##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 001-32434
 
 MERCANTILE BANCORP, INC.
 (Exact name of registrant as specified in its charter)
 
 Delaware
    
    37-1149138(State or other jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization)
    
    Identification No.)
 200 North 33rd Street
Quincy, ILLINOIS 62301
(Address of principal executive offices including zip code)
(217) 223-7300
(Registrants telephone number, including area code)
 
 þ o
 o o
  o Large accelerated filer
    
    þ Accelerated filer
    
    o Non-accelerated filer  
(Do not check if a smaller reporting company)
    
    o Smaller Reporting Company
 o þ




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##### 



MERCANTILE BANCORP, INC.
 FORM 10-Q
 TABLE OF CONTENTS
 PART I FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial StatementsConsolidated Balance Sheets
    
    3Consolidated Statements of Operations
    
    4Consolidated Statements of Cash Flows
    
    5Notes to Condensed Consolidated Financial Statements
    
    6-19Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    20-42Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    42Item 4. Controls and Procedures
    
    42PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    43Item 1A. Risk Factors
    
    43Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    43Item 3. Defaults Upon Senior Securities
    
    44Item 4. Submission of Matters to a Vote of Security Holders
    
    44Item 5. Other Information
    
    45Item 6. Exhibits
    
    45Signatures
    
    46ExhibitsBylaws of Mercantile Bancorp, Inc. restated and adopted June 16, 2009Indenture dated August 25, 2005 between Mercantile Bancorp, Inc. and
Wilmington Trust Company, as trusteeJunior Subordinated Indenture dated July 13, 2006 between Mercantile
Bancorp, Inc. and Wilmington Trust Company, as trusteeIndenture dated July 13, 2006 (Fixed/Floating Rate Junior
Subordinated Debt Securities Due 2036) between Mercantile Bancorp,
Inc. and Wilmington Trust Company, as trusteeJunior Subordinated Indenture dated August 30, 2007 between
Mercantile Bancorp, Inc. and Wilmington Trust Company, as
trusteeFourth Amended and Restated Loan Agreement Waiver and Amendment
dated August 10, 2009Section 302 CertificationsSection 906  Certifications
  2




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 Item 1.
    
    Condensed Consolidated Financial Statements.
 MERCANTILE BANCORP, INC.
 
 Consolidated Balance Sheets
(In thousands, except par value and share data)
 June 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)AssetsCash and due from banks
    
    $
    21,765
    
    
    $
    67,595Interest-bearing demand deposits
    
    
    74,373
    
    
    
    16,812Federal funds sold
    
    
    4,855
    
    
    
    5,414Cash and cash equivalents
    
    
    100,993
    
    
    
    89,821Available-for-sale securities
    
    
    186,604
    
    
    
    185,192Held-to-maturity securities (fair values of $7,371 and $9,101)
    
    
    7,189
    
    
    
    8,905Loans held for sale
    
    
    3,742
    
    
    
    4,366Loans, net of allowance for loan losses of $28,089 and $23,467
    
    
    1,277,454
    
    
    
    1,315,907Interest receivable
    
    
    8,756
    
    
    
    10,240Foreclosed assets held for sale, net
    
    
    9,753
    
    
    
    9,959Federal Home Loan Bank stock
    
    
    7,582
    
    
    
    8,213Cost method investments in common stock
    
    
    2,271
    
    
    
    3,314Deferred income taxes
    
    
    12,396
    
    
    
    9,181Mortgage servicing rights
    
    
    1,285
    
    
    
    959Cash surrender value of life insurance
    
    
    26,792
    
    
    
    25,278Premises and equipment
    
    
    39,573
    
    
    
    40,616Goodwill
    
    
    
    
    
    
    44,653Core deposit and other intangibles
    
    
    3,754
    
    
    
    4,002Other
    
    
    11,432
    
    
    
    14,377Total assets
    
    $
    1,699,576
    
    
    $
    1,774,983LiabilitiesDepositsDemand
    
    $
    143,881
    
    
    $
    139,486Savings, NOW and money market
    
    
    462,008
    
    
    
    431,596Time
    
    
    677,254
    
    
    
    672,763Brokered time
    
    
    143,636
    
    
    
    218,413Total deposits
    
    
    1,426,779
    
    
    
    1,462,276Short-term borrowings
    
    
    85,020
    
    
    
    49,227Long-term debt
    
    
    58,552
    
    
    
    84,661Junior subordinated debentures
    
    
    61,858
    
    
    
    61,858Interest payable
    
    
    4,644
    
    
    
    4,280Other
    
    
    10,937
    
    
    
    7,989Total liabilities
    
    
    1,647,790
    
    
    
    1,670,291Commitments and Contingent LiabilitiesEquityMercantile Bancorp, Inc. stockholders equityCommon stock, $0.42 par value; authorized 14,000,000 shares;Issued  8,887,113 shares at June 30, 2009 and December 31, 2008Outstanding  8,703,330 shares at June 30, 2009 and December 31, 2008
    
    
    3,629
    
    
    
    3,629Additional paid-in capital
    
    
    11,919
    
    
    
    11,919Retained earnings
    
    
    30,719
    
    
    
    83,642Accumulated other comprehensive income
    
    
    3,007
    
    
    
    2,06249,274
    
    
    
    101,252Treasury stock, at costCommon; 183,783 shares at June 30, 2009 and December 31, 2008
    
    
    (2,295
    )
    
    
    (2,295
    )Total Mercantile Bancorp, Inc. stockholders equity
    
    
    46,979
    
    
    
    98,957Noncontrolling interest
    
    
    4,807
    
    
    
    5,735Total equity
    
    
    51,786
    
    
    
    104,692Total liabilities and equity
    
    $
    1,699,576
    
    
    $
    1,774,983
  3




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##### Table of Contents



MERCANTILE BANCORP, INC.
 
 Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 Three months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest and Dividend IncomeLoansTaxable
    
    $
    18,728
    
    
    $
    20,399
    
    
    $
    37,500
    
    
    $
    41,933Tax exempt
    
    
    196
    
    
    
    173
    
    
    
    396
    
    
    
    349SecuritiesTaxable
    
    
    1,666
    
    
    
    1,982
    
    
    
    3,379
    
    
    
    3,951Tax exempt
    
    
    412
    
    
    
    473
    
    
    
    839
    
    
    
    1,013Federal funds sold
    
    
    5
    
    
    
    81
    
    
    
    11
    
    
    
    240Dividends on Federal Home Loan Bank Stock
    
    
    11
    
    
    
    30
    
    
    
    24
    
    
    
    66Deposits with financial institutions and other
    
    
    80
    
    
    
    84
    
    
    
    152
    
    
    
    234Total interest and dividend income
    
    
    21,098
    
    
    
    23,222
    
    
    
    42,301
    
    
    
    47,786Interest ExpenseDeposits
    
    
    8,015
    
    
    
    10,064
    
    
    
    16,877
    
    
    
    21,877Short-term borrowings
    
    
    641
    
    
    
    235
    
    
    
    1,218
    
    
    
    583Long-term debt and junior subordinated debentures
    
    
    1,581
    
    
    
    2,023
    
    
    
    3,118
    
    
    
    4,227Total interest expense
    
    
    10,237
    
    
    
    12,322
    
    
    
    21,213
    
    
    
    26,687Net Interest Income
    
    
    10,861
    
    
    
    10,900
    
    
    
    21,088
    
    
    
    21,099Provision for Loan Losses
    
    
    9,965
    
    
    
    1,834
    
    
    
    13,145
    
    
    
    6,603Net Interest Income After Provision For Loan Losses
    
    
    896
    
    
    
    9,066
    
    
    
    7,943
    
    
    
    14,496Noninterest IncomeFiduciary activities
    
    
    650
    
    
    
    690
    
    
    
    1,301
    
    
    
    1,380Brokerage fees
    
    
    320
    
    
    
    501
    
    
    
    558
    
    
    
    917Customer service fees
    
    
    984
    
    
    
    1,125
    
    
    
    1,824
    
    
    
    2,225Other service charges and fees
    
    
    333
    
    
    
    234
    
    
    
    592
    
    
    
    434Net gains on loan sales
    
    
    631
    
    
    
    280
    
    
    
    1,441
    
    
    
    643Loan servicing fees
    
    
    154
    
    
    
    138
    
    
    
    300
    
    
    
    273Net increase in cash surrender value of life insurance
    
    
    266
    
    
    
    243
    
    
    
    511
    
    
    
