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 MARCH 31, 2008
 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.)
 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 þ o 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 (Loss)
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6-11Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12-24Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    25PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    26Item 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3.
    
    Defaults Upon Senior Securities
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Item 5.
    
    Other Information
    
    
    26Item 6.
    
    Exhibits
    
    
    27Signatures
    
    
    28ExhibitsSection 302 Certifications
    
    
    29-30Section 906 Certifications
    
    
    31-32
  2




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##### 



PART I
FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements .
 MERCANTILE BANCORP, INC.
 
 Consolidated Balance Sheets
 (In thousands, except par value and share data)
 March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)AssetsCash and due from banks
    
    $
    45,748
    
    
    $
    38,172Interest-bearing demand deposits
    
    
    21,522
    
    
    
    18,259Federal funds sold
    
    
    12,942
    
    
    
    19,628Cash and cash equivalents
    
    
    80,212
    
    
    
    76,059Available-for-sale securities
    
    
    208,909
    
    
    
    201,739Held-to-maturity securities
    
    
    13,404
    
    
    
    14,518Loans held for sale
    
    
    4,155
    
    
    
    3,338Loans, net of allowance for loan losses of $17,127 and $12,794
    
    
    1,192,321
    
    
    
    1,188,757Interest receivable
    
    
    10,884
    
    
    
    11,343Foreclosed assets held for sale, net
    
    
    5,029
    
    
    
    3,172Federal Home Loan Bank stock
    
    
    8,022
    
    
    
    7,790Cost method investments in common stock
    
    
    6,105
    
    
    
    6,105Deferred income taxes
    
    
    2,649
    
    
    
    2,457Mortgage servicing rights
    
    
    1,313
    
    
    
    1,307Cash surrender value of life insurance
    
    
    24,516
    
    
    
    24,248Premises and equipment
    
    
    41,724
    
    
    
    42,003Goodwill
    
    
    43,934
    
    
    
    43,934Core deposit and other intangibles
    
    
    4,386
    
    
    
    4,514Other
    
    
    7,556
    
    
    
    7,861Total assets
    
    $
    1,655,119
    
    
    $
    1,639,145Liabilities and Stockholders EquityDepositsDemand
    
    $
    132,535
    
    
    $
    133,890Savings, NOW and money market
    
    
    453,081
    
    
    
    420,394Time
    
    
    655,074
    
    
    
    611,676Brokered time
    
    
    111,478
    
    
    
    153,499Total deposits
    
    
    1,352,168
    
    
    
    1,319,459Short-term borrowings
    
    
    27,769
    
    
    
    45,589Long-term debt
    
    
    84,500
    
    
    
    81,500Junior subordinated debentures
    
    
    61,858
    
    
    
    61,858Interest payable
    
    
    5,957
    
    
    
    6,040Other
    
    
    6,022
    
    
    
    6,971Total liabilities
    
    
    1,538,274
    
    
    
    1,521,417Commitments and Contingent LiabilitiesMinority Interest
    
    
    9,179
    
    
    
    9,446Stockholders EquityCommon stock, $0.42 par value; authorized 12,000,000 shares;Issued  8,887,113 shares at March 31, 2008 and December 31, 2007Outstanding  8,709,655 shares at March 31, 2008 and December
31, 2007
    
    
    3,629
    
    
    
    3,629Additional paid-in capital
    
    
    12,011
    
    
    
    11,989Retained earnings
    
    
    92,353
    
    
    
    94,552Accumulated other comprehensive income
    
    
    1,866
    
    
    
    305109,859
    
    
    
    110,475Treasury stock, at costCommon; 177,458 shares at March 31, 2008 and December 31, 2007
    
    
    (2,193
    )
    
    
    (2,193
    )Total stockholders equity
    
    
    107,666
    
    
    
    108,282Total liabilities and stockholders equity
    
    $
    1,655,119
    
    
    $
    1,639,145
  3




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##### 



MERCANTILE BANCORP, INC.
 
