UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

Commission File No. : 000-50301

PSB GROUP, INC.

Michigan		42-1591104
(State of Organization)		(IRS Employer Identification No.)

1800 East Twelve Mile Road, Madison Heights, Michigan 48071
(Address of Principal Executive Offices) (Zip Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value

          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o    NO þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES o   NO þ

          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 þ  NO o

          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o   NO o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No þ

          As of June 30, 2009, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the last per share sales price of which the registrant is aware ($1.45 per share), was approximately $4,498,442 (for purposes of this calculation, directors and executive officers are treated as affiliates).

          As of March 1, 2010, there were issued and outstanding 3,521,910 shares of the registrant’s common stock.

1. Portions of Annual Report to Shareholders for the Fiscal Year Ended December 31, 2009 (the “Annual Report”) (Parts I and II).

2. Portions of Proxy Statement for the 2010 Annual Meeting of Shareholders (the “Proxy Statement”) (Part III).

 

 

INDEX

		Page
PART I			3
Item 1. Business			3
Item 1A. Risk Factors			16
Item 1B. Unresolved Staff Comments			16
Item 2. Properties			17
Item 3. Legal Proceedings			18
Item 4. Reserved			18
SUPPLEMENTAL INFORMATION — EXECUTIVE OFFICERS OF THE REGISTRANT			18
PART II			19
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securiites			19
Item 6. Selected Financial Data			19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 7A. Quantitative and Qualitative Disclosures about Market Risk			19
Item 8. Financial Statements and Supplementary Data			20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			20
Item 9A(T). Controls and Procedures			20
Item 9B. Other Information			20
PART III			21
Item 10. Directors, Executive Officers and Corporate Governance			21
Item 11. Executive Compensation			21
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			21
Item 13. Certain Relationships and Related Transactions, and Director Independence			21
Item 14. Principal Accountant Fees and Services			22
PART IV			22
Item 15. Exhibits and Financial Statement Schedules			22
SIGNATURES			24
EX-13
EX-21.1
EX-23
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

Item 1. Business

          PSB Group, Inc. (the “Company”) was formed on February 28, 2003 as a bank holding company for the purpose of owning Peoples State Bank (the “Bank”) pursuant to a plan of reorganization adopted by the Bank and its stockholders. Pursuant to the reorganization, each share of Peoples State Bank stock held by existing stockholders of the Bank was exchanged for three shares of common stock of PSB Group, Inc. The reorganization had no consolidated financial statement impact. Share amounts for all prior periods presented have been restated to reflect the reorganization. In October, 2004, the Company formed a new subsidiary, PSB Capital, Inc. Through December 31, 2009, there had been no business conducted by PSB Capital, Inc.

          The Bank was incorporated and chartered as Peoples State Bank under the laws of the state of Michigan in 1909. In 1916, the Bank moved to the southeast corner of Jos. Campau and Holbrook in Hamtramck, where the main office at 9252 Jos. Campau remains today. Following several name changes and a merger with four small local banks in 1930, a plan of reorganization was accepted by the shareholders, and the name was changed to “Peoples State Bank” in November 1934. In 1998, the Bank acquired Madison National Bank, Madison Heights, Michigan (“Madison”). In 2000, the Bank acquired 100% of the common stock of Universal Mortgage Corporation, a southeast Michigan based mortgage lender with 2 offices, one in Southfield, Michigan and one in Warren, Michigan. In 2005, Universal Mortgage Corporation acquired the assets of Nations One, a southeast Michigan based mortgage originator with two offices, one in Ann Arbor, Michigan and one in Howell, Michigan. In September of 2008, Universal Mortgage Corporation was merged into Peoples State Bank.

          The Bank operated as a unit bank until 1992, when it opened its first branch office at 3747 Fifteen Mile Road, Sterling Heights, Michigan. It then continued its Macomb County expansion by opening the following branch offices: (1) 25901 Harper Avenue, St. Clair Shores, Michigan — 1994; (2) 14801 Twelve Mile Road, Warren, Michigan — 1995; and, (3) 31130 Ryan Road, Warren, Michigan - 1995. Subsequently, the Sterling Heights office was closed in 1995 and consolidated into the new facility on Ryan Road in Warren. During 1997, the Bank opened a supermarket branch at 40832 Ryan Road in Sterling Heights. In 1998, the Bank acquired Madison pursuant to a Merger Agreement in which Madison was merged with and into the Bank (the “Merger”). In connection with the Merger, the Bank acquired the former offices of Madison which include Madison’s former main office at 1800 E. Twelve Mile Road in Madison Heights, Michigan, a branch office in Madison Heights, two branches in Farmington Hills and one branch in each of Southfield and Fraser. In 2001, the Bank closed on a branch sale and assumption agreement with a newly formed bank holding company. Pursuant to that agreement, the Bank sold certain assets and transferred certain liabilities to the newly formed holding company, effectively closing the Plymouth, Michigan branch. In 2001, the Bank closed one of the Farmington Hills, Michigan branches. The cash, furniture, fixtures, equipment and deposits were transferred to another branch. In 2002, the Bank opened a branch in Grosse Pointe Woods, Michigan. In 2003, the Fraser branch was closed with the deposit relationships transferred to another branch. During 2005, the Bank opened two new branches, one in Sterling Heights, Michigan and the other in Fenton, Michigan. In 2007, the Bank opened two new branches, one in Troy, Michigan and one in Grosse Pointe Woods, Michigan. With the opening of the new state-of-the-art branch in Grosse Pointe Woods, two nearby branches, one in St. Clair Shores, Michigan and one in Grosse Pointe Woods, Michigan were closed with most of the deposits transferred to the new branch. Also in 2007, the Bank closed an underperforming branch in Madison Heights, Michigan and one mortgage loan production office in Fenton, Michigan. As of December 31, 2009, the Bank operated 11 branch offices and two mortgage loan production offices.

          We are under a Cease and Desist Order that, among other things, requires us to increase and maintain our leverage and total risk-based capital ratios to at least 8% and 12%, respectively, by November 27, 2009. Failure to increase our capital ratios or further declines in our capital ratios exposes us to additional restrictions and regulatory actions, including potential regulatory take-over. This uncertainty as to our ability to meet existing or future regulatory requirements raises substantial doubt about our ability to continue as a going concern.

          Management has been pursuing multiple alternatives to improve our financial condition, including raising new capital. While we received indications of interest in investing in us from private equity investors, our Board has determined that consummation of a transaction on the terms and conditions proposed to date is not likely in the near-term. We will continue to explore a capital raise concurrently with the implementation of a recovery plan. This recovery plan is designed

to improve the Company’s financial health and capital ratios by downsizing the bank and reducing our operating costs. Further details regarding this recovery plan can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” and in Note 2 of the Consolidated Financial Statements under “Part II, Item 8. Financial Statements and Supplementary Data.”

          As of December 31, 2009, the Company had approximately $462 million in total assets, $354 million in total loans, $443 million in total deposits and $17 million in total shareholders equity.