    511Net gains on sales of available-for-sale securities
    
    
    
    
    
    
    943
    
    
    
    
    
    
    
    943Net gains on sales of equity and cost method
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100Other
    
    
    405
    
    
    
    93
    
    
    
    483
    
    
    
    183Total noninterest income
    
    
    3,743
    
    
    
    4,247
    
    
    
    7,010
    
    
    
    7,609Noninterest ExpenseSalaries and employee benefits
    
    
    6,604
    
    
    
    6,997
    
    
    
    13,311
    
    
    
    13,898Net occupancy expense
    
    
    860
    
    
    
    865
    
    
    
    1,760
    
    
    
    1,750Equipment expense
    
    
    864
    
    
    
    916
    
    
    
    1,658
    
    
    
    1,690Deposit insurance premium
    
    
    1,508
    
    
    
    118
    
    
    
    2,340
    
    
    
    223Professional fees
    
    
    1,082
    
    
    
    548
    
    
    
    1,717
    
    
    
    1,123Postage and supplies
    
    
    265
    
    
    
    333
    
    
    
    601
    
    
    
    634Losses (gains) on sales of assets, net
    
    
    1
    
    
    
    15
    
    
    
    14
    
    
    
    (376
    )Losses (gains) on foreclosed assets, net
    
    
    1,485
    
    
    
    (11
    )
    
    
    1,613
    
    
    
    493Losses on securities, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Other than temporary losses on available-for-sale
securities and cost method investments
    
    
    2,546
    
    
    
    264
    
    
    
    2,546
    
    
    
    264Goodwill impairment losses
    
    
    44,650
    
    
    
    
    
    
    
    44,650
    
    
    
    Amortization of mortgage servicing rights
    
    
    144
    
    
    
    60
    
    
    
    354
    
    
    
    153Other
    
    
    2,163
    
    
    
    2,180
    
    
    
    4,081
    
    
    
    4,132Total noninterest expense
    
    
    62,172
    
    
    
    12,285
    
    
    
    74,645
    
    
    
    23,985Income (Loss) Before Income Tax Benefit
    
    
    (57,533
    )
    
    
    1,028
    
    
    
    (59,692
    )
    
    
    (1,880
    )Income Tax Expense (Benefit)
    
    
    (4,849
    )
    
    
    (130
    )
    
    
    (5,843
    )
    
    
    (1,074
    )Net Income (Loss)
    
    
    (52,684
    )
    
    
    1,158
    
    
    
    (53,849
    )
    
    
    (806
    )Less: Net income (loss) attributable to the
Noncontrolling interest
    
    
    (638
    )
    
    
    (105
    )
    
    
    (927
    )
    
    
    (392
    )Net Income (Loss) attributable to Mercantile Bancorp, Inc.
    
    $
    (52,046
    )
    
    $
    1,263
    
    
    $
    (52,922
    )
    
    $
    (414
    )Basic and Diluted Earnings (Loss) Per Share attributable to
Mercantile Bancorp, Inc. common stockholders
    
    $
    (5.98
    )
    
    $
    .15
    
    
    $
    (6.08
    )
    
    $
    (0.05
    )Dividends Paid Per Share
    
    $
    
    
    
    $
    .06
    
    
    $
    
    
    
    $
    0.12Weighted Average Shares Outstanding
    
    
    8,703,330
    
    
    
    8,705,499
    
    
    
    8,703,330
    
    
    
    8,707,577
  4




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##### Table of Contents



MERCANTILE BANCORP, INC.
 
 Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Six Months Ended June 30
    
    2009
    
    
    2008Operating ActivitiesNet income (loss)
    
    $
    (53,849
    )
    
    $
    (806
    )Items not requiring (providing) cashDepreciation
    
    
    1,380
    
    
    
    1,454Provision for loan losses
    
    
    13,145
    
    
    
    6,603Amortization (accretion) of premiums and discounts on securities
    
    
    96
    
    
    
    (17
    )Amortization (depreciation) of core deposit intangibles and other
purchase accounting adjustments
    
    
    (9
    )
    
    
    (175
    )Deferred income taxes
    
    
    (3,699
    )
    
    
    (2,339
    )Net realized gains on sales of available-for-sale securities
    
    
    
    
    
    
    (944
    )Other than temporary losses on available for sale securities and
cost method investments
    
    
    2,546
    
    
    
    264Losses on foreclosed assets
    
    
    1,613
    
    
    
    493(Gains) losses on loan sales
    
    
    (1,441
    )
    
    
    (643
    )Mortgage servicing rights
    
    
    (244
    )
    
    
    Amortization of mortgage servicing rights
    
    
    354
    
    
    
    153(Gains) Losses on sale of premises and equipment
    
    
    14
    
    
    
    (376
    )(Gain) on sale of equity and cost method investments
    
    
    
    
    
    
    (100
    )Federal Home Loan Bank stock dividends
    
    
    (6
    )
    
    
    (21
    )Net increase in cash surrender value of life insurance
    
    
    (511
    )
    
    
    (511
    )Goodwill impairment losses
    
    
    44,650
    
    
    
    Changes inLoans originated for sale
    
    
    (100,033
    )
    
    
    (62,941
    )Proceeds from sales of loans
    
    
    101,535
    
    
    
    60,571Interest receivable
    
    
    1,486
    
    
    
    1,590Other assets
    
    
    3,342
    
    
    
    (1,311
    )Interest payable
    
    
    363
    
    
    
    (759
    )Other liabilities
    
    
    2,541
    
    
    
    586Net cash provided by operating activities
    
    
    13,273
    
    
    
    771Investing ActivitiesCash paid in acquisition of HNB Financial, net of cash received
    
    
    3
    
    
    
    Purchases of available-for-sale securities
    
    
    (30,856
    )
    
    
    (35,029
    )Proceeds from maturities of available-for-sale securities
    
    
    29,301
    
    
    
    33,357Proceeds from the sales of available-for-sale securities
    
    
    
    
    
    
    4,947Proceeds from maturities of held-to-maturity securities
    
    
    1,714
    
    
    
    2,105Net change in loans
    
    
    23,520
    
    
    
    (58,226
    )Purchases of premises and equipment
    
    
    (378
    )
    
    
    (1,317
    )Proceeds from sales of premises and equipment
    
    
    
    
    
    
    769Purchase of Federal Home Loan Bank stock
    
    
    (80
    )
    
    
    (836
    )Proceeds from sales of Federal Home Loan Bank stock
    
    
    718
    
    
    
    280Proceeds from sales of foreclosed assets
    
    
    739
    
    
    
    542Proceeds from sales of cost method investments
    
    
    
    
    
    
    495Purchase of bank-owned life insurance
    
    
    (1,000
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    23,681
    
    
    
    (52,913
    )Financing ActivitiesNet increase in demand deposits, money market, NOW and savings accounts
    
    
    34,808
    
    
    
    34,525Net increase (decrease) in time and brokered time deposits
    
    
    (70,274
    )
    
    
    43,488Net increase (decrease) in short-term borrowings
    
    
    20,684
    
    
    
    (15,931
    )Proceeds from long-term debt
    
    
    500
    
    
    
    17,000Repayments of long-term debt
    
    
    (11,500
    )
    
    
    (21,000
    )Purchase of stock from noncontrolling interest of Mid-America
    
    
    
    
    
    
    (531
    )Proceeds from issuance of stock to noncontrolling interest of Mid-America
    
    
    
    
    
    
    81Purchase of treasury stock
    
    
    
    
    
    
    (100
    )Dividends paid
    
    
    
    
    
    
    (1,045
    )Net cash provided by (used in) financing activities
    
    
    (25,782
    )
    
    
    56,487Increase In Cash and Cash Equivalents
    
    
    11,172
    
    
    
    4,445Cash and Cash Equivalents, Beginning of Period
    
    
    89,821
    
    
    
    76,059Cash and Cash Equivalents, End of Period
    
    $
    100,993
    
    
    $
    80,504Supplemental Cash Flows InformationInterest paid
    
    $
    20,850
    
    
    $
    27,446Income taxes paid (received)
    
    $
    (3,761
    )
    
    $
    237Real estate acquired in settlement of loans
    
    $
    2,146
    
    
    $
    2,532Net decrease in additional paid-in-capital due to purchase of stock from
noncontrolling interest of Mid-America
    
    $
    
    
    
    $
    (64
    )
  5




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##### Table of Contents



MERCANTILE BANCORP, INC.
 
