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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 March 31, 2008

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



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

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

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

7,891,957 shares
of Common Stock, no par value, were outstanding at April 30, 2008.









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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 |  | 15  
|          |  |                                                                                      
|ITEM 3.   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 25  
|          |  |                                                                                      
|ITEM 4.   |  | CONTROLS AND PROCEDURES                                                               |  | 25  
|          |  |                                                                                      
|PART II  |  | OTHER INFORMATION                                                                     |  |     
|          |  |                                                                                      
|ITEM 1.   |  | LEGAL PROCEEDINGS                                                                     |  | 26  
|          |  |                                                                                      
|ITEM 1A.  |  | RISK FACTORS                                                                          |  | 26  
|          |  |                                                                                      
|ITEM 2.   |  | UNREGISTERED SALES ON EQUITY SECURITIES AND USE OF PROCEEDS                           |  | 26  
|          |  |                                                                                      
|ITEM 3.   |  | DEFAULTS UPON SENIOR SECURITIES                                                       |  | 26  
|          |  |                                                                                      
|ITEM 4.   |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 26  
|          |  |                                                                                      
|ITEM 5.   |  | OTHER INFORMATION                                                                     |  | 26  
|          |  |                                                                                      
|ITEM 6.   |  | EXHIBITS                                                                              |  | 26  



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PART I  FINANCIAL INFORMATION

Item 1. Financial Statements

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

Unaudited Consolidated Balance Sheets for March 31, 2008 and December 31, 2007

Unaudited Consolidated Statements of Income for the three months ended March 31, 2008 and 2007

Unaudited Consolidated Statement of Changes in Stockholders Equity for the three months ended March 31, 2008

Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007

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)



|                                                                                                                        |  |               |           |                  |   |           |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ---------------- | - | --------- | -
|                                                                                                                        |  | March 31,2008 |           | December 31,2007 |  
|Assets                                                                                                                  |  |               |           |                  |   |           |  
|Cash and due from financial institutions                                                                                |  | $             | 54,776    |                  | $ | 23,608    |  
|Federal funds sold                                                                                                      |  |               | 1,285     |                  |   | 19,379    |  
|                                                                                                                        |  |               |           |                  |   |           |  
|Cash and cash equivalents                                                                                               |  |               | 56,061    |                  |   | 42,987    |  
|Interest-bearing deposits in other financial institutions                                                               |  |               | 600       |                  |   | 600       |  
|Securities available for sale                                                                                           |  |               | 123,560   |                  |   | 128,036   |  
|Loans, net of allowance of $18,067 and $16,342, respectively                                                            |  |               | 1,296,008 |                  |   | 1,201,356 |  
|Premises and equipment                                                                                                  |  |               | 22,413    |                  |   | 21,279    |  
|Goodwill                                                                                                                |  |               | 23,504    |                  |   | 18,174    |  
|Accrued interest receivable and other assets                                                                            |  |               | 42,592    |                  |   | 43,588    |  
|                                                                                                                        |  |               |           |                  |   |           |  
|Total assets                                                                                                            |  | $             | 1,564,738 |                  | $ | 1,456,020 |  
|                                                                                                                        |  |               |           |                  |   |           |  
|                                                                                                                        |  |              
|Liabilities and Stockholders Equity                                                                                    |  |               |           |                  |   |           |  
|Deposits                                                                                                                |  |               |           |                  |   |           |  
|Non-interest bearing                                                                                                    |  | $             | 95,163    |                  | $ | 95,533    |  
|Interest bearing                                                                                                        |  |               | 1,141,688 |                  |   | 1,071,021 |  
|                                                                                                                        |  |               |           |                  |   |           |  
|Total deposits                                                                                                          |  |               | 1,236,851 |                  |   | 1,166,554 |  
|Federal funds purchased and repurchase agreements                                                                       |  |               | 24,706    |                  |   | 11,285    |  
|Federal Home Loan Bank advances                                                                                         |  |               | 146,021   |                  |   | 121,767   |  
|Accrued interest payable and other liabilities                                                                          |  |               | 7,415     |                  |   | 9,125     |  
|Junior subordinated debentures                                                                                          |  |               | 25,000    |                  |   | 25,000    |  
|                                                                                                                        |  |               |           |                  |   |           |  
|Total liabilities                                                                                                       |  |               | 1,439,993 |                  |   | 1,333,731 |  
|Stockholders equity                                                                                                    |  |               |           |                  |   |           |  
|Preferred stock, no par, 1,000,000 shares authorized                                                                    |  |               |          |                  |   |          |  
|Common stock, no par, 10,000,000 shares authorized, 7,863,745 and 7,881,206 shares issued and outstanding, respectively |  |               | 70,446    |                  |   | 70,747    |  
|Additional paid-in capital                                                                                              |  |               | 11,331    |                  |   | 11,270    |  
|Retained earnings                                                                                                       |  |               | 42,293    |                  |   | 40,351    |  
|Accumulated other comprehensive income (loss)                                                                           |  |               | 675       |                  |   | (79       | )
|                                                                                                                        |  |               |           |                  |   |           |  
|Total stockholders' equity                                                                                              |  |               | 124,745   |                  |   | 122,289   |  
|                                                                                                                        |  |               |           |                  |   |           |  
|Total liabilities and stockholders equity                                                                              |  | $             | 1,564,738 |                  | $ | 1,456,020 |  
|                                                                                                                        |  |               |           |                  |   |           |  

See accompanying notes to unaudited consolidated financial statements.



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PORTER BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Income

(dollars in thousands, except per
share data)



|                                                    |  |                             |        |      |   |       
|--------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                                    |  | Three Months EndedMarch 31,
|                                                    |  | 2008                        |        | 2007
|Interest income                                     |  |                             |        |      |   |       
|Loans, including fees                               |  | $                           | 23,792 |      | $ | 18,531
|Taxable securities                                  |  |                             | 1,321  |      |   | 989   
|Tax exempt securities                               |  |                             | 185    |      |   | 166   
|Fed funds sold and other                            |  |                             | 376    |      |   | 368   
|                                                    |  |                             |        |      |   |       
|                                                    |  |                             | 25,674 |      |   | 20,054
|                                                    |  |                             |        |      |   |       
|                                                    |  |                            
|Interest expense                                    |  |                             |        |      |   |       
|Deposits                                            |  |                             | 12,441 |      |   | 9,277 
|Federal Home Loan Bank advances                     |  |                             | 1,323  |      |   | 557   
|Junior subordinated debentures                      |  |                             | 425    |      |   | 471   
|Federal funds purchased and other                   |  |                             | 142    |      |   | 5     
|                                                    |  |                             |        |      |   |       
|                                                    |  |                             | 14,331 |      |   | 10,310
|                                                    |  |                             |        |      |   |       
|Net interest income                                 |  |                             | 11,343 |      |   | 9,744 
|Provision for loan losses                           |  |                             | 650    |      |   | 625   
|                                                    |  |                             |        |      |   |       
|Net interest income after provision for loan losses |  |                             | 10,693 |      |   | 9,119 
|                                                    |  |                            
|Non-interest income                                 |  |                             |        |      |   |       
|Service charges on deposit accounts                 |  |                             | 829    |      |   | 535   
|Income from fiduciary activities                    |  |                             | 253    |      |   |      
|Secondary market brokerage fees                     |  |                             | 115    |      |   | 95    
|Title insurance commissions                         |  |                             | 40     |      |   | 77    
|Net gain on sales of securities                     |  |                             | 94     |      |   |      
|Other                                               |  |                             | 487    |      |   | 463   
|                                                    |  |                             |        |      |   |       
|                                                    |  |                             | 1,818  |      |   | 1,170 
|                                                    |  |                             |        |      |   |       
|                                                    |  |                            
|Non-interest expense                                |  |                             |        |      |   |       
|Salaries and employee benefits                      |  |                             | 3,824  |      |   | 2,935 
|Occupancy and equipment                             |  |                             | 913    |      |   | 565   
|State franchise tax                                 |  |                             | 435    |      |   | 325   
|Professional fees                                   |  |                             | 246    |      |   | 152   
|FDIC Insurance                                      |  |                             | 221    |      |   | 25    
|Communications                                      |  |                             | 161    |      |   | 110   
|Advertising                                         |  |                             | 161    |      |   | 139   
|Other real estate owned expense                     |  |                             | 227    |      |   | 42    
|Other                                               |  |                             | 929    |      |   | 657   
|                                                    |  |                             |        |      |   |       
|                                                    |  |                             | 7,117  |      |   | 4,950 
|                                                    |  |                             |        |      |   |       
|Income before income taxes                          |  |                             | 5,394  |      |   | 5,339 
|Income tax expense                                  |  |                             | 1,797  |      |   | 1,738 
|                                                    |  |                             |        |      |   |       
|Net income                                          |  | $                           | 3,597  |      | $ | 3,601 
|                                                    |  |                             |        |      |   |       
|Basic and diluted earnings per share                |  | $                           | 0.46   |      | $ | 0.47  
|                                                    |  |                             |        |      |   |       

See accompanying notes to unaudited consolidated financial statements.



