Safe Harbor Statement for Forward-Looking Statements

This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on our current expectations regarding our business strategies and their intended results and our future performance. Forward-looking statements are preceded by terms such as "expects," "believes," "anticipates," "intends" and similar expressions.

Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to our actual results, performance, and achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; competitive conditions in the banking markets served by our subsidiaries; the adequacy of the allowance for losses on loans and the level of future provisions for losses on loans; and other factors disclosed periodically in our filings with the Securities and Exchange Commission.

Because of the risks and uncertainties inherent in forward-looking statements, readers are cautioned not to place undue reliance on them, whether included in this report or made elsewhere from time to time by us or on our behalf. We assume no obligation to update any forward-looking statements.

Financial Condition

Total assets decreased by $6.5 million from $797.4 million as of December 31, 2011 to $790.9 million as of March 31, 2012. The decline was attributable mostly to decreases in interest-bearing deposits in other financial institutions of $16.4 million, net loans of $2.2 million, and cash and due from financial institutions of $2.9 million as the Company utilized available liquidity to increase its securities available for sale by $21.9 million.

Net loans decreased by $2.2 million from $489.7 million as of December 31, 2011 to $487.5 million at March 31, 2012. The decrease in loans was attributable to net charge-offs during the first quarter of $899,000 and provision for loan losses of $1.5 million during the same period. Also contributing to the decrease in loans were transfers to foreclosed and repossessed assets and new loan originations lower than repayments.

Securities available for sale increased from December 31, 2011 by $22.9 million to $220.6 million as of March 31, 2012 primarily due to purchases of $52.8 million, offset by sales of $24.3 million and maturities, prepayments and calls of $6.9 million. The securities portfolio serves as a source of liquidity and earnings and plays an important part in the management of interest rate risk. The current strategy for the investment portfolio is to maintain an overall average repricing term between 3.0 and 3.5 years to limit exposure to rising interest rates.

Total deposits as of March 31, 2012 and December 31, 2011 were $581.3 million while non-interest bearing deposits increased during the period by $4.8 million and was fully offset by a decrease interest bearing deposits of $4.8 million. The Company continued its funding strategy by emphasizing growth in non-interest bearing deposits and pricing its interest bearing deposits at an appropriate level given on-balance sheet liquidity and the amount of unpledged securities in its investment portfolio.

Net Income Available to Common Shareholders. Net income available to common shareholders increased to $1.6 million for the three months ended March 31, 2012 from $1.5 million for the same period in 2011. Basic and diluted earnings per common share increased to $0.48 per share for the first quarter of 2012 as compared to $0.46 and $0.44 per common share for the first quarter of 2011. The increase in net income available to common shareholders was attributable to increases in net interest income of $336,000, non-interest income of $350,000 and decreases in income tax expense of $92,000 and dividends on preferred stock of $40,000, offset by increases in the provision for loan losses of $696,000 and non-interest expense of $35,000. The annualized return on average assets and average shareholders' equity were 0.93% and 9.06% for the three months ended March 31, 2012, respectively, compared to 0.92% and 11.36% for the equivalent periods in 2011.

Net interest income. Net interest income increased to $7.3 million for the three months ended March 31, 2012 from $7.0 million in 2011, or $336,000 and 4.8% and the Company's net interest margin on a fully taxable equivalent basis increased to 4.24% from 3.99%. The increase in the net interest margin and income was primarily due to reduction in the average cost of funds and average balance of interest bearing liabilities from 1.16% and $607.4 million for the first quarter in 2011 to 0.77% and $581.4 million for 2012. Also contributing to the increase in the Company's net interest margin was an increase in the average balance of non-interest bearing deposits to $125.8 million in 2012 from $119.6 million. The average yield on interest earning assets declined to 4.85% for 2012 from 4.94% in 2011 mostly due to a decrease in the yield on taxable securities. Over the previous two years, the Company has reinvested proceeds from the sale and maturity of investment securities back into the portfolio due to weak loan demand and at lower rates given the current environment. The decrease in the cost of funds was mostly achieved through the reduction the cost of savings and other accounts and time deposits to 0.30% and 0.85% in 2012, respectively from 0.49% and 1.51%. The Company has been lowering offering rates for its deposit products given the level of on-balance sheet liquidity which has resulted in some deposit runoff with average balance for interest bearing deposits decreasing to $456.5 million in 2012 from $493.7 million in 2011. Given the current average cost of the Company's interest-bearing deposits, it is unlikely they will be able to be lowered significantly again without a corresponding decrease in balances.