Products and Services

          The Company provides customary retail and commercial banking services to its customers, including checking and savings accounts, time deposits, safe deposit facilities, commercial loans, real estate mortgage loans, installment loans, IRAs and night depository facilities. The Bank’s deposits are insured by the FDIC to applicable legal limits and the Bank is supervised and regulated by the FDIC and Michigan Office of Financial and Insurance Regulation, Division of Financial Institutions.

Lending Activities

          The Company provides a full range of retail and commercial banking services designed to meet the borrowing and depository needs of small and medium sized businesses and consumers in local areas. Substantially all of the Company’s loans are to customers located within its service area. The Company has no foreign loans or highly leveraged transaction loans, as defined by the Federal Reserve Board (“FRB”). The Company conducts its lending activities pursuant to the loan policies adopted by its Board of Directors. These loan policies grant individual loan officer’s authority to make secured and unsecured loans in specific dollar amounts; senior officers or various loan committees must approve larger loans. The Company’s management information systems and loan review policies, as well as periodic audits by outside loan review specialists and our external auditors are designed to monitor lending sufficiently to ensure adherence to the Company’s loan policies.

          The commercial loans offered by the Company include (i) commercial real estate loans, (ii) operating lines of credit and other commercial term loans, (iii) construction loans, and (iv) SBA-guaranteed loans. The Company’s commercial real estate loans are used to provide permanent financing for owner-occupied, retail and office buildings, multiple-family buildings and churches. Commercial real estate secured loans are generally written on a three to five year term, with amortizing periods ranging up to 25 years (the majority are between 15 — 20 years). Personal guarantees are obtained on nearly all commercial loans. Credit analyses, loan review and an effective collections process are also used to minimize any potential losses. The interest rates charged on loans vary with the degree of risk and loan amount and are further subject to competitive pressures, money market rates, the availability of funds and government regulations. Approximately 32% of the Company’s portfolio has interest rates that float with a reference rate.

          Real estate loans include residential mortgages for which the Company holds first and second collateral positions in real property. Real estate loans include adjustable and fixed-rate loans secured by first priority liens on one-to four-family residential properties. Residential mortgage products include fixed rate loans, fixed rate balloon loans and adjustable rate mortgages. Adjustable rate loans are amortized for 30 years and have fixed rate periods of one to seven years, after which the rates adjust annually. The longest term allowed on a fixed rate loan is 30 years. Occasionally the Company will purchase loans. The Company purchased approximately $8 million in residential mortgage loans in 2009. The Company is active in secondary market lending and is also a member of the Federal Home Loan Bank of Indianapolis.

          Construction loans are typically made to contractors to construct commercial buildings. These loans generally have maturities of three to 18 months. These loans are variable rate and it is typical for “take out” commitments to be in place as a part of the transaction. All construction loans are funded at the lower of 80% of appraised value or 90% of cost of construction.

          Consumer loans offered by the Company include (i) personal unsecured lines of credit, (ii) personal installment loans, (iii) third party credit cards, and (iv) home equity loans (fixed-rate term and open ended revolving lines of credits). Consumer loans are primarily automobile, home equity or unsecured loans. Consumer loans generally have maturities of five years or less and have fixed interest rates. Other loans consist of personal lines of credit and bank card advances.

Personal lines of credit and home equity lines generally have maturities from one to ten years and variable interest rates. Bank card payments are generally due monthly and bear interest rates that vary from time-to-time. Personal unsecured loans are available to creditworthy bank customers with limits determined on a loan by loan basis. Credit reports and industry standard debt-to-income ratios are used to qualify borrowers. Home equity products include both a fixed-rate term product and an open-end revolving line of credit.

Loan Approval

          Individual loan authorities are established by the Company’s Board of Directors upon recommendation by the Company’s senior lender and reviewed and approved monthly by the Board. In establishing individual authority the experience of the lender is taken into consideration, as well as the type of lending in which the officer is involved. The Officers Loan Committee consists of the President of the Company, the senior lender, the chief credit officer and other lending officers and credit officers as recommended by the senior lender and approved by the Directors Loan Committee. The Officers Loan Committee has the authority to approve and consummate loans up to $2,500,000. The Directors Loan Committee of the Board of Directors has the authority to approve loans up to $5,000,000. These loans come to the Committee with a review, analysis and recommendation by the lender and the Officers Loan Committee. Loans exceeding $5,000,000 come to the full Board of Directors after review by the Directors Loan Committee with their recommendation and that of the lender.

          The Company generally requires that loans secured by first mortgages on residential real estate have loan to value ratios within specified limits, up to 80% for improved property, or up to 90% if secured by private mortgage insurance. The Company also makes loans secured by second mortgages on residential real estate with a maximum combined loan to value ratio of 75%.

          Under applicable federal and state law, the Bank’s permissible loans to one borrower are also limited. The Company utilizes internal limits that may be less than or equal to the prevailing legal limits.

Asset Quality

          Asset quality is an important factor in the successful operation of a financial institution. The loss of interest income and principal that may result from non-performing assets has an adverse affect on earnings, while the resolution of those assets requires the use of capital and managerial resources. The Company maintains a conservative philosophy regarding its underwriting guidelines. It also maintains loan monitoring policies and systems that require detailed monthly and quarterly analysis of delinquencies, non-performing loans, non-accrual loans, repossessed and other assets. Reports of such categories are prepared by management and reviewed monthly by the Board of Directors.

Investment Portfolio and Activities

          The Company’s investment portfolio has several objectives. A key objective is to provide a balance in the Company’s asset mix of loans and investments consistent with its liability structure, and to assist in management of interest rate risk. The investments augment the Company’s capital position in the risk based capital formula, providing necessary liquidity to meet fluctuations in credit demands of the community and fluctuations in deposit levels. In addition, the portfolio provides collateral for pledging against public funds, and a reasonable allowance for control of tax liabilities. Finally, the investment portfolio is designed to provide income for the Company. In view of the above objectives, the portfolio is treated conservatively by management, and only securities that pass conservative investment criteria are purchased. The Company does not engage in any derivatives trading. The portfolio will commonly fluctuate between 10% and 30% of the Company’s assets. All of the Company’s investment securities are classified as available for sale.

Deposit Activities

          The Company also offers a full range of deposit and personal banking services insured by the Federal Deposit Insurance Corporation (“FDIC”), including (i) commercial checking and small business checking products, (ii) retirement accounts such as Individual Retirement Accounts (“IRA”), (iii) retail deposit services such as certificates of deposits, money market accounts, savings accounts, checking account products and Automated Teller Machines (“ATMs”), Point of Sale and other electronic services, and (iv) other personal miscellaneous services such as safe deposit boxes, foreign drafts,

foreign currency exchanges, night depository services, travelers checks, merchant credit cards, direct deposit of payroll, U.S. savings bonds, official bank checks and money orders. The Company also offers credit cards and internet banking. Investment advice, products and services are offered through Primevest Financial Services, a non-affiliated Registered Broker/Dealer, Member FINRA, SIPC.

          The principal sources of funds for the Company are core deposits (demand deposits, interest-bearing transaction accounts, money market accounts, savings deposits, and certificates of deposit). The Company solicits these deposits from individuals, businesses, foundations and governmental authorities. Substantially all of the Company’s deposits are from local market areas surrounding each of its offices. As of December 31, 2009, the Company has no brokered deposits.

