##### 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 September 30, 2007
 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 
Incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 440 Maine 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 þ o
 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 Income
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6-10Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11-30Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4.
    
    Controls and Procedures
    
    
    31PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    32Item 1A.
    
    Risk Factors
    
    
    32Item 2.
    
    Unregistered Sales of Equity Securities and Use of
Proceeds
    
    
    32Item 3.
    
    Defaults Upon Senior Securities
    
    
    32Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    32Item 5.
    
    Other Information
    
    
    33Item 6.
    
    Exhibits
    
    
    33Signatures
    
    
    34ExhibitsSection 302 CertificationsSection 906 CertificationsCertification of Chief Executive OfficerCertification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
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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)
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)AssetsCash and due from banks
    
    $
    31,344
    
    
    $
    28,854Interest-bearing demand deposits
    
    
    21,068
    
    
    
    29,188Federal funds sold
    
    
    23,196
    
    
    
    41,105Cash and cash equivalents
    
    
    75,608
    
    
    
    99,147Available-for-sale securities
    
    
    209,457
    
    
    
    176,179Held-to-maturity securities
    
    
    14,437
    
    
    
    12,400Loans held for sale
    
    
    2,880
    
    
    
    1,660Loans, net of allowance for loan losses of $13,184 and $10,613
    
    
    1,165,982
    
    
    
    1,021,043Interest receivable
    
    
    12,104
    
    
    
    10,277Foreclosed assets held for sale, net
    
    
    2,212
    
    
    
    291Federal Home Loan Bank stock
    
    
    7,508
    
    
    
    5,699Equity method investments in common stock
    
    
    
    
    
    
    4,119Cost method investments in common stock
    
    
    7,408
    
    
    
    3,190Deferred income taxes
    
    
    3,369
    
    
    
    3,071Mortgage servicing rights
    
    
    1,018
    
    
    
    994Cash surrender value of life insurance
    
    
    22,084
    
    
    
    18,143Premises and equipment
    
    
    36,894
    
    
    
    25,693Goodwill
    
    
    44,285
    
    
    
    32,120Core deposit and other intangibles
    
    
    4,467
    
    
    
    2,110Other
    
    
    7,841
    
    
    
    6,691Total assets
    
    $
    1,617,554
    
    
    $
    1,422,827Liabilities and Stockholders EquityDepositsDemand
    
    $
    121,736
    
    
    $
    111,131Savings, NOW and money market
    
    
    420,703
    
    
    
    349,250Time
    
    
    601,662
    
    
    
    551,688Brokered time
    
    
    152,274
    
    
    
    154,745Total deposits
    
    
    1,296,375
    
    
    
    1,166,814Short-term borrowings
    
    
    39,731
    
    
    
    26,338Long-term debt
    
    
    82,500
    
    
    
    66,010Junior subordinated debentures
    
    
    61,858
    
    
    
    41,239Interest payable
    
    
    6,058
    
    
    
    6,039Other
    
    
    15,000
    
    
    
    6,531Total liabilities
    
    
    1,501,706
    
    
    
    1,312,971Commitments and Contingent Liabilities
    
    
    
    
    
    
    Minority Interest
    
    
    9,761
    
    
    
    9,198Stockholders EquityCommon stock, $.42 par value; authorized 12,000,000 shares;Issued  5,924,790 shares at September 30, 2007 and December 31, 2006Outstanding  5,806,485 shares at September 30, 2007 and 5,831,745
shares at December 31, 2006
    
    
    2,469
    
    
    
    2,469Additional paid-in capital
    
    
    13,248
    
    
    
    13,142Retained earnings
    
    
    92,589
    
    
    
    86,648Accumulated other comprehensive income (loss)
    
    
    (26
    )
    
    
    23108,280
    
    
    
    102,282Treasury stock, at costCommon; 118,305 shares at September 30, 2007 and 93,045 shares at
December 31, 2006
    
    
    (2,193
    )
    
    
    (1,624
    )Total stockholders equity
    
    
    106,087
    
    
    
    100,658Total liabilities and stockholders equity
    
    $
    1,617,554
    
    
    $
    1,422,827
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##### Table of Contents



MERCANTILE BANCORP, INC.
 
 Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
 Three months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest and Dividend IncomeLoansTaxable
    
    $
    20,932
    
    
    $
    17,028
    
    
    $
    60,392
    
    
    $
    47,375Tax exempt
    
    
    246
    
    
    
    231
    
    
    
    760
    
    
    
    644SecuritiesTaxable
    
    
    2,018
    
    
    
    1,573
    
    
    
    5,852
    
    
    
    4,081Tax exempt
    
    
    452
    
    
    
    444
    
    
    
    1,296
    
    
    
    1,333Federal funds sold
    
    
    275
    
    
    
    164
    
    
    
    1,010
    
    
    
    216Dividends on Federal Home Loan Bank stock
    
    
    60
    
    
    
    43
    
    
    
    162
    
    
    
    122Deposits with financial institutions and other
    
    
    210
    
    
    
    247
    
    
    
    689
    
    
    
    517Total interest and dividend income
    
    
    24,193
    
    
    
    19,730
    
    
    
    70,161
    
    
    
    54,288Interest ExpenseDeposits
    
    
    11,436
    
    
    
    8,647
    
    
    
    32,723
    
    
    
    22,956Short-term borrowings
    
    
    558
    
    
    
    472
    
    
    
    1,401
    
    
    
    1,139Long-term debt and junior subordinated
debentures
    
    
    1,663
    
    
    
    1,236
    
    
    
    4,688
    
    
    
    2,504Total interest expense
    
    
    13,657
    
    
    
    10,355
    
    
    
    38,812
    
    
    
    26,599Net Interest Income
    
    
    10,536
    
    
    
    9,375
    
    
    
    31,349
    
    
    
    27,689Provision for Loan Losses
    
    
    677
    
    
    
    857
    
    
    
    1,858
    
    
    
    2,260Net Interest Income After Provision For Loan Losses
    
    
    9,859
    
    
    
    8,518
    
    
    
