Edgar Filing: Porter Bancorp, Inc.

Definitive Notice of Annual Meeting & Proxy Statement

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

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Porter Bancorp, Inc.

(Name of Registrant as Specified In Its Charter)

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LOGO

To our shareholders:

You are cordially invited to attend the 2010 annual meeting of shareholders of Porter Bancorp, Inc. The meeting will be held on Thursday, May 20, 2010, at 9:00 a.m. EDT in the Conference Center on the second floor of our main office located at 2500 Eastpoint Parkway, Louisville, Kentucky 40223.

The enclosed Notice and Proxy Statement contain information about the matters to be voted on at the annual meeting.

We hope you can attend the annual meeting. Whether or not you plan to attend, please complete, sign and return the enclosed proxy card in the envelope provided to ensure your shares are represented and voted at the annual meeting.

We appreciate your interest and investment in Porter Bancorp and look forward to seeing you at the annual meeting.

By order of the Board of Directors,

LOGO

Maria L. Bouvette

President and CEO

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

OF PORTER BANCORP, INC.

THURSDAY, MAY 20, 2010

To our shareholders:

Notice is hereby given that the annual meeting of shareholders of Porter Bancorp, Inc. will be held on Thursday, May 20, 2010, at 9:00 a.m. EDT in the Conference Center on the second floor of our main office located at 2500 Eastpoint Parkway, Louisville, Kentucky 40223, to consider and act upon the following matters:

Election of six nominees as directors;

Proposal to approve, in a non-binding advisory vote, the compensation of the company’s executives as disclosed in the accompanying proxy statement; and

Such other business as may properly come before the meeting.

The close of business on April 8, 2010 is the record date for determining the shareholders entitled to notice of, and to vote at, the Annual Meeting of Shareholders.

Whether or not you plan to attend the meeting, please sign, date and promptly return the enclosed proxy. If for any reason you desire to revoke your proxy, you may do so at any time before the voting as described in the accompanying proxy statement.

By order of the Board of Directors,

LOGO

Maria L. Bouvette

President and CEO

April 21, 2010

2010 ANNUAL MEETING OF SHAREHOLDERS

NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

QUESTIONS AND ANSWERS

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 20, 2010:

The proxy statement, annual report on Form 10-K, and shareholder letter are available at www.pbibank.com under “Investor Relations.”

Why am I receiving these materials?

We are sending this Proxy Statement and the accompanying proxy card to our shareholders of record beginning on or about April 21, 2010. These materials are for use at the 2010 Annual Meeting of Porter Bancorp Shareholders which will be held on May 20, 2010, at 9:00 a.m. EDT in the Conference Center on the second floor of our main office located at 2500 Eastpoint Parkway, Louisville, Kentucky 40223. Our Board of Directors is soliciting proxies to give all shareholders of record an opportunity to vote on matters to be presented at the Annual Meeting. In the following pages of this Proxy Statement, you will find information on matters to be voted upon at the Annual Meeting of Shareholders or any adjournment of that meeting.

Who Can Vote?

You are entitled to vote if you were a shareholder of record of Porter Bancorp stock as of the close of business on April 8, 2010. Your shares can be voted at the meeting only if you are present in person or represented by a valid proxy.

What constitutes a quorum and how many shares are outstanding?

A majority of the votes entitled to be cast by the holders of the outstanding shares of Porter Bancorp stock must be present, either in person or represented by proxy, in order to conduct the Annual Meeting of Porter Bancorp Shareholders. On April 8, 2010, there were 8,822,999 shares of Porter Bancorp stock outstanding.

Who is entitled to vote?

Holders of Porter Bancorp stock are entitled to one vote on each matter submitted to a vote of shareholders for each share of Porter Bancorp stock owned on April 8, 2010. All shares entitled to vote and represented in person or by properly completed proxies received before the polls are closed at the Annual Meeting, and not revoked or superseded, will be voted in accordance with instructions indicated on those proxies.

What am I voting on?

You are voting on the election of six directors and the non-binding approval of our executive compensation program. Our board recommends that you vote your shares “FOR” each of the nominees for director and “FOR” the approval of our executive compensation. We are not aware of any other business to be acted upon at the annual meeting.

How many votes are required for approval?

Directors are elected by a plurality of the votes cast, which means the six nominees who receive the largest number of properly executed votes will be elected as directors. Cumulative voting is not permitted. Shares that are represented by proxies marked “withhold authority” for the election of one or more director nominees will not be counted in determining the number of votes cast for those persons. The remaining matters to be considered at the meeting will be approved if the number of votes cast in favor of the matter is greater than the number opposing it. Abstentions and broker non-votes will be counted as present for purposes of determining whether a quorum exists, but will have no effect on the outcome of any matter.

How do I vote?

You may vote by proxy or in person at the meeting. To vote by proxy, simply mark your proxy card, date and sign it and return it in the postage-paid envelope provided. The Board has designated two individuals to vote the shares represented by proxies solicited by the Board at the Annual Meeting. If you properly submit a proxy but do not specify how you want your shares to be voted, your shares will be voted by the designated proxies “FOR” the election of all of the director nominees and “FOR” the approval of our executive compensation. The designated proxies will vote in their discretion on any other matter that may properly come before the meeting. At the date the Proxy Statement went to press, we did not anticipate that any other matters would be raised at the Annual Meeting.

If you wish to vote in person at the meeting and you hold your shares through a broker, bank or other institution, you are considered a “street name” shareholder and you must obtain a “legal proxy” from your broker or bank in order to vote in person at the meeting. Please contact the institution holding your shares for information on how to obtain a legal proxy.

How can I revoke my proxy?

If you vote by proxy, you may revoke that proxy at any time before it is voted at the meeting. You may do this by (a) signing another proxy card with a later date and returning it to us before the meeting or (b) attending the meeting in person and casting a ballot.

How may I obtain Porter Bancorp’s 10-K and other financial information?

A copy of our 2009 Annual Report on Form 10-K, is enclosed. Shareholders and prospective investors may request a free copy of our 2009 Annual Report on Form 10-K by writing to:

C. Bradford Harris

Corporate General Counsel

Porter Bancorp, Inc.

2500 Eastpoint Parkway

Louisville, Kentucky 40223

502-499-4800

The Form 10-K is also available at www.pbibank.com. Click on “Investor Relations” and “SEC Filings.”

Who can help answer my questions?

If you have questions or would like to receive additional copies of this proxy statement or voting materials, please contact C. Bradford Harris, Corporate General Counsel, as described above.

PROPOSAL NO. 1 – ELECTION OF DIRECTORS

Our Board of Directors is comprised of six directors who serve for a one-year term and until their successors are elected and qualified. Our articles of incorporation and bylaws provide for a board of directors consisting of not less than two nor more than 15 members, with the actual number of directors to be set by the board of directors. The number of directors is currently fixed at six. The Nominating and Corporate Governance Committee and the Board of Directors has nominated the following individuals for election as directors: J. Chester Porter, Maria L. Bouvette, David L. Hawkins, W. Glenn Hogan, Sidney L. Monroe and Stephen A. Williams. Each of the nominees is a current member of the Board of Directors. None of the nominees currently serves as a director of any other public or registered investment company, nor have they held any such directorship during the past five years except as indicated below.

Neither the Nominating and Corporate Governance Committee nor the Board of Directors has reason to believe that any nominee for director is unwilling or unable to serve following election. However, if that were to occur, the holders of the proxies solicited hereby will vote for such substitute nominees as the Nominating and Corporate Governance Committee or the Board of Directors may recommend.

The following table provides biographical information for each nominee and our other executive officers:


Nominee	Age	Principal Occupation and Other Information	Director Since

J. Chester Porter	69	Mr. Porter is our chairman of the board and general counsel. He also serves as a director of two affiliated banks. Mr. Porter brings us 27 years of experience in the banking industry. Through his 23 years of service to our company, Mr. Porter has developed a deep institutional knowledge and perspective regarding our strengths, challenges and opportunities. Mr. Porter also brings legal skills as a practicing attorney for over 30 years. Mr. Porter is also active in civic and community activities and contributes to Porter Bancorp his experience as the Chairman of the University of Louisville Foundation board and the past Chairman of the University of Louisville board of trustees. He has also served on Campbellsville University’s board of trustees and executive committee since 1985. Mr. Porter serves on our nominating and corporate governance committee.	1988

Maria L. Bouvette	53	Ms. Bouvette is our president and chief executive officer. She also serves as chief financial officer and a director of two affiliated banks. Ms. Bouvette is a CPA and brings us 27 years of experience in the banking industry. Ms. Bouvette has skills and extensive experience with management, public accounting and finance. Though her 23 years of service to our company, Ms. Bouvette has also developed a deep institutional knowledge and perspective regarding our strengths, challenges and opportunities. Ms. Bouvette is a member of the board of trustees of Norton Healthcare, a not-for-profit integrated healthcare delivery organization. Before joining Porter, Ms. Bouvette served as a manager of Deloitte Haskins & Sells (now Deloitte & Touche).	1988

David L. Hawkins	54	Mr. Hawkins is a CPA, farmer and private investor. Mr. Hawkins has extensive financial industry experience, and brings both financial services and corporate governance perspective to Porter Bancorp as the former president and chief executive officer of Pioneer Bank, Canmer, Kentucky (which merged with us in 1994). Mr. Hawkins has served as a director of PBI Bank or one of its predecessors since 1994. Mr. Hawkins also brings to us experience and skills in public accounting as a certified public accountant. Before becoming president and chief executive officer of Pioneer Bank, Mr. Hawkins was a partner in Taylor, Polson, Woosley and Hawkins, a public accounting firm in Glasgow, Kentucky. Mr. Hawkins serves as the chairman of our audit committee and is a member of our nominating and corporate governance committee.	2006


Nominee	Age	Principal Occupation and Other Information	Director Since

W. Glenn Hogan	48	Mr. Hogan is founder, president and chief executive officer of Hogan Real Estate, a full service commercial real estate development company headquartered in Louisville, Kentucky. Hogan Real Estate provides real estate services for retailers, institutional and private property owners and investors. Mr. Hogan has over twenty years of real estate development experience and has developed over five million square feet of retail space in the Midwest and Southeast. Mr. Hogan is a certified commercial investment member and is past president of the Kentucky State CCIM Chapter. Mr. Hogan brings executive decision making and risk assessment skills as a result of his experience in the commercial real estate industry. Mr. Hogan’s experience in real estate development is especially important as we manage through the current downturn. Mr. Hogan also brings to us experience and skills in the banking industry and governance perspective and experience from his previous service on the Board of Directors of another community bank based in Louisville. Mr. Hogan served as a director of US Wireless Online, Inc. from August 2005 until May 2006. Mr. Hogan serves as chairman of our executive compensation committee and as chairman of our nominating and corporate governance committee.	2006