 Notes to Condensed Consolidated Financial Statements
(table dollar amounts in thousands)
 1. BASIS OF PRESENTATION
    2. EARNINGS (LOSS) PER COMMON SHARE
  3. NEW AND RECENT ACCOUNTING PRONOUNCEMENTS
    6




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##### Table of Contents



4. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
       7




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##### Table of Contents



5. GOODWILL IMPAIRMENT
   6. FEDERAL HOME LOAN BANK STOCK
  8




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##### Table of Contents



7. SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale Securities:June 30, 2009:U.S. government agencies
    
    $
    1,748
    
    
    $
    64
    
    
    $
    
    
    
    $
    1,812Mortgage-backed securities
    
    
    133,295
    
    
    
    3,696
    
    
    
    (216
    )
    
    
    136,775State and political
subdivisions
    
    
    42,468
    
    
    
    1,202
    
    
    
    (27
    )
    
    
    43,643Equity securities
    
    
    4,489
    
    
    
    
    
    
    
    (115
    )
    
    
    4,374$
    182,000
    
    
    $
    4,962
    
    
    $
    (358
    )
    
    $
    186,604Available-for-sale Securities:December 31, 2008:U.S. government agencies
    
    $
    4,697
    
    
    $
    90
    
    
    $
    
    
    
    $
    4,787Mortgage-backed securities
    
    
    125,691
    
    
    
    2,783
    
    
    
    (29
    )
    
    
    128,445State and political
subdivisions
    
    
    44,892
    
    
    
    808
    
    
    
    (34
    )
    
    
    45,666Equity securities
    
    
    6,500
    
    
    
    
    
    
    
    (206
    )
    
    
    6,294$
    181,780
    
    
    $
    3,681
    
    
    $
    (269
    )
    
    $
    185,192
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueHeld-to-maturity Securities:June 30, 2009:Mortgage-backed securities
    
    $
    4,788
    
    
    $
    133
    
    
    $
    
    
    
    $
    4,921State and political
subdivisions
    
    
    2,401
    
    
    
    49
    
    
    
    
    
    
    
    2,450$
    7,189
    
    
    $
    182
    
    
    $
    
    
    
    $
    7,371December 31, 2008:Mortgage-backed securities
    
    $
    5,992
    
    
    $
    149
    
    
    $
    (1
    )
    
    $
    6,140State and political
subdivisions
    
    
    2,913
    
    
    
    48
    
    
    
    
    
    
    
    2,961$
    8,905
    
    
    $
    197
    
    
    $
    (1
    )
    
    $
    9,101
  Available-for-sale
    
    
    Held-to-maturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueWithin one year
    
    $
    6,590
    
    
    $
    6,649
    
    
    $
    355
    
    
    $
    359One to five years
    
    
    28,014
    
    
    
    28,987
    
    
    
    1,467
    
    
    
    1,493Five to ten years
    
    
    8,399
    
    
    
    8,585
    
    
    
    579
    
    
    
    598After ten years
    
    
    1,213
    
    
    
    1,234
    
    
    
    
    
    
    
    44,216
    
    
    
    45,455
    
    
    
    2,401
    
    
    
    2,450Mortgage-backed securities
    
    
    133,295
    
    
    
    136,775
    
    
    
    4,788
    
    
    
    4,921Equity securities
    
    
    4,489
    
    
    
    4,374
    
    
    
    
    
    
    
    Totals
    
    $
    182,000
    
    
    $
    186,604
    
    
    $
    7,189
    
    
    $
    7,371
  9




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##### Table of Contents



Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedSecurities
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesJune 30, 2009Mortgage-backed securities
    
    $
    18,391
    
    
    $
    (217
    )
    
    $
    
    
    
    $
    
    
    
    $
    18,391
    
    
    $
    (217
    )State and political subdivisions
    
    
    1,271
    
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    1,271
    
    
    
    (26
    )Equity securities
    
    
    966
    
    
    
    (115
    )
    
    
    
    
    
    
    
    
    
    
    966
    
    
    
    (115
    )Total temporarily impaired
securities
    
    $
    20,628
    
    
    $
    (358
    )
    
    $
    
    
    
    $
    
    
    
    $
    20,628
    
    
    $
    (358
    )December 31, 2008Mortgage-backed securities
    
    $
    7,594
    
    
    $
    (28
    )
    
    $
    106
    
    
    $
    (1
    )
    
    $
    7,700
    
    
    $
    (29
    )State and political subdivisions
    
    
    3,406
    
    
    
    (30
    )
    
    
    1,021
    
    
    
    (4
    )
    
    
    4,427
    
    
    
    (34
    )Equity securities
    
    
    840
    
    
    
    (206
    )
    
    
    
    
    
    
    
    
    
    
    840
    
    
    
    (206
    )Total temporarily impaired
securities
    
    $
    11,840
    
    
    $
    (264
    )
    
    $
    1,127
    
    
    $
    (5
    )
    
    $
    12,967
    
    
    $
    (269
    )
  8. COST METHOD INVESTMENTS IN COMMON STOCK
   9. FAIR VALUE MEASUREMENT
 SFAS 157
   10




---



##### Table of Contents



Level 1
    
    Valuations for assets and liabilities traded in active exchange markets,
such as the New York Stock Exchange. Valuations are obtained from readily available
pricing sources for market transactions involving identical assets or liabilities.
 Level 2
    
    Valuations for assets and liabilities traded in less active dealer or broker
markets. Valuations are obtained from third party pricing services for identical or
comparable assets or liabilities which use observable inputs other than Level 1 prices,
such as quoted prices for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
 Level 3
    
    Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities.
 Recurring Basis
  Available-for-sale securities
  Fair Value Measurements UsingQuotes Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsJune 30, 2009
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. government agencies
    
    $
    1,812
    
    
    $
    
    
    
    $
    1,812
    
    
    $
    Mortgage-backed securities
    
    
    136,775
    
    
    
    
    
    
    
    136,775
    
    
    
    State and political
subdivisions
    
    
    43,643
    
    
    
    
    
    
    
    43,176
    
    
    
    467Equity securities
    
    
    4,374
    
    
    
    3,394
    
    
    
    
    
    
    
    980$
    186,604
    
    
    $
    3,394
    
    
    $
    181,763
    
    
    $
    1,447
 Fair Value Measurements UsingQuotes Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsDecember 31, 2008
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. government agencies
    
    $
    4,787
    
    
    $
    
    
    
    $
    4,787
    
    
    $
    Mortgage-backed securities
    
    
    128,445
    
    
    
    
    
    
    
    128,445
    
    
    
    State and political
subdivisions
    
    
    45,666
    
    
    
    
    
    
    
    45,143
    
    
    
    523Equity securities
    
    
    6,294
    
    
    
    4,811
    
    
    
    
    
    
    
    1,483$
    185,192
    
    
    $
    4,811
    
    
    $
    178,375
    
    
    $
    2,006
 11




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##### Table of Contents



For the Three Months Ended
    
    
    For the Six Months EndedJune 30
    
    
    June 302009
    
    
    2008
    
    
    2009
    
    
    2008Beginning balance
    
    $
    1,944
    
    
    $
    10,036
    
    
    $
    2,006
    
    
    $
    11,400Total realized and unrealized
gains and losses:Included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Included in other
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchases, issuances and settlements
    
    
    (497
    )
    
    
    3,341
    
    
    
    (559
    )
    
    
    1,977Transfers in and/or out of Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, June 30
    
    $
    1,447
    
    
    $
    13,377
    
    
    $
    1,447
    
    
    $
    13,377Total gains or losses for the
period included in net income
attributable to the change in
unrealized gains or losses related
to assets and liabilities still
held at the reporting date
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Nonrecurring Basis
  Impaired loans
  Other Real Estate
 Mortgage Servicing Rights
 Cost Method Investments
 12




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Goodwill
  Fair Value Measurements UsingQuotes Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsCarrying value at June 30, 2009
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Impaired loans
    
    $
    28,382
    
    
    $
    
    
    
    $
    
    
    
    $
    28,382Other real estate
    
    $
    3,757
    
    
    $
    
    
    
    $
    
    
    
    $
    3,757Mortgage servicing rights
    
    $
    1,285
    
    
    $
    
    
    
    $
    
    
    
    $
    1,285Cost method investments
    
    $
    543
    
    
    $
    
    
    
    $
    
    
    
    $
    543Goodwill
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Fair Value Measurements UsingQuotes Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsCarrying value at December 31, 2008
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Impaired loans
    