 Consolidated Statements of Income (Loss)
 (In thousands, except per share data)
 (Unaudited)
 Three Months Ended March 31
    
    2008
    
    
    2007Interest and Dividend IncomeLoansTaxable
    
    $
    21,534
    
    
    $
    19,537Tax exempt
    
    
    176
    
    
    
    256SecuritiesTaxable
    
    
    1,969
    
    
    
    1,888Tax exempt
    
    
    540
    
    
    
    431Federal funds sold
    
    
    159
    
    
    
    471Dividends on Federal Home Loan Bank stock
    
    
    36
    
    
    
    50Deposits with financial institutions and other
    
    
    150
    
    
    
    275Total interest and dividend income
    
    
    24,564
    
    
    
    22,908Interest ExpenseDeposits
    
    
    11,813
    
    
    
    10,579Short-term borrowings
    
    
    348
    
    
    
    368Long-term debt and junior subordinated debentures
    
    
    2,204
    
    
    
    1,560Total interest expense
    
    
    14,365
    
    
    
    12,507Net Interest Income
    
    
    10,199
    
    
    
    10,401Provision for Loan Losses
    
    
    4,769
    
    
    
    755Net Interest Income After Provision For Loan Losses
    
    
    5,430
    
    
    
    9,646Noninterest IncomeFiduciary activities
    
    
    690
    
    
    
    573Brokerage fees
    
    
    416
    
    
    
    308Customer service fees
    
    
    1,100
    
    
    
    871Other service charges and fees
    
    
    200
    
    
    
    182Net gains (losses) on sales of assets
    
    
    391
    
    
    
    (2
    )Net gains on loan sales
    
    
    363
    
    
    
    108Loan servicing fees
    
    
    135
    
    
    
    102Net increase in cash surrender value of life insurance
    
    
    268
    
    
    
    167Other
    
    
    190
    
    
    
    51Total noninterest income
    
    
    3,753
    
    
    
    2,360Noninterest ExpenseSalaries and employee benefits
    
    
    6,901
    
    
    
    5,628Net occupancy expense
    
    
    885
    
    
    
    635Equipment expense
    
    
    774
    
    
    
    612Deposit insurance premium
    
    
    105
    
    
    
    36Professional fees
    
    
    575
    
    
    
    495Postage and supplies
    
    
    301
    
    
    
    263Net losses on foreclosed assets
    
    
    504
    
    
    
    15Net losses on securities
    
    
    1
    
    
    
    Loss on equity method investments in common stock
    
    
    
    
    
    
    3Amortization of mortgage servicing rights
    
    
    93
    
    
    
    26Other
    
    
    1,952
    
    
    
    1,498Total noninterest expense
    
    
    12,091
    
    
    
    9,211Minority Interest
    
    
    (287
    )
    
    
    175Income (Loss) Before Income Taxes Expense (Benefit)
    
    
    (2,621
    )
    
    
    2,620Income Tax Expense (Benefit)
    
    
    (944
    )
    
    
    776Net Income (Loss)
    
    $
    (1,677
    )
    
    $
    1,844Basic Earnings (Loss) Per Share
    
    $
    (0.19
    )
    
    $
    0.21Weighted Average Shares Outstanding
    
    
    8,709,655
    
    
    
    8,747,618
  4




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MERCANTILE BANCORP, INC.
 
 Consolidated Statements of Cash Flows
 (In thousands)
 (Unaudited)
 Three Months Ended March 31
    
    2008
    
    
    2007Operating ActivitiesNet income (loss)
    
    $
    (1,677
    )
    
    $
    1,844Items not requiring (providing) cashDepreciation
    
    
    671
    
    
    
    491Provision for loan losses
    
    
    4,769
    
    
    
    755Amortization (accretion) of premiums and discounts on securities
    
    
    (19
    )
    
    
    15Amortization (depreciation) of core deposit intangibles and other
purchase accounting adjustments
    
    
    (88
    )
    
    
    70Deferred income taxes
    
    
    (1,113
    )
    
    
    (201
    )Net losses on loan sales
    
    
    (363
    )
    
    
    (129
    )(Gains) Losses on sale of assets
    
    
    (391
    )
    
    
    2Losses on foreclosed assets
    
    
    504
    
    
    
    15Amortization of mortgage servicing rights
    
    
    93
    
    
    
    26Loss on equity method investments in common stock
    
    
    
    
    
    
    3Federal Home Loan Bank stock dividends
    
    
    (13
    )
    
    
    (12
    )Net increase in cash surrender value of life insurance
    
    
    (268
    )
    