Sidney L. Monroe	69	Mr. Monroe brings to us skills in public accounting and extensive experience in the banking industry as a retired certified public accountant. From 1990 to 2001, Mr. Monroe was a partner in Kent, Gay and Monroe, an audit and consulting services firm that primarily advised small and medium-sized businesses. Before 1990, he held numerous positions during a 20 year career at Deloitte Haskins & Sells (now Deloitte & Touche), including partner in charge of several offices, including the Louisville office. While at Deloitte, Mr. Monroe was designated as a specialist in the financial institutions field. Mr. Monroe serves as a member of our audit committee.	2006

Stephen A. Williams	59	Mr. Williams brings executive decision making skills and business acumen to us from his service as the president and chief executive officer of Norton Healthcare, a not-for-profit integrated healthcare delivery organization that is the largest healthcare provider and third largest employer in Louisville, Kentucky. Norton Healthcare owns and operates five hospitals, 14 outpatient centers and 350 employed medical providers at some 50 locations. Norton Healthcare has approximately $1.5 billion in assets and over 10,000 employees, including 2,000 physicians. Additionally, as the president and CEO of Norton Healthcare, Mr. Williams has over 38 years of experience overseeing the preparation of financial statements and the review of accounting matters. Mr. Williams serves as a member of our audit and executive compensation committees and as the lead independent director.	2006


Nominee	Age	Principal Occupation and Other Information

Other Executive Officers
David B. Pierce	50	Mr. Pierce is our chief financial officer and the chief risk officer of PBI Bank. From 1984 to 1989, Mr. Pierce served as a manager at Coopers & Lybrand (now PricewaterhouseCoopers) where he was responsible for audits of public and private entities including financial institutions. Before 1984, Mr. Pierce was a senior accountant at Deloitte Haskins & Sells (now Deloitte & Touche). He is a certified public accountant and has over 20 years of banking and management experience. Mr. Pierce also serves as a director of PBI Bank.

C. Bradford Harris	39	Mr. Harris is our executive vice president and corporate general counsel. He joined Porter Bancorp as corporate general counsel in October 2006. Prior to joining Porter Bancorp, Mr. Harris was a member of Frost Brown Todd LLC, where he specialized in banking, securities, mergers and acquisitions and general corporate law. Mr. Harris has over 10 years of banking experience.

The Board recommends that you vote “FOR” the election of the six nominees.

CORPORATE GOVERNANCE

Corporate Governance Principles

Our board of directors has adopted corporate governance principles that address the role and composition of our board of directors and the functions of our board and the board’s committees. We regularly review and may revise our corporate governance principles from time to time in response to changing regulatory requirements, evolving best practices and concerns expressed by our shareholders and other constituents. Our corporate governance principles are available on our website at www.pbibank.com under “Investor Relations” and “Corporate Governance.”

Controlled Company Status and Director Independence

We are a “controlled company” within the meaning of the NASDAQ corporate governance rules by virtue of the voting control of Mr. Porter and Ms. Bouvette, who together own more than 50% of our sole class of voting stock. A “controlled company” may elect not to comply with the following NASDAQ corporate governance rules:

•

A majority of its board of directors must consist of “independent directors,” as defined by the NASDAQ rules;

•

Decisions regarding the compensation paid to executive officers must be made either by a compensation committee composed entirely of independent directors or by a majority of the independent directors; and

•

Nominations for election to the board of directors must be made either by a nominating and corporate governance committee composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities or by a majority of the independent directors.

We rely on our controlled company status to have Mr. Porter serve on our nominating and corporate governance committee. The “controlled company” exception does not modify requirements under the Securities Exchange Act of 1934, SEC rules and the NASDAQ corporate governance rules that we have an audit committee comprised of at least three directors, all of whom must be independent as defined by the Exchange Act and the SEC and NASDAQ rules. We anticipate that in the future, at least one member of our audit committee will always qualify as an audit committee financial expert.

Our principles provide that it is our policy that a majority of the members of the Board be independent from management. For this purpose, the Board has adopted Director Independence Standards that meet the listing standards of the NASDAQ corporate governance rules. In accordance with our Corporate Governance Guidelines, the Nominating and Corporate Governance Committee undertakes an annual review of director independence during the first quarter of each year. During this review, the Board considers any and all commercial and charitable relationships of directors, including transactions and relationships between each Director or any member of his or her immediate family and the Company and its subsidiaries. Following the review in 2010, the Board affirmatively determined that each of the directors nominated for election at this Annual Meeting, except our Chairman, Mr. Porter, and our President and Chief Executive Officer, Ms. Bouvette, is independent of the Company and its management in that none have any relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, in accordance with the NASDAQ corporate governance rules.

Director Nominations and Qualifications

In making its nominations for persons to be elected to the board of directors and included in our proxy statement, the Nominating and Corporate Governance Committee evaluates incumbent directors, board nominees and persons nominated by shareholders, if any. The committee reviews each candidate in light of the selection criteria set forth in our corporate governance principles. Candidates are selected based on their integrity, independence, diversity of experience, leadership and their ability to exercise sound judgment. While we do not have a separate diversity policy, the committee does consider the diversity of experience of its nominees in knowledge, skills, expertise and other demographics which may contribute to the board. The committee, when considering potential board members, will look at all of the foregoing criteria and the current and anticipated needs of the Company. The various qualifications and criteria are normally considered at a committee meeting during the month of January of each calendar year so that the respective names can be placed on the ballot for the annual meeting which occurs in May. All of the nominees for election as directors for the 2010 annual meeting were nominated by the committee. The committee did not receive any stockholder nominations for directors.

Board Leadership Structure

J. Chester Porter serves as Chairman of the Board of the Company and Maria L. Bouvette serves as President and Chief Executive Officer of the Company. The Board of Directors believes that Mr. Porter’s service as Chairman of the Board and Ms. Bouvette’s service as Chief Executive Officer is appropriate, given the significant combined shareholdings in the Company of Mr. Porter and Ms. Bouvette. Because Mr. Porter and Ms. Bouvette beneficially owned approximately 65.5% of our outstanding common stock, as of December 31, 2009, the Board believes that their interests are well aligned with those of shareholders. In addition, as the founders of Porter Bancorp, Mr. Porter and Ms. Bouvette possess in-depth strategic and operational knowledge of the opportunities and challenges facing the Company and together are best positioned to develop agendas that focus on matters that merit review by the Board of Directors. This structure also promotes decisive leadership, accountability and clarity in the overall direction of the Company’s business strategy. The Board also believes that this approach facilitates clear and consistent communication of the Company’s strategy to all stakeholders.

While as a “controlled company,” the Company is not legally required to have a majority of independent Directors, the majority of the Board is in fact comprised of independent Directors who act as a counterbalance to Mr. Porter and Ms. Bouvette. Furthermore, consistent with NASDAQ’s listing requirements, the independent directors regularly have the opportunity to meet in executive session without management or any non-independent directors in attendance. In 2009, the independent directors met four times in executive session. Mr. Williams serves as the “lead” independent director. The lead independent director assists the board in communicating issues to management and serves as chairman of the independent director executive sessions. The Board as a whole actively considers strategic decisions proposed by management, including matters affecting the business strategy and competitive and financial positions of the Company, and monitors the Company’s risk profile. Board meetings are focused on strategic matters affecting major areas of the Company’s business, including operational, execution and risk management initiatives.

Board Structure and Committee Composition

Our board of directors has established standing committees in connection with the discharge of its responsibilities. These committees include an audit committee, a compensation committee and a nominating and corporate governance committee. Our committee charters are available on our website at www.pbibank.com under “Investor Relations” and “Corporate Governance.”

Audit Committee

Our audit committee is comprised of Messrs. Hawkins, Monroe and Williams. Our board of directors has determined that Messrs. Hawkins, Monroe and Williams currently meet the independence requirements of the NASDAQ corporate governance rules and relevant federal securities laws and regulations. The audit committee is responsible for and assists our board in monitoring the integrity of the financial statements, the qualifications and independence of our independent registered public accounting firm, the performance of our internal audit function and our independent registered public accounting firm and our compliance with legal and regulatory requirements. Mr. Hawkins and Mr. Monroe each qualifies as an audit committee financial expert.

Compensation Committee

Our compensation committee is comprised of Mr. Hogan and Mr. Williams. The compensation committee has overall responsibility for evaluating and approving our executive officer incentive compensation, benefit, severance, equity-based or other compensation plans, policies and programs. The compensation committee is also responsible for producing an annual report on executive compensation for inclusion in this proxy statement.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee is comprised of Mr. Hogan, Mr. Hawkins and Mr. Porter. The nominating and corporate governance committee assists our board of directors in promoting our best interests and the best interests of our shareholders through the implementation of sound corporate governance principles and practices. In furtherance of this purpose, the nominating and corporate governance committee identifies individuals qualified to become board members and recommend to our board of directors the director nominees for the next annual meeting of shareholders. It also reviews the qualifications and independence of the members of our board of directors and its various committees on a regular basis and makes any recommendations the committee members may deem appropriate from time to time concerning any recommended changes in the composition of our board.

Meeting Attendance

During 2009, our board of directors met eleven times. No director attended fewer than 75 percent of the total number of meetings of the board of directors and the committees on which he or she served. All directors and director nominees are expected to attend each annual meeting of shareholders, unless an emergency prevents them from doing so. All directors attended last year’s annual meeting.

Board’s Role in Risk Oversight

As a bank holding company, we face a number of risks, including general economic risk, credit risk, regulatory risk, liquidity risk, interest rate risk, audit risk, reputational risk and others. Management is responsible for the day-to-day management of risks to the company, and the Board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

While the full board of directors is charged with ultimate oversight responsibility for risk management, various standing committees of the board also have responsibilities with respect to our risk oversight. In particular, the Audit Committee plays a large role in monitoring and assessing our risk related to financial reporting and accounting matters as well as any other particular areas of concern of the Board. The board’s Compensation Committee monitors and assesses the various risks associated with compensation policies, and oversees incentives that encourage performance subject to a level of risk-taking consistent with our overall strategy.

In an effort to enable us to apply a greater focus on organizational risk, our Chief Financial Officer, David Pierce, was appointed as the Enterprise-wide Chief Risk Officer of PBI Bank in January 2010. Mr. Pierce will be responsible for developing and implementing enterprise-wide risk management strategies and reporting periodically to the Board on matters related to risk management. We believe that this will strengthen our management team by enabling them to identify organizational risks of all types so that they are better able to meet the challenges inherent in today’s banking environment.

Code of Business Conduct and Ethics

Our Board has adopted the Code of Business Conduct and Ethics that sets forth important company policies and procedures in conducting our business in a legal, ethical and responsible manner. These standards are applicable to all of our directors and employees. In addition, the Board has adopted the Code of Ethics for CEO and Senior Financial Officers that supplements the Code of Business Conduct and Ethics by providing more specific requirements and guidance on certain topics. The Code of Ethics for CEO and Senior Financial Officers applies to the Company’s Chairman, Chief Executive Officer, Chief Financial Officer and PBI Bank’s Chief Financial Officer. The Code of Ethics for CEO and Senior Financial Officers is available on our website at www.pbibank.com under “Investor Relations” and “Corporate Governance.” We will post any amendments to, or waivers from, our Code of Ethics for CEO and Senior Financial Officers on our website.

