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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 September 30, 2009

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   ̈    (Do not check if a
smaller reporting company) |  | Smaller reporting company  x

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

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

8,339,102 shares of Common Stock, no par value, were outstanding at October 31, 2009.









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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 |  | 20  
|          |  |                                                                                      
|ITEM 3.   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 33  
|          |  |                                                                                      
|ITEM 4.   |  | CONTROLS AND PROCEDURES                                                               |  | 33  
|          |  |                                                                                      
|PART II  |  | OTHER INFORMATION                                                                     |  |     
|          |  |                                                                                      
|ITEM 1.   |  | LEGAL PROCEEDINGS                                                                     |  | 34  
|          |  |                                                                                      
|ITEM 1A.  |  | RISK FACTORS                                                                          |  | 34  
|          |  |                                                                                      
|ITEM 2.   |  | UNREGISTERED SALES ON EQUITY SECURITIES AND USE OF PROCEEDS                           |  | 35  
|          |  |                                                                                      
|ITEM 3.   |  | DEFAULTS UPON SENIOR SECURITIES                                                       |  | 35  
|          |  |                                                                                      
|ITEM 4.   |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 36  
|          |  |                                                                                      
|ITEM 5.   |  | OTHER INFORMATION                                                                     |  | 36  
|          |  |                                                                                      
|ITEM 6.   |  | EXHIBITS                                                                              |  | 36  



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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 September 30, 2009 and December 31, 2008

Unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2009 and 2008

Unaudited Consolidated Statement of Changes in Stockholders Equity for the nine months ended September 30, 2009

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008

Notes to Unaudited Consolidated Financial Statements



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PORTER BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Balance Sheets

(dollars in thousands except share data)



|                                                                                                                                                 |  |                   |           |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | --------- | ---------------- | - | --------- | -
|                                                                                                                                                 |  | September 30,2009 |           | December 31,2008 |  
|Assets                                                                                                                                           |  |                   |           |                  |   |           |  
|Cash and due from financial institutions                                                                                                         |  | $                 | 89,556    |                  | $ | 43,767    |  
|Federal funds sold                                                                                                                               |  |                   | 1,686     |                  |   | 8,779     |  
|                                                                                                                                                 |  |                   |           |                  |   |           |  
|Cash and cash equivalents                                                                                                                        |  |                   | 91,242    |                  |   | 52,546    |  
|Interest-bearing deposits in other financial institutions                                                                                        |  |                   | 600       |                  |   | 600       |  
|Securities available for sale                                                                                                                    |  |                   | 175,160   |                  |   | 173,077   |  
|Mortgage loans held for sale                                                                                                                     |  |                   | 391       |                  |   |          |  
|Loans, net of allowance of $21,958 and $19,652, respectively                                                                                     |  |                   | 1,365,010 |                  |   | 1,330,454 |  
|Premises and equipment                                                                                                                           |  |                   | 23,756    |                  |   | 22,543    |  
|Goodwill                                                                                                                                         |  |                   | 23,794    |                  |   | 23,794    |  
|Accrued interest receivable and other assets                                                                                                     |  |                   | 48,809    |                  |   | 44,843    |  
|                                                                                                                                                 |  |                   |           |                  |   |           |  
|Total assets                                                                                                                                     |  | $                 | 1,728,762 |                  | $ | 1,647,857 |  
|                                                                                                                                                 |  |                   |           |                  |   |           |  
|Liabilities and Stockholders Equity                                                                                                             |  |                   |           |                  |   |           |  
|Deposits                                                                                                                                         |  |                   |           |                  |   |           |  
|Non-interest bearing                                                                                                                             |  | $                 | 92,861    |                  | $ | 92,940    |  
|Interest bearing                                                                                                                                 |  |                   | 1,285,795 |                  |   | 1,195,609 |  
|                                                                                                                                                 |  |                   |           |                  |   |           |  
|Total deposits                                                                                                                                   |  |                   | 1,378,656 |                  |   | 1,288,549 |  
|Federal funds purchased and repurchase agreements                                                                                                |  |                   | 11,296    |                  |   | 10,084    |  
|Federal Home Loan Bank advances                                                                                                                  |  |                   | 125,284   |                  |   | 142,776   |  
|Accrued interest payable and other liabilities                                                                                                   |  |                   | 8,411     |                  |   | 8,235     |  
|Subordinated capital note                                                                                                                        |  |                   | 9,000     |                  |   | 9,000     |  
|Junior subordinated debentures                                                                                                                   |  |                   | 25,000    |                  |   | 25,000    |  
|                                                                                                                                                 |  |                   |           |                  |   |           |  
|Total liabilities                                                                                                                                |  |                   | 1,557,647 |                  |   | 1,483,644 |  
|Stockholders equity                                                                                                                             |  |                   |           |                  |   |           |  
|Preferred stock, no par, 1,000,000 shares authorized, 35,000 issued and outstanding. Liquidation preference of $35 million at
September 30, 2009 |  |                   | 34,263    |                  |   | 34,131    |  
|Common stock, no par, 19,000,000 shares authorized, 8,756,057 and 8,702,330 shares issued and outstanding,
respectively                          |  |                   | 76,897    |                  |   | 76,897    |  
|Additional paid-in capital                                                                                                                       |  |                   | 13,760    |                  |   | 13,483    |  
|Retained earnings                                                                                                                                |  |                   | 44,112    |                  |   | 39,957    |  
|Accumulated other comprehensive income (loss)                                                                                                    |  |                   | 2,083     |                  |   | (255      | )
|                                                                                                                                                 |  |                   |           |                  |   |           |  
|Total stockholders equity                                                                                                                       |  |                   | 171,115   |                  |   | 164,213   |  
|                                                                                                                                                 |  |                   |           |                  |   |           |  
|Total liabilities and stockholders equity                                                                                                       |  | $                 | 1,728,762 |                  | $ | 1,647,857 |  
|                                                                                                                                                 |  |                   |           |                  |   |           |  

See accompanying notes to unaudited consolidated financial statements.



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PORTER BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Income

(dollars in thousands, except per share data)



|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|--------------------------------------------------- |  | ------------------------------- | ------ | ---- | ------------------------------ | ------ | ---- |  | ---- | ------ |  | - | ------ | -
|                                                    |  | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30, |       
|                                                    |  | 2009                            |        | 2008 |                                |        | 2009 |  | 2008 |       
|Interest income                                     |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|Loans, including fees                               |  | $                               | 20,961 |      | $                              | 23,478 |      |  | $    | 63,333 |  | $ | 70,655 |  
|Taxable securities                                  |  |                                 | 2,469  |      |                                | 1,173  |      |  |      | 6,483  |  |   | 3,717  |  
|Tax exempt securities                               |  |                                 | 218    |      |                                | 216    |      |  |      | 662    |  |   | 606    |  
|Fed funds sold and other                            |  |                                 | 154    |      |                                | 239    |      |  |      | 471    |  |   | 843    |  
|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|                                                    |  |                                 | 23,802 |      |                                | 25,106 |      |  |      | 70,949 |  |   | 75,821 |  
|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|                                                    |  |                                 |        |     
|Interest expense                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|Deposits                                            |  |                                 | 8,190  |      |                                | 10,670 |      |  |      | 27,576 |  |   | 34,263 |  
|Federal Home Loan Bank advances                     |  |                                 | 858    |      |                                | 1,421  |      |  |      | 2,944  |  |   | 4,178  |  
|Subordinated capital note                           |  |                                 | 84     |      |                                | 135    |      |  |      | 284    |  |   | 135    |  
|Junior subordinated debentures                      |  |                                 | 176    |      |                                | 318    |      |  |      | 636    |  |   | 1,061  |  
|Federal funds purchased and other                   |  |                                 | 120    |      |                                | 129    |      |  |      | 355    |  |   | 436    |  
|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|                                                    |  |                                 | 9,428  |      |                                | 12,673 |      |  |      | 31,795 |  |   | 40,073 |  
|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|Net interest income                                 |  |                                 | 14,374 |      |                                | 12,433 |      |  |      | 39,154 |  |   | 35,748 |  
|Provision for loan losses                           |  |                                 | 2,000  |      |                                | 1,250  |      |  |      | 5,200  |  |   | 2,650  |  
|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|Net interest income after provision for loan losses |  |                                 | 12,374 |      |                                | 11,183 |      |  |      | 33,954 |  |   | 33,098 |  
|                                                    |  |                                 |        |     
|Non-interest income                                 |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|Service charges on deposit accounts                 |  |                                 | 843    |      |                                | 876    |      |  |      | 2,319  |  |   | 2,607  |  
|Income from fiduciary activities                    |  |                                 | 227    |      |                                | 261    |      |  |      | 645    |  |   | 845    |  
|Secondary market brokerage fees                     |  |                                 | 49     |      |                                | 85     |      |  |      | 180    |  |   | 306    |  
|Title insurance commissions                         |  |                                 | 33     |      |                                | 50     |      |  |      | 97     |  |   | 144    |  
|Net gain on sales of loans originated for sale      |  |                                 | 82     |      |                                |       |      |  |      | 323    |  |   |       |  
|Net gain (loss) on sales of securities              |  |                                 | 321    |      |                                | (101   | )    |  |      | 322    |  |   | (146   | )
|Other                                               |  |                                 | 481    |      |                                | 554    |      |  |      | 1,531  |  |   | 1,575  |  
|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|                                                    |  |                                 | 2,036  |      |                                | 1,725  |      |  |      | 5,417  |  |   | 5,331  |  
|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|                                                    |  |                                 |        |     
|Non-interest expense                                |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|Salaries and employee benefits                      |  |                                 | 3,799  |      |                                | 3,666  |      |  |      | 11,490 |  |   | 11,382 |  
|Occupancy and equipment                             |  |                                 | 993    |      |                                | 882    |      |  |      | 2,972  |  |   | 2,699  |  
|FDIC Insurance                                      |  |                                 | 626    |      |                                | 284    |      |  |      | 1,588  |  |   | 747    |  
|FDIC special assessment                             |  |                                 |       |      |                                |       |      |  |      | 781    |  |   |       |  
|State franchise tax                                 |  |                                 | 450    |      |                                | 435    |      |  |      | 1,350  |  |   | 1,305  |  
|Other real estate owned expense                     |  |                                 | 353    |      |                                | 109    |      |  |      | 706    |  |   | 456    |  
|Professional fees                                   |  |                                 | 175    |      |                                | 177    |      |  |      | 606    |  |   | 595    |  
|Communications                                      |  |                                 | 183    |      |                                | 181    |      |  |      | 568    |  |   | 530    |  
|Postage and delivery                                |  |                                 | 193    |      |                                | 201    |      |  |      | 561    |  |   | 568    |  
|Advertising                                         |  |                                 | 121    |      |                                | 100    |      |  |      | 404    |  |   | 401    |  
|Other                                               |  |                                 | 691    |      |                                | 734    |      |  |      | 2,062  |  |   | 2,250  |  
|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|                                                    |  |                                 | 7,584  |      |                                | 6,769  |      |  |      | 23,088 |  |   | 20,933 |  
|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|Income before income taxes                          |  |                                 | 6,826  |      |                                | 6,139  |      |  |      | 16,283 |  |   | 17,496 |  
|Income tax expense                                  |  |                                 | 2,290  |      |                                | 2,039  |      |  |      | 5,441  |  |   | 5,826  |  
|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|Net income                                          |  |                                 | 4,536  |      |                                | 4,100  |      |  |      | 10,842 |  |   | 11,670 |  
|Less:                                               |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|Dividends on preferred stock                        |  |                                 | 437    |      |                                |       |      |  |      | 1,312  |  |   |       |  
|Accretion on preferred stock                        |  |                                 | 44     |      |                                |       |      |  |      | 132    |  |   |       |  
|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|Net income available to common shareholders         |  | $                               | 4,055  |      | $                              | 4,100  |      |  | $    | 9,398  |  | $ | 11,670 |  
|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  
|Basic and diluted earnings per common share         |  | $                               | 0.46   |      | $                              | 0.47   |      |  | $    | 1.08   |  | $ | 1.34   |  
|                                                    |  |                                 |        |      |                                |        |      |  |      |        |  |   |        |  

See accompanying notes to unaudited consolidated financial statements.



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PORTER BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statement of Changes in Stockholders Equity

For Nine Months Ended September 30, 2009

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



|                                                                       |  |           |   |        |           |                          |        |                  |           |   |                                            |  |   |        |  |   |        |   |  |   |       |   |  |   |         |  
|---------------------------------------------------------------------- |  | --------- | - | ------ | --------- | ------------------------ | ------ | ---------------- | --------- | - | ------------------------------------------ |  | - | ------ |  | - | ------ | - |  | - | ----- | - |  | - | ------- | -
|                                                                       |  | Shares    |   | Amount |           | AdditionalPaid-InCapital |        | RetainedEarnings |           |   | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total  | 
|                                                                       |  | Common    |   |        | Preferred |                          | Common |                  | Preferred |   |                                            |  |  
|Balances, January 1, 2009                                              |  | 8,702,330 |   |        | 35,000    |                          | $      | 76,897           |           | $ | 34,131                                     |  | $ | 13,483 |  | $ | 39,957 |   |  | $ | (255  | ) |  | $ | 164,213 |  
|Issuance of unvested stock                                             |  | 54,268    |   |        |          |                          |        |                 |           |   |                                           |  |   |       |  |   |       |   |  |   |      |   |  |   |        |  
|Forfeited unvested stock                                               |  | (541      | ) |        |          |                          |        |                 |           |   |                                           |  |   |       |  |   |       |   |  |   |      |   |  |   |        |  
|Stock-based compensation expense                                       |  |          |   |        |          |                          |        |                 |           |   |                                           |  |   | 277    |  |   |       |   |  |   |      |   |  |   | 277     |  
|Comprehensive income:                                                  |  |           |   |        |           |                          |        |                  |           |   |                                            |  |   |        |  |   |        |   |  |   |       |   |  |   |         |  
|Net income                                                             |  |          |   |        |          |                          |        |                 |           |   |                                           |  |   |       |  |   | 10,842 |   |  |   |      |   |  |   | 10,842  |  
|Changes in accumulated other comprehensive income (loss), net of taxes |  |          |   |        |          |                          |        |                 |           |   |                                           |  |   |       |  |   |       |   |  |   | 2,338 |   |  |   | 2,338   |  
|                                                                       |  |           |   |        |           |                          |        |                  |           |   |                                            |  |   |        |  |   |        |   |  |   |       |   |  |   |         |  
|Total comprehensive income                                             |  |          |   |        |          |                          |        |                 |           |   |                                           |  |   |       |  |   |       |   |  |   |      |   |  |   | 13,180  |  
|                                                                       |  |           |   |        |           |                          |        |                  |           |   |                                            |  |   |        |  |   |        |   |  |   |       |   |  |   |         |  
|Dividends on preferred stock                                           |  |          |   |        |          |                          |        |                 |           |   |                                           |  |   |       |  |   | (1,312 | ) |  |   |      |   |  |   | (1,312  | )
|Amortization of preferred stock discount                               |  |          |   |        |          |                          |        |                 |           |   | 132                                        |  |   |       |  |   | (132   | ) |  |   |      |   |  |   |        |  
|Cash dividends declared ($0.60 per share)                              |  |          |   |        |          |                          |        |                 |           |   |                                           |  |   |       |  |   | (5,243 | ) |  |   |      |   |  |   | (5,243  | )
|                                                                       |  |           |   |        |           |                          |        |                  |           |   |                                            |  |   |        |  |   |        |   |  |   |       |   |  |   |         |  
|Balances, September 30, 2009                                           |  | 8,756,057 |   |        | 35,000    |                          | $      | 76,897           |           | $ | 34,263                                     |  | $ | 13,760 |  | $ | 44,112 |   |  | $ | 2,083 |   |  | $ | 171,115 |  
|                                                                       |  |           |   |        |           |                          |        |                  |           |   |                                            |  |   |        |  |   |        |   |  |   |       |   |  |   |         |  

See accompanying notes to unaudited consolidated financial statements.