    
    (181
    )Minority interest in earnings of subsidiaries
    
    
    (287
    )
    
    
    176Changes in
Loans originated for sale
    
    
    (33,014
    )
    
    
    (7,400
    )Proceeds from sales of loans
    
    
    32,408
    
    
    
    5,969Interest receivable
    
    
    459
    
    
    
    1,030Other assets
    
    
    1,220
    
    
    
    561Interest payable
    
    
    (83
    )
    
    
    (45
    )Other liabilities
    
    
    (1,904
    )
    
    
    (1,385
    )Net cash provided by operating activities
    
    
    904
    
    
    
    1,604Investing ActivitiesPurchases of available-for-sale securities
    
    
    (23,977
    )
    
    
    (17,412
    )Proceeds from maturities of available-for-sale securities
    
    
    19,362
    
    
    
    11,894Proceeds from maturities of held-to-maturity securities
    
    
    1,113
    
    
    
    729Net change in loans
    
    
    (10,488
    )
    
    
    2,353Purchases of premises and equipment
    
    
    (780
    )
    
    
    (1,576
    )Proceeds from sales of foreclosed assets
    
    
    27
    
    
    
    105Proceeds from sales of assets
    
    
    767
    
    
    
    2Purchase of Federal Home Loan Bank stock
    
    
    (391
    )
    
    
    (48
    )Proceeds from sales of Federal Home Loan Bank stock
    
    
    174
    
    
    
    Purchase of cost method investment in common stock
    
    
    
    
    
    
    (504
    )Goodwill acquired in connection with Royal Palm acquisition
    
    
    
    
    
    
    (4
    )Purchase of intangible assets
    
    
    
    
    
    
    (17
    )Net cash used in investing activities
    
    
    (14,193
    )
    
    
    (4,478
    )Financing ActivitiesNet increase in demand deposits, money market, NOW and savings accounts
    
    
    31,332
    
    
    
    9,886Net increase (decrease) in time and brokered time deposits
    
    
    1,412
    
    
    
    (31,389
    )Net increase (decrease) in short-term borrowings
    
    
    (17,820
    )
    
    
    13Proceeds from long-term debt
    
    
    17,000
    
    
    
    250Payments on long-term debt
    
    
    (14,000
    )
    
    
    (3,600
    )Proceeds from issuance of stock to minority interest of Mid-America
    
    
    41
    
    
    
    102Dividends paid
    
    
    (523
    )
    
    
    (525
    )Net cash provided by (used in) financing activities
    
    
    17,442
    
    
    
    (25,263
    )Increase (Decrease) In Cash and Cash Equivalents
    
    
    4,153
    
    
    
    (28,137
    )Cash and Cash Equivalents, Beginning of Period
    
    
    76,059
    
    
    
    99,147Cash and Cash Equivalents, End of Period
    
    $
    80,212
    
    
    $
    71,010Supplemental Cash Flows InformationInterest paid
    
    $
    14,448
    
    
    $
    12,552Net income taxes paid (received)
    
    $
    (63
    )
    
    $
    Real estate acquired in settlement of loans
    
    $
    2,388
    
    
    $
    8Increase in additional paid-in-capital due to issuance of stock to
minority interest of Mid-America
    
    $
    22
    
    
    $
    24
  5




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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
  6




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4. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
 SFAS 157
    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.
  Available-for-Sale Securities
  7




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Fair Value Measurements UsingQuotes Prices in
    
    
    
    
    
    SignificantActive Markets for
    
    Significant Other
    
    UnobservableIdentical Assets
    
    Observable Inputs
    
    InputsFair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Available-for-sale securities
    
    $
    208,909
    
    
    $
    11,139
    
    
    $
    187,734
    
    
    $
    10,036
  Available-for-sale SecuritiesBalance, December 31, 2007
    
    $
    11,400Total realized and unrealized gains and losses:Included in net income
    
    
    Included in other comprehensive income
    
    
    Purchases, issuances and settlements
    
    
    (1,364
    )Transfers in and/or out of Level 3
    
    
    Balance, March 31, 2008
    
    $
    10,036Total 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
    
    $
    
  Fair Value Measurements UsingQuotes Prices in
    
    
    
    
    
    SignificantActive Markets for
    
    Significant Other
    
    UnobservableIdentical Assets
    
    Observable Inputs
    
    InputsFair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Impaired Loans
    
    $
    22,492
    
    
    $
    
    
    