Average Balance Sheets. The following tables set forth certain information relating to our average balance sheets and reflect the average yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are computed on daily average balances. For analytical purposes, net interest margin and net interest spread are adjusted to a taxable equivalent adjustment basis to recognize the income tax savings on tax-exempt assets, such as state and municipal securities. A tax rate of 34% was used in adjusting interest on tax-exempt assets to a fully taxable equivalent ("FTE") basis. Loans held for sale and loans no longer accruing interest are included in total loans.

                                                               Three Months Ended March 31,
                                                     2012                                         2011
                                    Average                       Average        Average                       Average
                                    Balance       Interest      Yield/Cost       Balance       Interest      Yield/Cost
                                                (In thousands)                               (In thousands)
ASSETS
Earning assets:
Interest-bearing deposits with
banks                              $  14,370     $       11            0.31 %   $  17,944     $        9            0.20 %
Taxable securities                   136,975            797            2.36       152,543          1,153            3.07
Tax-exempt securities                 71,202          1,092            6.22        54,829            891            6.59
Total loans and fees (1) (2)         506,237          6,846            5.48       507,636          6,913            5.52
FHLB  and Federal Reserve stock        6,018             48            3.25         6,808             49            2.93
Total earning assets                 734,802          8,794            4.85       739,760          9,015            4.94

Less: Allowance for loan losses      (10,573 )                                    (10,765 )
Non-earning assets:
Cash and due from banks               13,647                                       11,423
Bank premises and equipment, net      13,852                                       13,635
Other assets                          44,260                                       38,432
Total assets                       $ 795,988                                    $ 792,485

LIABILITIES AND STOCKHOLDERS'
EQUITY

Interest-bearing liabilities:
Savings and other                  $ 260,340     $      190            0.30 %   $ 265,173     $      322            0.49 %
Time deposits                        196,179            410            0.85       228,535            849            1.51
Other borrowings                      52,462            173            1.34        49,946            196            1.60
FHLB advances                         55,278            220            1.61        46,722            262            2.27
Subordinated debentures               17,189            113            2.67        17,000            102            2.43
Total interest-bearing
liabilities                          581,448          1,106            0.77       607,376          1,731            1.16

Non-interest bearing
liabilities:
Non-interest demand deposits         125,772                                      119,594
Accrued interest payable and
other liabilities                      6,605                                        1,684
Stockholders' equity                  82,163                                       63,832
Total liabilities and
stockholders' equity               $ 795,988                                    $ 792,485

Net interest income (taxable
equivalent basis)                                $    7,688                                   $    7,284
Less: taxable equivalent
adjustment                                             (371 )                                       (303 )
Net interest income                              $    7,317                                   $    6,981
Net interest spread                                                    4.08 %                                       3.79 %
Net interest margin                                                    4.24                                         3.99

(1) The amount of direct loan origination cost included in interest on loans was $74 and $195 for the three months ended March 31, 2012 and 2011.

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

Rate/Volume Analysis. The table below illustrates the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and interest expense on a FTE basis during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

                                                         Three Months Ended
                                                     March 31, 2012 compared to
                                                         Three Months Ended
                                                           March 31, 2011
                                                     Increase/(Decrease) Due to
                                                Total Net
                                                  Change          Volume        Rate
                                                           (In thousands)
Interest income:
Interest-bearing deposits with banks            $        2       $      (2 )   $    4
Taxable securities                                    (356 )          (109 )     (247 )
Tax-exempt securities                                  201             253        (52 )
Total loans and fees                                   (67 )           (19 )      (48 )
FHLB and Federal Reserve stock                          (1 )            (6 )        5
Total increase (decrease) in interest income          (221 )           117       (338 )

Interest expense:
Savings and other                                     (132 )            (6 )     (126 )
Time deposits                                         (439 )          (107 )     (332 )
Other borrowings                                       (23 )             9        (32 )
FHLB advances                                          (42 )            43        (85 )
Subordinated debentures                                 11               1         10
Total increase (decrease) in interest expense         (625 )           (60 )     (565 )
Increase (decrease) in net interest income      $      404       $     177     $  227

Allowance and Provision for Loan Losses. Our financial performance depends on the quality of the loans we originate and management's ability to assess the degree of risk in existing loans when it determines the allowance for loan losses. An increase in loan charge-offs or non-performing loans or an inadequate allowance for loan losses could have an adverse effect on net income. The allowance is determined based on the application of loss estimates to graded loans by categories.