Borrowings

          From time to time, the Company obtains advances from the FHLB of Indianapolis. Each advance is a loan with separate terms including an interest rate and maturity date. The Company can vary these terms depending on the specific liquidity and rate mix objective that management is trying to meet at the time of the borrowing. Objectives can change at various points in time depending on market conditions and loan funding needs.

          The Company also purchases federal funds from various other financial institutions in order to satisfy overnight liquidity needs. Federal funds purchases are renewable on a daily basis and are generally subject to interest rates established by the Federal Reserve Bank.

Additional Activities

          The Company provides its commercial and public fund accounts with money market sweep accounts through Federated Investments, a third party vendor. The Company provides investment services through Primevest Financial Services. Full-time sales representatives work at various branch offices and offer a full range of investment products.

Market Area and Competition

          The primary service area of the Company consists of Oakland County, southern Macomb County, those portions of Wayne County that include the city of Detroit and its eastern suburbs and a portion of Genesee County, in particular, the cities of Fenton and Linden.

          The Company operates in a highly competitive industry. The Company’s main competition comes from other commercial banks, savings and loan associations, credit unions, brokerage firms, insurance companies, finance companies, mortgage companies and a host of other financial service providers.

          The Company generally competes with other financial institutions through the banking products and services offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of expertise and personal manner in which these services are delivered. The Company encounters strong competition from most of the financial institutions in the Company’s extended market area.

Supervision and Regulation

General

          Financial institutions and their holding companies are extensively regulated under federal and state law. As a result, the growth and earnings performance of the Company can be affected not only by management decisions and general economic conditions, but also by the requirements of applicable state and federal statutes and regulations and the policies of various governmental regulatory authorities, including the Michigan Office of Financial and Insurance Regulation (the “OFIR”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Federal Deposit Insurance Corporation (the “FDIC”), the Internal Revenue Service and state taxing authorities and the Securities and Exchange Commission (the “SEC”). The effect of applicable statutes, regulations and regulatory policies can be significant, and cannot be predicted with a high degree of certainty.

          Federal and state laws and regulations generally applicable to financial institutions, such as the Company and the Bank, regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and dividends. The system of supervision and regulation applicable to the Company and the Bank establishes a comprehensive framework for their respective operations and is intended primarily for the protection of the FDIC’s deposit insurance fund and the depositors, rather than the shareholders of financial institutions.

          The following is a summary of the material elements of the regulatory framework that applies to the Company and the Bank. It does not describe all of the statutes, regulations and regulatory policies that apply to the Company and the Bank, nor does it restate all of the requirements of the statutes, regulations and regulatory policies that are described. As such, the following is qualified in its entirety by reference to the applicable statutes, regulations and regulatory policies. Any change in applicable law, regulations or regulatory policies may have a material effect on the business of the Company and the Bank.

The Company

          General. The Company, as the sole stockholder of the Bank, is a bank holding company. As a bank holding company, the Company is registered with, and is subject to regulation by, the Federal Reserve under the Bank Holding Company Act, as amended (the “BHCA”). In accordance with Federal Reserve policy, the Company is expected to act as a source of financial strength to its bank subsidiaries and to commit resources to support its bank subsidiaries in circumstances where the Company might not do so absent such policy. Under the BHCA, the Company is subject to periodic examination by the Federal Reserve and is required to file with the Federal Reserve periodic reports of its operations and such additional information as the Federal Reserve may require.

          A bank holding company is a legal entity separate and distinct from its subsidiary banks. Normally, the major source of a holding company’s revenue is dividends it receives from its subsidiary banks. The right of a bank holding company to participate as a stockholder in any distribution of assets of its subsidiary banks upon their liquidation or reorganization or otherwise is subject to the prior claims of creditors of such subsidiary banks. The subsidiary banks are subject to claims by creditors for long-term and short-term debt obligations, including obligations for Federal funds purchased and securities sold under repurchase agreements, as well as deposit liabilities. Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, in the event of a loss suffered by the FDIC in connection with a banking subsidiary of a bank holding company (whether due to a default or the provision of FDIC assistance), other banking subsidiaries of the holding company could be assessed for such loss.

          Investments and Activities. Under the BHCA, a bank holding company must obtain Federal Reserve approval before: (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after the acquisition, it would own or control more than 5% of the shares of the other bank or bank holding company (unless it already owns or controls the majority of such shares); (ii) acquiring all or substantially all of the assets of another bank; or (iii) merging or consolidating with another bank holding company. Subject to certain conditions (including certain deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States without regard to whether the acquisition is prohibited by the law of the state in which the target bank is located. In approving interstate acquisitions, however, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws which require that the target bank has been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.

          The BHCA also generally prohibits the Company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve to be “so closely related to banking ... as to be a proper incident thereto.” Under current regulations of the Federal Reserve, the Company and its non-bank subsidiaries are permitted to engage in a variety of banking-related businesses, including the operation of a thrift, consumer finance,

equipment leasing, the operation of a computer service bureau (including software development), and mortgage banking and brokerage. The BHCA generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank holding companies.

          In 1999, the Gramm-Leach-Bliley Act (“GLB Act”) was signed into law. Under the GLB Act, bank holding companies that meet certain standards and elect to become “financial holding companies” are permitted to engage in a wider range of activities than those permitted to bank holding companies, including securities and insurance activities. Specifically, a bank holding company that elects to become a financial holding company may engage in any activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines is (i) financial in nature or incidental thereto, or (ii) complementary to any such financial-in-nature activity, provided that such complementary activity does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. A bank holding company may elect to become a financial holding company only if each of its depository institution subsidiaries is well-capitalized, well-managed, and has a Community Reinvestment Act rating of “satisfactory” or better at their most recent examination. The Company has not elected to be treated as a financial holding company.

          The GLB Act specifies many activities that are financial in nature, including lending, exchanging, transferring, investing for others, or safeguarding money or securities; underwriting and selling insurance; providing financial, investment or economic advisory services; underwriting, dealing in, or making a market in securities; and those activities permitted for bank holding companies that are so closely related to banking or managing or controlling banks, as to be a proper incident thereto.

          The GLB Act changed federal laws to facilitate affiliation between banks and entities engaged in securities and insurance activities. The law also established a system of functional regulation under which banking activities, securities activities, and insurance activities conducted by financial holding companies and their subsidiaries and affiliates will be separately regulated by banking, securities, and insurance regulators, respectively.

          Federal law also prohibits any person or company from acquiring “control” of a bank or bank holding company without prior notice to the appropriate federal bank regulator. “Control” is defined in certain cases as the acquisition of 10% of the outstanding shares of a bank or bank holding company.

          Regulatory Capital Requirements. Bank holding companies are required to maintain minimum levels of capital in accordance with Federal Reserve capital adequacy guidelines, which are substantially similar to those of the FDIC for the Bank. See “Supervision and Regulation — The Bank — Regulatory Capital Requirements” for a discussion of the risk-based framework for the assessment of capital adequacy and components of Tier 1 and Tier 2 capital. If capital falls below minimum guideline levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses.

