##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q

(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, 2010

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

PORTER BANCORP, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)





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

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



|                           |  |                             
|-------------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer   ̈        
|Non-accelerated filer  x   |  | Smaller reporting company   ̈

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.

8,822,844 shares of Common Stock, no par value, were outstanding at April 30, 2010.









---

##### 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 |  | 18  
|          |  |                                                                                      
|ITEM 3.   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 28  
|          |  |                                                                                      
|ITEM 4.   |  | CONTROLS AND PROCEDURES                                                               |  | 29  
|          |  |                                                                                      
|PART II  |  | OTHER INFORMATION                                                                     |  |     
|          |  |                                                                                      
|ITEM 1.   |  | LEGAL PROCEEDINGS                                                                     |  | 30  
|          |  |                                                                                      
|ITEM 1A.  |  | RISK FACTORS                                                                          |  | 30  
|          |  |                                                                                      
|ITEM 2.   |  | UNREGISTERED SALES ON EQUITY SECURITIES AND USE OF PROCEEDS                           |  | 30  
|          |  |                                                                                      
|ITEM 3.   |  | DEFAULTS UPON SENIOR SECURITIES                                                       |  | 30  
|          |  |                                                                                      
|ITEM 4.   |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 30  
|          |  |                                                                                      
|ITEM 5.   |  | OTHER INFORMATION                                                                     |  | 30  
|          |  |                                                                                      
|ITEM 6.   |  | EXHIBITS                                                                              |  | 31  





---

##### 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, 2010 and December 31, 2009

Unaudited Consolidated Statements of Income for the three months ended March 31, 2010 and 2009

Unaudited Consolidated Statement of Changes in Stockholders Equity for the three months ended March 31, 2010

Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009

Notes to Unaudited Consolidated Financial Statements



1





---

##### Table of Contents

PORTER BANCORP, INC.

Unaudited Consolidated Balance Sheets

(dollars in thousands except share data)



|                                                                                                                                             |  |               |           |                  |   |          
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ---------------- | - | ---------
|                                                                                                                                             |  | March 31,2010 |           | December 31,2009
|Assets                                                                                                                                       |  |               |           |                  |   |          
|Cash and due from financial institutions                                                                                                     |  | $             | 73,481    |                  | $ | 169,328  
|Federal funds sold                                                                                                                           |  |               | 19,001    |                  |   | 2,845    
|                                                                                                                                             |  |               |           |                  |   |          
|Cash and cash equivalents                                                                                                                    |  |               | 92,482    |                  |   | 172,173  
|Securities available for sale                                                                                                                |  |               | 180,582   |                  |   | 168,721  
|Mortgage loans held for sale                                                                                                                 |  |               | 975       |                  |   | 334      
|Loans, net of allowance of $26,543 and $26,392, respectively                                                                                 |  |               | 1,333,698 |                  |   | 1,386,526
|Premises and equipment                                                                                                                       |  |               | 23,251    |                  |   | 23,610   
|Other real estate owned                                                                                                                      |  |               | 59,688    |                  |   | 14,548   
|Goodwill                                                                                                                                     |  |               | 23,794    |                  |   | 23,794   
|Accrued interest receivable and other assets                                                                                                 |  |               | 42,857    |                  |   | 45,384   
|                                                                                                                                             |  |               |           |                  |   |          
|Total assets                                                                                                                                 |  | $             | 1,757,327 |                  | $ | 1,835,090
|                                                                                                                                             |  |               |           |                  |   |          
|Liabilities and Stockholders Equity                                                                                                         |  |               |           |                  |   |          
|Deposits                                                                                                                                     |  |               |           |                  |   |          
|Non-interest bearing                                                                                                                         |  | $             | 99,518    |                  | $ | 97,263   
|Interest bearing                                                                                                                             |  |               | 1,385,522 |                  |   | 1,432,833
|                                                                                                                                             |  |               |           |                  |   |          
|Total deposits                                                                                                                               |  |               | 1,485,040 |                  |   | 1,530,096
|Federal funds purchased and repurchase agreements                                                                                            |  |               | 11,595    |                  |   | 11,517   
|Federal Home Loan Bank advances                                                                                                              |  |               | 47,285    |                  |   | 82,980   
|Accrued interest payable and other liabilities                                                                                               |  |               | 6,670     |                  |   | 7,163    
|Subordinated capital note                                                                                                                    |  |               | 9,000     |                  |   | 9,000    
|Junior subordinated debentures                                                                                                               |  |               | 25,000    |                  |   | 25,000   
|                                                                                                                                             |  |               |           |                  |   |          
|Total liabilities                                                                                                                            |  |               | 1,584,590 |                  |   | 1,665,756
|Stockholders equity                                                                                                                         |  |               |           |                  |   |          
|Preferred stock, no par, 1,000,000 shares authorized, 35,000 issued and outstanding. Liquidation preference of $35 million at
March 31, 2010 |  |               | 34,351    |                  |   | 34,307   
|Common stock, no par, 19,000,000 shares authorized, 8,822,844 and 8,756,440 shares issued and outstanding,
respectively                      |  |               | 83,104    |                  |   | 83,104   
|Additional paid-in capital                                                                                                                   |  |               | 15,055    |                  |   | 14,959   
|Retained earnings                                                                                                                            |  |               | 35,820    |                  |   | 34,811   
|Accumulated other comprehensive income                                                                                                       |  |               | 4,407     |                  |   | 2,153    
|                                                                                                                                             |  |               |           |                  |   |          
|Total stockholders equity                                                                                                                   |  |               | 172,737   |                  |   | 169,334  
|                                                                                                                                             |  |               |           |                  |   |          
|Total liabilities and stockholders equity                                                                                                   |  | $             | 1,757,327 |                  | $ | 1,835,090
|                                                                                                                                             |  |               |           |                  |   |          

See accompanying notes to unaudited consolidated
financial statements.



2





---

##### Table of Contents

PORTER BANCORP, INC.

Unaudited Consolidated Statements of Income

(dollars in thousands, except per share data)



|                                                    |  |                             |        |      |   |       
|--------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                                    |  | Three Months EndedMarch 31,
|                                                    |  | 2010                        |        | 2009
|Interest income                                     |  |                             |        |      |   |       
|Loans, including fees                               |  | $                           | 19,873 |      | $ | 21,270
|Taxable securities                                  |  |                             | 2,335  |      |   | 1,862 
|Tax exempt securities                               |  |                             | 216    |      |   | 221   
|Fed funds sold and other                            |  |                             | 202    |      |   | 149   
|                                                    |  |                             |        |      |   |       
|                                                    |  |                             | 22,626 |      |   | 23,502
|                                                    |  |                             |        |      |   |       
|                                                    |  |                            
|Interest expense                                    |  |                             |        |      |   |       
|Deposits                                            |  |                             | 7,383  |      |   | 9,918 
|Federal Home Loan Bank advances                     |  |                             | 720    |      |   | 1,149 
|Subordinated capital note                           |  |                             | 75     |      |   | 102   
|Junior subordinated debentures                      |  |                             | 152    |      |   | 251   
|Federal funds purchased and other                   |  |                             | 119    |      |   | 115   
|                                                    |  |                             |        |      |   |       
|                                                    |  |                             | 8,449  |      |   | 11,535
|                                                    |  |                             |        |      |   |       
|Net interest income                                 |  |                             | 14,177 |      |   | 11,967
|Provision for loan losses                           |  |                             | 3,000  |      |   | 1,600 
|                                                    |  |                             |        |      |   |       
|Net interest income after provision for loan losses |  |                             | 11,177 |      |   | 10,367
|                                                    |  |                            
|Non-interest income                                 |  |                             |        |      |   |       
|Service charges on deposit accounts                 |  |                             | 720    |      |   | 688   
|Income from fiduciary activities                    |  |                             | 252    |      |   | 220   
|Secondary market brokerage fees                     |  |                             | 60     |      |   | 58    
|Title insurance commissions                         |  |                             | 37     |      |   | 20    
|Net gain on sales of loans originated for sale      |  |                             | 91     |      |   |      
|Net gain on sales of securities                     |  |                             | 57     |      |   | 1     
|Other                                               |  |                             | 475    |      |   | 499   
|                                                    |  |                             |        |      |   |       
|                                                    |  |                             | 1,692  |      |   | 1,486 
|                                                    |  |                             |        |      |   |       
|                                                    |  |                            
|Non-interest expense                                |  |                             |        |      |   |       
|Salaries and employee benefits                      |  |                             | 3,947  |      |   | 3,878 
|Occupancy and equipment                             |  |                             | 1,022  |      |   | 998   
|FDIC Insurance                                      |  |                             | 705    |      |   | 459   
|State franchise tax                                 |  |                             | 543    |      |   | 450   
|Other real estate owned expense                     |  |                             | 378    |      |   | 127   
|Professional fees                                   |  |                             | 266    |      |   | 228   
|Communications                                      |  |                             | 186    |      |   | 155   
|Postage and delivery                                |  |                             | 188    |      |   | 184   
|Advertising                                         |  |                             | 96     |      |   | 158   
|Other                                               |  |                             | 718    |      |   | 639   
|                                                    |  |                             |        |      |   |       
|                                                    |  |                             | 8,049  |      |   | 7,276 
|                                                    |  |                             |        |      |   |       
|Income before income taxes                          |  |                             | 4,820  |      |   | 4,577 
|Income tax expense                                  |  |                             | 1,564  |      |   | 1,516 
|                                                    |  |                             |        |      |   |       
|Net income                                          |  |                             | 3,256  |      |   | 3,061 
|Less:                                               |  |                             |        |      |   |       
|Dividends on preferred stock                        |  |                             | 438    |      |   | 438   
|Accretion on preferred stock                        |  |                             | 44     |      |   | 44    
|                                                    |  |                             |        |      |   |       
|Net income available to common shareholders         |  | $                           | 2,774  |      | $ | 2,579 
|                                                    |  |                             |        |      |   |       
|Basic and diluted earnings per common share         |  | $                           | 0.32   |      | $ | 0.30  
|                                                    |  |                             |        |      |   |       

See accompanying notes to unaudited consolidated
financial statements.



3





---

##### Table of Contents

PORTER BANCORP, INC.