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PORTER BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statement of Changes in Stockholders Equity

For
Three Months Ended March 31, 2008

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



|                                                                |  |                 |   |  |                          |        |                  |  |   |                                            |  |   |        |   |  |   |     |   |  |   |         |  
|--------------------------------------------------------------- |  | --------------- | - |  | ------------------------ | ------ | ---------------- |  | - | ------------------------------------------ |  | - | ------ | - |  | - | --- | - |  | - | ------- | -
|                                                                |  | Common Stock    |   |  | AdditionalPaid-InCapital |        | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total  |  
|                                                                |  | Numberof Shares |   |  | Amount                   |        |                  |  |   |                                           
|Balances, January 1, 2008                                       |  | 7,881,206       |   |  | $                        | 70,747 |                  |  | $ | 11,270                                     |  | $ | 40,351 |   |  | $ | (79 | ) |  | $ | 122,289 |  
|Shares repurchased                                              |  | (17,371         | ) |  |                          | (301   | )                |  |   |                                           |  |   |       |   |  |   |    |   |  |   | (301    | )
|Forfeited unvested stock                                        |  | (90             | ) |  |                          |       |                  |  |   |                                           |  |   |       |   |  |   |    |   |  |   |        |  
|Stock-based compensation expense                                |  |                |   |  |                          |       |                  |  |   | 61                                         |  |   |       |   |  |   |    |   |  |   | 61      |  
|Comprehensive income:                                           |  |                 |   |  |                          |        |                  |  |   |                                            |  |   |        |   |  |   |     |   |  |   |         |  
|Net income                                                      |  |                |   |  |                          |       |                  |  |   |                                           |  |   | 3,597  |   |  |   |    |   |  |   | 3,597   |  
|Changes in accumulated other comprehensive income, net of taxes |  |                |   |  |                          |       |                  |  |   |                                           |  |   |       |   |  |   | 754 |   |  |   | 754     |  
|                                                                |  |                 |   |  |                          |        |                  |  |   |                                            |  |   |        |   |  |   |     |   |  |   |         |  
|Total comprehensive income                                      |  |                |   |  |                          |       |                  |  |   |                                           |  |   |       |   |  |   |    |   |  |   | 4,351   |  
|                                                                |  |                 |   |  |                          |        |                  |  |   |                                            |  |   |        |   |  |   |     |   |  |   |         |  
|Cash dividends ($0.21 per share)                                |  |                |   |  |                          |       |                  |  |   |                                           |  |   | (1,655 | ) |  |   |    |   |  |   | (1,655  | )
|                                                                |  |                 |   |  |                          |        |                  |  |   |                                            |  |   |        |   |  |   |     |   |  |   |         |  
|Balances, March 31, 2008                                        |  | 7,863,745       |   |  | $                        | 70,446 |                  |  | $ | 11,331                                     |  | $ | 42,293 |   |  | $ | 675 |   |  | $ | 124,745 |  
|                                                                |  |                 |   |  |                          |        |                  |  |   |                                            |  |   |        |   |  |   |     |   |  |   |         |  

See accompanying notes to unaudited consolidated financial statements.



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PORTER BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Cash Flows

For Three Months Ended
March 31, 2008 and 2007

(dollars in thousands)



|                                                                          |  |      |         |   |      |   |         |  
|------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                          |  | 2008 |         |   | 2007 |  
|Cash flows from operating activities                                      |  |      |         |   |      |   |         |  
|Net income                                                                |  | $    | 3,597   |   |      | $ | 3,601   |  
|Adjustments to reconcile net income to net cash from operating activities |  |      |         |   |      |   |         |  
|Depreciation and amortization                                             |  |      | 912     |   |      |   | 569     |  
|Provision for loan losses                                                 |  |      | 650     |   |      |   | 625     |  
|Net (accretion) amortization on securities                                |  |      | (48     | ) |      |   | 22      |  
|Stock-based compensation expense                                          |  |      | 56      |   |      |   | 48      |  
|Net gain on sales of investment securities                                |  |      | (94     | ) |      |   |        |  
|Net loss (gain) on other real estate owned                                |  |      | 96      |   |      |   | (6      | )
|Earnings on bank owned life insurance                                     |  |      | (84     | ) |      |   | (67     | )
|Federal Home Loan Bank stock dividends                                    |  |      | (127    | ) |      |   |        |  
|Net change in accrued interest receivable and other assets                |  |      | 3,484   |   |      |   | 378     |  
|Net change in accrued interest payable and other liabilities              |  |      | (2,242  | ) |      |   | 1,078   |  
|                                                                          |  |      |         |   |      |   |         |  
|Net cash from operating activities                                        |  |      | 6,200   |   |      |   | 6,248   |  
|                                                                          |  |      |         |   |      |   |         |  
|                                                                          |  |     
|Cash flows from investing activities                                      |  |      |         |   |      |   |         |  
|Purchases of available for sale securities                                |  |      | (10,274 | ) |      |   | (7,364  | )
|Sales and calls of available for sale securities                          |  |      | 8,344   |   |      |   | 20      |  
|Maturities and prepayments of available for sale securities               |  |      | 7,708   |   |      |   | 5,078   |  
|Proceeds from sale of other real estate owned                             |  |      | 668     |   |      |   | 43      |  
|Improvements to other real estate owned                                   |  |      | (58     | ) |      |   | (35     | )
|Loan originations and payments, net                                       |  |      | (25,943 | ) |      |   | (73,244 | )
|Purchases of premises and equipment, net                                  |  |      | (894    | ) |      |   | (297    | )
|Redemption of bank owned life insurance                                   |  |      | 2,179   |   |      |   |        |  
|Acquisition of Paramount Bank, net                                        |  |      | (5,215  | ) |      |   |        |  
|                                                                          |  |      |         |   |      |   |         |  
|Net cash from investing activities                                        |  |      | (23,485 | ) |      |   | (75,799 | )
|                                                                          |  |      |         |   |      |   |         |  
|                                                                          |  |     
|Cash flows from financing activities                                      |  |      |         |   |      |   |         |  
|Net change in deposits                                                    |  |      | (5,360  | ) |      |   | 35,623  |  
|Net change in federal funds purchased and repurchase agreements           |  |      | 13,421  |   |      |   | 339     |  
|Repayment of Federal Home Loan Bank advances                              |  |      | (746    | ) |      |   | (555    | )
|Advances from Federal Home Loan Bank                                      |  |      | 25,000  |   |      |   | 30,000  |  
|Repurchase common stock                                                   |  |      | (301    | ) |      |   |        |  
|Cash dividends paid                                                       |  |      | (1,655  | ) |      |   | (1,524  | )
|                                                                          |  |      |         |   |      |   |         |  
|Net cash from financing activities                                        |  |      | 30,359  |   |      |   | 63,883  |  
|                                                                          |  |      |         |   |      |   |         |  
|Net change in cash and cash equivalents                                   |  |      | 13,074  |   |      |   | (5,668  | )
|Beginning cash and cash equivalents                                       |  |      | 42,987  |   |      |   | 56,263  |  
|                                                                          |  |      |         |   |      |   |         |  
|Ending cash and cash equivalents                                          |  | $    | 56,061  |   |      | $ | 50,595  |  
|                                                                          |  |      |         |   |      |   |         |  
|Supplemental cash flow information:                                       |  |      |         |   |      |   |         |  
|Interest paid                                                             |  | $    | 14,808  |   |      | $ | 10,374  |  
|Income taxes paid                                                         |  |      |        |   |      |   |        |  
|Supplemental non-cash disclosure:                                         |  |      |         |   |      |   |         |  
|Transfer from loans to other real estate                                  |  | $    | 3,652   |   |      | $ | 321     |  

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for three months ended March 31, 2008 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, 2007 included in the Companys Annual Report on
Form 10-K.

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

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

New Accounting Standards

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for
fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2,Effective Date of FASB Statement No. 157.This FSP delays the effective date of FAS 157 for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of
adoption was not material. See Note 6.

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

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. The standard provides companies
with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate



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comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The new standard is effective for the
Company on January 1, 2008. The Company did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008.

Note 2  Stock Plans and Stock Based Compensation

At March 31, 2008, the Company has a stock option plan and a stock incentive
plan. On December 31, 2005 the Company assumed the 2000 Stock Option Plan of Ascencia Bank, Inc. when the Company acquired the minority interest of Ascencia Bancorp, Inc. On February 23, 2006, the Company adopted the Porter Bancorp, Inc.
2006 Stock Incentive Plan. With regard to the 2000 Option Plan, no additional grants were made subsequent to 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 March 31, 2008, the Company had granted outstanding options to purchase 192,240 shares under the 2000 option plan and 39,316 shares under
the 2006 plan. The Company also had granted under the 2006 plan 37,780 unvested shares net of forfeitures and vesting. The Company has 322,904 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. Under the terms of the plan, 100,000 shares are reserved for issuance to non-employee directors upon the exercise of stock
options granted under the plan. Options granted are granted automatically under the plan at fair market value on the date of grant, vest over a three-year period and have a five year term. To date, the Company has granted options to purchase 53,000
shares to non-employee directors. At March 31, 2008, 47,000 shares remain available for issue under this plan.