    29,491
    
    
    
    25,429Noninterest IncomeFiduciary activities
    
    
    589
    
    
    
    493
    
    
    
    1,734
    
    
    
    1,472Brokerage fees
    
    
    329
    
    
    
    249
    
    
    
    1,091
    
    
    
    870Customer service fees
    
    
    1,039
    
    
    
    930
    
    
    
    2,893
    
    
    
    2,669Other service charges and fees
    
    
    164
    
    
    
    126
    
    
    
    519
    
    
    
    460Net loss on sales of assets
    
    
    (2
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    (16
    )Net gains on loan sales
    
    
    230
    
    
    
    163
    
    
    
    515
    
    
    
    455Net gains on sales of equity and cost method
investments
    
    
    2,309
    
    
    
    1,469
    
    
    
    2,309
    
    
    
    1,469Loan servicing fees
    
    
    106
    
    
    
    96
    
    
    
    307
    
    
    
    291Gain (loss) on sales of foreclosed assets
    
    
    (3
    )
    
    
    1
    
    
    
    (18
    )
    
    
    (1
    )Net increase in cash surrender value of life
insurance
    
    
    209
    
    
    
    158
    
    
    
    652
    
    
    
    486Income (loss) on equity method investments in
common stock
    
    
    2
    
    
    
    47
    
    
    
    (6
    )
    
    
    230Other
    
    
    57
    
    
    
    26
    
    
    
    152
    
    
    
    139Total noninterest income
    
    
    5,029
    
    
    
    3,754
    
    
    
    10,145
    
    
    
    8,524Noninterest ExpenseSalaries and employee benefits
    
    
    5,925
    
    
    
    4,531
    
    
    
    17,115
    
    
    
    13,286Net occupancy expense
    
    
    732
    
    
    
    506
    
    
    
    2,009
    
    
    
    1,429Equipment expense
    
    
    628
    
    
    
    424
    
    
    
    1,881
    
    
    
    1,318Deposit insurance premium
    
    
    67
    
    
    
    35
    
    
    
    141
    
    
    
    97Professional fees
    
    
    365
    
    
    
    562
    
    
    
    1,439
    
    
    
    1,364Postage and supplies
    
    
    266
    
    
    
    254
    
    
    
    783
    
    
    
    682Amortization of mortgage servicing rights
    
    
    35
    
    
    
    33
    
    
    
    97
    
    
    
    190Other
    
    
    1,930
    
    
    
    1,385
    
    
    
    5,100
    
    
    
    4,670Total noninterest expense
    
    
    9,948
    
    
    
    7,730
    
    
    
    28,565
    
    
    
    23,036Minority Interest
    
    
    197
    
    
    
    199
    
    
    
    531
    
    
    
    585Income Before Income Taxes
    
    
    4,743
    
    
    
    4,343
    
    
    
    10,540
    
    
    
    10,332Provision For Income Taxes
    
    
    1,450
    
    
    
    1,420
    
    
    
    3,027
    
    
    
    3,238Net Income
    
    $
    3,293
    
    
    $
    2,923
    
    
    $
    7,513
    
    
    $
    7,094Basic Earnings Per Share
    
    $
    0.57
    
    
    $
    0.50
    
    
    $
    1.29
    
    
    $
    1.21Dividends Paid Per Share
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.27
    
    
    $
    0.24Weighted Average Shares Outstanding
    
    
    5,806,570
    
    
    
    5,847,827
    
    
    
    5,822,492
    
    
    
    5,848,104
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MERCANTILE BANCORP, INC.
 
 Consolidated Statements of Cash Flows 
(In thousands) 
(Unaudited)
 Nine Months Ended September 30
    
    2007
    
    
    2006Operating ActivitiesNet income
    
    $
    7,513
    
    
    $
    7,094Items not requiring (providing) cashDepreciation
    
    
    1,507
    
    
    
    1,110Provision for loan losses
    
    
    1,858
    
    
    
    2,260Amortization of premiums and discounts on securities
    
    
    (17
    )
    
    
    780Amortization (accretion) of core deposit intangibles and other
purchase accounting adjustments
    
    
    (626
    )
    
    
    184Deferred income taxes
    
    
    (1,619
    )
    
    
    (415
    )Net gains on loan sales
    
    
    (515
    )
    
    
    (455
    )Loss on sale of premises and equipment
    
    
    3
    
    
    
    16Net losses on sales of foreclosed assets
    
    
    18
    
    
    
    1Amortization of mortgage servicing rights
    
    
    97
    
    
    
    190Gain on sale of equity and cost method investments
    
    
    (2,309
    )
    
    
    (1,469
    )Income (loss) on equity method investments in common stock
    
    
    6
    
    
    
    (230
    )Federal Home Loan Bank stock dividends
    
    
    
    
    
    
    (47
    )Net increase in cash surrender value of life insurance
    
    
    (652
    )
    
    
    (486
    )Minority interest in earnings of subsidiaries
    
    
    531
    
    
    
    585Changes inLoans originated for sale
    
    
    (33,738
    )
    
    
    (29,009
    )Proceeds from sales of loans
    
    
    32,858
    
    
    
    30,059Interest receivable
    
    
    (949
    )
    
    
    (1,899
    )Other assets
    
    
    (906
    )
    
    
    (1,903
    )Interest payable
    
    
    (589
    )
    
    
    2,145Other liabilities
    
    
    8,750
    
    
    
    1,215Net cash provided by operating activities
    
    
    11,221
    
    
    
    9,726Investing ActivitiesCash paid in acquisition of HNB Financial, net of cash received
    
    
    (24,771
    )
    
    
    Cash paid in acquisition of Royal Palm
    
    
    (5
    )
    
    
    Purchases of available-for-sale securities
    
    
    (32,627
    )
    
    
    (96,396
    )Proceeds from maturities of available-for-sale securities
    
    
    26,863
    
    
    
    64,678Proceeds from maturities of held-to-maturity securities
    
    
    2,453
    
    
    
    2,560Proceeds from sales of equity and cost method investments
    
    
    6,791
    
    
    
