This section should be read in conjunction with the following parts of this Form 10-K: Forward-Looking Statements, Part II, Item 8 "Financial Statements and Supplementary Data," Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," and Part I, Item 1 "Business."

Executive Summary

The Company's net income for fiscal 2009 was $7.8 million and net income available to common stockholders was $6.5 million, or $1.61 per diluted share, compared to $5.8 million, or $1.45 per diluted share for fiscal 2008. Preferred share dividends, amortization and warrant repurchase related to the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, issued to the U.S. Department of the Treasury under the CPP accounted for the $1.3 million, or $0.33 per diluted share, difference between reported net income and net income available to common stockholders. Return on average equity was 9.73% at June 30, 2009, compared to 9.12% at June 30, 2008.

Net interest income for fiscal 2009 was $35.3 million, an increase of $5.5 million or 18.3% over the same period a year ago. The net interest margin was 3.26%, compared to 3.11% for the same period a year ago, an increase of 15 basis points. On a fully taxable equivalent basis, the net interest margin for fiscal 2009 was 3.32%, compared to 3.16% in fiscal 2008. The cost of funds rate on interest-bearing liabilities decreased from 3.87% in fiscal 2008 to 2.65% in fiscal 2009, a change of 122 basis points. For the same period, yields on earning assets decreased from 6.58% to 5.60%, a decrease of 98 basis points. Increases in volume from fiscal 2008 to fiscal 2009 of average earning assets and interest-bearing liabilities were 12.7% and 11.1% respectively. The Company was positioned to benefit from a steeper, more positive yield curve slope, and as such the net interest margin ratio benefitted as the Federal Funds Rate decreased 175 basis points in fiscal 2009.

Variability of the net interest margin ratio may be affected by many aspects, including Federal Reserve policies for short-term interest rates, competitive and global economic factors and customer preferences for various products and services.

Agricultural loans accounted for the majority of the loan growth between fiscal 2009 and 2008. Agricultural real estate loans were $102.2 million at the end of 2009, up $30.1 million or 41.7% since fiscal year 2008, and comprised 11.8% of total loans outstanding, up from 9.1% at the end of 2008. Agricultural business loans were $129.1 million at the end of 2009, up $41.0 million or 46.5% since fiscal year 2008, and comprised 14.9% of total loans outstanding, up from 11.1% at the end of 2008. Loans of this type are in a diverse range of agricultural enterprises, including grain production, dairy and livestock operations. The credit risk related to agricultural loans is largely influenced by general economic conditions and the resulting impact on a borrower's operations or on the value of underlying collateral, if any. Credit risk is managed by employing sound underwriting guidelines, lending primarily to borrowers in local markets, periodically evaluating the underlying collateral, and formally reviewing the borrower's financial soundness and relationship on an ongoing basis.

The allowance for loan and lease losses increased $2.5 million to $8.5 million at June 30, 2009, an increase of 42.8%. The ratio of allowance for loan and lease losses to total loans and leases was 0.98% as of June 30, 2009 compared to 0.75% at June 30, 2008. Total nonperforming assets at June 30, 2009 were $12.6 million as compared to $3.7 million at June 30, 2008. The increase in non-performing assets was primarily attributable to one credit relationship. The ratio of nonperforming assets to total assets was 1.07% for June 30, 2009, compared to 0.34% at June 30, 2008. The allowance for loan and lease losses is calculated based on loan and lease levels, loan and lease loss history over 12, 36, and 60 month time periods, credit quality of the loan and lease portfolio, and environmental factors such as economic health of the region and management experience. This risk rating analysis is designed to give the Company a consistent and systematic methodology to determine proper levels for the allowance at a given time.

On June 26, 2006, the Company filed a $3.8 million lawsuit against MetaBank for their role in certain loan participation interests, alleging fraud, breach of fiduciary duty, conspiracy, and negligent misrepresentation. In October 2008, the Company settled for $2.8 million inclusive of the remaining amount of receivables from certain loan participation interests in the amount of $223,000. The settlement amount, less attorney fees of $292,000, was recorded as a recovery of loan and leases losses in the second quarter of fiscal 2009.