Unaudited Consolidated Statement of Changes in Stockholders Equity

For Three Months Ended March 31, 2010

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



|                                                                |        |           |   |           |        |                          |   |                  |  |   |                                     |  |       |        |  |   |        |   |  |   |       |  |   |         |  
|--------------------------------------------------------------- | ------ | --------- | - | --------- | ------ | ------------------------ | - | ---------------- |  | - | ----------------------------------- |  | ----- | ------ |  | - | ------ | - |  | - | ----- |  | - | ------- | -
|                                                                |        | Shares    |   | Amount    |        | AdditionalPaid-InCapital |   | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome |  | Total |       
|                                                                | Common |           |   | Preferred |        | Common                   |   | Preferred        |  |   |                                     | 
|Balances, January 1, 2010                                       |        | 8,756,440 |   |           | 35,000 |                          | $ | 83,104           |  | $ | 34,307                              |  | $     | 14,959 |  | $ | 34,811 |   |  | $ | 2,153 |  | $ | 169,334 |  
|Issuance of unvested stock                                      |        | 66,882    |   |           |       |                          |   |                 |  |   |                                    |  |       |       |  |   |       |   |  |   |      |  |   |        |  
|Forfeited unvested stock                                        |        | (478      | ) |           |       |                          |   |                 |  |   |                                    |  |       |       |  |   |       |   |  |   |      |  |   |        |  
|Stock-based compensation expense                                |        |          |   |           |       |                          |   |                 |  |   |                                    |  |       | 96     |  |   |       |   |  |   |      |  |   | 96      |  
|Comprehensive income:                                           |        |           |   |           |        |                          |   |                  |  |   |                                     |  |       |        |  |   |        |   |  |   |       |  |   |         |  
|Net income                                                      |        |          |   |           |       |                          |   |                 |  |   |                                    |  |       |       |  |   | 3,256  |   |  |   |      |  |   | 3,256   |  
|Changes in accumulated other comprehensive income, net of taxes |        |          |   |           |       |                          |   |                 |  |   |                                    |  |       |       |  |   |       |   |  |   | 2,254 |  |   | 2,254   |  
|                                                                |        |           |   |           |        |                          |   |                  |  |   |                                     |  |       |        |  |   |        |   |  |   |       |  |   |         |  
|Total comprehensive income                                      |        |          |   |           |       |                          |   |                 |  |   |                                    |  |       |       |  |   |       |   |  |   |      |  |   | 5,510   |  
|                                                                |        |           |   |           |        |                          |   |                  |  |   |                                     |  |       |        |  |   |        |   |  |   |       |  |   |         |  
|Dividends on preferred stock                                    |        |          |   |           |       |                          |   |                 |  |   |                                    |  |       |       |  |   | (438   | ) |  |   |      |  |   | (438    | )
|Amortization of preferred stock discount                        |        |          |   |           |       |                          |   |                 |  |   | 44                                  |  |       |       |  |   | (44    | ) |  |   |      |  |   |        |  
|Cash dividends declared ($0.20 per share)                       |        |          |   |           |       |                          |   |                 |  |   |                                    |  |       |       |  |   | (1,765 | ) |  |   |      |  |   | (1,765  | )
|                                                                |        |           |   |           |        |                          |   |                  |  |   |                                     |  |       |        |  |   |        |   |  |   |       |  |   |         |  
|Balances, March 31, 2010                                        |        | 8,822,844 |   |           | 35,000 |                          | $ | 83,104           |  | $ | 34,351                              |  | $     | 15,055 |  | $ | 35,820 |   |  | $ | 4,407 |  | $ | 172,737 |  
|                                                                |        |           |   |           |        |                          |   |                  |  |   |                                     |  |       |        |  |   |        |   |  |   |       |  |   |         |  

See accompanying notes to unaudited consolidated financial statements.



4





---

##### Table of Contents

PORTER BANCORP, INC.

Unaudited Consolidated Statements of Cash Flows

For Three Months Ended March 31, 2010 and 2009

(dollars in thousands)



|                                                                          |  |      |         |   |      |   |         |  
|------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                          |  | 2010 |         |   | 2009 |  
|Cash flows from operating activities                                      |  |      |         |   |      |   |         |  
|Net income                                                                |  | $    | 3,256   |   |      | $ | 3,061   |  
|Adjustments to reconcile net income to net cash from operating activities |  |      |         |   |      |   |         |  
|Depreciation and amortization                                             |  |      | 844     |   |      |   | 970     |  
|Provision for loan losses                                                 |  |      | 3,000   |   |      |   | 1,600   |  
|Net amortization (accretion) on securities                                |  |      | (226    | ) |      |   | 188     |  
|Stock-based compensation expense                                          |  |      | 99      |   |      |   | 76      |  
|Net gain on loans originated for sale                                     |  |      | (91     | ) |      |   | (2      | )
|Loans originated for sale                                                 |  |      | (6,182  | ) |      |   | (1,038  | )
|Proceeds from sales of loans originated for sale                          |  |      | 5,588   |   |      |   | 88      |  
|Net gain on sales of investment securities                                |  |      | (57     | ) |      |   | (1      | )
|Net (gain) loss on sales of other real estate owned                       |  |      | (1      | ) |      |   | 5       |  
|Earnings on bank owned life insurance                                     |  |      | (70     | ) |      |   | (71     | )
|Net change in accrued interest receivable and other assets                |  |      | 2,755   |   |      |   | 903     |  
|Net change in accrued interest payable and other liabilities              |  |      | (1,707  | ) |      |   | 194     |  
|                                                                          |  |      |         |   |      |   |         |  
|Net cash from operating activities                                        |  |      | 7,208   |   |      |   | 5,973   |  
|                                                                          |  |      |         |   |      |   |         |  
|Cash flows from investing activities                                      |  |      |         |   |      |   |         |  
|Purchases of available-for-sale securities                                |  |      | (23,105 | ) |      |   | (9,165  | )
|Sales and calls of available-for-sale securities                          |  |      | 8,163   |   |      |   | 501     |  
|Maturities and prepayments of available-for-sale securities               |  |      | 6,832   |   |      |   | 7,389   |  
|Proceeds from sale of other real estate owned                             |  |      | 878     |   |      |   | 1,259   |  
|Improvements to other real estate owned                                   |  |      | (338    | ) |      |   | (24     | )
|Loan originations and payments, net                                       |  |      | 3,582   |   |      |   | (23,273 | )
|Purchases of premises and equipment, net                                  |  |      | (35     | ) |      |   | (289    | )
|                                                                          |  |      |         |   |      |   |         |  
|Net cash from investing activities                                        |  |      | (4,023  | ) |      |   | (23,602 | )
|                                                                          |  |      |         |   |      |   |         |  
|Cash flows from financing activities                                      |  |      |         |   |      |   |         |  
|Net change in deposits                                                    |  |      | (45,056 | ) |      |   | 102,404 |  
|Net change in federal funds purchased and repurchase agreements           |  |      | 78      |   |      |   | 2,450   |  
|Repayment of Federal Home Loan Bank advances                              |  |      | (35,695 | ) |      |   | (15,584 | )
|Cash dividends paid on preferred stock                                    |  |      | (438    | ) |      |   | (408    | )
|Cash dividends paid on common stock                                       |  |      | (1,765  | ) |      |   | (1,740  | )
|                                                                          |  |      |         |   |      |   |         |  
|Net cash from financing activities                                        |  |      | (82,876 | ) |      |   | 87,122  |  
|                                                                          |  |      |         |   |      |   |         |  
|Net change in cash and cash equivalents                                   |  |      | (79,691 | ) |      |   | 69,493  |  
|Beginning cash and cash equivalents                                       |  |      | 172,173 |   |      |   | 52,546  |  
|                                                                          |  |      |         |   |      |   |         |  
|Ending cash and cash equivalents                                          |  | $    | 92,482  |   |      | $ | 122,039 |  
|                                                                          |  |      |         |   |      |   |         |  
|Supplemental cash flow information:                                       |  |      |         |   |      |   |         |  
|Interest paid                                                             |  | $    | 8,744   |   |      | $ | 11,809  |  
|Income taxes paid                                                         |  |      |        |   |      |   | 150     |  
|Supplemental non-cash disclosure:                                         |  |      |         |   |      |   |         |  
|Transfer from loans to other real estate                                  |  | $    | 52,214  |   |      | $ | 3,946   |  
|Sale and financing of other real estate owned                             |  |      | 6,295   |   |      |   |        |  

See accompanying notes
to unaudited consolidated financial statements.



5





---

##### Table of Contents

PORTER BANCORP, INC.

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. (Company or PBI) and its wholly-owned subsidiary,
PBI Bank (Bank). All significant inter-company transactions and accounts have been eliminated in consolidation.

The accompanying unaudited
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, 2010 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, 2009 included in the Companys Annual Report on Form 10-K.

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 June 2009, the FASB replacedThe Hierarchy of Generally Accepted Accounting Principles, with the FASB Accounting
Standards CodificationTM(The Codification) as the
source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange
Commission under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification was effective for financial statements issued for periods ending after September 15, 2009.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets, an
Amendment of FASB Statement No. 140 (ASC 810). The new accounting requirement amends previous guidance relating to the transfers of financial assets and eliminates the concept of a qualifying special purpose entity. This Statement must be
applied as of the beginning of each reporting entitys first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods
thereafter. This Statement must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes.
Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. Additionally, the disclosure provisions of
this Statement were also amended and apply to transfers that occurred both before and after the effective date of this Statement. The impact of adoption was not material.



6





---

##### Table of Contents

The FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB
Interpretation No. 46(R), which amended guidance for consolidation of variable interest entities by replacing the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial
interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entitys economic performance and
(1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. This Statement also requires additional disclosures about an enterprises involvement in variable interest entities. This
Statement is effective as of the beginning of each reporting entitys first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting
periods thereafter. Early adoption is prohibited. The impact of adoption was not material.

Note 2  Stock Plans and Stock Based
Compensation

On February 23, 2006, the Company adopted the Porter Bancorp, Inc. 2006 Stock Incentive Plan. 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, 2010, the Company had granted outstanding options to purchase 50,628 shares. The Company
also had granted 163,051 unvested shares net of forfeitures and vesting. The Company has 152,765 shares remaining available for issue under 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. On May 22, 2008, shareholders voted to amend the plan to change the form of incentive award from stock options to unvested shares. Under the terms of the plan,
100,000 shares are reserved for issuance to non-employee directors upon the exercise of stock options or upon the grant of unvested stock awards granted under the plan. Prior to the amendment, options were granted automatically under the plan at
fair market value on the date of grant. The options vest over a three-year period and have a five year term. Unvested shares are granted automatically under the plan at fair market value on the date of grant and vest semi-annually on the anniversary
date of the grant over three years. To date, the Company has granted options to purchase 43,001 shares and issued 3,136 unvested shares to non-employee directors. At March 31, 2010, 52,260 shares remain available for issue under this plan.

All stock options have an exercise price that is equal to or greater than 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 three years of continued employment. Options have a life of five years.

The following table summarizes stock option activity:



|                       |  |                                  |   |                                      |                              |       |         |         |   |                              |   |      
|---------------------- |  | -------------------------------- | - | ------------------------------------ | ---------------------------- | ----- | ------- | ------- | - | ---------------------------- | - | -----
|                       |  | Three Months EndedMarch 31, 2010 |   | Twelve Months EndedDecember 31, 2009
|                       |  | Options                          |   |                                      | WeightedAverageExercisePrice |       | Options |         |   | WeightedAverageExercisePrice
|Outstanding, beginning |  | 297,258                          |   |                                      | $                            | 22.89 |         | 297,810 |   |                              | $ | 22.89
|Forfeited              |  | (4,632                           | ) |                                      |                              | 21.43 |         | (552    | ) |                              |   | 23.13
|Expired                |  | (198,997                         | ) |                                      |                              | 23.38 |         |        |   |                              |   |     
|                       |  |                                  |   |                                      |                              |       |         |         |   |                              |   |      
|Outstanding, ending    |  | 93,629                           |   |                                      | $                            | 21.92 |         | 297,258 |   |                              | $ | 22.89
|                       |  |                                  |   |                                      |                              |       |         |         |   |                              |   |      

The following table details stock options outstanding:



|                                                |  |               |       
|----------------------------------------------- |  | ------------- | ------
|                                                |  | March 31,2010
|Stock options vested and currently exercisable: |  |               | 92,408
|Weighted average exercise price                 |  | $             | 21.93 
|Aggregate intrinsic value                       |  | $             | 0     
|Weighted average remaining life (in years)      |  |               | 1.9   
|Total Options Outstanding:                      |  |               | 93,629
|Aggregate intrinsic value                       |  | $             | 0     
|Weighted average remaining life (in years)      |  |               | 1.9   



7





---

##### Table of Contents

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. The intrinsic value of the vested and expected to vest stock options is $0 at March 31, 2010. There were no options exercised during the first three months of 2010. The Company
recorded $1,000 of stock option compensation during the three months ended March 31, 2010 to salaries and employee benefits. No options were modified during the period. As of March 31, 2010, no stock options issued by the Company have been
exercised.