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PORTER BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Cash Flows

For Nine Months Ended September 30, 2009 and 2008

(dollars in
thousands)



|                                                                          |  |      |          |   |      |   |         |  
|------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | -
|                                                                          |  | 2009 |          |   | 2008 |  
|Cash flows from operating activities                                      |  |      |          |   |      |   |         |  
|Net income                                                                |  | $    | 10,842   |   |      | $ | 11,670  |  
|Adjustments to reconcile net income to net cash from operating activities |  |      |          |   |      |   |         |  
|Depreciation and amortization                                             |  |      | 2,699    |   |      |   | 2,811   |  
|Provision for loan losses                                                 |  |      | 5,200    |   |      |   | 2,650   |  
|Net amortization (accretion) on securities                                |  |      | (198     | ) |      |   | (87     | )
|Stock-based compensation expense                                          |  |      | 282      |   |      |   | 215     |  
|Net gain on loans originated for sale                                     |  |      | (323     | ) |      |   |        |  
|Loans originated for sale                                                 |  |      | (15,615  | ) |      |   |        |  
|Proceeds from sales of loans originated for sale                          |  |      | 15,414   |   |      |   |        |  
|Net (gain) loss on sales of investment securities                         |  |      | (322     | ) |      |   | 146     |  
|Net loss on sales of other real estate owned                              |  |      | 73       |   |      |   | 102     |  
|Earnings on bank owned life insurance                                     |  |      | (212     | ) |      |   | (229    | )
|Federal Home Loan Bank stock dividends                                    |  |      |         |   |      |   | (393    | )
|Net change in accrued interest receivable and other assets                |  |      | 1,668    |   |      |   | 2,861   |  
|Net change in accrued interest payable and other liabilities              |  |      | (1,112   | ) |      |   | (455    | )
|                                                                          |  |      |          |   |      |   |         |  
|Net cash from operating activities                                        |  |      | 18,396   |   |      |   | 19,291  |  
|                                                                          |  |      |          |   |      |   |         |  
|Cash flows from investing activities                                      |  |      |          |   |      |   |         |  
|Purchases of available-for-sale securities                                |  |      | (36,957  | ) |      |   | (25,557 | )
|Sales and calls of available-for-sale securities                          |  |      | 13,675   |   |      |   | 23,331  |  
|Maturities and prepayments of available-for-sale securities               |  |      | 25,316   |   |      |   | 18,630  |  
|Proceeds from sale of other real estate owned                             |  |      | 9,107    |   |      |   | 6,266   |  
|Improvements to other real estate owned                                   |  |      | (108     | ) |      |   | (226    | )
|Loan originations and payments, net                                       |  |      | (55,606  | ) |      |   | (62,645 | )
|Purchases of premises and equipment, net                                  |  |      | (2,428   | ) |      |   | (2,230  | )
|Redemption of bank owned life insurance                                   |  |      |         |   |      |   | 2,179   |  
|Acquisition of Paramount Bank, net                                        |  |      |         |   |      |   | (5,215  | )
|                                                                          |  |      |          |   |      |   |         |  
|Net cash from investing activities                                        |  |      | (47,001  | ) |      |   | (45,467 | )
|                                                                          |  |      |          |   |      |   |         |  
|Cash flows from financing activities                                      |  |      |          |   |      |   |         |  
|Net change in deposits                                                    |  |      | 90,107   |   |      |   | 29,728  |  
|Net change in federal funds purchased and repurchase agreements           |  |      | 1,212    |   |      |   | (828    | )
|Repayment of Federal Home Loan Bank advances                              |  |      | (212,492 | ) |      |   | (2,925  | )
|Advances from Federal Home Loan Bank                                      |  |      | 195,000  |   |      |   | 25,000  |  
|Issue subordinated debentures                                             |  |      |         |   |      |   | 9,000   |  
|Repurchase common stock                                                   |  |      |         |   |      |   | (301    | )
|Cash dividends paid on preferred stock                                    |  |      | (1,283   | ) |      |   |        |  
|Cash dividends paid on common stock                                       |  |      | (5,243   | ) |      |   | (4,970  | )
|                                                                          |  |      |          |   |      |   |         |  
|Net cash from financing activities                                        |  |      | 67,301   |   |      |   | 54,704  |  
|                                                                          |  |      |          |   |      |   |         |  
|Net change in cash and cash equivalents                                   |  |      | 38,696   |   |      |   | 28,528  |  
|Beginning cash and cash equivalents                                       |  |      | 52,546   |   |      |   | 42,987  |  
|                                                                          |  |      |          |   |      |   |         |  
|Ending cash and cash equivalents                                          |  | $    | 91,242   |   |      | $ | 71,515  |  
|                                                                          |  |      |          |   |      |   |         |  
|Supplemental cash flow information:                                       |  |      |          |   |      |   |         |  
|Interest paid                                                             |  | $    | 25,271   |   |      | $ | 40,637  |  
|Income taxes paid                                                         |  |      | 6,150    |   |      |   | 4,900   |  
|Supplemental non-cash disclosure:                                         |  |      |          |   |      |   |         |  
|Transfer from loans to other real estate                                  |  | $    | 14,724   |   |      | $ | 9,619   |  

See accompanying notes to unaudited consolidated financial statements.



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PORTER BANCORP, INC. AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

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

Basis of Presentation  The consolidated financial statements include Porter Bancorp, Inc. (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 condensed consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes
required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
Operating results for nine months ended September 30, 2009 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, 2008 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, goodwill and intangible assets, stock-based compensation, valuation of deferred tax assets, and fair values of
financial instruments are particularly subject to change.

Mortgage Loans Held for Sale  Mortgage loans originated and intended
for sale in the secondary market are carried at fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Mortgage loans held for sale are generally sold with mortgage servicing rights (MSR) retained. The carrying value of mortgage loans sold is
reduced by the amount allocated to the MSR. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold. Substantially all of the gain on sales of loans are
reported in earnings when loans are locked. MSRs represent an estimate of the present value of future cash servicing income, net of estimated costs that we expect to receive on loans sold with servicing retained. MSRs are capitalized as separate
assets.

The Company enters into interest rate lock commitments on a loan by loan basis for fixed rate mortgage loans, generally lasting 30 to
90 days and are at market rates when initiated.

Servicing Rights Servicing rights are recognized separately when they are
acquired through sales of loans. When mortgage loans are sold, servicing rights are initially recorded at fair value with the income statement effect recording in gains on sales of loans. Fair value is based on market prices for comparable mortgage
servicing contracts, when available or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in
estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The Company compares the valuation model inputs
and results to published industry data in order to validate the model results and assumptions. All classes of servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing
income of the underlying loans.



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Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to
carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual
grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase
to income. Changes in valuation allowances are reported with loan servicing fees, net on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment
speeds and default rates and losses.

Fees earned for servicing loans are reported on the income statement as loan servicing fees, net of
servicing costs. The fees are based on a contractual percentage of the outstanding principal; or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee
income. Loan servicing income, late fees and ancillary fees related to loan servicing are not material.

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

New Accounting Standards

In December 2007, the FASB issued ASC 805 (revised 2007), Business Combinations (ASC 805), which establishes principles
and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in an acquiree, including the recognition and measurement of
goodwill acquired in a business combination. FAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. The adoption of this standard did not have a material effect on the Corporations
results of operations or financial position.

FASB Staff Position (FSP) ASC 350, Paragraph 55-1C, Determination of the Useful Life of
Intangible Assetsamends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The FSP provides that in addition to considering the entity
specific factors in paragraph 35-1 of ASC 350, an entity shall consider its own historical experience in renewing or extending similar arrangements. Alternatively, if an entity lacks historical experience, it shall consider the assumptions a market
participant would use consistent with the highest and best use of the asset, adjusted for the entity specific factors in paragraph 35-1 of ASC 350. The FSP is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Adoption of this FSP had no material impact on our results of operations or financial position.

ASC 260 is effective for fiscal years beginning after December 15, 2008 and is to be applied retrospectively. This FSP requires share based compensation awards that qualify as participating
securities to be included in basic EPS using the two-class method. A share based compensation award is considered a participating security if it receives non-forfeitable dividends. A non-forfeitable dividend would be a dividend that the
participant receives before the award is vested and if the participant forfeits the actual shares awarded the dividends he/she has received do not have to be paid back to the company. This guidance was adopted in the first quarter and has been
applied to all periods shown. See Note 7 for further discussion.

The FASB finalized four FSPs regarding the accounting treatment for
investments including mortgage-backed securities. These FSPs changed the method for determining if an Other-than-temporary impairment (OTTI) exists and the amount of OTTI to be recorded through an companys income statement. The
changes brought about by the FSPs provide greater clarity and reflect a more accurate representation of the credit and noncredit components of an OTTI event. The four FSPs are:



| |  |  | ASC 820, Paragraph 35-15A, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active clarifies
the application of ASC 820, Fair Value Measurements, in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial
asset is not active.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | ASC 820, Paragraph 35-51A and 35-51E, Determining Fair Value When the Volume and Level of Activity for the Assets or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly provides guidelines for making fair value measurements more consistent with the principles presented in ASC 820, Fair Value Measurements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ASC 320 Recognition and Presentation of Other-than-temporary Impairments provides additional guidance designed to create greater
clarity and consistency in accounting for and presenting impairment losses on securities.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ASC 825 Interim Disclosures about Fair Value of Financial Instruments enhances consistency in financial reporting by increasing the
frequency of fair value disclosures.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These staff positions are effective for financial statements issued for periods ending
after June 15, 2009.

In May 2009, the ASC 855, Subsequent Events which establishes general standards of accounting for and
disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this Statement sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance
sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. In accordance with this Statement, an entity should apply the requirements to interim or
annual financial periods ending after June 15, 2009. Subsequent events were evaluated through November 5, 2009 which is the date the financial statements were issued. The impact of adoption did not have a material impact on the results of
operations or financial position of the Company.

In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162 which was subsequently incorporated into ASC 405. This statement has become the source of authoritative U.S. generally
accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the
Codification will become non-authoritative. Management has adopted this statement for the period end September 30, 2009. All authoritative language has been updated to comply with ASC 405.

Effect of Newly Issued But Not Yet Effective Accounting Standards

In June 2009, the FASB issued Statement No. 166, Accounting for Transfers of Financial Assets-an amendment of FASB Statement No. 140 Which was subsequently incorporated into FASB
Accounting Standards Codification (ASC), topic 860, Transfers and Servicing. This statement removes the concept of a qualifying special-purpose entity from Statement 140 and removes the exception from applying FASB
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to qualifying special-purpose entities. The objective in issuing this Statement is to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferors
continuing involvement, if any, in transferred financial assets. This Statement must



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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. Management is currently evaluating this standard but does not expect the impact of adoption to be material to the results of operations or financial position of the Company.

Note 2  Stock Plans and Stock Based Compensation

At September 30, 2009, the Company has a stock option plan and a stock incentive plan. On December 31, 2005 the Company assumed the 2000 Stock Option Plan of Ascencia Bank, Inc. when the Company
acquired the minority interest of Ascencia Bancorp, Inc. On February 23, 2006, the Company adopted the Porter Bancorp, Inc. 2006 Stock Incentive Plan. With regard to the 2000 Option Plan, no additional grants were made after assumption of the
plan and none are expected to be made in the future. The 2006 Plan permits the issuance of up to 400,000 shares of the Companys common stock upon the exercise of stock options or upon the grant of stock awards. As of September 30, 2009,
the Company had granted outstanding options to purchase 209,799 shares under the 2000 option plan and 40,051 shares under the 2006 plan. The Company also had granted under the 2006 plan 110,563 unvested shares net of forfeitures and vesting. The
Company has 229,803 shares remaining available for issue under the 2006 Plan. All shares issued under the above mentioned plans came from authorized and unissued shares.

On May 15, 2006, the board of directors approved the Porter Bancorp, Inc. 2006 Non-Employee Directors Stock Ownership Incentive Plan, which was approved by holders of the Companys voting common
stock on June 8, 2006. 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. After May 22, 2008, unvested shares will be 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 outstanding options to purchase 47,408 shares and granted 4,277 unvested shares to non-employee directors. At September 30, 2009, 47,427 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 granted under the 2000 plan have a life of ten years while those granted under the 2006 plan have a life of five
years.