During the second quarter of fiscal year 2009, an increase in equity occurred with participation in the CPP. As referenced in the 8-K filed November 24, 2008, the Company entered into an agreement with the Treasury pursuant to which the Company agreed to issue and sell to the Treasury
(i) 25,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share (the "Preferred Stock") and having a liquidation preference of $1,000 per share, and (ii) a warrant to purchase up to 302,419 shares of the Company's common stock, par value $0.01 per share, at an initial exercise price of $12.40 per share (the "Warrant"), for an aggregate purchase price of $25.0 million in cash. The securities were issued and sold in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. Cumulative dividends on the Preferred Stock accrued on the liquidation preference at a rate of 5% per annum for the first five years, and at a rate of 9% per annum thereafter, only to be paid if, as and when declared by the Company's Board of Directors.

In conjunction with the Company's participation in the CPP, the Company's Board of Directors terminated the stock buyback program in the second quarter which had been in place through November 21, 2008, in which up to 10% of the common stock of the Company outstanding on May 1, 2008 could be acquired through April 30, 2009.

The Company repurchased all of its outstanding shares of the Preferred Stock on June 3, 2009 and completed its repurchase of the Warrant on June 30, 2009. The repurchase price of the Preferred Stock was $25.0 million plus a final accrued dividend of $62,500, while the Warrant was repurchased at a price of $650,000.

The Company held $11.9 million in trust preferred securities at June 30, 2009 that are currently impaired under applicable accounting rules. These are comprised of pooled securities issued primarily by banks throughout the United States, and were downgraded below investment grade by Moody's during the 2009 fiscal year. The Company performed analysis to determine if any of the securities had a credit loss by estimating if any of the cash flows are not expected to be received as contracted. Based upon the analysis, the total other-than-temporary impairment losses taken against the pooled trust preferred securities was $3.9 million, of which $3.5 million was recognized on the balance sheet in other comprehensive income with $397,000 of credit loss recognized through earnings.

Total deposits at June 30, 2009, were $837.9 million, an increase of $53.6 million, or 6.8%, from June 30, 2008. Due to a historically low interest rate environment and a steeper yield curve, the Company experienced a preference of customers favoring in-market certificates of deposit, which

increased $75.3 million or 23.1% from June 30, 2008, while lower yielding money market accounts decreased $26.5 million or 15.4% from June 30, 2008. Interest expense on deposits was $15.7 million for fiscal 2009, a decrease of $9.0 million, or 36.5%, over the same period a year ago. A primary factor affecting interest expense was a decrease in money market rates and certificate of deposit rates.

The Company has a line of credit for $6.0 million with First Tennessee Bank, NA for liquidity needs in the Company. The note is short-term in duration and is subject to annual review. In case of default on the notes, the Company's ability to pay cash dividends may be restricted. At June 30, 2009, $5.5 million was advanced on the line of credit. See Note 7 of "Notes to Consolidated Financial Statements," which is included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Form 10-K, Part II, Item 7 "Financial Condition Data" of this Form 10-K and Exhibit 10.11 of this Form 10-K for additional information.

The total risk-based capital ratio was 11.05% at June 30, 2009, compared to 10.83% at June 30, 2008. This continues to place the Bank in the "well-capitalized" category within OTS regulation at June 30, 2009, and is consistent within the "well-capitalized" OTS category in which the Company plans to operate. The Company historically has been able to manage the size of its assets through secondary market loan sales of single-family mortgages, student loans and a loan securitization.

Noninterest income for fiscal 2009 was $12.6 million, compared to $11.3 million for the same period a year ago, an increase of $1.3 million or 11.2%. The increases in fees on deposits, net gain on sale of loans and net gain on sale of securities of $372,000, $709,000, and $901,000, respectively, primarily contributed to the noninterest income increase from fiscal 2008 to fiscal 2009. Increased mortgage loan originations arising from reduced interest rates contributed to the increase in the net gain on sale of loans. The net gain on sale of securities increased primarily due to the sales of longer term fixed rate residential mortgage-backed securities. Trust income decreased $290,000 and net impairment losses recognized in earnings increased $405,000, which combined to somewhat offset the previously mentioned increases from fiscal 2008 to fiscal 2009.