    $
    30,966
    
    
    $
    
    
    
    $
    
    
    
    $
    30,966Mortgage servicing rights
    
    $
    959
    
    
    $
    
    
    
    $
    
    
    
    $
    959Cost method investments
    
    $
    3,314
    
    
    $
    
    
    
    $
    
    
    
    $
    3,314
   13




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##### Table of Contents



June 30, 2009
    
    December 31, 2008Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assetsCash and cash equivalents
    
    $
    100,993
    
    
    $
    100,993
    
    
    $
    89,821
    
    
    $
    89,821Available-for-sale securities
    
    
    186,604
    
    
    
    186,604
    
    
    
    185,192
    
    
    
    185,192Held-to-maturity securities
    
    
    7,189
    
    
    
    7,371
    
    
    
    8,905
    
    
    
    9,101Loans held for sale
    
    
    3,742
    
    
    
    3,742
    
    
    
    4,366
    
    
    
    4,366Loans, net of allowance for loan losses
    
    
    1,277,454
    
    
    
    1,277,495
    
    
    
    1,315,907
    
    
    
    1,325,196Federal Home Loan Bank stock
    
    
    7,582
    
    
    
    7,582
    
    
    
    8,213
    
    
    
    8,213Cost method investments in common stock
    
    
    2,271
    
    
    
    2,271
    
    
    
    3,314
    
    
    
    3,314Interest receivable
    
    
    8,756
    
    
    
    8,756
    
    
    
    10,240
    
    
    
    10,240Financial liabilitiesDeposits
    
    
    1,426,779
    
    
    
    1,434,368
    
    
    
    1,462,276
    
    
    
    1,460,654Short-term borrowings
    
    
    85,020
    
    
    
    85,020
    
    
    
    49,227
    
    
    
    49,227Long-term debt and junior subordinated
debentures
    
    
    120,410
    
    
    
    86,488
    
    
    
    146,519
    
    
    
    141,317Interest payable
    
    
    4,644
    
    
    
    4,644
    
    
    
    4,280
    
    
    
    4,280Unrecognized financial instruments (net
of contract amount)Commitments to originate loans
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Letters of credit
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Lines of credit
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
  Cash and Cash Equivalents, Federal Home Loan Bank Stock, and Cost Method Investments in Common
Stock The carrying amount approximates fair value.
 Loans Held for Sale For homogeneous categories of loans, such as mortgage loans held for sale,
fair value is estimated using the quoted market prices for securities backed by similar loans,
adjusted for differences in loan characteristics.
 Loans The fair value of loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities. Loans with similar characteristics were aggregated for
purposes of the calculations. The carrying amount of accrued interest approximates its fair
value.
 Deposits For demand deposits, savings accounts, NOW accounts, and money market deposits, the
carrying amount approximates fair value. The fair value of fixed-maturity time and brokered
time deposits is estimated using a discounted cash flow calculation that applies the rates
currently offered for deposits of similar remaining maturities.
 Short-Term Borrowings and Interest Payable The carrying amount approximates fair value.
 Long-Term Debt and Junior Subordinated Debentures Rates currently available to the Company for
debt with similar terms and remaining maturities are used to estimate fair value of existing
debt.
 Commitments to Originate Loans, Letters of Credit, and Lines of Credit The fair value of
commitments to originate loans is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the committed rates. The
fair value of forward sale commitments is estimated based on current market prices for loans of
similar terms and credit quality. The fair values of letters of credit and lines of credit are
based on fees currently charged for similar agreements or on the estimated cost to terminate or
otherwise settle the obligations with the counterparties at the reporting date.
 14




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##### Table of Contents



10. OFF BALANCE SHEET CREDIT COMMITMENTS
    11. CRITICAL ACCOUNTING POLICIES
   15




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##### Table of Contents



12. COMPREHENSIVE INCOME (LOSS)
  For the Three MonthsEnded June 30,2009
    
    
    2008Net income (loss)
    
    $
    (52,684
    )
    
    $
    1,158Other comprehensive income (loss):Unrealized appreciation (depreciation) on
available-for-sale securities:Unrealized appreciation (depreciation) on
available-for-sale securities, net of tax benefit
of $(282) for 2009 and $(1,545) for 2008
    
    
    (536
    )
    
    
    (2,546
    )Less reclassification adjustment for realized
gains losses included in income net of tax expense
of $0 for 2009 and $358 for 2008
    
    
    
    
    
    
    585Less reclassification adjustment for other than
temporary losses included in income net of tax
benefit of $(967) for 2009 and $101 for 2008
    
    
    (1,579
    )
    
    
    (163
    )Total Unrealized appreciation (depreciation) on
available-for-sale securities, net of tax expense
(benefit) of $686 for 2009 and $(1,803) for 2008
    
    
    1,043
    
    
    
    (2,968
    )Adjustment of SFAS 158 liability, net of tax expense of
$12 for 2009 and $27 for 2008
    
    
    20
    
    
    
    45Total other comprehensive income (loss), net of tax
    
    
    1,063
    
    
    
    (2,923
    )Comprehensive (loss)
    
    
    (51,621
    )
    
    
    (1,765
    )Comprehensive (loss) attributable to the noncontrolling
interest
    
    
    (638
    )
    
    
    (105
    )Comprehensive (loss) attributable to Mercantile Bancorp, Inc.
    
    $
    (50,983
    )
    
    $
    (1,660
    )
 16




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##### Table of Contents



For the Six MonthsEnded June 30,2009
    
    
    2008Net (loss)
    
    $
    (53,849
    )
    
    $
    (806
    )Other comprehensive income (loss):Unrealized appreciation (depreciation) on
available-for-sale securities:Unrealized appreciation (depreciation) on
available-for-sale securities, net of tax benefit
of $(464) for 2009 and $(610) and for 2008
    
    
    (654
    )
    
    
    (961
    )Less reclassification adjustment for realized
gains (losses) included in income net of tax
expense of $0 for 2009 and $358 for 2008
    
    
    
    
    
    
    585Less reclassification adjustment for other than
temporary gains (losses) included in income net of
tax benefit of $(967) for 2009 and $101 for 2008
    
    
    (1,579
    )
    
    
    (163
    )Total Unrealized appreciation (depreciation) on
available-for-sale securities, net of tax expense
(benefit) of $504 for 2009 and $(868) for 2008
    
    
    925
    
    
    
    (1,363
    )Adjustment of SFAS 158 liability, net of tax expense of
$12 for 2009 and $12 for 2008
    
    
    20
    
    
    
    20Total other comprehensive income (loss), net of tax
    
    
    945
    
    
    
    (1,363
    )Comprehensive income (loss)
    
    
    (52,904
    )
    
    
    (2,169
    )Comprehensive (loss) attributable to the noncontrolling
interest
    
    
    (927
    )
    
    
    (392
    )Comprehensive (loss) attributable to Mercantile Bancorp, Inc.
    
    $
    (51,977
    )
    
    $
    (1,777
    )
 13. FDIC SPECIAL ASSESSMENT
  17




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##### Table of Contents



14. OPERATING AND LIQUIDITY MATTERS
     -
    
    the occurrence of an event of default under any of the loan agreements;-
    
    the Company should fail to perform any additional covenant;-
    
    any changes in regulatory agreements;-
    
    the Company, any subsidiary holding company or any subsidiary bank being placed
in receivership or being taken over by any regulatory agency;-
    
    the note holder determines in its sole discretion that there has been any
change in the business operations or condition, financial or otherwise, of the Company,
any subsidiary holding company, any subsidiary bank or any consolidated subsidiary that
could have a material adverse effect; or-
    
    September 30, 2009
   18




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##### Table of Contents



15. SUBSEQUENT EVENT
      19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Special Cautionary Notice Regarding Forward-looking Statements
  
    
    projections of revenues, income, earnings per share, capital expenditures, assets,
liabilities, dividends, capital structure, or other financial items;
    
    descriptions of plans or objectives of management for future operations, products,
or services, including pending acquisition transactions;
    
    forecasts of future economic performance; and
    
    descriptions of assumptions underlying or relating to any of the foregoing.
  