The following table summarizes stock option activity:



|                       |  |                                     |   |                                      |                              |       |         |         |   |                              |   |      
|---------------------- |  | ----------------------------------- | - | ------------------------------------ | ---------------------------- | ----- | ------- | ------- | - | ---------------------------- | - | -----
|                       |  | Nine Months EndedSeptember 30, 2009 |   | Twelve Months EndedDecember 31, 2008
|                       |  | Options                             |   |                                      | WeightedAverageExercisePrice |       | Options |         |   | WeightedAverageExercisePrice
|Outstanding, beginning |  | 297,810                             |   |                                      | $                            | 22.89 |         | 313,723 |   |                              | $ | 22.83
|Granted                |  |                                    |   |                                      |                              |      |         |        |   |                              |   |     
|Forfeited              |  | (552                                | ) |                                      |                              | 23.13 |         | (15,913 | ) |                              |   | 21.72
|                       |  |                                     |   |                                      |                              |       |         |         |   |                              |   |      
|Outstanding, ending    |  | 297,258                             |   |                                      | $                            | 22.89 |         | 297,810 |   |                              | $ | 22.89
|                       |  |                                     |   |                                      |                              |       |         |         |   |                              |   |      



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The following table details stock options outstanding:



|                                                |  |                   |        
|----------------------------------------------- |  | ----------------- | -------
|                                                |  | September 30,2009
|Stock options vested and currently exercisable: |  |                   | 291,669
|Weighted average exercise price                 |  | $                 | 22.93  
|Aggregate intrinsic value                       |  | $                 | 0      
|Weighted average remaining life (in years)      |  |                   | 1.0    
|Total Options Outstanding:                      |  |                   | 297,258
|Aggregate intrinsic value                       |  | $                 | 0      
|Weighted average remaining life (in years)      |  |                   | 1.0    

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 September 30, 2009. There were no options exercised during the first nine months of 2009.
The Company recorded $45,000 of stock option compensation during the nine months ended September 30, 2009 to salaries and employee benefits. Since the stock options are non-qualified stock options, a tax benefit of $16,000 was recognized. No
options were modified during the period. As of September 30, 2009, no stock options issued by the Company have been exercised.

From
time-to-time the Company grants unvested shares to employees and non-employee directors. The shares vest either semi-annually or annually over three to ten years on the anniversary date of the grant date provided the employee or director continues
in such capacity at the vesting date. The fair value on the date of grant for the 2009 grants ranged from $10.85 to $13.52 per share. The Company recorded $237,000 of stock-based compensation during the first nine months of 2009 to salaries and
employee benefits. A deferred tax benefit of $83,000 was recognized related to this expense.

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



|                       |  |                                     |   |                                      |                           |       |        |        |   |                           |   |      
|---------------------- |  | ----------------------------------- | - | ------------------------------------ | ------------------------- | ----- | ------ | ------ | - | ------------------------- | - | -----
|                       |  | Nine Months EndedSeptember 30, 2009 |   | Twelve Months EndedDecember 31, 2008
|                       |  | Shares                              |   |                                      | WeightedAverageGrantPrice |       | Shares |        |   | WeightedAverageGrantPrice
|Outstanding, beginning |  | 72,441                              |   |                                      | $                         | 19.83 |        | 45,677 |   |                           | $ | 22.58
|Granted                |  | 54,268                              |   |                                      |                           | 10.97 |        | 35,228 |   |                           |   | 17.66
|Vested                 |  | (11,328                             | ) |                                      |                           | 19.12 |        | (5,418 | ) |                           |   | 22.10
|Forfeited              |  | (541                                | ) |                                      |                           | 23.13 |        | (3,046 | ) |                           |   | 21.10
|                       |  |                                     |   |                                      |                           |       |        |        |   |                           |   |      
|Outstanding, ending    |  | 114,840                             |   |                                      | $                         | 15.70 |        | 72,441 |   |                           | $ | 19.83
|                       |  |                                     |   |                                      |                           |       |        |        |   |                           |   |      

Unrecognized stock based compensation expense related to stock options and unvested shares for the
remainder of 2009 and beyond is estimated as follows (in thousands):



|                             |  |   |    
|---------------------------- |  | - | ---
|October 2009  December 2009 |  | $ | 104
|2010                         |  |   | 357
|2011                         |  |   | 346
|2012                         |  |   | 334
|2013 & thereafter            |  |   | 533



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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 |   | GrossUnrealizedLosses |  |   | FairValue
|                                   |  | (in thousands)
|September 30, 2009                 |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|U.S. Government and federal agency |  | $              | 1,023   |                      | $ | 33                    |  | $ |          |   |  | $ | 1,056  
|State and municipal                |  |                | 24,647  |                      |   | 1,175                 |  |   | (27       | ) |  |   | 25,795 
|Agency mortgage-backed             |  |                | 95,455  |                      |   | 3,655                 |  |   | (24       | ) |  |   | 99,086 
|Private label mortgage-backed      |  |                | 35,192  |                      |   | 451                   |  |   | (2,000    | ) |  |   | 33,643 
|Corporate bonds                    |  |                | 13,033  |                      |   | 665                   |  |   | (123      | ) |  |   | 13,575 
|Other debt securities              |  |                | 704     |                      |   |                      |  |   | (123      | ) |  |   | 581    
|                                   |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|Total debt securities              |  |                | 170,054 |                      |   | 5,979                 |  |   | (2,297    | ) |  |   | 173,736
|Equity                             |  |                | 1,902   |                      |   | 49                    |  |   | (527      | ) |  |   | 1,424  
|                                   |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|Total                              |  | $              | 171,956 |                      | $ | 6,028                 |  | $ | (2,824    | ) |  | $ | 175,160
|                                   |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|December 31, 2008                  |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|U.S. Government and federal agency |  | $              | 2,938   |                      | $ | 22                    |  | $ |          |   |  | $ | 2,960  
|State and municipal                |  |                | 24,493  |                      |   | 330                   |  |   | (415      | ) |  |   | 24,408 
|Agency mortgage-backed             |  |                | 119,807 |                      |   | 1,293                 |  |   | (118      | ) |  |   | 120,982
|Private label mortgage-backed      |  |                | 17,139  |                      |   |                      |  |   | (494      | ) |  |   | 16,645 
|Corporate bonds                    |  |                | 6,489   |                      |   | 39                    |  |   | (451      | ) |  |   | 6,077  
|Other                              |  |                | 704     |                      |   |                      |  |   |          |   |  |   | 704    
|                                   |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|Total debt securities              |  |                | 171,570 |                      |   | 1,684                 |  |   | (1,478    | ) |  |   | 171,776
|Equity                             |  |                | 1,900   |                      |   | 28                    |  |   | (627      | ) |  |   | 1,301  
|                                   |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|Total                              |  | $              | 173,470 |                      | $ | 1,712                 |  | $ | (2,105    | ) |  | $ | 173,077
|                                   |  |                |         |                      |   |                       |  |   |           |   |  |   |        

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



|             |  |                                 |        |      |                                |       |      |  |      |        |  |   |        |  
|------------ |  | ------------------------------- | ------ | ---- | ------------------------------ | ----- | ---- |  | ---- | ------ |  | - | ------ | -
|             |  | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30, |      
|             |  | 2009                            |        | 2008 |                                |       | 2009 |  | 2008 |       
|Proceeds     |  | $                               | 12,814 |      | $                              | 1,426 |      |  | $    | 13,576 |  | $ | 23,331 |  
|Gross gains  |  |                                 | 321    |      |                                | 90    |      |  |      | 322    |  |   | 615    |  
|Gross losses |  |                                 |       |      |                                | (191  | )    |  |      |       |  |   | (761   | )

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.



|                   |  |                    |         |           |   |        
|------------------ |  | ------------------ | ------- | --------- | - | -------
|                   |  | September 30, 2009
|                   |  | AmortizedCost      |         | FairValue
|                   |  | (in thousands)    
|Maturity           |  |                    |         |           |   |        
|Available-for-sale |  |                    |         |           |   |        
|Within one year    |  | $                  | 20,578  |           | $ | 20,562 
|One to five years  |  |                    | 99,383  |           |   | 102,057
|Five to ten years  |  |                    | 33,121  |           |   | 34,647 
|Beyond ten years   |  |                    | 16,972  |           |   | 16,470 
|                   |  |                    |         |           |   |        
|Total              |  | $                  | 170,054 |           | $ | 173,736
|                   |  |                    |         |           |   |        



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Securities pledged at September 30, 2009 and December 31, 2008 had carrying values of
approximately $64.0 million and $74.2 million, respectively, and were pledged to secure public deposits, repurchase agreements, and Federal Home Loan Bank advances.

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant. 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. At September 30, 2009, all significant private label
mortgage-backed securities were rated AAA.

At September 30, 2009, the Company held 44 equity securities. Of these securities, 6 had an
unrealized loss of $51,000 and had been in an unrealized loss position for less than twelve months and 25 had an unrealized loss of $476,000 and had been in an unrealized loss position for more than twelve months. Management monitors the credit
quality of the issuer and current market pricing for these equity securities monthly. Management believes it is more likely than not that it will not be required to sell securities with unrealized losses until recovery, which for fixed income
securities may be at maturity. As of September 30, 2009, management does not believe any equity securities in our portfolio should be classified as other than temporarily impaired.

Securities with unrealized losses at September 30, 2009 and December 31, 2008, 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)      |       
|September 30, 2009                 |  |                     |        |                |                   |        |           |       |                |       |  |           |      |                | 
|U.S. Government and federal agency |  | $                   |       |                | $                 |       |           |       | $              |      |  | $         |     |                |  | $ |       |  | $ |       |  
|State and municipal                |  |                     | 511    |                |                   | (1     | )         |       |                | 1,038 |  |           | (26  | )              |  |   | 1,549  |  |   | (27    | )
|Agency mortgage-backed             |  |                     | 6,348  |                |                   | (24    | )         |       |                |      |  |           |     |                |  |   | 6,348  |  |   | (24    | )
|Private label mortgage-backed      |  |                     | 19,338 |                |                   | (1,940 | )         |       |                | 4,364 |  |           | (60  | )              |  |   | 23,702 |  |   | (2,000 | )
|Corporate bonds                    |  |                     |       |                |                   |       |           |       |                | 3,305 |  |           | (123 | )              |  |   | 3,305  |  |   | (123   | )
|Other debt securities              |  |                     | 581    |                |                   | (123   | )         |       |                |      |  |           |     |                |  |   | 581    |  |   | (123   | )
|Equity                             |  |                     | 291    |                |                   | (51    | )         |       |                | 862   |  |           | (476 | )              |  |   | 1,153  |  |   | (527   | )
|                                   |  |                     |        |                |                   |        |           |       |                |       |  |           |      |                |  |   |        |  |   |        |  
|Total temporarily impaired         |  | $                   | 27,069 |                | $                 | (2,139 | )         |       | $              | 9,569 |  | $         | (685 | )              |  | $ | 36,638 |  | $ | (2,824 | )
|                                   |  |                     |        |                |                   |        |           |       |                |       |  |           |      |                |  |   |        |  |   |        |  
|                                   |  |                     |        |                |                   |       
|December 31, 2008                  |  |                     |        |                |                   |        |           |       |                |       |  |           |      |                | 
|U.S. Government and federal agency |  | $                   |       |                | $                 |       |           |       | $              |      |  | $         |     |                |  | $ |       |  | $ |       |  
|State and municipal                |  |                     | 12,240 |                |                   | (412   | )         |       |                | 96    |  |           | (3   | )              |  |   | 12,336 |  |   | (415   | )
|Agency mortgage-backed             |  |                     | 34,119 |                |                   | (61    | )         |       |                | 1,446 |  |           | (57  | )              |  |   | 35,565 |  |   | (118   | )
|Private label mortgage-backed      |  |                     | 9,730  |                |                   | (494   | )         |       |                |      |  |           |     |                |  |   | 9,730  |  |   | (494   | )
|Corporate bonds                    |  |                     | 2,266  |                |                   | (141   | )         |       |                | 2,776 |  |           | (310 | )              |  |   | 5,042  |  |   | (451   | )
|Equity                             |  |                     | 578    |                |                   | (315   | )         |       |                | 447   |  |           | (312 | )              |  |   | 1,025  |  |   | (627   | )
|                                   |  |                     |        |                |                   |        |           |       |                |       |  |           |      |                |  |   |        |  |   |        |  
|Total temporarily impaired         |  | $                   | 58,933 |                | $                 | (1,423 | )         |       | $              | 4,765 |  | $         | (682 | )              |  | $ | 63,698 |  | $ | (2,105 | )
|                                   |  |                     |        |                |                   |        |           |       |                |       |  |           |      |                |  |   |        |  |   |        |  



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Note 4  Loans

Loans were as follows:



|                                |  |                   |           |   |                  |   |           |  
|------------------------------- |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|                                |  | September 30,2009 |           |   | December 31,2008 |  
|                                |  | (in thousands)    |          
|Commercial                      |  | $                 | 89,252    |   |                  | $ | 90,978    |  
|Real estate                     |  |                   | 1,241,351 |   |                  |   | 1,202,019 |  
|Agriculture                     |  |                   | 18,355    |   |                  |   | 16,181    |  
|Consumer                        |  |                   | 37,087    |   |                  |   | 37,783    |  
|Other                           |  |                   | 923       |   |                  |   | 3,145     |  
|                                |  |                   |           |   |                  |   |           |  
|Subtotal                        |  |                   | 1,386,968 |   |                  |   | 1,350,106 |  
|Less: Allowance for loan losses |  |                   | (21,958   | ) |                  |   | (19,652   | )
|                                |  |                   |           |   |                  |   |           |  
|Loans, net                      |  | $                 | 1,365,010 |   |                  | $ | 1,330,454 |  
|                                |  |                   |           |   |                  |   |           |  

Activity in the allowance for loan losses was as follows:



|                             |  |                           |        |   |                   |   |        |  
|---------------------------- |  | ------------------------- | ------ | - | ----------------- | - | ------ | -
|                             |  | For the Nine Months Ended |       
|                             |  | September 30,2009         |        |   | September 30,2008 |  
|                             |  | (in thousands)            |       
|Beginning balance            |  | $                         | 19,652 |   |                   | $ | 16,342 |  
|Acquired in bank acquisition |  |                           |       |   |                   |   | 1,420  |  
|Provision for loan losses    |  |                           | 5,200  |   |                   |   | 2,650  |  
|Loans charged-off            |  |                           | (3,112 | ) |                   |   | (1,999 | )
|Loan recoveries              |  |                           | 218    |   |                   |   | 225    |  
|                             |  |                           |        |   |                   |   |        |  
|Ending balance               |  | $                         | 21,958 |   |                   | $ | 18,638 |  
|                             |  |                           |        |   |                   |   |        |  

Impaired loans were as follows:



|                                                  |  |                                   |        |                            |   |      
|------------------------------------------------- |  | --------------------------------- | ------ | -------------------------- | - | -----
|                                                  |  | September 30,2009                 |        | December 31,2008          
|                                                  |  | (in thousands)                   
|Loans with no allocated allowance for loan losses |  | $                                 | 3,253  |                            | $ | 3,479
|Loans with allocated allowance for loan losses    |  |                                   | 6,311  |                            |   | 2,624
|                                                  |  |                                   |        |                            |   |      
|Total                                             |  | $                                 | 9,564  |                            | $ | 6,103
|                                                  |  |                                   |        |                            |   |      
|Amount of the allowance for loan losses allocated |  | $                                 | 237    |                            | $ | 224  
|                                                  |  |                                  
|                                                  |  | Nine MonthsEndedSeptember 30,2009 |        | Year EndedDecember 31,2008
|Average of impaired loans during the period       |  | $                                 | 11,501 |                            | $ | 5,441
|Interest income recognized during impairment      |  |                                   | 234    |                            |   | 84   
|Cash basis interest income recognized             |  |                                   | 234    |                            |   | 84   

Impaired loans include 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.