From time-to-time the Company issues unvested shares to employees and non-employee directors. The shares vest either semi-annually
or annually over three to ten years on the anniversary of the issuance date provided the employee or director continues in such capacity at the vesting date. The fair value of the 2010 unvested shares issued to certain employees was $11.60 per
share. The Company recorded $98,000 of stock-based compensation during the first quarter of 2010 to salaries and employee benefits. A deferred tax benefit of $35,000 was recognized related to this expense.

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



|                       |        |                                  |   |                                      |   |        |  |         |                           |  |   |      
|---------------------- | ------ | -------------------------------- | - | ------------------------------------ | - | ------ |  | ------- | ------------------------- |  | - | -----
|                       |        | Three Months EndedMarch 31, 2010 |   | Twelve Months EndedDecember 31, 2009
|                       | Shares |                                  |   | WeightedAverageGrantPrice            |   | Shares |  |         | WeightedAverageGrantPrice
|Outstanding, beginning |        | 113,817                          |   |                                      | $ | 15.66  |  | 72,441  |                           |  | $ | 19.83
|Granted                |        | 66,882                           |   |                                      |   | 11.60  |  | 54,268  |                           |  |   | 10.97
|Vested                 |        | (14,034                          | ) |                                      |   | 14.06  |  | (12,351 | )                         |  |   | 19.19
|Forfeited              |        | (478                             | ) |                                      |   | 18.49  |  | (541    | )                         |  |   | 23.13
|                       |        |                                  |   |                                      |   |        |  |         |                           |  |   |      
|Outstanding, ending    |        | 166,187                          |   |                                      | $ | 14.15  |  | 113,817 |                           |  | $ | 15.66
|                       |        |                                  |   |                                      |   |        |  |         |                           |  |   |      

Unrecognized stock based compensation expense related to stock options and unvested shares for the remainder of
2010 and beyond is estimated as follows (in thousands):



|                           |  |   |    
|-------------------------- |  | - | ---
|April 2010  December 2010 |  | $ | 384
|2011                       |  |   | 501
|2012                       |  |   | 489
|2013                       |  |   | 405
|2014 & thereafter          |  |   | 466



8





---

##### 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:



|                                           |                |               |         |                      |   |             |  |   |           |   |  |   |        
|------------------------------------------ | -------------- | ------------- | ------- | -------------------- | - | ----------- |  | - | --------- | - |  | - | -------
|                                           |                | AmortizedCost |         | GrossUnrealizedGains |   | GrossLosses |  |   | FairValue
|                                           | (in thousands)
|March 31, 2010                             |                |               |         |                      |   |             |  |   |           |   |  |   |        
|U.S. Government and federal agency         |                | $             | 10,412  |                      | $ | 32          |  | $ | (86       | ) |  | $ | 10,358 
|State and municipal                        |                |               | 24,489  |                      |   | 1,355       |  |   | (13       | ) |  |   | 25,831 
|Agency mortgage-backed: residential        |                |               | 99,584  |                      |   | 4,024       |  |   | (78       | ) |  |   | 103,530
|Private label mortgage-backed: residential |                |               | 24,004  |                      |   | 1,907       |  |   | (746      | ) |  |   | 25,165 
|Corporate bonds                            |                |               | 12,724  |                      |   | 852         |  |   | (23       | ) |  |   | 13,553 
|Other                                      |                |               | 704     |                      |   |            |  |   | (203      | ) |  |   | 501    
|                                           |                |               |         |                      |   |             |  |   |           |   |  |   |        
|Total debt securities                      |                |               | 171,917 |                      |   | 8,170       |  |   | (1,149    | ) |  |   | 178,938
|Equity                                     |                |               | 1,885   |                      |   | 85          |  |   | (326      | ) |  |   | 1,644  
|                                           |                |               |         |                      |   |             |  |   |           |   |  |   |        
|Total                                      |                | $             | 173,802 |                      | $ | 8,255       |  | $ | (1,475    | ) |  | $ | 180,582
|                                           |                |               |         |                      |   |             |  |   |           |   |  |   |        
|December 31, 2009                          |                |               |         |                      |   |             |  |   |           |   |  |   |        
|U.S. Government and federal agency         |                | $             | 586     |                      | $ | 33          |  | $ |          |   |  | $ | 619    
|State and municipal                        |                |               | 24,537  |                      |   | 955         |  |   | (37       | ) |  |   | 25,455 
|Agency mortgage-backed: residential        |                |               | 91,127  |                      |   | 4,028       |  |   |          |   |  |   | 95,155 
|Private label mortgage-backed: residential |                |               | 33,516  |                      |   | 279         |  |   | (2,156    | ) |  |   | 31,639 
|Corporate bonds                            |                |               | 13,054  |                      |   | 760         |  |   | (49       | ) |  |   | 13,765 
|Other                                      |                |               | 704     |                      |   |            |  |   | (175      | ) |  |   | 529    
|                                           |                |               |         |                      |   |             |  |   |           |   |  |   |        
|Total debt securities                      |                |               | 163,524 |                      |   | 6,055       |  |   | (2,417    | ) |  |   | 167,162
|Equity                                     |                |               | 1,885   |                      |   | 75          |  |   | (401      | ) |  |   | 1,559  
|                                           |                |               |         |                      |   |             |  |   |           |   |  |   |        
|Total                                      |                | $             | 165,409 |                      | $ | 6,130       |  | $ | (2,818    | ) |  | $ | 168,721
|                                           |                |               |         |                      |   |             |  |   |           |   |  |   |        

Sales and calls of available for sale securities were as follows:



|             |                |                             |       |      |  |   |    
|------------ | -------------- | --------------------------- | ----- | ---- |  | - | ---
|             |                | Three Months EndedMarch 31,
|             | 2010           |                             |       | 2009
|             | (in thousands)
|Proceeds     |                | $                           | 8,163 |      |  | $ | 501
|Gross gains  |                |                             | 256   |      |  |   | 1  
|Gross losses |                |                             | (199  | )    |  |   |   

The amortized cost and
fair value of the investment securities portfolio are shown by expected maturity. Expected maturities may differ from contractual maturities if issuers have the right to call or prepay obligations with or without call or prepayment penalties.



|                   |                |                |           |  |   |        
|------------------ | -------------- | -------------- | --------- |  | - | -------
|                   |                | March 31, 2010
|                   | AmortizedCost  |                | FairValue
|                   | (in thousands)
|Maturity           |                |                |           |  |   |        
|Available-for-sale |                |                |           |  |   |        
|Within one year    |                | $              | 24,668    |  | $ | 24,723 
|One to five years  |                |                | 95,245    |  |   | 98,937 
|Five to ten years  |                |                | 40,814    |  |   | 42,501 
|Beyond ten years   |                |                | 11,190    |  |   | 12,777 
|                   |                |                |           |  |   |        
|Total              |                | $              | 171,917   |  | $ | 178,938
|                   |                |                |           |  |   |        



9





---

##### Table of Contents

Securities pledged at March 31, 2010 and December 31, 2009 had carrying values of approximately
$64.2 million and $67.3 million, respectively, and were pledged to secure public deposits, repurchase agreements, and Federal Home Loan Bank advances.

The Companys mortgage-backed securities portfolio includes non-agency collateralized mortgage obligations with a market value of $25.2 million
which had net unrealized gains of approximately $1.2 million at March 31, 2010. These non-agency mortgage-backed securities were rated AAA at purchase. The Company monitors its securities portfolio to insure it has adequate credit support and
as of March 31, 2010, the Company believes there is no other-than-temporary impairment (OTTI) and does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated
recovery.

The Company evaluates securities for OTTI 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, underlying credit quality 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, the sector or industry trends and cycles affecting the issuer, and the results of reviews of the issuers financial
condition. Management currently intends to hold all securities with unrealized losses until recovery, which for fixed income securities may be at maturity.

At March 31, 2010, the Company held 44 equity securities. Of these securities, 4 had unrealized losses of $1,400 and had been in an unrealized loss
position for less than twelve months and 21 had an unrealized loss of $325,000 and had been in an unrealized loss position for more than twelve months. Management monitors the underlying financial condition of the issuers and current market pricing
for these equity securities monthly. As of March 31, 2010, management does not believe any equity securities in our portfolio should be classified as other than temporarily impaired.

Securities with unrealized losses at March 31, 2010 and December 31, 2009, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position, are as follows:



|                                            |  |                     |        |                |                   |        |           |       |                |       |  |           |      |                |  |   |        |  |   |        |  
|------------------------------------------- |  | ------------------- | ------ | -------------- | ----------------- | ------ | --------- | ----- | -------------- | ----- |  | --------- | ---- | -------------- |  | - | ------ |  | - | ------ | -
|                                            |  | Less than 12 Months |        |                | 12 Months or More |        |           | Total |               
|Description of Securities                   |  | FairValue           |        | UnrealizedLoss |                   |        | FairValue |       | UnrealizedLoss |       |  | FairValue |      | UnrealizedLoss | 
|                                            |  | (in thousands)      |       
|March 31, 2010                              |  |                     |        |                |                   |        |           |       |                |       |  |           |      |                | 
|U.S. Government and federal agency          |  | $                   | 9,767  |                | $                 | (86    | )         |       | $              |      |  | $         |     |                |  | $ | 9,767  |  | $ | (86    | )
|State and municipal                         |  |                     |       |                |                   |       |           |       |                | 1,052 |  |           | (13  | )              |  |   | 1,052  |  |   | (13    | )
|Agency mortgage-backed: residential         |  |                     | 8,506  |                |                   | (78    | )         |       |                |      |  |           |     |                |  |   | 8,506  |  |   | (78    | )
|Private label mortgage-backed: residential. |  |                     | 6,057  |                |                   | (727   | )         |       |                | 2     |  |           | (19  | )              |  |   | 6,059  |  |   | (746   | )
|Corporate bonds                             |  |                     |       |                |                   |       |           |       |                | 2,020 |  |           | (23  | )              |  |   | 2,020  |  |   | (23    | )
|Other                                       |  |                     | 501    |                |                   | (203   | )         |       |                |      |  |           |     |                |  |   | 501    |  |   | (203   | )
|Equity                                      |  |                     | 22     |                |                   | (1     | )         |       |                | 910   |  |           | (325 | )              |  |   | 932    |  |   | (326   | )
|                                            |  |                     |        |                |                   |        |           |       |                |       |  |           |      |                |  |   |        |  |   |        |  
|Total temporarily impaired                  |  | $                   | 24,853 |                | $                 | (1,095 | )         |       | $              | 3,984 |  | $         | (380 | )              |  | $ | 28,837 |  | $ | (1,475 | )
|                                            |  |                     |        |                |                   |        |           |       |                |       |  |           |      |                |  |   |        |  |   |        |  
|                                            |  |                     |        |                |                   |       
|December 31, 2009                           |  |                     |        |                |                   |        |           |       |                |       |  |           |      |                | 
|State and municipal                         |  | $                   | 867    |                | $                 | (5     | )         |       | $              | 1,033 |  | $         | (32  | )              |  | $ | 1,900  |  | $ | (37    | )
|Agency mortgage-backed: residential         |  |                     | 8      |                |                   |       |           |       |                |      |  |           |     |                |  |   | 8      |  |   |       |  
|Private label mortgage-backed: residential. |  |                     | 23,731 |                |                   | (1,977 | )         |       |                | 4,091 |  |           | (179 | )              |  |   | 27,822 |  |   | (2,156 | )
|Corporate bonds                             |  |                     |       |                |                   |       |           |       |                | 1,997 |  |           | (49  | )              |  |   | 1,997  |  |   | (49    | )
|Other                                       |  |                     | 529    |                |                   | (175   | )         |       |                |      |  |           |     |                |  |   | 529    |  |   | (175   | )
|Equity                                      |  |                     | 46     |                |                   | (12    | )         |       |                | 701   |  |           | (389 | )              |  |   | 747    |  |   | (401   | )
|                                            |  |                     |        |                |                   |        |           |       |                |       |  |           |      |                |  |   |        |  |   |        |  
|Total temporarily impaired                  |  | $                   | 25,181 |                | $                 | (2,169 | )         |       | $              | 7,822 |  | $         | (649 | )              |  | $ | 33,003 |  | $ | (2,818 | )
|                                            |  |                     |        |                |                   |        |           |       |                |       |  |           |      |                |  |   |        |  |   |        |  