          The Federal Reserve’s capital guidelines establish the following minimum regulatory capital requirements for bank holding companies: a risk-based requirement expressed as a percentage of total risk-weighted assets, and a leverage requirement expressed as a percentage of total assets. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital. The leverage requirement consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated companies, with a minimum requirement of 4% for all others.

          The risk-based and leverage standards described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios well above the minimum levels.

          The Emergency Economic Stabilization Act of 2008 (“EESA”) was enacted on October 3, 2008. Pursuant to EESA, the U.S. Department of the Treasury (the “Treasury”) has the authority to among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. Pursuant to its authority under EESA, the

Treasury created the Troubled Asset Relief Program Capital Purchase Program (the “TARP CPP”) under which the Treasury was authorized to invest in non-voting, senior preferred stock of U.S. banks and savings associations or their holding companies. The Company did not participate in the TARP CPP.

          Dividends. The Michigan Business Corporation Act prohibits the Company from paying dividends or making other distributions to shareholders, if after giving effect to the dividend or other distribution, the Company would not be able to pay its debts as they become due in the usual course of business or if the Company’s assets would be less than the sum of its total liabilities plus the amount that would be needed upon dissolution of the Company to satisfy preferential rights of shareholders whose preferential rights are superior to those receiving the dividend or other distribution.

          Additionally, the Federal Reserve has issued a policy statement with regard to the payment of cash dividends by bank holding companies. The policy statement provides that a bank holding company should not pay cash dividends which exceed its net income or which can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing. The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.

          Federal Securities Regulation. The Company’s common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.

          Common stock held by persons who are affiliates (generally officers, directors and principal stockholders) of the Company may not be resold without registration unless sold in accordance with certain resale restrictions. If the Company meets specified current public information requirements, each affiliate of the Company is able to sell in the public market, without registration, a limited number of shares in any three-month period.

          Sarbanes-Oxley Act. In 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). The stated goals of Sarbanes-Oxley are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.

          Sarbanes-Oxley is arguably the most significant U.S. securities legislation enacted since the adoption of the Exchange Act and the Securities Act of 1933. Sarbanes-Oxley generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the Securities and Exchange Commission under the Exchange Act.

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

          Sarbanes-Oxley addresses, among other matters:

	•		internal controls over financial reporting;
	•		audit committees;
	•		certification of financial statements by the chief executive officer and the chief financial officer;
	•		the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement;
	•		a prohibition on insider trading during pension plan black out periods;
	•		disclosure of off-balance sheet transactions;
	•		expedited filing requirements for Form 4s;

	•		disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code;
	•		“real time” filing of periodic reports;
	•		the formation of a public accounting oversight board;
	•		auditor independence; and
	•		various increased criminal penalties for violations of securities laws.

The Bank

          General. The Bank, as a Michigan chartered banking institution, is subject to primary supervision, examination, and regulation by the OFIR and the FDIC. The Bank’s activities are governed primarily by Michigan’s Banking Code of 1999 (the “Banking Code”) and the Federal Deposit Insurance Act (“FDI Act”). The FDI Act, among other things, requires that federal banking regulators intervene promptly when a depository institution experiences financial difficulties; mandates the establishment of a risk-based deposit insurance assessment system; and requires imposition of numerous additional safety and soundness operational standards and restrictions. The FDI Act and other federal laws contain provisions affecting numerous aspects of the operation and regulation of federally insured banks and empower the FDIC, among other agencies, to promulgate regulations implementing their provisions.

          The Bank participates in various community development programs in an effort to meet its responsibilities under the Community Reinvestment Act (“CRA”). The Bank has most recently been rated “Satisfactory” in meeting its obligations under the CRA.

          Enforcement Action. On September 28, 2009, the Bank entered into a Stipulation and Consent to the Issuance of an Order to Cease and Desist (the “Order”) with the FDIC and OFIR.

     The Order required the Bank to take action in the following areas:

	•		The Bank must have and retain qualified management.
	•		The Bank’s board of directors is required to assume full responsibility for the approval of sound policies and objectives and for the supervision of all of the Bank’s activities.
	•		Increase the Bank’s level of Tier 1 capital as a percentage of total assets to at least 8 percent.
	•		Charge off any loans classified as “loss.”
	•		Prohibit the further extension of credit to borrowers that have had loans with the Bank that are classified “substandard”, “doubtful” or “special mention” unless the board of directors has specifically authorized the extension of credit.
	•		Prohibit the further extension of credit to borrowers that have had loans with the Bank charged off or classified as “loss.”
	•		Adopt, implement and adhere to written plan to reduce the Bank’s risk position in certain assets.
	•		The Bank may not declare or pay any cash dividend without prior written consent of the FDIC and OFIR.
	•		Prior to submission or publication of all Reports of Condition and Income, the board of directors must review the adequacy of the Bank’s Allowance for Loan and Lease Losses (“ALLL”).
	•		Within 30 days of the effective date of the Order, the Bank was required to eliminate and/or correct all violations of law, rule, and regulations.
	•		Within 60 days from the effective date of the Order, the Bank was required to correct all deficiencies in the loans listed for “Special Mention.”
	•		Prepare and submit progress reports to the FDIC and OFIR.

          The Order is required to remain in effect until it is modified or terminated by the FDIC and OFIR. As of December 31, 2009, the Bank was out of compliance with the Order’s requirement that the Bank increase its level of Tier 1 capital as a percentage of total assets to at least 8 percent. Non-compliance with the Order requirements may cause the Bank to become subject to further enforcement actions by the FDIC and OFIR. Please refer to Note 16 to the financial statements for additional information.

          Branching. State chartered banks, such as the Bank, have the authority under Michigan law to establish branches throughout Michigan and in any state, the District of Columbia, any U.S. territory or protectorate, and foreign countries, subject to receipt of all regulatory approval.

          The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 allows the FDIC and other federal bank regulators to approve applications for mergers of banks across state lines without regard to whether such activity is contrary to state law. However, each state can determine if it will permit out of state banks to acquire only branches of a bank in that state or to establish de novo branches.

          Loans to One Borrower. Under Michigan law, the Bank’s total loans and extensions of credit and leases to one person is limited to 15% of the Bank’s capital and surplus, subject to several exceptions. This limit may be increased to 25% of the Bank’s capital and surplus upon approval by a 2/3 vote of its board of directors. Certain loans, including loans secured by bonds or other instruments of the United States and fully guaranteed by the United States as to principal and interest, are not subject to the limit just referenced. In addition, certain loans, including loans arising from the discount of consumer paper which carries a full recourse endorsement or unconditional guaranty of the person transferring the paper, are subject to a higher limit of 30% of capital and surplus.

          Enforcement. The OFIR and the FDIC each have enforcement authority with respect to the Bank. The OFIR has the authority to issue cease and desist orders to address unsafe and unsound practices and actual or immanent violations of law and to remove from office bank directors and officers who engage in unsafe and unsound banking practices and who violate applicable laws, orders, or rules. The OFIR also has authority in certain cases to take steps for the appointment of a receiver or conservator of a bank.

