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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended March 31, 2007

Or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number: 001-33033



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PORTER
BANCORP, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Kentucky                                                       |  | 61-1142247                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                             |  |           
|-------------------------------------------- |  | ----------
|2500 Eastpoint Parkway, Louisville, Kentucky |  | 40223     
|(Address of principal executive offices)     |  | (Zip Code)

(502) 499-4800

(Registrants telephone number, including area code)



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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 shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

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

Indicate the number of shares outstanding of each of the issuers class of common stock, as of the latest practicable
date.

7,629,147 shares of Common Stock, no par value, were outstanding at April 30, 2007.



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##### Table of Contents

INDEX





|          |  |                                                                                       |  |     
|--------- |  | ------------------------------------------------------------------------------------- |  | ----
|          |  |                                                                                       |  | Page
|          |  |                                                                                      
|PART I -  |  | FINANCIAL INFORMATION                                                                 |  |     
|          |  |                                                                                      
|ITEM 1.   |  | FINANCIAL STATEMENTS                                                                  |  | 1   
|          |  |                                                                                      
|ITEM 2.   |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 14  
|          |  |                                                                                      
|ITEM 3.   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 25  
|          |  |                                                                                      
|ITEM 4.   |  | CONTROLS AND PROCEDURES                                                               |  | 25  
|          |  |                                                                                      
|PART II - |  | OTHER INFORMATION                                                                     |  |     
|          |  |                                                                                      
|ITEM 1.   |  | LEGAL PROCEEDINGS                                                                     |  | 26  
|          |  |                                                                                      
|ITEM 2.   |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                           |  | 26  
|          |  |                                                                                      
|ITEM 3.   |  | DEFAULTS UPON SENIOR SECURITIES                                                       |  | 26  
|          |  |                                                                                      
|ITEM 4.   |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 26  
|          |  |                                                                                      
|ITEM 5.   |  | OTHER INFORMATION                                                                     |  | 26  
|          |  |                                                                                      
|ITEM 6.   |  | EXHIBITS                                                                              |  | 26  



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##### Table of Contents

PART I  FINANCIAL INFORMATION

Item 1. Financial Statements

The following consolidated financial statements of Porter
Bancorp Inc. and Subsidiary, PBI Bank, Inc., are submitted:

Unaudited Consolidated Balance Sheets for March 31, 2007 and
December 31, 2006

Unaudited Consolidated Statements of Income for the three months ended March 31, 2007 and 2006

Unaudited Consolidated Statement of Changes in Stockholders Equity for the three months ended March 31, 2007

Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006

Notes to Unaudited Consolidated Financial Statements



1



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##### Table of Contents

PORTER BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(dollars in thousands except share data)



|                                                                                                                        |  |               |           |                  |   |          
|----------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ---------------- | - | ---------
|                                                                                                                        |  | March 31,2007 |           | December 31,2006
|                                                                                                                        |  | (unaudited)   |           |                 
|Assets                                                                                                                  |  |               |           |                  |   |          
|Cash and due from financial institutions                                                                                |  | $             | 44,553    |                  | $ | 15,306   
|Federal funds sold                                                                                                      |  |               | 6,042     |                  |   | 40,957   
|                                                                                                                        |  |               |           |                  |   |          
|Cash and cash equivalents                                                                                               |  |               | 50,595    |                  |   | 56,263   
|Securities available for sale                                                                                           |  |               | 97,463    |                  |   | 95,090   
|Loans, net of allowance of $13,211 and $12,832, respectively                                                            |  |               | 913,536   |                  |   | 841,535  
|Premises and equipment                                                                                                  |  |               | 13,808    |                  |   | 13,774   
|Goodwill                                                                                                                |  |               | 12,881    |                  |   | 12,881   
|Accrued interest receivable and other assets                                                                            |  |               | 31,462    |                  |   | 31,463   
|                                                                                                                        |  |               |           |                  |   |          
|Total assets                                                                                                            |  | $             | 1,119,745 |                  | $ | 1,051,006
|                                                                                                                        |  |               |           |                  |   |          
|Liabilities and Stockholders Equity                                                                                    |  |               |           |                  |   |          
|Deposits                                                                                                                |  |               |           |                  |   |          
|Non-interest bearing                                                                                                    |  | $             | 69,998    |                  | $ | 69,180   
|Interest bearing                                                                                                        |  |               | 827,481   |                  |   | 792,676  
|                                                                                                                        |  |               |           |                  |   |          
|Total deposits                                                                                                          |  |               | 897,479   |                  |   | 861,856  
|Federal funds purchased and repurchase agreements                                                                       |  |               | 1,473     |                  |   | 1,134    
|Federal Home Loan Bank advances                                                                                         |  |               | 77,007    |                  |   | 47,562   
|Accrued interest payable and other liabilities                                                                          |  |               | 8,227     |                  |   | 7,108    
|Junior subordinated debentures                                                                                          |  |               | 25,000    |                  |   | 25,000   
|                                                                                                                        |  |               |           |                  |   |          
|Total liabilities                                                                                                       |  |               | 1,009,186 |                  |   | 942,660  
|Stockholders equity                                                                                                    |  |               |           |                  |   |          
|Preferred stock, no par, 1,000,000 shares authorized                                                                    |  |               |          |                  |   |         
|Common stock, no par, 10,000,000 shares authorized, 7,621,647 and 7,622,447 shares issued and outstanding, respectively |  |               | 64,820    |                  |   | 64,820   
|Additional paid-in capital                                                                                              |  |               | 11,084    |                  |   | 11,036   
|Retained earnings                                                                                                       |  |               | 34,432    |                  |   | 32,355   
|Accumulated other comprehensive income (loss)                                                                           |  |               | 223       |                  |   | 135      
|                                                                                                                        |  |               |           |                  |   |          
|Total stockholders' equity                                                                                              |  |               | 110,559   |                  |   | 108,346  
|                                                                                                                        |  |               |           |                  |   |          
|Total liabilities and stockholders equity                                                                              |  | $             | 1,119,745 |                  | $ | 1,051,006
|                                                                                                                        |  |               |           |                  |   |          

See accompanying notes to unaudited consolidated financial statements.



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PORTER BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Income

(dollars in thousands, except per
share data)



|                                                    |  |                             |        |      |   |       
|--------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                                    |  | Three Months EndedMarch 31,
|                                                    |  | 2007                        |        | 2006
|Interest income                                     |  |                             |        |      |   |       
|Loans, including fees                               |  | $                           | 18,531 |      | $ | 15,472
|Taxable securities                                  |  |                             | 989    |      |   | 909   
|Tax exempt securities                               |  |                             | 166    |      |   | 181   
|Fed funds sold and other                            |  |                             | 368    |      |   | 425   
|                                                    |  |                             |        |      |   |       
|                                                    |  |                             | 20,054 |      |   | 16,987
|                                                    |  |                             |        |      |   |       
|Interest expense                                    |  |                             |        |      |   |       
|Deposits                                            |  |                             | 9,277  |      |   | 6,643 
|Federal Home Loan Bank advances                     |  |                             | 557    |      |   | 627   
|Junior subordinated debentures                      |  |                             | 471    |      |   | 488   
|Notes payable                                       |  |                             |       |      |   | 144   
|Federal funds purchased and other                   |  |                             | 5      |      |   | 41    
|                                                    |  |                             |        |      |   |       
|                                                    |  |                             | 10,310 |      |   | 7,943 
|                                                    |  |                             |        |      |   |       
|Net interest income                                 |  |                             | 9,744  |      |   | 9,044 
|Provision for loan losses                           |  |                             | 625    |      |   | 376   
|                                                    |  |                             |        |      |   |       
|Net interest income after provision for loan losses |  |                             | 9,119  |      |   | 8,668 
|                                                    |  |                            
|Non-interest income                                 |  |                             |        |      |   |       
|Service charges on deposit accounts                 |  |                             | 535    |      |   | 665   
|Secondary market brokerage fees                     |  |                             | 95     |      |   | 13    
|Title insurance commissions                         |  |                             | 77     |      |   | 20    
|Net gain on sales of government guaranteed loans    |  |                             |       |      |   | 99    
|Net gain on sales of loan originated for sale       |  |                             |       |      |   | 111   
|Net gain on sales of other assets                   |  |                             | 6      |      |   | 18    
|Other                                               |  |                             | 463    |      |   | 440   
|                                                    |  |                             |        |      |   |       
|                                                    |  |                             | 1,176  |      |   | 1,366 
|                                                    |  |                             |        |      |   |       
|Non-interest expense                                |  |                             |        |      |   |       
|Salaries and employee benefits                      |  |                             | 2,935  |      |   | 2,837 
|Occupancy and equipment                             |  |                             | 565    |      |   | 688   
|State franchise tax                                 |  |                             | 325    |      |   | 273   
|Professional fees                                   |  |                             | 152    |      |   | 248   
|Communications                                      |  |                             | 110    |      |   | 146   
|Advertising                                         |  |                             | 139    |      |   | 129   
|Other                                               |  |                             | 730    |      |   | 689   
|                                                    |  |                             |        |      |   |       
|                                                    |  |                             | 4,956  |      |   | 5,010 
|                                                    |  |                             |        |      |   |       
|Income before income taxes                          |  |                             | 5,339  |      |   | 5,024 
|Income tax expense                                  |  |                             | 1,738  |      |   | 1,621 
|                                                    |  |                             |        |      |   |       
|Net income                                          |  | $                           | 3,601  |      | $ | 3,403 
|                                                    |  |                             |        |      |   |       
|Basic and diluted earnings per share                |  | $                           | 0.47   |      | $ | 0.54  
|                                                    |  |                             |        |      |   |       

See accompanying notes to unaudited consolidated financial statements.