    1,347Net change in loans
    
    
    (33,210
    )
    
    
    (51,994
    )Purchases of premises and equipment
    
    
    (7,345
    )
    
    
    (2,113
    )Proceeds from sales of premises and equipment
    
    
    29
    
    
    
    42Proceeds from the sales of foreclosed assets
    
    
    162
    
    
    
    280Purchase of Federal Home Loan Bank stock
    
    
    (483
    )
    
    
    (839
    )Proceeds from sales of Federal Home Loan Bank stock
    
    
    449
    
    
    
    377Purchase of cost method investments
    
    
    (4,218
    )
    
    
    (1,266
    )Net cash used in investing activities
    
    
    (65,912
    )
    
    
    (83,324
    )Financing ActivitiesNet increase in demand deposits, money market, NOW and savings accounts
    
    
    10,218
    
    
    
    9,072Net increase (decrease) in time and brokered time deposits
    
    
    (9,582
    )
    
    
    40,894Net increase (decrease) in short-term borrowings
    
    
    12,504
    
    
    
    (11,132
    )Proceeds from long-term debt and subordinated debentures
    
    
    46,269
    
    
    
    43,129Payments on long-term debt and subordinated debentures
    
    
    (26,160
    )
    
    
    (9,150
    )Proceeds from issuance of stock to minority interest of Mid-America
    
    
    62
    
    
    
    1,277Purchase of intangible asset
    
    
    (18
    )
    
    
    Repurchase of common stock
    
    
    (569
    )
    
    
    (55
    )Dividends paid
    
    
    (1,572
    )
    
    
    (1,403
    )Net cash provided by financing activities
    
    
    31,152
    
    
    
    72,632Decrease In Cash and Cash Equivalents
    
    
    (23,539
    )
    
    
    (966
    )Cash and Cash Equivalents, Beginning of Period
    
    
    99,147
    
    
    
    44,154Cash and Cash Equivalents, End of Period
    
    $
    75,608
    
    
    $
    43,188Supplemental Cash Flows InformationInterest paid
    
    $
    38,793
    
    
    $
    24,454Income taxes paid, net of refunds
    
    $
    2,143
    
    
    $
    3,510Real estate acquired in settlement of loans
    
    $
    1,941
    
    
    $
    378Available-for sale securities received from sale of equity and cost
method investments
    
    $
    234
    
    
    $
    4,032Increase in additional paid-in capital due to issuance of stock to
minority interest of Mid-America
    
    $
    65
    
    
    $
    220Decrease in core deposit intangibles from sale of equity method investment
    
    $
    535
    
    
    $
    702
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MERCANTILE BANCORP, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands)
 1. BASIS OF PRESENTATION
 
 2. EARNINGS PER COMMON SHARE
  3. NEW ACCOUNTING PRONOUNCEMENTS
   4. OFF BALANCE SHEET CREDIT COMMITMENTS
  6




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5. CRITICAL ACCOUNTING POLICIES
     7




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##### Table of Contents



6. ACQUISITION
   Cash and cash equivalents
    
    $
    6,510Available-for-sale securities
    
    
    27,393Held-to-maturity securities
    
    
    4,500Loans, net of allowance for loan losses of $1,482
    
    
    115,103Interest receivable
    
    
    878Federal Home Loan Bank stock
    
    
    1,775Deferred income taxes
    
    
    (537
    )Premises and equipment
    
    
    5,377Core deposit intangibles
    
    
    3,104Goodwill
    
    
    12,160Other assets
    
    
    3,759Total assets acquired
    
    
    180,022Deposits
    
    
    129,390Short-term borrowings
    
    
    889Long-term debt
    
    
    17,000Interest payable
    
    
    608Other liabilities
    
    
    854Total liabilities assumed
    
    
    148,741Net assets acquired
    
    $
    31,281
   8




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For the Nine Months
    
    For the Three MonthsEnded September 30,
    
    Ended September 30,2007
    
    2006
    
    2007
    
    2006Net interest income
    
    $
    35,088
    
    
    $
    31,829
    
    
    $
    11,836
    
    
    $
    10,773Net income
    
    $
    8,083
    
    
    $
    8,073
    
    
    $
    3,434
    
    
    $
    3,226Basic earnings per share
    
    $
    1.39
    
    
    $
    1.38
    
    
    $
    0.59
    
    
    $
    0.55
 7. SALE OF EQUITY METHOD INVESTMENT
  8. LONG TERM DEBT
    9




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9. COMPREHENSIVE INCOME
  For the Three MonthsEnded September 30,2007
    
    
    2006Net income
    
    $
    3,293
    
    
    $
    2,923Other comprehensive income:Unrealized appreciation on available-for-sale securities:Unrealized appreciation on available-for-sale
securities, net of tax expense of $1,552 for 2007
and $736 for 2006
    
    
    2,205
    
    
    
    1,192Net change in unrealized appreciation on
available-for-sale securities, net of tax
expense of $1,552 for 2007 and $736 for 2006
    
    
    2,205
    
    
    
    1,192Accumulated other comprehensive income of equity method
investee
    
    
    57
    
    
    
    42Unrealized gain on interest rate swaps:Unrealized holding gain, net of tax expense of $0
for 2007 and $(9) for 2006
    
    
    
    
    
    
    1Less reclassification adjustment to interest
expense, net of tax expense (benefit) of $0 for
2007 and $(34) for 2006
    
    
    
    
    
    
    (56
    )Net change in unrealized gain on interest rate
swaps, net of tax expense of $0 for 2007 and
$34 for 2006
    
    
    
    
    
    
    57Total other comprehensive income, net of tax
    
    
    2,262
    
    
    
    1,291Comprehensive income
    
    $
    5,555
    
    
    $
    4,214
 For the Nine MonthsEnded September 30,2007
    
    
    2006Net income
    
    $
    7,513
    
    
    $
    7,094Other comprehensive income (loss):Unrealized appreciation (depreciation) on
available-for-sale securities:Unrealized appreciation (depreciation) on
available-for-sale securities, net of tax
expense (benefit) of $(74) for 2007and $213
for 2006
    