All stock options have an exercise
price that is at least equal to the fair market value of the Companys stock on the date the options were granted. Options granted generally become fully exercisable at the end of 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:



|                       |  |                                  |  |                                      |       |         |         |   |                              |   |      
|---------------------- |  | -------------------------------- |  | ------------------------------------ | ----- | ------- | ------- | - | ---------------------------- | - | -----
|                       |  | Three Months EndedMarch 31, 2008 |  | Twelve Months EndedDecember 31, 2007
|                       |  | Options                          |  | WeightedAverageExercisePrice         |       | Options |         |   | WeightedAverageExercisePrice
|Outstanding, beginning |  | 284,556                          |  | $                                    | 25.00 |         | 251,820 |   |                              | $ | 25.29
|Granted                |  |                                 |  |                                      |      |         | 36,500  |   |                              |   | 23.01
|Forfeited              |  |                                 |  |                                      |      |         | (3,764  | ) |                              |   | 25.50
|                       |  |                                  |  |                                      |       |         |         |   |                              |   |      
|Outstanding, ending    |  | 284,556                          |  | $                                    | 25.00 |         | 284,556 |   |                              | $ | 25.00
|                       |  |                                  |  |                                      |       |         |         |   |                              |   |      



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The following table details stock options outstanding:



|                                                |  |                |        
|----------------------------------------------- |  | -------------- | -------
|                                                |  | March 31, 2008
|Stock options vested and currently exercisable: |  |                | 231,210
|Weighted average exercise price                 |  | $              | 25.33  
|Aggregate intrinsic value                       |  | $              | 0      
|Weighted average remaining life (in years)      |  |                | 2.2    
|Total Options Outstanding:                      |  |                | 284,556
|Aggregate intrinsic value                       |  | $              | 0      
|Weighted average remaining life (in years)      |  |                | 2.6    

The intrinsic value of stock options is calculated based on the exercise price of the underlying awards and the
market price of our common stock as of the reporting date. There were no options exercised during the first three months of 2008. The Company recorded $28,000 of stock option compensation during the three months ended March 31, 2008 to salaries
and employee benefits. Since the stock options are non-qualified stock options, a tax benefit of $10,000 was recognized. No options were modified during either period. As of March 31, 2008, no stock options issued by the Company have been
exercised.

From time-to-time the Company grants unvested shares which vest over time to employees. The shares vest at a rate of 10% on each one-year
anniversary date of the grant date provided the employee is still employed by the Company at that date. The fair value on the date of grant ranged from $22.13 to $25.50 per share. The Company recorded $28,000 of stock-based compensation during the
first quarter of 2008 to salaries and employee benefits. A tax benefit of $10,000 was recognized related to this expense.

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



|                       |  |                                  |   |                                      |                           |       |        |        |   |                           |   |      
|---------------------- |  | -------------------------------- | - | ------------------------------------ | ------------------------- | ----- | ------ | ------ | - | ------------------------- | - | -----
|                       |  | Three Months EndedMarch 31, 2008 |   | Twelve Months EndedDecember 31, 2007
|                       |  | Shares                           |   |                                      | WeightedAverageGrantPrice |       | Shares |        |   | WeightedAverageGrantPrice
|Outstanding, beginning |  | 41,430                           |   |                                      | $                         | 24.90 |        | 40,000 |   |                           | $ | 25.33
|Granted                |  |                                 |   |                                      |                           |      |        | 7,500  |   |                           |   | 23.02
|Vested                 |  | (3,560                           | ) |                                      |                           | 25.50 |        | (3,920 | ) |                           |   | 25.33
|Forfeited              |  | (90                              | ) |                                      |                           | 25.50 |        | (2,150 | ) |                           |   | 25.50
|                       |  |                                  |   |                                      |                           |       |        |        |   |                           |   |      
|Outstanding, ending    |  | 37,780                           |   |                                      | $                         | 24.85 |        | 41,430 |   |                           | $ | 24.90
|                       |  |                                  |   |                                      |                           |       |        |        |   |                           |   |      

Unrecognized stock based compensation expense related to stock options and unvested shares for the remainder of
2008 and beyond is estimated as follows (in thousands):



|                           |  |   |    
|-------------------------- |  | - | ---
|April 2008  December 2008 |  | $ | 169
|2009                       |  |   | 186
|2010                       |  |   | 129
|2011                       |  |   | 112
|2012 & thereafter          |  |   | 497

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:



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|                                   |  |                |         |                      |   |                       |  |   |        |  
|---------------------------------- |  | -------------- | ------- | -------------------- | - | --------------------- |  | - | ------ | -
|                                   |  | Fair Value     |         | GrossUnrealizedGains |   | GrossUnrealizedLosses | 
|                                   |  | (in thousands) |        
|March 31, 2008                     |  |                |         |                      |   |                       |  |   |        |  
|U.S. Government and federal agency |  | $              | 15,868  |                      | $ | 305                   |  | $ | (2     | )
|State and municipal                |  |                | 23,022  |                      |   | 647                   |  |   | (10    | )
|Mortgage-backed                    |  |                | 73,938  |                      |   | 1,251                 |  |   | (259   | )
|Corporate bonds                    |  |                | 6,259   |                      |   | 48                    |  |   | (292   | )
|Other debt securities              |  |                | 704     |                      |   |                      |  |   |       |  
|                                   |  |                |         |                      |   |                       |  |   |        |  
|Total debt securities              |  |                | 119,791 |                      |   | 2,251                 |  |   | (563   | )
|Equity                             |  |                | 3,769   |                      |   | 416                   |  |   | (1,066 | )
|                                   |  |                |         |                      |   |                       |  |   |        |  
|Total                              |  | $              | 123,560 |                      | $ | 2,667                 |  | $ | (1,629 | )
|                                   |  |                |         |                      |   |                       |  |   |        |  
|                                   |  |                |        
|December 31, 2007                  |  |                |         |                      |   |                       |  |   |        |  
|U.S. Government and federal agency |  | $              | 27,331  |                      | $ | 200                   |  | $ | (32    | )
|State and municipal                |  |                | 20,163  |                      |   | 277                   |  |   | (72    | )
|Mortgage-backed                    |  |                | 69,378  |                      |   | 377                   |  |   | (363   | )
|Corporate bonds                    |  |                | 6,422   |                      |   | 34                    |  |   | (120   | )
|Other                              |  |                | 704     |                      |   |                      |  |   |       |  
|                                   |  |                |         |                      |   |                       |  |   |        |  
|Total debt securities              |  |                | 123,998 |                      |   | 888                   |  |   | (587   | )
|Equity                             |  |                | 4,038   |                      |   | 568                   |  |   | (991   | )
|                                   |  |                |         |                      |   |                       |  |   |        |  
|Total                              |  | $              | 128,036 |                      | $ | 1,456                 |  | $ | (1,578 | )
|                                   |  |                |         |                      |   |                       |  |   |        |  

Securities pledged at March 31, 2008 and December 31, 2007 had carrying values of approximately
$74,543,000 and $83,683,000, respectively, and were pledged to secure public deposits, repurchase agreements, and Federal Home Loan Bank advances.

The
Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the
fair value has been less than cost, the financial condition and near-term prospects of the issuer, 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.

As of March 31, 2008, the Company owns 62 equity securities. Of these securities, 18 had an unrealized loss of $700,000 and had been in an unrealized loss position for less than 12 months and 16 had an unrealized loss of $366,000 and
had been in an unrealized loss position for more than 12 months. Management monitors the credit quality and current market pricing for these equity securities monthly. Management has made a practice of selling equity securities where recovery does
not seem likely but does not have the present intent to sell securities with unrealized losses. As of March 31, 2008, management does not believe any equity securities should be classified as other than temporarily impaired.



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Note 4  Loans

Loans were as follows:



|                                |  |                |           |   |                  |   |           |  
|------------------------------- |  | -------------- | --------- | - | ---------------- | - | --------- | -
|                                |  | March 31,2008  |           |   | December 31,2007 |  
|                                |  | (in thousands) |          
|Commercial                      |  | $              | 124,871   |   |                  | $ | 108,619   |  
|Real estate                     |  |                | 1,133,494 |   |                  |   | 1,054,952 |  
|Agriculture                     |  |                | 14,260    |   |                  |   | 14,855    |  
|Consumer                        |  |                | 39,511    |   |                  |   | 38,061    |  
|Other                           |  |                | 1,939     |   |                  |   | 1,211     |  
|                                |  |                |           |   |                  |   |           |  
|Subtotal                        |  |                | 1,314,075 |   |                  |   | 1,217,698 |  
|Less: Allowance for loan losses |  |                | (18,067   | ) |                  |   | (16,342   | )
|                                |  |                |           |   |                  |   |           |  
|Loans, net                      |  | $              | 1,296,008 |   |                  | $ | 1,201,356 |  
|                                |  |                |           |   |                  |   |           |  

Activity in the allowance for loan losses was as follows:



|                             |  |                |        |   |               |   |        |  
|---------------------------- |  | -------------- | ------ | - | ------------- | - | ------ | -
|                             |  | March 31,2008  |        |   | March 31,2007 |  
|                             |  | (in thousands) |       
|Beginning balance            |  | $              | 16,342 |   |               | $ | 12,832 |  
|Acquired in bank acquisition |  |                | 1,420  |   |               |   |       |  
|Provision for loan losses    |  |                | 650    |   |               |   | 625    |  
|Loans charged-off            |  |                | (419   | ) |               |   | (314   | )
|Loan recoveries              |  |                | 74     |   |               |   | 68     |  
|                             |  |                |        |   |               |   |        |  
|Ending balance               |  | $              | 18,067 |   |               | $ | 13,211 |  
|                             |  |                |        |   |               |   |        |  