Employees must report any conduct they believe in good faith to be an actual or apparent violation of our Code of Conduct. In addition, as required under the Sarbanes-Oxley Act of 2002, the Audit Committee has established confidential procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls, or auditing matters and the confidential, anonymous submission by company employees of concerns regarding questionable accounting or auditing matters.

Stock Ownership Guidelines

Our Corporate Governance Guidelines require all non-employee directors to hold at least 1,000 of our shares while serving as a director of the Company. Shares that may be acquired through the exercise of stock options are included in calculating the number of shares of ownership to determine whether this minimum ownership requirement has been met. All directors are expected to be in compliance with the stock ownership guidelines within five years of becoming a director.

Board Compensation

Compensation of Directors

Each director receives $1,250 for each board meeting attended and each non-employee director receives $500 for each committee meeting attended. Our executives who serve on the boards of directors of Porter Bancorp and PBI Bank are paid the same cash director fees as those paid to non-employee directors. Although paying cash director fees to “inside” executives who serve on boards of directors is not the prevalent market practice, it has been the historical practice at Porter Bancorp for many years and constitutes a small portion of affected executive’s total compensation amount. Directors J. Chester Porter, Maria L. Bouvette and David L. Hawkins also serve as directors of PBI Bank. Each bank director receives $500 for each board meeting attended. The directors fees paid to Mr. Porter and Ms. Bouvette are included in the “All Other Compensation” column of the Summary Compensation Table.

In addition to the board and committee fees, non-employee directors are granted restricted shares of common stock on an annual basis. Pursuant to our Amended and Restated 2006 Non-Employee Directors Stock Ownership Incentive Plan, non-employee directors of Porter Bancorp are automatically granted 500 restricted shares and non-employee directors of PBI Bank are automatically granted 100 restricted shares on the first day of the month after our annual meeting of shareholders, which is on or about June 1, 2010.

Restricted shares are shares of our common stock that may not be transferred, and are subject to forfeiture, during a specified period. Directors that are granted restricted shares will have all of the same rights as a shareholder, including the right to vote the restricted shares and the right to receive dividends. One-sixth of the restricted shares of common stock will vest on each six month anniversary of the date of grant as long as the director is continuing to serve on the board of directors. If a director ceases to serve on the board of directors for any reason, the director will automatically forfeit the unvested portion of the restricted shares. In the event of a change in control, the restriction on the sale of any unvested restricted shares will end. Under the 2006 Directors Plan, a change in control means (i) the disposal of our business or the business of PBI Bank pursuant to a liquidation, sale of assets or otherwise, (ii) any person, group or entity acquiring or gaining ownership or control of more than 50% of our outstanding shares or the outstanding shares of PBI Bank, other than any trustee or other fiduciary holding shares under any employee benefit plan, or (iii) during any period of two consecutive years, individuals who were our directors at the beginning of that period cease to constitute a majority of the board of directors, unless the election of each new director was approved by at least two-thirds of the directors then still in office who were directors at the beginning of the period.

Before 2008, the 2006 Directors Plan automatically granted an option for 5,000 shares of common stock to each non-employee director of Porter Bancorp and 1,000 shares of common stock to each non-employee director of PBI Bank in office on the first day of the month after our annual meeting of shareholders. The exercise price was equal to the closing sale price of our shares of common stock as reported on the NASDAQ Global Market on the date of grant. Each option granted became exercisable with respect to one-sixth of the shares of common stock subject to the option on each six month anniversary of the date of grant as long as the director continued to serve on the board of directors. If a director ceases to serve on the board of directors for any reason, the director will automatically forfeit the unvested portion of the option. Each option expired on the fifth anniversary of the date on which it was granted.

The following table provides information on 2009 compensation for non-employee directors.


Name	Fees Earned or Paid in Cash ⁽¹⁾			Stock Awards⁽²⁾		Option Awards	All Other Compensation			Total
David L. Hawkins	$	17,250	⁽³⁾	$	9,282	—	$	9,000	⁽⁷⁾	$	49,876
W. Glenn Hogan	$	13,750	⁽⁴⁾	$	7,735	—				$	27,337
Sidney L. Monroe	$	16,250	⁽⁵⁾	$	7,735	—				$	35,937
Stephen A. Williams	$	17,750	⁽⁶⁾	$	7,735	—				$	37,437

⁽¹⁾	Each director receives $1,250 for each board meeting attended and $500 for each committee meeting attended.

⁽²⁾

On June 1, 2009, each non-employee director received a restricted stock award of 500 shares with a grant date fair value of $15.47 per share. Mr. Hawkins received an additional restricted stock award of 100 shares as a member of PBI Bank’s board of directors. The restricted shares vest in one-sixth increments every six-month anniversary of the grant date over three years. The amounts in Stock Awards column reflects the grant date fair value for the restricted stock awards for the fiscal year ended December 31, 2009. The assumptions used in the calculation of these amounts for awards granted in 2009 are included in Note 2 “Stock Plans and Stock based Compensation” in the “Notes to Consolidated Financial Statements” included within our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

⁽³⁾	Mr. Hawkins received $2,500 for attendance at Audit Committee meetings and $1,000 for Corporate Governance Committee meetings during 2009.

⁽⁴⁾	Mr. Hogan received $1,500 for attendance at Executive Compensation Committee meetings and $1,000 for Nominating and Corporate Governance Committee meetings in 2009.

⁽⁵⁾	Mr. Monroe received $2,500 for attendance at Audit Committee meetings during 2009.

⁽⁶⁾	Mr. Williams received $2,500 for attendance at Audit Committee meetings and $1,500 for Compensation Committee meetings during 2009.

⁽⁷⁾	Mr. Hawkins received $6,000 in PBI Bank director fees and $3,000 for attendance at Trust Committee meetings.

STOCK OWNERSHIP OF DIRECTORS, OFFICERS,

AND PRINCIPAL SHAREHOLDERS

The following table shows, as of March 31, 2010, the number and percentage of shares of common stock held by (1) Porter Bancorp’s directors and nominees, (2) each of the named executive officers set forth in the Summary Compensation Table and (3) current directors and named executive officers as a group. The information provided in the table is based on our records, information filed with the SEC, and information provided to us, except where otherwise noted. Except for our two controlling shareholders, each of whom is a director and an executive officer, we know of no other shareholder who beneficially owns 5% or more of our common stock.

Under SEC rules, a person is deemed to beneficially own any shares as to which the entity or individual has the right to acquire within 60 days of March 31, 2010 through the exercise of any stock option or other right. Unless otherwise indicated, each person has sole voting and investment power (or shares these powers with his or her spouse) with respect to the shares set forth in the following table.


Name and Address of Beneficial Owner⁽¹⁾	Amount and Nature of Beneficial Ownership	Percent of Class
Directors and Nominee

J. Chester Porter⁽²⁾	3,044,191	34.5	%

Maria L. Bouvette	2,722,951	30.9

David L. Hawkins⁽³⁾	17,279	*

W. Glenn Hogan⁽⁴⁾	18,831	*

Sidney L. Monroe⁽⁵⁾	17,531	*

Stephen A. Williams⁽⁶⁾	14,308	*

Other Named Executive Officers

David B. Pierce⁽⁷⁾	21,198	*
C. Bradford Harris⁽⁸⁾	12,065	*

Named Executive Officers and Directors as a Group	5,868,354	66.2

* Represents beneficial ownership of less than 1%

⁽¹⁾	The business address for these referenced individuals is c/o Porter Bancorp, Inc., 2500 Eastpoint Parkway, Louisville, Kentucky 40223.

⁽²⁾	Includes 4,325 shares of common stock held by a company of which Mr. Porter is the sole owner.

⁽³⁾	Includes 1,103 shares that are jointly held with his spouse, 1,654 shares that are held in an individual retirement account and 13,230 shares of common stock which may be acquired pursuant to stock options that are exercisable within sixty days of March 31, 2010.

⁽⁴⁾	Includes 5,513 shares of common stock which may be acquired pursuant to stock options that are exercisable within sixty days of March 31, 2010.

⁽⁵⁾	Includes 11,026 shares of common stock which may be acquired pursuant to stock options that are exercisable within sixty days of March 31, 2010.

⁽⁶⁾	Includes 11,026 shares of common stock which may be acquired pursuant to stock options that are exercisable within sixty days of March 31, 2010.

⁽⁷⁾	Includes 1,103 shares that are held by Mr. Pierce as trustee for a living trust.

⁽⁸⁾	Includes 5,513 shares of common stock which may be acquired pursuant to stock options that are exercisable within sixty days of March 31, 2010.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Related Parties

Our Audit Committee has the responsibility to review and approve or ratify all transactions, other than loans and extensions of credit, between the Company and related parties, including without limitation, fees and commissions for services, purchases or sales of assets, rental arrangements and any other financial arrangement.

As a bank, we are not subject to Section 402 of the Sarbanes-Oxley Act of 2002, which prohibits any issuer to extend, renew or arrange for the extension of credit in the form of a personal loan to or for any director or executive officer of that issuer. However, loans must be made:

•

in the ordinary course of our consumer credit business;

•

of a type we generally make available to the public; and

•

on market terms, or terms that are no more favorable than those offered by the issuer to the general public.

We have long-standing policies and procedures governing our extension of credit to related parties in compliance with the insider lending restrictions of Section 22(h) of the Federal Reserve Act or the Federal Reserve’s Regulation O. All loans to directors and executive officers or their affiliates are approved by the Board of Directors of PBI Bank. As of December 31, 2009, the aggregate amount of all loans outstanding to our executive officers and directors, the executive officers and directors of PBI Bank and the firms and corporations in which they have at least a ten percent beneficial interest was approximately $1.7 million.

Our officers, directors and principal shareholders and their affiliates and certain of the officers and directors of PBI Bank and their affiliates have conducted banking transactions with PBI Bank from time to time, including investments in certificates of deposit. All such investments have been made, and will continue to be made, only in the ordinary course of business of PBI Bank on substantially the same terms as those prevailing at the time for comparable transactions with unaffiliated persons and did not involve more than the normal risk of collectability or present other unfavorable features.

Management Service Agreements and Loan Participations with Banks Under Common Control

Our chairman, J. Chester Porter and his brother, William G. Porter, each own a 50% interest in Lake Valley Bancorp, Inc., the parent holding company of The Peoples Bank, Taylorsville, Kentucky, located approximately 25 miles southeast of Louisville in Spencer County. J. Chester Porter, William G. Porter and our president and chief executive officer, Maria L. Bouvette, serve as directors of this bank.