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PORTER BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statement of Changes in Stockholders Equity

For
Three Months Ended March 31, 2007

(dollars in thousands, except share and per share data)



|                                                                |  |                 |   |            |        |        |                |   |                   |  |   |                            |   |       |   |     |  |   |         |  
|--------------------------------------------------------------- |  | --------------- | - | ---------- | ------ | ------ | -------------- | - | ----------------- |  | - | -------------------------- | - | ----- | - | --- |  | - | ------- | -
|                                                                |  | Common Stock    |   | Additional |        |        |                |   | Accumulated Other |  |   |                           
|                                                                |  | Number ofShares |   |            | Amount |        | Paid-InCapital |   | RetainedEarnings  |  |   | ComprehensiveIncome (Loss) |   | Total |  
|Balances, January 1, 2007                                       |  | 7,622,447       |   |            | $      | 64,820 |                | $ | 11,036            |  | $ | 32,355                     |   |       | $ | 135 |  | $ | 108,346 |  
|Forfeited unvested stock                                        |  | (800            | ) |            |        |       |                |   |                  |  |   |                           |   |       |   |    |  |   |        |  
|Stock-based compensation expense                                |  |                |   |            |        |       |                |   | 48                |  |   |                           |   |       |   |    |  |   | 48      |  
|Comprehensive income:                                           |  |                 |   |            |        |        |                |   |                   |  |   |                            |   |       |   |     |  |   |         |  
|Net income                                                      |  |                |   |            |        |       |                |   |                  |  |   | 3,601                      |   |       |   |    |  |   | 3,601   |  
|Changes in accumulated other comprehensive income, net of taxes |  |                |   |            |        |       |                |   |                  |  |   |                           |   |       |   | 88  |  |   | 88      |  
|                                                                |  |                 |   |            |        |        |                |   |                   |  |   |                            |   |       |   |     |  |   |         |  
|Total comprehensive income                                      |  |                |   |            |        |       |                |   |                  |  |   |                           |   |       |   |    |  |   | 3,689   |  
|                                                                |  |                 |   |            |        |        |                |   |                   |  |   |                            |   |       |   |     |  |   |         |  
|Cash dividends ($0.20 per share)                                |  |                |   |            |        |       |                |   |                  |  |   | (1,524                     | ) |       |   |    |  |   | (1,524  | )
|                                                                |  |                 |   |            |        |        |                |   |                   |  |   |                            |   |       |   |     |  |   |         |  
|Balances, March 31, 2007                                        |  | 7,621,647       |   |            | $      | 64,820 |                | $ | 11,084            |  | $ | 34,432                     |   |       | $ | 223 |  | $ | 110,559 |  
|                                                                |  |                 |   |            |        |        |                |   |                   |  |   |                            |   |       |   |     |  |   |         |  

See accompanying notes to unaudited consolidated financial statements.



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PORTER BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Cash Flows

For Three Months Ended
March 31, 2007 and 2006

(dollars in thousands)



|                                                                          |  |      |         |   |      |   |         |  
|------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                          |  | 2007 |         |   | 2006 |  
|Cash flows from operating activities                                      |  |      |         |   |      |   |         |  
|Net income                                                                |  | $    | 3,601   |   |      | $ | 3,403   |  
|Adjustments to reconcile net income to net cash from operating activities |  |      |         |   |      |   |         |  
|Depreciation and amortization                                             |  |      | 569     |   |      |   | 526     |  
|Provision for loan losses                                                 |  |      | 625     |   |      |   | 376     |  
|Net amortization on securities                                            |  |      | 22      |   |      |   | 139     |  
|Stock-based compensation expense                                          |  |      | 48      |   |      |   | 20      |  
|Net gain on sales of loans                                                |  |      |        |   |      |   | (111    | )
|Loans originated for sale                                                 |  |      |        |   |      |   | (3,875  | )
|Proceeds from sales of loans held for sale                                |  |      |        |   |      |   | 3,986   |  
|Net gain on other real estate owned                                       |  |      | (6      | ) |      |   | (18     | )
|Earnings on bank owned life insurance                                     |  |      | (67     | ) |      |   | (53     | )
|Federal Home Loan Bank stock dividends                                    |  |      |        |   |      |   | (120    | )
|Net change in accrued interest receivable and other assets                |  |      | 378     |   |      |   | (168    | )
|Net change in accrued interest payable and other liabilities              |  |      | 1,078   |   |      |   | (2,673  | )
|                                                                          |  |      |         |   |      |   |         |  
|Net cash from operating activities                                        |  |      | 6,248   |   |      |   | 1,432   |  
|                                                                          |  |      |         |   |      |   |         |  
|Cash flows from investing activities                                      |  |      |         |   |      |   |         |  
|Purchases of available for sale securities                                |  |      | (7,364  | ) |      |   | (1,004  | )
|Sales and calls of available for sale securities                          |  |      | 20      |   |      |   | 15      |  
|Maturities and prepayments of available for sale securities               |  |      | 5,078   |   |      |   | 4,327   |  
|Proceeds from sale of other real estate owned                             |  |      | 43      |   |      |   | 316     |  
|Improvements to other real estate owned                                   |  |      | (35     | ) |      |   |        |  
|Loan originations and payments, net                                       |  |      | (73,244 | ) |      |   | (16,304 | )
|Purchases of premises and equipment, net                                  |  |      | (297    | ) |      |   | (134    | )
|Investment in bank owned life insurance                                   |  |      |        |   |      |   | (1,100  | )
|Acquisition of Associates Mortgage Group, net                             |  |      |        |   |      |   | (250    | )
|                                                                          |  |      |         |   |      |   |         |  
|Net cash from investing activities                                        |  |      | (75,799 | ) |      |   | (14,134 | )
|                                                                          |  |      |         |   |      |   |         |  
|Cash flows from financing activities                                      |  |      | 35,623  |   |      |   | 3,385   |  
|Net change in deposits                                                    |  |      |         |   |      |   |         |  
|Net change in federal funds purchased and repurchase agreements           |  |      | 339     |   |      |   | (3,027  | )
|Repayment of Federal Home Loan Bank advances                              |  |      | (555    | ) |      |   | (11,214 | )
|Advances from Federal Home Loan Bank                                      |  |      | 30,000  |   |      |   | 1,220   |  
|Cash dividends paid                                                       |  |      | (1,524  | ) |      |   | (1,267  | )
|                                                                          |  |      |         |   |      |   |         |  
|Net cash from (used in) financing activities                              |  |      | 63,883  |   |      |   | (10,903 | )
|                                                                          |  |      |         |   |      |   |         |  
|Net change in cash and cash equivalents                                   |  |      | (5,668  | ) |      |   | (23,605 | )
|Beginning cash and cash equivalents                                       |  |      | 56,263  |   |      |   | 52,281  |  
|                                                                          |  |      |         |   |      |   |         |  
|Ending cash and cash equivalents                                          |  | $    | 50,595  |   |      | $ | 28,676  |  
|                                                                          |  |      |         |   |      |   |         |  
|Supplemental cash flow information:                                       |  |      |         |   |      |   |         |  
|Interest paid                                                             |  | $    | 10,374  |   |      | $ | 7,657   |  
|Income taxes paid                                                         |  |      |        |   |      |   | 95      |  
|Supplemental non-cash disclosure:                                         |  |      |         |   |      |   |         |  
|Transfer from loans to other real estate                                  |  | $    | 321     |   |      | $ | 343     |  

See accompanying notes to unaudited consolidated financial statements.



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##### Table of Contents

PORTER BANCORP, INC. AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

Note 1  Basis of Presentation
and Summary of Significant Accounting Policies

Basis of Presentation  The consolidated financial statements include Porter Bancorp, Inc.
(the Company) and its wholly-owned subsidiary, PBI Bank (the Bank). All significant inter-company transactions and accounts have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for three months ended March 31, 2007 are not necessarily indicative of the results that
may be expected for the entire year. A description of other significant accounting policies is presented in the notes to the Consolidated Financial Statements for the year ended December 31, 2006 included in the Companys Annual Report on
Form 10-K which is incorporated herein by reference.

Use of Estimates  To prepare financial statements in conformity with U.S. generally
accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could
differ. The allowance for loan losses and fair values of financial instruments are particularly subject to change.

Reclassifications  Some
items in the prior year financial statements were reclassified to conform to the current presentation.

New Accounting Standards

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 155, Accounting for Certain Hybrid Financial Instruments-an amendment to FASB
Statements No. 133 and 140. This Statement permits fair value re-measurement for any hybrid financial instruments, clarifies which instruments are subject to the requirements of Statement No. 133, and establishes a requirement to evaluate
interests in securitized financial assets and other items. The new standard was adopted on January 1, 2007. The adoption of this standard had no impact on the Companys financial statements.

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109 (FIN48), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 on January 1, 2007. It had no impact on the Companys financial
statements.

The Company has no unrecognized tax benefits and does not anticipate any increase in unrecognized benefits during 2007 relative to any tax
positions taken prior to January 1, 2007. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Companys policy to record such accruals in its income taxes accounts; no such accruals
exist as of January 1, 2007. The Company and its subsidiaries file a consolidated U.S. federal income tax return and the Company files a return in the state of Kentucky. These returns are subject to examination by taxing authorities for all
years after 2002.



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In September 2006, the FASB ratified the Emerging Issues Task Forces (EITF) consensus on Issue 06-5,
Accounting for Purchases of Life InsuranceDetermining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance. FASB Technical Bulletin
No. 85-4 requires that assets such as bank owned life insurance be carried at their cash surrender value (CSV) or the amount that could be realized, with changes in CSV reported in earnings. Issue 06-5 requires that a policyholder consider any
additional amounts (e.g. claims stabilization reserves and deferred acquisition costs) included in the contractual terms of the policy in determining the amount that could be realized under the insurance contract. Certain life insurance contracts
provide the policyholder with an amount that, upon surrender, is greater if all individual policies are surrendered at the same time rather than if the policies were surrendered over a period of time. The Issue requires that policyholders determine
the amount that could be realized under the life insurance contract assuming the surrender of an individual-life by individual-life policy. This Issue is effective for us beginning January 1, 2007. The Issue can be applied as either (a) a
change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, or (b) a change in accounting principle through retrospective application to all periods. The adoption of
Issue 06-5 had no effect on the Companys financial statements for the quarter ended March 31, 2007.

In September 2006, the FASB issued
Statement No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the
assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. The Company has not
completed its evaluation of the impact of the adoption of this standard, however, management does not expect the adoption of this statement to have a material impact on its consolidated financial position or results of operations.