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Nonperforming loans were as follows:



|                                                |  |                   |        |                  |   |       
|----------------------------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                                                |  | September 30,2009 |        | December 31,2008
|                                                |  | (in thousands)   
|Loans past due 90 days or more still on accrual |  | $                 | 9,896  |                  | $ | 11,598
|Non-accrual loans                               |  |                   | 16,369 |                  |   | 9,725 

Nonperforming loans include impaired loans and smaller balance homogeneous loans, such as residential
mortgage and consumer loans, that are collectively evaluated for impairment. At September 30, 2009 we had restructured loans totaling $9.0 million, compared with $13.6 million at December 31, 2008, with borrowers who experienced
deterioration in financial condition. These loans are secured by 1 to 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  Advances from the Federal Home Loan Bank

Advances from the Federal Home Loan Bank were as follows:



|                                                                                                                                         |  |                   |         |                  |   |        
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                                                                                                                                         |  | September 30,2009 |         | December 31,2008
|                                                                                                                                         |  | (in thousands)   
|Single maturity advances with fixed rates from 0.08% to 5.64% maturing from 2009 through 2012, averaging 2.61% for
2009                  |  | $                 | 111,500 |                  | $ | 126,595
|Monthly amortizing advances with fixed rates from 0.00% to 9.10% and maturities ranging from 2009 through 2035, averaging 3.72%
for 2009 |  |                   | 13,784  |                  |   | 16,181 
|                                                                                                                                         |  |                   |         |                  |   |        
|Total                                                                                                                                    |  | $                 | 125,284 |                  | $ | 142,776
|                                                                                                                                         |  |                   |         |                  |   |        

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 September 30, 2009, the Bank had unused borrowing capacity of $88.7 million with the FHLB.

Note 6  Fair Values Measurement

ASC topic 820 defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value measurements. The statement establishes a fair value hierarchy about the assumptions used to measure fair value. ASC 820 describes three levels of inputs that may be used
to measure fair value:

Level 1: Quoted prices (unadjusted) of 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.



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Securities: The fair values of securities available for sale are determined by
obtaining quoted prices on nationally recognized securities exchanges 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. Preferred stock issued by closely held
financial institutions and privately issued mortgage-backed securities were historically priced using Level 2 inputs. The decline in the level of observable inputs in these classes of investments at the measurement date has been significant and
resulted in unreliable external pricing. Broker pricing and bid/ask spreads, when available, vary widely. As such, these investments are now priced using Level 3 inputs.

Impaired Loans: Impaired loans are evaluated at the time the loan is identified as impaired and are recorded at fair value. Market 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. If an appraisal is not
available, the fair value of the collateral may be determined by using a cash flow analysis, a brokers opinion of value, the net present value of future cash flows, or an observable market price from an active market. Fair value on non-real
estate collateral loans is determined using similar methods. In addition, business equipment may be valued by using the net book value from the business financial statements. Impaired loans are evaluated quarterly for additional impairment.

Other Real Estate Owned (OREO): 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.

Financial assets measured at fair value on a recurring basis are summarized below:



|                                   |  |                   |         |                                                             |   |                                             |  |                                        |         |  |   |       
|---------------------------------- |  | ----------------- | ------- | ----------------------------------------------------------- | - | ------------------------------------------- |  | -------------------------------------- | ------- |  | - | ------
|                                   |  |                   |         | Fair Value Measurements at September 30, 2009              
|                                   |  |                   |         | (in thousands)                                             
|Description                        |  | September 30,2009 |         | 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 |  | $                 | 1,056   |                                                             | $ |                                            |  | $                                      | 1,056   |  | $ |      
|State and municipal                |  |                   | 25,795  |                                                             |   |                                            |  |                                        | 25,795  |  |   |      
|Agency mortgage-backed             |  |                   | 99,086  |                                                             |   |                                            |  |                                        | 99,086  |  |   |      
|Private label mortgage-backed      |  |                   | 33,643  |                                                             |   |                                            |  |                                        |        |  |   | 33,643
|Corporate bonds                    |  |                   | 13,575  |                                                             |   |                                            |  |                                        | 13,575  |  |   |      
|Other debt securities              |  |                   | 581     |                                                             |   |                                            |  |                                        |        |  |   | 581   
|Equity securities                  |  |                   | 1,424   |                                                             |   | 1,424                                       |  |                                        |        |  |   |      
|                                   |  |                   |         |                                                             |   |                                             |  |                                        |         |  |   |       
|Total                              |  | $                 | 175,160 |                                                             | $ | 1,424                                       |  | $                                      | 139,512 |  | $ | 34,224
|                                   |  |                   |         |                                                             |   |                                             |  |                                        |         |  |   |       



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



|                                     |  |                                     |        |  
|------------------------------------ |  | ----------------------------------- | ------ | -
|Available-for-sale securities        |  | Nine Months EndedSeptember 30, 2009 |       
|Balance, January 1, 2009             |  | $                                   | 0      |  
|Purchases                            |  |                                     | 22,449 |  
|Transfers from Level 2               |  |                                     | 17,349 |  
|Net accretion (amortization)         |  |                                     | 661    |  
|Principal paydowns                   |  |                                     | (4,337 | )
|Net change in unrealized gain (loss) |  |                                     | (1,898 | )
|                                     |  |                                     |        |  
|Balance, September 30, 2009          |  | $                                   | 34,224 |  
|                                     |  |                                     |        |  

Assets measured at fair value on a non-recurring basis are summarized below:



|                        |  |                   |        |                                                             |   |                                             |  |                                        |   |  |   |       
|----------------------- |  | ----------------- | ------ | ----------------------------------------------------------- | - | ------------------------------------------- |  | -------------------------------------- | - |  | - | ------
|                        |  |                   |        | Fair Value Measurements at September 30, 2009              
|                        |  |                   |        | (in thousands)                                             
|Description             |  | September 30,2009 |        | Quoted Prices InActive Markets forIdentical Assets(Level 1) |   | Significant OtherObservable Inputs(Level 2) |  | SignificantUnobservableInputs(Level 3)
|Impaired loans          |  | $                 | 8,706  |                                                             | $ |                                            |  | $                                      |  |  | $ | 8,706 
|Other real estate owned |  |                   | 12,934 |                                                             |   |                                            |  |                                        |  |  |   | 12,934

Impaired loans had a carrying amount of $9.6 million and a valuation allowance of $858,000, resulting
in an additional provision for loan losses of $194,000 for the first nine months of 2009.

Other real estate owned write-downs recorded during
the first nine months of 2009 totaled $557,000.

Financial assets measured at fair value on a recurring basis are summarized below:



|                                   |  |                  |         |                                                             |   |                                             |  |                                        |         |  |   |  
|---------------------------------- |  | ---------------- | ------- | ----------------------------------------------------------- | - | ------------------------------------------- |  | -------------------------------------- | ------- |  | - | -
|                                   |  |                  |         | Fair Value Measurements at December 31, 2008               
|                                   |  |                  |         | (in thousands)                                             
|Description                        |  | December 31,2008 |         | 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 |  | $                | 2,960   |                                                             | $ |                                            |  | $                                      | 2,960   |  | $ | 
|State and municipal                |  |                  | 24,408  |                                                             |   |                                            |  |                                        | 24,408  |  |   | 
|Agency mortgage-backed             |  |                  | 120,982 |                                                             |   |                                            |  |                                        | 120,982 |  |   | 
|Private label mortgage-backed      |  |                  | 16,645  |                                                             |   |                                            |  |                                        | 16,645  |  |   | 
|Corporate bonds                    |  |                  | 6,077   |                                                             |   |                                            |  |                                        | 6,077   |  |   | 
|Other debt securities              |  |                  | 704     |                                                             |   |                                            |  |                                        | 704     |  |   | 
|Equity                             |  |                  | 1,301   |                                                             |   | 1,301                                       |  |                                        |        |  |   | 
|                                   |  |                  |         |                                                             |   |                                             |  |                                        |         |  |   |  
|Total                              |  | $                | 173,077 |                                                             | $ | 1,301                                       |  | $                                      | 171,776 |  | $ | 
|                                   |  |                  |         |                                                             |   |                                             |  |                                        |         |  |   |  



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Assets measured at fair value on a non-recurring basis are summarized below:



|                        |  |                  |       |                                                             |   |                                             |  |                                        |   |  |   |      
|----------------------- |  | ---------------- | ----- | ----------------------------------------------------------- | - | ------------------------------------------- |  | -------------------------------------- | - |  | - | -----
|                        |  |                  |       | Fair Value Measurements at December 31, 2008               
|                        |  |                  |       | (in thousands)                                             
|Description             |  | December 31,2008 |       | Quoted Prices InActive Markets forIdentical Assets(Level 1) |   | Significant OtherObservable Inputs(Level 2) |  | SignificantUnobservableInputs(Level 3)
|Impaired loans          |  | $                | 4,854 |                                                             | $ |                                            |  | $                                      |  |  | $ | 4,854
|Other real estate owned |  |                  | 5,816 |                                                             |   |                                            |  |                                        |  |  |   | 5,816

Impaired loans had a carrying amount of $6.1 million and a valuation allowance of $1.2 million,
resulting in an additional provision for loan losses of $1.06 million for 2008.

Other real estate owned write-downs recorded during 2008
totaled $478,000.

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



|                                                                           |  |                    |           |                   |   |                |  |           |           |  |   |          
|-------------------------------------------------------------------------- |  | ------------------ | --------- | ----------------- | - | -------------- |  | --------- | --------- |  | - | ---------
|                                                                           |  | September 30, 2009 |           | December 31, 2008
|                                                                           |  | CarryingAmount     |           | FairValue         |   | CarryingAmount |  | FairValue
|                                                                           |  | (in thousands)    
|Financial assets                                                           |  |                    |           |                   |   |                |  |           |           |  |   |          
|Cash and cash equivalents                                                  |  | $                  | 91,242    |                   | $ | 91,242         |  | $         | 52,546    |  | $ | 52,546   
|Interest-bearing deposits with banks                                       |  |                    | 600       |                   |   | 600            |  |           | 600       |  |   | 600      
|Loans, net                                                                 |  |                    | 1,365,010 |                   |   | 1,375,474      |  |           | 1,330,454 |  |   | 1,342,446
|Accrued interest receivable                                                |  |                    | 9,408     |                   |   | 9,408          |  |           | 10,228    |  |   | 10,228   
|Financial liabilities                                                      |  |                    |           |                   |   |                |  |           |           |  |   |          
|Deposits                                                                   |  | $                  | 1,378,656 |                   | $ | 1,377,271      |  | $         | 1,288,549 |  | $ | 1,285,772
|Federal funds purchased and securities sold under agreements to repurchase |  |                    | 11,296    |                   |   | 11,296         |  |           | 10,084    |  |   | 10,084   
|Federal Home Loan Bank advances                                            |  |                    | 125,284   |                   |   | 126,280        |  |           | 142,776   |  |   | 144,030  
|Subordinated capital notes                                                 |  |                    | 9,000     |                   |   | 7,436          |  |           | 9,000     |  |   | 8,216    
|Junior subordinated debentures                                             |  |                    | 25,000    |                   |   | 18,643         |  |           | 25,000    |  |   | 21,326   
|Accrued interest payable                                                   |  |                    | 2,771     |                   |   | 2,771          |  |           | 3,722     |  |   | 3,722    

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



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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 EndedSeptember 30,                 |           | Nine Months EndedSeptember 30,
|                                                                         |  | 2009                                            |           | 2008                           |   | 2009      |  | 2008
|                                                                         |  | (in thousands, except share and per share data)
|Basic                                                                    |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Net income                                                               |  | $                                               | 4,536     |                                | $ | 4,100     |  | $    | 10,842    |  | $ | 11,670   
|Less:                                                                    |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Preferred stock dividends                                                |  |                                                 | 437       |                                |   |          |  |      | 1,312     |  |   |         
|Accretion of preferred stock discount                                    |  |                                                 | 44        |                                |   |          |  |      | 132       |  |   |         
|                                                                         |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Net income available to common shareholders                              |  | $                                               | 4,055     |                                | $ | 4,100     |  | $    | 9,398     |  | $ | 11,670   
|                                                                         |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Weighted average voting and unvested common shares outstanding           |  |                                                 | 8,756,289 |                                |   | 8,702,631 |  |      | 8,740,314 |  |   | 8,696,325
|                                                                         |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Basic earnings per common share                                          |  | $                                               | 0.46      |                                | $ | 0.47      |  | $    | 1.08      |  | $ | 1.34     
|                                                                         |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Diluted                                                                  |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Weighted average voting and unvested common shares outstanding           |  |                                                 | 8,756,289 |                                |   | 8,702,631 |  |      | 8,740,314 |  |   | 8,696,325
|Add: dilutive effects of assumed exercises of stock options and warrants |  |                                                 |          |                                |   |          |  |      |          |  |   |         
|                                                                         |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Average shares and potential common shares                               |  |                                                 | 8,756,289 |                                |   | 8,702,631 |  |      | 8,740,314 |  |   | 8,696,325
|                                                                         |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Diluted earnings per common share                                        |  | $                                               | 0.46      |                                | $ | 0.47      |  | $    | 1.08      |  | $ | 1.34     
|                                                                         |  |                                                 |           |                                |   |           |  |      |           |  |   |          

All historical data has been adjusted to reflect the 5% stock dividend paid on November 10,
2008, and the 5% stock dividend announced on October 19, 2009, payable November 19, 2009.