Summary of Loan Loss Experience:



                                   Three Months Ended
                                        March 31,
Activity for the period ended:      2012          2011
                                     (In thousands)
Beginning balance                $   10,234     $ 10,864
Charge-offs:
Residential real estate                 (87 )        (82 )
Commercial real estate                    -          (16 )
Construction                           (333 )        (19 )
Commercial business                    (342 )       (582 )
Home equity                            (210 )        (99 )
Consumer                                (67 )       (111 )
Total                                (1,039 )       (909 )

Recoveries:
Residential real estate                  43            -
Commercial real estate                   17            7
Construction                              -            2
Commercial business                      33           37
Home equity                              14            1
Consumer                                 33           69
Total                                   140          116
Net loan charge-offs                   (899 )       (793 )

Provision                             1,506          810

Ending balance                   $   10,841     $ 10,881

Provision for loan losses increased to $1.5 million for the first three months of 2012 as compared to $810,000 for the same period in 2011 while net charge-offs also increased over the same periods from $793,000 to $899,000 for the respective periods. The provision for the first quarter of 2012 was impacted by the continued elevated levels of non-performing and classified loans and an increase in the estimated loss for certain previously classified credits. The Company's non-performing loans decreased slightly to $15.2 million as of March 31, 2012 from $15.8 million as of December 31, 2011, but experienced increases in both past due and classified credits. The Company's credits classified as substandard or doubtful, the two most severe ratings, increased from $41.2 million at December 31, 2011 to $45.4 million at March 31, 2012 (see Footnote 3 to the Company's consolidated financial statements for a description of the rating classifications and more loan detail). Total loans past due also increased from a total of $19.7 million as of December 31, 2011 to $23.6 million as of March 31, 2012, the majority of which were 60-89 days past due and totaled $5.5 million. The increase in the Company's provision for the first quarter in 2012 was primarily driven by the aforementioned increase in classified and past due credits. Management anticipates provision for loan losses will remain elevated until the pace of new identified classified credits slows substantially while resolutions to the current identified credits are achieved. Due to the aforementioned increase in provision, the allowance for loan losses as a percentage of loans also increased to 2.18% of loans as of March 31, 2012 from 2.05% at December 31, 2011.

Federal regulations require insured institutions to classify their assets on a regular basis. The regulations provide for three categories of classified loans:
substandard, doubtful and loss. The regulations also contain a special mention and a specific allowance category. Special mention is defined as loans that do not currently expose an insured institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving management's close attention. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified as loss, the insured institution must either establish specified allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge off such amount. The Company continues to closely monitor its loan portfolio to identify any additional problem credits, deterioration in underlying collateral values, and credits requiring further downgrades in accordance with the Company's internal policies. As of March 31, 2012, management has provided for probable incurred losses within the loan portfolio based on information currently available to the Company.

Asset Quality. Loans, including impaired loans, are placed on non-accrual status when they become past due ninety days or more as to principal or interest, unless they are adequately secured and in the process of collection. When these loans are placed on non-accrual status, all unpaid accrued interest is reversed and the loans remain on non-accrual status until the loan becomes current or the loan is deemed uncollectible and is charged off. Impaired loans are those loans for which it is probable that all scheduled interest and principal payments will not be received based on the contractual terms of the loan agreement. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. TDR's totaled $26.5 million and $26.6 million at March 31, 2012 and December 31, 2011, while $2.3 million and $2.4 million were included in the Company's non-accrual loans as of the same dates, respectively.