In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements. This issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants employment or retirement. The required
accrued liability will be based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement. This issue is effective for fiscal
years beginning after December 15, 2007. The Company has not completed its evaluation of the impact of adoption of EITF 06-4, however, management does not expect the adoption of this statement to have a material impact on its consolidated
financial position or results of operations.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. This Statement allows entities to voluntarily choose, at specified election dates, to measure many financial assets and financial liabilities at fair value. The election is made on an instrument-by-instrument basis and is
irrevocable. If the fair value option is elected for an instrument, the Statement specifies that all subsequent changes in fair value for that instrument shall be reported in earnings. This Statement is effective for fiscal years beginning after
November 15, 2007.



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##### Table of Contents

Note 2  Stock Plans and Stock Based Compensation

At March 31, 2007, the Company has a stock option plan and a stock incentive plan. On December 31, 2005, the Company assumed the 2000 Stock Option Plan of
Ascencia Bank, Inc. when the Company acquired the minority interest of Ascencia Bancorp, Inc. On February 23, 2006, the Company adopted the Porter Bancorp, Inc. 2006 Stock Incentive Plan. With regard to the 2000 Option Plan, no additional
grants were made subsequent to year-end and none are expected to be made in the future. The 2006 Plan permits the issuance of up to 400,000 shares of the Companys common stock upon the exercise of stock options or upon the grant of stock
awards. As of March 31, 2007, the Company had granted outstanding options to purchase 227,070 shares and had awarded 35,480 unvested shares net of forfeitures and vesting. As of March 31, 2007, the Company had 327,734 shares available for
issue under the 2006 Plan. All shares issued under the above mentioned plans came from authorized and unissued shares.

On May 15, 2006, the board of
directors approved the Porter Bancorp, Inc. 2006 Non-Employee Directors Stock Ownership Incentive Plan, which was approved by holders of the Companys voting common stock on June 8, 2006. Under the terms of the plan, 100,000 shares are
reserved for issuance to non-employee directors upon the exercise of stock options granted under the plan. Options granted are granted automatically under the plan at fair market value on the date of grant, vest over a three-year period and have a
five-year term. On September 21, 2006, the Company granted options to purchase 24,000 shares to non-employee directors in connection with the completion of the initial public offering. At March 31, 2007, 76,000 shares remained available
for issue under this plan.

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R,
Share Based Payment. The Company elected to utilize the modified prospective transition method; therefore, prior period results were not restated. Prior to the adoption of SFAS 123R, stock-based compensation expense related to stock
options was not recognized in the results of operations if the exercise price was at least equal to the market value of the common stock on the grant date, in accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees.

SFAS 123R requires all share-based payments to directors, employees, including grants of employee stock options, to be
recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. Under the modified prospective method, unvested awards, awards that were granted,
modified, or settled on or after January 1, 2006 are measured and accounted for in accordance with SFAS 123R. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized.

All stock options have an exercise price that is at least equal to the fair market value of the Companys stock on the date the options were granted. Options
granted generally become fully exercisable at the end of 3 years of continued employment. Options granted under the 2000 plan have a life of 10 years while those granted under the 2006 plan have a life of 5 years.

The following table summarizes stock option activity:



|                       |  |                                  |   |                                      |                              |       |         |         |   |                              |   |      
|---------------------- |  | -------------------------------- | - | ------------------------------------ | ---------------------------- | ----- | ------- | ------- | - | ---------------------------- | - | -----
|                       |  | Three Months EndedMarch 31, 2007 |   | Twelve Months EndedDecember 31, 2006
|                       |  | Options                          |   |                                      | WeightedAverageExercisePrice |       | Options |         |   | WeightedAverageExercisePrice
|Outstanding, beginning |  | 251,820                          |   |                                      | $                            | 25.29 |         | 194,004 |   |                              | $ | 25.50
|Granted                |  |                                 |   |                                      |                              |      |         | 58,816  |   |                              |   | 24.60
|Forfeited              |  | (750                             | ) |                                      |                              | 25.50 |         | (1,000  | ) |                              |   | 25.50
|                       |  |                                  |   |                                      |                              |       |         |         |   |                              |   |      
|Outstanding, ending    |  | 251,070                          |   |                                      | $                            | 25.29 |         | 251,820 |   |                              | $ | 25.29
|                       |  |                                  |   |                                      |                              |       |         |         |   |                              |   |      



8



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##### Table of Contents

The following table details stock options outstanding:



|                                                |  |                |        
|----------------------------------------------- |  | -------------- | -------
|                                                |  | March 31, 2007
|Stock options vested and currently exercisable: |  |                | 208,340
|Weighted average exercise price                 |  | $              | 25.44  
|Aggregate intrinsic value                       |  | $              | 0      
|Weighted average remaining life (in years)      |  |                | 3.2    
|Total Options Outstanding:                      |  |                | 251,070
|Aggregate intrinsic value                       |  | $              | 0      
|Weighted average remaining life (in years)      |  |                | 3.4    

The intrinsic value of stock options is calculated based on the exercise price of the underlying awards and the
market price of our common stock as of the reporting date. There were no options exercised during the first three months of 2007. The Company recorded $25,000 of stock option compensation during the three months ended March 31, 2007 to salaries
and employee benefits. Since the stock options are non-qualified stock options, a tax benefit of $9,000 was recognized. No options were modified during either period. As of March 31, 2007, no stock options issued by the Company have been
exercised.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes based stock option valuation model. This
model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. Expected volatilities are based on volatilities of similar publicly traded companies due to the limited historical trading
activity of the Companys stock, and other factors. Expected dividends are based on dividend trends and the market price of the Companys stock price at grant. The Company uses historical data to estimate option exercises within the
valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The weighted-average assumptions used are summarized as follows:



|                                |  |   |           |  
|------------------------------- |  | - | --------- | -
|Risk-free interest rate         |  |   | 4.88      | %
|Expected option life            |  |   | 3.5 years |  
|Expected stock price volatility |  |   | 22.0      | %
|Expected dividend yield         |  |   | 3.7       | %
|Fair value                      |  | $ | 3.83      |  

From time-to-time the Company awards unvested shares to employees. The shares vest at a rate of 10% on each
one-year anniversary date of the grant date provided the employee is still employed by the Company at that date. The fair value on the date of grant ranged from $22.13 to $25.50 per share. The Company recorded $23,000 of stock-based compensation
during the first quarter of 2007 to salaries and employee benefits. A tax benefit of $8,000 was recognized related to this expense.



9



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##### Table of Contents

The following table summarizes unvested share activity as of and for the periods indicated:



|                       |  |                                  |   |                                      |                           |       |        |        |   |                           |   |      
|---------------------- |  | -------------------------------- | - | ------------------------------------ | ------------------------- | ----- | ------ | ------ | - | ------------------------- | - | -----
|                       |  | Three Months EndedMarch 31, 2007 |   | Twelve Months EndedDecember 31, 2006
|                       |  | Shares                           |   |                                      | WeightedAverageGrantPrice |       | Shares |        |   | WeightedAverageGrantPrice
|Outstanding, beginning |  | 40,000                           |   |                                      | $                         | 25.33 |        |       |   |                           | $ |     
|Granted                |  |                                 |   |                                      |                           |      |        | 41,600 |   |                           |   | 25.34
|Forfeited              |  | (800                             | ) |                                      |                           | 25.50 |        | (1,600 | ) |                           |   | 25.50
|Vested                 |  | (3,720                           | ) |                                      |                           | 25.50 |        |       |   |                           |   |     
|                       |  |                                  |   |                                      |                           |       |        |        |   |                           |   |      
|Outstanding, ending    |  | 35,480                           |   |                                      | $                         | 25.31 |        | 40,000 |   |                           | $ | 25.33
|                       |  |                                  |   |                                      |                           |       |        |        |   |                           |   |      

Unrecognized stock based compensation expense related to stock options and unvested shares for the remainder of
2007 and beyond is estimated as follows (in thousands):



|                           |  |   |    
|-------------------------- |  | - | ---
|April 2007  December 2007 |  | $ | 147
|2008                       |  |   | 171
|2009                       |  |   | 131
|2010                       |  |   | 131
|2011 & thereafter          |  |   | 495



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##### Table of Contents

Note 3 - Securities

The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:



|                                   |  |                        |        |                      |   |                       |  |   |        |  
|---------------------------------- |  | ---------------------- | ------ | -------------------- | - | --------------------- |  | - | ------ | -
|                                   |  | FairValue              |        | GrossUnrealizedGains |   | GrossUnrealizedLosses | 
|                                   |  | (dollars in thousands) |       
|March 31, 2007                     |  |                        |        |                      |   |                       |  |   |        |  
|U.S. Government and federal agency |  | $                      | 17,567 |                      | $ | 10                    |  | $ | (293   | )
|State and municipal                |  |                        | 19,209 |                      |   | 246                   |  |   | (72    | )
|Mortgage-backed                    |  |                        | 54,129 |                      |   | 174                   |  |   | (486   | )
|Corporate bonds                    |  |                        | 2,447  |                      |   | 84                    |  |   |       |  
|                                   |  |                        |        |                      |   |                       |  |   |        |  
|Total debt securities              |  |                        | 93,352 |                      |   | 514                   |  |   | (851   | )
|Equity                             |  |                        | 4,111  |                      |   | 843                   |  |   | (173   | )
|                                   |  |                        |        |                      |   |                       |  |   |        |  
|Total                              |  | $                      | 97,463 |                      | $ | 1,357                 |  | $ | (1,024 | )
|                                   |  |                        |        |                      |   |                       |  |   |        |  
|                                   |  |                        |       
|December 31, 2006                  |  |                        |        |                      |   |                       |  |   |        |  
|U.S. Government and federal agency |  | $                      | 15,713 |                      | $ | 1                     |  | $ | (345   | )
|State and municipal                |  |                        | 17,918 |                      |   | 280                   |  |   | (60    | )
|Mortgage-backed                    |  |                        | 54,848 |                      |   | 150                   |  |   | (642   | )
|Corporate bonds                    |  |                        | 2,451  |                      |   | 84                    |  |   |       |  
|                                   |  |                        |        |                      |   |                       |  |   |        |  
|Total debt securities              |  |                        | 90,930 |                      |   | 515                   |  |   | (1,047 | )
|Equity                             |  |                        | 4,160  |                      |   | 876                   |  |   | (140   | )
|                                   |  |                        |        |                      |   |                       |  |   |        |  
|Total                              |  | $                      | 95,090 |                      | $ | 1,391                 |  | $ | (1,187 | )
|                                   |  |                        |        |                      |   |                       |  |   |        |  

Securities pledged at March 31, 2007 and December 31, 2006 had carrying values of approximately
$32,242,000 and $32,404,000, respectively, and were pledged to secure public deposits, repurchase agreements, and Federal Home Loan Bank advances.