Noninterest expense for fiscal 2009 was $34.6 million, compared to $30.6 million a year ago, an increase of $4.0 million or 12.9%. Employee compensation and benefits, FDIC insurance, and professional fees increased $1.3 million, $1.3 million, and $634,000, respectively, as compared to fiscal 2008. Employee compensation increased $887,000 or 7.2%, variable pay related to employee incentives and commissions decreased $606,000 or 24.6% and net healthcare costs increased $1.1 million or 72.9%. Employee compensation increased due to annual raises awarded and sales-related personnel additions. Variable pay relating to employee incentive programs decreased due to a reduced change in performance outcomes compared to the prior year. Net healthcare costs, inclusive of self-funded health claims, administration fees and fully-insured dental premiums offset by stop loss insurance receivable and employee reimbursements for fiscal 2009 were $2.6 million, compared to $1.5 million for the same period a year ago. This change is primarily due to higher claim activity in the second and third quarters of fiscal 2009. Management continues to believe the current structure is a reasonable alternative to traditional healthcare plans over the long term. Since the plan is a self-insured plan, the costs will vary from year to year. FDIC insurance costs increased due to the exhaustion of previously earned credits in the second quarter of fiscal 2009, increased assessment rates in the third quarter of fiscal 2009, and a special assessment of $536,000 accrued on June 30, 2009.

The Company focuses on balancing operating costs with operating revenue levels in order to provide better efficiency ratios over time and continues to review its operations for ways to reduce its cost structure while continuing to support long-term revenue enhancements. The operating efficiency ratio (i.e., non-interest expense divided by total revenue adjusted for interest expense of trust preferred debt securities) for fiscal 2009 was 69.83%, compared to 70.75% for the same period a year ago, a decrease of 92 basis points. The operating efficiency ratio excludes the impact of net interest expense on the variable priced trust preferred securities. The Company has issued trust preferred securities

primarily to provide funding for stock repurchases and to repay other borrowings. Net interest expense on the $27.8 million of trust preferred securities outstanding decreased to $1.8 million for fiscal 2009, compared to $2.1 million for the same period a year ago, a decrease of $299,000 or 14.0%. The average rate paid on these securities decreased 107 basis points, from 7.68% in fiscal 2008 to 6.61% in fiscal 2009. The total efficiency ratio (i.e., non-interest expense divided by total revenue) was 72.12% at June 30, 2009, compared to 74.27% for the same period a year ago, a decrease of 215 basis points. Contributing to this improvement in the efficiency ratio from a year ago includes an increase in Company revenue to $47.9 million for fiscal 2009, or a 16.3% increase compared to the same period a year ago. It is the Company's continuing goal to move the operating efficiency ratio towards the 50% level over the long term. Management believes that this can be accomplished through steady growth of the balance sheet and the containment of incremental operating expenses.

Recent events in the financial markets produce uncertainties to management about future operating results and the future financial condition of the Company. The interdependencies of the national economy and financial markets do affect the macro economics reviewed by management and may produce outcomes in the future that have not impacted the Company previously.

General

The Company is a financial services provider and, as such, has inherent risks that must be managed in order to achieve net income. Primary risks that affect net income include credit risk, liquidity risk, operational risk, regulatory compliance risk and reputation risk. The Company's net income is derived by management of the net interest margin, the ability to collect fees from services provided, by controlling the costs of delivering services and the management of loan and lease losses. The primary source of revenues comes from the net interest margin, which represents the difference between income on interest-earning assets (i.e. loans and investment securities) and expense on interest-bearing liabilities (i.e. deposits and borrowed funding). The net interest margin is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. Fees earned include charges for deposit services, trust services and loan services. Personnel costs are the primary expenses required to deliver the services to customers. Other costs include occupancy and equipment and general and administrative expenses.