Our chairman, J. Chester Porter owns an interest of approximately 36.0% and his brother, William G. Porter, owns an interest of 3.0% in Crossroads Bancorp, Inc., the parent holding company of The Peoples Bank, Mount Washington, Kentucky, located approximately 20 miles south of Louisville in Bullitt County. PBI Bank also has banking offices in Bullitt County. J. Chester Porter and our president and chief executive officer, Maria L. Bouvette, serve as directors of this bank.

We have entered into management services agreements with each of these banks. Each agreement provides that our executives and employees provide management and accounting services to the subject bank, including overall responsibility for establishing and implementing policy and strategic planning. Maria Bouvette also serves as chief financial officer of each of the banks. We received a $4,000 monthly fee from The Peoples Bank, Taylorsville and a $2,000 monthly fee from The Peoples Bank, Mount Washington for these services in 2009. We receive a $4,000 monthly fee from The Peoples Bank, Taylorsville and a $2,000 monthly fee from The Peoples Bank, Mount Washington for these services in 2010.

From time to time, these banks may also participate with PBI Bank in making loans to certain borrowers when our executive officers believe it is mutually beneficial to do so. As of December 31, 2009, we had $4.9 million of participations in real estate loans purchased from, and $23.8 million of participations in real estate loans sold, to these affiliate banks. We believe the terms of our arrangements with these two banks in which J. Chester Porter and William G. Porter have substantial ownership interests are fair and reasonable to us and to the other banks. We have had the terms of our management services agreements with these banks reviewed by an independent accounting firm from time to time. In the future, the terms of these arrangements will also be subject to ongoing review by the independent directors on our audit committee.

Other Transactions in Which Related Parties Have an Interest

Our chairman, J. Chester Porter is the owner of Porter & Associates, a law firm that we retained during our last fiscal year and will retain in the future. We paid $192,200 to Porter & Associates for legal services provided during 2009. In addition, Porter & Associates received fees from borrowers for its representation of PBI Bank in connection with loan closings.

Keith Griffee, the son-in-law of J. Chester Porter, is PBI Bank’s President of the Bullitt County Market. Jennifer E. Porter, Mr. Porter’s daughter and Mr. Griffee’s wife, serves as an advisory director of our Bullitt County banking office. Jack C. Porter, Mr. Porter’s son, serves as an advisory director of our Bullitt County banking office and from time to time provides real estate related services to PBI Bank. Albert J. Bouvette, brother of our president and chief executive officer, Maria L. Bouvette, is an employee of PBI Bank’s information technology department. None of these individuals received compensation in excess of $120,000 for their services in such capacities during 2009.

In 1994, J. Chester Porter and Maria L. Bouvette issued a promissory note to David L. Hawkins, a director and chairman of our audit committee, in the principal amount of $500,000 as part of the consideration paid to Mr. Hawkins in connection with the acquisition of Pioneer Bank by a predecessor of our company. The promissory note bears interest at the prime rate plus 1% per annum (currently 4.25%) and payments of interest only are due quarterly. The loan is secured by a mortgage on real estate. The original term of the note has been extended from January 1, 2007 to January 1, 2012.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers, and persons who own more than 10 percent of our common stock, to file reports of ownership and changes in ownership with the SEC. Directors, executive officers, and greater than 10 percent beneficial owners, referred to as “reporting persons,” are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to the us, we believe that during 2009 all reporting persons complied with the filing requirements of Section 16(a).

COMPENSATION DISCUSSION AND ANALYSIS

The Compensation Committee of our Board of Directors is responsible for developing specific policies regarding compensation of our executive officers, as well as evaluating and approving our executive officer incentive compensation, benefit, severance, equity-based or other compensation plans, policies and programs implementing and administering all aspects of our benefit and compensation plans and programs. Our compensation committee is comprised of Mr. Hogan and Mr. Williams. Our board of directors has determined that Mr. Hogan and Mr. Williams currently meet the independence requirements of the NASDAQ corporate governance rules and relevant federal securities laws and regulations. As previously discussed, we are a “controlled company” within the meaning of the NASDAQ corporate governance rules. A controlled company may elect not to comply with certain NASDAQ corporate governance rules, including the requirement that decisions regarding the compensation paid to executive officers must be made either by a compensation committee composed entirely of independent directors or by a majority of the independent directors. Previously, we relied on our controlled company status to have Ms. Bouvette serve on our compensation committee. Ms. Bouvette stepped down from the Compensation Committee during 2009 to comply with the U.S. Treasury’s Capital Purchase Program’s compensation standards as discussed below. As a practical matter, our controlled company status also gives Mr. Porter and Ms. Bouvette the ability to assert significant influence over executive compensation decisions. The Company does not engage any compensation consultants.

Executive Compensation Philosophy and Objectives

Our philosophy for executive compensation is to attract, retain and reward excellent executives and align their interests with the interests of our shareholders. To promote this philosophy, we have established the following objectives:

•

provide fair and competitive compensation to executives, based on their performance and contributions to our company, that will attract, motivate and retain individuals that will enable our company to successfully compete with other financial institutions in our markets;

•

provide incentives that reward executives for attaining predetermined objectives that promote and reward individual performance, company financial performance, achievement of strategic goals and company stock performance;

•

instill in our executives a long-term commitment and a sense of ownership through the use of equity-based compensation; and

•

ensure that the interests of our executives are aligned with our shareholders’ interests.

TARP Compensation Standards

On November 21, 2008, Porter Bancorp became a participant in the U.S. Treasury’s Capital Purchase Program (“CPP”). As a result, we are required to comply with a number of executive compensation standards during the period of time in which the U.S. Treasury holds an equity position in Porter Bancorp. On February 17, 2009, the America Reinvestment and Recovery Act of 2009 (“ARRA”) required the U.S. Treasury to enact additional compensation standards. The Compensation Committee has taken a number of actions in order to comply with the provisions of CPP and ARRA:

•

Met with senior risk officers to review senior executive officer compensation plans and employee incentive compensation plans and the risks associated with these plans. The risk assessment is described in more detail beginning under Incentive Compensation Plan Risk Assessment.

•

Reviewed and revised bonus and other incentive plans to ensure that the plans are in compliance with ARRA.

•

Required all senior executive officer and next twenty most highly compensated employees to enter into clawback agreements which requires them to return any bonus payment or award made during the CPP period based upon materially inaccurate financial statements or performance metrics. Each of our current executive officers has agreed that their separation entitlements and bonuses, retention awards and other incentive compensation will comply with these standards.

•

Restructured Compensation Committee to include only independent directors

•

Adopted a policy regarding luxury or excessive expenditures.

Executive Compensation Components

Our compensation program is comprised of three components:

•

Base salary that is competitive with levels paid by comparable financial institutions;

•

Annual incentive cash payments based on the attainment of targeted performance goals; and

•

Equity-based compensation, consisting of stock options and restricted stock, based on the attainment of targeted performance goals.

The executive compensation plan provides a compensation package that is driven by our overall financial performance and is competitive with the public and non-public financial institutions in our market to enable us to attract and retain executives who we believe are critical to our future success. The plan establishes a range of percentages of total compensation for each of the three components set forth above. For each of our executives, base salary constitutes between 50% and 70% of each executive’s total compensation, cash incentives constitutes between 10% and 20% of each executive’s total compensation and equity based compensation constitutes between 20% and 30% of each executive’s total compensation. The Committee will establish the target percentage of compensation for each of the three components at the beginning of each year.

Base Salary. When establishing base salaries for our executives, we consider the scope of executive responsibilities and publicly available information concerning the compensation paid to executives with similar levels of responsibility by other comparable public and non-public financial institutions in our market. Thereafter, our practice has been to increase base salaries by between 3% and 5% annually to account for a cost of living adjustment, considering an individual executive’s performance when determining the percentage within the range.

For 2009, management and the Compensation Committee determined that it was in the Company’s best interest to implement a company-wide salary freeze given the sustained weakness in business and economic conditions generally in our markets. Upon management’s recommendation, the Compensation Committee agreed to hold salaries for all named executive officers at the same level for 2009. The Committee reviewed 2007 publicly available national peer group data as compiled by SNL Financial in the 2008 Executive Compensation Review, the most recent data available, to ensure that our base salaries, which total compensation is derived from, were competitive with comparable financial institutions. The publicly available data showed annual compensation, which included base salary, annual bonus and other annual compensation and total compensation, which included annual compensation plus, restricted stock awards, performance units and other compensation paid due to long-term incentive plans. The peer groups were: (i) the 61 financial institutions in the Midwest with assets of $1 billion to $5 billion, (ii) the 40 financial institutions nationwide with assets of $1 billion to $5 billion and a ROAE of between 10.00% and 12.49%. As of December 31, 2008, we had total assets of approximately $1.6 billion and our return on average equity for 2008 was approximately 10.6%. The Committee evaluated data on the chief executive officer compensation of the two peer groups for Mr. Porter and Ms. Bouvette and the chief operating officer and chief financial officer compensation of the two peer groups for Mr. Pierce. The Committee evaluated data on the chief credit officer compensation of the two peer groups for Mr. Harris because his level on the organization chart is the most comparable to the chief credit officer in the public information that was available.

The following table shows the average annual compensation for 2007 paid to chief executive officers, chief financial officers, chief operating officers and chief credit officers of the two peer groups described above:


Position	Average Annual Compensation of Midwest Financial Institutions with Assets of $1 billion to $5 billion		Average Annual Compensation of Financial Institutions with Assets of $1 billion to $5 billion and ROAE of between 10.00% and 12.49%
CEO	$	387,002	$	399,541
CFO		208,476		219,380
COO		269,890		253,826
CCO		220,586		213,754

The following table shows the average total compensation for 2007 paid to chief executive officers, chief financial officers, chief operating officers and chief credit officers of the two peer groups described above:


Position	Average Total Compensation of Midwest Financial Institutions with Assets of $1 billion to $5 billion		Average Total Compensation of Financial Institutions with Assets of $1 billion to $5 billion and ROAE of between 10.00% and 12.49%
CEO	$	490,228	$	566,443
CFO		243,769		274,966
COO		317,009		327,629
CCO		253,000		299,729

Based on its evaluation of the peer group annual compensation and total compensation data, the Committee determined that the current salaries of the named executive officers was comparable to the peer groups described above.

For 2010, management and the Compensation Committee once again determined that it was in the Company’s best interest to maintain the company-wide salary freeze given the continued weakness in business and economic conditions generally in our markets. Upon management’s recommendation, the Compensation Committee agreed to hold salaries for all named executive officers at the same level for 2010. The Committee then used the same process for evaluating base salaries for all of our named executives as has been used in previous years. The Committee also reviewed 2008 publicly available national peer group data as compiled by SNL Financial in the 2009 Executive Compensation Review, the most recent data available, to ensure that our base salaries, which total compensation is derived from, were competitive with comparable financial institutions. The publicly available data showed annual compensation, which included base salary, annual bonus and other annual compensation and total compensation, which included annual compensation plus, restricted stock awards, performance units and other compensation paid due to long-term incentive plans. The peer groups were: (i) the 61 financial institutions in the Midwest with assets of $1 billion to $5 billion, (ii) the 40 financial institutions nationwide with assets of $1 billion to $5 billion and a ROAE of between 5.00% and 7.49%. As of December 31, 2009, we had total assets of approximately $1.8 billion and our return on average equity for 2009 was approximately 6.79%.