In connection with our adoption of ASC
260, weighted average voting and unvested common shares outstanding includes unvested shares issued through the 2006 incentive compensation plan of 114,607 at September 30, 2009 and 78,710 at September 30, 2008. This FSP requires share
based compensation awards that qualify as participating securities to be included in basic EPS using the two-class method. A share based compensation award is considered a participating security if it receives non-forfeitable dividends. A
non-forfeitable dividend would be a dividend that the participant receives before the award is vested and if the participant forfeits the actual shares awarded the dividends he/she has received do not have to be paid back to the company.
Adoption of this FSP had no effect on current or prior period basic and diluted EPS. Reduced basic and diluted EPS for the third quarter and first nine months of 2008, from previously reported EPS, by five and fifteen cents per common share,
respectively, was the result of the adjustment to reflect the 5% stock dividend paid on November 10, 2008, and the 5% stock dividend announced on October 19, 2009, payable November 19, 2009.

Stock options for 297,258 shares of common stock for 2009 and 310,967 shares of common stock for 2008 were not considered in computing diluted earnings per
common share because they were anti-dilutive. Additionally, a warrant for the purchase of 314,820 shares of the Companys common stock at an exercise price of $16.68 was outstanding at September 30, 2009 (none at September 30, 2008)
but was not included in the diluted EPS computation as inclusion would have been anti-dilutive.



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Note 8  Other Comprehensive Income (Loss)

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



|                                                                        |  |                                 |        |   |                                |   |      |      |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ---- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                        |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                                        |  | 2009                            |        |   | 2008                           |   |      | 2009 |  |   | 2008   |  
|                                                                        |  | (in thousands)                  |       
|Unrealized holding gains (losses) on available-for-sale securities      |  | $                               | 4,186  |   |                                | $ | (432 | )    |  | $ | 3,919  |   |  | $ | (1,921 | )
|Less: Reclassification adjustment for gains (losses) realized in income |  |                                 | 321    |   |                                |   | (101 | )    |  |   | 322    |   |  |   | (146   | )
|                                                                        |  |                                 |        |   |                                |   |      |      |  |   |        |   |  |   |        |  
|Net unrealized gains (losses)                                           |  |                                 | 3,865  |   |                                |   | (331 | )    |  |   | 3,597  |   |  |   | (1,775 | )
|Tax effect                                                              |  |                                 | (1,353 | ) |                                |   | 116  |      |  |   | (1,259 | ) |  |   | 621    |  
|                                                                        |  |                                 |        |   |                                |   |      |      |  |   |        |   |  |   |        |  
|Net-of-tax amount                                                       |  | $                               | 2,512  |   |                                | $ | (215 | )    |  | $ | 2,338  |   |  | $ | (1,154 | )
|                                                                        |  |                                 |        |   |                                |   |      |      |  |   |        |   |  |   |        |  

Note 9  Subsequent Events

On October 19, 2009, the Company announced a stock dividend of 5% payable on November 19, 2009 to shareholders of record as of November 12, 2009. Share and per share data have been restated
to reflect this stock dividend.

On October 15, 2009, the Company announced it had entered into option agreements for the right to
purchase approximately 15.8% of the outstanding common shares of Citizens First Corporation (CZFC) for $9.00 per share. With the options, the Company would beneficially own approximately 19.7% of the outstanding common shares of CZFC.
CZFC is the bank holding company for Citizens First Bank, which operates eleven branch locations in south central Kentucky. As of June 30, 2009, Citizens First reported assets of $339 million and total deposits of $264 million.

On October 23, 2009, the Company commenced an exchange offer to acquire all of the outstanding common shares of CZFC for $9.00 per share. CZFC
shareholders will have the option to receive $9.00 in cash, or 0.5686 Porter common shares, or $4.50 in cash and 0.2843 Porter common shares. The exchange offer is scheduled to expire on December 22, 2009, unless extended or terminated.

The acceptance of the exchange offer and the exercise of the options are conditioned upon Porter Bancorp obtaining regulatory approval for
the purchases and acquiring the right to purchase at least 51% of the CZFC common shares. We filed applications with Federal Reserve and the Kentucky Department of Financial Institutions. Additionally, on October 23, 2009, Porter Bancorp filed
an S-4 Registration Statement with the Securities and Exchange Commission related to the tender offer.



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##### Table of Contents

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

and Results of Operations

This item analyzes our financial condition, change in financial condition and results of operations. 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 II, Item 1A  Risk Factors in this report and the more detailed risks identified,
and the cautionary statements included in our December 31, 2008 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 basis underlying the forward-looking statement. The Company believes it has chosen these assumptions or basis in good faith and that they
are reasonable. We caution you however, that assumptions or basis almost always vary from actual results, and the differences between assumptions or basis 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 11 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 and nine months ended September 30,
2009, respectively, the Company reported net income of $4.5 million and $10.8 million. This compares with net income of $4.1 million and $11.7 million, respectively, for the same periods of 2008. Net income available to common shareholders for the
three and nine months ended September 30, 2009 was $4.1 million and $9.4 million, respectively. Net income available to common shareholders was reduced by $481,000 and $1,444,000 for dividends and accretion on $35 million in preferred stock
issued to the United States Treasury, for the three and nine months ended September 30, 2009, respectively. There were no comparable preferred dividends in the third quarter or first nine months of 2008. Basic and diluted earnings per common
share were $0.46 and $1.08 for the three and nine months ended September 30, 2009, respectively, compared with $0.47 and $1.34 for the same periods of 2008.



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Significant developments during the quarter and nine months ended September 30, 2009 consist of the
following:



| |  |  | Earnings per common share increased 48.4% to $0.46 in the third quarter of 2009 compared with $0.31 in the second quarter of 2009. The growth in
earnings benefited from an increase in net interest income, and non-interest income and a decrease in non-interest expense. Second quarter 2009 non-interest expense included a special FDIC assessment of $781,000, equivalent to $0.06, net of tax, per
diluted common share, which was not repeated in the 2009 third quarter.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net interest margin increased 46 basis points to 3.59% in the third quarter of 2009 from 3.13% in the second quarter of 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | Net income was $4.5 million for the three months ended September 30, 2009, compared with $4.1 million for the third quarter of 2008. Earnings per
diluted common share were $0.46 in the third quarter of 2009 compared with $0.47 per share in the third quarter of 2008. The 2009 earnings per common share results included deductions of approximately $0.05 per common share attributable to dividends
and accretion on $35 million in preferred stock issued to the United States Treasury. There were no comparable preferred dividends in the third quarter of 2008.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net interest income increased 15.6% to $14.4 million for the three months ended September 30, 2009, compared with the same quarter of 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Efficiency ratio improved to 47.14% for the three months ended September 30, 2009, compared with 55.94% for the second quarter of 2009.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loans grew 3.3% to $1.4 billion, compared with $1.3 billion at September 30, 2008.
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Deposits increased 8.4% to $1.4 billion compared with $1.3 billion at September 30, 2008.
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | Total assets increased 8.3% to $1.7 billion since the third quarter of 2008, due to growth in loans and the security portfolio.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | Nonperforming loans increased $7.0 million, or 36.2%, to $26.3 million in the 2009 third quarter compared with the second quarter of 2009.
Non-performing assets increased $10.4 million, or 35.8%, to $39.3 million compared with the second quarter of 2009.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 during the remainder
of 2009. We have allocated more resources to resolve problem loans while also working with our real estate clients to help them get through these difficult times.

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



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##### Table of Contents

Results of Operations

The following table summarizes components of income and expense and the change in those components for the three months ended September 30, 2009 compared with the same period of 2008:



|                            |  |                                         |        |                         |   |        |  |   |         |   |  |       |   
|--------------------------- |  | --------------------------------------- | ------ | ----------------------- | - | ------ |  | - | ------- | - |  | ----- | --
|                            |  | For the Three MonthsEnded September 30, |        | Change fromPrior Period |  
|                            |  | 2009                                    |        | 2008                    |   | Amount |  |   | Percent |  
|                            |  | (dollars in thousands)                  |       
|Gross interest income       |  | $                                       | 23,802 |                         | $ | 25,106 |  | $ | (1,304  | ) |  | (5.2  | )%
|Gross interest expense      |  |                                         | 9,428  |                         |   | 12,673 |  |   | (3,245  | ) |  | (25.6 | ) 
|Net interest income         |  |                                         | 14,374 |                         |   | 12,433 |  |   | 1,941   |   |  | 15.6  |   
|Provision for credit losses |  |                                         | 2,000  |                         |   | 1,250  |  |   | 750     |   |  | 60.0  |   
|Non-interest income         |  |                                         | 2,036  |                         |   | 1,725  |  |   | 311     |   |  | 18.0  |   
|Non-interest expense        |  |                                         | 7,584  |                         |   | 6,769  |  |   | 815     |   |  | 12.0  |   
|Net income before taxes     |  |                                         | 6,826  |                         |   | 6,139  |  |   | 687     |   |  | 11.2  |   
|Income tax expense          |  |                                         | 2,290  |                         |   | 2,039  |  |   | 251     |   |  | 12.3  |   
|Net income                  |  |                                         | 4,536  |                         |   | 4,100  |  |   | 436     |   |  | 10.6  |   

Net income of $4,536,000 for the three months ended September 30, 2009 increased $436,000, or
10.6%, from $4,100,000 for the comparable period of 2008. This increase in earnings was primarily attributable to increased net interest income and non-interest income partially off-set by increased provision for loan losses expense and non-interest
expense. Net interest income benefited from an increase of 6.8% in earning assets from the prior year third quarter, and decreased cost of funds to 2.67% in the 2009 third quarter from 3.72% in the prior year third quarter. The increase in
non-interest income was due to gains on sales of investment securities and gains on sales of loans originated for sale, which were partially offset by lower service charges on deposit accounts and lower income from fiduciary activities. Provision
for loan losses expense increased as a result of growth in our loan portfolio and increased non-performing loans. The increase in non-interest expense was due to increased FDIC premiums due to amendments made by the FDIC in 2007 to its risk-based
deposit premium assessment system, and increased other real estate owned expense due to increased foreclosures.

The following table
summarizes components of income and expense and the change in those components for the nine months ended September 30, 2009 compared with the same period of 2008:



|                            |  |                                        |        |                         |   |        |  |   |         |   |  |       |   
|--------------------------- |  | -------------------------------------- | ------ | ----------------------- | - | ------ |  | - | ------- | - |  | ----- | --
|                            |  | For the Nine MonthsEnded September 30, |        | Change fromPrior Period |  
|                            |  | 2009                                   |        | 2008                    |   | Amount |  |   | Percent |  
|                            |  | (dollars in thousands)                 |       
|Gross interest income       |  | $                                      | 70,949 |                         | $ | 75,821 |  | $ | (4,872  | ) |  | (6.4  | )%
|Gross interest expense      |  |                                        | 31,795 |                         |   | 40,073 |  |   | (8,278  | ) |  | (20.7 | ) 
|Net interest income         |  |                                        | 39,154 |                         |   | 35,748 |  |   | 3,406   |   |  | 9.5   |   
|Provision for credit losses |  |                                        | 5,200  |                         |   | 2,650  |  |   | 2,550   |   |  | 96.2  |   
|Non-interest income         |  |                                        | 5,417  |                         |   | 5,331  |  |   | 86      |   |  | 1.6   |   
|Non-interest expense        |  |                                        | 23,088 |                         |   | 20,933 |  |   | 2,155   |   |  | 10.3  |   
|Net income before taxes     |  |                                        | 16,283 |                         |   | 17,496 |  |   | (1,213  | ) |  | (6.9  | ) 
|Income tax expense          |  |                                        | 5,441  |                         |   | 5,826  |  |   | (385    | ) |  | (6.6  | ) 
|Net income                  |  |                                        | 10,842 |                         |   | 11,670 |  |   | (828    | ) |  | (7.1  | ) 

Net income of $10,842,000 for the nine months ended September 30, 2009 decreased $828,000, or
7.1%, from $11,670,000 for the comparable period of 2008. This decrease in earnings was primarily attributable to



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increased provision for loan losses expense, a special FDIC assessment of $781,000, recurring FDIC insurance premiums increasing $841,000 from the first nine months of 2008 due to amendments made
by the FDIC in 2007 to its risk-based deposit premium assessment system, and increased other real estate owned expense to due increased foreclosures. Increased expense was partially offset with increased net interest income. Net interest income
benefited from an increase of 10.7% in earning assets from the first nine months of 2008, and decreased cost of funds to 2.98% in the first nine months of 2009 from 4.04% in the same period of 2008.

Net Interest Income  Our net interest income was $14,374,000 for the three months ended September 30, 2009, an increase of
$1,941,000, or 15.6%, compared with $12,433,000 for the same period in 2008. Net interest spread and margin were 3.26% and 3.59%, respectively, for the third quarter of 2009, compared with 2.98% and 3.33%, respectively, for the third quarter of
2008. Net interest income was $39,154,000 for the nine months ended September 30, 2009, an increase of $3,406,000, or 9.5%, compared with $35,748,000 for the same period of 2008. Net interest spread and margin were 2.88% and 3.25%,
respectively, for the first nine months of 2009, compared with 2.88% and 3.28%, respectively, for the first nine months of 2008. Net interest margin increased 46 basis points from our margin of 3.13% in the second quarter of 2009 due primarily to
lower cost of funds. Net interest margin decreased 3 basis points from our margin of 3.28% in the first nine months of 2008 due primarily to earning assets repricing downward more quickly in the falling rate environment than cost of funds. Our
balance sheet is asset-sensitive, so our loan yields have responded more rapidly to the Federal Reserve rate cuts than our cost of funds. As a result, if interest rates remain stable, we expect our margin to continue to expand in 2009 based upon our
expectations of continued downward liability repricing with limited repricing of assets.

Our yield on earning assets decreased to 5.93% for
the third quarter of 2009 compared with 6.70% for the third quarter of 2008. Our cost of funds also decreased to 2.67% for the third quarter of 2009 compared to 3.72% for the third quarter of 2008. Our yield on earning assets declined 106 basis
points from 6.92% during the first nine months of 2008 and our cost of funds also decreased 106 basis points from 4.04%. Interest rate cuts made by the Federal Reserve over the last year adversely affected our margin as we are asset sensitive.
However, average interest earning assets for the first nine months of 2009 increased 10.7% over the same period of 2008, whereas average interest-bearing liabilities increased 7.7%.

Our average interest-earning assets were $1.6 billion for the nine months ended September 30, 2009, compared with $1.5 billion for the nine months ended September 30, 2008, a 10.7% increase
primarily attributable to growth in loan, securities, and interest-earning balances with depository institutions. Average loans were $1.4 billion for the nine months ended September 30, 2009, compared with $1.3 billion for the nine months ended
September 30, 2008, a 3.6% increase. Average securities were $173 million for the nine months ended September 30, 2009, compared with $115 million for the same period of 2008, a 50.3% increase. Average federal funds sold and
interest-bearing balances with depository institutions were $78.4 million for the nine months ended September 30, 2009, compared with $24.1 million for the same period of 2008, an increase of 225.13%. Our total interest income decreased by 6.4%
to $70.9 million for the nine months ended September 30, 2009, compared with $75.8 million for the same period in 2008. The change was due to lower yield on interest earning assets resulting from the 175 basis point decrease in prime rate over
the last twelve months.