          The FDIC has similar broad authority, including authority to bring enforcement actions against all “institution-affiliated parties” (including stockholders, directors, officers, employees, attorneys, consultants, appraisers and accountants) who knowingly or recklessly participate in any violation of law or regulation or any breach of fiduciary duty, or other unsafe or unsound practice likely to cause financial loss to, or otherwise have an adverse effect on, an insured institution. Civil penalties under federal law cover a wide range of violations and actions. Criminal penalties for most financial institution crimes include monetary fines and imprisonment. In addition, the FDIC has substantial discretion to impose enforcement action on banks that fail to comply with its regulatory requirements, particularly with respect to capital levels. Possible enforcement actions range from requiring the preparation of a capital plan or imposition of a capital directive, to receivership, conservatorship, or the termination of deposit insurance.

          Assessments and Fees. The Bank pays a supervisory fee to the OFIR of not less than $4,000 and not more than 25 cents for each $1,000 of total assets. This fee is invoiced prior to July 1 each year and is due no later than August 15. The OFIR imposes additional fees, in addition to those charged for normal supervision, for applications, special evaluations and analyses, and examinations.

          Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional FHLBs. The FHLBs provide a credit reserve for their member institutions. The Bank, as a member of the FHLB-Indianapolis, holds shares of capital stock in that FHLB in an amount at least equal to 1% of the aggregate unpaid principal of its home mortgage loans, home-purchase contracts, and similar obligations, based on the Bank’s calendar year-end financial data.

          Regulatory Capital Requirements. The Bank is required to comply with capital adequacy standards set by the FDIC. The FDIC may establish higher minimum requirements if, for example, a bank has previously received special attention or has a high susceptibility to interest rate risk. Banks with capital ratios below the required minimum are subject to certain administrative actions. More than one capital adequacy standard applies, and all applicable standards must be satisfied for an institution to be considered to be in compliance. There are three basic measures of capital adequacy: a total risk-based capital ratio, a Tier 1 risk-based capital ratio; and a leverage ratio.

          The risk-based framework was adopted to assist in the assessment of capital adequacy of financial institutions by, (i) making regulatory capital requirements more sensitive to differences in risk profiles among organizations; (ii) introducing off-balance-sheet items into the assessment of capital adequacy; (iii) reducing the disincentive to holding liquid, low-risk assets; and (iv) achieving greater consistency in evaluation of capital adequacy of major banking organizations throughout the world. The risk-based guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning assets and off-balance sheet items to different risk categories. An institution’s risk-based capital ratios are calculated by dividing its qualifying capital by its risk-weighted assets.

          Qualifying capital consists of two types of capital components: “core capital elements” (or Tier 1 capital) and “supplementary capital elements” (or Tier 2 capital). Tier 1 capital is generally defined as the sum of core capital elements less goodwill and certain other intangible assets. Core capital elements consist of (i) common shareholders’ equity, (ii) noncumulative perpetual preferred stock (subject to certain limitations), and (iii) minority interests in the equity capital accounts of consolidated subsidiaries. Tier 2 capital consists of (i) allowance for loan and lease losses (subject to certain limitations); (ii) perpetual preferred stock which does not qualify as Tier 1 capital (subject to certain conditions); (iii) hybrid capital instruments and mandatory convertible debt securities; (iv) term subordinated debt and intermediate term preferred stock (subject to limitations); and (v) net unrealized holding gains on equity securities.

          Under current capital adequacy standards, the Bank must meet a minimum ratio of qualifying total capital to risk-weighted assets of 8%. Of that ratio, at least half, or 4%, must be in the form of Tier 1 capital.

          The Bank must also meet a leverage capital requirement. In general, the minimum leverage capital requirement is not less than 3% Tier 1 capital to total assets if the bank has the highest regulatory rating and is not anticipating or experiencing any significant growth. All other banks should have a minimum leverage capital ratio of not less than 4%.

          The capital requirements described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual institutions. For example, the regulations of the FDIC provide that additional capital may be required to take adequate account of, among other things, interest rate risk or the risks posed by concentrations of credit, nontraditional activities or securities trading activities.

          Pursuant to the Order, the Bank is required to achieve and maintain its level of Tier 1 capital as a percentage of its total assets at a minimum of 8% while the Order is in force. As of December 31, 2009, the Bank was out of compliance with this requirement of the Order.

          The following table shows the capital totals and ratios for the Bank as of December 31, 2009 (000s omitted in dollar amounts):

Tier 1 capital		$	17,254
Total capital		$	21,755
Tier 1 capital to risk weighted assets			4.86	%
Total capital to risk weighted assets			6.13	%
Leverage ratio			3.63	%

          Prompt Corrective Regulatory Action. The FDIC is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. Generally, a bank is considered “well capitalized” if its risk-based capital ratio is at least 10%, its Tier 1 risk-based capital ratio is at least 6%, its leverage ratio is at least 5%, and the bank is not subject to any written agreement, order, or directive by the FDIC.

          A bank generally is considered “adequately capitalized” if it does not meet each of the standards for well-capitalized institutions, and its risk-based capital ratio is at least 8%, its Tier 1 risk-based capital ratio is at least 4%, and its leverage ratio is at least 4% (or 3% if the institution receives the highest rating under the Uniform Financial Institution Rating System). A bank that has a risk-based capital ratio less than 8%, or a Tier 1 risk-based capital ratio less than 4%, or a leverage ratio less than 4% (3% or less for institutions with the highest rating under the Uniform Financial Institution Rating System) is considered to be “undercapitalized.” A bank that has a risk-based capital ratio less than 6%, or a Tier 1 capital ratio less than 3%, or a leverage ratio less than 3% is considered to be “significantly undercapitalized,” and a bank is considered “critically undercapitalized” if its ratio of tangible equity to total assets is equal to or less than 2%.

          Subject to a narrow exception, the FDIC is required to appoint a receiver or conservator for a bank that is “critically undercapitalized.” The regulation also provides that a capital restoration plan must be filed with the FDIC within 45 days of the date a bank receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Compliance with the plan must be guaranteed by each company that controls a bank that submits such a plan, up to an amount

equal to 5% of the bank’s assets at the time it was notified regarding its deficient capital status. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions, and expansion. The FDIC could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors.

          Deposit Insurance. The Bank’s deposits are insured up to applicable limits by a deposit insurance fund administered by the FDIC. As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the deposit insurance fund pursuant to a risk-based assessment system. Deposit accounts are generally insured up to a maximum of $100,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. Effective October 3, 2008, EESA raised the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. This increase is effective on a temporary basis until December 31, 2013.

          Under the FDIC’s risk-based assessment regulations there are four risk categories, and each insured institution is assigned to a risk category based on capital levels and supervisory ratings. Well-capitalized institutions with CAMELS composite ratings of 1 or 2 are placed in Risk Category I while other institutions are placed in Risk Categories II, III, or IV depending on capital levels and CAMELS composite ratings. The assessment rates may be changed by the FDIC as necessary to maintain the insurance fund at the reserve ratio designated by the FDIC. The FDIC may establish the reserve ratio annually between 1.15% and 1.50% of insured deposits. Deposit insurance assessments are collected for a quarter at the end of the next quarter. Assessments are based on deposit balances at the end of the quarter, except for institutions with $1 billion or more in assets and any institution that becomes insured on or after January 1, 2007 which will have their assessment base determined using average daily balances of insured deposits.