10





---

##### Table of Contents

Note 4  Loans

Loans were as follows:



|                                |                |               |           |   |                  |   |           |  
|------------------------------- | -------------- | ------------- | --------- | - | ---------------- | - | --------- | -
|                                |                | March 31,2010 |           |   | December 31,2009 |  
|                                | (in thousands) |              
|Commercial                      |                | $             | 88,696    |   |                  | $ | 89,903    |  
|Real estate                     |                |               | 1,210,126 |   |                  |   | 1,259,474 |  
|Agriculture                     |                |               | 24,304    |   |                  |   | 25,064    |  
|Consumer                        |                |               | 35,767    |   |                  |   | 36,989    |  
|Other                           |                |               | 1,348     |   |                  |   | 1,488     |  
|                                |                |               |           |   |                  |   |           |  
|Subtotal                        |                |               | 1,360,241 |   |                  |   | 1,412,918 |  
|Less: Allowance for loan losses |                |               | (26,543   | ) |                  |   | (26,392   | )
|                                |                |               |           |   |                  |   |           |  
|Loans, net                      |                | $             | 1,333,698 |   |                  | $ | 1,386,526 |  
|                                |                |               |           |   |                  |   |           |  

Activity in the allowance for loan losses was as follows:



|                          |                |                            |        |               |  |   |        |  
|------------------------- | -------------- | -------------------------- | ------ | ------------- |  | - | ------ | -
|                          |                | For the Three Months Ended |       
|                          | March 31,2010  |                            |        | March 31,2009 | 
|                          | (in thousands) |                           
|Beginning balance         |                | $                          | 26,392 |               |  | $ | 19,652 |  
|Provision for loan losses |                |                            | 3,000  |               |  |   | 1,600  |  
|Loans charged-off         |                |                            | (2,906 | )             |  |   | (983   | )
|Loan recoveries           |                |                            | 57     |               |  |   | 102    |  
|                          |                |                            |        |               |  |   |        |  
|Ending balance            |                | $                          | 26,543 |               |  | $ | 20,371 |  
|                          |                |                            |        |               |  |   |        |  

Impaired loans were as follows:



|                                                  |  |                |        |                  |   |        
|------------------------------------------------- |  | -------------- | ------ | ---------------- | - | -------
|                                                  |  | March 31,2010  |        | December 31,2009
|                                                  |  | (in thousands)
|Loans with no allocated allowance for loan losses |  | $              | 12,576 |                  | $ | 21,373 
|Loans with allocated allowance for loan losses    |  |                | 54,289 |                  |   | 84,766 
|                                                  |  |                |        |                  |   |        
|Total                                             |  | $              | 66,865 |                  | $ | 106,139
|                                                  |  |                |        |                  |   |        
|Amount of the allowance for loan losses allocated |  | $              | 4,405  |                  | $ | 5,453  



11





---

##### Table of Contents

|                                             |  |                                |        |                            |   |       
|-------------------------------------------- |  | ------------------------------ | ------ | -------------------------- | - | ------
|                                             |  | Three MonthsEndedMarch 31,2010 |        | Year EndedDecember 31,2009
|Average of impaired loans during the period  |  | $                              | 86,460 |                            | $ | 44,041
|Interest income recognized during impairment |  |                                | 447    |                            |   | 1,094 
|Cash basis interest income recognized        |  |                                | 21     |                            |   | 987   

Impaired loans include restructured
loans and commercial, construction, agriculture, and commercial real estate loans on non-accrual or classified as doubtful, whereby collection of the total amount is improbable, or loss, whereby all or a portion of the loan has been written off or a
specific allowance for loss had been provided.

Nonperforming loans were as follows:



|                                                |  |                |        |                  |   |       
|----------------------------------------------- |  | -------------- | ------ | ---------------- | - | ------
|                                                |  | March 31,2010  |        | December 31,2009
|                                                |  | (in thousands)
|Loans past due 90 days or more still on accrual |  | $              | 5,913  |                  | $ | 5,968 
|Non-accrual loans                               |  |                | 54,545 |                  |   | 78,888

Nonperforming loans include impaired
loans and smaller balance homogeneous loans, such as residential mortgage and consumer loans, that are collectively evaluated for impairment. At March 31, 2010 we had restructured loans totaling $23.4 million with borrowers who experienced
deterioration in financial condition. These loans are secured by 1-4 residential or commercial real estate properties. Management believes these loans are well secured and the borrowers have the ability to repay the loans in accordance with the
renegotiated terms.

Note 5  Advance from the Federal Home Loan Bank

Advances from the Federal Home Loan Bank were as follows:



|                                                                                                                                         |                |               |        |                   |   |       
|---------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------------- | ------ | ----------------- | - | ------
|                                                                                                                                         |                | March 31,2010 |        | December 
31,2009
|                                                                                                                                         | (in thousands)
|Single maturity advances with fixed rates from 4.15% to 4.82% maturing from 2010 through 2012, averaging 4.47% for
2010                  |                | $             | 35,000 |                   | $ | 70,000
|Monthly amortizing advances with fixed rates from 0.00% to 8.28% and maturities ranging from 2011 through 2035, averaging 3.65%
for 2010 |                |               | 12,285 |                   |   | 12,980
|                                                                                                                                         |                |               |        |                   |   |       
|Total                                                                                                                                    |                | $             | 47,285 |                   | $ | 82,980
|                                                                                                                                         |                |               |        |                   |   |       

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, 2010, the Bank had unused borrowing capacity of $66.9 million with the FHLB.



12





---

##### Table of Contents

Note 6  Fair Values Measurement

The FASB issued guidance that defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
The guidance also establishes a fair value hierarchy about the assumptions used to measure fair value and describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access
as of the measurement date, or observable inputs.

Level 2: Significant other observable inputs other than Level 1
prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect an entitys own assumptions about the assumptions that market
participants would use in pricing an asset or liability.

In certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. When that occurs, we classify the fair value hierarchy on the lowest level of input that is significant to the fair value measurement. We used the following methods and significant assumptions to estimate fair
value.

Securities:The fair values of securities available for sale are determined by obtaining quoted prices on
nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar
securities, or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship
to other benchmark quoted securities. Matrix pricing relies on the securities relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as
benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained
from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair
values are calculated using discounted cash flows or other market indicators. These calculations utilize appropriate market variable inputs that include estimates and assumptions such as discount rates, prepayment speeds, default rates, and loss
severities on a security by security basis. This valuation method is classified as Level 3 in the fair value hierarchy.

Impaired Loans:Impaired loans are evaluated at the time the loan is identified as impaired and are recorded at the lower of cost
or fair value. Fair value is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. Fair value is determined using several methods. Generally the fair value of real estate is
determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the
appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
Impaired loans are evaluated quarterly for additional impairment.

Other Real Estate Owned: OREO is evaluated at the
time of acquisition and recorded at fair value as determined by independent appraisal or internal market evaluation less cost to sell. OREO is further evaluated quarterly for impairment. The aggregate fair value of OREO acquired and/or written down
to fair value during the period is disclosed below.



13





---

##### Table of Contents

Financial assets measured at fair value on a recurring basis at March 31, 2010 are summarized below:



|                                   |  |                                                             |         |                                                 |   |                                        |  |   |         |  |   |       
|---------------------------------- |  | ----------------------------------------------------------- | ------- | ----------------------------------------------- | - | -------------------------------------- |  | - | ------- |  | - | ------
|Description                        |  | March 31,2010                                               |         | Fair Value Measurements at March 31, 2010 Using
|                                   |  | (in thousands)                                             
|                                   |  | Quoted Prices InActive Markets forIdentical Assets(Level 1) |         | Significant OtherObservable Inputs(Level 2)     |   | SignificantUnobservableInputs(Level 3)
|Available-for-sale securities      |  |                                                             |         |                                                 |   |                                        |  |   |         |  |   |       
|U.S. Government and federal agency |  | $                                                           | 10,358  |                                                 | $ |                                       |  | $ | 10,358  |  | $ |      
|State and municipal                |  |                                                             | 25,831  |                                                 |   |                                       |  |   | 25,831  |  |   |      
|Agency mortgage-backed             |  |                                                             | 103,530 |                                                 |   |                                       |  |   | 103,530 |  |   |      
|Private label mortgage-backed      |  |                                                             | 25,165  |                                                 |   |                                       |  |   |        |  |   | 25,165
|Corporate bonds                    |  |                                                             | 13,553  |                                                 |   |                                       |  |   | 13,553  |  |   |      
|Other debt securities              |  |                                                             | 501     |                                                 |   |                                       |  |   |        |  |   | 501   
|Equity securities                  |  |                                                             | 1,644   |                                                 |   | 1,644                                  |  |   |        |  |   |      
|                                   |  |                                                             |         |                                                 |   |                                        |  |   |         |  |   |       
|Total                              |  | $                                                           | 180,582 |                                                 | $ | 1,644                                  |  | $ | 153,272 |  | $ | 25,666
|                                   |  |                                                             |         |                                                 |   |                                        |  |   |         |  |   |       

Roll-forward of activity for our Significant Unobservable Inputs
(Level 3) follows:



|                              |  |                                   |        |  
|----------------------------- |  | --------------------------------- | ------ | -
|Available-for-sale securities |  | Three Months EndedMarch 
31, 2010 |       
|Balance, January 1, 2010      |  | $                                 | 32,168 |  
|Sales                         |  |                                   | (7,712 | )
|Net accretion (amortization)  |  |                                   | 380    |  
|Principal paydowns            |  |                                   | (2,180 | )
|Net change in unrealized gain |  |                                   | 3,010  |  
|                              |  |                                   |        |  
|Balance, March 31, 2010       |  | $                                 | 25,666 |  
|                              |  |                                   |        |  

Financial assets measured at fair value on a non-recurring basis at March 31, 2010 are summarized below:



|                             |  |                                                             |        |                                                 |   |                                         |  |   |   |  |   |       
|---------------------------- |  | ----------------------------------------------------------- | ------ | ----------------------------------------------- | - | --------------------------------------- |  | - | - |  | - | ------
|Description                  |  | March 31,2010                                               |        | Fair Value Measurements at March 31, 2010 Using
|                             |  | (in thousands)                                             
|                             |  | Quoted Prices InActive Markets forIdentical Assets(Level 1) |        | Significant OtherObservable Inputs(Level 2)     |   | SignificantUnobservableInputs(Level
 3)
|Impaired loans               |  | $                                                           | 49,884 |                                                 | $ |                                        |  | $ |  |  | $ | 49,884
|Other real estate owned, net |  |                                                             | 59,688 |                                                 |   |                                        |  |   |  |  |   | 59,688

Impaired loans, which are measured
for impairment using the fair value of collateral for collateral dependent loans, had a carrying amount of $54.3 million and a valuation allowance of $4.4 million, resulting in an additional provision for loan losses of $728,000 for the first three
months of 2010.