    $
    
    
    
    $
    22,492
 Impaired Loans
  8




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SFAS 159
  EITF 06-4
 Postretirement Benefits Associated with Split-Dollar Life Insurance
 5. OFF BALANCE SHEET CREDIT COMMITMENTS
   9




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6. CRITICAL ACCOUNTING POLICIES
       10




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7. COMPREHENSIVE INCOME (LOSS)
  For the Three MonthsEnded March 31,2008
    
    
    2007Net income (loss)
    
    $
    (1,677
    )
    
    $
    1,844Other comprehensive loss:Unrealized appreciation (depreciation) on
available-for-sale securities:Unrealized appreciation (depreciation)
on available-for-sale securities, net of
tax expense (benefit) of $935 and $(348)
for 2008 and 2007
    
    
    1,586
    
    
    
    (506
    )Accumulated other comprehensive income of
equity method investee
    
    
    
    
    
    
    13Adjustment of SFAS 158 liability, net of tax
benefit of ($15) for 2008 and $0 for 2007
    
    
    25
    
    
    
    Total other comprehensive income (loss), net of tax
    
    
    1,561
    
    
    
    (493
    )Comprehensive income (loss)
    
    $
    (116
    )
    
    $
    1,351
 8. SUBSEQUENT EVENT
  11




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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.
  12




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New Accounting Standards Adopted During 2008
    General
  Wholly-Owned Subsidiaries
 
    
    Mercantile Bank (Mercantile Bank), 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
National Bank (HNB), located in Hannibal, Missouri.
 Majority-Owned Subsidiaries.
 13




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##### 



Other Investments in Financial Institutions.
 
    
    5.0% 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;
    
    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, based in Clayton, Missouri;
    
    0.5% of First Charter Corporation (First Charter), based in Charlotte, North
Carolina;
    
    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.
    
 Results of Operations
 Comparison of Operating Results for the Three Months Ended March 31, 2008 and 2007
 Overview
  14




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##### 



Net Interest Income
    15




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##### 



For the three months ended March 312008
    
    
    2007Income/
    
    
    
    
    
    
    
    
    
    Income/Average Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand deposits
    
    $
    18,124
    
    
    $
    150
    
    
    
    3.31
    %
    
    $
    19,198
    
    
    $
    275
    
    
    
    5.73
    %Federal funds sold
    
    
    19,088
    
    
    
    159
    
    
    
    3.33
    %
    
    
    35,069
    
    
    
    471
    
    
    
    5.37
    %Securities:TaxableU.S. treasuries and government agencies
    
    
    24,577
    
    
    
    208
    
    
    
    3.39
    %
    
    
    22,219
    
    
    
    284
    
    
    
    5.11
    %Mortgage-backed securities
    
    
    44,367
    
    
    
    560
    
    
    
    5.05
    %
    
    
    40,127
    
    
    
    510
    
    
    
    5.08
    %Other securities
    
    
    81,174
    
    
    
    1,201
    
    
    
    5.92
    %
    
    
    80,648
    
    
    
    1,094
    
    
    
    5.43
    %Total taxable
    
    
    150,118
    
    
    
    1,969
    
    
    
    5.25
    %
    
    
    142,994
    
    
    
    1,888
    
    
    
    5.28
    %Non-taxable  State and political subdivision (3)
    
    
    56,988
    
    
    
    540
    
    
    
    3.79
    %
    
    
    47,550
    
    
    
    431
    
    
    
    3.63
    %Loans (net of unearned discount) (1)(2)
    
    
    1,209,462
    
    
    
    21,710
    
    
    
    7.18
    %
    
    
    1,029,444
    
    
    
    19,793
    
    
    
    7.69
    %Federal Home Loan Bank stock
    
    
    8,061
    
    
    
    36
    
    
    
    1.79
    %
    
    
    5,703
    
    
    
    50
    
    
    
    3.51
    %Total interest-earning assets
    
    
    1,461,841
    
    
    $
    24,564
    
    
    
    6.72
    %
    
    
    1,279,958
    
    
    $
    22,908
    
    
    
    7.16
    %Cash and due from banks
    
    
    35,268
    
    
    
    
    
    
    
    
    
    
    