The
Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the
fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery
in fair value. In analyzing an issuers financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of
reviews of the issuers financial condition.

As of March 31, 2007, the Company has 62 equity securities. Of these securities, three had an
unrealized loss of $10,000 and had been in an unrealized loss position for less than twelve months and fifteen had an unrealized loss of $163,000 and had been in an unrealized loss position for more than twelve months. Management monitors the credit
quality and current market pricing for these equity securities monthly. Management has made a practice of selling equity securities where recovery does not seem likely but does not have the present intent to sell securities with unrealized losses.
As of March 31, 2007, there are no securities management would classify as other than temporarily impaired.



11



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##### Table of Contents

Note 4  Loans

Loans were as follows:



|                                                          |  |                        |         |   |                  |   |         |  
|--------------------------------------------------------- |  | ---------------------- | ------- | - | ---------------- | - | ------- | -
|                                                          |  | March 31,2007          |         |   | December 31,2006 |  
|                                                          |  | (dollars in thousands) |        
|Commercial                                                |  | $                      | 67,118  |   |                  | $ | 59,113  |  
|Real estate                                               |  |                        | 816,258 |   |                  |   | 751,017 |  
|Agriculture                                               |  |                        | 13,488  |   |                  |   | 13,436  |  
|Consumer                                                  |  |                        | 28,770  |   |                  |   | 29,709  |  
|Other                                                     |  |                        | 1,113   |   |                  |   | 1,092   |  
|                                                          |  |                        |         |   |                  |   |         |  
|Subtotal                                                  |  |                        | 926,747 |   |                  |   | 854,367 |  
|Less: Allowance for loan losses                           |  |                        | (13,211 | ) |                  |   | (12,832 | )
|                                                          |  |                        |         |   |                  |   |         |  
|Loans, net                                                |  | $                      | 913,536 |   |                  | $ | 841,535 |  
|                                                          |  |                        |         |   |                  |   |         |  
|                                                          |  |                       
|Activity in the allowance for loan losses was as follows: |  |                        |         |   |                  |   |         |  
|                                                          |  |                       
|                                                          |  | March 31,2007          |         |   | March 31,2006    |  
|                                                          |  | (dollars in thousands) |        
|Beginning balance                                         |  | $                      | 12,832  |   |                  | $ | 12,197  |  
|Provision for loan losses                                 |  |                        | 625     |   |                  |   | 376     |  
|Loans charged-off                                         |  |                        | (314    | ) |                  |   | (77     | )
|Loan recoveries                                           |  |                        | 68      |   |                  |   | 71      |  
|                                                          |  |                        |         |   |                  |   |         |  
|Ending balance                                            |  | $                      | 13,211  |   |                  | $ | 12,567  |  
|                                                          |  |                        |         |   |                  |   |         |  
|                                                          |  |                       
|Impaired loans were as follows:                           |  |                        |         |   |                  |   |         |  
|                                                          |  |                       
|                                                          |  | March 31,2007          |         |   | December 31,2006 |  
|                                                          |  | (dollars in thousands) |        
|Loans with no allocated allowance for loan losses         |  | $                      | 1,228   |   |                  | $ | 2,048   |  
|Loans with allocated allowance for loan losses            |  |                        | 3,073   |   |                  |   | 3,090   |  
|                                                          |  |                        |         |   |                  |   |         |  
|Total                                                     |  | $                      | 4,301   |   |                  | $ | 5,138   |  
|                                                          |  |                        |         |   |                  |   |         |  
|Amount of the allowance for loan losses allocated         |  | $                      | 722     |   |                  | $ | 896     |  
|                                                          |  |                       
|Nonperforming loans were as follows:                      |  |                        |         |   |                  |   |         |  
|                                                          |  | March 31,2007          |         |   | December 31,2006 |  
|                                                          |  | (dollars in thousands) |        
|Loans past due 90 days or more still on accrual           |  | $                      | 769     |   |                  | $ | 2,010   |  
|Non-accrual loans                                         |  |                        | 7,493   |   |                  |   | 6,930   |  

Nonperforming loans include all (or almost all) impaired loans and smaller balance homogeneous loans, such as
residential mortgage and consumer loans, that are collectively evaluated for impairment.



12



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##### Table of Contents

Note 5  Advance from the Federal Home Loan Bank

Advances from the Federal Home Loan Bank were as follows:



|                                                                                                               |  |                        |        |                  |   |       
|-------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | ---------------- | - | ------
|                                                                                                               |  | March 31,2007          |        | December 31,2006
|                                                                                                               |  | (dollars in thousands)
|Single maturity advances with fixed rates from 4.48% to 5.64% maturing from 2009 through 2012                  |  | $                      | 36,500 |                  | $ | 6,500 
|Single maturity advance with a variable rate of 5.37% maturing 2008                                            |  |                        | 25,000 |                  |   | 25,000
|Monthly amortizing advances with fixed rates from 0.00% to 9.10% and maturities ranging from 2007 through 2035 |  |                        | 15,507 |                  |   | 16,062
|                                                                                                               |  |                        |        |                  |   |       
|Total                                                                                                          |  | $                      | 77,007 |                  | $ | 47,562
|                                                                                                               |  |                        |        |                  |   |       

Each advance is payable per terms on agreement, with a prepayment penalty. The advances were collateralized by
first mortgage loans, under a blanket lien arrangement. At March 31, 2007, the Bank had unused borrowing capacity of $83.7 million with the FHLB.

Note 6  Earnings per Share

The factors used in the earnings per share computation follow:



|                                                                                |  |                                                        |           |      |   |          
|------------------------------------------------------------------------------- |  | ------------------------------------------------------ | --------- | ---- | - | ---------
|                                                                                |  | Three Months EndedMarch 31,                           
|                                                                                |  | 2007                                                   |           | 2006
|                                                                                |  | (dollars in thousands, exceptshare and per share data)
|Basic                                                                           |  |                                                        |           |      |   |          
|Net income                                                                      |  | $                                                      | 3,601     |      | $ | 3,403    
|                                                                                |  |                                                        |           |      |   |          
|Weighted average voting and non-voting common shares outstanding                |  |                                                        | 7,582,819 |      |   | 6,332,447
|                                                                                |  |                                                        |           |      |   |          
|Basic earnings per common share                                                 |  | $                                                      | 0.47      |      | $ | 0.54     
|                                                                                |  |                                                        |           |      |   |          
|                                                                                |  |                                                       
|Diluted                                                                         |  |                                                        |           |      |   |          
|Net income                                                                      |  | $                                                      | 3,601     |      | $ | 3,403    
|                                                                                |  |                                                        |           |      |   |          
|Weighted average voting and non-voting common shares outstanding                |  |                                                        | 7,582,819 |      |   | 6,332,447
|Add: dilutive effects of assumed exercises of stock options and unvested shares |  |                                                        |          |      |   |         
|                                                                                |  |                                                        |           |      |   |          
|Average shares and potential common shares                                      |  |                                                        | 7,582,819 |      |   | 6,332,447
|                                                                                |  |                                                        |           |      |   |          
|Diluted earnings per common share                                               |  | $                                                      | 0.47      |      | $ | 0.54     
|                                                                                |  |                                                        |           |      |   |          

Unvested share of common stock of 35,480 for 2007 and stock options for 251,070 shares of common stock for 2007
and 251,820 shares of common stock for 2006, were not considered in computing earnings per common share because they were anti-dilutive.

Note 7 
Total Comprehensive Income

Total comprehensive income was as follows:



|                                                                                                       |  |                             |       |      |   |       |  
|------------------------------------------------------------------------------------------------------ |  | --------------------------- | ----- | ---- | - | ----- | -
|                                                                                                       |  | Three Months EndedMarch 31, |      
|                                                                                                       |  | 2007                        |       | 2006 |  
|                                                                                                       |  | (dollars in thousands)      |      
|Net income                                                                                             |  | $                           | 3,601 |      | $ | 3,403 |  
|Change in unrealized gain (loss) on securities held for sale, net of reclassifications and tax effects |  |                             | 88    |      |   | (64   | )
|                                                                                                       |  |                             |       |      |   |       |  
|Total comprehensive income                                                                             |  | $                           | 3,689 |      | $ | 3,339 |  
|                                                                                                       |  |                             |       |      |   |       |  



13



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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial Condition

and Results of Operations

This item analyzes our
financial condition, change in financial condition and results of operations. This section should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes presented in Part I, Item 1 of this
report.

Cautionary Note Regarding Forward-Looking Statements

This report contains statements about the future expectations, activities and events that constitute forward-looking statements under the Private Securities Litigation Reform Act. Forward-looking statements are based on our beliefs,
assumptions and expectations of our future financial and operating performance and growth plans, taking into account information currently available to us. These statements are not statements of historical fact. The words believe,
may, should, anticipate, estimate, expect, intend, objective, seek, plan, strive or similar words, or the negatives of these
words, identify forward-looking statements.

Forward-looking statements involve risks and uncertainties that may cause our actual results to differ
materially from the expectations of future results we expressed or implied in any forward-looking statements. These risks and uncertainties can be difficult to predict and may be out of our control. Factors that could contribute to differences in
our results include, but are not limited to the factors listed in Part 2, Item 1A  Risk Factors in this report and the more detailed risks identified, and the cautionary statements included in our December 31, 2006 Annual Report on
Form 10-K.