Other real estate owned which is measured at the lower of carrying or fair value less costs to sell, had a net carrying
amount of $59.7 million. Write-downs of $240,000 were recorded on other real estate owned during the first quarter of 2010.



14





---

##### Table of Contents

Financial assets measured at fair value on a recurring basis at December 31, 2009 are summarized below:



|                                   |  |                                                             |         |                                                    |   |                                         |  |   |         |  |   |       
|---------------------------------- |  | ----------------------------------------------------------- | ------- | -------------------------------------------------- | - | --------------------------------------- |  | - | ------- |  | - | ------
|Description                        |  | December 31,2009                                            |         | Fair Value Measurements at December 31, 2009 Using
|                                   |  | (in thousands)                                             
|                                   |  | Quoted Prices InActive Markets forIdentical Assets(Level 1) |         | Significant OtherObservable Inputs(Level 2)        |   | SignificantUnobservableInputs(Level
 3)
|Available-for-sale securities      |  |                                                             |         |                                                    |   |                                         |  |   |         |  |   |       
|U.S. Government and federal agency |  | $                                                           | 619     |                                                    | $ |                                        |  | $ | 619     |  | $ |      
|State and municipal                |  |                                                             | 25,455  |                                                    |   |                                        |  |   | 25,455  |  |   |      
|Agency mortgage-backed             |  |                                                             | 95,155  |                                                    |   |                                        |  |   | 95,155  |  |   |      
|Private label mortgage-backed      |  |                                                             | 31,639  |                                                    |   |                                        |  |   |        |  |   | 31,639
|Corporate bonds                    |  |                                                             | 13,765  |                                                    |   |                                        |  |   | 13,765  |  |   |      
|Other debt securities              |  |                                                             | 529     |                                                    |   |                                        |  |   |        |  |   | 529   
|Equity securities                  |  |                                                             | 1,559   |                                                    |   | 1,559                                   |  |   |        |  |   |      
|                                   |  |                                                             |         |                                                    |   |                                         |  |   |         |  |   |       
|Total                              |  | $                                                           | 168,721 |                                                    | $ | 1,559                                   |  | $ | 134,994 |  | $ | 32,168
|                                   |  |                                                             |         |                                                    |   |                                         |  |   |         |  |   |       

Financial assets measured at fair value on a non-recurring basis at
December 31, 2009 are summarized below:



|                        |  |                                                             |        |                                                    |   |                                         |  |   |   |  |   |       
|----------------------- |  | ----------------------------------------------------------- | ------ | -------------------------------------------------- | - | --------------------------------------- |  | - | - |  | - | ------
|Description             |  | December 31,2009                                            |        | Fair Value Measurements at December 31, 2009 Using
|                        |  | (in thousands)                                             
|                        |  | Quoted Prices InActive Markets forIdentical Assets(Level 1) |        | Significant OtherObservable 
Inputs(Level 2)       |   | SignificantUnobservableInputs(Level
 3)
|Impaired loans          |  | $                                                           | 79,313 |                                                    | $ |                                        |  | $ |  |  | $ | 79,313
|Other real estate owned |  |                                                             | 14,548 |                                                    |   |                                        |  |   |  |  |   | 14,548

Impaired loans, which are measured
for impairment using the fair value of collateral for collateral dependent loans, had a carrying amount of $84.4 million and a valuation allowance of $5.5 million, resulting in an additional provision for loan losses of $4.0 million for 2009.

Other real estate owned which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $14.5
million. Write-downs of $807,000 were recorded on other real estate owned during 2009.

Carrying amount and estimated fair values of financial
instruments were as follows for the periods indicated:



|                                                                           |  |                |           |                   |   |                |  |           |           |  |   |          
|-------------------------------------------------------------------------- |  | -------------- | --------- | ----------------- | - | -------------- |  | --------- | --------- |  | - | ---------
|                                                                           |  | March 31, 2010 |           | December 31, 2009
|                                                                           |  | CarryingAmount |           | FairValue         |   | CarryingAmount |  | FairValue
|                                                                           |  | (in thousands)
|Financial assets                                                           |  |                |           |                   |   |                |  |           |           |  |   |          
|Cash and cash equivalents                                                  |  | $              | 92,482    |                   | $ | 92,482         |  | $         | 172,173   |  | $ | 172,173  
|Securities available for sale                                              |  |                | 180,582   |                   |   | 180,582        |  |           | 168,721   |  |   | 168,721  
|Federal Home Loan Bank stock                                               |  |                | 10,072    |                   |   | N/A            |  |           | 10,072    |  |   | N/A      
|Loans, net                                                                 |  |                | 1,333,698 |                   |   | 1,342,674      |  |           | 1,386,526 |  |   | 1,396,465
|Accrued interest receivable                                                |  |                | 8,756     |                   |   | 8,756          |  |           | 9,329     |  |   | 9,329    
|Financial liabilities                                                      |  |                |           |                   |   |                |  |           |           |  |   |          
|Deposits                                                                   |  | $              | 1,485,040 |                   | $ | 1,490,633      |  | $         | 1,530,096 |  | $ | 1,526,508
|Federal funds purchased and securities sold under agreements to repurchase |  |                | 11,595    |                   |   | 11,595         |  |           | 11,517    |  |   | 11,517   
|Federal Home Loan Bank advances                                            |  |                | 47,285    |                   |   | 47,317         |  |           | 82,980    |  |   | 83,217   
|Subordinated capital notes                                                 |  |                | 9,000     |                   |   | 8,227          |  |           | 9,000     |  |   | 7,323    
|Junior subordinated debentures                                             |  |                | 25,000    |                   |   | 21,425         |  |           | 25,000    |  |   | 18,250   
|Accrued interest payable                                                   |  |                | 2,386     |                   |   | 2,386          |  |           | 2,705     |  |   | 2,705    



15





---

##### Table of Contents

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, interest-bearing deposits with banks, repurchase agreements, accrued interest
receivable and payable, demand deposits, short-term borrowings, and variable rate loans or deposits that reprice frequently and fully. The fair value of loans is estimated in accordance with paragraph 55-3 of ASC 825, Disclosures about Fair
Value of Financial Instruments, by discounting expected future cash flows using market rates on like maturity. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value
is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of subordinated capital notes and junior subordinated debentures are based on current rates for similar types of financing. The
carrying amount is the estimated fair value for variable and subordinated debentures that reprice frequently. The fair value of off-balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such
arrangements, which is not material.

Note 7  Earnings per Share

The factors used in the earnings per share computation follow:



|                                                                            |  |                                                 |           |      |   |          
|--------------------------------------------------------------------------- |  | ----------------------------------------------- | --------- | ---- | - | ---------
|                                                                            |  | Three Months EndedMarch 31,                    
|                                                                            |  | 2010                                            |           | 2009
|                                                                            |  | (in thousands, except
share and per share data)
|Basic and diluted                                                           |  |                                                 |           |      |   |          
|Net income                                                                  |  | $                                               | 3,256     |      | $ | 3,061    
|Less:                                                                       |  |                                                 |           |      |   |          
|Preferred stock dividends                                                   |  |                                                 | 438       |      |   | 438      
|Accretion of preferred stock discount                                       |  |                                                 | 44        |      |   | 44       
|Earnings allocated to unvested shares                                       |  |                                                 | 48        |      |   | 23       
|                                                                            |  |                                                 |           |      |   |          
|Net income allocated to common shareholders                                 |  | $                                               | 2,726     |      | $ | 2,556    
|                                                                            |  |                                                 |           |      |   |          
|Weighted average common shares including unvested common shares outstanding |  |                                                 | 8,773,385 |      |   | 8,709,229
|Less: Weighted average unvested common shares                               |  |                                                 | 123,745   |      |   | 77,464   
|                                                                            |  |                                                 |           |      |   |          
|Weighted average common shares outstanding                                  |  |                                                 | 8,649,640 |      |   | 8,631,765
|                                                                            |  |                                                 |           |      |   |          
|Basic earnings per common share                                             |  | $                                               | 0.32      |      | $ | 0.30     
|                                                                            |  |                                                 |           |      |   |          



16





---

##### Table of Contents

All historical data has been adjusted to reflect the 5% stock dividends.

Stock options for 93,629 shares of common stock for 2010 and 297,258 shares of common stock for 2009 were not considered in computing diluted earnings
per common share because they were anti-dilutive. Additionally, a warrant for the purchase of 314,821 shares of the Companys common stock at an exercise price of $16.68 was outstanding at March 31, 2010 and 2009 but was not included in
the diluted EPS computation as inclusion would have been anti-dilutive.

Note 8  Other Comprehensive Income

Other comprehensive income components and related tax effects were as follows:



|                                                               |  |                              |        |   |      |   |     |  
|-------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | --- | -
|                                                               |  | Three Months EndedMarch 
31, |       
|                                                               |  | 2010                         |        |   | 2009 |  
|                                                               |  | (in thousands)               |       
|Unrealized holding gains on available-for-sale securities      |  | $                            | 3,525  |   |      | $ | 95  |  
|Less: Reclassification adjustment for gains realized in income |  |                              | 57     |   |      |   | 1   |  
|                                                               |  |                              |        |   |      |   |     |  
|Net unrealized gains                                           |  |                              | 3,468  |   |      |   | 94  |  
|Tax effect                                                     |  |                              | (1,214 | ) |      |   | (33 | )
|                                                               |  |                              |        |   |      |   |     |  
|Net-of-tax amount                                              |  | $                            | 2,254  |   |      | $ | 61  |  
|                                                               |  |                              |        |   |      |   |     |  



17





---

##### 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. It 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, 2009 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 18 full-service banking offices in twelve 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 and southern Kentucky from banking offices in Butler, Green, Hart, Edmonson, Barren, Warren, Ohio and Daviess Counties. We also have an office in Lexington Kentucky, the second largest city in Kentucky. The Bank is both a traditional
community bank with a wide range of commercial and personal banking products, including wealth management and trust services, and an innovative online bank which delivers competitive deposit products and services through an online banking division
operating under the name of Ascencia.

For the three months ended March 31, 2010, the Company reported net income of $3.3 million. This
compares with net income of $3.1 million for the first quarter of 2009. Basic and diluted earnings per share were $0.32 for the three months ended March 31, 2010, compared with $0.30 for the first quarter of 2009.