Impaired loans were as follows:



|                                                  |  |                |       |                  |   |      
|------------------------------------------------- |  | -------------- | ----- | ---------------- | - | -----
|                                                  |  | March 31,2008  |       | December 31,2007
|                                                  |  | (in thousands)
|Loans with no allocated allowance for loan losses |  | $              | 3,175 |                  | $ | 3,239
|Loans with allocated allowance for loan losses    |  |                | 486   |                  |   | 4,167
|                                                  |  |                |       |                  |   |      
|Total                                             |  | $              | 3,661 |                  | $ | 7,406
|                                                  |  |                |       |                  |   |      
|Amount of the allowance for loan losses allocated |  | $              | 31    |                  | $ | 216  

Nonperforming loans were as follows:



|                                                |  |                |       |                  |   |       
|----------------------------------------------- |  | -------------- | ----- | ---------------- | - | ------
|                                                |  | March 31,2008  |       | December 31,2007
|                                                |  | (in thousands)
|Loans past due 90 days or more still on accrual |  | $              | 3,301 |                  | $ | 2,145 
|Non-accrual loans                               |  |                | 6,808 |                  |   | 10,524

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



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Note 5  Advance from the Federal Home Loan Bank

Advances from the Federal Home Loan Bank were as follows:



|                                                                                                                                |  |                |         |                  |   |        
|------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ---------------- | - | -------
|                                                                                                                                |  | March 31,2007  |         | December 31,2007
|                                                                                                                                |  | (in thousands)
|Single maturity advances with fixed rates from 4.15% to 6.38% maturing from 2009 through 2012, averaging 4.74%                  |  | $              | 76,595  |                  | $ | 76,595 
|Single maturity advances with variable rates from 2.80% to 2.93% maturing from 2009 through 2010, averaging 2.87%               |  |                | 50,000  |                  |   | 25,000 
|Monthly amortizing advances with fixed rates from 0.00% to 9.10% and maturities ranging from 2008 through 2035, averaging
3.75% |  |                | 19,426  |                  |   | 20,172 
|                                                                                                                                |  |                |         |                  |   |        
|Total                                                                                                                           |  | $              | 146,021 |                  | $ | 121,767
|                                                                                                                                |  |                |         |                  |   |        

Each advance is payable per terms on agreement, with a prepayment penalty. The advances were collateralized by
first mortgage loans, under a blanket lien arrangement. At March 31, 2008, the Bank had unused borrowing capacity of $66.2 million with the FHLB.

Note 6  Fair Values Measurement

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements (SFAS No. 157). SFAS No. 157 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 and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset and was effective for us during the first quarter of 2008. In February 2008, the
FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2). FSP 157-2 delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except
those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. We have included the disclosures required by SFAS
No. 157 in this document.

SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use various valuation techniques to determine fair value, including
market, income and cost approaches. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS No. 157
describes three levels of inputs that may be used to measure fair value:

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



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

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

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

Securities: The fair values of trading securities and 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.

Impaired Loans:Impaired loans are evaluated at the time the loan is identified as impaired and are recorded at the lower of cost or market 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.

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



|                              |  |               |         |                                                             |   |                                             |  |                                        |         |  |   |  
|----------------------------- |  | ------------- | ------- | ----------------------------------------------------------- | - | ------------------------------------------- |  | -------------------------------------- | ------- |  | - | -
|                              |  |               |         | Fair Value Measurements at March 31, 2008 Using            
|                              |  |               |         | (in thousands)                                             
|Description                   |  | March 31,2008 |         | Quoted Prices InActive Markets forIdentical Assets(Level 1) |   | Significant OtherObservable Inputs(Level 2) |  | SignificantUnobservableInputs(Level 3)
|Available-for-sale securities |  | $             | 123,560 |                                                             | $ | 3,769                                       |  | $                                      | 119,791 |  | $ | 



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##### Table of Contents

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



|               |  |               |     |                                                             |   |                                             |  |                                        |   |  |   |    
|-------------- |  | ------------- | --- | ----------------------------------------------------------- | - | ------------------------------------------- |  | -------------------------------------- | - |  | - | ---
|               |  |               |     | Fair Value Measurements at March 31, 2008 Using            
|               |  |               |     | (in thousands)                                             
|Description    |  | March 31,2008 |     | Quoted Prices InActive Markets forIdentical Assets(Level 1) |   | Significant OtherObservable Inputs(Level 2) |  | SignificantUnobservableInputs(Level 3)
|Impaired loans |  | $             | 455 |                                                             | $ |                                            |  | $                                      |  |  | $ | 455

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent
loans, had a carrying amount of $486,000 and a valuation allowance of $31,000.

Note 7  Business Combinations

On February 1, 2008, the Company completed the acquisition of Paramount Bank in Lexington, Kentucky in a $5 million all cash transaction. Operating results of
Paramount Bank are included in the consolidated financial statements since the date of the acquisition. As a result of this acquisition, we expect to further solidify our market share in the Lexington market, expand our customer base to enhance
deposit fee income, provide an opportunity to market additional products and services to new customers and reduce operating costs through economies of scale.

The acquisition added approximately $73 million in loans and $76 million in deposits. The purchase price resulted in approximately $5.6 million in goodwill, and $1 million in core deposit intangibles. The intangible assets will be amortized
over 5-10 years, using an accelerated method. Goodwill will not be amortized but instead evaluated periodically for impairment. Goodwill and intangible assets will be deducted for tax purposes over 15 years using the straight-line method.

The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the date of acquisition. We are in the process of
obtaining independent third-party valuations of intangible assets, thus, the purchase price allocation is subject to refinement.



|                          |  |                |         |  
|------------------------- |  | -------------- | ------- | -
|                          |  | (in thousands) |        
|Loans, net                |  | $              | 73,420  |  
|Goodwill                  |  |                | 5,613   |  
|Core deposit intangibles  |  |                | 1,000   |  
|Other assets              |  |                | 1,033   |  
|                          |  |                |         |  
|Total assets acquired     |  |                | 81,066  |  
|                          |  |                |         |  
|Deposits                  |  |                | (75,657 | )
|Other liabilities         |  |                | (194    | )
|                          |  |                |         |  
|Total liabilities assumed |  |                | (75,851 | )
|                          |  |                |         |  
|Net assets acquired       |  | $              | 5,215   |  
|                          |  |                |         |  



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Note 8  Earnings per Share

The factors used in the earnings per share computation follow:



|                                                                                |  |                                                |           |      |   |          
|------------------------------------------------------------------------------- |  | ---------------------------------------------- | --------- | ---- | - | ---------
|                                                                                |  | Three Months EndedMarch 31,                   
|                                                                                |  | 2008                                           |           | 2007
|                                                                                |  | (in thousands, exceptshare and per share data)
|Basic                                                                           |  |                                                |           |      |   |          
|Net income                                                                      |  | $                                              | 3,597     |      | $ | 3,601    
|                                                                                |  |                                                |           |      |   |          
|Weighted average voting and convertible non-voting common shares outstanding    |  |                                                | 7,839,365 |      |   | 7,582,819
|                                                                                |  |                                                |           |      |   |          
|Basic earnings per common share                                                 |  | $                                              | 0.46      |      | $ | 0.47     
|                                                                                |  |                                                |           |      |   |          
|                                                                                |  |                                               
|Diluted                                                                         |  |                                                |           |      |   |          
|Net income                                                                      |  | $                                              | 3,597     |      | $ | 3,601    
|                                                                                |  |                                                |           |      |   |          
|Weighted average voting and convertible non-voting common shares outstanding    |  |                                                | 7,839,365 |      |   | 7,582,819
|Add: dilutive effects of assumed exercises of stock options and unvested shares |  |                                                |          |      |   |         
|                                                                                |  |                                                |           |      |   |          
|Average shares and potential common shares                                      |  |                                                | 7,839,365 |      |   | 7,582,819
|                                                                                |  |                                                |           |      |   |          
|Diluted earnings per common share                                               |  | $                                              | 0.46      |      | $ | 0.47     
|                                                                                |  |                                                |           |      |   |          

Unvested share of common stock of 37,780 for 2008 and 33,930 for 2007; and stock options for 284,556 shares of
common stock for 2008 and 251,070 shares of common stock for 2007, were not considered in computing diluted earnings per common share because they were anti-dilutive.

Note 9  Total Comprehensive Income

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



|                                                                        |  |                             |       |   |      |   |     |  
|----------------------------------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | --- | -
|                                                                        |  | Three Months EndedMarch 31, |      
|                                                                        |  | 2008                        |       |   | 2007 |  
|                                                                        |  | (in thousands)              |      
|Unrealized holding gains (losses) on available-for-sale securities      |  | $                           | 1,254 |   |      | $ | 135 |  
|Less: Reclassification adjustment for gains (losses) realized in income |  |                             | 94    |   |      |   |    |  
|                                                                        |  |                             |       |   |      |   |     |  
|Net unrealized gains (losses)                                           |  |                             | 1,160 |   |      |   | 135 |  
|Tax effect                                                              |  |                             | (406  | ) |      |   | (47 | )
|                                                                        |  |                             |       |   |      |   |     |  
|Net-of-tax effect                                                       |  | $                           | 754   |   |      | $ | 88  |  
|                                                                        |  |                             |       |   |      |   |     |  



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

and Results of Operations

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

Cautionary Note Regarding
Forward-Looking Statements

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

Forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations of future results we expressed or implied in any forward-looking statements.
These risks and uncertainties can be difficult to predict and may be out of our control. Factors that could contribute to differences in our results include, but are not limited to the factors listed in Part 2, Item 1A  Risk Factors in
this report and the more detailed risks identified, and the cautionary statements included in our December 31, 2007 Annual Report on Form 10-K.

