Forward-Looking Statements

This report contains forward-looking statements that relate to future transactions, events or expectations. In addition, RGC Resources, Inc. ("Resources" or the "Company") may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. These statements are based on management's current expectations and information available at the time of such statements and are believed to be reasonable and are made in good faith. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, but are not limited to, the following: (i) failure to earn on a consistent basis an adequate return on invested capital; (ii) ability to retain and attract professional and technical employees; (iii) the potential loss of large-volume industrial customers to alternate fuels, facility closings or production changes; (iv) volatility in the price and availability of natural gas; (v) uncertainty in the demand for natural gas in the Company's service area; (vi) general economic conditions both locally and nationally; (vii) increases in interest rates; (viii) increased customer delinquencies and conservation efforts resulting from high fuel costs, difficult economic conditions and/or colder weather; (ix) variations in winter heating degree-days from the 30-year average on which the Company's billing rates are set; (x) impact of potential climate change legislation regarding limitations on carbon dioxide emissions; (xi) impact of potential increased regulatory oversight and compliance requirements due to financial, environmental, safety and system integrity laws and regulations; (xii) failure to obtain timely rate relief for increasing operating or gas costs from regulatory authorities;
(xiii) capital market conditions and the availability of debt and equity financing; (xiv) impact of terrorism; (xv) volatility in actuarially determined benefit costs and plan asset performance; (xvi) effect of natural disasters on production and distribution facilities and the related effect on supply availability and price; and (xvii) changes in accounting regulations and practices, which could change the accounting treatment for certain transactions. All of these factors are difficult to predict and many are beyond the Company's control. Accordingly, while the Company believes its forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. When used in the Company's documents or news releases, the words, "anticipate," "believe," "intend," "plan," "estimate," "expect," "objective," "projection," "forecast", "budget", "assume", "indicate" or similar words or future or conditional verbs such as "will," "would," "should," "can", "could" or "may" are intended to identify forward-looking statements.

Forward-looking statements reflect the Company's current expectations only as of the date they are made. The Company assumes no duty to update these statements should expectations change or actual results differ from current expectations except as required by applicable laws and regulations.

The three-month and six-month earnings presented herein should not be considered as reflective of the Company's consolidated financial results for the fiscal year ending September 30, 2009. The total revenues and margins realized during the first six months reflect higher billings due to the weather sensitive nature of the gas business. Improvement or decline in earnings will depend primarily on the level of operating and maintenance costs and, to a lesser extent, weather.

Overview

Resources is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 57,000 residential, commercial and industrial customers in Roanoke, Virginia and the surrounding areas through its Roanoke Gas Company ("Roanoke Gas") subsidiary. Natural gas service is provided at rates and for the terms and conditions set forth by the Virginia State Corporation Commission ("SCC").

Resources also provided regulated sale and distribution of natural gas to Bluefield, West Virginia, the Town of Bluefield, Virginia and surrounding areas through its Bluefield Gas Company ("Bluefield") subsidiary and the Bluefield division of Roanoke Gas (collectively called "Bluefield Operations"). Effective as of October 31, 2007, Resources closed on the sale of the stock of Bluefield to ANGD, LLC and Roanoke Gas completed the sale of the assets of its Bluefield division to Appalachian Natural Gas Company, a subsidiary of ANGD, LLC. The corresponding activities of the Bluefield Operations up to the effective date of the sale have been classified as discontinued operations. See Note 2 above for more information on these transactions.

Resources also provides certain unregulated services through Roanoke Gas Company and information system services to software providers in the utility industry through RGC Ventures, Inc. of Virginia, which operates as Application Resources. Such operations represent less than 2% of total revenues and margin of Resources.

Winter weather conditions and volatility in natural gas prices both have a direct influence on the quantity of natural gas sales to the Company's customers and management believes each factor has the potential to significantly impact earnings. A majority of natural gas sales are for space heating during the winter season. Consequently, during warmer than normal (normal means average heating degree-days for a specified period) winters, customers may significantly reduce their consumption of natural gas. Furthermore, significant increases in natural gas commodity prices can affect customer usage by encouraging conservation or use of alternative fuels.

Because the SCC authorizes billing rates for the utility operations of Roanoke Gas based on normal weather, warmer than normal weather may result in the Company failing to earn its authorized rate of return. The Company has been able to mitigate a portion of the risk associated with warmer than normal winter weather by the inclusion of a weather normalization adjustment ("WNA") factor as part of its rate structure, which allows the Company to recover revenues equivalent to the margin that would be realized at approximately 6% warmer than the 30-year normal. For the current WNA period ending March 31, 2009, the Company did not record a WNA adjustment as the number of heating degree-days (an industry measure by which the average daily temperature falls below 65 degrees Fahrenheit) fell within the 6% weather band

during the measurement period running from April through March. The Company recorded approximately $40,000 and $355,000 in additional revenues for the three-month and six-month periods ended March 31, 2008 to reflect the impact of the WNA.