Forward-looking statements are not guarantees of performance or results. A forward-looking statement may include a statement of the assumptions
or bases underlying the forward-looking statement. The Company believes it has chosen these assumptions or bases in good faith and that they are reasonable. We caution you however, that assumptions or bases almost always vary from actual results,
and the differences between assumptions or bases and actual results can be material. The forward-looking statements included in this report speak only as of the date of the report. We have no duty, and do not intend to, update these statements
unless applicable laws require us to do so.

Overview

Porter Bancorp, Inc. (NASDAQ: PBIB) is a Louisville, Kentucky-based bank holding company which operates 13 full-service banking offices in ten counties through its wholly-owned subsidiary, PBI Bank. Our markets include metropolitan
Louisville in Jefferson County and the surrounding counties of Henry and Bullitt, and extend south along the Interstate 65 corridor to Tennessee. We serve south central Kentucky from banking offices in Cumberland, Butler, Green, Hart, Edmonson,
Warren and Barren Counties. Our market area has experienced annual positive deposit growth rates in recent years with the trend expected to continue for the next few years.

For the three months ended March 31, 2007, the Company reported net income of $3.6 million. This compares to net income of $3.4 million for the first quarter of 2006. Basic and diluted earnings per share were
$0.47 for the three months ended March 31, 2007, compared to $0.54 for the first quarter of 2006. The reduction in earnings per share between periods is primarily attributable to the issuance of 1,250,000 shares of common stock in our initial
public offering in September 2006.



14



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##### Table of Contents

Highlights for the quarter ended March 31, 2007 consist of the following:



| |  |  | Net income increased 5.8% to $3.6 million for the first quarter of 2007 compared to $3.4 million for the first quarter of 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | Total assets increased 14.1% to $1.12 billion since the first quarter of 2006.
| | - |  | ------------------------------------------------------------------------------



| |  |  | Loans grew 14.7% to $926.7 million compared with the first quarter of 2006 and 8.5% since December 31, 2006.
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | Deposits grew 10.8% since the first quarter of 2006. The Banks core customer non-interest bearing deposit accounts increased from $59.8 million to $65.5
million, or 9.5%, during the quarter.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The efficiency ratio for the first quarter of 2007 improved to 45.4% from 48.1% in the first quarter of 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | We expanded our presence to Bowling Green, Kentucky by opening a loan production office during March 2007 and recruiting an experienced lending and product team
with an established customer base.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following discussion and analysis covers the primary factors affecting our performance and
financial condition.

Results of Operations

The
following table summarizes components of income and expense and the change in those components for the three months ended March 31, 2007 compared with the same period of 2006:



|                            |  |                                     |        |                          |   |        |  |   |         |   |  |       |  
|--------------------------- |  | ----------------------------------- | ------ | ------------------------ | - | ------ |  | - | ------- | - |  | ----- | -
|                            |  | For the Three MonthsEnded March 31, |        | Change from Prior Period |  
|                            |  | 2007                                |        | 2006                     |   | Amount |  |   | Percent |  
|                            |  | (dollars in thousands)              |       
|Gross interest income       |  | $                                   | 20,054 |                          | $ | 16,987 |  | $ | 3,067   |   |  | 18.1  | %
|Gross interest expense      |  |                                     | 10,310 |                          |   | 7,943  |  |   | 2,367   |   |  | 29.8  |  
|Net interest income         |  |                                     | 9,744  |                          |   | 9,044  |  |   | 700     |   |  | 7.7   |  
|Provision for credit losses |  |                                     | 625    |                          |   | 376    |  |   | 249     |   |  | 66.2  |  
|Non-interest income         |  |                                     | 1,176  |                          |   | 1,366  |  |   | (190    | ) |  | (13.9 | )
|Non-interest expense        |  |                                     | 4,956  |                          |   | 5,010  |  |   | (54     | ) |  | (1.1  | )
|Net income before taxes     |  |                                     | 5,339  |                          |   | 5,024  |  |   | 315     |   |  | 6.3   |  
|Income tax expense          |  |                                     | 1,738  |                          |   | 1,621  |  |   | 117     |   |  | 7.2   |  
|Net income                  |  |                                     | 3,601  |                          |   | 3,403  |  |   | 198     |   |  | 5.8   |  

Net income of $3,601,000 for the three months ended March 31, 2007 increased $198,000, or 5.8%, from
$3,403,000 for the comparable period of 2006. This increase in earnings was primarily attributable to increased net interest income which was partially offset by lower non-interest income and increased provision for loan losses expense. The increase
in net interest income was attributable to growth in our loan portfolio partially offset by the reduction in net interest margin reflecting the effect of a flat yield curve. Decreased gains on sales of government guaranteed loans, which reflects the
cyclical nature of this type of income, and decreased service charges on deposit accounts resulted in lower non-interest income. Service charges on deposit accounts decreased as a result of changes in product fee structures which we believe will
make certain products more competitive, thereby increasing product sales over time. Provision for loan losses expense increased $249,000, or 66.2%, in comparison to the first quarter of 2006 as a result of strong growth in our loan portfolio,
requiring a larger than usual provision to remain consistent with historical experience, and our current assessment of borrowers ability to repay and our collateral positions related to impaired and non-performing loans.



15



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##### Table of Contents

Net Interest Income  Our net interest income was $9,744,000 for the three months ended March 31,
2007, an increase of $700,000, or 7.7%, compared with $9,044,000 for the same period in 2006. Net interest spread and margin were 3.29% and 3.92%, respectively, for the first quarter of 2007, compared with 3.55% and 3.95%, respectively, for the
first quarter of 2006.

Our average interest-earning assets were $1.02 billion for the three months ended March 31, 2007, compared with $938.7 million
for the three months ended March 31, 2006, a 8.7% increase primarily attributable to loan growth. Average loans were $891.6 million for the three months ended March 31, 2007, compared with $797.9 million for the three months ended
March 31, 2006, an 11.7% increase. Our total interest income increased by 18.1% to $20.1 million for the three months ended March 31, 2007, compared with $17.0 million for the same period in 2006. The change was due to a combination of
higher interest rates and higher loan volume.

Our average interest-bearing liabilities also increased by 4.8% to $881.8 million for the three months ended
March 31, 2007, compared with $841.5 million for the three months ended March 31, 2006. Our total interest expense increased by 29.8% to $10.3 million for the three months ended March 31, 2007, compared with $7.9 million during the
same period in 2006, due primarily to an increase in the volume of, and higher interest rates paid on, certificates of deposit. Our average volume of certificates of deposit increased by 5.5% to $664.0 million for the three months ended
March 31, 2007, compared with $629.6 million for the three months ended March 31, 2006. The average interest rate paid on certificates of deposits increased to 5.0% for the three months ended March 31, 2007, compared with 3.95% for
the three months ended March 31, 2006. The increase in cost of funds was the result of the continued repricing of certificates of deposit at maturity at higher interest rates. Certificate of deposit volume increase also reflected increased
interest rates. Going forward, management expects cost of funds to continue to increase as the general market deposit rates have become increasingly competitive with the recent upward trend in interest rates.



16



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##### Table of Contents

Average Balance Sheets

The following table presents the average balance sheets for the three month periods ending March 31, 2007 and 2006, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread
for the related periods.



|                                                  |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|------------------------------------------------- |  | ---------------------------- | --------- | - | -------------------- | - | ----------------- |  | ---- | -------------- |  | - | ------------------- | - | ----------------- | - | ------ |  | ---- | -
|                                                  |  | Three Months Ended March 31, |          
|                                                  |  | 2007                         |           |   | 2006                 |  
|                                                  |  | AverageBalance               |           |   | Interest Earned/Paid |   | AverageYield/Cost |  |      | AverageBalance |  |   | InterestEarned/Paid |   | AverageYield/Cost |  
|                                                  |  | (dollars in thousands)       |          
|ASSETS                                            |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Interest-earning assets:                          |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Loan receivables (1)(2)                           |  | $                            | 891,591   |   |                      | $ | 18,531            |  | 8.43 | %              |  | $ | 797,919             |   |                   | $ | 15,472 |  | 7.86 | %
|Securities                                        |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Taxable                                           |  |                              | 78,839    |   |                      |   | 952               |  | 4.90 |                |  |   | 82,098              |   |                   |   | 868    |  | 4.29 |  
|Tax-exempt (3)                                    |  |                              | 16,071    |   |                      |   | 166               |  | 6.44 |                |  |   | 17,159              |   |                   |   | 181    |  | 6.58 |  
|FHLB stock                                        |  |                              | 8,978     |   |                      |   | 141               |  | 6.37 |                |  |   | 8,476               |   |                   |   | 120    |  | 5.74 |  
|Other equity securities                           |  |                              | 3,428     |   |                      |   | 37                |  | 4.38 |                |  |   | 3,535               |   |                   |   | 41     |  | 4.70 |  
|Federal funds sold and other                      |  |                              | 18,057    |   |                      |   | 227               |  | 5.10 |                |  |   | 29,497              |   |                   |   | 305    |  | 4.19 |  
|                                                  |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total interest-earning assets                     |  |                              | 1,016,964 |   |                      |   | 20,054            |  | 8.03 | %              |  |   | 938,684             |   |                   |   | 16,987 |  | 7.38 | %
|                                                  |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Less: Allowance for loan losses                   |  |                              | (13,017   | ) |                      |   |                   |  |      |                |  |   | (12,411             | ) |                   |   |        |  |      |  
|Non-interest earning assets                       |  |                              | 62,947    |   |                      |   |                   |  |      |                |  |   | 61,108              |   |                   |   |        |  |      |  
|                                                  |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total assets                                      |  | $                            | 1,066,894 |   |                      |   |                   |  |      |                |  | $ | 987,381             |   |                   |   |        |  |      |  
|                                                  |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY              |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Interest-bearing liabilities:                     |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Certificates of deposit and other time deposits   |  | $                            | 664,007   |   |                      | $ | 8,180             |  | 5.00 | %              |  | $ | 629,568             |   |                   | $ | 6,128  |  | 3.95 | %
|NOW and money market deposits                     |  |                              | 119,637   |   |                      |   | 1,022             |  | 3.46 |                |  |   | 92,681              |   |                   |   | 480    |  | 2.10 |  
|Savings accounts                                  |  |                              | 23,961    |   |                      |   | 75                |  | 1.27 |                |  |   | 23,146              |   |                   |   | 35     |  | 0.61 |  
|Federal funds purchased and repurchase agreements |  |                              | 1,313     |   |                      |   | 5                 |  | 1.54 |                |  |   | 4,251               |   |                   |   | 41     |  | 3.91 |  
|FHLB advances                                     |  |                              | 47,853    |   |                      |   | 557               |  | 4.72 |                |  |   | 57,242              |   |                   |   | 627    |  | 4.44 |  
|Junior subordinated debentures                    |  |                              | 25,000    |   |                      |   | 471               |  | 7.64 |                |  |   | 25,000              |   |                   |   | 488    |  | 7.92 |  
|Other borrowing                                   |  |                              |          |   |                      |   |                  |  |     |                |  |   | 9,600               |   |                   |   | 144    |  | 6.08 |  
|                                                  |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total interest-bearing liabilities                |  |                              | 881,771   |   |                      |   | 10,310            |  | 4.74 | %              |  |   | 841,488             |   |                   |   | 7,943  |  | 3.83 | %
|                                                  |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Non-interest-bearing liabilities:                 |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Non-interest-bearing deposits                     |  |                              | 67,963    |   |                      |   |                   |  |      |                |  |   | 64,661              |   |                   |   |        |  |      |  
|Other liabilities                                 |  |                              | 6,925     |   |                      |   |                   |  |      |                |  |   | 7,691               |   |                   |   |        |  |      |  
|                                                  |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities                                 |  |                              | 956,659   |   |                      |   |                   |  |      |                |  |   | 913,840             |   |                   |   |        |  |      |  
|Stockholders equity                              |  |                              | 110,235   |   |                      |   |                   |  |      |                |  |   | 73,541              |   |                   |   |        |  |      |  
|                                                  |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities and stockholders equity        |  | $                            | 1,066,894 |   |                      |   |                   |  |      |                |  | $ | 987,381             |   |                   |   |        |  |      |  
|                                                  |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest income                               |  |                              |           |   |                      | $ | 9,744             |  |      |                |  |   |                     |   |                   | $ | 9,044  |  |      |  
|                                                  |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest spread                               |  |                              |           |   |                      |   |                   |  | 3.29 | %              |  |   |                     |   |                   |   |        |  | 3.55 | %
|                                                  |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest margin                               |  |                              |           |   |                      |   |                   |  | 3.92 | %              |  |   |                     |   |                   |   |        |  | 3.95 | %
|                                                  |  |                              |           |   |                      |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  