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

Overview

Porter Bancorp, Inc. (NASDAQ: PBIB) is a Louisville,
Kentucky-based bank holding company which operates 19 full-service banking offices in twelve counties through its wholly-owned subsidiary, PBI Bank. Our markets include metropolitan Louisville in Jefferson County and the surrounding counties of
Henry and Bullitt, and extend south along the Interstate 65 corridor to Tennessee. We serve south central Kentucky and southern Kentucky from banking offices in Cumberland, Butler, Green, Hart, Edmonson, Barren, Warren, Ohio and Daviess Counties. We
also have an office in Lexington Kentucky, the second largest city in Kentucky. The Bank is both a traditional community bank with a wide range of commercial and personal banking products, including wealth management and trust services, and an
innovative online bank which delivers competitive deposit products and services through an online banking division operating under the name of Ascencia.

For the three months ended March 31, 2008, the Company reported net income of $3.6 million. This compares with net income of $3.6 million for the first quarter of 2007. Basic and diluted earnings per share were $0.46 for the three
months ended March 31, 2008, compared with $0.47 for the first quarter of 2007.

Highlights for the quarter ended March 31, 2008 consist of the
following:



| |  |  | Net interest income increased 16.4% to $11.3 million for the three months ended March 31, 2008, compared with the same quarter of 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Net interest margin for the first quarter of 2008 declined to 3.21% compared with 3.92% for the first quarter of 2007. Net interest margin decreased 33 basis points
from our margin of 3.54% in the fourth quarter of 2007. Our spread and margin were adversely impacted during the quarter as the Federal Reserve decreased rates by 200 basis points on top of the effects of a 50 basis points decline during the fourth
quarter of 2007.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loans grew to $1.3 billion compared with $1.2 billion at December 31, 2007 and $927 million at March 31, 2007.
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | Deposits increased to $1.2 billion compared with $1.17 billion at December 31, 2007 and $897 million at March 31, 2007. Core customer non-interest bearing
deposit accounts increased to $95.2 million from $83.1 million at December 31, 2007 and $70 million at March 31, 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Total assets increased to $1.6 billion from $1.5 billion at December 31, 2007 fueled by strong loan growth and the acquisition of Paramount Bank.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We completed the acquisition of Paramount Bank in Lexington, Kentucky in a $5 million all cash transaction on February 1, 2008. The acquisition added
approximately $75 million in assets and $75 million in deposits, of which approximately $15 million are core demand deposits. This acquisition established our physical presence in Lexington, Fayette County, the second largest market in Kentucky.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Non-interest expense for the first quarter increased 43.8% from prior year first quarter. This was due primarily to costs related to the acquisitions of Kentucky
Trust Bank and Paramount Bank, increased salaries and benefits for existing employees, and occupancy and equipment expense to support the six additional offices. Our efficiency ratio was 54.5% for the first quarter of 2008 compared with 45.4% for
the first quarter of 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We repurchased 17,371 common shares of our common stock at an aggregate price of $300,518 under our $3 million stock repurchase plan in the first quarter 2008. The
Company has approximately $2.5 million remaining under the original $3 million authorized by the Board of Directors to purchase additional shares of common stock.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Results of Operations

The following table summarizes components of income and expense and the change in those components for the three
months ended March 31, 2008 compared with the same period of 2007:



|                            |  |                                     |        |                         |   |        |  |   |         |   |  |      |  
|--------------------------- |  | ----------------------------------- | ------ | ----------------------- | - | ------ |  | - | ------- | - |  | ---- | -
|                            |  | For the Three MonthsEnded March 31, |        | Change fromPrior Period |  
|                            |  | 2008                                |        | 2007                    |   | Amount |  |   | Percent |  
|                            |  | (dollars in thousands)              |       
|Gross interest income       |  | $                                   | 25,674 |                         | $ | 20,054 |  | $ | 5,620   |   |  | 28.0 | %
|Gross interest expense      |  |                                     | 14,331 |                         |   | 10,310 |  |   | 4,021   |   |  | 39.0 |  
|Net interest income         |  |                                     | 11,343 |                         |   | 9,744  |  |   | 1,599   |   |  | 16.4 |  
|Provision for credit losses |  |                                     | 650    |                         |   | 625    |  |   | 25      |   |  | 4.0  |  
|Non-interest income         |  |                                     | 1,818  |                         |   | 1,170  |  |   | 648     |   |  | 55.4 |  
|Non-interest expense        |  |                                     | 7,117  |                         |   | 4,950  |  |   | 2,167   |   |  | 43.8 |  
|Net income before taxes     |  |                                     | 5,394  |                         |   | 5,339  |  |   | 55      |   |  | 1.0  |  
|Income tax expense          |  |                                     | 1,797  |                         |   | 1,738  |  |   | 59      |   |  | 3.4  |  
|Net income                  |  |                                     | 3,597  |                         |   | 3,601  |  |   | (4      | ) |  | (0.1 | )



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##### Table of Contents

Net income of $3,597,000 for the three months ended March 31, 2008 decreased $4,000, or (0.1)%, from $3,601,000 for
the comparable period of 2007. This decrease in earnings was primarily attributable to increased non-interest expense. Non-interest expense increased due to costs related to the acquisition of Kentucky Trust Bank and Paramount Bank, increased
salaries and benefits for existing employees and occupancy and equipment expense to support the addition of new offices acquired in 2007. Expenses also increased because FDIC insurance premiums rose significantly due to amendments to the FDICs
risk-based deposit premium assessment system made by the FDIC Reform Act of 2005 that took effect in 2007.

Net Interest Income  Our
net interest income was $11,343,000 for the three months ended March 31, 2008, an increase of $1,599,000, or 16.4%, compared with $9,744,000 for the same period in 2007. Net interest spread and margin were 2.76% and 3.21%, respectively, for the
first quarter of 2008, compared with 3.29% and 3.92%, respectively, for the first quarter of 2007. Net interest margin for the first quarter of 2008 declined to 3.21% compared with 3.92% for the first quarter of 2007. Net interest margin decreased
33 basis points from our margin of 3.54% in the fourth quarter of 2007. Our spread and margin were adversely impacted during the quarter as the Federal Reserve decreased rates by 200 basis points on top of the effects of a 50 basis points decline
during the fourth quarter of 2007. 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. If the interest rate environment stabilizes, we believe that our funding
costs will decrease in the near term as our deposits reprice to match the decline in loan yields. However, future rate cuts would continue to put pressure on our margin since our loans reprice more quickly than our deposits.

Our average interest-earning assets were $1.4 billion for the three months ended March 31, 2008, compared with $1.02 billion for the three months ended
March 31, 2007, a 41.0% increase primarily attributable to loan growth. Average loans were $1.3 billion for the three months ended March 31, 2008, compared with $891.6 million for the three months ended March 31, 2007, a 42.4%
increase. Our total interest income increased by 28.0% to $25.7 million for the three months ended March 31, 2008, compared with $20.1 million for the same period in 2007. The change was due to growth in our loan portfolio and the Kentucky
Trust Bank and Paramount Bank acquisitions.

Our average interest-bearing liabilities also increased, by 46.1%, to $1.3 billion for the three months ended
March 31, 2008, compared with $881.8 million for the three months ended March 31, 2007. Our total interest expense increased by 39.0% to $14.3 million for the three months ended March 31, 2008, compared with $10.3 million during the
same period in 2007, due primarily to an increase in the volume of certificates of deposit. Our average volume of certificates of deposit increased by 36.2% to $904.3 million for the three months ended March 31, 2008, compared with $664.0
million for the three months ended March 31, 2007. The average interest rate paid on certificates of deposits decreased to 4.91% for the three months ended March 31, 2008, compared with 5.00% for the three months ended March 31, 2007.
The decrease in cost of funds was the result of the continued repricing of certificates of deposit at maturity at lower interest rates. The certificate of deposit volume increase reflected organic growth as well as the acquisitions of Kentucky Trust
Bank and Paramount Bank.