Our average interest-bearing liabilities also increased by 7.7%, to $1.4 billion for the nine months ended
September 30, 2009, compared with $1.3 billion for the nine months ended September 30, 2008. Our total interest expense decreased by 20.7% to $31.8 million for the nine months ended September 30, 2009, compared with $40.1 million
during the same period in 2008, primarily due to continued repricing of certificates of deposit at maturity at lower interest rates. Our average volume of certificates of deposit increased by 15.3% to $1.1 billion for the nine months ended
September 30, 2009, compared with $927.7 million for the nine months ended September 30, 2008. The average interest rate paid on certificates of deposits decreased to 3.23% for the nine months ended September 30, 2009, compared with
4.44% for the nine months ended September 30, 2008. The certificate of deposit volume increase reflected organic growth from promotional efforts throughout the period.



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Average Balance Sheets

The following table presents the average balance sheets for the three month periods ending September 30, 2009 and 2008, 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 September 30, |          
|                                                  |  | 2009                             |           |   | 2008                |  
|                                                  |  | AverageBalance                   |           |   | InterestEarned/Paid |   | AverageYield/Cost |  |      | AverageBalance |  |   | InterestEarned/Paid |   | AverageYield/Cost |  
|                                                  |  | (dollars in thousands)           |          
|ASSETS                                            |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Interest-earning assets:                          |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Loan receivables (1)(2)                           |  | $                                | 1,368,970 |   |                     | $ | 20,961            |  | 6.07 | %              |  | $ | 1,351,897           |   |                   | $ | 23,478 |  | 6.91 | %
|Securities                                        |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Taxable                                           |  |                                  | 152,231   |   |                     |   | 2,457             |  | 6.40 |                |  |   | 90,493              |   |                   |   | 1,144  |  | 5.03 |  
|Tax-exempt (3)                                    |  |                                  | 21,640    |   |                     |   | 218               |  | 6.15 |                |  |   | 21,306              |   |                   |   | 216    |  | 6.20 |  
|FHLB stock                                        |  |                                  | 10,072    |   |                     |   | 125               |  | 4.92 |                |  |   | 9,941               |   |                   |   | 134    |  | 5.36 |  
|Other equity securities                           |  |                                  | 1,901     |   |                     |   | 12                |  | 2.50 |                |  |   | 3,045               |   |                   |   | 29     |  | 3.79 |  
|Federal funds sold and other                      |  |                                  | 45,129    |   |                     |   | 29                |  | 0.25 |                |  |   | 21,679              |   |                   |   | 105    |  | 1.93 |  
|                                                  |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total interest-earning assets                     |  |                                  | 1,599,943 |   |                     |   | 23,802            |  | 5.93 | %              |  |   | 1,498,361           |   |                   |   | 25,106 |  | 6.70 | %
|                                                  |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Less: Allowance for loan losses                   |  |                                  | (21,283   | ) |                     |   |                   |  |      |                |  |   | (18,280             | ) |                   |   |        |  |      |  
|Non-interest earning assets                       |  |                                  | 96,043    |   |                     |   |                   |  |      |                |  |   | 102,620             |   |                   |   |        |  |      |  
|                                                  |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total assets                                      |  | $                                | 1,674,703 |   |                     |   |                   |  |      |                |  | $ | 1,582,701           |   |                   |   |        |  |      |  
|                                                  |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|LIABILITIES AND STOCKHOLDERSEQUITY               |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Interest-bearing liabilities:                     |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Certificates of deposit and other time deposits   |  | $                                | 1,082,457 |   |                     | $ | 7,654             |  | 2.81 | %              |  | $ | 954,819             |   |                   | $ | 9,703  |  | 4.04 | %
|NOW and money market deposits                     |  |                                  | 161,327   |   |                     |   | 461               |  | 1.13 |                |  |   | 172,788             |   |                   |   | 860    |  | 1.98 |  
|Savings accounts                                  |  |                                  | 34,250    |   |                     |   | 75                |  | 0.87 |                |  |   | 35,157              |   |                   |   | 107    |  | 1.21 |  
|Federal funds purchased and repurchase agreements |  |                                  | 11,332    |   |                     |   | 120               |  | 4.20 |                |  |   | 12,777              |   |                   |   | 129    |  | 4.02 |  
|FHLB advances                                     |  |                                  | 78,425    |   |                     |   | 858               |  | 4.34 |                |  |   | 144,442             |   |                   |   | 1,421  |  | 3.91 |  
|Junior subordinated debentures                    |  |                                  | 34,000    |   |                     |   | 260               |  | 3.03 |                |  |   | 34,000              |   |                   |   | 453    |  | 5.30 |  
|                                                  |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total interest-bearing liabilities                |  |                                  | 1,401,791 |   |                     |   | 9,428             |  | 2.67 | %              |  |   | 1,353,983           |   |                   |   | 12,673 |  | 3.72 | %
|                                                  |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Non-interest-bearing liabilities:                 |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Non-interest-bearing deposits                     |  |                                  | 95,592    |   |                     |   |                   |  |      |                |  |   | 93,014              |   |                   |   |        |  |      |  
|Other liabilities                                 |  |                                  | 8,759     |   |                     |   |                   |  |      |                |  |   | 7,624               |   |                   |   |        |  |      |  
|                                                  |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities                                 |  |                                  | 1,506,142 |   |                     |   |                   |  |      |                |  |   | 1,454,621           |   |                   |   |        |  |      |  
|Stockholders equity                              |  |                                  | 168,561   |   |                     |   |                   |  |      |                |  |   | 128,080             |   |                   |   |        |  |      |  
|                                                  |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities and stockholders equity        |  | $                                | 1,674,703 |   |                     |   |                   |  |      |                |  | $ | 1,582,701           |   |                   |   |        |  |      |  
|                                                  |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest income                               |  |                                  |           |   |                     | $ | 14,374            |  |      |                |  |   |                     |   |                   | $ | 12,433 |  |      |  
|                                                  |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest spread                               |  |                                  |           |   |                     |   |                   |  | 3.26 | %              |  |   |                     |   |                   |   |        |  | 2.98 | %
|                                                  |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest margin                               |  |                                  |           |   |                     |   |                   |  | 3.59 | %              |  |   |                     |   |                   |   |        |  | 3.33 | %
|                                                  |  |                                  |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  



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

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

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



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Average Balance Sheets

The following table presents the average balance sheets for the nine month periods ending September 30, 2009 and 2008, along with the related calculations of tax-equivalent net interest income, net
interest margin and net interest spread for the related periods.



|                                                  |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|------------------------------------------------- |  | ------------------------------- | --------- | - | ------------------- | - | ----------------- |  | ---- | -------------- |  | - | ------------------- | - | ----------------- | - | ------ |  | ---- | -
|                                                  |  | Nine Months Ended September 30, |          
|                                                  |  | 2009                            |           |   | 2008                |  
|                                                  |  | AverageBalance                  |           |   | InterestEarned/Paid |   | AverageYield/Cost |  |      | AverageBalance |  |   | InterestEarned/Paid |   | AverageYield/Cost |  
|                                                  |  | (dollars in thousands)          |          
|ASSETS                                            |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Interest-earning assets:                          |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Loan receivables (1)(2)                           |  | $                               | 1,363,150 |   |                     | $ | 63,333            |  | 6.21 | %              |  | $ | 1,316,367           |   |                   | $ | 70,655 |  | 7.17 | %
|Securities                                        |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Taxable                                           |  |                                 | 151,550   |   |                     |   | 6,442             |  | 5.68 |                |  |   | 95,433              |   |                   |   | 3,622  |  | 5.07 |  
|Tax-exempt (3)                                    |  |                                 | 21,858    |   |                     |   | 662               |  | 6.23 |                |  |   | 19,949              |   |                   |   | 606    |  | 6.24 |  
|FHLB stock                                        |  |                                 | 10,072    |   |                     |   | 351               |  | 4.66 |                |  |   | 9,810               |   |                   |   | 393    |  | 5.35 |  
|Other equity securities                           |  |                                 | 1,901     |   |                     |   | 41                |  | 2.88 |                |  |   | 3,852               |   |                   |   | 95     |  | 3.29 |  
|Federal funds sold and other                      |  |                                 | 78,356    |   |                     |   | 120               |  | 0.20 |                |  |   | 24,100              |   |                   |   | 450    |  | 2.49 |  
|                                                  |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total interest-earning assets                     |  |                                 | 1,626,887 |   |                     |   | 70,949            |  | 5.86 | %              |  |   | 1,469,511           |   |                   |   | 75,821 |  | 6.92 | %
|                                                  |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Less: Allowance for loan losses                   |  |                                 | (20,634   | ) |                     |   |                   |  |      |                |  |   | (17,861             | ) |                   |   |        |  |      |  
|Non-interest earning assets                       |  |                                 | 95,714    |   |                     |   |                   |  |      |                |  |   | 101,651             |   |                   |   |        |  |      |  
|                                                  |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total assets                                      |  | $                               | 1,701,967 |   |                     |   |                   |  |      |                |  | $ | 1,553,301           |   |                   |   |        |  |      |  
|                                                  |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|LIABILITIES AND STOCKHOLDERSEQUITY               |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Interest-bearing liabilities:                     |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Certificates of deposit and other time deposits   |  | $                               | 1,069,167 |   |                     | $ | 25,839            |  | 3.23 | %              |  | $ | 927,659             |   |                   | $ | 30,809 |  | 4.44 | %
|NOW and money market deposits                     |  |                                 | 163,674   |   |                     |   | 1,498             |  | 1.22 |                |  |   | 183,890             |   |                   |   | 3,118  |  | 2.26 |  
|Savings accounts                                  |  |                                 | 34,860    |   |                     |   | 239               |  | 0.92 |                |  |   | 34,031              |   |                   |   | 336    |  | 1.32 |  
|Federal funds purchased and repurchase agreements |  |                                 | 10,881    |   |                     |   | 355               |  | 4.36 |                |  |   | 14,741              |   |                   |   | 436    |  | 3.95 |  
|FHLB advances                                     |  |                                 | 114,393   |   |                     |   | 2,944             |  | 3.44 |                |  |   | 137,182             |   |                   |   | 4,178  |  | 4.07 |  
|Junior subordinated debentures                    |  |                                 | 34,000    |   |                     |   | 920               |  | 3.62 |                |  |   | 28,022              |   |                   |   | 1,196  |  | 5.70 |  
|                                                  |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total interest-bearing liabilities                |  |                                 | 1,426,975 |   |                     |   | 31,795            |  | 2.98 | %              |  |   | 1,325,525           |   |                   |   | 40,073 |  | 4.04 | %
|                                                  |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Non-interest-bearing liabilities:                 |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Non-interest-bearing deposits                     |  |                                 | 99,523    |   |                     |   |                   |  |      |                |  |   | 94,175              |   |                   |   |        |  |      |  
|Other liabilities                                 |  |                                 | 8,297     |   |                     |   |                   |  |      |                |  |   | 7,489               |   |                   |   |        |  |      |  
|                                                  |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities                                 |  |                                 | 1,534,795 |   |                     |   |                   |  |      |                |  |   | 1,427,189           |   |                   |   |        |  |      |  
|Stockholders equity                              |  |                                 | 167,172   |   |                     |   |                   |  |      |                |  |   | 126,112             |   |                   |   |        |  |      |  
|                                                  |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities and stockholders equity        |  | $                               | 1,701,967 |   |                     |   |                   |  |      |                |  | $ | 1,553,301           |   |                   |   |        |  |      |  
|                                                  |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest income                               |  |                                 |           |   |                     | $ | 39,154            |  |      |                |  |   |                     |   |                   | $ | 35,748 |  |      |  
|                                                  |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest spread                               |  |                                 |           |   |                     |   |                   |  | 2.88 | %              |  |   |                     |   |                   |   |        |  | 2.88 | %
|                                                  |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest margin                               |  |                                 |           |   |                     |   |                   |  | 3.25 | %              |  |   |                     |   |                   |   |        |  | 3.28 | %
|                                                  |  |                                 |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  