    
    (77
    )
    
    
    298Net change in unrealized appreciation
(depreciation) on available-for-sale
securities, net of tax expense
(benefit) of $(74) for 2007 and $213
for 2006
    
    
    (77
    )
    
    
    298Accumulated other comprehensive income (loss) of
equity method investee
    
    
    28
    
    
    
    5Unrealized gains (losses) on interest rate swaps:Unrealized holding gains (losses), net of
tax expense (benefit) of $0 for 2007 and
$(11) for 2006
    
    
    
    
    
    
    (21
    )Less reclassification adjustment to
interest income (expense), net of tax
expense (benefit) of $0 for 2007 and $(92)
for 2006
    
    
    
    
    
    
    (138
    )Net change in unrealized gain (loss) on
interest rate swaps, net of tax expense
(benefit) of $0 for 2007 and $72 for
2006
    
    
    
    
    
    
    117Total other comprehensive loss, net of tax
    
    
    (49
    )
    
    
    420Comprehensive income
    
    $
    7,464
    
    
    $
    7,514
 10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Special Cautionary Notice Regarding Forward-looking Statements
  
    
    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;
    
    changes occur in the securities markets; and
    
    technology-related changes may be harder to make or more expensive than the Company anticipated.
  11




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##### Table of Contents



New Accounting Standards Adopted During 2007
  General
   §
    
    Mercantile Trust & Savings Bank (MTSB), located in Quincy, Illinois;§
    
    Marine Bank & Trust (Marine Bank), located in Carthage, Illinois;§
    
    Perry State Bank (Perry), located in Perry, Missouri;§
    
    Brown County State Bank (Brown County), located in Mt. Sterling, Illinois;§
    
    Farmers State Bank of Northern Missouri (Farmers), located in Savannah, Missouri;§
    
    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 Bank
(HNB), located in Hannibal, Missouri.
     §
    
    5.0% of Integrity Bank (Integrity), located in Jupiter, Florida;§
    
    1.5% of Premier Bancshares, Inc. (Premier), the sole shareholder of Premier Bank,
located in Jefferson City, Missouri;§
    
    5.0% 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;§
    
    0.1% of Integrity Bancshares, Inc. (Integrity Bancshares), the sole shareholder
of Integrity Bank, located in Alpharetta, Georgia;§
    
    1.3% of Enterprise Financial Services Corp. (Enterprise), the sole shareholder of
Enterprise Bank & Trust, located in Clayton, Missouri;§
    
    0.5% of First Charter Corporation (First Charter), located in Charlotte, North
Carolina;
 12




---



##### Table of Contents



§
    
    4.4% of Solera National Bancorp, Inc. (Solera), the sole shareholder of Solera
National Bank, located in Lakewood, Colorado;§
    
    5.0% of Manhattan Bancorp, Inc. (Manhattan), the sole shareholder of Bank of
Manhattan, located in Los Angeles, California; and§
    
    5.0% of Brookhaven Bank (Brookhaven), located in Atlanta, Georgia.
       13




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##### Table of Contents



14




---



##### Table of Contents



Results of Operations
 Comparison of Operating Results for the Three months Ended September 30, 2007 and 2006
 Overview.
   Net Interest Income.
   15




---



##### Table of Contents



For the three months ended September 302007
    
    
    2006Income/
    
    
    
    
    
    
    
    
    
    
    Income/Average Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand
deposits and other
    
    $
    15,898
    
    
    $
    210
    
    
    
    5.28
    %
    
    $
    27,001
    
    
    $
    247
    
    
    
    3.66
    %Federal funds sold
    
    
    21,367
    
    
    
    275
    
    
    
    5.15
    %
    
    
    12,800
    
    
    
    164
    
    
    
    5.13
    %Securities:TaxableU.S. treasuries
and government
agencies
    
    
    28,806
    
    
    
    368
    
    
    
    5.11
    %
    
    
    25,419
    
    
    
    311
    
    
    
    4.89
    %Mortgage-backed
securities
    
    
    41,728
    
    
    
    540
    
    
    
    5.18
    %
    
    
    40,539
    
    
    
    505
    
    
    
    4.98
    %Other securities
    
    
    84,670
    
    
    
    1,110
    
    
    
    5.24
    %
    
    
    65,136
    
    
    
    757
    
    
    
    4.65
    %Total taxable
    
    
    155,204
    
    
    
    2,018
    
    
    
    5.20
    %
    
    
    131,094
    
    
    
    1,573
    
    
    
    4.80
    %Non-taxable  State and
political subdivision (3)
    
    
    49,520
    
    
    
    452
    
    
    
    3.65
    %
    
    
    48,556
    
    
    
    444
    
    
    
    3.66
    %Loans (net of unearned
discount) (1)(2)
    
    
    1,077,182
    
    
    
    21,178
    
    
    
    7.86
    %
    
    
    911,811
    
    
    
    17,259
    
    
    
    7.57
    %Federal Home Loan Bank
stock
    
    
    6,430
    
    
    
    60
    
    
    
    3.73
    %
    
    
    5,845
    
    
    
    43
    
    
    
    2.94
    %Total
interest-earning
assets (1)
    
    
    1,325,601
    
    
    $
    24,193
    
    
    
    7.30
    %
    
    
    1,137,107
    
    
    $
    19,730
    
    
    
    6.94
    %Cash and due from banks
    
    
    25,165
    
    
    
    
    
    
    
    
    
    
    
    24,285Interest receivable
    
    
    10,814
    
    
    
    
    
    
    
    
    
    
    
    9,198Foreclosed assets held for
sale, net
    
    
    1,450
    
    
    
    
    
    
    
    
    
    
    
    445Equity method investments
in common stock
    
    
    2,775
    
    
    
    
    
    
    
    
    
    
    
    4,088Cost method investments in
common stock
    
    
    7,379
    
    
    
    
    
    
    
    
    
    
    
    3,538Cash surrender value of
life insurance
    
    
    19,766
    
    
    