Financial Condition Data

At June 30, 2009, the Company had total assets of $1,176.8 million, an increase of $73.3 million from the level at June 30, 2008. The increase in assets was due primarily to increases in net loans and leases receivable of $65.0 million and loans held for sale of $6.1 million offset by a decrease in cash and cash equivalents of $2.7 million. The increase in liabilities of $68.8 million was primarily due to increases in deposits of $53.6 million and advances from the FHLB and other borrowings of $14.4 million. In addition, stockholders' equity increased to $68.7 million at June 30, 2009, from $64.2 million at June 30, 2008, primarily due to net income of $7.8 million offset by cash dividends paid of $2.5 million.

The increase in net loans and leases receivable of $65.0 million was due primarily to an increase in originations over sales, amortization and repayments of principal. During the first quarter of fiscal 2008, the Company announced that it had ceased origination of indirect auto loans. Indirect auto loan outstanding balances declined $22.9 million during the fiscal year to $21.4 million at June 30, 2009. In addition, deferred fees and discounts decreased by $269,000 primarily due to a decrease of $390,000 for deferred fees and discounts on indirect automobile loans that include prepaid dealer reserves.

See the Consolidated Statement of Cash Flows for an in-depth analysis of the change in cash and cash equivalents.

Deposits and advances from the FHLB and other borrowings increased $53.6 million and $14.4 million, respectively, at June 30, 2009 as compared to June 30, 2008. The increase in advances from FHLB and other borrowings were utilized to offset the net increases in outflows for net loans and leases receivable which were greater than the overall increase in deposits.

The $53.6 million increase in deposits was due primarily to the in-market certificates of deposit increase in the amount of $75.3 million, inclusive of an increase of $16.1 million in the Certificate of Deposit Account Registry Service program. Public funds have increased to $182.5 million at June 30, 2009 from $156.3 million at June 30, 2008, which are categorized in multiple deposit categories. The noninterest bearing and interest bearing checking accounts increased $8.2 million, while the savings increased $2.8 million. These increases were offset by decreases in money market accounts and out-of-market deposits of $26.5 million and $6.2 million, respectively, when compared to the totals at June 30, 2008.

Analysis of Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.

Average Balances, Interest Rates and Yields. The following table presents for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. The table does not reflect any effect of income taxes. Average balances consist of daily average balances for the Bank with simple average balances for all other

companies. The average balances include nonaccruing loans and leases. The yields on loans and leases include origination fees, net of costs, which are considered adjustments to yield.

                                                                        Years Ended June 30,
                                           2009                                 2008                                 2007
                              Average      Interest                Average      Interest                 Average      Interest
                            Outstanding     Earned/    Yield/    Outstanding     Earned/    Yield/     Outstanding     Earned/    Yield/
                              Balance        Paid       Rate       Balance        Paid       Rate        Balance        Paid       Rate
                                                                       (Dollars in Thousands)
Interest-earning assets:
  Loans and leases
  receivable(1)(3)           $   829,486    $ 49,460      5.96 %  $   775,558    $ 53,972      6.96 %  $    758,455    $ 54,344      7.17 %
  Investment
  securities(2)(3)               241,294      11,060      4.58        176,652       8,844      5.01         152,132       7,209      4.74
  FHLB stock                      12,274         168      1.37          8,511         358      4.21           6,406         321      5.01

Total interest-earning
assets                         1,083,054    $ 60,688      5.60 %      960,721    $ 63,174      6.58 %       916,993    $ 61,874      6.75 %

  Noninterest-earning
  assets                          67,454                               70,371                                68,832

Total assets                 $ 1,150,508                          $ 1,031,092                          $    985,825

Interest-bearing
liabilities:
Deposits:
  Checking and money
  market                     $   231,362    $  1,956      0.85 %  $   268,264    $  6,979      2.60 %  $    282,312    $ 10,436      3.70 %
  Savings                         71,004         542      0.76         56,005       1,152      2.06          46,207       1,240      2.68
  Certificates of deposit        392,775      13,181      3.36        355,401      16,562      4.66         362,321      16,829      4.64

       Total
       interest-bearing
       deposits                  695,141      15,679      2.26        679,670      24,693      3.63         690,840      28,505      4.13
  FHLB advances and other
  borrowings                     232,206       7,841      3.38        152,289       6,467      4.25         106,151       5,061      4.77
  Subordinated debentures
  payable to trusts(4)            27,837       1,839      6.61         27,837       2,138      7.68          27,837       2,674      9.61