---

|(1) | Includes loan fees in both interest income and the calculation of yield on loans.
|--- | ---------------------------------------------------------------------------------

|(2) | Calculations include non-accruing loans in average loan amounts outstanding.
|--- | ----------------------------------------------------------------------------

|(3) | Taxable equivalent yields are calculated assuming a 35% federal income tax rate.
|--- | --------------------------------------------------------------------------------



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##### Table of Contents

Rate/Volume Analysis

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



|                                                   |  |                                           |       |   |        |   |       |        |  |   |       |  
|-------------------------------------------------- |  | ----------------------------------------- | ----- | - | ------ | - | ----- | ------ |  | - | ----- | -
|                                                   |  | Three Months EndedMarch 31, 2007 vs. 2006 |      
|                                                   |  | Increase (decrease)due to change in       |       |   | Net    |  
|                                                   |  | Rate                                      |       |   | Volume |   |       | Change | 
|                                                   |  | (in thousands)                            |      
|                                                   |  |                                           |      
|Interest-earning assets:                           |  |                                           |       |   |        |   |       |        |  |   |       |  
|                                                   |  |                                           |      
|Loan receivables                                   |  | $                                         | 1,162 |   |        | $ | 1,897 |        |  | $ | 3,059 |  
|                                                   |  |                                           |      
|Securities                                         |  |                                           | 112   |   |        |   | (43   | )      |  |   | 69    |  
|                                                   |  |                                           |      
|FHLB stock                                         |  |                                           | 14    |   |        |   | 7     |        |  |   | 21    |  
|                                                   |  |                                           |      
|Other equity securities                            |  |                                           | (3    | ) |        |   | (1    | )      |  |   | (4    | )
|                                                   |  |                                           |      
|Federal funds sold and other                       |  |                                           | 99    |   |        |   | (177  | )      |  |   | (78   | )
|                                                   |  |                                           |       |   |        |   |       |        |  |   |       |  
|Total increase in interest income                  |  |                                           | 1,384 |   |        |   | 1,683 |        |  |   | 3,067 |  
|                                                   |  |                                           |       |   |        |   |       |        |  |   |       |  
|Interest-bearing liabilities:                      |  |                                           |       |   |        |   |       |        |  |   |       |  
|                                                   |  |                                           |      
|Certificates of deposit and other time deposits    |  |                                           | 1,702 |   |        |   | 350   |        |  |   | 2,052 |  
|                                                   |  |                                           |      
|NOW and money market accounts                      |  |                                           | 374   |   |        |   | 168   |        |  |   | 542   |  
|                                                   |  |                                           |      
|Savings accounts                                   |  |                                           | 39    |   |        |   | 1     |        |  |   | 40    |  
|                                                   |  |                                           |      
|Federal funds purchased and repurchased agreements |  |                                           | (17   | ) |        |   | (19   | )      |  |   | (36   | )
|                                                   |  |                                           |      
|FHLB advances                                      |  |                                           | 43    |   |        |   | (113  | )      |  |   | (70   | )
|                                                   |  |                                           |      
|Junior subordinated debentures                     |  |                                           | (17   | ) |        |   |      |        |  |   | (17   | )
|                                                   |  |                                           |      
|Other borrowings                                   |  |                                           |      |   |        |   | (144  | )      |  |   | (144  | )
|                                                   |  |                                           |       |   |        |   |       |        |  |   |       |  
|Total increase in interest expense                 |  |                                           | 2,124 |   |        |   | 243   |        |  |   | 2,367 |  
|                                                   |  |                                           |       |   |        |   |       |        |  |   |       |  
|Increase (decrease) in net interest income         |  | $                                         | (740  | ) |        | $ | 1,440 |        |  | $ | 700   |  
|                                                   |  |                                           |       |   |        |   |       |        |  |   |       |  



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##### Table of Contents

Non-Interest Income  The following table presents the major categories of non-interest income for the
first quarter ended March 31, 2007 and 2006:



|                                                   |  |                             |       |      |   |      
|-------------------------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                                   |  | Three MonthsEnded March 31,
|                                                   |  | 2007                        |       | 2006
|                                                   |  | (in thousands)             
|Service charges on deposit accounts                |  | $                           | 535   |      | $ | 665  
|Secondary market brokerage fees                    |  |                             | 95    |      |   | 13   
|Title insurance commissions                        |  |                             | 77    |      |   | 20   
|Gains on sales of government guaranteed loans, net |  |                             |      |      |   | 99   
|Gains on sales of loans originated for sale        |  |                             |      |      |   | 111  
|Gains on sales of other assets, net                |  |                             | 6     |      |   | 18   
|Other                                              |  |                             | 463   |      |   | 440  
|                                                   |  |                             |       |      |   |      
|Total non-interest income                          |  | $                           | 1,176 |      | $ | 1,366
|                                                   |  |                             |       |      |   |      

Non-interest income for the first quarter ended March 31, 2007 decreased $190,000, or 13.9%, in comparison
with the first quarter of 2006. The decrease in non-interest income for the first quarter ended March 31, 2007 was primarily due to a decrease in service charges on deposit accounts. This decrease was a result of changes in product fee
structures that the Company believes will make certain products more competitive, thereby increasing product sales over time.

We also experienced a
decrease in gains on sales of government guaranteed loans, reflecting the cyclical nature of originations and sales of this type of loan. Beginning in 2004, we placed more emphasis on lending under the Business and Industrial Loan Guarantee Program
administered by the Rural Business-Cooperative Service of the United States Department of Agriculture (USDA). The program makes an annual allocation of available credits to guarantee loans to promote rural economic development, giving
priority to loans in rural communities with populations of 25,000 or less. Participating lenders submit proposals for individual projects meeting specific criteria in a competitive process, and there is ordinarily several months between the time a
conditional commitment is awarded for a project and the loan closing. Accordingly, we expect the amount of income we earn from the sale of USDA guaranteed loans will fluctuate from period to period.

We also experienced changes in the income derived from our secondary market residential lending operations. While we recorded a gain of $111,000 from the sale of loans
originated for sale in the first quarter of 2006, we had no revenue from this activity in the first quarter of 2007. This is the result of the companys strategic decision during the latter portion of 2006 to migrate from higher-overhead
residential secondary market correspondent lending to lower-overhead residential secondary market brokerage. We recorded brokerage revenue of $95,000 during the first quarter of 2007 compared to $13,000 for the same period of 2006. Based on current
trends in long-term residential lending and housing markets we believe our strategic decision will better position us over the long-term in this business line.



19



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##### Table of Contents

Non-interest ExpenseThe following table presents the major categories of non-interest
expense for the first quarter ended March 31, 2007 and 2006:



|                                |  |                             |       |      |   |      
|------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                |  | Three MonthsEnded March 31,
|                                |  | 2007                        |       | 2006
|                                |  | (in thousands)             
|Salary and employee benefits    |  | $                           | 2,935 |      | $ | 2,837
|Occupancy and equipment         |  |                             | 565   |      |   | 688  
|State franchise tax             |  |                             | 325   |      |   | 273  
|Professional fees               |  |                             | 152   |      |   | 248  
|Advertising                     |  |                             | 139   |      |   | 129  
|Postage and delivery            |  |                             | 129   |      |   | 131  
|Office supplies                 |  |                             | 112   |      |   | 95   
|Communications                  |  |                             | 110   |      |   | 146  
|Other real estate owned expense |  |                             | 48    |      |   | 59   
|Other                           |  |                             | 441   |      |   | 404  
|                                |  |                             |       |      |   |      
|Total non-interest expense      |  | $                           | 4,956 |      | $ | 5,010
|                                |  |                             |       |      |   |      

Non-interest expense for the first quarter ended March 31, 2007 decreased $54,000, or 1.1%, compared to the
first quarter of 2006. The decrease in non-interest expense was primarily attributable to reduced occupancy, equipment, and communications expenses, and was partially offset by slight increases in salaries and employee benefits. Our diligent focus
on expense control resulted in an improved efficiency ratio of 45.4% for the first quarter of 2007 compared with 48.1% for the first quarter of 2006. Our efficiency ratio could increase modestly in future quarters as we make investments to grow into
new markets.