    
    general business and economic conditions in the markets the Company
serves change or are less favorable than it expected;
    
    deposit attrition, operating costs, customer loss and business
disruption are greater than the Company expected;
    
    competitive factors including product and pricing pressures among
financial services organizations may increase;
    
    changes in the interest rate environment reduce the Companys interest margins;
    
    changes in market rates and prices may adversely impact securities,
loans, deposits, mortgage servicing rights, and other financial
instruments;
    
    legislative or regulatory developments including changes in laws
concerning taxes, banking, securities, insurance and other aspects of
the financial securities industry may adversely affect the Companys
business;
    
    personal or commercial bankruptcies increase;
    
    the Companys ability to expand and grow its business and operations,
including the establishment of additional branches and acquisition of
additional banks or branches of banks may be more difficult or costly
than the Company expected;
    
    any future acquisitions may be more difficult to integrate than
expected and the Company may be unable to realize any cost savings and
revenue enhancements the Company may have projected in connection with
such acquisitions;
    
    changes in accounting principles, policies or guidelines;
    
    construction and development loans are based upon estimates of costs
and value associated with the complete project. These estimates may
be inaccurate, and cause the Company to be exposed to more losses on
these projects than on other loans;
    
    changes occur in the securities markets;
 20




---



##### Table of Contents




    
    technology-related changes may be harder to make or more expensive than the Company anticipated;
    
    worldwide political and social unrest, including acts of war and terrorism; and
    
    changes occur in monetary and fiscal policies of the U.S. government,
including policies of the U.S. Treasury and the Federal Reserve Board.
  New Accounting Standards Adopted During 2009
      21




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##### Table of Contents



General
  Wholly-Owned Subsidiaries
 
    
    Mercantile Bank (Mercantile Bank), located in Quincy, Illinois;
    
    Marine Bank & Trust (Marine Bank), located in Carthage, Illinois;
    
    Brown County State Bank (Brown County), located in Mt. Sterling, Illinois;
    
    Royal Palm Bancorp, Inc. (Royal Palm), the sole shareholder of Royal Palm Bank of
Florida (Royal Palm Bank), located in Naples, Florida; and
    
    HNB Financial Services, Inc. (HNB Financial), the sole shareholder of HNB
National Bank (HNB), located in Hannibal, Missouri.
 Majority-Owned Subsidiary.
 Other Investments in Financial Institutions.
 
    
    4.3% of Integrity Bank (Integrity), located in Jupiter, Florida;
    
    0.8% of Premier Bancshares, Inc. (Premier), the sole shareholder of Premier Bank,
located in Jefferson City, Missouri;
    
    2.5% of Premier Community Bank of the Emerald Coast (Premier Community), located
in Crestview, Florida;
    
    4.1% of Paragon National Bank (Paragon), located in Memphis, Tennessee;
    
    1.4% of Enterprise Financial Services Corp. (Enterprise), the sole shareholder of
Enterprise Bank & Trust, based in Clayton, Missouri;
    
    4.1% of Solera National Bancorp, Inc. (Solera), the sole shareholder of Solera
National Bank, located in Lakewood, Colorado;
 22




---



##### Table of Contents




    
    2.9% of Manhattan Bancorp, Inc. (Manhattan), the sole shareholder of Bank of
Manhattan, located in Los Angeles, California; and
    
    4.9% of Brookhaven Bank (Brookhaven), located in Atlanta, Georgia.
        Results of Operations
 Comparison of Operating Results for the Three Months Ended June 30, 2009 and 2008
 Overview
 23




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##### Table of Contents



Net Interest Income
    24




---



##### Table of Contents



For the three months ended June 302009
    
    
    2008Income/
    
    
    
    
    
    
    
    
    
    
    Income/Average Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand deposits
    
    $
    79,787
    
    
    $
    80
    
    
    
    0.40
    %
    
    $
    17,490
    
    
    $
    84
    
    
    
    1.92
    %Federal funds sold
    
    
    15,601
    
    
    
    5
    
    
    
    0.13
    %
    
    
    16,510
    
    
    
    81
    
    
    
    1.96
    %Securities:TaxableU.S. treasuries and government agencies
    
    
    5,208
    
    
    
    33
    
    
    
    2.53
    %
    
    
    9,587
    
    
    
    114
    
    
    
    4.76
    %Mortgage-backed securities
    
    
    51,096
    
    
    
    552
    
    
    
    4.32
    %
    
    
    53,603
    
    
    
    622
    
    
    
    4.64
    %Other securities
    
    
    90,782
    
    
    
    1,081
    
    
    
    4.77
    %
    
    
    91,325
    
    
    
    1,246
    
    
    
    5.46
    %Total taxable
    
    
    147,086
    
    
    
    1,666
    
    
    
    4.53
    %
    
    
    154,515
    
    
    
    1,982
    
    
    
    5.13
    %Non-taxable  State and political subdivision (3)
    
    
    45,893
    
    
    
    412
    
    
    
    3.59
    %
    
    
    52,442
    
    
    
    473
    
    
    
    3.61
    %Loans (net of unearned discount) (1)(2)
    
    
    1,319,764
    
    
    
    18,924
    
    
    
    5.74
    %
    
    
    1,240,179
    
    
    
    20,572
    
    
    
    6.64
    %Federal Home Loan Bank stock
    
    
    8,284
    
    
    
    11
    
    
    
    0.53
    %
    
    
    8,300
    
    
    
    30
    
    
    
    1.45
    %Total interest-earning assets
    
    
    1,616,415
    
    
    $
    21,098
    
    
    
    5.22
    %
    
    
    1,489,436
    
    
    $
    23,222
    
    
    
    6.24
    %Cash and due from banks
    
    
    19,187
    
    
    
    
    
    
    
    
    
    
    
    36,698Interest receivable
    
    
    8,550
    
    
    
    
    
    
    
    
    
    
    
    9,915Foreclosed assets held for sale, net
    
    
    7,819
    
    
    
    
    
    
    
    
    
    
    
    4,839Cost method investments in common stock
    
    
    3,211
    
    
    
    
    
    
    
    
    
    
    
    5,981Cash surrender value of life insurance
    
    
    26,306
    
    
    
    
    
    
    
    
    
    
    
    24,682Premises and equipment
    
    
    39,867
    
    
    
    
    
    
    
    
    
    
    
    41,682Other
    
    
    24,803
    
    
    
    
    
    
    
    
    
    
    
    18,929Goodwill
    
    
    45,064
    
    
    
    
    
    
    
    
    
    
    
    44,348Intangible assets
    
    
    4,443
    
    
    
    
    
    
    
    
    
    
    
    5,215Allowance for loan loss
    
    
    (22,314
    )
    
    
    
    
    
    
    
    
    
    
    (17,064
    )Total assets
    
    $
    1,773,351
    
    
    
    
    
    
    
    
    
    
    $
    1,664,661Liabilities and Stockholders EquityInterest-bearing transaction deposits
    
    $
    155,460
    
    
    $
    166
    
    
    
    0.43
    %
    
    $
    140,372
    
    
    $
    326
    
    
    $
    0.93
    %Savings deposits
    
    
    88,079
    
    
    
    94
    
    
    
    0.43
    %
    
    
    86,656
    
    
    
    290
    
    
    
    1.34
    %Money-market deposits
    
    
    233,433
    
    
    
    564
    
    
    
    0.97
    %
    
    
    224,802
    
    
    
    1,197
    
    
    
    2.13
    %Time and brokered time deposits
    
    
    859,049
    
    
    
    7,191
    
    
    
    3.35
    %
    
    
    776,023
    
    
    
    8,251
    
    
    
    4.24
    %Short-term borrowings
    
    
    55,570
    
    
    
    641
    
    
    
    4.61
    %
    
    
    33,776
    
    
    
    235
    
    
    
    3.17
    %Long term debt
    
    
    59,673
    
    
    
    734
    
    
    
    4.92
    %
    
    
    83,610
    
    
    
    1,084
    
    
    
    5.15
    %Junior subordinated debentures
    
    
    61,858
    
    
    
    847
    
    
    
    5.48
    %
    
    
    61,858
    
    
    
    939
    
    
    
    6.07
    %Total interest-bearing liabilities
    
    
    1,513,122
    
    
    $
    10,237
    
    
    
    2.71
    %
    
    
    1,407,097
    
    
    $
    12,322
    
    
    $
    3.51
    %Demand deposits
    
    
    147,173
    
    
    
    
    
    
    
    
    
    
    
    129,714Interest payable
    
    
    4,506
    
    
    
    
    
    
    
    
    
    
    
    5,708Other liabilities
    
    
    6,914
    
    
    
    
    
    
    
    
    
    
    
    6,467Noncontrolling interest
    
    
    5,246
    
    
    
    
    
    
    
    
    