    
    
    
    
    
    
    
    
    16,332Premises and equipment
    
    
    30,990
    
    
    
    
    
    
    
    
    
    
    
    18,759Other
    
    
    12,337
    
    
    
    
    
    
    
    
    
    
    
    11,565Goodwill
    
    
    32,787
    
    
    
    
    
    
    
    
    
    
    
    1,985Intangible assets
    
    
    5,861
    
    
    
    
    
    
    
    
    
    
    
    5,693Allowance for loan losses
    
    
    (11,993
    )
    
    
    
    
    
    
    
    
    
    
    (8,834
    )Total assets
    
    $
    1,462,932
    
    
    
    
    
    
    
    
    
    
    $
    1,224,161Liabilities and Stockholders EquityInterest-bearing
transaction deposits
    
    $
    111,297
    
    
    $
    455
    
    
    
    1.64
    %
    
    $
    102,542
    
    
    $
    352
    
    
    
    1.37
    %Savings deposits
    
    
    76,002
    
    
    
    508
    
    
    
    2.67
    %
    
    
    54,701
    
    
    
    246
    
    
    
    1.80
    %Money-market deposits
    
    
    200,184
    
    
    
    1,993
    
    
    
    3.98
    %
    
    
    126,696
    
    
    
    1,086
    
    
    
    3.43
    %Time and brokered time
deposits
    
    
    687,722
    
    
    
    8,480
    
    
    
    4.93
    %
    
    
    609,804
    
    
    
    6,963
    
    
    
    4.57
    %Short-term borrowings
    
    
    42,897
    
    
    
    558
    
    
    
    5.20
    %
    
    
    36,339
    
    
    
    472
    
    
    
    5.20
    %Long-term borrowings
    
    
    65,053
    
    
    
    818
    
    
    
    5.03
    %
    
    
    43,670
    
    
    
    593
    
    
    
    5.43
    %Junior subordinated
debentures
    
    
    48,112
    
    
    
    845
    
    
    
    7.03
    %
    
    
    41,239
    
    
    
    643
    
    
    
    6.24
    %Total
interest-bearing
liabilities
    
    
    1,231,267
    
    
    $
    13,657
    
    
    
    4.44
    %
    
    
    1,014,991
    
    
    $
    10,355
    
    
    
    4.08
    %Demand deposits
    
    
    104,646
    
    
    
    
    
    
    
    
    
    
    
    92,753Interest payable
    
    
    5,781
    
    
    
    
    
    
    
    
    
    
    
    5,001Other liabilities
    
    
    7,794
    
    
    
    
    
    
    
    
    
    
    
    5,588Minority interest
    
    
    9,634
    
    
    
    
    
    
    
    
    
    
    
    9,041Stockholders equity
    
    
    103,810
    
    
    
    
    
    
    
    
    
    
    
    96,787Total
liabilities and
stockholders
equity
    
    $
    1,462,932
    
    
    
    
    
    
    
    
    
    
    $
    1,224,161
 16




---



##### Table of Contents



For the three months ended September 302007
    
    
    2006Income/
    
    
    
    
    
    
    
    
    
    
    Income/Average Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)Interest spread
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %Net interest income
    
    
    
    
    
    $
    10,536
    
    
    
    
    
    
    
    
    
    
    $
    9,375Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.18
    %
    
    
    
    
    
    
    
    
    
    
    3.30
    %Interest-earning assets to
interest-bearing
liabilities
    
    
    107.66
    %
    
    
    
    
    
    
    
    
    
    
    112.03
    %
 
 (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.  For the three months ended September 30,2007 vs. 2006Increase (Decrease) Due toChange inVolume
    
    
    Rate
    
    
    Total(dollars in thousands)Increase (decrease) in interest income:Interest-bearing bank deposits
    
    $
    (123
    )
    
    $
    86
    
    
    $
    (37
    )Federal funds sold
    
    
    110
    
    
    
    1
    
    
    
    111Investment securities:U.S. Treasuries and Agencies
    
    
    43
    
    
    
    14
    
    
    
    57Mortgage-backed securities
    
    
    15
    
    
    
    20
    
    
    
    35States and political subdivision (1)
    
    
    9
    
    
    
    (1
    )
    
    
    8Other securities
    
    
    247
    
    
    
    106
    
    
    
    353Loans (net of unearned discounts)
    
    
    3,230
    
    
    
    689
    
    
    
    3,919Federal Home Loan Bank stock
    
    
    5
    
    
    
    12
    
    
    
    17Change in interest income (1)
    
    
    3,536
    
    
    
    927
    
    
    
    4,463Increase (decrease) in interest expense:Interest-bearing transaction deposits
    
    
    32
    
    
    
    71
    
    
    
    103Savings deposits
    
    
    117
    
    
    
    145
    
    
    
    262Money-market deposits
    
    
    709
    
    
    
    198
    
    
    
    907Time and brokered time deposits
    
    
    933
    
    
    
    583
    
    
    
    1,516Short-term borrowings
    
    
    85
    
    
    
    1
    
    
    
    86Long-term debt and junior subordinated
debentures
    
    
    416
    
    
    
    12
    
    
    
    428Change in interest expense
    
    
    2,292
    
    
    
    1,010
    
    
    
    3,302Increase (decrease) in net interest income (1)
    
    $
    1,244
    
    
    $
    (83
    )
    
    $
    1,161
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses.
 17




---



##### Table of Contents



Noninterest Income.
  For the Three Months EndedSeptember 30(dollars in thousands)2007
    
    
    2006Fiduciary activities
    
    $
    589
    
    
    $
    493Brokerage fees
    
    
    329
    
    
    
    249Customer service fees
    
    
    1,039
    
    
    
    930Other service charges and fees
    
    
    164
    
    
    
    126Net losses on sales of fixed assets
    
    
    (2
    )
    
    
    (4
    )Net gains on loan sales
    
    
    230
    
    
    
    163Net gains on sale of equity and cost method investments
    
    
    2,309
    
    
    
    1,469Loan servicing fees
    
    
    106
    
    
    