Total interest-bearing
liabilities                      955,184    $ 25,359      2.65 %      859,796    $ 33,298      3.87 %       824,828    $ 36,240      4.39 %

  Noninterest-bearing
  deposits                        76,838                               79,313                                76,698
  Other liabilities               38,152                               27,914                                24,558

Total liabilities              1,070,174                              967,023                               926,084
  Equity                          80,334                               64,069                                59,741

Total liabilities and
equity                       $ 1,150,508                          $ 1,031,092                          $    985,825

Net interest income;
interest rate spread                        $ 35,329      2.95 %                 $ 29,876      2.70 %                  $ 25,634      2.36 %

Net interest margin(5)                                    3.26 %                               3.11 %                                2.80 %

Net interest margin,
TE(6)                                                     3.32 %                               3.16 %                                2.85 %

º (2)
º Includes federal funds sold.

º (3)
º Yields do not reflect the tax-exempt nature of loans, equipment leases and municipal securities.

º (4)
º Includes $125 expense in July 2007 for unamortized debt issuance costs.

º (5)
º Net interest margin is net interest income divided by average interest-earning assets.

º (6)
º Net interest margin expressed on a fully taxable equivalent basis.

Rate/Volume Analysis of Net Interest Income

The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the increases and decreases due to fluctuating outstanding balances that are due to the levels and volatility of interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (i.e., changes in volume multiplied by old rate) and
(ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

                                      Years Ended June 30,                         Years Ended June 30,
                                         2009 vs. 2008                                2008 vs. 2007
                                                           (Dollars in Thousands)
                             Increase       Increase                      Increase       Increase
                            (Decrease)     (Decrease)       Total        (Decrease)     (Decrease)       Total
                              Due to         Due to        Increase        Due to         Due to        Increase
                              Volume          Rate        (Decrease)       Volume          Rate        (Decrease)
Interest-earning assets:
    Loans and leases
    receivable(1)           $     3,762    $    (8,274 )  $    (4,512 )  $     1,226    $    (1,598 )  $      (372 )
    Investment
    securities(2)                 3,250         (1,034 )        2,216          1,162            473          1,635
    FHLB stock                      158           (348 )         (190 )           97            (60 )           37

Total interest-earning
assets                      $     7,170    $    (9,656 )  $    (2,486 )  $     2,485    $    (1,185 )  $     1,300

Interest-bearing
liabilities:
Deposits:
    Checking and money
    market                  $      (962 )  $    (4,060 )  $    (5,022 )  $      (520 )  $    (2,938 )  $    (3,458 )
    Savings                         310           (920 )         (610 )          263           (351 )          (88 )
    Certificates of
    deposit                       1,738         (5,119 )       (3,381 )         (322 )           55           (267 )

       Total
       interest-bearing
       deposits                   1,086        (10,099 )       (9,013 )         (579 )       (3,234 )       (3,813 )
FHLB advances and other
borrowings                        3,395         (2,021 )        1,374          2,200           (820 )        1,380
Subordinated debentures
payable to trusts                     -           (299 )         (299 )            -           (536 )         (536 )

Total interest-bearing
liabilities                 $     4,481    $   (12,419 )  $    (7,938 )  $     1,621    $    (4,590 )  $    (2,969 )

Net interest income
increase                                                  $     5,452                                  $     4,269

º (2)
º Includes federal funds sold.

Application of Critical Accounting Policies

GAAP requires management to utilize estimates when reporting financial results. The Company has identified the policies discussed below as Critical Accounting Policies because the accounting estimates require management to make certain assumptions about matters that may be uncertain at the time the estimate was made and a different method of estimating could have been reasonably made that could have a material impact on the presentation of the Company's financial condition, changes in financial condition or results of operations.

Allowance for Loan and Lease Losses. GAAP requires the Company to set aside reserves or maintain an allowance against probable loan and lease losses in the loan and lease portfolio.

. . .