    
    
    8,856Stockholders equity
    
    
    96,390
    
    
    
    
    
    
    
    
    
    
    
    106,819Total liabilities and stockholders equity
    
    $
    1,773,351
    
    
    
    
    
    
    
    
    
    
    $
    1,664,661Interest spread
    
    
    
    
    
    
    
    
    
    
    2.51
    %
    
    
    
    
    
    
    
    
    
    
    2.73
    %Net interest income
    
    
    
    
    
    $
    10,861
    
    
    
    
    
    
    
    
    
    
    $
    10,900Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.69
    %
    
    
    
    
    
    
    
    
    
    
    2.93
    %Interest-earning assets to interest-bearing liabilities
    
    
    106.83
    %
    
    
    
    
    
    
    
    
    
    
    105.85
    %
 
 (1)
    
    Non-accrual loans have been included in average loans, net of unearned discount(2)
    
    Includes loans held for sale(3)
    
    The tax exempt income for state and political subdivisions in not recorded on a tax equivalent basis. 25




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##### Table of Contents



For the three months ended June 30,2009 vs. 2008Increase (Decrease) Due toChange inVolume
    
    
    Rate
    
    
    TotalIncrease (decrease) in interest income:Interest-bearing bank deposits
    
    $
    105
    
    
    $
    (109
    )
    
    $
    (4
    )Federal funds sold
    
    
    (4
    )
    
    
    (72
    )
    
    
    (76
    )Investment securities:U.S. Treasuries and Agencies
    
    
    (40
    )
    
    
    (41
    )
    
    
    (81
    )Mortgage-backed securities
    
    
    (28
    )
    
    
    (42
    )
    
    
    (70
    )States and political subdivision (1)
    
    
    (59
    )
    
    
    (2
    )
    
    
    (61
    )Other securities
    
    
    (7
    )
    
    
    (157
    )
    
    
    (164
    )Loans (net of unearned discounts)
    
    
    1,263
    
    
    
    (2,912
    )
    
    
    (1,649
    )Federal Home Loan Bank stock
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Change in interest income
    
    
    1,230
    
    
    
    (3,354
    )
    
    
    (2,124
    )Increase (decrease) in interest expense:Interest-bearing transaction deposits
    
    
    32
    
    
    
    (192
    )
    
    
    (160
    )Savings deposits
    
    
    5
    
    
    
    (201
    )
    
    
    (196
    )Money-market deposits
    
    
    44
    
    
    
    (677
    )
    
    
    (633
    )Time and brokered time deposits
    
    
    820
    
    
    
    (1,880
    )
    
    
    (1,061
    )Short-term borrowings
    
    
    201
    
    
    
    205
    
    
    
    406Long-term debt and junior subordinated
debentures
    
    
    (317
    )
    
    
    (125
    )
    
    
    (442
    )Change in interest expense
    
    
    785
    
    
    
    (2,870
    )
    
    
    (2,085
    )Increase (decrease) in net interest income
    
    $
    445
    
    
    $
    (484
    )
    
    $
    (39
    )
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses
  26




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##### Table of Contents



Noninterest Income.
  For the Three Months EndedJune 302009
    
    
    2008Fiduciary activities
    
    $
    650
    
    
    $
    690Brokerage fees
    
    
    320
    
    
    
    501Customer service fees
    
    
    984
    
    
    
    1,125Other service charges and fees
    
    
    333
    
    
    
    234Net gains on loan sales
    
    
    631
    
    
    
    280Loan servicing fees
    
    
    154
    
    
    
    138Net increase in cash surrender value of life insurance
    
    
    266
    
    
    
    243Net gains on sales of available-for-sale securities
    
    
    
    
    
    
    943Other
    
    
    405
    
    
    
    93Total noninterest income
    
    $
    3,743
    
    
    $
    4,247
      Noninterest Expense
  For the Three Months EndedJune 302009
    
    
    2008Salaries and employee benefits
    
    $
    6,604
    
    
    $
    6,997Net occupancy expense
    
    
    860
    
    
    
    865Equipment expense
    
    
    864
    
    
    
    916Deposit insurance premium
    
    
    1,508
    
    
    
    118Professional fees
    
    
    1,082
    
    
    
    548Postage and supplies
    
    
    265
    
    
    
    333Losses on sales of assets, net
    
    
    1
    
    
    
    15Losses (gains) on sales of foreclosed assets, net
    
    
    1,485
    
    
    
    (11
    )Other than temporary losses on
available-for-sale securities and cost method
investments
    
    
    2,546
    
    
    
    264Goodwill impairment losses
    
    
    44,650
    
    
    
    Amortization of mortgage servicing rights
    
    
    144
    
    
    
    60Other
    
    
    2,164
    
    
    
    2,180Total noninterest expense
    
    $
    62,172
    
    
    $
    12,285
 27




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##### Table of Contents



Income Taxes Expense (Benefit)
  28




---



##### Table of Contents



Results of Operations
 Comparison of Operating Results for the Six Months Ended June 30, 2009 and 2008
 Overview.
  Net Interest Income.
   29




---



##### Table of Contents



For the six months ended June 302009
    
    
    2008Average
    
    
    Income/
    
    
    
    
    
    
    Average
    
    
    Income/Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand deposits
    
    $
    74,516
    
    
    $
    152
    
    
    
    0.41
    %
    
    $
    18,109
    
    
    $
    234
    
    
    
    2.58
    %Federal funds sold
    
    
    17,470
    
    
    
    11
    
    
    
    0.13
    %
    
    
    17,792
    
    
    
    240
    
    
    
    2.70
    %Securities:TaxableU.S. treasuries and government agencies
    
    
    5,142
    
    
    
    74
    
    
    
    2.88
    %
    
    
    17,649
    
    
    
    322
    
    
    
    3.65
    %Mortgage-backed securities
    
    
    50,018
    
    
    
    1,116
    
    
    
    4.46
    %
    
    
    49,004
    
    
    
    1,182
    
    
    
    4.82
    %Other securities
    
    
    92,887
    
    
    
    2,189
    
    
    
    4.72
    %
    
    
    86,141
    
    
    
    2,447
    
    
    
    5.68
    %Total taxable
    
    
    148,047
    
    
    
    3,379
    
    
    
    4.57
    %
    
    
    152,794
    
    
    
    3,951
    
    
    
    5.17
    %Non-taxable  State and political subdivision (3)
    
    
    46,623
    
    
    
    839
    
    
    
    3.60
    %
    
    
    54,796
    
    
    
    1,013
    
    
    
    3.70
    %Loans (net of unearned discount ) (1)(2)
    
    
    1,324,219
    
    
    
    37,896
    
    
    
    5.72
    %
    
    
    1,223,233
    
    
    
    42,282
    
    
    
    6.91
    %Federal Home Loan Bank stock
    
    
    8,235
    
    
    
    24
    
    
    
    0.58
    %
    
    
    8,119
    
    
    
    66
    
    
    
    1.63
    %Total interest-earning assets (1)
    
    
    1,619,110
    
    
    $
    42,301
    
    
    
    5.23
    %
    
    
    1,474,843
    
    
    $
    47,786
    
    
    
    6.48
    %Cash and due from banks
    
    
    20,689
    
    
    
    
    
    
    
    
    
    
    
    35,159Premises and equipment
    
    
    40,095
    
    
    
    
    
    
    
    
    
    
    
    41,681Foreclosed assets held for sale, net
    
    
    8,094
    
    
    
    
    
    
    
    
    
    
    
    4,342Equity method investments in common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cost method investments in common stock
    
    
    3,260
    
    
    
    
    
    
    
    
    
    
    
    6,034Interest receivable
    
    
    9,069
    
    
    
    
    
    
    
    
    
    
    
    10,354Cash surrender value of life insurance
    
    
    25,847
    
    
    
    
    
    
    
    
    
    
    
    24,487Allowance for loan loss
    
    
    (22,539
    )
    
    
    
    
    
    
    
    
    
    
    (15,073
    )Goodwill
    
    
    45,065
    
    
    
    
    
    
    
    
    
    
    
    44,469Intangible assets
    
    
    4,429
    
    
    
    
    
    
    
    
    
    
    
    5,215Other
    
    
    25,347
    
    
    
    
    
    
    
    
    
    
    
    22,680Total assets
    
    $
    1,778,466
    
    
    
    
    
    
    
    
    
    
    $
    1,654,191Liabilities and Stockholders EquityInterest-bearing transaction deposits
    