          Due to a decrease in the reserve ratio of the deposit insurance fund, on October 7, 2008, the FDIC established a restoration plan to restore the reserve ratio to at least 1.15% within five years (the FDIC has extended this time to eight years). On December 16, 2008, the FDIC adopted and issued a final rule increasing the rates banks pay for deposit insurance uniformly by 7 basis points (annualized) effective January 1, 2009. Under the final rule, risk-based rates for the first quarter 2009 assessment ranged between 12 and 50 basis points depending on an institution’s risk category. On February 27, 2009, the FDIC adopted a final rule amending the way that the assessment system differentiates for risk and setting new assessment rates beginning with the second quarter of 2009. As of April 1, 2009, for the highest rated institutions, those in Risk Category I, the initial base assessment rate was between 12 and 16 basis points and for the lowest rated institutions, those in Risk Category IV, the initial base assessment rate was 45 basis points. The final rule modified the means to determine a Risk Category I institution’s initial base assessment rate. It also provided for the following adjustments to an institution’s assessment rate: (1) a decrease for long-term unsecured debt, including most senior and subordinated debt and, for small institutions, a portion of Tier 1 capital; (2) an increase for secured liabilities above a threshold amount; and (3) for institutions in risk categories other than Risk Category I, an increase for brokered deposits above a threshold amount. After applying these adjustments, for the highest rated institutions, those in Risk Category I, the total base assessment rate is between 7 and 24 basis points and for the lowest rated institutions, those in Risk Category IV, the total base assessment rate is between 40 and 77.5 basis points. On September 29, 2009, the FDIC increased annual assessment rates uniformly by three basis points beginning January 1, 2011.

          In 2009, the FDIC also imposed an emergency special assessment of five basis points on each FDIC-insured depository institution’s assets, minus its Tier 1 capital, as of June 30, 2009. This special assessment was collected on September 30, 2009. The Bank paid a special assessment of $231,000.

          On November 12, 2009, the FDIC adopted a final rule that required insured institutions to prepay on December 31, 2009, estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. The FDIC has exempted the Bank from these prepayment requirements.

          On November 21, 2008, the FDIC adopted final regulations implementing the Temporary Liquidity Guarantee Program (“TLGP”) pursuant to which depository institutions could elect to participate. Pursuant to the TLGP, the FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008 and before October 31, 2009 (the “Debt Guarantee”), and (ii) provide full FDIC deposit insurance coverage for non-interest bearing deposit transaction accounts regardless of dollar amount for an additional fee assessment by the FDIC (the “Transaction Account Guarantee”). These accounts are mainly payment-

processing accounts, such as business payroll accounts. The Transaction Account Guarantee was to expire on December 31, 2009; however, has been extended to June 30, 2010 for those participating institutions that do not opt out. Participating institutions are assessed a surcharge on the portion of eligible accounts that exceeds the general limit on deposit insurance coverage.

          Coverage under the TLGP was available to any eligible institution that did not elect to opt out of the TLGP on or before December 5, 2008. The Bank did not opt out of the original Transaction Account Guarantee portion of the TLGP or the extended period. The Company and the Bank did not opt out of the Debt Guarantee program, but did not issue any debt under the Debt Guarantee Program.

          FDIC-insured institutions also are subject to assessments to repay obligations issued by a federally chartered corporation to provide financing for resolving the thrift crisis in the 1980’s. For the first quarter of 2010, the rate established by the FDIC for this purpose is 1.06 basis points per dollar of insured deposits.

          Payment of Dividends by the Bank. There are state and federal requirements limiting the amount of dividends which the Bank may pay. Generally, a bank’s payment of cash dividends must be consistent with its capital needs, asset quality, and overall financial condition. The FDIC has the authority to prohibit the Bank from engaging in any business practice (including the payment of dividends) which it considers to be unsafe or unsound.

          Under Michigan law, the payment of dividends is subject to several restrictions. The Bank cannot declare or pay a cash dividend or dividend in kind unless the Bank will have a surplus amounting to not less than 20% of its capital after payment of the dividend. The Bank is required to transfer 10% of net income to surplus until its surplus is equal to its capital before the declaration of any cash dividend or dividend in kind. In addition, the Bank may pay dividends only out of net income then on hand, after deducting its losses and bad debts. These limitations can affect the Bank’s ability to pay dividends.

          Under the terms of the Order, the Bank may not declare or pay dividends without prior written approval of the FDIC and the OFIR.

          Insider Transactions. Federal laws limit certain transactions between the Bank and its affiliates, including the Company and any non-bank subsidiaries of the Company. Such transactions include loans or extensions of credit by the Bank to the Company, the purchase of assets or securities of the Company, the acceptance of the Company’s securities as collateral for loans, and the issuance of a guaranty, acceptance or letter of credit on behalf of the Company. Transactions of this kind are limited to 10% of the Bank’s capital and surplus for transactions with one affiliate, and 20% of the Bank’s capital and surplus for transactions with all affiliates. Such transactions are also subject to certain collateral requirements. These transactions, as well as other transactions between the Bank and the Company, must also be on terms substantially the same as, or at least as favorable as, those prevailing at the time for comparable transactions with nonaffiliated companies or, in the absence of comparable transactions, on terms, or under circumstances, including credit standards, that would be offered to, or would apply to, nonaffiliated companies.

          Under FDIC regulations, the Bank’s authority to extend credit to executive officers, directors, and principal shareholders of the Bank and the Company is subject to the same restrictions set forth in Federal Reserve Regulation O. Among other things, Regulation O (i) requires that any such loans be made on terms substantially similar to those offered to nonaffiliated individuals, (ii) places limits on the amount of loans the Bank may make to such persons based, in part, on the Bank’s capital position, and (iii) requires that certain approval procedures be followed in connection with such loans.

          Standards for Safety and Soundness. The FDIC has established safety and soundness standards applicable to the Bank regarding such matters as internal controls, loan documentation, credit underwriting, interest-rate risk exposure, asset growth, compensation and other benefits, and asset quality and earnings. If the Bank were to fail to meet these standards, the FDIC could require it to submit a written compliance plan describing the steps the Bank will take to correct the situation and the time within which such steps will be taken. The FDIC has authority to issue orders to secure adherence to the safety and soundness standards.

          Financial Management Requirements. FDIC regulations require banks with $500 million or more in total assets to undergo an annual independent audit and to establish an audit committee comprised solely of outside directors. Banks with $1

billion or more in total assets must also hire outside auditors to evaluate the institution’s internal control structure and procedures for compliance with laws and regulations relating to safety and soundness. For banks that are subsidiaries of holding companies, the independent audit requirement may be satisfied by an independent audit of the consolidated holding company. The FDIC guidelines and interpretations regarding financial management reiterate the FDIC’s belief that every depository institution, regardless of size, should have an annual independent audit and an independent audit committee.

          Reserve Requirement. Under a regulation promulgated by the Federal Reserve Board, depository institutions, including the Bank, currently are required to maintain cash reserves against a stated percentage of their transaction accounts. Effective October 9, 2008, the Federal Reserve Banks are authorized to pay interest on such reserves. The current reserve requirements are as follows:

	•		for transaction accounts totaling $10.7 million or less, a reserve of 0%; and
	•		for transaction accounts in excess of $10.7 million up to and including $55.2 million, a reserve of 3%; and
	•		for transaction accounts totaling in excess of $55.2 million, a reserve requirement of $1.335 million plus 10% of that portion of the total transaction accounts greater than $55.2 million.