Income Tax ExpenseIncome tax expense was $1.7 million, or 32.6% of pre-tax income, for the first quarter ended
March 31, 2007, compared with $1.6 million or 32.3% of pre-tax income for the first quarter of 2006. The slight increase in effective tax rate is attributable to a modest decline in tax-exempt earning assets as a percentage of total interest
earning assets between periods.

Analysis of Financial Condition

Total assets increased $68.7 million, or 6.5%, to $1.12 billion at March 31, 2007 from $1.05 billion at December 31, 2006. This increase was primarily attributable to an increase of $72.0 million in net
loans from loan growth. The increase was partially offset by a $5.7 million decrease in cash and cash equivalents. Total assets at March 31, 2007 increased $138.8 from $981.2 at March 31, 2006, representing a 14.1% increase.

Loans Receivable Loans receivable increased $72.3 million, or 8.5%, during the three months ended March 31, 2007 to $926.7 million. Our commercial,
commercial real estate, and real estate construction portfolios increased by an aggregate of $61.1 million, or 10.3%, during the three months and comprised 70.8% of the total loan portfolio at March 31, 2007.



20



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##### Table of Contents

Loan Portfolio Composition The following table presents a summary of the loan portfolio at the dates
indicated, net of deferred loan fees, by type. There are no foreign loans in our portfolio; and other than commercial real estate, construction real estate and residential real estate; there is no concentration of loans in any industry exceeding 10%
of total loans.



|              |  |                        |         |         |                        |   |        |   |         |  |        |  
|------------- |  | ---------------------- | ------- | ------- | ---------------------- | - | ------ | - | ------- |  | ------ | -
|              |  | As of March 31, 2007   |         |         | As of December 31,2006 |  
|              |  | Amount                 |         | Percent |                        |   | Amount |   | Percent | 
|              |  | (dollars in thousands) |        
|Type of Loan: |  |                        |         |         |                        |   |        |   |         |  |        |  
|Real estate:  |  |                        |         |         |                        |   |        |   |         |  |        |  
|Commercial    |  | $                      | 349,225 |         | 37.68                  | % |        | $ | 324,354 |  | 37.96  | %
|Construction  |  |                        | 240,190 |         | 25.92                  |   |        |   | 211,973 |  | 24.81  |  
|Residential   |  |                        | 208,227 |         | 22.47                  |   |        |   | 195,591 |  | 22.89  |  
|Home equity   |  |                        | 18,616  |         | 2.01                   |   |        |   | 19,099  |  | 2.24   |  
|Commercial    |  |                        | 67,118  |         | 7.24                   |   |        |   | 59,113  |  | 6.92   |  
|Consumer      |  |                        | 28,770  |         | 3.10                   |   |        |   | 29,709  |  | 3.48   |  
|Agriculture   |  |                        | 13,488  |         | 1.46                   |   |        |   | 13,436  |  | 1.57   |  
|Other         |  |                        | 1,113   |         | 0.12                   |   |        |   | 1,092   |  | 0.13   |  
|              |  |                        |         |         |                        |   |        |   |         |  |        |  
|Total loans   |  | $                      | 926,747 |         | 100.00                 | % |        | $ | 854,367 |  | 100.00 | %
|              |  |                        |         |         |                        |   |        |   |         |  |        |  

Non-Performing Assets Non-performing assets consist of certain restructured loans for which interest
rate or other terms have been renegotiated, loans past due 90 days or more still on accrual, loans on which interest is no longer accrued, real estate acquired through foreclosure and repossessed assets.

The following table sets forth information with respect to non-performing assets as of March 31, 2007 and December 31, 2006.



|                                                |  |                        |        |   |                  |   |        |  
|----------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                                |  | March 31,2007          |        |   | December 31,2006 |  
|                                                |  | (dollars in thousands) |       
|Loans past due 90 days or more still on accrual |  | $                      | 769    |   |                  | $ | 2,010  |  
|Non-accrual loans                               |  |                        | 7,493  |   |                  |   | 6,930  |  
|                                                |  |                        |        |   |                  |   |        |  
|Total non-performing loans                      |  |                        | 8,262  |   |                  |   | 8,940  |  
|Real estate acquired through foreclosure        |  |                        | 2,702  |   |                  |   | 2,415  |  
|Other repossessed assets                        |  |                        | 9      |   |                  |   | 9      |  
|                                                |  |                        |        |   |                  |   |        |  
|Total non-performing assets                     |  | $                      | 10,973 |   |                  | $ | 11,364 |  
|                                                |  |                        |        |   |                  |   |        |  
|Non-performing loans to total loans             |  |                        | 0.89   | % |                  |   | 1.05   | %
|                                                |  |                        |        |   |                  |   |        |  
|Non-performing assets to total loans            |  |                        | 1.18   | % |                  |   | 1.33   | %
|                                                |  |                        |        |   |                  |   |        |  

Nonperforming loans at March 31, 2007 were $8.3 million, or 0.89% of total loans, compared with $8.6 million,
or 1.06% of total loans, at March 31, 2006, and $8.9 million, or 1.05% of total loans at December 31, 2006. The decrease of $678,000 in non-performing loans from December 31, 2006 to March 31, 2007 is primarily attributable to
our collection efforts via foreclosure and collateral repossession.

Foreclosed properties at March 31, 2007 were $2.7 million compared with $1.9
million at March 31, 2006 and $2.4 million at December 31, 2006. The increase in foreclosed properties reflects the normal progression of troubled loans through workout, collateral repossession, and ultimate disposition. We value
foreclosed properties at fair or net recoverable value when acquired and expect to liquidate these properties to recover our investment in the due course of business.



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##### Table of Contents

Allowance for Loan Losses The allowance for loan losses is based on managements continuing review and
risk evaluation of individual loans, loss experience, current economic conditions, risk characteristics of various categories of loans and such other factors that, in managements judgment, require current recognition in estimating loan losses.

Management has established loan grading procedures that result in specific allowance allocations for any estimated inherent risk of loss. For loans not
individually graded, a general allowance allocation is computed using factors developed over time based on actual loss experience. The specific and general allocations plus consideration of qualitative factors represent managements best
estimate of probable losses contained in the loan portfolio at the evaluation date. Although the allowance for loan losses is comprised of specific and general allocations, the entire allowance is available to absorb any credit losses.

Our loan loss reserve as a percentage of total loans at March 31, 2007 decreased to 1.43% from 1.56% at March 31, 2006 and 1.50% at December 31, 2006.
Provision for loan losses increased $249,000 to $625,000 for the first quarter of 2007 compared with the first quarter of 2006 and $249,000 compared with the fourth quarter of 2006. The loan loss provision for the first quarter of 2007 was
comparatively large due to the substantial growth in the loan portfolio requiring a larger than usual provision to remain consistent with historical experience. Net loan charge-offs for the first quarter of 2007 were $246,000, or 0.03% of total
loans, compared with $6,000, or 0.001%, for the first quarter of 2006, and $199,000, or .02%, for the fourth quarter of 2006.

An analysis of changes in
allowance for loan losses and selected ratios for the three month periods ended March 31, 2007 and 2006 follows:



|                                                  |  |                             |        |   |      |   |        |  
|------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                  |  | Three Months EndedMarch 31, |       
|                                                  |  | 2007                        |        |   | 2006 |  
|                                                  |  | (dollars in thousands)      |       
|Balance at beginning of period                    |  | $                           | 12,832 |   |      | $ | 12,197 |  
|Provision for loan losses                         |  |                             | 625    |   |      |   | 376    |  
|Recoveries                                        |  |                             | 68     |   |      |   | 71     |  
|Charge-offs                                       |  |                             | (314   | ) |      |   | (77    | )
|                                                  |  |                             |        |   |      |   |        |  
|Balance at end of period                          |  | $                           | 13,211 |   |      | $ | 12,567 |  
|                                                  |  |                             |        |   |      |   |        |  
|                                                  |  |                            
|Allowance for loan losses to period-end loans     |  |                             | 1.43   | % |      |   | 1.56   | %
|                                                  |  |                             |        |   |      |   |        |  
|Net charge-offs to average loans                  |  |                             | 0.03   | % |      |   | 0.00   | %
|                                                  |  |                             |        |   |      |   |        |  
|Allowance for loan losses to non-performing loans |  |                             | 159.90 | % |      |   | 146.09 | %
|                                                  |  |                             |        |   |      |   |        |  

Liabilities Total liabilities at March 31, 2007 were $1.01 billion compared to $942.7 million
at December 31, 2006, an increase of $67.3 million, or 7.1%. The increase was primarily attributable to an increase in deposits of $35.6 million, or 4.1%, at March 31, 2007 to $897.5 million from $861.9 million at December 31, 2006
primarily due to an increase in both time deposits and transactional accounts from promotional efforts throughout the period. The core customer non-interest bearing deposit account growth of $5.7 million during the quarter is attributable to our new
deposit growth focus which includes new incentives for our employees and product improvements.

Federal Home Loan Bank advances also increased $29.4
million, or 61.8%, to $77.0 million from $47.6 million at December 31, 2006. These advances are used from time to time to fund asset growth and manage interest rate risk in accordance with our asset/liability management strategies.