17





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Average Balance Sheets

The following table presents the average balance sheets for the three month periods ending March 31, 2008 and 2007, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread
for the related periods.



|                                                  |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|------------------------------------------------- |  | ---------------------------- | --------- | - | ------------------- | - | ----------------- |  | ---- | -------------- |  | - | ------------------- | - | ----------------- | - | ------ |  | ---- | -
|                                                  |  | Three Months Ended March 31, |          
|                                                  |  | 2008                         |           |   | 2007                |   |                   |  |      |                | 
|                                                  |  | AverageBalance               |           |   | InterestEarned/Paid |   | AverageYield/Cost |  |      | AverageBalance |  |   | InterestEarned/Paid |   | AverageYield/Cost |  
|                                                  |  | (dollars in thousands)       |          
|ASSETS                                            |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Interest-earning assets:                          |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Loan receivables (1)(2)                           |  | $                            | 1,269,818 |   |                     | $ | 23,792            |  | 7.54 | %              |  | $ | 891,591             |   |                   | $ | 18,531 |  | 8.43 | %
|Securities                                        |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Taxable                                           |  |                              | 101,046   |   |                     |   | 1,286             |  | 5.12 |                |  |   | 78,839              |   |                   |   | 952    |  | 4.90 |  
|Tax-exempt (3)                                    |  |                              | 18,034    |   |                     |   | 185               |  | 6.35 |                |  |   | 16,071              |   |                   |   | 166    |  | 6.44 |  
|FHLB stock                                        |  |                              | 9,681     |   |                     |   | 126               |  | 5.23 |                |  |   | 8,978               |   |                   |   | 141    |  | 6.37 |  
|Other equity securities                           |  |                              | 4,451     |   |                     |   | 35                |  | 3.16 |                |  |   | 3,428               |   |                   |   | 37     |  | 4.38 |  
|Federal funds sold and other                      |  |                              | 31,014    |   |                     |   | 250               |  | 3.24 |                |  |   | 18,057              |   |                   |   | 227    |  | 5.10 |  
|                                                  |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total interest-earning assets                     |  |                              | 1,434,044 |   |                     |   | 25,674            |  | 7.23 | %              |  |   | 1,016,964           |   |                   |   | 20,054 |  | 8.03 | %
|                                                  |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Less: Allowance for loan losses                   |  |                              | (16,889   | ) |                     |   |                   |  |      |                |  |   | (13,017             | ) |                   |   |        | 
|Non-interest earning assets                       |  |                              | 96,090    |   |                     |   |                   |  |      |                |  |   | 62,947              |   |                   |   |        |  |      |  
|                                                  |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total assets                                      |  | $                            | 1,513,245 |   |                     |   |                   |  |      |                |  | $ | 1,066,894           |   |                   |   |        |  |      |  
|                                                  |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|                                                  |  |                              |           |   |                     |  
|LIABILITIES AND STOCKHOLDERS EQUITY              |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Interest-bearing liabilities:                     |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Certificates of deposit and other time deposits   |  | $                            | 904,274   |   |                     | $ | 11,046            |  | 4.91 | %              |  | $ | 664,007             |   |                   | $ | 8,180  |  | 5.00 | %
|NOW and money market deposits                     |  |                              | 192,133   |   |                     |   | 1,278             |  | 2.68 |                |  |   | 119,637             |   |                   |   | 1,022  |  | 3.46 |  
|Savings accounts                                  |  |                              | 31,683    |   |                     |   | 117               |  | 1.49 |                |  |   | 23,961              |   |                   |   | 75     |  | 1.27 |  
|Federal funds purchased and repurchase agreements |  |                              | 13,457    |   |                     |   | 142               |  | 4.24 |                |  |   | 1,313               |   |                   |   | 5      |  | 1.54 |  
|FHLB advances                                     |  |                              | 121,605   |   |                     |   | 1,323             |  | 4.38 |                |  |   | 47,853              |   |                   |   | 557    |  | 4.72 |  
|Junior subordinated debentures                    |  |                              | 25,000    |   |                     |   | 425               |  | 6.84 |                |  |   | 25,000              |   |                   |   | 471    |  | 7.64 |  
|                                                  |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total interest-bearing liabilities                |  |                              | 1,288,152 |   |                     |   | 14,331            |  | 4.47 | %              |  |   | 881,771             |   |                   |   | 10,310 |  | 4.74 | %
|                                                  |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Non-interest-bearing liabilities:                 |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Non-interest-bearing deposits                     |  |                              | 93,069    |   |                     |   |                   |  |      |                |  |   | 67,963              |   |                   |   |        |  |      |  
|Other liabilities                                 |  |                              | 8,001     |   |                     |   |                   |  |      |                |  |   | 6,925               |   |                   |   |        |  |      |  
|                                                  |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities                                 |  |                              | 1,389,222 |   |                     |   |                   |  |      |                |  |   | 956,659             |   |                   |   |        |  |      |  
|Stockholders equity                              |  |                              | 124,023   |   |                     |   |                   |  |      |                |  |   | 110,235             |   |                   |   |        |  |      |  
|                                                  |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities and stockholders equity        |  | $                            | 1,513,245 |   |                     |   |                   |  |      |                |  | $ | 1,066,894           |   |                   |   |        |  |      |  
|                                                  |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest income                               |  |                              |           |   |                     | $ | 11,343            |  |      |                |  |   |                     |   |                   | $ | 9,744  |  |      |  
|                                                  |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest spread                               |  |                              |           |   |                     |   |                   |  | 2.76 | %              |  |   |                     |   |                   |   |        |  | 3.29 | %
|                                                  |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  
|Net interest margin                               |  |                              |           |   |                     |   |                   |  | 3.21 | %              |  |   |                     |   |                   |   |        |  | 3.92 | %
|                                                  |  |                              |           |   |                     |   |                   |  |      |                |  |   |                     |   |                   |   |        |  |      |  



|(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 March 31,2008 vs. 2007 |       
|                                                   |  | Increase (decrease)due to change in       |        | NetChange |       
|                                                   |  | Rate                                      |        |           | Volume |  
|                                                   |  | (in thousands)                            |       
|Interest-earning assets:                           |  |                                           |        |           |        |   |       |  |   |       |  
|Loan receivables                                   |  | $                                         | (1,972 | )         |        | $ | 7,233 |  | $ | 5,261 |  
|Securities                                         |  |                                           | 56     |           |        |   | 297   |  |   | 353   |  
|FHLB stock                                         |  |                                           | (25    | )         |        |   | 10    |  |   | (15   | )
|Other equity securities                            |  |                                           | (11    | )         |        |   | 9     |  |   | (2    | )
|Federal funds sold and other                       |  |                                           | (101   | )         |        |   | 124   |  |   | 23    |  
|                                                   |  |                                           |        |           |        |   |       |  |   |       |  
|Total increase in interest income                  |  |                                           | (2,053 | )         |        |   | 7,673 |  |   | 5,620 |  
|                                                   |  |                                           |        |           |        |   |       |  |   |       |  
|Interest-bearing liabilities:                      |  |                                           |        |           |        |   |       |  |   |       |  
|Certificates of deposit and other time deposits    |  |                                           | (70    | )         |        |   | 2,936 |  |   | 2,866 |  
|NOW and money market accounts                      |  |                                           | (263   | )         |        |   | 519   |  |   | 256   |  
|Savings accounts                                   |  |                                           | 15     |           |        |   | 27    |  |   | 42    |  
|Federal funds purchased and repurchased agreements |  |                                           | 22     |           |        |   | 115   |  |   | 137   |  
|FHLB advances                                      |  |                                           | (38    | )         |        |   | 804   |  |   | 766   |  
|Junior subordinated debentures                     |  |                                           | (46    | )         |        |   |      |  |   | (46   | )
|                                                   |  |                                           |        |           |        |   |       |  |   |       |  
|Total increase in interest expense                 |  |                                           | (380   | )         |        |   | 4,401 |  |   | 4,021 |  
|                                                   |  |                                           |        |           |        |   |       |  |   |       |  
|Increase (decrease) in net interest income         |  | $                                         | (1,673 | )         |        | $ | 3,272 |  | $ | 1,599 |  
|                                                   |  |                                           |        |           |        |   |       |  |   |       |  



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##### Table of Contents

Non-Interest Income  The following table presents the major categories of non-interest income for the
first quarter ended March 31, 2008 and 2007:



|                                             |  |                             |       |      |   |      
|-------------------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                             |  | Three Months EndedMarch 31,
|                                             |  | 2008                        |       | 2007
|                                             |  | (in thousands)             
|Service charges on deposit accounts          |  | $                           | 829   |      | $ | 535  
|Income from fiduciary activities             |  |                             | 253   |      |   |     
|Secondary market brokerage fees              |  |                             | 115   |      |   | 95   
|Title insurance commissions                  |  |                             | 40    |      |   | 77   
|Gains on sales of investment securities, net |  |                             | 94    |      |   |     
|Other                                        |  |                             | 487   |      |   | 463  
|                                             |  |                             |       |      |   |      
|Total non-interest income                    |  | $                           | 1,818 |      | $ | 1,170
|                                             |  |                             |       |      |   |      

Non-interest income for the first quarter ended March 31, 2008 increased $648,000, or 55.4%, compared with
the first quarter of 2007. The increase in non-interest income for the first quarter ended March 31, 2008 was primarily due to higher service charges on deposit accounts and income from fiduciary activities from the trust operation acquired in
the Kentucky Trust Bank transaction.