The following table shows the average annual compensation for 2008 paid to chief executive officers, chief financial officers, chief operating officers and chief credit officers of the two peer groups described above:


Position	Average Annual Compensation of Midwest Financial Institutions with Assets of $1 billion to $5 billion		Average Annual Compensation of Financial Institutions with Assets of $1 billion to $5 billion and ROAE of between 5.00% and 7.49%
CEO	$	344,514	$	365,826
CFO		190,000		198,900
COO		272,097		226,863
CCO		199,912		189,912

The following table shows the average total compensation for 2008 paid to chief executive officers, chief financial officers, chief operating officers and chief credit officers of the two peer groups described above:


Position	Average Total Compensation of Midwest Financial Institutions with Assets of $1 billion to $5 billion		Average Total Compensation of Financial Institutions with Assets of $1 billion to $5 billion and ROAE of between 5.00% and 7.49%
CEO	$	464,003	$	521,857
CFO		235,187		242,657
COO		346,532		273,100
CCO		269,652		341,924

Cash Incentives. Under our 2009 cash incentive plan, our named executive officers were able to earn up to a maximum of 30% of their base salary based upon our attainment of pre-established performance objectives. The performance criteria objectives were earnings per share, return on average assets, return on average equity, net interest margin and efficiency. We used these performance criteria metrics because we believe that these are the metrics that (i) drive shareholder value and (ii) are used by our investors to evaluate us. We use corporate performance measures instead of individual performance measures because our philosophy emphasizes teamwork.

The performance components, except earnings per share, were measured against our peers’ performance. We believe that measuring our performance against our peers is more appropriate because it (i) reduces the subjectivity that may exist in the budgetary process, (ii) takes into consideration changes in business conditions that affect the entire industry over the year and (iii) provides an incentive for our executives to try to outperform our peers on a relative basis. Our peer group included:

•

Bank of Kentucky Financial Corporation

•

Community Bank Shares of Indiana, Inc.

•

Community Trust Bancorp, Inc.

•

Farmers Capital Bank Corporation

•

First Financial Service Corporation

•

Integra Bank Corporation

•

Republic Bancorp, Inc.

•

S.Y. Bancorp, Inc.

The peer group, which consists of publicly traded bank holding companies of comparable size that compete in our markets, was selected by management and the Compensation Committee. Earnings per share was measured against our prior year performance because we believe that the measurement of earnings per share over a one-year period is one of the most prevalent metrics for bank performance in the marketplace. We also believe that this metric will further align the incentives of our management with shareholders by providing an incentive for executives to try to exceed our prior year’s performance.

Under our 2009 cash incentive plan, our named executive officers were able to earn up to a maximum of 30% of their base salary based upon our attainment of pre-established targets for the performance criteria components set forth in the table below. The following table shows the pre-established 2009 targets and the corresponding percentage of salary earned for attaining the target:


Objective	Level 1 Target Goal	Cash award as percentage of Salary		Level 2 Target Goal	Cash award as percentage of Salary
Earnings per share	105% of 2008 EPS	3	%	110% of 2008 EPS	6	%
Return on average assets	100% of peer median	3	%	110% of peer median	6	%
Return on average equity	100% of peer median	3	%	110% of peer median	6	%
Net interest margin	100% of peer median	3	%	110% of peer median	6	%
Efficiency ratio	100% of peer median	3	%	110% of peer median	6	%


Total		15	%		30	%

In 2009, our named executive officers earned cash incentive bonuses totaling 18% of salary. The following table shows Porter Bancorp’s data and the individual bonus targets for our executives attained in 2009:


Objective	Porter Bancorp			Actual Level 1 Target			Actual Level 2 Target			Cash award as percentage of Salary
Earnings per share	$	1.05		$	1.67		$	1.75		0.0	%
Return on average assets		0.65	%		0.48	%		0.53	%	6.0	%
Return on average equity		6.56	%		5.15	%		5.66	%	6.0	%
Net interest margin		3.33	%		3.61	%		3.97	%	0.0	%
Efficiency ratio		50.06	%		66.87	%		60.79	%	6.0	%


Total										18.0	%

Each named executive officer was also entitled to a supplemental senior leadership team bonus of up to $5,000 if our earnings per share increased by 10% or more in 2009 from 2008. As indicated above, no supplemental bonuses were earned in 2009.

For 2010, the Compensation Committee revised several components of the cash incentive plan. Under the revised plan, incentives for members of the Senior Leadership Team that serve on the Company’s managed asset committee (“MAC Members”), which includes Mr. Porter, Ms. Bouvette and Mr. Pierce, will be divided into a Company performance component and an asset quality component. This plan change is designed to support better risk management practices and provide a greater incentive to improve our asset quality metrics. MAC Members will be able to earn up to a maximum of 20% of their base salary based upon our attainment of pre-established Company performance objectives similar to previous years. The following table shows the pre-established 2010 Company performance targets and the corresponding percentage of salary earned for attaining the target:


Objective	Level 1 Target Goal	Cash award as percentage of Salary		Level 2 Target Goal	Cash award as percentage of Salary
Earnings per share	105% of 2009 EPS	2	%	110% of 2009 EPS	4	%
Return on average assets	100% of peer median	2	%	110% of peer median	4	%
Return on average equity	100% of peer median	2	%	110% of peer median	4	%
Net interest margin	100% of peer median	2	%	110% of peer median	4	%
Efficiency ratio	100% of peer median	2	%	110% of peer median	4	%


Total		10	%		20	%

The cash incentive plan has threshold performance goals of 0.50% for return on average assets and 9.0% for return on average equity.

MAC Members will also be able to earn up to a maximum of 20% of their base salary based upon our attainment of pre-established asset quality metrics. The following table shows the pre-established 2010 asset quality targets and the corresponding percentage of salary earned for attaining the target:


Objective	Level 1 Target Goal			Cash award as percentage of Salary		Level 2 Target Goal			Cash award as percentage of Salary
Ratio of NPL/Loans		3.0	%	2.5	%		2.0	%	5	%
Ratio of NPA/Assets		2.5	%	2.5	%		1.50	%	5	%
Charge-offs		0.35	%	2.5	%		0.25	%	5	%
Classified Credit Balances	$	100 million		2.5	%	$	80 million		5	%


Total				10	%				20	%

The performance measures for the other Senior Leadership Team members, including Mr. Harris, will be the same as in 2009. Each of these Senior Leadership Team members will be able to earn up to a maximum of 30% of their base salary based upon our attainment of pre-established performance objectives. The following table shows the pre-established 2010 targets and the corresponding percentage of salary earned for attaining the target:


Objective	Level 1 Target Goal	Cash award as percentage of Salary		Level 2 Target Goal	Cash award as percentage of Salary
Earnings per share	105% of 2009 EPS	3	%	110% of 2009 EPS	6	%
Return on average assets	100% of peer median	3	%	110% of peer median	6	%
Return on average equity	100% of peer median	3	%	110% of peer median	6	%
Net interest margin	100% of peer median	3	%	110% of peer median	6	%
Efficiency ratio	100% of peer median	3	%	110% of peer median	6	%


Total		15	%		30	%

The cash incentive plan has threshold performance goals of 0.50% for return on average assets and 9.0% for return on average equity.

The performance components, except earnings per share, will still be measured against our peers’ performance. In addition, the Compensation Committee reviewed our peer group, and after consultation with our investment bankers, revised it to include:

•

Bank of Kentucky Financial Corporation

•

Community Bank Shares of Indiana, Inc.

•

Community Trust Bancorp, Inc.

•

Farmers Capital Bank Corporation

•

First Financial Service Corporation

•

MainSource Financial Group, Inc.

•

Republic Bancorp, Inc.

•

S.Y. Bancorp, Inc.

Each named executive officer will also be entitled to a supplemental senior leadership team bonus of up to $5,000 if our earnings per share increases by 10% or more in 2010 from 2009.

Under the CPP compensation regulations, no payments or accruals of bonuses, retention awards or incentive compensation are permitted to be paid to the five most highly compensated employees of Porter Bancorp, during the period of time in which the U.S. Treasury holds an equity position in Porter Bancorp. The Company is permitted, however, to grant employees long-term restricted common stock in an amount that does not exceed 1/3 the employee’s total annual compensation. The determination of the five most highly paid employees is done on an annual basis. For 2009, each of Mr. Porter, Ms. Bouvette and Mr. Pierce was one of the Company’s five most highly paid employees. The bonus prohibition did not apply to any of the cash incentive bonus payments paid for 2009 performance because the payments were legally binding prior to the enactment of ARRA.

As a result of the restrictions on payments or accruals of bonuses, retention awards or incentive compensation to the five most highly compensated employees, effective for the year 2010, the Compensation Committee determined to grant the five most highly compensated employees additional shares of restricted stock if the pre-established performance measures described above are satisfied. The fair market value of the shares granted to each of these employees will be equal to the amount of the incentive cash bonus they would have received under the cash incentive bonus described above. The shares granted to these employees will be subject to the terms set forth in the Treasury regulations.

Equity-Based Compensation. In February 2006, we established the Porter Bancorp, Inc. 2006 Stock Incentive Plan in anticipation of becoming a public company. The 2006 Plan authorizes the issuance of up to 400,000 shares in the form of stock options and restricted stock awards.

The Compensation Committee has the authority to award options and restricted stock awards under the 2006 Plan and to determine the amounts and awards. Although the 2006 Plan authorizes both stock options and restricted stock grants, at this time, the Committee intends to award restricted stock in lieu of stock options because the Committee believes that restricted stock is a better currency to reward our executives and is reflective of current market trends. Stock options also have a less favorable financial impact. Grants of restricted stock are also intended to increase stock ownership by our executives and further align the incentives of our management and shareholders. The shares of restricted stock granted to our executives may not be transferred, and, subject to a few exceptions, will be forfeited if the recipient’s employment with us ends, for a period of up to five years after the grant date. Because of the risk of forfeiture if the recipient’s employment ends before the restrictions have terminated, restricted stock grants also serve as a valuable retention tool.

The Compensation Committee has established a process for determining the amount of restricted stock grant awards to be made each year. The Committee will initially set the maximum dollar value of equity incentive compensation as a percentage of base salary. For 2009, the maximum dollar value of equity incentive compensation as a percentage of base salary was 45% for Mr. Porter, Ms. Bouvette and Mr. Pierce and 30% for all other senior executives, which we refer to as the “equity goal.”