    $
    148,974
    
    
    $
    328
    
    
    
    0.44
    %
    
    $
    137,606
    
    
    $
    726
    
    
    
    1.06
    %Savings deposits
    
    
    86,633
    
    
    
    235
    
    
    
    0.54
    %
    
    
    83,506
    
    
    
    643
    
    
    
    1.54
    %Money-market deposits
    
    
    228,444
    
    
    
    1,215
    
    
    
    1.06
    %
    
    
    218,433
    
    
    
    2,721
    
    
    
    2.49
    %Time and brokered time deposits
    
    
    876,120
    
    
    
    15,099
    
    
    
    3.45
    %
    
    
    773,388
    
    
    
    17,787
    
    
    
    4.60
    %Short-term borrowings
    
    
    56,977
    
    
    
    1,218
    
    
    
    4.28
    %
    
    
    34,963
    
    
    
    583
    
    
    
    3.35
    %Long term debt
    
    
    63,093
    
    
    
    1,151
    
    
    
    4.48
    %
    
    
    86,692
    
    
    
    2,260
    
    
    
    5.17
    %Subordinated debenture bonds
    
    
    61,858
    
    
    
    1,967
    
    
    
    5.51
    %
    
    
    61,858
    
    
    
    1,967
    
    
    
    6.36
    %Total interest-bearing liabilities
    
    
    1,522,099
    
    
    $
    21,213
    
    
    
    2.79
    %
    
    
    1,396,446
    
    
    $
    26,687
    
    
    
    3.82
    %Demand deposits
    
    
    142,055
    
    
    
    
    
    
    
    
    
    
    
    127,183Interest payable
    
    
    4,488
    
    
    
    
    
    
    
    
    
    
    
    6,217Other liabilities
    
    
    6,809
    
    
    
    
    
    
    
    
    
    
    
    7,285Minority interest
    
    
    5,409
    
    
    
    
    
    
    
    
    
    
    
    9,117Stockholders equity
    
    
    97,606
    
    
    
    
    
    
    
    
    
    
    
    107,943Total liabilities and stockholders equity
    
    $
    1,778,466
    
    
    
    
    
    
    
    
    
    
    $
    1,654,191Interest spread
    
    
    
    
    
    
    
    
    
    
    2.44
    %
    
    
    
    
    
    
    
    
    
    
    2.66
    %Net interest income
    
    
    
    
    
    $
    21,088
    
    
    
    
    
    
    
    
    
    
    $
    21,099Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.60
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %Interest-earning assets to interest-bearing liabilities
    
    
    106.37
    %
    
    
    
    
    
    
    
    
    
    
    105.61
    %
 
 (1)
    
    Non-accrual loans have been included in average loans, net of unearned discount(2)
    
    Includes loans held for sale(3)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. 30




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##### Table of Contents



For the six months ended June 30,2009 vs. 2008Increase (Decrease) Due toChange inVolume
    
    
    Rate
    
    
    TotalIncrease (decrease) in interest income:Interest-bearing bank deposits
    
    $
    246
    
    
    $
    (328
    )
    
    $
    (82
    )Federal funds sold
    
    
    (4
    )
    
    
    (225
    )
    
    
    (229
    )Investment securities:U.S. Treasuries and Agencies
    
    
    (191
    )
    
    
    (57
    )
    
    
    (248
    )Mortgage-backed securities
    
    
    24
    
    
    
    (90
    )
    
    
    (66
    )States and political subdivision (1)
    
    
    (148
    )
    
    
    (26
    )
    
    
    (174
    )Other securities
    
    
    181
    
    
    
    (438
    )
    
    
    (257
    )Loans (net of unearned discounts)
    
    
    3,296
    
    
    
    (7,683
    )
    
    
    (4,387
    )Federal Home Loan Bank stock
    
    
    1
    
    
    
    (43
    )
    
    
    (42
    )Change in interest income (1)
    
    
    3,405
    
    
    
    (8,890
    )
    
    
    (5,485
    )Increase in interest expense:Interest-bearing transaction deposits
    
    
    56
    
    
    
    (454
    )
    
    
    (398
    )Savings deposits
    
    
    23
    
    
    
    (431
    )
    
    
    (408
    )Money-market deposits
    
    
    119
    
    
    
    (1,625
    )
    
    
    (1,506
    )Time and brokered time deposits
    
    
    2,158
    
    
    
    (4,846
    )
    
    
    (2,689
    )Short-term borrowings
    
    
    439
    
    
    
    196
    
    
    
    635Long-term debt and junior subordinated
debentures
    
    
    (625
    )
    
    
    (484
    )
    
    
    (1,109
    )Change in interest expense
    
    
    2,170
    
    
    
    (7,646
    )
    
    
    (5,475
    )Increase in net interest income (1)
    
    $
    1,235
    
    
    $
    (1,246
    )
    
    $
    (11
    )
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses.
 Noninterest Income.
 31




---



##### Table of Contents



For the Six Months EndedJune 302009
    
    
    2008Fiduciary activities
    
    $
    1,301
    
    
    $
    1,380Brokerage fees
    
    
    558
    
    
    
    917Customer service fees
    
    
    1,824
    
    
    
    2,225Other service charges and fees
    
    
    592
    
    
    
    434Net gains on loan sales
    
    
    1,441
    
    
    
    643Loan servicing fees
    
    
    300
    
    
    
    273Net increase in cash surrender value of life insurance
    
    
    511
    
    
    
    511Net gains on sales of available-for-sale securities
    
    
    
    
    
    
    943Net gains on sales of equity and cost method investments
    
    
    
    
    
    
    100Other
    
    
    483
    
    
    
    183Total noninterest income
    
    $
    7,010
    
    
    $
    7,609
      Noninterest Expense.
 32




---



##### Table of Contents



For the Six Months EndedJune 302009
    
    
    2008Salaries and employee benefits
    
    $
    13,311
    
    
    $
    13,898Net occupancy expense
    
    
    1,760
    
    
    
    1,750Equipment expense
    
    
    1,658
    
    
    
    1,690Deposit insurance premium
    
    
    2,340
    
    
    
    223Professional fees
    
    
    1,717
    
    
    
    1,123Postage and supplies
    
    
    601
    
    
    
    634Losses (gains) on sales of assets, net
    
    
    14
    
    
    
    (376
    )Losses on foreclosed assets, net
    
    
    1,613
    
    
    
    493Losses on securities, net
    
    
    
    
    
    
    1Other than temporary losses on
available-for-sale securities and cost
method investments
    
    
    2,546
    
    
    
    264Goodwill impairment losses
    
    
    44,650
    
    
    
    Amortization of mortgage servicing rights
    
    
    354
    
    
    
    153Other
    
    
    4,081
    
    
    
    4,132Total noninterest expense
    
    $
    74,645
    
    
    $
    23,985
       33




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##### Table of Contents



Income Tax Expense (Benefit).
  Financial Condition
 June 30, 2009 Compared to December 31, 2008
 Loan Portfolio
  June 30, 2009
    
    
    December 31, 2008Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(dollars in thousands)Commercial and financial
    
    $
    228,832
    
    
    
    17.48
    %
    
    $
    235,438
    
    
    
    17.52
    %Agricultural
    
    
    57,919
    
    
    
    4.42
    %
    
    
    68,192
    
    
    
    5.07
    %Real estate  farmland
    
    
    111,064
    
    
    
    8.48
    %
    
    
    111,244
    
    
    
    8.28
    %Real estate  construction
    
    
    204,771
    
    
    
    15.64
    %
    
    
    238,922
    
    
    
    17.78
    %Real estate  commercial
    
    
    242,845
    
    
    
    18.55
    %
    
    
    214,317
    
    
    
    15.95
    %Real estate  residential (1)
    
    
    338,790
    
    
    
    25.88
    %
    
    
    343,627
    
    
    
    25.58
    %Installment loans to individuals
    
    
    125,064
    
    
    
    9.55
    %
    
    
    132,000
    
    
    
    9.82
    %Total loans
    
    
    1,309,285
    
    
    
    100.00
    %
    
    
    1,343,740
    
    
    
    100.00
    %Allowance for loan losses
    
    
    28,089
    
    
    
    
    
    
    
    23,467Total loans, including loans
held for sale, net of allowance
for loan losses
    
    $
    1,281,196
    
    
    
    
    
    
    $
    1,320,273
 
 (1)
    
    Includes loans held for sale Nonperforming Assets
  34




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##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008Nonaccrual loansCommercial and financial
    