    96Net gains (losses) on sales of foreclosed assets
    
    
    (3
    )
    
    
    1Net increase in cash surrender value of life insurance
    
    
    209
    
    
    
    158Income on equity method investments in common stock
    
    
    2
    
    
    
    47Other
    
    
    57
    
    
    
    26Total noninterest income
    
    $
    5,029
    
    
    $
    3,754
      Noninterest Expense.
 18




---



##### Table of Contents



For the Three Months EndedSeptember 30(dollars in thousands)2007
    
    
    2006Salaries and employee benefits
    
    $
    5,925
    
    
    $
    4,531Net occupancy expense
    
    
    732
    
    
    
    506Equipment expense
    
    
    628
    
    
    
    424Deposit insurance premium
    
    
    67
    
    
    
    35Professional fees
    
    
    365
    
    
    
    562Postage and supplies
    
    
    266
    
    
    
    254Amortization of mortgage servicing rights
    
    
    35
    
    
    
    33Other
    
    
    1,930
    
    
    
    1,385Total noninterest expense
    
    $
    9,948
    
    
    $
    7,730
     Provision for Income Taxes.
 19




---



##### Table of Contents



Results of Operations
 Comparison of Operating Results for the Nine months Ended September 30, 2007 and 2006
 Overview
  Net Interest Income
   20




---



##### Table of Contents



For the nine months ended September 302007
    
    
    2006Income/
    
    
    
    
    
    
    
    
    
    
    Income/Average Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand
deposits and other
    
    $
    16,597
    
    
    $
    689
    
    
    
    5.54
    %
    
    $
    21,219
    
    
    $
    517
    
    
    
    3.25
    %Federal funds sold
    
    
    24,859
    
    
    
    1,010
    
    
    
    5.42
    %
    
    
    5,853
    
    
    
    216
    
    
    
    4.92
    %Securities:TaxableU.S. treasuries
and government
agencies
    
    
    24,668
    
    
    
    951
    
    
    
    5.14
    %
    
    
    14,431
    
    
    
    482
    
    
    
    4.45
    %Mortgage-backed
securities
    
    
    41,903
    
    
    
    1,613
    
    
    
    5.13
    %
    
    
    43,933
    
    
    
    1,568
    
    
    
    4.76
    %Other securities
    
    
    82,526
    
    
    
    3,288
    
    
    
    5.31
    %
    
    
    58,278
    
    
    
    2,031
    
    
    
    4.65
    %Total taxable
    
    
    149,097
    
    
    
    5,852
    
    
    
    5.23
    %
    
    
    116,642
    
    
    
    4,081
    
    
    
    4.66
    %Non-taxable  State and
political subdivision (3)
    
    
    47,465
    
    
    
    1,296
    
    
    
    3.64
    %
    
    
    48,660
    
    
    
    1,333
    
    
    
    3.65
    %Loans (net of unearned
discount) (1)(2)
    
    
    1,045,762
    
    
    
    61,152
    
    
    
    7.80
    %
    
    
    885,529
    
    
    
    48,019
    
    
    
    7.23
    %Federal Home Loan Bank
stock
    
    
    5,916
    
    
    
    162
    
    
    
    3.65
    %
    
    
    5,573
    
    
    
    122
    
    
    
    2.92
    %Total
interest-earning
assets (1)
    
    
    1,289,696
    
    
    $
    70,161
    
    
    
    7.25
    %
    
    
    1,083,476
    
    
    $
    54,288
    
    
    
    6.68
    %Cash and due from banks
    
    
    25,933
    
    
    
    
    
    
    
    
    
    
    
    24,035Interest receivable
    
    
    9,887
    
    
    
    
    
    
    
    
    
    
    
    8,247Foreclosed assets held for
sale, net
    
    
    678
    
    
    
    
    
    
    
    
    
    
    
    420Equity method investments
in common stock
    
    
    3,687
    
    
    
    
    
    
    
    
    
    
    
    6,155Cost method investments in
common stock
    
    
    4,888
    
    
    
    
    
    
    
    
    
    
    
    3,135Cash surrender value of
life insurance
    
    
    18,818
    
    
    
    
    
    
    
    
    
    
    
    16,175Premises and equipment
    
    
    27,870
    
    
    
    
    
    
    
    
    
    
    
    18,597Other
    
    
    12,078
    
    
    
    
    
    
    
    
    
    
    
    10,358Goodwill
    
    
    30,230
    
    
    
    
    
    
    
    
    
    
    
    1,985Intangible assets
    
    
    6,034
    
    
    
    
    
    
    
    
    
    
    
    6,274Allowance for loan loss
    
    
    (11,356
    )
    
    
    
    
    
    
    
    
    
    
    (8,427
    )Total assets
    
    $
    1,418,443
    
    
    
    
    
    
    
    
    
    
    $
    1,170,430Liabilities and Stockholders EquityInterest-bearing
transaction deposits
    
    $
    115,073
    
    
    $
    1,514
    
    
    
    1.75
    %
    
    $
    107,121
    
    
    $
    1,095
    
    
    
    1.36
    %Savings deposits
    
    
    72,049
    
    
    
    1,369
    
    
    
    2.53
    %
    
    
    52,495
    
    
    
    544
    
    
    
    1.38
    %Money-market deposits
    
    
    183,914
    
    
    
    5,391
    
    
    
    3.91
    %
    
    
    115,741
    
    
    
    2,696
    
    
    
    3.11
    %Time and brokered time
deposits
    
    
    675,049
    
    
    
    24,449
    
    
    
    4.83
    %
    
    
    592,948
    
    
    
    18,621
    
    
    
    4.19
    %Short-term borrowings
    
    
    36,404
    
    
    
    1,401
    
    
    
    5.13
    %
    
    
    31,014
    
    
    
    1,139
    
    
    
    4.90
    %Long-term borrowings
    
    
    62,142
    
    
    
    2,433
    
    
    
    5.22
    %
    
    
    40,532
    
    
    
    1,547
    
    
    