This maximum dollar value assumes we achieve our maximum performance level, which is currently set at 125% of the peer average in each of the four equity incentive components, which are return on average assets, return on average equity, net interest margin and efficiency ratio. As with our cash incentive plan, we use corporate performance measures instead of individual performance measures because our philosophy emphasizes teamwork. The following table provides the reward factors for the two levels of achievement for each of the components for 2009:


Objective	Peer Median		125% of Peer Median
Return on average assets	15	%	25	%
Return on average equity	15	%	25	%
Net interest margin	15	%	25	%
Efficiency ratio	15	%	25	%

Total	60	%	100	%

The peer group for the calculation of equity incentive awards is comprised of the same publicly traded bank holding companies used for the cash incentive plan. The following table shows the 2009 Porter Bancorp and peer computations using data published by SNL and the corresponding reward factor awarded:


Objective	Peer Median		125% of Peer Median		Porter Bancorp		Reward Factor
Return on average assets	0.48	%	0.60	%	0.65	%	25	%
Return on average equity	5.15	%	6.43	%	6.56	%	25	%
Net interest margin	3.61	%	4.51	%	3.33	%	0	%
Efficiency ratio	66.87	%	53.49	%	50.06	%	25	%

Total							75	%

Based on the computations above, the Compensation Committee approved grants of shares of restricted stock equal to 75% of the applicable equity goal (75% of 45% or 30% of base salary is equal to 33.75% or 22.5% of base salary, as the case may be). Based on the closing price of $11.60 on March 9, 2010, the named executive officers were awarded the following shares of restricted stock:


Name	Base Salary		Percentage of Salary		Dollar Value of Restricted Shares		Number of Shares of Restricted Stock Awarded
J. Chester Porter	$	350,000	33.75	%	$	118,125	10,183
Maria L. Bouvette		350,000	33.75	%		118,125	10,183
David B. Pierce		245,000	33.75	%		82,688	7,128
C. Bradford Harris		136,500	22.50	%		30,713	2,648

For the year 2010, the Compensation Committee has approved the same formula for calculation of restricted stock awards that was used in 2009. For 2010, the Compensation Committee set the equity goal as 30% for senior executives and 45% for Mr. Porter, Ms. Bouvette and Mr. Pierce. Equity incentive awards are expected to be granted at the end of the first quarter or the beginning of the second quarter of each year once we receive all of the peer data necessary to make the peer average calculations.

Other Benefits

401(k) Plan. All of our full- and part-time employees, including our named executive officers, are eligible to participate in our 401(k) Plan after 90 days of employment. Subject to certain limitations imposed by federal tax laws, employees may contribute up to 15% of their compensation per year. We contribute a safe-harbor matching contribution equal to 50% of the participants’ first 4% of deferred compensation contribution. At our discretion, we may make an additional contribution each plan year.

Supplemental Executive Retirement Plan. PBI Bank has a Supplemental Executive Retirement Plan to provide additional benefits for certain key officers. David B. Pierce is the only named executive officer that participates in the SERP. It is not currently anticipated that any other executives will be added to this plan.

Pursuant to the SERP, we are obligated to pay each participant, or his or her beneficiaries, at the participant’s retirement or death, monthly retirement income for 10 years equal to 30% of the participants projected salary. Participants begin to vest in this benefit after five years of service and fully vest after ten years of service. In addition, we must pay benefits if the participant’s employment terminates before retirement age (other than by death or for cause) or if the participant is terminated within three years following a change-in-control. The payment of benefits upon a change-in-control is described under the heading “Potential Payments Upon Termination or Change-In-Control” in the Executive Compensation section. The estimated cost of the plan is being accrued over the period of active employment of the participants. We adopted this plan in 2004. As of December 31, 2009, $897,388 had been accrued as a liability for the plan. The amount charged to operations totaled $180,000 in 2009. In order to provide earnings to offset plan expenses, PBI Bank purchased life insurance on the plan participants. As of December 31, 2009, the cash surrender value of the bank owned life insurance was approximately $7.5 million. Income earned from the cash surrender value of the life insurance totaled $283,000 in 2009.

Incentive Compensation Plan Risk Assessment

The Compensation Committee met with the Company’s senior risk officers in 2009 to review the Company’s incentive compensation plans. The Company’s senior risk officers discussed with the Committee the long and short term risks to the value of the Company, and how compensation elements might incentivize senior executive officers or other employees. As part of this assessment, the Committee determined the following:

•

Awards should be structured to be paid over a time horizon that takes into account the risk horizon so that the payment reflects whether the employee’s performance over the service period has contributed to the long-term value of the Company;

•

The incentive must reflect competitive compensation sufficient to retain and recruit talented employees to contribute to the Company’s future success;

•

Compensation should be allocated among various short and long term incentives and among equity and cash incentives based on the specific role of the employee;

•

A significant portion of senior level position compensation should be long-term compensation that aligns the interest of the employee with the interests of shareholders and taxpayers;

•

The performance period for performance pay should be tailored to encompass individual performance or performance of the relevant business unit, taking into account business objectives, and taking into account multiple factors such as revenue production, expertise, compliance, and leadership;

•

Performance measures may relate to employee compliance with corporate policies;

•

The performance measures should not be so great that the arrangement fails to provide an adequate incentive for the employee to perform, and the metrics should be measurable and enforceable; and

•

That a significant portion of compensation should be performance-based for higher levels of responsibility.

The Company maintains cash and restricted stock incentive compensation plans that pay based on the Company’s performance compared to peer. For 2009, these measures included return on average assets, return on average equity, net interest margin and efficiency ratio. These four performance measures are standard financial measures that are directly derived from the Company’s financial statements, which are subject to the Company’s numerous risk management policies and procedures. The peer data used is taken directly from publicly available information and presented to the Committee prior to determination of amounts to be paid. As part of the risk assessment, it was determined that the current plans satisfied the requirements set forth above and the risks of these plans were acceptable requiring normal monitoring.

COMPENSATION COMMITTEE REPORT

Porter Bancorp’s Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

In addition, as required by the provisions of the U.S. Treasury’s Capital Purchase Program, the Committee certifies: (1) it has reviewed with senior risk officers the senior executive officer compensation plans and has made all reasonable efforts to ensure that these plans do not encourage senior executive officers to take unnecessary and excessive risks that threaten the value of Porter Bancorp; (2) it has reviewed with senior risk officers the employee compensation plans and has made all reasonable efforts to limit any unnecessary risks these plans pose to Porter Bancorp; and (3) it has reviewed the employee compensation plans to eliminate any features of these plans that would encourage the manipulation of reported earnings of Porter Bancorp to enhance the compensation of any employee.

The Compensation Committee

W. Glenn Hogan, Chairman

Stephen A. Williams

EXECUTIVE COMPENSATION

The following table discloses the compensation received by Porter Bancorp’s chief executive officer, chief financial officer, and the other most highly paid executive officers (all four of these individuals are referred to as the “named executive officers”) during the year ended December 31, 2009.

Summary Compensation Table


Name and Principal Position	Year	Salary		Bonus	Stock Awards⁽¹⁾		Option Awards	Non-Equity Incentive Plan Compensation⁽²⁾		Change in Nonqualified Deferred Compensation Earnings⁽³⁾		All Other Compensation⁽⁴⁾		Total

J. Chester Porter Chairman of the Board and General Counsel of Porter Bancorp and PBI Bank	2009	$	350,000	—	$	86,621	—	$	63,000		—	$	46,645	$	546,266
	2008	$	350,000	—	$	73,507	—	$	63,000		—	$	49,145	$	536,652
	2007	$	350,000	—		—	—	$	40,750		—	$	36,165	$	426,915

Maria L. Bouvette President and CEO of Porter Bancorp and PBI Bank	2009	$	350,000	—	$	86,621	—	$	63,000		—	$	38,930	$	538,551
	2008	$	350,000	—	$	73,507	—	$	63,000		—	$	41,430	$	527,937
	2007	$	350,000	—		—	—	$	40,750		—	$	37,002	$	427,752

David B. Pierce Chief Financial Officer of Porter Bancorp and Chief Strategic Officer of PBI Bank	2009	$	245,000	—	$	60,640	—	$	44,100	$	51,932	$	38,725	$	440,397
	2008	$	245,000	—	$	51,448	—	$	44,100	$	48,915	$	39,225	$	428,688
	2007	$	245,000	—		—	—	$	29,725	$	46,073	$	39,546	$	360,344

C. Bradford Harris Executive Vice President and Corporate General Counsel of Porter Bancorp	2009	$	136,050	—	$	22,518	—	$	24,570		—	$	15,573	$	198,711
	2008	$	136,050	—	$	27,305	—	$	24,570		—	$	15,573	$	203,498
	2007	$	130,000	—		—	—	$	17,650		—	$	15,573	$	163,223

⁽¹⁾

The grant date fair value for each restricted stock award listed in this column is $11.39 for 2009 and $18.60 for 2008. Each of the named executive officers was granted shares of restricted stock in 2009 and 2008 based on the Company’s 2008 and 2007 performance as more fully described in the Compensation Disclosure and Analysis. The restricted shares vest in one-fifth increments every one year anniversary of the grant date over five years.

⁽²⁾	The amounts reflect the cash awards paid to the named executives at the beginning of March 2009 under the Cash Incentive Plan, which is discussed in further detail under the heading “Cash Incentives,” under “Executive Compensation Components.”

⁽³⁾

The amounts reflect the increase in the present value of Supplemental Executive Retirement Benefit accrual from the previous year for the named executive officer’s benefit. Please see Pension Benefits table for explanation of benefit and disclosure of present value of accumulated benefit as of December 31, 2009.

⁽⁴⁾	All other compensation for the named executive officers is set forth below.


Name	Vehicle Allowance		401(k) Matching Contribution		401(k) Annual Profit Sharing Contribution		Premiums Paid for Life Insurance For Benefit of Employee		Director Fees	Total Other Compensation
J. Chester Porter	$	16,342	$	4,600	$	5,953		—	19,750	$	46,645
Maria L. Bouvette	$	9,320	$	3,907	$	5,953		—	19,750	$	38,930
David B. Pierce	$	8,161	$	4,600	$	5,953	$	14,511	5,500	$	38,725
C. Bradford Harris	$	8,500	$	3,083	$	3,990		—	—	$	15,573

Grants of Plan-Based Awards

The following table details all equity-based and non-equity awards granted in 2009 to each of the officers named in the Summary Compensation Table.

Our equity grants have been issued under the Porter Bancorp, Inc. 2006 Stock Incentive Plan, which was established in February 2006 in anticipation of becoming a public company. The 2006 Plan authorizes the issuance of up to 400,000 shares in the form of stock options and restricted stock awards. Although the 2006 Plan authorizes both stock options and restricted stock grants, at this time, the Company is awarding restricted stock only. The method for granting restricted stock is more fully described in the Compensation Disclosure and Analysis.


			Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)				All Other Stock Awards: Number of Shares of Stock or Units (2)	Grant Date Fair Value of Stock Awards
Name	Grant Date	Approval Date	Threshold		Maximum			Grant Date Fair Value of Stock Awards
J. Chester Porter	n/a 3/20/09	n/a 3/20/09	$	70,000	$	140,000	7,605	$	86,621

Maria L. Bouvette	n/a 3/20/09	n/a 3/20/09	$	70,000	$	140,000	7,605	$	86,621

David B. Pierce	n/a 3/20/09	n/a 3/20/09	$	49,000	$	98,000	5,324	$	60,640

C. Bradford Harris	n/a 3/20/09	n/a 3/20/09	$	20,408	$	40,815	1,977	$	22,518

(1)

Under our cash incentive plan, Mr. Porter, Ms. Bouvette and Mr. Pierce are able to earn up to a maximum of 40% of their base salary based upon our attainment of pre-established targets for the performance criteria components set forth in the table below. The following table shows the pre-established 2010 Company performance targets and the corresponding percentage of salary earned for attaining the target:


Objective	Level 1 Target Goal	Cash award as percentage of Salary		Level 2 Target Goal	Cash award as percentage of Salary
Earnings per share	105% of 2007 EPS	2	%	110% of 2007 EPS	4	%
Return on average assets (0.5% threshold)	100% of peer median	2	%	110% of peer median	4	%
Return on average equity (9.0% threshold)	100% of peer median	2	%	110% of peer median	4	%
Net interest margin	100% of peer median	2	%	110% of peer median	4	%
Efficiency ratio	100% of peer median	2	%	110% of peer median	4	%


Total		10	%		20	%

The following table shows the pre-established 2010 asset quality targets and the corresponding percentage of salary earned for attaining the target:


Objective	Level 1 Target Goal			Cash award as percentage of Salary		Level 2 Target Goal			Cash award as percentage of Salary
Ratio of NPL/Loans		3.0	%	2.5	%		2.0	%	5	%
Ratio of NPA/Assets		2.5	%	2.5	%		1.50	%	5	%
Charge-offs		0.35	%	2.5	%		0.25	%	5	%
Classified Credit Balances	$	100 million		2.5	%	$	80 million		5	%


Total				10	%				20	%

The amounts shown in the “Threshold” column assumes that each of our Level 1 target goals for each of the performance criteria components and asset quality components have been attained as more fully described in “Compensation Disclosure and Analysis – Executive Compensation Components – Cash Incentives.” The threshold amount will be reduced by 2% for performance criteria and 2.5% for asset quality criteria of each named executive officer’s base salary for any Level 1 target goal not achieved. The amounts shown in the “Maximum” column assumes that each of our Level 2 target goals for each of the performance criteria components and each of the asset quality components has been attained. Actual cash incentive compensation may range from zero to the amounts set forth in the Maximum column.

Under our cash incentive plan, Mr. Harris is able to earn up to a maximum of 30% of his base salary based upon our attainment of pre-established targets for the performance criteria components set forth in the table below. The following table shows the pre-established 2009 targets and the corresponding percentage of salary earned for attaining the target:


Objective	Level 1 Target Goal	Cash award as percentage of Salary		Level 2 Target Goal	Cash award as percentage of Salary
Earnings per share	105% of 2007 EPS	3	%	110% of 2007 EPS	6	%
Return on average assets (0.5% threshold)	100% of peer median	3	%	110% of peer median	6	%
Return on average equity (9.0% threshold)	100% of peer median	3	%	110% of peer median	6	%
Net interest margin	100% of peer median	3	%	110% of peer median	6	%
Efficiency ratio	100% of peer median	3	%	110% of peer median	6	%


Total		15	%		30	%

The amounts shown in the “Threshold” column assumes that each of our Level 1 target goals for each of the performance criteria components have been attained as more fully described in “Compensation Disclosure and Analysis – Executive Compensation Components – Cash Incentives.” The threshold amount will be reduced by 3% of his base salary for any Level 1 target goal not achieved. The amounts shown in the “Maximum” column assumes that each of our Level 2 target goals for each of the performance criteria components has been attained. Actual cash incentive compensation may range from zero to the amounts set forth in the Maximum column.

(2)

The 2009 equity-based awards for Mr. Porter, Ms. Bouvette, Mr. Pierce and Mr. Harris were made under the 2006 Stock Incentive Plan. Grants of restricted stock on March 20, 2009 were awarded based on the company’s performance in 2008, which was equal to 33.75% of the base salary of Mr. Porter, Ms. Bouvette and Mr. Pierce and 22.5% of the base salary of Mr. Harris. The restricted shares are shares of our common stock that may not be transferred, and are subject to forfeiture, over a specified period. The named executive officers that are granted restricted shares have all of the same rights as a shareholder, including the right to vote the restricted shares and the right to receive dividends The restricted stock vests at the rate of 20% on each one-year anniversary of the grant date. If a named executive officer ceases to be employed for any reason, the officer will automatically forfeit the unvested portion of the restricted shares. In the event of a change in control, the restriction on the sale of any unvested restricted shares will end.

Outstanding Equity Awards at Fiscal Year-End


	Option Awards								Stock Awards
Name	Number of Securities Underlying Unexercised Options Exercisable		Number of Securities Underlying Unexercised Options Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options	Option Exercise Price		Option Expiration Date	Number of Shares or Units of Stock that Have Not Vested		Market Value of Shares or Units of Stock That Have Not Vested			Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
J. Chester Porter	10,811	⁽¹⁾	—		—	$	25.44	03/15/2010	3,486 7,986	⁽⁴⁾ ⁽⁵⁾	$ $	52,429 120,104	⁽⁶⁾ ⁽⁶⁾	—	—

Maria L. Bouvette	10,811	⁽¹⁾	—		—	$	25.44	03/15/2010	3,486 7,986	⁽⁴⁾ ⁽⁵⁾	$ $	52,429 120,104	⁽⁶⁾ ⁽⁶⁾	—	—

David B. Pierce	97,292	⁽¹⁾	—		—	$	23.13	03/15/2010	2,441 5,591	⁽⁴⁾ ⁽⁵⁾	$ $	36,713 84,089	⁽⁶⁾ ⁽⁶⁾	—	—

C. Bradford Harris	5,513	⁽²⁾	1,749	⁽²⁾	—	$	20.07	10/19/2011	1,543 1,296 2,076	⁽³⁾ ⁽⁴⁾ ⁽⁵⁾	$ $	23,207 19,492 31,223	⁽⁶⁾ ⁽⁶⁾ ⁽⁶⁾	—	—

⁽¹⁾	The options were issued under the Ascencia Bancorp stock option plan. The number of shares has been adjusted to reflect a 5% stock dividend paid on November 10, 2008 and a 5% stock dividend paid on November 19, 2009.

⁽²⁾

The options were issued under our Stock Incentive Plan on October 19, 2006. The options are exercisable as to one-sixth of the underlying shares on each six month anniversary though October 19, 2009. The number of shares has been adjusted to reflect a 5% stock dividend paid on November 10, 2008 and a 5% stock dividend paid on November 19, 2009.

⁽³⁾	These restricted shares were issued pursuant to the Porter Bancorp, Inc. 2006 Stock Incentive Plan on October 19, 2006. These shares of restricted stock vest in one-tenth increments every one year anniversary of the grant date over ten years.

⁽⁴⁾	These restricted shares were issued pursuant to the Porter Bancorp, Inc. 2006 Stock Incentive Plan on April 11, 2008. These shares of restricted stock vest in one-fifth increments every one year anniversary of the grant date over five years.

⁽⁵⁾	These restricted shares were issued pursuant to the Porter Bancorp, Inc. 2006 Stock Incentive Plan on March 20, 2009. These shares of restricted stock vest in one-fifth increments every one year anniversary of the grant date over five years.

⁽⁶⁾	Based on the closing price of $15.04 of our common stock at December 31, 2009.

Option Exercises and Stock Vested


	Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise	Value Realized on Exercise	Number of Shares Acquired on Vesting		Value Realized on Vesting
J. Chester Porter	—	—	830	⁽¹⁾	$	10,624	⁽²⁾
Maria L. Bouvette	—	—	830	⁽¹⁾	$	10,624	⁽²⁾
David B. Pierce	—	—	581	⁽¹⁾	$	7,437	⁽²⁾
C. Bradford Harris	—	—	210	⁽³⁾	$	3,671	⁽⁴⁾
			309	⁽¹⁾	$	3,955	⁽²⁾

⁽¹⁾	One-fifth of the restricted shares awarded on April 11, 2008 vested on April 11, 2009.

⁽²⁾	Based on the closing price of $12.80 of our common stock at April 11, 2009.

⁽³⁾	One-tenth of the restricted shares awarded on October 19, 2006 vested on October 19, 2009.

⁽⁴⁾	Based on the closing price of $17.48 of our common stock at October 19, 2009.

Pension Benefits

The following table sets forth, in specified years of credited service, the estimated present value of accumulated benefits under the supplemental executive retirement plan adopted by the Bank in July 2004.


Name	Plan Name	Number of Years Credited Service	Present Value of Accumulated Benefits ⁽¹⁾		Payments During Last Fiscal Year
David B. Pierce	Supplemental executive retirement plan	N/A	$	247,797	—

⁽¹⁾

Reports the present value of the obligation to Mr. Pierce upon retirement at age 62 as of the end of the fiscal year. The plan is designed to provide monthly retirement income to Mr. Pierce for ten years equal to 30% of his projected salary at age 62. This projected salary was determined at plan inception. The present value utilizes a discount rate of 6%. The supplemental executive retirement plan is discussed in further detail under the heading “Other Benefits” in the Compensation Disclosure and Analysis section.

Potential Payments upon Termination or Change-in-Control

We have no agreements or understandings with our executive officers that provide for payments upon termination of employment or a change-in-control of our Company, except for the benefits that participants in the Supplemental Executive Retirement Plan, including Mr. Pierce, may receive upon retirement or other terminations of employment.

Subject to any change of control limitations required by ARRA, upon a change of control followed within 36 months by the voluntary or involuntary termination of employment, a plan participant will receive a lump sum payment equal to the present value of the obligation such participant would be entitled to receive upon retirement at age 62. A change of control is defined under the Plan as (a) the acquisition of 50% or more of our capital stock, (b) a change in the composition of a majority of our directors or (c) the adoption of a merger, consolidation or reorganization plan by the board of directors in which the Company is not the surviving entity. Under this change of control provision, Mr. Pierce would have received a lump sum payment equal to $556,455 if he had been terminated on December 31, 2009 and a change of control of the Company had occurred within three years prior to such date. The Supplemental Executive Retirement Plan is described in further detail under the heading “Other Benefits” in the Compensation Disclosure and Analysis section.