    $
    784
    
    
    $
    762Agricultural
    
    
    66
    
    
    
    234Real estate  farmland
    
    
    459
    
    
    
    Real estate  construction
    
    
    34,509
    
    
    
    25,948Real estate  commercial
    
    
    7,832
    
    
    
    1,361Real estate  residential
    
    
    14,501
    
    
    
    5,455Installment loans to individuals
    
    
    254
    
    
    
    337Total nonaccrual loans
    
    
    58,405
    
    
    
    34,097Loans 90 days past due and still accruing
    
    
    5,017
    
    
    
    3,856Restructured loans
    
    
    453
    
    
    
    58Total nonperforming loans
    
    
    63,875
    
    
    
    38,011Repossessed assets
    
    
    9,884
    
    
    
    10,015Other assets acquired in satisfaction of debt previously
contracted
    
    
    
    
    
    
    Total nonperforming other assets
    
    
    9,884
    
    
    
    10,015Total nonperforming loans and nonperforming other assets
    
    $
    73,759
    
    
    $
    48,026Nonperforming loans to loans, before allowance for loan losses
    
    
    4.88
    %
    
    
    2.83
    %Nonperforming loans and nonperforming other assets to loans,
before allowance for loan losses
    
    
    5.63
    %
    
    
    3.57
    %
 Allowance for Loan Losses
   35




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##### Table of Contents



As of and for
    
    
    As of and forthe Six Months
    
    
    the Year EndedEnded June 30,
    
    
    December 31,2009
    
    
    2008Average loans outstanding during year
    
    $
    1,324,219
    
    
    $
    1,274,660Allowance for loan losses:Balance at beginning of year
    
    $
    23,467
    
    
    $
    12,794Loans charged-off:Commercial and financial
    
    
    658
    
    
    
    5,447Agricultural
    
    
    34
    
    
    
    147Real estate  farmland
    
    
    
    
    
    
    Real estate  construction
    
    
    6,199
    
    
    
    4,082Real estate  commercial
    
    
    732
    
    
    
    2,276Real estate  residential
    
    
    492
    
    
    
    823Installment loans to individuals
    
    
    743
    
    
    
    901Total charge-offs
    
    
    8,858
    
    
    
    13,676Recoveries:Commercial and financial
    
    
    10
    
    
    
    296Agricultural
    
    
    39
    
    
    
    15Real estate  farmland
    
    
    80
    
    
    
    Real estate  construction
    
    
    32
    
    
    
    1Real estate  commercial
    
    
    6
    
    
    
    43Real estate  residential
    
    
    26
    
    
    
    46Installment loans to individuals
    
    
    142
    
    
    
    103Total recoveries
    
    
    335
    
    
    
    504Net charge-offs
    
    
    8,523
    
    
    
    13,172Provision for loan losses
    
    
    13,145
    
    
    
    23,845Balance at end of year
    
    $
    28,089
    
    
    $
    23,467Allowance for loan losses as a percent of
total loans outstanding at year end
    
    
    2.15
    %
    
    
    1.75
    %Allowance for loan losses as a percent of
total nonperforming loans
    
    
    43.97
    %
    
    
    61.74
    %Ratio of net charge-offs to average total loans
    
    
    0.64
    %
    
    
    1.03
    %
 36




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##### Table of Contents



Securities
     Foreclosed Assets Held for Sale.
 Deposits
 Borrowings
  37




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##### Table of Contents



Liquidity
  38




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##### Table of Contents



-
    
    the occurrence of an event of default under any of the loan agreements;-
    
    the Company should fail to perform any additional covenant;-
    
    any changes in regulatory agreements;-
    
    the Company, any subsidiary holding company or any subsidiary bank being placed
in receivership or being taken over by any regulatory agency;-
    
    the note holder determines in its sole discretion that there has been any
change in the business operations or condition, financial or otherwise, of the Company,
any subsidiary holding company, any subsidiary bank or any consolidated subsidiary that
could have a material adverse effect; or-
    
    September 30, 2009
  39




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##### Table of Contents



Capital Resources
     40




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##### Table of Contents



Regulatory Matters
        41




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##### Table of Contents



Effect of Inflation and Changing Prices.
  Recent Developments
     
 Item 3. Quantitative and Qualitative Disclosures About Market Risk .
  42




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##### Table of Contents



Item 4. Controls and Procedures .
 Evaluation of disclosure controls and procedures.
 Changes in internal controls over financial reporting
 
 PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 The Company and certain of its banking subsidiaries are subject to regulatory enforcement
actions.
 The Company has been in noncompliance with certain loan covenants with its primary lender.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  43




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##### Table of Contents



Total Number of Shares
    
    Maximum ApproximateSecond Quarter
    
    Total Number of
    
    
    
    
    
    Purchased as Part of
    
    Dollar Value of Shares that2009 Calendar
    
    Shares Purchased
    
    Average Price
    
    Publicly Announced
    
    May Yet Be Purchased UnderMonth
    
    (1)
    
    Paid per Share (1)
    
    Plans or Programs (2)
    
    the Plans or Programs (3)April
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    $
    8,128,000May
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    $
    8,128,000June
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    $
    8,128,000Total
    
    
    0
    
    
    
    N/A
    
    
    
    0
 
 (1)
    
    The total number of shares purchased and the average price paid per share include, in addition
to other purchases, shares purchased in the open market and through privately negotiated
transactions by the Companys 401(k) Profit Sharing Plan. For the months indicated, there were no
shares purchased by the Plan.(2)
    
    Includes only shares subject to publicly announced stock repurchase program, i.e. the $10
million stock repurchase program approved by the Board on August 15, 2005 and announced on August
17, 2005 (the 2005 Repurchase Program). Does not include shares purchased by the Companys
401(k) Profit Sharing Plan.(3)
    
    Dollar amount of repurchase authority remaining at month-end under the 2005 Repurchase
Program, the Companys only publicly announced repurchase program in effect at such dates. The
2005 Repurchase Program is limited to 883,656 shares (10% of the number of outstanding shares on
the date the Board approved the program, adjusted for the three-for-one stock split in June of 2006
and the three-for-two split in December of 2007) but not to exceed $10 million in repurchases. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
   For
    
    WithheldTed T. Awerkamp
    
    
    6,573,671
    
    
    
    353,950Julie A. Brink
    
    
    6,512,299
    
    
    
    415,322Michael J. Foster
    
    
    6,595,990
    
    
    
    353,950Alexander J. House
    
    
    6,670,861
    
    
    
    256,760William G. Keller, Jr.
    
    
    4,027,713
    
    
    
    2,899,908Dennis M. Prock
    
    
    6,564,610
    
    
    
    363,011James A. Senty
    
    
    6,708,401
    
    
    
    219,220James W. Tracy
    
    
    6,596,102
    
    
    
    331,579
  
 44




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##### Table of Contents



Item 5. Other Information
  
 Item 6. Exhibits
 ExhibitNumber
    
    Identification of Exhibit3.1
    
    
    Bylaws of Mercantile Bancorp, Inc. restated and adopted June 16, 2009, filed herewith10.1
    
    
    Indenture dated August 25, 2005 between Mercantile Bancorp, Inc. and Wilmington
Trust Company, as trustee, filed herewith.10.2
    
    
    Junior Subordinated Indenture dated July 13, 2006 between Mercantile Bancorp, Inc.
and Wilmington Trust Company, as trustee, filed herewith.10.3
    
    
    Indenture dated July 13, 2006 (Fixed/Floating Rate Junior Subordinated Debt
Securities Due 2036) between Mercantile Bancorp, Inc. and Wilmington Trust Company,
as trustee, filed herewith.10.4
    
    
    Junior Subordinated Indenture dated August 30, 2007 between Mercantile Bancorp, Inc.
and Wilmington Trust Company, as trustee, filed herewith.10.5
    
    
    Fourth Amended and Restated Loan Agreement Waiver and Amendment dated August 10,
2009, filed herewith.31.1
    
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended.31.2
    
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended.32.1
    
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 45




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##### Table of Contents



SIGNATURES
  Date: August 14, 2009
    By:
    /s/ Ted T. AwerkampTed T. AwerkampPresident and Chief Executive Officer

(principal executive officer)Date: August 14, 2009
    By:
    /s/ Michael P. McGrathMichael P. McGrathExecutive Vice President, Treasurer, Secretary 
and
Chief Financial Officer
(principal financial officer/
principal accounting officer) 46