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##### Table of Contents

Deposits are our primary source of funds. The following table sets forth the average daily balances and weighted average
rates paid for our deposits for the periods indicated:



|                        |  |                                         |         |             |                                     |   |                |   |             |  |      |  
|----------------------- |  | --------------------------------------- | ------- | ----------- | ----------------------------------- | - | -------------- | - | ----------- |  | ---- | -
|                        |  | For the Three MonthsEnded March 31,2007 |         |             | For the Year Ended December 31,2006 |  
|                        |  | AverageBalance                          |         | AverageRate |                                     |   | AverageBalance |   | AverageRate | 
|                        |  | (dollars in thousands)                  |        
|Demand                  |  | $                                       | 67,963  |             |                                    |   |                | $ | 64,778      |  |     |  
|Interest checking       |  |                                         | 50,428  |             | 1.70                                | % |                |   | 51,127      |  | 1.60 | %
|Money market            |  |                                         | 69,209  |             | 4.75                                | % |                |   | 36,140      |  | 3.43 | %
|Savings                 |  |                                         | 23,961  |             | 1.27                                | % |                |   | 23,455      |  | 0.90 | %
|Certificates of deposit |  |                                         | 664,007 |             | 5.00                                | % |                |   | 634,919     |  | 4.40 | %
|                        |  |                                         |         |             |                                     |   |                |   |             |  |      |  
|Total deposits          |  | $                                       | 875,568 |             | 4.30                                | % |                | $ | 810,419     |  | 3.73 | %
|                        |  |                                         |         |             |                                     |   |                |   |             |  |      |  

The following table sets forth the average daily balances and weighted average rates paid for our certificates of
deposit for the periods indicated:



|                   |  |                                         |         |             |                                     |   |                |   |             |  |      |  
|------------------ |  | --------------------------------------- | ------- | ----------- | ----------------------------------- | - | -------------- | - | ----------- |  | ---- | -
|                   |  | For the Three MonthsEnded March 31,2007 |         |             | For the Year Ended December 31,2006 |  
|                   |  | AverageBalance                          |         | AverageRate |                                     |   | AverageBalance |   | AverageRate | 
|                   |  | (dollars in thousands)                  |        
|Less than $100,000 |  | $                                       | 493,798 |             | 4.95                                | % |                | $ | 473,813     |  | 4.36 | %
|$100,000 or more   |  |                                         | 170,209 |             | 5.12                                | % |                |   | 161,106     |  | 4.53 | %
|                   |  |                                         |         |             |                                     |   |                |   |             |  |      |  
|Total              |  | $                                       | 664,007 |             | 5.00                                | % |                | $ | 634,919     |  | 4.40 | %
|                   |  |                                         |         |             |                                     |   |                |   |             |  |      |  



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##### Table of Contents

The following table shows at March 31, 2007 and December 31, 2006 the amount of our time deposits of $100,000
or more by time remaining until maturity:



|                                 |  |                        |         |                       |   |        
|-------------------------------- |  | ---------------------- | ------- | --------------------- | - | -------
|Maturity Period                  |  | As ofMarch 31,2007     |         | As ofDecember 31,2006
|                                 |  | (dollars in thousands)
|Three months or less             |  | $                      | 45,341  |                       | $ | 49,079 
|Three months through six months  |  |                        | 36,932  |                       |   | 42,288 
|Six months through twelve months |  |                        | 87,372  |                       |   | 61,690 
|Over twelve months               |  |                        | 22,020  |                       |   | 29,834 
|                                 |  |                        |         |                       |   |        
|Total                            |  | $                      | 191,665 |                       | $ | 182,891
|                                 |  |                        |         |                       |   |        

Liquidity

Liquidity risk arises from the possibility we may not be able to satisfy current or future financial commitments, or may become unduly reliant on alternative funding sources. The objective of liquidity risk management is to ensure that the
cash flow requirements of depositors and borrowers, as well as our operating cash needs, are met, taking into account all on- and off-balance sheet funding demands. Liquidity risk management also includes ensuring cash flow needs are met at a
reasonable cost. We maintain an investment and funds management policy, which identifies the primary sources of liquidity, establishes procedures for monitoring and measuring liquidity, and establishes minimum liquidity requirements in compliance
with regulatory guidance. The liquidity position is continually monitored and reviewed by our Asset Liability Committee.

Funds are available from a number
of sources, including the sale of securities in the available-for-sale portion of the investment portfolio, principal pay-downs on loans and mortgage-backed securities, brokered deposits and other wholesale funding. During 2006 and the first three
months of 2007, PBI Bank utilized brokered and wholesale deposits to supplement its funding strategy. At March 31, 2007, these deposits totaled $1.5 million. PBI Bank also secured federal funds borrowing lines from major correspondent banks
totaling $21.0 million on an unsecured basis and an additional $15.0 million on a secured basis.

Traditionally, PBI Bank has utilized borrowings from the
FHLB to supplement our funding requirements. At March 31, 2007, the Bank had an unused borrowing capacity with the FHLB of $83.7 million. Management believes our sources of liquidity are adequate to meet expected cash needs for the foreseeable
future.

We use cash to pay dividends on common stock, if and when declared by the board of directors, and to service debt. The main sources of funding
include dividends paid by PBI Bank, management fees received from PBI Bank and affiliated banks and financing obtained in the capital markets.

Capital

Stockholders equity increased $2.2 million to $110.5 million at March 31, 2007 compared with $108.3 million at December 31, 2006. The
increase was due to net income earned during 2007 reduced by dividends declared. The Company and the Bank qualified as well capitalized under regulatory guidelines at March 31, 2007.

Each of the federal bank regulatory agencies has established minimum leverage capital requirements for banking organizations. Banking organizations must maintain a
minimum ratio of Tier 1 capital to adjusted average quarterly assets equal to 3% to 5% subject to federal bank regulatory evaluation of an organizations overall safety and soundness.



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##### Table of Contents

The following table shows the ratios of Tier 1 capital and total capital to risk-adjusted assets and the leverage ratios
for Porter Bancorp, Inc. and PBI Bank at the dates indicated:



|                         |  |                    |   |  |                          |   |  |                |   |  |                   |   |  |               |   |  |         |  
|------------------------ |  | ------------------ | - |  | ------------------------ | - |  | -------------- | - |  | ----------------- | - |  | ------------- | - |  | ------- | -
|                         |  |                    |   |  |                          |   |  | March 31, 2007 |   |  | December 31, 2006 |  
|                         |  | RegulatoryMinimums |   |  | Well-CapitalizedMinimums |   |  | PorterBancorp  |   |  | PBIBank           |   |  | PorterBancorp |   |  | PBIBank |  
|Tier I capital           |  | 4.0                | % |  | 6.0                      | % |  | 13.42          | % |  | 10.84             | % |  | 14.32         | % |  | 11.56   | %
|Total risk-based capital |  | 8.0                |   |  | 10.0                     |   |  | 14.67          |   |  | 12.09             |   |  | 15.57         |   |  | 12.81   |  
|Tier I leverage ratio    |  | 4.0                |   |  | 5.0                      |   |  | 11.58          |   |  | 9.36              |   |  | 11.86         |   |  | 9.56    |  

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Companys interest sensitivity profile was asset sensitive at March 31, 2007, and December 31, 2006. Given an instantaneous 100 basis point decrease
in rates that was sustained for 12 months, base net interest income would decrease by an estimated 6.9% at March 31, 2007 compared with a decrease of 6.3% at December 31, 2006. Given a 100 basis point increase in interest rates, base net
interest income would increase by an estimated 6.0% at March 31, 2007, compared with an increase of 5.4% at December 31, 2006.

The following
table indicates the estimated impact on net interest income under various interest rate scenarios for the twelve months following March 31, 2007, as calculated using the static shock model approach:



|                   |  |                                      |        |   |                   |        |  
|------------------ |  | ------------------------------------ | ------ | - | ----------------- | ------ | -
|                   |  | Change in Future Net Interest Income |       
|                   |  | Dollar Change                        |        |   | Percentage Change |       
|                   |  | (dollars in thousands)               |       
|+ 200 basis points |  | $                                    | 4,310  |   |                   | 11.48  | %
|+ 100 basis points |  |                                      | 2,246  |   |                   | 5.98   |  
|- 100 basis points |  |                                      | (2,566 | ) |                   | (6.84  | )
|- 200 basis points |  |                                      | (6,206 | ) |                   | (16.53 | )

Item 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, we carried out an evaluation, under the
supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of the end of the fiscal quarter covered by this report, these
disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is: (a) recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission, and (b) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure.



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

In the normal course of operations, we are
defendants in various legal proceedings. In the opinion of management, there is no proceeding pending or, to the knowledge of our management, threatened litigation in which an adverse decision could result in a material adverse change in our
business or consolidated financial position.



|Item 1A. | Risk Factors
|-------- | ------------

Information regarding risk factors appears in the
Companys Annual Report on Form 10-K for the year ended December 31, 2006 under Item 1A  Risk Factors. There have been no material changes from the risk factors previously discussed in our Form 10-K.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Not
applicable.



|Item 3. | Default Upon Senior Securities
|------- | ------------------------------

Not applicable.



|Item 4. | Submission of Matters to a Vote of Securities Holders
|------- | -----------------------------------------------------

Not
applicable.



|Item 5. | Other Information
|------- | -----------------

Not applicable.



|Item 6. | Exhibits
|------- | --------



|(a) | Exhibits
|--- | --------

The following exhibits are filed or furnished as part of this
report:



|              |  |                                                                                                                                                       
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                
|31.1          |  | Certification of Principal Executive Officer, pursuant to Rule 13a  14(a).                                                                           
|              | 
|31.2          |  | Certification of Principal Financial Officer, pursuant to Rule 13a  14(a).                                                                           
|              | 
|32.1          |  | Certification of Principal Executive Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|              | 
|32.2          |  | Certification of Principal Financial Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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##### Table of Contents

SIGNATURES

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



|             |  |                                   |  |                                                     
|------------ |  | --------------------------------- |  | ----------------------------------------------------
|             |  | PORTER BANCORP, INC. (Registrant)
|             |  |                                  
|May 14, 2007 |  | By:                               |  | /s/ Maria L. Bouvette                               
|             |  |                                   |  | Maria L. Bouvette                                   
|             |  |                                   |  | President & Chief Executive Officer                 
|             |  |                                  
|May 14, 2007 |  | By:                               |  | /s/ David B. Pierce                                 
|             |  |                                   |  | David B. Pierce                                     
|             |  |                                   |  | Chief Financial Officer and Chief Accounting Officer



27