EQUITY PLAN INFORMATION

The following table provides information about our equity compensation plans as of December 31, 2008.


Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by shareholders	283,629	(1)	$	24.03	280,294	(2)
Equity compensation plans not approved by shareholders	—			—	—

Total	283,629		$	24.03	280,294

(1)

Includes 199,809 shares of common stock under the 2000 Stock Option Plan of Ascencia Bank, Inc., 38,670 shares of common stock under the Porter Bancorp, Inc. 2006 Stock Incentive Plan and 45,150 shares of common stock under the Porter Bancorp, Inc. 2006 Non-employee Directors Stock Ownership Incentive Plan.

(2)	249,285 of these shares may be issued under our 2006 Stock Incentive Plan as stock options or restricted stock grants and 31,009 of these shares may be issued under our Non-employee Directors Stock Ownership Incentive Plan as stock options or grants of restricted stock.

PROPOSAL NO. 2 – NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION

As previously discussed in the Compensation Disclosure and Analysis, Congress enacted ARRA in February 2009. ARRA imposes a number of requirements on financial institutions, such as Porter Bancorp, that received an investment under the Capital Purchase Program of the United States Treasury’s Troubled Asset Relief Program. One of the requirements is that at each annual meeting of shareholders during the period in which any obligation arising from TARP financial assistance remains outstanding, TARP recipients must permit a separate nonbinding “say on pay” shareholder vote to approve the compensation of executives.

This proposal gives you as a shareholder the opportunity to vote for or against the following resolution:

“RESOLVED, that the shareholders approve Porter Bancorp’s overall pay-for-performance executive compensation program, as described in the Compensation Discussion and Analysis, the compensation tables and the related narratives and other materials in this Proxy Statement.”

Because your vote is advisory, it will not be binding upon the Board and may not be construed as overruling any decision by the Board. However, the Compensation Committee may, in its sole discretion, take into account the outcome of the vote when considering future executive compensation arrangements.

Shareholders are encouraged to carefully review the “Compensation Discussion and Analysis” and “Executive Compensation” sections of this proxy statement for a detailed discussion of the Company’s executive compensation program.

Board of Directors Recommendation

Our overall executive compensation policies and procedures are described in the Compensation Discussion and Analysis and the tabular disclosure regarding named executive officer compensation (together with the accompanying narrative disclosure) in this proxy statement. Our compensation policies and procedures are centered on a pay-for-performance structure and are strongly aligned with the long-term interests of our shareholders, as described in the Compensation Discussion and Analysis. The Compensation Committee oversees our executive compensation program and regularly monitors our policies to ensure they continue to emphasize programs that reward executives for results that are consistent with shareholder interests.

Our Board and our Compensation Committee believe that our commitment to these responsible compensation practices justifies a vote by shareholders FOR the resolution approving the compensation of our executives as disclosed in this proxy statement.

The Board unanimously recommends you vote “FOR” this Proposal 2. Proxies solicited by the Board will be voted “FOR” this proposal unless otherwise instructed on the proxy card.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Engagement of Independent Auditors

At its meeting held on June 18, 2009, the Audit Committee selected Crowe Horwath, LLP to serve as Porter Bancorp’s independent registered public accounting firm and auditors for the fiscal year ending December 31, 2009. Crowe Horwath, LLP or its predecessor has served as Porter Bancorp’s independent registered public accounting firm since the 1988 fiscal year. Crowe Horwath, LLP representatives are expected to attend the 2010 Annual Meeting and will be available to respond to appropriate shareholder questions and will have the opportunity to make a statement if they desire to do so.

Fees Incurred by Porter Bancorp for Crowe Horwath, LLP

The following table presents fees for professional services rendered by Crowe Horwath, LLP for the audit of the Corporation’s annual financial statements for 2009 and 2008 and fees billed for audit-related services, tax services, and all other services rendered by Crowe Horwath, LLP for 2009 and 2008.


	2009		2008
Audit Fees	$	228,347	$	217,359
Audit-Related Fees		35,875		19,415
Tax Fees		28,700		37,035
All Other Fees		4,655		4,261

As defined by the SEC, (i) “audit fees” are fees for professional services rendered by the company’s principal accountant for the audit of the company’s annual financial statements and review of financial statements included in the company’s Form 10-Q, or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years; (ii) “audit-related fees” are fees for assurance and related services by the company’s principal accountant that are reasonably related to the performance of the audit or review of the company’s financial statements and are not reported under “audit fees,” including fees related to the Company’s registration on Form S-4 in 2009 and registration on Form S-3 in 2008; (iii) “tax fees” are fees for professional services rendered by the company’s principal accountant for tax compliance, tax advice, and tax planning; and (iv) “all other fees” are fees for products and services provided by the company’s principal accountant, other than the services reported under “audit fees,” “audit-related fees,” and “tax fees.”

Under applicable SEC rules, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent auditors in order to ensure that they do not impair the auditors’ independence. The SEC’s rules specify the types of non-audit services that an independent auditor may not provide to its audit client and establish the Audit Committee’s responsibility for administration of the engagement of the independent auditors.

Consistent with the SEC’s rules, the Audit Committee Charter requires that the Audit Committee review and pre-approve all audit services and permitted non-audit services provided by the independent auditors to us or any of our subsidiaries. The Audit Committee may delegate pre-approval authority to a member of the Audit Committee and if it does, the decisions of that member must be presented to the full Audit Committee at its next scheduled meeting.

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

The Audit Committee of the Board of Directors is comprised of three directors, each of whom the Board has determined to be an independent director as defined by the NASDAQ corporate governance rules. The duties of the Audit Committee are summarized in this Proxy Statement under “Committees of the Board” and are more fully described in the Audit Committee charter adopted by the Board of Directors.

It is the responsibility of management to prepare the consolidated financial statements and the responsibility of Crowe Horwath, LLP, Porter Bancorp’s independent registered public accounting firm, to audit the consolidated financial statements in accordance with the United States generally accepted auditing standards.

In connection with its review of Porter Bancorp’s consolidated financial statements for 2009, the Audit Committee:

•

has reviewed and discussed the audited consolidated financial statements with management;

•

has discussed with the independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standard No. 61, Communication with Audit Committees, as amended, as adopted by the Public Company accounting Oversight Board in Rule 3200T;

•

has received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees), and has discussed with the independent registered public accounting firm, the independent registered public accounting firm’s independence; and,

•

has approved the audit and non-audit services of the independent registered public accounting firm for 2009.

Based upon the review and discussions referred to in the preceding paragraph, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements for 2009 be included in Porter Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission.

Members of the Audit Committee:

David L. Hawkins, CPA, Chairman

Sidney L. Monroe, CPA

Stephen A Williams

SHAREHOLDER PROPOSALS AND NOMINATIONS

In order for a shareholder proposal to be brought before Porter Bancorp’s 2010 Annual Meeting of Shareholders, the written proposal must be received by the Corporate Secretary of Porter Bancorp at the address below no later than December 23, 2010. The notice of a proposed item of business must provide information as required in our bylaws which, in general, require that the notice include for each matter a brief description of the matter to be brought before the meeting; the reason for bringing the matter before the meeting; your name, address, and number of shares you own; and any material interest you have in the proposal. In order for a shareholder proposal to be considered for inclusion in our proxy statement for the 2011 Annual Meeting of Shareholders, the proposal will also need to comply with the SEC’s regulations under Rule 14a-8 regarding the inclusion of shareholder proposals in company sponsored proxy materials. Proposals should be addressed to:

Porter Bancorp, Inc.

Attn: Corporate Secretary

2500 Eastpoint Parkway

Louisville, Kentucky 40223

If you want to nominate a person for election as a director, you must provide written notice to the Corporate Secretary at the address above. The Corporate Secretary must receive this notice not later than December 23, 2010. The notice of a proposed director nomination must provide information as required in our bylaws which, in general, require that the notice of a director nomination include your name, address and a representation that you are a shareholder and entitled to vote for directors; the information that would be required to be disclosed in the solicitation of proxies for the election of a director under federal securities laws. You must submit the nominee’s consent to be elected and to serve. A copy of the bylaw requirements will be provided upon request made to the Corporate Secretary at the address above.

GENERAL INFORMATION

Financial Information

A copy of our 2009 Annual Report on Form 10-K is enclosed. Shareholders and prospective investors may request a copy of our 2009 Annual Report on Form 10-K by writing to C. Bradford Harris, Corporate General Counsel, Porter Bancorp, Inc., 2500 Eastpoint Parkway, Louisville, Kentucky 40223. The Form 10-K is also available from the SEC’s website at www.sec.gov or from our website at www.pbibank.com. Click on “Investor Relations” and “SEC Filings.”

Solicitation of Proxies

Porter Bancorp will pay the cost of soliciting proxies. Proxies may be solicited on behalf of Porter Bancorp by directors, officers or employees by mail, in person or by telephone, facsimile or other electronic means.


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REVOCABLE PROXY

PORTER BANCORP, INC.

ANNUAL MEETING OF SHAREHOLDERS

2500 EASTPOINT PARKWAY

LOUISVILLE, KENTUCKY 40223

May 20, 2010, 9:00 A.M. EDT

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PORTER BANCORP, INC.

The undersigned hereby appoints David B. Pierce and C. Bradford Harris attorneys-in-fact and proxies, with full power of substitution, to attend the Annual Meeting of Shareholders to be held on May 20, 2010 at 9:00 a.m. E.D.T., and at any adjournments or postponements of the Annual Meeting, and to vote as specified on the reverse all shares of the Common Stock of Porter Bancorp, Inc. that the undersigned would be entitled to vote if personally present at the Annual Meeting.

(Continued and to be signed on the reverse side)

14475

ANNUAL MEETING OF SHAREHOLDERS OF

PORTER BANCORP, INC.

May 20, 2010

NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL:

The Notice of Meeting, proxy statement and proxy card

are available at www.pbibank.com under “Investor Relations.”

Please sign, date and mail

your proxy card in the

envelope provided as soon

as possible.

i Please detach along perforated line and mail in the envelope provided. i


¢		20630000000000000000 6						052010

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF THE LISTED DIRECTORS AND “FOR” PROPOSAL 2.

PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x

FOR

AGAINST

ABSTAIN

1. ELECTION OF DIRECTORS: Nominees for a term of one year:

2. NON-BINDING ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION.

NOMINEES:

¨ FOR ALL NOMINEES

¨ WITHHOLD AUTHORITY

FOR ALL NOMINEES

¨ FOR ALL EXCEPT

(See instructions below)

O Maria L. Bouvette

O David L. Hawkins

O W. Glenn Hogan

O Sidney L. Monroe

O J. Chester Porter

O Stephen A. Williams

3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT OF IT.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE LISTED DIRECTORS AND FOR PROPOSAL 2.

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.

INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: l

To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.

Signature of Shareholder

Date:

Signature of Shareholder

Date:


¢		Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.		¢