Non-interest ExpenseThe following table presents the major categories of non-interest
expense for the first quarter ended March 31, 2008 and 2007:



|                                |  |                             |       |      |   |      
|------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                |  | Three Months EndedMarch 31,
|                                |  | 2008                        |       | 2007
|                                |  | (in thousands)             
|Salary and employee benefits    |  | $                           | 3,824 |      | $ | 2,935
|Occupancy and equipment         |  |                             | 913   |      |   | 565  
|State franchise tax             |  |                             | 435   |      |   | 325  
|FDIC insurance                  |  |                             | 221   |      |   | 25   
|Professional fees               |  |                             | 246   |      |   | 152  
|Other real estate owned expense |  |                             | 227   |      |   | 42   
|Postage and delivery            |  |                             | 175   |      |   | 129  
|Advertising                     |  |                             | 161   |      |   | 139  
|Communications                  |  |                             | 161   |      |   | 110  
|Office supplies                 |  |                             | 157   |      |   | 112  
|Other                           |  |                             | 597   |      |   | 416  
|                                |  |                             |       |      |   |      
|Total non-interest expense      |  | $                           | 7,117 |      | $ | 4,950
|                                |  |                             |       |      |   |      

Non-interest expense for the first quarter ended March 31, 2008 increased $2.2 million, or 43.8%, compared
with the first quarter of 2007. The increase in non-interest expense was primarily attributable to costs related to the acquisitions of Kentucky Trust Bank and Paramount Bank, increased salaries and benefits for existing employees, and occupancy and
equipment expense to support the addition of new offices acquired in 2007. Expenses also increased because FDIC insurance premiums rose significantly due to amendments made by the FDIC to its risk-based deposit premium assessment system taking
effect in 2007. Expenses also increased for other real estate owned from $42,000 in the first quarter of 2007 to $227,000 in the first quarter of 2008 due to higher costs related to foreclosures on non-performing credits, repossessing collateral and
other collection efforts. This increase in non-interest expense primarily caused our efficiency ratio to increase to 54.5% for the 2008 first quarter compared with 45.4% for the first quarter of 2007.

Income Tax ExpenseIncome tax expense was $1.8 million, or 33.3% of pre-tax income, for the first quarter ended March 31, 2008, compared
with $1.7 million or 32.6% of pre-tax income for the first quarter of 2007. The slight increase in effective tax rate is attributable to a modest decline in tax-exempt earning assets as a percentage of total interest earning assets between periods.



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Analysis of Financial Condition

Total assets increased $108.7 million, or 7.5%, to $1.6 billion at March 31, 2008 from $1.5 billion at December 31, 2007. This increase was primarily attributable to an increase of $94.7 million in net loans
from organic growth and the acquisition of Paramount Bank. Total assets at March 31, 2008 increased $445 million from $1.1 billion at March 31, 2007, representing a 39.7% increase.

Loans Receivable Loans receivable increased $96.4 million, or 7.9%, during the three months ended March 31, 2008 to $1.3 billion. Our commercial,
commercial real estate and real estate construction portfolios increased by an aggregate of $58.1 million, or 6.8%, during the three months and comprised 69.1% of the total loan portfolio at March 31, 2008.

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



|              |  |                        |           |         |                        |   |        |   |           |  |        |  
|------------- |  | ---------------------- | --------- | ------- | ---------------------- | - | ------ | - | --------- |  | ------ | -
|              |  | As of March 31,2008    |           |         | As of December 31,2007 |  
|              |  | Amount                 |           | Percent |                        |   | Amount |   | Percent   | 
|              |  | (dollars in thousands) |          
|Type of Loan: |  |                        |           |         |                        |   |        |   |           |  |        |  
|Real estate:  |  |                        |           |         |                        |   |        |   |           |  |        |  
|Commercial    |  | $                      | 435,102   |         | 33.11                  | % |        | $ | 422,405   |  | 34.69  | %
|Construction  |  |                        | 347,591   |         | 26.45                  |   |        |   | 318,462   |  | 26.15  |  
|Residential   |  |                        | 317,996   |         | 24.20                  |   |        |   | 288,703   |  | 23.71  |  
|Home equity   |  |                        | 32,805    |         | 2.50                   |   |        |   | 25,382    |  | 2.08   |  
|Commercial    |  |                        | 124,871   |         | 9.50                   |   |        |   | 108,619   |  | 8.92   |  
|Consumer      |  |                        | 39,511    |         | 3.01                   |   |        |   | 38,061    |  | 3.13   |  
|Agriculture   |  |                        | 14,260    |         | 1.08                   |   |        |   | 14,855    |  | 1.22   |  
|Other         |  |                        | 1,939     |         | 0.15                   |   |        |   | 1,211     |  | 0.10   |  
|              |  |                        |           |         |                        |   |        |   |           |  |        |  
|Total loans   |  | $                      | 1,314,075 |         | 100.00                 | % |        | $ | 1,217,698 |  | 100.00 | %
|              |  |                        |           |         |                        |   |        |   |           |  |        |  

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

The following table sets forth information with respect to non-performing assets as of March 31, 2008 and December 31, 2007.



|                                                |  |                        |        |   |                  |   |        |  
|----------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                                |  | March 31,2008          |        |   | December 31,2007 |  
|                                                |  | (dollars in thousands) |       
|Loans past due 90 days or more still on accrual |  | $                      | 3,301  |   |                  | $ | 2,145  |  
|Non-accrual loans                               |  |                        | 6,808  |   |                  |   | 10,524 |  
|                                                |  |                        |        |   |                  |   |        |  
|Total non-performing loans                      |  |                        | 10,109 |   |                  |   | 12,669 |  
|Real estate acquired through foreclosure        |  |                        | 7,140  |   |                  |   | 4,309  |  
|Other repossessed assets                        |  |                        | 32     |   |                  |   | 30     |  
|                                                |  |                        |        |   |                  |   |        |  
|Total non-performing assets                     |  | $                      | 17,281 |   |                  | $ | 17,008 |  
|                                                |  |                        |        |   |                  |   |        |  
|Non-performing loans to total loans             |  |                        | 0.77   | % |                  |   | 1.04   | %
|                                                |  |                        |        |   |                  |   |        |  
|Non-performing assets to total assets           |  |                        | 1.10   | % |                  |   | 1.17   | %
|                                                |  |                        |        |   |                  |   |        |  



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Nonperforming loans at March 31, 2008 were $10.1 million, or 0.77% of total loans, compared with $8.3 million, or
0.89% of total loans, at March 31, 2007, and $12.7 million, or 1.04% of total loans at December 31, 2007. The decrease of $2.6 million in non-performing loans from December 31, 2007 to March 31, 2008 is primarily attributable to
our collection efforts via foreclosure and collateral repossession as well as the restoration of a commercial real estate relationship to performing status after restructuring.

Foreclosed properties at March 31, 2008 were $7.1 million compared with $2.7 million at March 31, 2007 and $4.3 million at December 31, 2007. The increase in foreclosed properties from year-end 2007
reflects the normal progression of troubled loans through workout, collateral repossession and ultimate disposition. We value foreclosed properties at fair value less costs to sell when acquired and expect to liquidate these properties to recover
our investment in the due course of business.

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

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

Our loan loss reserve as a percentage of total loans at March 31, 2008 decreased to 1.37% from 1.43% at March 31, 2007 and
increased from 1.34% at December 31, 2007. Provision for loan losses increased $25,000 to $650,000 for the first quarter of 2008 compared with the first quarter of 2007 and decreased $550,000 compared with the fourth quarter of 2007. Net loan
charge-offs for the first quarter of 2008 were $345,000, or 0.03% of total loans, compared with $246,000, or 0.03%, for the first quarter of 2007, and $983,000, or 0.08%, for the fourth quarter of 2007.

An analysis of changes in allowance for loan losses and selected ratios for the three month periods ended March 31, 2008 and 2007 follows:



|                                                  |  |                             |        |   |      |   |        |  
|------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                  |  | Three Months EndedMarch 31, |       
|                                                  |  | 2008                        |        |   | 2007 |  
|                                                  |  | (dollars in thousands)      |       
|Balance at beginning of period                    |  | $                           | 16,342 |   |      | $ | 12,832 |  
|Acquired in bank acquisition                      |  |                             | 1,420  |   |      |   |       |  
|Provision for loan losses                         |  |                             | 650    |   |      |   | 625    |  
|Recoveries                                        |  |                             | 74     |   |      |   | 68     |  
|Charge-offs                                       |  |                             | (419   | ) |      |   | (314   | )
|                                                  |  |                             |        |   |      |   |        |  
|Balance at end of period                          |  | $                           | 18,067 |   |      | $ | 13,211 |  
|                                                  |  |                             |        |   |      |   |        |  
|Allowance for loan losses to period-end loans     |  |                             | 1.37   | % |      |   | 1.43   | %
|                                                  |  |                             |        |   |      |   |        |  
|Net charge-offs to average loans                  |  |                             | 0.03   | % |      |   | 0.03   | %
|                                                  |  |                             |        |   |      |   |        |  
|Allowance for loan losses to non-performing loans |  |                             | 178.72 | % |      |   | 159.90 | %
|                                                  |  |                             |        |   |      |   |        |  



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Liabilities Total liabilities at March 31, 2008 were $1.4 billion compared with $1.3 billion at
December 31, 2007, an increase of $106.3 million, or 8.0 %. The increase was primarily attributable to an increase in deposits of $70.3 million, or 6.0%, at March 31, 2008 to $1.24 billion from $1.17 billion at December 31, 2007
primarily due to the acquisition of Paramount Bank.

Federal Home Loan Bank advances also increased $24.3 million, or 19.9%, to $146.0 million from $121.8
million at December 31, 2007. These advances are used from time to time to fund asset growth and manage interest rate risk in accordance with our asset/liability management strategies.