18





---

##### Table of Contents

Significant developments during the quarter ended March 31, 2010 consist of the following:



| |  |  | Net interest margin increased 30 basis points to 3.32% in the first quarter of 2010 compared with 3.02% in the first quarter of 2009. The increase in
margin since last year benefited from a lower average cost of funds. Net interest margin was down from the fourth quarter of 2009 by 25 basis points primarily due to the higher level of non-performing assets.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net interest income increased 18.5% to $14.2 million for the three months ended March 31, 2010, compared with the same quarter of 2009 and
benefited from a 7.5% increase in average earning assets to $1.7 billion and lower cost of funds.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Average loans rose 3.3% to $1.40 billion in the first quarter of 2010 compared with $1.36 billion in the first quarter of 2009. Net loans decreased
1.0% to $1.33 billion in the first quarter of 2010, compared with $1.35 billion at March 31, 2009.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Deposits increased 6.8% to $1.49 billion compared with $1.39 billion at March 31, 2009.
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Total assets increased 1.1% to $1.76 billion compared with $1.74 billion at March 31, 2009.
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Efficiency ratio improved to 50.9% for the first three months of 2010, compared with 54.1% for the first quarter of 2009.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Non-performing loans decreased $24.4 million during the first quarter to $60.5 million at March 31, 2010 compared with $84.9 million at
December 31, 2009. The decrease was primarily attributable to obtaining a deed in lieu of foreclosure on a residential construction and development loan that totaled approximately $24.1 million. This loan was on non-accrual at December 31,
2009.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Non-performing assets increased $20.7 million during the first quarter to $120.2 million at March 31, 2010. The increase was primarily due to the
addition of a residential construction and development credit relationship totaling approximately $17.6 million in the first quarter of 2010.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The banking industry continues to experience very difficult times. Porter Bancorp is not immune from these difficulties. Real estate lending remains a
core business for the Company, and we expect continued weakening in that sector at least in the first half of 2010. We have set up a real estate department with a dedicated real estate sales expert that has been successful in selling OREO properties
and assisting in the sale of properties securing non-performing loans. In the first quarter of 2010, these transactions totaled approximately $17.6 million.

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, 2010 compared with the same period of 2009:



|                            |  |                                      |        |                         |   |        |  |   |         |   |  |       |   
|--------------------------- |  | ------------------------------------ | ------ | ----------------------- | - | ------ |  | - | ------- | - |  | ----- | --
|                            |  | For the Three 
MonthsEnded March 31, |        | Change fromPrior Period |  
|                            |  | 2010                                 |        | 2009                    |   | Amount |  |   | Percent |  
|                            |  | (dollars in thousands)               |       
|Gross interest income       |  | $                                    | 22,626 |                         | $ | 23,502 |  | $ | (876    | ) |  | (3.7  | )%
|Gross interest expense      |  |                                      | 8,449  |                         |   | 11,535 |  |   | (3,086  | ) |  | (26.8 | ) 
|Net interest income         |  |                                      | 14,177 |                         |   | 11,967 |  |   | 2,210   |   |  | 18.5  |   
|Provision for credit losses |  |                                      | 3,000  |                         |   | 1,600  |  |   | 1,400   |   |  | 87.5  |   
|Non-interest income         |  |                                      | 1,692  |                         |   | 1,486  |  |   | 206     |   |  | 13.9  |   
|Non-interest expense        |  |                                      | 8,049  |                         |   | 7,276  |  |   | 773     |   |  | 10.6  |   
|Net income before taxes     |  |                                      | 4,820  |                         |   | 4,577  |  |   | 243     |   |  | 5.3   |   
|Income tax expense          |  |                                      | 1,564  |                         |   | 1,516  |  |   | 48      |   |  | 3.2   |   
|Net income                  |  |                                      | 3,256  |                         |   | 3,061  |  |   | 195     |   |  | 6.4   |   



19





---

##### Table of Contents

Net income of $3,256,000 for the three months ended March 31, 2010 increased $195,000, or 6.4%, from
$3,061,000 for the comparable period of 2009. This increase in earnings was primarily attributable to increased net interest income, partially offset by increased provision for loan losses expense. Non-interest income increased due to growth in
service charges on deposit accounts income, resulting from higher volume in non-sufficient funds transactions, increased gains on sales of loans originated for sale and available for sale securities, and increased income from fiduciary activities
due to increased trustee fees related to employee stock ownership plan (ESOP) valuations. Non-interest expense increased primarily due to other real estate owned expense increasing $251,000 from the 2009 first quarter, and FDIC insurance premiums
and state franchise tax increasing $246,000 and $93,000, respectively, from the 2009 first quarter.

Net Interest Income 
Our net interest income was $14,177,000 for the three months ended March 31, 2010, an increase of $2.2 million, or 18.5%, compared with $11,967,000 for the same period in 2009. Net interest spread and margin were 3.09% and 3.32%, respectively,
for the first quarter of 2010, compared with 2.62% and 3.02%, respectively, for the first quarter of 2009. Net interest margin decreased 25 basis points from our margin of 3.57% in the fourth quarter of 2009 due primarily to lower yield on earning
assets. Net interest margin increased 30 basis points from our margin of 3.02% in the prior year first quarter due primarily to increased average interest earning assets coupled with lower cost of funds. The yield on earning assets declined 62 basis
points from the 2009 first quarter, compared with a 109 basis point decline in rates paid on interest-bearing liabilities.

Our average
interest-earning assets were $1.7 billion for the three months ended March 31, 2010, compared with $1.6 billion for the three months ended March 31, 2009, a 7.5% increase primarily attributable to loan growth and growth in interest-bearing
deposits with other financial institutions. Average loans were $1.40 billion for the three months ended March 31, 2010, compared with $1.36 billion for the three months ended March 31, 2009, a 3.3% increase. Average fed funds sold and
interest-bearing deposits with other financial institutions were $149.0 million for the three months ended March 31, 2010, compared with $77.4 million for the three months ended March 31, 2009, a 92.5% increase. Our total interest income
decreased by 3.7% to $22.6 million for the three months ended March 31, 2010, compared with $23.5 million for the same period in 2009. The change was due to lower yield on interest earning assets.

Our average interest-bearing liabilities also increased by 9.6%, to $1.6 billion for the three months ended March 31, 2010, compared with $1.4
billion for the three months ended March 31, 2009. Our total interest expense decreased by 26.8% to $8.4 million for the three months ended March 31, 2010, compared with $11.5 million during the same period in 2009, primarily due to
continued repricing of certificates of deposit at maturity at lower interest rates. Our average volume of certificates of deposit increased by 20.3% to $1.2 billion for the three months ended March 31, 2010, compared with $1.0 billion for the
three months ended March 31, 2009. The average interest rate paid on certificates of deposits decreased to 2.23% for the three months ended March 31, 2010, compared with 3.64% for the three months ended March 31, 2009. The certificate
of deposit volume increase reflected organic growth from promotional efforts throughout the period.



20





---

##### Table of Contents

Average Balance Sheets

The following table presents the average balance sheets for the three month periods ending March 31, 2010 and 2009, 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, |          
|                                                |  | 2010                         |           |   | 2009                |  
|                                                |  | AverageBalance               |           |   | InterestEarned/Paid |   | AverageYield/Cost |  |      | AverageBalance |  |   | InterestEarned/Paid |   | AverageYield/Cost |  
|                                                |  | (dollars in thousands)       |          
|ASSETS                                          |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Interest-earning assets:                        |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Loan receivables (1)(2)                         |  | $                            | 1,404,486 |   |                     | $ | 19,873            |  | 5.74 | %              |  | $ | 1,360,193           |   |                   | $ | 21,270 |  | 6.34 | %
|Securities                                      |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Taxable                                         |  |                              | 156,554   |   |                     |   | 2,323             |  | 6.02 |                |  |   | 149,979             |   |                   |   | 1,844  |  | 4.99 |  
|Tax-exempt (3)                                  |  |                              | 21,546    |   |                     |   | 216               |  | 6.25 |                |  |   | 22,030              |   |                   |   | 221    |  | 6.26 |  
|FHLB stock                                      |  |                              | 10,072    |   |                     |   | 114               |  | 4.59 |                |  |   | 10,072              |   |                   |   | 114    |  | 4.59 |  
|Other equity securities                         |  |                              | 1,885     |   |                     |   | 12                |  | 2.58 |                |  |   | 1,901               |   |                   |   | 18     |  | 3.84 |  
|Federal funds sold and other                    |  |                              | 148,966   |   |                     |   | 88                |  | 0.24 |                |  |   | 77,394              |   |                   |   | 35     |  | 0.18 |  
|                                                |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total interest-earning assets                   |  |                              | 1,743,509 |   |                     |   | 22,626            |  | 5.29 | %              |  |   | 1,621,569           |   |                   |   | 23,502 |  | 5.91 | %
|                                                |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Less: Allowance for loan losses                 |  |                              | (27,329   | ) |                     |   |                   |  |      |                |  |   | (20,024             | ) |                   |   |        |  |      |  
|Non-interest earning assets                     |  |                              | 118,028   |   |                     |   |                   |  |      |                |  |   | 95,030              |   |                   |   |        |  |      |  
|                                                |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total assets                                    |  | $                            | 1,834,208 |   |                     |   |                   |  |      |                |  | $ | 1,696,575           |   |                   |   |        |  |      |  
|                                                |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY            |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Interest-bearing liabilities:                   |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Certificates of deposit and other time deposits |  | $                            | 1,248,704 |   |                     | $ | 6,864             |  | 2.23 | %              |  | $ | 1,037,856           |   |                   | $ | 9,316  |  | 3.64 | %
|NOW and money market deposits                   |  |                              | 163,510   |   |                     |   | 451               |  | 1.12 |                |  |   | 163,247             |   |                   |   | 520    |  | 1.29 |  
|Savings accounts                                |  |                              | 34,477    |   |                     |   | 68                |  | 0.80 |                |  |   | 34,736              |   |                   |   | 82     |  | 0.96 |  
|Federal funds purchased and repurchase          |  |                              | 11,606    |   |                     |   | 119               |  | 4.16 |                |  |   | 10,680              |   |                   |   | 115    |  | 4.37 |  
|FHLB advances                                   |  |                              | 66,307    |   |                     |   | 720               |  | 4.40 |                |  |   | 142,065             |   |                   |   | 1,149  |  | 3.28 |  
|Junior subordinated debentures                  |  |                              | 34,000    |   |                     |   | 227               |  | 2.71 |                |  |   | 34,000              |   |                   |   | 353    |  | 4.21 |  
|                                                |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total interest-bearing liabilities              |  |                              | 1,558,604 |   |                     |   | 8,449             |  | 2.20 | %              |  |   | 1,422,584           |   |                   |   | 11,535 |  | 3.29 | %
|                                                |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Non-interest-bearing liabilities:               |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Non-interest-bearing deposits                   |  |                              | 98,778    |   |                     |   |                   |  |      |                |  |   | 99,922              |   |                   |   |        |  |      |  
|Other liabilities                               |  |                              | 7,067     |   |                     |   |                   |  |      |                |  |   | 8,313               |   |                   |   |        |  |      |  
|                                                |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities                               |  |                              | 1,664,449 |   |                     |   |                   |  |      |                |  |   | 1,530,819           |   |                   |   |        |  |      |  
|Stockholders equity                            |  |                              | 169,759   |   |                     |   |                   |  |      |                |  |   | 165,756             |   |                   |   |        |  |      |  
|                                                |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities and stockholders equity      |  | $                            | 1,834,208 |   |                     |   |                   |  |      |                |  | $ | 1,696,575           |   |                   |   |        |  |      |  
|                                                |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest income                             |  |                              |           |   |                     | $ | 14,177            |  |      |                |  |   |                     |   |                   | $ | 11,967 |  |      |  
|                                                |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest spread                             |  |                              |           |   |                     |   |                   |  | 3.09 | %              |  |   |                     |   |                   |   |        |  | 2.62 | %
|                                                |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest margin                             |  |                              |           |   |                     |   |                   |  | 3.32 | %              |  |   |                     |   |                   |   |        |  | 3.02 | %
|                                                |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  



|(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.
|--- | --------------------------------------------------------------------------------