The current economic environment has had a negative impact on the local economy as construction activity has significantly slowed and industrial activity has declined. Natural gas consumption by the Company's industrial and transportation customers has declined by more than 18% from the same quarter last year. Most of the decline appears to be related to reduced production activities by these customers and should improve when the economy recovers. One industrial customer announced plans to close its operations which will result in the loss of approximately 65,000 decatherms, or $80,000 in margin, annually. Furthermore, with the current difficulties in the economy and the growing job losses, the Company may begin to experience a greater level of customer payment delays and rising bad debt expense. Bad debt expense has increased for the three-month and six-month periods ended March 31, 2009. Much of the increase is related to a greater level of billed volumes, while a portion of the higher expense is due to increases in past due balances. Currently, the higher level of past-due balances is not considered significant; however, management continues to closely monitor accounts receivable activity and intends to take action to mitigate the impact to the Company and its customers if the level of customer delinquencies continues to increase.

Volatility in natural gas prices also presents issues for the Company. The commodity price of natural gas has declined from its peak of more than $13.00 per decatherm last summer to under $4.00 a decatherm in March. Currently, futures prices for natural gas on the NYMEX (New York Mercantile Exchange) range between $3.75 and $6.00 per decatherm over the next 12 months. If natural gas prices remain at these levels, both the Company and its customers should benefit by having relative stability in pricing. A strong economic recovery that spurs demand for natural gas, causes supply availability problems and/or other issues could escalate natural gas prices and negatively affect the Company by making natural gas a less attractive energy source.

The Company has an approved rate structure in place that mitigates the impact of financing costs of its natural gas inventory in relation to price volatility. Under this rate structure, Roanoke Gas accrues revenue to cover the financing costs or "carrying costs" related to the level of investment in natural gas inventory. During times of rising gas costs and rising inventory levels, the Company recognizes revenues to offset higher financing costs associated with higher inventory balances. Conversely, during times of decreasing inventory costs and lower inventory balances, the Company recognizes less carrying cost revenue as the financing costs would be less. The Company recognized approximately $581,000 and $1,445,000 in carrying cost revenues for the three-month and six-month periods ended March 31, 2009, compared to approximately $463,000 and $1,091,000 for the same periods last year. The increase in carrying cost revenues was primarily attributable to the higher per decatherm price of gas in storage due to steep increases in the commodity price of natural gas during last summer's storage injections when gas prices peaked at more than $13.00 a decatherm. If natural gas prices remain at the lower levels as indicated by the NYMEX futures prices discussed above, the per decatherm value of natural gas will decline as storage balances begin to refill. Although the lower prices will enhance appeal of natural gas as an energy choice, reduced natural gas inventory values will lead to a significant decline in the amount of carrying cost revenues included in natural gas margins over the balance of the current fiscal year and into next year.

RGC RESOURCES, INC. AND SUBSIDIARIES



Results of Operations

Consolidated net income (loss) from continuing and discontinued operations is as
follows:



                                   Three Months Ended           Six Months Ended
                                        March 31,                   March 31,
                                   2009          2008          2009          2008
      Net Income
      Continuing Operations     $ 2,643,693   $ 2,418,609   $ 4,592,852   $ 3,984,617
      Discontinued Operations            -             -             -        (36,690 )


      Net Income                $ 2,643,693   $ 2,418,609   $ 4,592,852   $ 3,947,927

Continuing Operations

Three Months Ended March 31, 2009:

The table below reflects operating revenues, volume activity and heating
degree-days.



                                                Three Months Ended
                                                    March 31,               Increase/
                                               2009            2008         (Decrease)       Percentage
Operating Revenues
Gas Utilities                              $ 34,003,752    $ 39,349,932    $ (5,346,180 )           -14 %
Other                                           282,750         214,446          68,304              32 %


Total Operating Revenues                   $ 34,286,502    $ 39,564,378    $ (5,277,876 )           -13 %


Delivered Volumes
Regulated Natural Gas (DTH)
Tariff Sales                                  3,160,666       3,086,442          74,224               2 %
Transportation                                  636,516         765,372        (128,856 )           -17 %


Total Delivered Volumes                       3,797,182       3,851,814         (54,632 )            -1 %


Heating Degree Days (Unofficial)                  2,052           1,995              57               3 %

Total operating revenues for the three months ended March 31, 2009 compared to the same period last year decreased due to significantly lower natural gas prices. Most of the reduction is attributable to the reduction of revenue through the Company's purchased gas cost adjustment ("PGA"). The SCC allows the Company to recover prudently incurred gas costs through the gas cost component of its billing rate. Any amount billed to customers in excess of actual gas costs is deferred as an over-collection of gas costs to be refunded to customers, while any excess cost of natural gas not recovered by the gas cost component of its billing rate is accrued as an under-collection of gas costs to be collected from customers. As natural gas prices declined at a faster rate than the Company's gas cost factor in its billing rate, the Company reduced revenue by the amount of the over-collection and increased its liability to customers on the balance sheet.