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



|                        |  |                                         |           |             |                                    |   |                |   |             |  |      |  
|----------------------- |  | --------------------------------------- | --------- | ----------- | ---------------------------------- | - | -------------- | - | ----------- |  | ---- | -
|                        |  | For the Three MonthsEnded March 31,2008 |           |             | For the YearEnded December 31,2007 |  
|                        |  | AverageBalance                          |           | AverageRate |                                    |   | AverageBalance |   | AverageRate | 
|                        |  | (dollars in thousands)                  |          
|Demand                  |  | $                                       | 93,069    |             |                                   |   |                | $ | 73,183      |  |     |  
|Interest checking       |  |                                         | 98,182    |             | 2.18                               | % |                |   | 60,600      |  | 2.05 | %
|Money market            |  |                                         | 93,951    |             | 3.19                               | % |                |   | 97,045      |  | 4.69 | %
|Savings                 |  |                                         | 31,683    |             | 1.49                               | % |                |   | 25,766      |  | 1.44 | %
|Certificates of deposit |  |                                         | 904,274   |             | 4.91                               | % |                |   | 740,693     |  | 5.09 | %
|                        |  |                                         |           |             |                                    |   |                |   |             |  |      |  
|Total deposits          |  | $                                       | 1,221,159 |             | 4.10                               | % |                | $ | 997,287     |  | 4.40 | %
|                        |  |                                         |           |             |                                    |   |                |   |             |  |      |  

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



|                   |  |                                          |         |             |                                     |   |                |   |             |  |      |  
|------------------ |  | ---------------------------------------- | ------- | ----------- | ----------------------------------- | - | -------------- | - | ----------- |  | ---- | -
|                   |  | For the Three MonthsEnded March 31, 2008 |         |             | For the Year Ended December 31,2007 |  
|                   |  | AverageBalance                           |         | AverageRate |                                     |   | AverageBalance |   | AverageRate | 
|                   |  | (dollars in thousands)                   |        
|Less than $100,000 |  | $                                        | 614,309 |             | 4.86                                | % |                | $ | 529,114     |  | 5.04 | %
|$100,000 or more   |  |                                          | 289,965 |             | 5.03                                | % |                |   | 211,579     |  | 5.22 | %
|                   |  |                                          |         |             |                                     |   |                |   |             |  |      |  
|Total              |  | $                                        | 904,274 |             | 4.91                                | % |                | $ | 740,693     |  | 5.09 | %
|                   |  |                                          |         |             |                                     |   |                |   |             |  |      |  



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The following table shows at March 31, 2008 and December 31, 2007 the amount of our time deposits of $100,000
or more by time remaining until maturity:



|                                 |  |                    |         |                       |   |        
|-------------------------------- |  | ------------------ | ------- | --------------------- | - | -------
|Maturity Period                  |  | As ofMarch 31,2008 |         | As ofDecember 31,2007
|                                 |  | (in thousands)    
|Three months or less             |  | $                  | 85,819  |                       | $ | 95,315 
|Three months through six months  |  |                    | 68,482  |                       |   | 73,012 
|Six months through twelve months |  |                    | 120,106 |                       |   | 66,536 
|Over twelve months               |  |                    | 55,285  |                       |   | 44,871 
|                                 |  |                    |         |                       |   |        
|Total                            |  | $                  | 329,692 |                       | $ | 279,734
|                                 |  |                    |         |                       |   |        

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 2007 and the first three
months of 2008, PBI Bank utilized brokered and wholesale deposits to supplement its funding strategy. At March 31, 2008, these deposits totaled $27.5 million. PBI Bank also secured federal funds borrowing lines from major correspondent banks
totaling $22.3 million on an unsecured basis and an additional $25 million on a secured basis.

Traditionally, PBI Bank has utilized borrowings from the
FHLB to supplement our funding requirements. At March 31, 2008, the Bank had an unused borrowing capacity with the FHLB of $66.2 million. Management believes our sources of liquidity are adequate to meet expected cash needs for the foreseeable
future.

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

Capital

Stockholders equity increased $2.5 million to $124.7 million at March 31, 2008 compared with $122.3 million at December 31, 2007. The
increase was due to net income earned during the 2008 first quarter reduced by dividends declared. The Company qualified as well capitalized under regulatory guidelines at March 31, 2008. PBI Bank qualified as adequately capitalized.

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



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##### Table of Contents

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



|                         |  |                    |   |  |                          |   |  |                |   |  |                   |   |  |               |   |  |         |  
|------------------------ |  | ------------------ | - |  | ------------------------ | - |  | -------------- | - |  | ----------------- | - |  | ------------- | - |  | ------- | -
|                         |  |                    |   |  |                          |   |  | March 31, 2008 |   |  | December 31, 2007 |  
|                         |  | RegulatoryMinimums |   |  | Well-CapitalizedMinimums |   |  | PorterBancorp  |   |  | PBIBank           |   |  | PorterBancorp |   |  | PBIBank |  
|Tier I capital           |  | 4.0                | % |  | 6.0                      | % |  | 9.35           | % |  | 8.51              | % |  | 10.39         | % |  | 9.30    | %
|Total risk-based capital |  | 8.0                |   |  | 10.0                     |   |  | 10.60          |   |  | 9.76              |   |  | 11.64         |   |  | 10.55   |  
|Tier I leverage ratio    |  | 4.0                |   |  | 5.0                      |   |  | 8.14           |   |  | 7.42              |   |  | 9.07          |   |  | 8.11    |  

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Companys interest sensitivity profile was
asset sensitive at March 31, 2008, and December 31, 2007. Given an instantaneous 100 basis point decrease in rates that was sustained for 12 months, base net interest income would decrease by an estimated 6.1% at March 31, 2008
compared with a decrease of 5.4% at December 31, 2007. Given a 100 basis point increase in interest rates, base net interest income would increase by an estimated 4.7% at March 31, 2008, compared with an increase of 5.3% at
December 31, 2007 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 March 31, 2008, as calculated using the static shock model approach:



|                   |  |                                     |        |   |                   |        |  
|------------------ |  | ----------------------------------- | ------ | - | ----------------- | ------ | -
|                   |  | Change in FutureNet Interest Income |       
|                   |  | Dollar Change                       |        |   | Percentage Change |       
|                   |  | (dollars in thousands)              |       
|+ 200 basis points |  | $                                   | 4,958  |   |                   | 9.92   | %
|+ 100 basis points |  |                                     | 2,326  |   |                   | 4.65   |  
|- 100 basis points |  |                                     | (3,068 | ) |                   | (6.14  | )
|- 200 basis points |  |                                     | (7,433 | ) |                   | (14.88 | )

Item 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q for the
quarter ended March 31, 2008, 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, 2007 under Item 1A  Risk Factors. There have been no material changes from the risk factors previously discussed in our Form 10-K.



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

Purchases of Equity Securities by Issuer

In December 2006, the Companys Board of Directors approved the repurchase of shares of
Porter Bancorps common stock in an amount not to exceed $3 million, exclusive of any fees or commissions. 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. As of March 31, 2008, Porter Bancorp had approximately $2.5 million remaining to purchase shares under the current stock repurchase program.

The following table shows details of Porter Bancorps common stock purchases during the first quarter of 2008.



|                 |  |                                |  |                             |       |                                                                             |        |                                                                                           |   |          
|---------------- |  | ------------------------------ |  | --------------------------- | ----- | --------------------------------------------------------------------------- | ------ | ----------------------------------------------------------------------------------------- | - | ---------
|Period           |  | Total Number ofSharesPurchased |  | Average PricePaid per Share |       | Total Number ofSharesPurchasedas Part of PubliclyAnnounced Plans orPrograms |        | MaximumApproximate DollarValue of Sharesthat May Yet BePurchasedUnder the Plan orPrograms
|Jan. 1 - Jan. 31 |  |                               |  | $                           |      |                                                                             |       |                                                                                           | $ | 2,808,000
|Feb. 1- Feb. 29  |  |                               |  |                             |      |                                                                             |       |                                                                                           |   | 2,808,000
|Mar. 1 - Mar. 31 |  | 17,371                         |  |                             | 17.30 |                                                                             | 27,371 |                                                                                           |   | 2,507,000
|                 |  |                                |  |                             |       |                                                                             |        |                                                                                           |   |          
|Total            |  | 17,371                         |  | $                           | 17.30 |                                                                             | 27,371 |                                                                                           | $ | 2,507,000



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

Not applicable.



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

Not
applicable.



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

Not applicable.



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



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



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##### Table of Contents

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



|              |  |                                                                                                                                                       
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                
|10.1          |  | Form of Porter Bancorp, Inc. Five Year Restricted Stock Award Agreement                                                                               
|              | 
|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)        
|             |  |  | 
|May 13, 2008 |  |  |  | By:                  |  | /s/ Maria L. Bouvette                               
|             |  |  |  |                      |  | Maria L. Bouvette                                   
|             |  |  |  |                      |  | President & Chief Executive Officer                 
|             |  |  | 
|May 13, 2008 |  |  |  | By:                  |  | /s/ David B. Pierce                                 
|             |  |  |  |                      |  | David B. Pierce                                     
|             |  |  |  |                      |  | Chief Financial Officer and Chief Accounting Officer



27