21





---

##### 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 Ended March 
31,2010 vs. 2009 |       
|                                              |  | Increase (decrease)due to change in        |        |   | NetChange |  
|                                              |  | Rate                                       |        |   | Volume    |   |      
|                                              |  | (in thousands)                             |       
|Interest-earning assets:                      |  |                                            |        |   |           |   |       |   |  |   |        |  
|Loan receivables                              |  | $                                          | (2,073 | ) |           | $ | 676   |   |  | $ | (1,397 | )
|Securities                                    |  |                                            | 399    |   |           |   | 75    |   |  |   | 474    |  
|Other equity securities                       |  |                                            | (6     | ) |           |   |      |   |  |   | (6     | )
|Federal funds sold and other                  |  |                                            | 6      |   |           |   | 47    |   |  |   | 53     |  
|                                              |  |                                            |        |   |           |   |       |   |  |   |        |  
|Total increase (decrease) in interest income  |  |                                            | (1,674 | ) |           |   | 798   |   |  |   | (876   | )
|                                              |  |                                            |        |   |           |   |       |   |  |   |        |  
|Interest-bearing liabilities:                 |  |                                            |        |   |           |   |       |   |  |   |        |  
|Certificates of deposit and other time        |  |                                            | (4,093 | ) |           |   | 1,641 |   |  |   | (2,452 | )
|NOW and money market accounts                 |  |                                            | (70    | ) |           |   | 1     |   |  |   | (69    | )
|Savings accounts                              |  |                                            | (13    | ) |           |   | (1    | ) |  |   | (14    | )
|Federal funds purchased and repurchased       |  |                                            | (5     | ) |           |   | 9     |   |  |   | 4      |  
|FHLB advances                                 |  |                                            | 312    |   |           |   | (741  | ) |  |   | (429   | )
|Junior subordinated debentures                |  |                                            | (126   | ) |           |   |      |   |  |   | (126   | )
|                                              |  |                                            |        |   |           |   |       |   |  |   |        |  
|Total increase (decrease) in interest expense |  |                                            | (3,995 | ) |           |   | 909   |   |  |   | (3,086 | )
|                                              |  |                                            |        |   |           |   |       |   |  |   |        |  
|Increase (decrease) in net interest income    |  | $                                          | 2,321  |   |           | $ | (111  | ) |  | $ | 2,210  |  
|                                              |  |                                            |        |   |           |   |       |   |  |   |        |  



22





---

##### Table of Contents

Non-Interest Income  The following table presents the major categories of non-interest
income for the first quarter ended March 31, 2010 and 2009:



|                                             |  |                             |       |      |   |      
|-------------------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                             |  | Three Months EndedMarch 31,
|                                             |  | 2010                        |       | 2009
|                                             |  | (in thousands)             
|Service charges on deposit accounts          |  | $                           | 720   |      | $ | 688  
|Income from fiduciary activities             |  |                             | 252   |      |   | 220  
|Secondary market brokerage fees              |  |                             | 60    |      |   | 58   
|Title insurance commissions                  |  |                             | 37    |      |   | 20   
|Gains on sales of loans originated for sale  |  |                             | 91    |      |   |     
|Gains on sales of investment securities, net |  |                             | 57    |      |   | 1    
|Other                                        |  |                             | 475   |      |   | 499  
|                                             |  |                             |       |      |   |      
|Total non-interest income                    |  | $                           | 1,692 |      | $ | 1,486
|                                             |  |                             |       |      |   |      

Non-interest income for the first quarter ended March 31, 2010
increased $206,000, or 13.9%, compared with the first quarter of 2009. The increase in non-interest income for the first quarter ended March 31, 2010 was primarily due to increased service charges on deposit accounts resulting from higher
volume in non-sufficient funds transactions, increased gains on sales of loans originated for sale and available-for-sale securities, and increased income from fiduciary activities due to increased trustee fees related to employee stock ownership
plan (ESOP) valuations.

Non-interest ExpenseThe following table presents the major categories of non-interest
expense for the first quarter ended March 31, 2010 and 2009:



|                                |  |                             |       |      |   |      
|------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                |  | Three Months EndedMarch 31,
|                                |  | 2010                        |       | 2009
|                                |  | (in thousands)             
|Salary and employee benefits    |  | $                           | 3,947 |      | $ | 3,878
|Occupancy and equipment         |  |                             | 1,022 |      |   | 998  
|FDIC insurance                  |  |                             | 705   |      |   | 459  
|State franchise tax             |  |                             | 543   |      |   | 450  
|Other real estate owned expense |  |                             | 378   |      |   | 127  
|Professional fees               |  |                             | 266   |      |   | 228  
|Communications                  |  |                             | 186   |      |   | 155  
|Postage and delivery            |  |                             | 188   |      |   | 184  
|Advertising                     |  |                             | 96    |      |   | 158  
|Office supplies                 |  |                             | 97    |      |   | 104  
|Other                           |  |                             | 621   |      |   | 535  
|                                |  |                             |       |      |   |      
|Total non-interest expense      |  | $                           | 8,049 |      | $ | 7,276
|                                |  |                             |       |      |   |      

Non-interest expense for the first quarter ended March 31, 2010
increased $773,000, or 10.6%, compared with the first quarter of 2009. The increase in non-interest expense was primarily attributable to other real estate owned expense due to the cyclical nature of costs related to foreclosures on non-performing
credits, repossessing collateral, and other collection efforts, FDIC insurance assessments due to amendments made by the FDIC to its risk-based deposit premium assessment system, and state franchise tax due to growth in the Banks capital. Our
efficiency improved to 50.90% for the first three months of 2010 in comparison with 54.09% in the first quarter of 2009 primarily due to increased net interest income.

Income Tax ExpenseIncome tax expense was $1.6 million, or 32.4% of pre-tax income, for the first quarter ended
March 31, 2010, compared with $1.5 million, or 33.1% of pre-tax income for the first quarter of 2009.



23





---

##### Table of Contents

The slight decrease in effective tax rate is attributable to a modest decrease in TEFRA disallowance between
periods.

Analysis of Financial Condition

Total assets decreased $77.8 million, or 4.2%, to $1.76 billion at March 31, 2010 from $1.84 billion at December 31, 2009. This decrease was
primarily attributable to a decrease of $79.7 million in cash and cash equivalents, due to cash outflow to fund reduction of brokered deposits. Net loans decreased by $52.8 million, primarily due to efforts to move troubled loans through the
collection, foreclosure, and disposition process, which contributed to the increase of $45.1 million in other real estate owned. Total assets at March 31, 2010 increased $18.9 million from $1.74 billion at March 31, 2009, representing a
1.1% increase.

Loans ReceivableLoans receivable decreased $52.7 million, or 3.7%, during the three months ended
March 31, 2010 to $1.36 billion. Our commercial, commercial real estate and real estate construction portfolios decreased by an aggregate of $50.3 million, or 5.4%, during the three months and comprised 64.7% of the total loan portfolio at
March 31, 2010.

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. Except for 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 31,2010    |           |         | As of
December 31,2009 |  
|              |  | Amount                 |           | Percent |                        |   | Amount |   | Percent   | 
|              |  | (dollars in thousands) |          
|Type of Loan: |  |                        |           |         |                        |   |        |   |           |  |        |  
|Real estate:  |  |                        |           |         |                        |   |        |   |           |  |        |  
|Commercial    |  | $                      | 543,012   |         | 39.92                  | % |        | $ | 535,843   |  | 37.93  | %
|Construction  |  |                        | 247,955   |         | 18.23                  |   |        |   | 304,230   |  | 21.53  |  
|Residential   |  |                        | 387,931   |         | 28.52                  |   |        |   | 387,017   |  | 27.39  |  
|Home equity   |  |                        | 31,228    |         | 2.29                   |   |        |   | 32,384    |  | 2.29   |  
|Commercial    |  |                        | 88,696    |         | 6.52                   |   |        |   | 89,903    |  | 6.36   |  
|Consumer      |  |                        | 35,767    |         | 2.63                   |   |        |   | 36,989    |  | 2.62   |  
|Agriculture   |  |                        | 24,304    |         | 1.79                   |   |        |   | 25,064    |  | 1.77   |  
|Other         |  |                        | 1,348     |         | 0.10                   |   |        |   | 1,488     |  | 0.11   |  
|              |  |                        |           |         |                        |   |        |   |           |  |        |  
|Total loans   |  | $                      | 1,360,241 |         | 100.00                 | % |        | $ | 1,412,918 |  | 100.00 | %
|              |  |                        |           |         |                        |   |        |   |           |  |        |  

Non-Performing AssetsNon-performing assets consist of 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, 2010 and December 31, 2009.



|                                                |  |                        |         |   |                  |   |        |  
|----------------------------------------------- |  | ---------------------- | ------- | - | ---------------- | - | ------ | -
|                                                |  | March 31,2010          |         |   | December 31,2009 |  
|                                                |  | (dollars in thousands) |        
|Loans past due 90 days or more still on accrual |  | $                      | 5,913   |   |                  | $ | 5,968  |  
|Non-accrual loans                               |  |                        | 54,545  |   |                  |   | 78,888 |  
|                                                |  |                        |         |   |                  |   |        |  
|Total non-performing loans                      |  |                        | 60,458  |   |                  |   | 84,856 |  
|Real estate acquired through foreclosure        |  |                        | 59,688  |   |                  |   | 14,548 |  
|Other repossessed assets                        |  |                        | 80      |   |                  |   | 80     |  
|                                                |  |                        |         |   |                  |   |        |  
|Total non-performing assets                     |  | $                      | 120,226 |   |                  | $ | 99,484 |  
|                                                |  |                        |         |   |                  |   |        |  
|Non-performing loans to total loans             |  |                        | 4.44    | % |                  |   | 6.00   | %
|                                                |  |                        |         |   |                  |   |        |  
|Non-performing assets to total assets           |  |                        | 6.84    | % |                  |   | 5.42   | %
|                                                |  |                        |         |   |                  |   |        |  



24





---

##### Table of Contents

Nonperforming loans at March 31, 2010 were $60.5 million, or 4.44% of total loans, compared with $24.8
million, or 1.81% of total loans, at March 31, 2009, and $84.9 million, or 6.0% of total loans at December 31, 2009. The decrease of $24.4 million in non-performing loans from December 31, 2009 to March 31, 2010 is primarily
attributable to efforts to move troubled loans through the collection, foreclosure, and disposition process. At March 31, 2010, we had restructured loans totaling $23.4 million with borrowers who experienced deterioration in financial condition
compared with $25.2 million at December 31, 2009. These loans are secured by 1-4 residential or commercial real estate properties. Management believes these loans are well secured and the borrowers have the ability to repay the loans in
accordance with the renegotiated terms.