                                Three Months Ended
                                     March 31,            Increase/
        Gross Margin            2009          2008        (Decrease)    Percentage
        Gas Utilities        $ 9,182,375   $ 8,522,286   $    660,089            8 %
        Other                    149,944       130,530         19,414           15 %


        Total Gross Margin   $ 9,332,319   $ 8,652,816   $    679,503            8 %

Regulated natural gas margins from utility operations increased over the same period last year due to the implementation of a non-gas base rate increase and higher inventory carrying cost revenues more than offsetting reductions in delivered natural gas volumes. Tariff sales (consisting primarily of residential and commercial volumes) increased slightly on approximately the same number of heating degree days, while transportation volumes, which generally correspond to production activities of certain larger industrial customers, declined significantly due to the current unfavorable economic environment. The Company placed increased non-gas base rates into effect in November. These rates were placed into effect subject to refund pending a final order from the SCC. As a result of the higher rates, the Company realized approximately $166,000 in additional margin from customer base charges, which is a flat monthly fee billed to each natural gas customer. The total volumetric margin increased by approximately $423,000 primarily due to the effect of the rate increase. Carrying cost revenues, as explained above, increased by approximately $118,000 due to a higher average investment in natural gas storage during the period.

RGC RESOURCES, INC. AND SUBSIDIARIES



The components of the gas utility margin increase are summarized below:



            Net Margin Increase
            Customer Base Charge including rate increase    $ 165,891
            WNA                                               (40,238 )
            Carrying Cost                                     117,988
            Volumetric including rate increase and volume     422,680
            Other                                              (6,232 )


            Total                                           $ 660,089

Other margins increased by $19,414 over last year primarily due to an increase in contract services as part of the unregulated operations.

Operations expenses increased by $270,215, or 11%, compared to the same period last year, resulting from higher bad debt expense, employee benefit costs and contractor and operations labor and a reduction in capitalized overheads. Bad debt expense increased by $32,000 due to higher gross billings and increases in past due balances. Contractor and company labor increased approximately $83,000 due to reduced capital activity and normal salary adjustments. Total employee benefit costs increased by approximately $65,000 over the same period last year due to increases in pension and post-retirement medical costs and higher health insurance premiums. Reductions in capital expenditures for extending natural gas due to declines in residential and commercial development resulted in a $45,000 reduction in the level of capitalized overheads. The remaining difference is attributable to minor increases in other operating expense categories. Maintenance expenses increased by $60,082, or 18%, primarily due to the timing of repairs of pipeline leaks in the Company's distribution system determined through annual leak surveys.

General taxes increased by $10,862, or 3%, related to higher property taxes associated with increased investment in utility plant and higher payroll taxes. Depreciation expense increased $48,256, or 4%, on a corresponding increase in utility plant associated with replacing cast iron and bare steel pipe and extending service to new customers Other income, net, increased by $5,146 due to lower level of miscellaneous deductions.

Interest expense declined by $55,119, or 11%, even though total average debt outstanding during the period increased by more than $750,000. The reduction in interest is due to a combination of significantly lower interest rates on the Company's line-of-credit and the retirement of the $5,000,000 first mortgage note, which was replaced by a lower interest rate note. The interest rate on the Company's line-of-credit arrangement is based on LIBOR and the effective average rate for the quarter was 0.9% compared to 4.4% for the same period last year.

Income tax expense increased by $125,269, or 9%, which corresponds to the increase in pre-tax income from continuing operations for the quarter. The effective tax rate was 38% for both periods.

RGC RESOURCES, INC. AND SUBSIDIARIES



Six Months Ended March 31, 2009:

The table below reflects operating revenues, volume activity and heating
degree-days.



                                                 Six Months Ended
                                                    March 31,               Increase/
                                               2009            2008         (Decrease)       Percentage
Operating Revenues
Gas Utilities                              $ 62,195,675    $ 64,904,575    $ (2,708,900 )            -4 %
Other                                           550,022         400,711         149,311              37 %


Total Operating Revenues                   $ 62,745,697    $ 65,305,286    $ (2,559,589 )            -4 %


Delivered Volumes
Regulated Natural Gas (DTH)
Tariff Sales                                  5,458,174       5,087,458         370,716               7 %
Transportation                                1,339,174       1,472,575        (133,401 )            -9 %


Total Delivered Volumes                       6,797,348       6,560,033         237,315               4 %


Heating Degree Days (Unofficial)                  3,560           3,286             274               8 %

Total operating revenues from continuing operations for the six months ended March 31, 2009 compared to the same period last year decreased due to reductions in the price of natural gas more than offsetting a greater level of natural gas sales volumes and the implementation of a non-gas cost rate increase. The average commodity price of gas delivered declined by more than 14% from last year. Total tariff natural gas sales volumes increased by 7% on an 8% rise in the number of heating degree-days. Transportation volumes declined by 9% due to the current economic climate. Other revenues increased by 37% related primarily to contract services.