          The dollar amounts and percentages stated above are all subject to adjustment by the Federal Reserve.

          State Bank Activities. Under federal law and FDIC regulations, FDIC insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank or its subsidiary, respectively, unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines the activity would not pose a significant risk to the deposit insurance fund.

          The GLB Act also authorizes insured state banks to engage in financial activities, through subsidiaries, similar to the activities permitted for financial holding companies. If a state bank wants to establish a subsidiary engaged in financial activities, it must meet certain criteria, including that it and all of its affiliated insured depository institutions are well-capitalized and have a Community Reinvestment Act rating of at least “satisfactory” and that it is well-managed. There are capital deduction and financial statement requirements and financial and operational safeguards that apply to subsidiaries engaged in financial activities. Such a subsidiary is considered to be an affiliate of the bank and there are limitations on certain transactions between a bank and a subsidiary engaged in financial activities of the same type that apply to transactions with a bank’s holding company and its subsidiaries.

Employees

          As of December 31, 2009 the Company had 123 full-time employees and 11 part-time employees. The Company provides a number of benefits for its full-time employees, including health and life insurance, workers’ compensation, social security, paid vacations, numerous bank services and a retirement plan.

Incorporation of Additional Information by Reference

The following information appearing in the 2009 Annual Report to Shareholders is also incorporated into this Item 1:

“Loan Portfolio Composition” table — discloses distribution of loans of the Bank.

“Loan Maturity” table — discloses maturities of loans.

“Non-Performing Assets” table — discloses the breakdown of non-performing assets by category.

“Allowance for Loan Loss” and “Charge-off/Recovery” tables disclose the allocation of loan loss allowance by category and the breakdown of charge-offs and recoveries.

“Securities Portfolio” table — discloses the distribution of the securities portfolio including book versus fair value comparison.

“Securities Maturity” table — discloses maturities of securities.

“Deposits” and “Time Deposits over $100,000” tables — disclose the distribution of deposits of the Bank and maturities of time deposits over $100,000.

“Borrowings” table — discloses the distribution and maturities of borrowings.

“Consolidated Average Balances/Interest Earned-Paid/Rates 2007-2009” table — presents average balance sheet amounts, interest earned or paid and related average yields earned and rates paid.

“Rate/Volume Analysis” table — presents changes in the interest income and expense for each major category of interest earning assets and interest bearing liabilities.

Note 1, “Summary of Significant Accounting Policies” of the “Notes to Consolidated Financial Statements” — discloses information on non-accrual and past-due loans, the Bank’s policy on placing loans on non-accrual, and other important accounting policies.

Item 1A. Risk Factors

          This is not required of smaller reporting companies.

Item 1B. Unresolved Staff Comments

          None.

Item 2. Properties

          The Company owns and operates its main office at 9252 Jos. Campau Avenue, Hamtramck, Michigan 48212-3794. In addition, the Company operates the following branches, listed in the order in which they were purchased or opened. Whether the branch is owned or leased is also noted.

Common Name of Office		Address		Owned or Leased
Warren Office		14801 12 Mile Road at Gloede		Owned
		Warren, MI 48088
Warren Office & Loan Center		31130 Ryan Road at 13 Mile Road		Owned
		Warren, MI 48092
Sterling Heights/Ryan Road		40832 Ryan Road		Leased
		Sterling Heights, MI 48310
Madison Hgts/12 Dequindre		1800 E. 12 Mile Road		Owned
		Madison Heights, MI 48071-0485
Southfield/Evergreen		25250 Evergreen Road		Owned
		Southfield, MI 48075
Farmington Hills/Halsted		37386 12 Mile Road		Owned
		Farmington Hills, MI 48331
Sterling Heights/		3801 Metropolitan Parkway		Owned
Metropolitan Parkway		Sterling Heights, MI 48310
Fenton		17197 Silver Parkway		Owned
		Fenton, MI 48430
Troy		30 East Long Lake Rd.		Land — Leased
		Troy, MI 48085		Building — Owned
Grosse Pointe Woods		20276 Mack Avenue		Owned
		Grosse Pointe Woods, MI 48236
Universal Mortgage Corporation operates the following offices:
Howell		110 N. Chestnut		Leased
		Howell, MI 48843
Sterling Heights		40682 Ryan Road		Leased
		Sterling Heights, MI 48310

Item 3. Legal Proceedings

          The Company from time to time is a party to routine litigation incidental to its business. The Company is not currently a party to any material litigation.

Item 4. Reserved

SUPPLEMENTAL INFORMATION — EXECUTIVE OFFICERS OF THE REGISTRANT

          The names, ages and positions of all executive officers of the Company are listed below:

				Principal Occupation
Name and Age		Position with the Company		During Past Five Years
David L. Wood, 65		Interim President and Chief Executive Officer		Interim President and Chief Executive Officer since March 2010. Mr. Wood retired from Colonial Bushings, Inc. a manufacturer of precision tooling components, where he had been Manager since 1973. Mr. Wood has served as a director of the Company since 1985 and has served as its Chairman since 2000.
Jeffrey Moore, 53		Executive Vice President and Chief Credit Officer		Executive Vice President and Chief Credit Officer since January of 2009. Senior Vice President and Chief Credit Officer since May of 2007; Senior Vice President — Business Banking at Fifth Third Bank — Eastern Michigan from Sept. 1997 — Mar. 2007.
Vincent J. Szymborski, 50		Executive Vice President — Chief Operating Officer		Executive Vice President and Chief Operating Officer since March 2010; Senior Vice President — Retail Banking since Mar. 2007; 1st Vice President and National Group Mgr. of Deposit, Credit and Service Related Products at Comerica for over 5 years.
Michael J. Banks, 51		Senior Vice President — Chief Lending Officer		Senior Vice President and Chief Lending Officer since March 2007; 1st Vice President in Commercial Lending at Comerica Bank from 2001 — March 2007.
David A. Wilson, 49		Senior Vice President and Chief Financial Officer		Senior Vice President and Chief Financial Officer since 1991.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

          Information relating to the market for registrant’s common equity, dividends paid and related shareholder matters appears on page 56 of the registrant’s 2009 Annual Report to Shareholders and is incorporated herein by reference. The performance graph required by Item 201(e) of Regulation S-K is not applicable to smaller reporting companies.

The following table provides information about purchases of the Company’s common stock by the Company, including any affiliated purchasers, during the quarter ended December 31, 2009.

ISSUER PURCHASES OF EQUITY SECURITIES

														Maximum Number (or
										Total Number of				Approximate Dollar
										Shares Purchased as				Value) of Shares
										Part of Publicly				that May Yet Be
		Total Number of				Average Price Paid				Announced Plans or				Purchased Under the
Period		Shares Purchased				per Share				Programs				Plans or Programs
10/01/09 —10/31/09			0				0				0				0
11/01/09 —11/30/09			0				0				0				0
12/01/09 —12/31/09			0				0				0				0
Total			0				0				0				0

          The Company does not currently have a stock repurchase plan in place.