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

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

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



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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 September 30,2009 vs. 2008 |        |   | Nine Months Ended September 30,2009 vs. 2008 |  
|                                                   |  | Increase (decrease)due to change in           |        |   | NetChange                                    |   |       | Increase (decrease)due to change in |      |   | NetChange |       
|                                                   |  | Rate                                          |        |   | Volume                                       |   |       |                                     | Rate |   |           | Volume |  |  
|                                                   |  | (in thousands)                                |       
|Interest-earning assets:                           |  |                                               |        |   |                                              |   |       |                                     |      |   |           |        |  |   |         |   |  |   |       |   |  |   |        |  
|Loan receivables                                   |  | $                                             | (2,810 | ) |                                              | $ | 294   |                                     |      | $ | (2,516    | )      |  | $ | (9,763  | ) |  | $ | 2,441 |   |  | $ | (7,322 | )
|Securities                                         |  |                                               | 425    |   |                                              |   | 890   |                                     |      |   | 1,315     |        |  |   | 547     |   |  |   | 2,329 |   |  |   | 2,876  |  
|FHLB stock                                         |  |                                               | (11    | ) |                                              |   | 2     |                                     |      |   | (9        | )      |  |   | (52     | ) |  |   | 10    |   |  |   | (42    | )
|Other equity securities                            |  |                                               | (8     | ) |                                              |   | (9    | )                                   |      |   | (17       | )      |  |   | (11     | ) |  |   | (43   | ) |  |   | (54    | )
|Federal funds sold and other                       |  |                                               | (135   | ) |                                              |   | 59    |                                     |      |   | (76       | )      |  |   | (682    | ) |  |   | 352   |   |  |   | (330   | )
|                                                   |  |                                               |        |   |                                              |   |       |                                     |      |   |           |        |  |   |         |   |  |   |       |   |  |   |        |  
|Total increase (decrease) in interest income       |  |                                               | (2,539 | ) |                                              |   | 1,236 |                                     |      |   | (1,303    | )      |  |   | (9,961  | ) |  |   | 5,089 |   |  |   | (4,872 | )
|                                                   |  |                                               |        |   |                                              |   |       |                                     |      |   |           |        |  |   |         |   |  |   |       |   |  |   |        |  
|Interest-bearing liabilities:                      |  |                                               |        |   |                                              |   |       |                                     |      |   |           |        |  |   |         |   |  |   |       |   |  |   |        |  
|Certificates of deposit and other time deposits    |  |                                               | (3,226 | ) |                                              |   | 1,176 |                                     |      |   | (2,050    | )      |  |   | (9,210  | ) |  |   | 4,240 |   |  |   | (4,970 | )
|NOW and money market accounts                      |  |                                               | (345   | ) |                                              |   | (54   | )                                   |      |   | (399      | )      |  |   | (1,307  | ) |  |   | (313  | ) |  |   | (1,620 | )
|Savings accounts                                   |  |                                               | (29    | ) |                                              |   | (3    | )                                   |      |   | (32       | )      |  |   | (105    | ) |  |   | 8     |   |  |   | (97    | )
|Federal funds purchased and repurchased agreements |  |                                               | 6      |   |                                              |   | (16   | )                                   |      |   | (10       | )      |  |   | 42      |   |  |   | (123  | ) |  |   | (81    | )
|FHLB advances                                      |  |                                               | 183    |   |                                              |   | (746  | )                                   |      |   | (563      | )      |  |   | (596    | ) |  |   | (638  | ) |  |   | (1,234 | )
|Junior subordinated debentures                     |  |                                               | (193   | ) |                                              |   |      |                                     |      |   | (193      | )      |  |   | (497    | ) |  |   | 221   |   |  |   | (276   | )
|                                                   |  |                                               |        |   |                                              |   |       |                                     |      |   |           |        |  |   |         |   |  |   |       |   |  |   |        |  
|Total increase (decrease) in interest expense      |  |                                               | (3,604 | ) |                                              |   | 357   |                                     |      |   | (3,247    | )      |  |   | (11,673 | ) |  |   | 3,395 |   |  |   | (8,278 | )
|                                                   |  |                                               |        |   |                                              |   |       |                                     |      |   |           |        |  |   |         |   |  |   |       |   |  |   |        |  
|Increase in net interest income                    |  | $                                             | 1,065  |   |                                              | $ | 879   |                                     |      | $ | 1,944     |        |  | $ | 1,712   |   |  | $ | 1,694 |   |  | $ | 3,406  |  
|                                                   |  |                                               |        |   |                                              |   |       |                                     |      |   |           |        |  |   |         |   |  |   |       |   |  |   |        |  



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Non-Interest Income  The following table presents the major categories of non-interest
income for the three and nine months ended September 30, 2009 and 2008:



|                                                      |  |                                 |       |      |                                |       |      |  |      |       |  |   |       |  
|----------------------------------------------------- |  | ------------------------------- | ----- | ---- | ------------------------------ | ----- | ---- |  | ---- | ----- |  | - | ----- | -
|                                                      |  | Three Months EndedSeptember 30, |       |      | Nine Months EndedSeptember 30, |      
|                                                      |  | 2009                            |       | 2008 |                                |       | 2009 |  | 2008 |      
|                                                      |  | (in thousands)                  |      
|Service charges on deposit accounts                   |  | $                               | 843   |      | $                              | 876   |      |  | $    | 2,319 |  | $ | 2,607 |  
|Income from fiduciary activities                      |  |                                 | 227   |      |                                | 261   |      |  |      | 645   |  |   | 845   |  
|Secondary market brokerage fees                       |  |                                 | 49    |      |                                | 85    |      |  |      | 180   |  |   | 306   |  
|Title insurance commissions                           |  |                                 | 33    |      |                                | 50    |      |  |      | 97    |  |   | 144   |  
|Gains on sales of loans originated for sale           |  |                                 | 82    |      |                                |      |      |  |      | 323   |  |   |      |  
|Gains (losses) on sales of investment securities, net |  |                                 | 321   |      |                                | (101  | )    |  |      | 322   |  |   | (146  | )
|Other                                                 |  |                                 | 481   |      |                                | 554   |      |  |      | 1,531 |  |   | 1,575 |  
|                                                      |  |                                 |       |      |                                |       |      |  |      |       |  |   |       |  
|Total non-interest income                             |  | $                               | 2,036 |      | $                              | 1,725 |      |  | $    | 5,417 |  | $ | 5,331 |  
|                                                      |  |                                 |       |      |                                |       |      |  |      |       |  |   |       |  

Non-interest income for the third quarter ended September 30, 2009 increased $311,000, or 18.0%,
compared with the third quarter of 2008. For the nine months ended September 30, 2009 non-interest income increased $86,000 to $5.4 million compared with $5.3 million for same period of 2008. The increase in non-interest income for the three
and nine months ended September 30, 2009 was primarily due to gains on sales of investment securities and gains on sales of loans originated for sale, which were partially offset by lower service charges on deposit accounts, lower income from
fiduciary activities, and lower secondary market brokerage fees. Our subsidiary, PBI Bank, began originating residential real estate loans for sale in the secondary market late in the first quarter of 2009. The Bank retained servicing rights for the
sold loans. This change in our secondary market strategy resulted in lower secondary market brokerage fees. Lower service charges on deposit accounts resulted from lower volume in non-sufficient funds transactions, and lower income from fiduciary
activities was due to decreased account asset values caused by the downturn in the stock market. Trust fees are based on account asset values.

Non-interest ExpenseThe following table presents the major categories of non-interest expense for the three and nine months ended September 30, 2009 and 2008:



|                                  |  |                                 |       |                                |   |       |  |      |        |  |   |       
|--------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | ----- |  | ---- | ------ |  | - | ------
|                                  |  | Three Months EndedSeptember 30, |       | Nine Months EndedSeptember 30,
|                                  |  | 2009                            |       | 2008                           |   | 2009  |  | 2008
|                                  |  | (in thousands)                 
|Salary and employee benefits      |  | $                               | 3,799 |                                | $ | 3,666 |  | $    | 11,490 |  | $ | 11,382
|Occupancy and equipment           |  |                                 | 993   |                                |   | 882   |  |      | 2,972  |  |   | 2,699 
|FDIC insurance                    |  |                                 | 626   |                                |   | 284   |  |      | 1,588  |  |   | 747   
|FDIC special insurance assessment |  |                                 |      |                                |   |      |  |      | 781    |  |   |      
|State franchise tax               |  |                                 | 450   |                                |   | 435   |  |      | 1,350  |  |   | 1,305 
|Other real estate owned expense   |  |                                 | 353   |                                |   | 109   |  |      | 706    |  |   | 456   
|Professional fees                 |  |                                 | 175   |                                |   | 177   |  |      | 606    |  |   | 595   
|Communications                    |  |                                 | 183   |                                |   | 181   |  |      | 568    |  |   | 530   
|Postage and delivery              |  |                                 | 193   |                                |   | 201   |  |      | 561    |  |   | 568   
|Advertising                       |  |                                 | 121   |                                |   | 100   |  |      | 404    |  |   | 401   
|Office supplies                   |  |                                 | 109   |                                |   | 108   |  |      | 327    |  |   | 446   
|Other                             |  |                                 | 582   |                                |   | 626   |  |      | 1,735  |  |   | 1,804 
|                                  |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Total non-interest expense        |  | $                               | 7,584 |                                | $ | 6,769 |  | $    | 23,088 |  | $ | 20,933
|                                  |  |                                 |       |                                |   |       |  |      |        |  |   |       

Non-interest expense for the third quarter ended September 30, 2009 increased $815,000, or
12.0%, compared with the third quarter of 2008. For the nine months ended September 30, 2009, non-interest expense increased $2.2 million, or 10.3%, to $23.1 million compared with $20.9 million for the first nine months of 2008. The



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##### Table of Contents

increase in non-interest expense was primarily attributable to FDIC insurance assessments more than doubling following amendments made by the FDIC in 2007 to its risk-based deposit premium
assessment system and to a special assessment of $781,000 assessed in the 2009 second quarter and payable September 30, 2009. Without this special assessment our efficiency ratio for the first nine months of 2009 would have been 50.4%, an
improvement from our ratio of 50.8% in the same period of 2008. In addition, other real estate owned expense for the 2009 third quarter increased $244,000, or 223.9%, over the prior year third quarter, and increased $250,000 for the nine months
ended September 30, 2009, over the same period of 2008, due to increased foreclosures.

Income Tax ExpenseIncome tax expense was $2.3 million, or 33.5% of pre-tax income, for the third quarter ended September 30, 2009, and $5.4 million, or 33.4% of pre-tax income, for the first nine months of 2009, compared with $2.0 million, or 33.2% of
pre-tax income, for the third quarter of 2008, and $5.8 million, or 33.3% or pre-tax income, for the first nine months of 2008.

Analysis
of Financial Condition

Total assets increased $80.9 million, or 4.9%, to $1.7 billion at September 30, 2009 from $1.6 billion at
December 31, 2008. This increase was primarily attributable to an increase of $45.8 million in cash and due from financial institutions and $34.9 million in net loans from organic growth. Total assets at September 30, 2009 increased $132.6
million from $1.6 billion at September 30, 2008, representing an 8.3% increase.

Loans ReceivableLoans
receivable increased $37.3 million, or 2.8%, during the nine months ended September 30, 2009 to $1.4 billion. Our commercial, commercial real estate and real estate construction portfolios decreased by an aggregate of $15.4 million, or 1.7%,
during the nine months and comprised 67.2% of the total loan portfolio at September 30, 2009.

Loan Portfolio
CompositionWe focus on commercial and commercial real estate lending, both in markets where we have banking offices and other growing markets in our region. Commercial, commercial real estate and real estate construction loans
accounted for 67.2% of our total loan portfolio as of September 30, 2009, and 67.9% as of December 31, 2008, and contributed significantly to our earnings. Commercial lending generally produces higher yields than residential lending, but
requires more rigorous underwriting standards and credit quality monitoring.

We also originate and retain residential home loans to customers
throughout our market area. These loans typically have fixed rates and maturity dates ranging from three to five years with amortization periods ranging from five to thirty years. We also offer adjustable rate residential mortgage loans. Our
portfolio of residential adjustable rate mortgage loans totaled $52.9 million as of September 30, 2009, and $59.2 million as of December 31, 2008. These loans are indexed to Wall Street Journal Prime and contain annual adjustment
protection limits for the consumer of no more than 2% per year or 6% over the lifetime of the loan. We do not offer lending programs that focus on higher risk loans such as subprime, Alt-A, or option ARM loans.



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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 September 30,2009 |           |                        | As of December 31,2008 |  
|              |  | Amount                  |           | Percent                |                        |   | Amount |   | Percent   | 
|              |  |                         |           | (dollars in thousands) |                        |   |       
|Type of Loan: |  |                         |           |                        |                        |   |        |   |           |  |        |  
|Real estate:  |  |                         |           |                        |                        |   |        |   |           |  |        |  
|Commercial    |  | $                       | 520,441   |                        | 37.52                  | % |        | $ | 454,634   |  | 33.68  | %
|Construction  |  |                         | 322,577   |                        | 23.26                  |   |        |   | 371,301   |  | 27.50  |  
|Residential   |  |                         | 366,636   |                        | 26.43                  |   |        |   | 342,835   |  | 25.39  |  
|Home equity   |  |                         | 31,697    |                        | 2.29                   |   |        |   | 33,249    |  | 2.46   |  
|Commercial    |  |                         | 89,252    |                        | 6.44                   |   |        |   | 90,978    |  | 6.74   |  
|Consumer      |  |                         | 37,087    |                        | 2.67                   |   |        |   | 37,783    |  | 2.80   |  
|Agriculture   |  |                         | 18,355    |                        | 1.32                   |   |        |   | 16,181    |  | 1.20   |  
|Other         |  |                         | 923       |                        | 0.07                   |   |        |   | 3,145     |  | 0.23   |  
|              |  |                         |           |                        |                        |   |        |   |           |  |        |  
|Total loans   |  | $                       | 1,386,968 |                        | 100.00                 | % |        | $ | 1,350,106 |  | 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 September 30, 2009 and December 31, 2008.



|                                                |  |                        |        |   |                  |   |        |  
|----------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                                |  | September 30,2009      |        |   | December 31,2008 |  
|                                                |  | (dollars in thousands) |       
|Loans past due 90 days or more still on accrual |  | $                      | 9,896  |   |                  | $ | 11,598 |  
|Non-accrual loans                               |  |                        | 16,369 |   |                  |   | 9,725  |  
|                                                |  |                        |        |   |                  |   |        |  
|Total non-performing loans                      |  |                        | 26,265 |   |                  |   | 21,323 |  
|Real estate acquired through foreclosure        |  |                        | 12,934 |   |                  |   | 7,839  |  
|Other repossessed assets                        |  |                        | 77     |   |                  |   | 96     |  
|                                                |  |                        |        |   |                  |   |        |  
|Total non-performing assets                     |  | $                      | 39,276 |   |                  | $ | 29,258 |  
|                                                |  |                        |        |   |                  |   |        |  
|Non-performing loans to total loans             |  |                        | 1.89   | % |                  |   | 1.58   | %
|                                                |  |                        |        |   |                  |   |        |  
|Non-performing assets to total assets           |  |                        | 2.27   | % |                  |   | 1.78   | %
|                                                |  |                        |        |   |                  |   |        |  

Nonperforming loans at September 30, 2009 were $26.3 million, or 1.89% of total loans, compared
with $15.4 million, or 1.15% of total loans, at September 30, 2008, and $21.3 million, or 1.58% of total loans at December 31, 2008. The increase of $4.9 million in non-performing loans from December 31, 2008 to September 30,
2009 is primarily attributable to residential real estate construction and development loans that have been affected by the weak economy, and to the normal progression of troubled loans through workout, collateral repossession and ultimate
disposition. At September 30, 2009, we had restructured loans totaling $9.0 million, compared with $13.6 million at December 31, 2008, with borrowers who experienced deterioration in financial condition. These loans are secured by 1 to 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.



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Foreclosed properties at September 30, 2009 were $12.9 million compared with $7.5 million at
September 30, 2008 and $7.8 million at December 31, 2008. The increase in foreclosed properties from year-end 2008 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 September 30, 2009, increased to 1.58% from 1.39% at September 30, 2008, and increased
from 1.46% at December 31, 2008. Provision for loan losses increased $750,000 to $2 million for the third quarter of 2009 compared with the third quarter of 2008. Provision for loan losses increased $2.6 million to $5.2 million for the nine
months ended September 30, 2009, compared with $2.7 million for the same nine months of 2008. The increase in provision expense was primarily due to growth in our loan portfolio coupled with the increase in net charge-offs between periods. Net
loan charge-offs for the third quarter of 2009 were $782,000, or 0.06% of total loans, compared with $745,000, or 0.06%, for the third quarter of 2008, and $1.2 million, or 0.09%, for the second quarter of 2009. Net loan charge-offs for the nine
months ended September 30, 2009 were $2.9 million, or 0.21% of average loans, compared with $1.8 million, or 0.13% of average loans, for the first nine months of 2008. Our allowance for loan losses to nonperforming loans decreased to 83.62% at
September 30, 2009, compared to 92.16% at December 31, 2008, and 120.89% at September 30, 2008. 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.

