    $
    (638
    )
    
    $
    1,306
    
    
    $
    (145
    )
    
    $
    523Interest bearing deposits
    
    $
    (3,664
    )
    
    $
    ( 988
    )
    
    $
    246
    
    
    $
    (4,406
    )
    
    $
    1,310
    
    
    $
    18
    
    
    $
    17
    
    
    $
    1,345Funds borrowed
    
    $
    (270
    )
    
    $
    516
    
    
    $
    ( 226
    )
    
    $
    20
    
    
    $
    37
    
    
    $
    222
    
    
    $
    24
    
    
    $
    283Total interest expense
    
    $
    (3,934
    )
    
    $
    ( 472
    )
    
    $
    20
    
    
    $
    (4,386
    )
    
    $
    1,347
    
    
    $
    240
    
    
    $
    41
    
    
    $
    1,628Net interest income
    
    $
    1,666
    
    
    $
    (1,597
    )
    
    $
    172
    
    
    $
    241
    
    
    $
    (1,985
    )
    
    $
    1,066
    
    
    $
    (186
    )
    
    $
    (1,105
    )
   50




---



##### 



th th
     th
 Liquidity and Capital Resources.
  51




---



##### 



Quantitative and Qualitative Disclosures About Market Risk
    52




---



##### 



Estimated Maturity or Re-pricing at December 31, 2008Less than three
    
    Three months to
    
    One to five
    
    Due after fivemonths
    
    less than one year
    
    years
    
    years
    
    TotalInterest earning assets :Securities (1) (2)
    
    $
    2,109
    
    
    $
    489
    
    
    $
    3,547
    
    
    $
    46,109
    
    
    $
    52,254Loans
    
    
    114,830
    
    
    
    31,084
    
    
    
    181,390
    
    
    
    47,505
    
    
    
    374,809Total interest earning assets
    
    $
    116,939
    
    
    $
    31,573
    
    
    $
    184,937
    
    
    $
    93,614
    
    
    $
    427,063Interest bearing liabilities :Savings and interest bearing
demand deposits
    
    $
    155,733
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    155,733Time deposits
    
    
    42,477
    
    
    
    121,966
    
    
    
    42,605
    
    
    
    
    
    
    
    207,048Short term borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long term borrowings
    
    
    154
    
    
    
    
    
    
    
    15,282
    
    
    
    
    
    
    
    15,436Total interest bearing liabilites
    
    $
    198,364
    
    
    $
    121,966
    
    
    $
    57,887
    
    
    $
    
    
    
    $
    378,217Interest rate sensitivity gap  current
    
    $
    (81,425
    )
    
    $
    (90,393
    )
    
    $
    127,050
    
    
    $
    93,614
    
    
    $
    48,846Interest rate sensitivity gap  cumulative
    
    $
    (81,425
    )
    
    $
    (171,818
    )
    
    $
    (44,768
    )
    
    $
    48,846Cumulative interest rate sensitivity
gap as a percent of total assets
    
    
    -17.68
    %
    
    
    -37.31
    %
    
    
    -9 . 72
    %
    
    
    10.61
    %
 
 (1)
    
    Equity investments have been placed in th e 0-3 month category.(2)
    
    Re- pricing is based on anticipated call dates , and may vary from contractual maturities.    53




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##### 



Application of Critical Accounting Policies
 Allowance for Loan Losses 
  Accounting for Goodwill th
 54




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##### 



Market Information
  2008
    
    High
    
    Low
    
    Dividend DeclaredFirst Quarter
    
    $
    9.75
    
    
    $
    6.05
    
    
    $
    0.04Second Quarter
    
    $
    8.90
    
    
    $
    3.85
    
    
    $
    0.00Third Quarter
    
    $
    7.50
    
    
    $
    3.00
    
    
    $
    0.00Fourth Quarter
    
    $
    5.15
    
    
    $
    1.15
    
    
    $
    0.00
 2007
    
    High
    
    Low
    
    Dividend DeclaredFirst Quarter
    
    $
    16.90
    
    
    $
    15.20
    
    
    $
    0.18Second Quarter
    
    $
    20.00
    
    
    $
    15.05
    
    
    $
    0.18Third Quarter
    
    $
    19.00
    
    
    $
    18.00
    
    
    $
    0.18Fourth Quarter
    
    $
    18.94
    
    
    $
    8.50
    
    
    $
    0.18
  Contact Information
 Matt Magee
    
    Steven SchroederHowe, Barnes, Hoefer & Arnett, Inc.
    
    Monroe Securities, Inc.222 Riverside Plaza  7th Floor
    
    100 North Riverside Plaza, Suite 1620Chicago, IL 60606
    
    Chicago, IL 60606(800) 800-4693
    
    (800) 766-5560www.howebarnes.com
    
    www.monroesecurities.com
 Annual Meeting of Shareholders
 The annual meeting of the shareholders of PSB Group, Inc. will be held at 9:00 am, Tuesday, April
28, 2009 at the following location:
 Ukrainian Cultural Center
26601 Ryan Road
Warren, MI 48091
 Shareholders are invited to attend.
 55




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##### 



PSB
Group, Inc.
  
 Period EndingIndex
    
    12/31/03
    
    12/31/04
    
    12/31/05
    
    12/31/06
    
    12/31/07
    
    12/31/08PSB Group, Inc.
    
    
    100.00
    
    
    
    95.65
    
    
    
    84.74
    
    
    
    84.39
    
    
    
    46.26
    
    
    
    7.96NASDAQ Composite
    
    
    100.00
    
    
    
    108.59
    
    
    
    110.08
    
    
    
    120.56
    
    
    
    132.39
    
    
    
    78.72SNL Bank Pink $100M-$500M
    
    
    100.00
    
    
    
    120.87
    
    
    
    134.23
    
    
    
    146.93
    
    
    
    131.21
    
    
    
    93.91SNL Midwest OTC-BB and Pink Banks
    
    
    100.00
    
    
    
    119.15
    
    
    
    124.05
    
    
    
    130.64
    
    
    
    127.52
    
    
    
    95.04
 Source : SNL Financial LC, Charlottesville, VA
    
    (434) 977-1600© 2009
    
    www.snl.com
 56