Item 6. Selected Financial Data

          This item is not required of smaller reporting companies.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

          The information required by this item is incorporated by reference from the section captioned “Management’s Discussion and Analysis” on pages 42 through 55 of the 2009 Annual Report to Shareholders (with the exception of the information required by paragraphs (a)(3)(iv) and (a)(5) of Item 303 of Regulation S-K which are not applicable to smaller reporting companies).

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

          This item is not required of smaller reporting companies.

Item 8. Financial Statements and Supplementary Data

          The Audited Consolidated Financial Report contained on pages 1 through 40 of the 2009 Annual Report to Shareholders, together with the related notes and independent auditor’s report of the 2009 Annual Report to Shareholders are incorporated herein by reference. The supplemental data required by this item is not applicable to smaller reporting companies.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

          None.

Item 9A(T). Controls and Procedures

          Disclosure controls and procedures. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2009. Our disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner, the information we must disclose in reports that we file with, or submit to the SEC. David L. Wood, our Interim President and Chief Executive Officer, and David A. Wilson, our Senior Vice President and Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Wood and Wilson concluded that, as of the date of their evaluation, our disclosure controls were effective.

          Management’s Annual Report on Internal Control over Financial Reporting.The management of PSB Group, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. PSB Group, Inc.’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with United States generally accepted accounting principles.

          PSB Group, Inc.’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009 based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework.” Based on that assessment, management determined that, as of December 31, 2009, the Company’s internal control over financial reporting is effective, based on those criteria.

          This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

          Changes in internal controls. During the quarter ended December 31, 2009, there have not been any significant changes in our internal accounting controls or in other factors that could significantly affect those controls.

Item 9B. Other Information

          Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

          The information required under this item is incorporated by reference from the registrant’s 2010 Proxy Statement furnished to its shareholders in connection with an Annual Meeting of Shareholders (the “2010 Proxy Statement”), under the captions “Election of Directors”, “Role and Composition of the Board of Directors”, “Audit Committee Financial Expert”, “Code of Ethics”, and “Compliance with Section 16”, which Proxy Statement has been filed with the SEC. The information required under this item relating to the executive officers is set forth in Part I, “Supplemental Information — Executive Officers of the Registrant” of this Annual Report on Form 10-K.

Item 11. Executive Compensation

          The information relating to directors’ and executive compensation is incorporated by reference from the registrant’s 2010 Proxy Statement under the caption “Director Compensation” and in the “Executive Compensation Discussion “ section.

          The information required by paragraphs (e)(4) and (e)(5) of Item 407 of Regulation S-K is not applicable to smaller reporting companies.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

          The information required under this item is incorporated by reference from the registrant’s 2010 Proxy Statement under the captions “Security Ownership of Directors, Nominees for Director, Most Highly Compensated Executive Officers and All Directors and Executive Officers as a Group” and “Security Ownership of Shareholders Holding 5% or more.”

          The following table shows the Company’s shareholder approved and non-shareholder approved equity compensation plans as of December 31, 2009:

Equity Compensation Plan Information

Number of securities

remaining available for

Number of securities to be

Weighted-average

future issuance under

issued upon exercise of

exercise price of

equity compensation

outstanding options,

outstanding options,

plans (excluding

Plan category

warrants and rights

warrants and rights

securities in column (a))

Equity compensation plans approved by security holders

131,293

$

18.21

188,642

Equity compensation plans not approved by security holders

None

None

None

Total

131,293

$

18.21

188,642

Item 13. Certain Relationships and Related Transactions, and Director Independence

          The information relating to certain relationships and related transactions is incorporated by reference from the registrant’s 2010 Proxy Statement under the caption “Transactions with Certain Related Persons” and under the caption “Role and Composition of the Board of Directors.”

Item 14. Principal Accountant Fees and Services

          The information in the 2010 Proxy Statement under the caption “Item 3. Approval of Auditors” is incorporated by reference.

PART IV

Item 15. Exhibits and Financial Statements

          (a)(1) The following financial statements are included in the Annual Report to Shareholders for the fiscal year ended December 31, 2009. The remaining information appearing in the Annual Report is not deemed to be filed as part of this report, except as expressly provided herein.

	1.		Independent Auditor’s Report
	2.		Consolidated Balance Sheets as of December 31, 2009 and 2008
	3.		Consolidated Statements of Income for each of the years in the Three-Year Period Ended December 31, 2009
	4.		Consolidated Statements of Stockholders’ Equity for each of the years in the Three-Year Period Ended December 31, 2009
	5.		Consolidated Statements of Cash Flows for each of the years in the Three-Year Period Ended December 31, 2009
	6.		Notes to Consolidated Financial Statements
(a)(2) All financial statement schedules have been omitted as the required information is either inapplicable or included in the Consolidated Financial Statements or related notes.
(a)(3)The following exhibits are either filed as part of this report or are incorporated herein by reference:

No.		Description
3.1		Articles of Incorporation of PSB Group, Inc.*
3.2		Bylaws of PSB Group, Inc.*
4.1		Specimen Certificate of Common Stock.*
10.1		2004 Stock Compensation Plan.**
10.2		Form of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreement (incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 2005).
10.3		Deferred Compensation Plan, as amended and restated (incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 2008).
10.4		Form of Restricted Stock Agreement (incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended March 31, 2007).
11		Computation of Earnings Per Share (filed herewith on page 3 of the 2009 Annual Report to Shareholders including Note 1 thereto).
13		Portions of 2009 Annual Report to Shareholders (filed herewith).

No.		Description
14		Code of Ethics (incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 2006).
21.1		Subsidiaries of Registrant (filed herewith).
23.		Consent of Plante & Moran, PLLC.
31.1		Certification of David L. Wood required by Rule 13a — 14(a).
31.2		Certification of David A. Wilson required by Rule 13a — 14(a).
32.1		Certification of David L. Wood required by Rule 13a — 14(b) and Section 906 of the Sarbanes - Oxley Act of 2002, 18 U.S.C. Section 1350.
32.2		Certification of David A. Wilson required by Rule 13a — 14(b) and Section 906 of the Sarbanes - Oxley Act of 2002, 18 U.S.C. Section 1350.
99.1		Order of Stipulation and Consent (incorporated by reference from current report on Form 8-K filed on October 30, 2009).

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

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

By:		/s/ David L. Wood   David L. Wood				Date: March 31, 2010
		Interim President and Chief Executive Officer
		(Principal Executive Officer and Director)
By:		/s/ David A. Wilson   David A. Wilson				Date: March 31, 2010
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)
By:		/s/ Dr. James Jacobs   Dr. James Jacobs				Date: March 31, 2010
		(Director)
By:		/s/ Michael J. Kowalski   Michael J. Kowalski				Date: March 31, 2010
		(Director)
By:		/s/ Longine V. Morawski   Longine V. Morawski				Date: March 31, 2010
		(Director)
By:		/s/ Sydney L. Ross   Sydney L. Ross				Date: March 31, 2010
		(Director)
By:		/s/ Edward H. Turner   Edward H. Turner				Date: March 31, 2010
		(Director)