An
analysis of changes in allowance for loan losses and selected ratios for the three and nine month periods ended September 30, 2009 and 2008 follows:



|                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                  |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                  |  | 2009                            |        |   | 2008                           |   |        | 2009 |  |   | 2008   |  
|                                                  |  | (dollars in thousands)          |       
|Balance at beginning of period                    |  | $                               | 20,740 |   |                                | $ | 18,133 |      |  | $ | 19,652 |   |  | $ | 16,342 |  
|Acquired in bank acquisition                      |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   | 1,420  |  
|Provision for loan losses                         |  |                                 | 2,000  |   |                                |   | 1,250  |      |  |   | 5,200  |   |  |   | 2,650  |  
|Recoveries                                        |  |                                 | 47     |   |                                |   | 37     |      |  |   | 218    |   |  |   | 225    |  
|Charge-offs                                       |  |                                 | (829   | ) |                                |   | (782   | )    |  |   | (3,112 | ) |  |   | (1,999 | )
|                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Balance at end of period                          |  | $                               | 21,958 |   |                                | $ | 18,638 |      |  | $ | 21,958 |   |  | $ | 18,638 |  
|                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Allowance for loan losses to period-end loans     |  |                                 | 1.58   | % |                                |   | 1.39   | %    |  |   | 1.58   | % |  |   | 1.39   | %
|                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Net charge-offs to average loans                  |  |                                 | 0.06   | % |                                |   | 0.06   | %    |  |   | 0.21   | % |  |   | 0.13   | %
|                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Allowance for loan losses to non-performing loans |  |                                 | 83.60  | % |                                |   | 120.89 | %    |  |   | 83.60  | % |  |   | 120.89 | %
|                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  

LiabilitiesTotal liabilities at September 30, 2009 were $1.56
billion compared with $1.48 billion at December 31, 2008, an increase of $74.0 million, or 5.0%. The increase was primarily attributable to an increase in



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deposits of $90.1 million, or 7.0%, at September 30, 2009 to $1.4 billion from $1.3 billion at December 31, 2008. The increase in deposits was in both time deposits and transactional
accounts from promotional efforts throughout the period.

Federal Home Loan Bank advances decreased $17.5 million, or 12.3%, to $125.3 million
from $142.8 million at December 31, 2008. 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 Nine MonthsEnded September 30,2009 |           |             | For the YearEnded December 31,2008 |  
|                        |  | AverageBalance                             |           | AverageRate |                                    |   | AverageBalance |   | AverageRate | 
|                        |  | (dollars in thousands)                     |          
|Demand                  |  | $                                          | 99,523    |             |                                   |   |                | $ | 93,356      |  |     |  
|Interest checking       |  |                                            | 75,538    |             | 0.84                               | % |                |   | 92,496      |  | 1.71 | %
|Money market            |  |                                            | 88,136    |             | 1.55                               |   |                |   | 84,316      |  | 2.66 |  
|Savings                 |  |                                            | 34,860    |             | 0.92                               |   |                |   | 33,969      |  | 1.30 |  
|Certificates of deposit |  |                                            | 1,069,167 |             | 3.23                               |   |                |   | 946,477     |  | 4.31 |  
|                        |  |                                            |           |             |                                    |   |                |   |             |  |      |  
|Total deposits          |  | $                                          | 1,367,224 |             | 2.70                               | % |                | $ | 1,250,614   |  | 3.60 | %
|                        |  |                                            |           |             |                                    |   |                |   |             |  |      |  

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 Nine MonthsEnded September 30,2009 |           |             | For the Year EndedDecember 31,2008 |  
|                   |  | AverageBalance                             |           | AverageRate |                                    |   | AverageBalance |   | AverageRate | 
|                   |  | (dollars in thousands)                     |          
|Less than $100,000 |  | $                                          | 609,806   |             | 3.23                               | % |                | $ | 607,420     |  | 4.28 | %
|$100,000 or more   |  |                                            | 459,361   |             | 3.23                               | % |                |   | 339,057     |  | 4.36 | %
|                   |  |                                            |           |             |                                    |   |                |   |             |  |      |  
|Total              |  | $                                          | 1,069,167 |             | 3.23                               | % |                | $ | 946,477     |  | 4.31 | %
|                   |  |                                            |           |             |                                    |   |                |   |             |  |      |  

The following table shows at September 30, 2009 and December 31, 2008 the amount of our
time deposits of $100,000 or more by time remaining until maturity:



|                                 |  |                        |         |                       |   |        
|-------------------------------- |  | ---------------------- | ------- | --------------------- | - | -------
|Maturity Period                  |  | As ofSeptember 30,2009 |         | As ofDecember 31,2008
|                                 |  | (in thousands)        
|Three months or less             |  | $                      | 139,451 |                       | $ | 88,133 
|Three months through six months  |  |                        | 154,614 |                       |   | 142,760
|Six months through twelve months |  |                        | 153,340 |                       |   | 120,165
|Over twelve months               |  |                        | 53,737  |                       |   | 59,273 
|                                 |  |                        |         |                       |   |        
|Total                            |  | $                      | 501,142 |                       | $ | 410,331
|                                 |  |                        |         |                       |   |        



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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 2008 and the first nine months of 2009, PBI Bank utilized brokered and wholesale deposits to supplement its funding strategy. At September 30, 2009, these deposits totaled $63.7 million. PBI
Bank also secured federal funds borrowing lines from major correspondent banks totaling $46.5 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 September 30, 2009, the Bank had an unused borrowing capacity with the FHLB of $88.7 million.
Management believes our sources of liquidity are adequate to meet expected cash needs for the foreseeable future.

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

Capital

Stockholders equity increased $6.9 million to $171.1 million at September 30, 2009 compared with $164.2 million at December 31, 2008. The increase was due to net income earned during the first nine months of 2009 reduced by
dividends declared on common stock and dividends paid on 5% cumulative preferred stock, and increased accumulated other comprehensive income. Both the Company and PBI Bank qualified as well capitalized under regulatory guidelines at
September 30, 2009.

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.

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:



|                         |  |                    |   |  |                          |   |  |                    |   |  |                   |   |  |               |   |  |         |  
|------------------------ |  | ------------------ | - |  | ------------------------ | - |  | ------------------ | - |  | ----------------- | - |  | ------------- | - |  | ------- | -
|                         |  |                    |   |  |                          |   |  | September 30, 2009 |   |  | December 31, 2008 |  
|                         |  | RegulatoryMinimums |   |  | Well-CapitalizedMinimums |   |  | PorterBancorp      |   |  | PBIBank           |   |  | PorterBancorp |   |  | PBIBank |  
|Tier I capital           |  | 4.0                | % |  | 6.0                      | % |  | 11.90              | % |  | 10.48             | % |  | 12.13         | % |  | 10.06   | %
|Total risk-based capital |  | 8.0                |   |  | 10.0                     |   |  | 13.80              |   |  | 12.38             |   |  | 14.05         |   |  | 11.99   |  
|Tier I leverage ratio    |  | 4.0                |   |  | 5.0                      |   |  | 10.13              |   |  | 8.91              |   |  | 10.10         |   |  | 8.37    |  



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Item 3. Quantitative and Qualitative Disclosures about Market
Risk

The Companys interest sensitivity profile was asset sensitive at September 30, 2009, and December 31, 2008. Given an
instantaneous 100 basis point decrease in rates that was sustained for 12 months, base net interest income would decrease by an estimated 4.0% at September 30, 2009 compared with a decrease of 7.6% at December 31, 2008. Given a 100 basis
point increase in interest rates, base net interest income would increase by an estimated 3.2% at September 30, 2009, compared with an increase of 5.1% at December 31, 2008 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 twelve months
following September 30, 2009, as calculated using the static shock model approach:



|                   |  |                                     |        |   |                   |       |  
|------------------ |  | ----------------------------------- | ------ | - | ----------------- | ----- | -
|                   |  | Change in FutureNet Interest Income |       
|                   |  | Dollar Change                       |        |   | Percentage Change |      
|                   |  | (dollars in thousands)              |       
|+ 200 basis points |  | $                                   | 3,588  |   |                   | 6.05  | %
|+ 100 basis points |  |                                     | 1,892  |   |                   | 3.19  |  
|- 100 basis points |  |                                     | (2,378 | ) |                   | (4.01 | )
|- 200 basis points |  |                                     | (5,673 | ) |                   | (9.56 | )

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 September 30, 2009, 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.



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##### Table of Contents

PART II  OTHER INFORMATION



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

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



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

Information regarding risk
factors appears in the Companys Annual Report on Form 10-K for the year ended December 31, 2008 under Item 1A  Risk Factors. There have been no material changes from the risk factors previously discussed in our Form 10-K.

In addition to the risk factors in our Annual Report on Form 10-K, you should carefully consider the following supplemental risk factors.
These risks could materially affect our business, financial condition or future results, and are not the only risks we face. Additional risks and uncertainties not currently known to us or that we have deemed to be immaterial also may materially
adversely affect our business, financial condition, and/or operating results.

There may be future sales or other dilution of our equity,
which may adversely affect the market price of our common stock.

We are not restricted from issuing additional common stock, including
securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The issuance of additional shares of common stock or the issuance of convertible securities would dilute the ownership interest of our
existing common shareholders. The market price of our common stock could decline as a result of sales of a large block of shares of our common stock or similar securities in the market, or the perception that such sales could occur.

Higher FDIC deposit insurance premiums and assessments could significantly increase our non-interest expense.

FDIC insurance premiums have increased significantly in 2009 and we expect to pay higher FDIC premiums in the future. Recent bank failures have substantially
depleted the insurance fund of the FDIC and reduced the funds ratio of reserves to insured deposits. The FDIC adopted a revised risk-based deposit insurance assessment schedule on February 27, 2009, which raised deposit insurance
premiums. On May 22, 2009, the FDIC also implemented a special assessment equal to five basis points of each insured depository institutions assets minus Tier 1 capital as of June 30, 2009, but no more than ten basis points
multiplied by the institutions assessment base for the second quarter of 2009. As a result, PBI Bank paid a special assessment of $781,000 on September 30, 2009.

On September 29, 2009, the FDIC adopted a notice of proposed rulemaking that would amend the final rule adopted on May 22,
2009 to restore losses to its Deposit Insurance Fund. The proposed rule would require insured institutions to prepay on December 30, 2009, an estimated quarterly risk-based assessment for the 4thquarter of 2009 and for all 2010, 2011, and 2012. If the proposed rule is adopted, an institutions
assessment will be calculated by taking the institutions actual September 30, 2009 assessment and adjusting it quarterly by an estimated 5% annual growth rate through the end of 2012. Further, the FDIC will incorporate a uniform 3 basis
point increase effective January 1, 2011. The FDIC has indicated that each institution would record the entire



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amount of its prepaid assessment as a prepaid expense, an asset on its balance sheet, as of December 30, 2009. As of December 31, 2009, and each quarter thereafter, each institution
would record an expense, or a charge to earnings, for its quarterly assessment invoiced on its quarterly statement and an offsetting credit to the prepaid assessment until the asset is exhausted. The federal banking agencies risk-based capital
rules permit an institution to apply a 0% risk weight to all claims on U.S. Government agencies, and the FDIC has indicated that the prepayment will qualify for such treatment.

We participate in the FDICs Transaction Account Guarantee Program, or TAGP, for non-interest-bearing transaction deposit accounts. The TAGP is a component of the FDICs Temporary Liquidity
Guarantee Program, or TLGP. Banks that participate in the TAGP will pay the FDIC annualized fees of ten basis points on the amounts in such accounts above the amounts covered by FDIC deposit insurance through December 31, 2009. The FDIC has
established an extension period for the TAGP to run from January 1, 2010 through June 30, 2010. During the extension period, the fees for participating banks will range from 15 to 25 basis points, depending on the risk category to which
the bank is assigned for deposit insurance assessment purposes. Banks may elect to opt out of participation during the extension period by notifying the FDIC by November 2, 2009. As of the date of this prospectus supplement, we have not opted
out of participation during this extension period.

To the extent that assessments under the TAGP are insufficient to cover any loss or
expenses arising from the TLGP, the FDIC is authorized to impose an emergency special assessment on all FDIC-insured depository institutions. The FDIC has authority to impose charges for the TLGP upon depository institution holding companies, as
well. These charges would cause the premiums and TAGP assessments charged by the FDIC to increase. These actions could significantly increase our non-interest expense for the foreseeable future.

As a result of our participation in the TARP Capital Purchase Program, we are subject to significant restrictions on compensation payable to our
executive officers and other key employees.

Our ability to attract and retain key officers and employees may be further impacted by
legislation and regulation affecting the financial services industry. As noted above, in early 2009, the ARRA was signed into law. The ARRA, through the implementing regulations of the U.S. Treasury, significantly expanded the executive compensation
restrictions originally imposed on TARP participants. Among other things, these restrictions limit our ability to pay bonuses and other incentive compensation and make severance payments. These restrictions will continue to apply to us for as long
as the preferred stock we issued pursuant to the TARP Capital Purchase Program remains outstanding. These restrictions may negatively affect our ability to compete with financial institutions that are not subject to the same limitations.



|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 September 30, 2009, 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 third quarter of 2009. The terms of the $35 million senior preferred stock transaction with the U.S. Treasury limit our ability to 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.



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

Not applicable



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

Not applicable.



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

(a) Exhibits

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



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

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)
|                 |  |  | 
|November 5, 2009 |  |  |  | By:                               |  | /s/ Maria L. Bouvette
|                 |  |  |  |                                   |  |                       |  | Maria L. Bouvette                                   
|                 |  |  |  |                                   |  |                       |  | President & Chief Executive Officer                 
|                 |  |  | 
|November 5, 2009 |  |  |  | By:                               |  | /s/ David B. Pierce  
|                 |  |  |  |                                   |  |                       |  | David B. Pierce                                     
|                 |  |  |  |                                   |  |                       |  | Chief Financial Officer and Chief Accounting Officer



36