                                 Six Months Ended
                                     March 31,             Increase/
       Gross Margin             2009           2008       (Decrease)    Percentage
       Gas Utilities        $ 17,130,958   $ 15,780,200   $ 1,350,758            9 %
       Other                     297,398        241,445        55,953           23 %


       Total Gross Margin   $ 17,428,356   $ 16,021,645   $ 1,406,711            9 %

Regulated natural gas margins increased due to a combination of 4% higher delivered volumes, the implementation of a non-gas cost rate increase and higher carrying cost revenues more than offsetting the absence of WNA revenues. More than half of the increased margin was attributable to the non-gas cost rate increase which is expected to provide nearly $1.2 million in additional annual revenues and margin. The 7% increase in the higher margin tariff sales more than offset the absence of the WNA revenue. For the WNA period ended March 31, 2009, the weather was approximately 5% warmer than the 30 year average, while the same period last year reflected a 12% warmer than normal temperatures. The prior year WNA revenues reduced the effect of the 12% warmer than normal temperatures to approximately 6% level. Carrying cost revenues increased by approximately $354,000 due to a higher average investment in natural gas storage during the period. The components of the regulated margin increase are summarized below:

           Net Margin Increase
           Customer Base Charge including rate increase    $   283,031
           WNA                                                (355,347 )
           Carrying Cost                                       353,980
           Volumetric including rate increase and volume     1,088,983
           Other                                               (19,889 )


           Total                                           $ 1,350,758

Operations expenses increased by $277,099, or 5%, for the six-month period ended March 31, 2009 compared to the same period last year due to higher bad debt expense, employee benefit costs and contractor and operations labor and a reduction in capitalized overheads partially offset by reductions in professional services. Bad debt expense increased by $65,000 due to higher gross billings and increases in past due balances, while a lower level of capital activity and the timing of annual leak survey work performed on the Company's natural gas distribution system resulted in increases to operations labor and contractor expense and reduced the amount of allocated overheads from operations to capital accounting by approximately $238,000. Total employee benefit costs increased by approximately $60,000 over the same period last year due to increases in pension and post-retirement medical costs and higher health insurance premiums. Professional services declined by $84,000 attributable to a modest reduction in accounting and legal fees combined with a reduction in costs related to the transfer of benefit plan and actuarial services to a lower cost provider in the second quarter of last year. Maintenance expenses increased $110,855, or 16%, due to timing of pipeline leak repairs of the Company's distribution system determined through annual leak surveys.

General taxes increased $27,335, or 5%, for the six-month period ended March 31, 2009 compared to the same period last year. Most of the increase was attributable to higher property taxes related to higher level utility plant combined with an increase in payroll taxes. Depreciation expense increased $103,275, or 5%, due to the growth in utility plant associated

with extending service to new customers and replacing cast iron and bare steel pipe. Other income, net, decreased $5,377 due to reduced investment earnings on the Company's short-term investments.

Interest expense decreased by $88,281, or 8%, due to significantly lower interest rates on the Company's line-of-credit and the refinancing of the Company's $5,000,000 first mortgage note, which matured on July 1, 2008.

Income tax expense increased $362,816, or 15%, which corresponds to the rise in pre-tax income from continuing operations. The effective tax rate was 38.0% compared to 38.1% for the same period last year.

Critical Accounting Policies and Estimates

The consolidated financial statements of Resources are prepared in accordance with accounting principles generally accepted in the United States of America. The amounts of assets, liabilities, revenues and expenses reported in the Company's financial statements are affected by accounting policies, estimates and assumptions that are necessary to comply with generally accepted accounting principles. Estimates used in the financial statements are derived from prior experience, statistical analysis and professional judgments. Actual results may differ significantly from these estimates and assumptions.

The Company considers an estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate are reasonably likely to occur from period to period. The Company considers the following accounting policies and estimates to be critical.

Regulatory accounting - The Company's regulated operations follow the accounting and reporting requirements of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS No. 71). The economic effects of regulation can result in a regulated company deferring costs that have been or are expected to be recovered from customers in a period different from the period in which the costs would be charged to expense by an unregulated enterprise. When this occurs, costs are deferred as assets in the consolidated balance sheet (regulatory assets) and recorded as expenses when such amounts are reflected in rates. Additionally, regulators can impose liabilities upon a regulated company for amounts previously collected from customers and for current collection in rates of costs that are expected to be incurred in the future (regulatory liabilities).

. . .