Foreclosed properties at March 31, 2010 were $59.7 million compared with $10.5 million at
March 31, 2009 and $14.5 million at December 31, 2009. The majority of the increase was due to loans on two multi-unit residential condominiums and patio home developments that were valued at approximately $41.7 million. The bank acquired
deeds in lieu of foreclosure on these properties. In addition, the increase in foreclosed properties from year-end 2009 reflects the normal progression of troubled loans through workout, collateral repossession and ultimate disposition. We value
foreclosed properties at fair value less costs to sell when acquired and expect to liquidate these properties to recover our investment in the due course of business.

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, 2010, increased to 1.95% from 1.49% at March 31, 2009, and 1.87% at
December 31, 2009. Provision for loan losses increased $1.4 million to $3.0 million for the first quarter of 2010 compared with the first quarter of 2009, and decreased $6.0 million compared with the fourth quarter of 2009. Net loan charge-offs
for the first quarter of 2010 were $2.8 million, or 0.20% of average loans, compared with $881,000, or 0.06%, for the first quarter of 2009, and $4.6 million, or 0.33%, for the fourth quarter of 2009. Our allowance for loan losses to nonperforming
loans increased to 43.90% at March 31, 2010, compared with 31.10% at December 31, 2009, but declined in comparison with 82.13% at March 31, 2009. The change in this metric between periods is attributable to the fluctuation in
non-accrual loans. We have assessed these loans for collectability and considered, among other things, the borrowers ability to repay, the value of the underlying collateral, and other market conditions to ensure the allowance for loan losses
is adequate to absorb probable incurred losses.



25





---

##### Table of Contents

An analysis of changes in allowance for loan losses and selected ratios for the three month periods ended
March 31, 2010 and 2009 follows:



|                                                  |  |                             |        |   |      |   |        |  
|------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                  |  | Three Months EndedMarch 31, |       
|                                                  |  | 2010                        |        |   | 2009 |  
|                                                  |  | (dollars in thousands)      |       
|Balance at beginning of period                    |  | $                           | 26,392 |   |      | $ | 19,652 |  
|Provision for loan losses                         |  |                             | 3,000  |   |      |   | 1,600  |  
|Recoveries                                        |  |                             | 57     |   |      |   | 102    |  
|Charge-offs                                       |  |                             | (2,906 | ) |      |   | (983   | )
|                                                  |  |                             |        |   |      |   |        |  
|Balance at end of period                          |  | $                           | 26,543 |   |      | $ | 20,371 |  
|                                                  |  |                             |        |   |      |   |        |  
|Allowance for loan losses to period-end loans     |  |                             | 1.95   | % |      |   | 1.49   | %
|                                                  |  |                             |        |   |      |   |        |  
|Net charge-offs to average loans                  |  |                             | 0.20   | % |      |   | 0.06   | %
|                                                  |  |                             |        |   |      |   |        |  
|Allowance for loan losses to non-performing loans |  |                             | 43.90  | % |      |   | 82.13  | %
|                                                  |  |                             |        |   |      |   |        |  

LiabilitiesTotal liabilities at March 31, 2010 were $1.6 billion compared with $1.7
billion at December 31, 2009, a decrease of $81.2 million, or 4.9%. The decrease was primarily attributable to a decrease in deposits of $45.1 million, or 2.9%, at March 31, 2010 to $1.49 billion from $1.53 billion at December 31,
2009. The decrease in deposits was primarily due to reduction in brokered deposits.

Federal Home Loan Bank advances decreased due to paydowns
from normal maturities by $35.7 million, or 43.0%, to $47.3 million from $83.0 million at December 31, 2009. 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.

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 31,2010 |           |             | For the YearEnded December 31,2009 |  
|                        |  | AverageBalance                          |           | AverageRate |                                    |   | AverageBalance |   | AverageRate | 
|                        |  | (dollars in thousands)                  |          
|Demand                  |  | $                                       | 98,778    |             |                                   |   |                | $ | 99,167      |  |     |  
|Interest checking       |  |                                         | 80,014    |             | 0.84                               | % |                |   | 75,602      |  | 0.84 | %
|Money market            |  |                                         | 83,496    |             | 1.38                               |   |                |   | 86,619      |  | 1.53 |  
|Savings                 |  |                                         | 34,477    |             | 0.80                               |   |                |   | 34,386      |  | 0.90 |  
|Certificates of deposit |  |                                         | 1,248,704 |             | 2.23                               |   |                |   | 1,089,798   |  | 3.01 |  
|                        |  |                                         |           |             |                                    |   |                |   |             |  |      |  
|Total deposits          |  | $                                       | 1,545,469 |             | 1.94                               | % |                | $ | 1,385,572   |  | 2.53 | %
|                        |  |                                         |           |             |                                    |   |                |   |             |  |      |  



26





---

##### Table of Contents

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 31,2010 |           |             | For the YearEnded December 31,2009 |  
|                   |  | AverageBalance                          |           | AverageRate |                                    |   | AverageBalance |   | AverageRate | 
|                   |  | (dollars in thousands)                  |          
|Less than $100,000 |  | $                                       | 624,797   |             | 2.24                               | % |                | $ | 611,011     |  | 3.03 | %
|$100,000 or more   |  |                                         | 623,907   |             | 2.22                               | % |                |   | 478,787     |  | 2.98 | %
|                   |  |                                         |           |             |                                    |   |                |   |             |  |      |  
|Total              |  | $                                       | 1,248,704 |             | 2.23                               | % |                | $ | 1,089,798   |  | 3.01 | %
|                   |  |                                         |           |             |                                    |   |                |   |             |  |      |  

The following table shows at March 31, 2010 and December 31, 2009 the amount of our time deposits of
$100,000 or more by time remaining until maturity:



|                                 |  |                    |         |                       |   |        
|-------------------------------- |  | ------------------ | ------- | --------------------- | - | -------
|Maturity Period                  |  | As ofMarch 31,2010 |         | As ofDecember 31,2009
|                                 |  | (in thousands)    
|Three months or less             |  | $                  | 163,683 |                       | $ | 154,365
|Three months through six months  |  |                    | 115,368 |                       |   | 162,828
|Six months through twelve months |  |                    | 121,925 |                       |   | 131,861
|Over twelve months               |  |                    | 195,133 |                       |   | 167,236
|                                 |  |                    |         |                       |   |        
|Total                            |  | $                  | 596,109 |                       | $ | 616,290
|                                 |  |                    |         |                       |   |        

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 2009 and the first three months of 2010, PBI Bank utilized brokered and wholesale deposits to supplement its funding strategy. At March 31,
2010, these deposits totaled $89.5 million compared with $114.6 million at December 31, 2009. PBI Bank also secured federal funds borrowing lines from major correspondent banks totaling $44.0 million on an unsecured basis and an additional $25
million on a secured basis.

Traditionally, PBI Bank has utilized borrowings from the FHLB to supplement our funding requirements. At
March 31, 2010, the Bank had an unused borrowing capacity with the FHLB of $66.9 million. Management believes our sources of liquidity are adequate to meet expected cash needs for the foreseeable future.



27





---

##### Table of Contents

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. PBI Bank must obtain the prior written consent of its primary regulators
prior to declaring or paying any future dividends.

Capital

Stockholders equity increased $3.4 million to $172.7 million at March 31, 2010 compared with $169.3 million at December 31, 2009. The
increase was due to net income earned during the 2010 first quarter reduced by dividends declared on common stock and dividends paid on 5% cumulative preferred stock, and increased unrealized net gains on available-for-sale securities. Both the
Company and the bank qualified as well capitalized under regulatory guidelines at March 31, 2010.

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. PBI Bank has agreed with its primary regulators to maintain a ratio of total capital to total risk-weighted assets of at least 12.0% and a ratio of Tier 1 capital to total
risk-weighted assets of 9.0% by June 30, 2010.

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, 2010 |   |  | December 31, 2009 |  
|                         |  | RegulatoryMinimums |   |  | Well-CapitalizedMinimums |   |  | PorterBancorp  |   |  | PBIBank           |   |  | PorterBancorp |   |  | PBIBank |  
|Tier I capital           |  | 4.0                | % |  | 6.0                      | % |  | 12.20          | % |  | 11.45             | % |  | 11.93         | % |  | 10.65   | %
|Total risk-based capital |  | 8.0                |   |  | 10.0                     |   |  | 14.12          |   |  | 13.37             |   |  | 13.83         |   |  | 12.56   |  
|Tier I leverage ratio    |  | 4.0                |   |  | 5.0                      |   |  | 9.24           |   |  | 8.66              |   |  | 9.59          |   |  | 8.57    |  

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Companys interest sensitivity profile was asset sensitive at March 31, 2010, and December 31, 2009. Given an
instantaneous 100 basis point decrease in rates that was sustained for 12 months, base net interest income would decrease by an estimated 4.3% at March 31, 2010 compared with a decrease of 4.5% at December 31, 2009. Given a 100 basis point
increase in interest rates, base net interest income would increase by an estimated 4.1% at March 31, 2010, compared with an increase of 4.9% at December 31, 2009 and is within the risk tolerance parameters of our risk management policy.

The following table indicates the estimated impact on net interest income under various interest rate scenarios for the three months
following March 31, 2010, as calculated using the static shock model approach:



|                   |  |                                     |       |                   |      |  
|------------------ |  | ----------------------------------- | ----- | ----------------- | ---- | -
|                   |  | Change in FutureNet Interest Income |      
|                   |  | Dollar Change                       |       | Percentage Change |     
|                   |  | (dollars in thousands)              |      
|+ 200 basis points |  | $                                   | 4,872 |                   | 7.84 | %
|+ 100 basis points |  |                                     | 2,540 |                   | 4.08 |  



28





---

##### Table of Contents

We did not run a model simulation for declining interest rates as of March 31, 2010, because the
Federal Reserve effectively lowered the federal funds target rate between 0.00% to 0.25% in December 2008. Therefore, no further short-term rate reductions can occur. As we implement strategies to mitigate the risk of rising interest rates in the
future, these strategies will lessen our forecasted base case net interest income in the event of no interest rate changes.

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, 2010, 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. Additionally, there was no change in our internal control over financial reporting during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the
internal control over financial reporting.



29





---

##### 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, 2009 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
|------- | -----------------------------------------------------------

Purchases of Equity Securities by Issuer

In December 2006, the Companys Board of Directors approved the repurchase of shares of Porter Bancorps common stock in an amount not to exceed
$3 million, exclusive of any fees or commissions. As of March 31, 2010, Porter Bancorp had approximately $2.5 million remaining to purchase shares under the current stock repurchase program. The shares may be repurchased from time to time in
open market transactions or privately negotiated transactions at its discretion, subject to market conditions and other factors. The Company did not repurchase any shares in the first quarter of 2010. The terms of the $35 million senior
preferred stock transaction with the U.S. Treasury limit our ability repurchase shares of common stock until after November 21, 2011, unless the preferred shares sold to the U.S. Treasury have been redeemed in whole or transferred to an
unaffiliated third party.



|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.



30





---

##### Table of Contents

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

(a) Exhibits

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



|              |  |                                                                                                                                                       
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                
|10.14+        |  | Porter Bancorp, Inc. 2010 Incentive Compensation Bonus Plan.                                                                                          
|              | 
|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.



|+ | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------

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 11, 2010 |  | By:                  |  | /s/ Maria L. Bouvette                               
|             |  |                      |  | Maria L. Bouvette                                   
|             |  |                      |  | President & Chief Executive Officer                 
|             |  |                     
|May 11, 2010 |  | By:                  |  | /s/ David B. Pierce                                 
|             |  |                      |  | David B. Pierce                                     
|             |  |                      |  | Chief Financial Officer and Chief Accounting Officer



31