    5.09
    %Junior subordinated
debentures
    
    
    43,530
    
    
    
    2,255
    
    
    
    6.91
    %
    
    
    20,620
    
    
    
    957
    
    
    
    6.19Total
interest-bearing
liabilities
    
    
    1,188,161
    
    
    $
    38,812
    
    
    
    4.36
    %
    
    
    960,471
    
    
    $
    26,599
    
    
    
    3.69
    %Demand deposits
    
    
    106,782
    
    
    
    
    
    
    
    
    
    
    
    97,365Interest payable
    
    
    6,042
    
    
    
    
    
    
    
    
    
    
    
    4,103Other liabilities
    
    
    5,732
    
    
    
    
    
    
    
    
    
    
    
    5,801Minority interest
    
    
    9,418
    
    
    
    
    
    
    
    
    
    
    
    8,282Stockholders equity
    
    
    102,308
    
    
    
    
    
    
    
    
    
    
    
    94,408Total
liabilities and
stockholders
equity
    
    $
    1,418,443
    
    
    
    
    
    
    
    
    
    
    $
    1,170,430
 21




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##### Table of Contents



For the nine months ended September 302007
    
    
    2006Income/
    
    
    
    
    
    
    
    
    
    
    Income/Average Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)Interest spread
    
    
    
    
    
    
    
    
    
    
    2.90
    %
    
    
    
    
    
    
    
    
    
    
    2.99
    %Net interest income
    
    
    
    
    
    $
    31,349
    
    
    
    
    
    
    
    
    
    
    $
    27,689Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.24
    %
    
    
    
    
    
    
    
    
    
    
    3.41
    %Interest-earning assets to
interest-bearing
liabilities
    
    
    108.55
    %
    
    
    
    
    
    
    
    
    
    
    112.81
    %
 
 (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.  For the nine months ended September 30,2007 vs. 2006Increase (Decrease) Due toChange inVolume
    
    
    Rate
    
    
    Total(dollars in thousands)Increase (decrease) in interest income:Interest-bearing bank deposits
    
    $
    (131
    )
    
    $
    303
    
    
    $
    172Federal funds sold
    
    
    770
    
    
    
    24
    
    
    
    794Investment securities:U.S. Treasuries and Agencies
    
    
    385
    
    
    
    84
    
    
    
    469Mortgage-backed securities
    
    
    (75
    )
    
    
    120
    
    
    
    45States and political subdivision (1)
    
    
    (33
    )
    
    
    (4
    )
    
    
    (37
    )Other securities
    
    
    935
    
    
    
    322
    
    
    
    1,257Loans (net of unearned discounts)
    
    
    9,164
    
    
    
    3,969
    
    
    
    13,133Federal Home Loan Bank stock
    
    
    8
    
    
    
    32
    
    
    
    40Change in interest income (1)
    
    
    11,023
    
    
    
    4,850
    
    
    
    15,873Increase in interest expense:Interest-bearing transaction deposits
    
    
    86
    
    
    
    333
    
    
    
    419Savings deposits
    
    
    255
    
    
    
    570
    
    
    
    825Money-market deposits
    
    
    1,873
    
    
    
    822
    
    
    
    2,695Time and brokered time deposits
    
    
    2,766
    
    
    
    3,062
    
    
    
    5,828Short-term borrowings
    
    
    205
    
    
    
    57
    
    
    
    262Long-term debt and junior subordinated
debentures
    
    
    1,959
    
    
    
    225
    
    
    
    2,184Change in interest expense
    
    
    7,144
    
    
    
    5,069
    
    
    
    12,213Increase in net interest income (1)
    
    $
    3,879
    
    
    $
    (219
    )
    
    $
    3,660
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses
 22




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##### Table of Contents



Noninterest Income
  For the Nine Months EndedSeptember 30(dollars in thousands)2007
    
    
    2006Fiduciary activities
    
    $
    1,734
    
    
    $
    1,472Brokerage fees
    
    
    1,091
    
    
    
    870Customer service fees
    
    
    2,893
    
    
    
    2,669Other service charges and fees
    
    
    519
    
    
    
    460Net losses on sales of fixed assets
    
    
    (3
    )
    
    
    (16
    )Net gains on loan sales
    
    
    515
    
    
    
    455Net gains on sales of equity and cost method investments
    
    
    2,309
    
    
    
    1,469Loan servicing fees
    
    
    307
    
    
    
    291Net gains on sales of foreclosed assets
    
    
    (18
    )
    
    
    (1
    )Net increase in cash surrender value of life insurance
    
    
    652
    
    
    
    486Income on equity method investments in common stock
    
    
    (6
    )
    
    
    230Other
    
    
    152
    
    
    
    139Total noninterest income
    
    $
    10,145
    
    
    $
    8,524
     Noninterest Expense
 23




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##### Table of Contents



For the Nine Months EndedSeptember 30(dollars in thousands)2007
    
    
    2006Salaries and employee benefits
    
    $
    17,115
    
    
    $
    13,286Net occupancy expense
    
    
    2,009
    
    
    
    1,429Equipment expense
    
    
    1,881
    
    
    
    1,318Deposit insurance premium
    
    
    141
    
    
    
    97Professional fees
    
    
    1,439
    
    
    
    1,364Postage and supplies
    
    
    783
    
    
    
    682Amortization of mortgage servicing rights
    
    
    97
    
    
    
    190Other
    
    
    5,100
    
    
    
    4,670Total noninterest expense
    
    $
    28,565
    
    
    $
    23,036
     Minority Interest.
 24




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##### Table of Contents



Provision for Income Taxes
  Financial Condition
 September 30, 2007 Compared to December 31, 2006
 Loan Portfolio.
  September 30, 2007
    
    
    December 31, 2006Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(dollars in thousands)Commercial and financial
    
    $
    171,854
    
    
    
    14.54
    %
    
    $
    167,687
    
    
    
    16.23
    %Agricultural
    
    
    58,821
    
    
    
    4.98
    %
    
    
    57,393
    
    
    
    5.55
    %Real estate  farmland
    
    
    85,186
    
    
    