The Company's non-performing assets as of March 31, 2012 and December 31, 2011 were as follows:

                                                  March 31,       December 31,
                                                    2012              2011
                                                         (In thousands)

Loans on non-accrual status                      $    15,170     $       15,772
Loans past due over 90 days still on accrual               -                  -
Total non-performing loans                            15,170             15,772
Foreclosed and repossessed assets                      4,678              5,076
Total non-performing assets                      $    19,848     $       20,848

Non-performing loans to total loans                     3.04 %             3.15 %
Non-performing assets to total loans                    3.98               4.17
Allowance as a percent of non-performing loans         71.46              64.89
Allowance as a percent of total loans                   2.18               2.05

Non-interest income. Non-interest income increased by $350,000 to $2.3 million for the quarter ended March 31, 2012 from $2.0 million for the same period in 2011 mostly due to increases in gains on sales of available for sale securities of $143,000 and service charges on deposit accounts $118,000. The increase in gains on sales of available for sale securities was due to higher sales volume during 2012 as compared to 2011 as the Company sold $24.3 million in 2012 versus $13.5 million 2011. Service charge income on deposit accounts increased to $870,000 in 2012 from $752,000 in 2011 due mostly to new service fees introduced in the second half of 2011. To offset reductions in fee income due to recent regulatory changes, the Company introduced new fees in 2011 such as paper statement and minimum balance fees.

Non-interest expense. Non-interest expense increased by $35,000 to $5.9 million in 2012 from $5.8 million in 2011 due to increases in salaries and employee benefits and foreclosed and reposed assets, net, offset by decreases in legal and professional fees and FDIC insurance premiums. Salaries and employee benefits increased to $3.2 million in 2012 from $3.1 million while the number of full time equivalent employees decreased from 200 to 198 over the same period. The increase in expense is attributable to pay raises and the associated payroll taxes between the periods which increased the average expense per FTE to $15,949 in 2012 from $15,925 in 2011, or 4.3%. Expense for foreclosed and repossessed assets, net increased by $53,000 to $132,000 for the first quarter of 2012 from $79,000 in 2011 as the Company recognized a net loss on disposals in 2012 of $46,000 as compared a net gain of $24,000 in 2011 while net expenses associated with maintaining foreclosed and repossessed assets declined by $16,000 over the same period. Legal and professional fees decreased to $366,000 for the first quarter of 2012 from $429,000 in 2011. Most of the decrease was attributable to a decline in expenditures for legal services between the periods although the Company anticipates legal fees associated with collections will continue to remain elevated for the foreseeable future. FDIC insurance premiums decreased to $177,000 for the quarter ended March 31, 2012 as compared to $266,000 in the equivalent period in 2011 due to a change made by the FDIC on how it assessed premiums. Before the change, premiums were based on the Company's total deposits at the end of the reporting period. Beginning in the second quarter of 2011, premiums were assessed on the Company's average total assets less average Tier 1 capital during the period. The change shifted more of the fee burden to larger commercial banks that typically rely more heavily on funding sources not available to smaller institutions, such as commercial paper.

Income tax expense. Income tax expense for the three months ended March 31, 2012 was $402,000 as compared to $494,000 for the equivalent period in 2011. The decrease in income tax expense was due to the Company's tax credits from an investment in low income housing and higher tax exempt income from municipal securities. The Company's effective tax rate for 2012 was 18.0% as compared to 21.6% in 2011 due to tax preference items and income tax credits remaining described above.

Liquidity and Capital Resources

Liquidity levels are adjusted in order to meet funding needs for deposit outflows, repayment of borrowings, and loan commitments and to meet asset/liability objectives. Our primary sources of funds are customer deposits, customer repurchase agreements, proceeds from loan repayments, maturing securities and FHLB advances. While loan repayments and maturities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, general economic conditions and competition. At March 31, 2012, we had cash and interest-bearing deposits with banks of $26.2 million and securities available-for-sale with a fair value of $220.6 million. If we require funds beyond the funds we are able to generate internally, we have $58.6 million in additional aggregate borrowing capacity with the Federal Home Loan Bank of Indianapolis based on our current FHLB stock holdings, unused federal funds lines of credit with various nonaffiliated financial institutions of $33.0 million. Management believes the Company's liquidity sources are adequate to meet its operational needs.

The Banks are required to maintain specific amounts of capital pursuant to regulatory requirements. As of March 31, 2012, Your Community Bank and Scott County State Bank were each considered well capitalized under regulatory capital requirements and were in compliance with all regulatory capital requirements that were effective as of such date with capital ratios as follows:

March 31, 2012:

                                                          Total              Tier 1            Tier 1
                                                       Capital To          Capital To        Capital To
                                                      Risk-weighted       Risk-weighted        Average
. . .