    7.21
    %
    
    
    72,999
    
    
    
    7.06
    %Real estate  construction
    
    
    189,935
    
    
    
    16.07
    %
    
    
    152,553
    
    
    
    14.76
    %Real estate  commercial
    
    
    211,562
    
    
    
    17.90
    %
    
    
    190,724
    
    
    
    18.46
    %Real estate  residential (1)
    
    
    329,024
    
    
    
    27.84
    %
    
    
    267,237
    
    
    
    25.86
    %Installment loans to individuals
    
    
    135,664
    
    
    
    11.48
    %
    
    
    124,723
    
    
    
    12.08
    %Total loans
    
    
    1,182,046
    
    
    
    100.00
    %
    
    
    1,033,316
    
    
    
    100.00
    %Allowance for loan losses
    
    
    13,184
    
    
    
    
    
    
    
    10,613Total loans, including loans
held for sale, net of allowance
for loan losses
    
    $
    1,168,862
    
    
    
    
    
    
    $
    1,022,703
 
 (1)
    
    Includes loans held for sale Nonperforming Assets
 25




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##### Table of Contents



September 30,
    
    
    December 31,2007
    
    
    2006(dollars in thousands)Nonaccrual loansCommercial and financial
    
    $
    1,041
    
    
    $
    429Agricultural
    
    
    436
    
    
    
    473Real estate  farmland
    
    
    298
    
    
    
    12Real estate  construction
    
    
    1,520
    
    
    
    1,147Real estate  commercial
    
    
    2,300
    
    
    
    2,083Real estate  residential
    
    
    7,099
    
    
    
    1,040Installment loans to individuals
    
    
    218
    
    
    
    213Total nonaccrual loans
    
    
    12,912
    
    
    
    5,397Loans 90 days past due and still accruing
    
    
    1,624
    
    
    
    993Restructured loans
    
    
    
    
    
    
    4Total nonperforming loans
    
    
    14,536
    
    
    
    6,394Repossessed assets
    
    
    2,292
    
    
    
    361Other assets acquired in satisfaction of debt previously
contracted
    
    
    
    
    
    
    Total nonperforming other assets
    
    
    2,292
    
    
    
    361Total nonperforming loans and nonperforming other assets
    
    $
    16,828
    
    
    $
    6,755Nonperforming loans to loans, before allowance for loan losses
    
    
    1.23
    %
    
    
    0.62
    %Nonperforming loans and nonperforming other assets to loans,
before allowance for loan losses
    
    
    1.42
    %
    
    
    0.65
    %
 Allowance for Loan Losses
 26




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27




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##### Table of Contents



As of and forthe Nine Months
    
    
    As of and forEnded
    
    
    the Year EndedSeptember 30,
    
    
    December 31,2007
    
    
    2006(dollars in thousands)Average loans outstanding during year
    
    $
    1,045,762
    
    
    $
    907,671Allowance for loan losses:Balance at beginning of year
    
    $
    10,613
    
    
    $
    8,082Loans charged-off:Commercial and financial
    
    
    214
    
    
    
    1,833Agricultural
    
    
    67
    
    
    
    85Real estate  farmland
    
    
    
    
    
    
    Real estate  construction
    
    
    
    
    
    
    Real estate  commercial
    
    
    3
    
    
    
    139Real estate  residential
    
    
    60
    
    
    
    139Installment loans to individuals
    
    
    613
    
    
    
    1,129Total charge-offs
    
    
    957
    
    
    
    3,325Recoveries:Commercial and financial
    
    
    51
    
    
    
    47Agricultural
    
    
    13
    
    
    
    20Real estate  farmland
    
    
    
    
    
    
    Real estate  construction
    
    
    2
    
    
    
    1Real estate  commercial
    
    
    1
    
    
    
    1Real estate  residential
    
    
    12
    
    
    
    12Installment loans to individuals
    
    
    109
    
    
    
    136Total recoveries
    
    
    188
    
    
    
    217Net charge-offs
    
    
    769
    
    
    
    3,108Provision for loan losses
    
    
    1,858
    
    
    
    3,914Purchased allowance
    
    
    1,482
    
    
    
    1,725Balance at end of year
    
    $
    13,184
    
    
    $
    10,613Allowance for loan losses as a percent of
total loans outstanding at year end
    
    
    1.12
    %
    
    
    1.03
    %Allowance for loan losses as a percent of
total nonperforming loans
    
    
    90.70
    %
    
    
    165.98
    %Ratio of net charge-offs to average total loans
    
    
    0.07
    %
    
    
    0.34
    %
 Securities
  28




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##### Table of Contents



Deposits
 Borrowings
    Liquidity and Capital Resources
 Liquidity
  29




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##### Table of Contents



Capital Resources
  Effect of Inflation and Changing Prices.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk .
  30




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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
 31




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total Number of Shares
    
    Maximum ApproximateThird Quarter
    
    Total Number of
    
    
    
    
    
    Purchased as Part of
    
    Dollar Value of Shares that2007 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)July
    
    
    260
    
    
    $
    23.15
    
    
    
    260
    
    
    $
    8,229,424August
    
    
    0
    
    
    
    n/a
    
    
    
    0
    
    
    $
    8,229,424September
    
    
    0
    
    
    
    n/a
    
    
    
    0
    
    
    $
    8,229,424Total
    
    
    260
    
    
    $
    23.15
    
    
    
    260
 
 (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 589,104 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) 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
  32




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##### Table of Contents



Item 5. Other Information
  
 Item 6. Exhibits
 ExhibitNumber
    
    Identification of Exhibit31.1
    
    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.
 33




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##### Table of Contents



SIGNATURES
 Date: November 8, 2007
    By:
    /s/ Ted T. AwerkampTed T. AwerkampPresident and Chief Executive Officer
(principal executive officer)Date: November 8, 2007
    By:
    /s/ Michael P. McGrathMichael P. McGrathExecutive Vice President, Treasurer, Secretary and
Chief Financial Officer
(principal financial officer/
principal accounting officer) 34