    25,609Interest receivable
    
    
    10,903
    
    
    
    
    
    
    
    
    
    
    
    9,559Foreclosed assets held for sale, net
    
    
    3,151
    
    
    
    
    
    
    
    
    
    
    
    254Equity method investments in common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,143Cost method investments in common stock
    
    
    6,105
    
    
    
    
    
    
    
    
    
    
    
    3,694Cash surrender value of life insurance
    
    
    24,354
    
    
    
    
    
    
    
    
    
    
    
    18,225Premises and equipment
    
    
    41,913
    
    
    
    
    
    
    
    
    
    
    
    25,313Other
    
    
    23,439
    
    
    
    
    
    
    
    
    
    
    
    10,514Goodwill
    
    
    43,934
    
    
    
    
    
    
    
    
    
    
    
    29,255Intangible assets
    
    
    4,791
    
    
    
    
    
    
    
    
    
    
    
    6,162Allowance for loan loss
    
    
    (12,996
    )
    
    
    
    
    
    
    
    
    
    
    (10,760
    )Total assets
    
    $
    1,642,703
    
    
    
    
    
    
    
    
    
    
    $
    1,401,926Liabilities and Stockholders EquityInterest-bearing transaction deposits
    
    $
    133,399
    
    
    $
    400
    
    
    
    1.20
    %
    
    $
    118,436
    
    
    $
    528
    
    
    
    1.78
    %Savings deposits
    
    
    80,523
    
    
    
    353
    
    
    
    1.75
    %
    
    
    67,316
    
    
    
    394
    
    
    
    2.34
    %Money-market deposits
    
    
    212,174
    
    
    
    1,524
    
    
    
    2.87
    %
    
    
    168,831
    
    
    
    1,633
    
    
    
    3.87
    %Time and brokered time deposits
    
    
    772,941
    
    
    
    9,536
    
    
    
    4.93
    %
    
    
    682,942
    
    
    
    8,024
    
    
    
    4.70
    %Short-term borrowings
    
    
    34,759
    
    
    
    348
    
    
    
    4.00
    %
    
    
    29,681
    
    
    
    368
    
    
    
    4.96
    %Long term debt
    
    
    90,807
    
    
    
    1,175
    
    
    
    5.18
    %
    
    
    64,988
    
    
    
    854
    
    
    
    5.26
    %Junior subordinated debentures
    
    
    61,858
    
    
    
    1,029
    
    
    
    6.65
    %
    
    
    41,239
    
    
    
    706
    
    
    
    6.85
    %Total interest-bearing liabilities
    
    
    1,386,461
    
    
    $
    14,365
    
    
    
    4.14
    %
    
    
    1,173,433
    
    
    $
    12,507
    
    
    
    4.26
    %Demand deposits
    
    
    124,597
    
    
    
    
    
    
    
    
    
    
    
    105,609Interest payable
    
    
    6,453
    
    
    
    
    
    
    
    
    
    
    
    6,280Other liabilities
    
    
    6,524
    
    
    
    
    
    
    
    
    
    
    
    5,779Minority interest
    
    
    9,416
    
    
    
    
    
    
    
    
    
    
    
    9,386Stockholders equity
    
    
    109,252
    
    
    
    
    
    
    
    
    
    
    
    101,439Total liabilities and stockholders equity
    
    $
    1,642,703
    
    
    
    
    
    
    
    
    
    
    $
    1,401,926Interest spread
    
    
    
    
    
    
    
    
    
    
    2.58
    %
    
    
    
    
    
    
    
    
    
    
    2.90
    %Net interest income
    
    
    
    
    
    
    10,199
    
    
    
    
    
    
    
    
    
    
    
    10,401Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.79
    %
    
    
    
    
    
    
    
    
    
    
    3.25
    %Interest-earning assets to interest-bearing liabilities
    
    
    105.44
    %
    
    
    
    
    
    
    
    
    
    
    109.08
    %
 
 (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. 
 16




---



##### 



For the three months ended March 31,2008 vs. 2007Increase (Decrease) Due toChange inVolume
    
    
    Rate
    
    
    TotalIncrease (decrease) in interest income:Interest-bearing bank deposits
    
    $
    (15
    )
    
    $
    (110
    )
    
    $
    (125
    )Federal funds sold
    
    
    (170
    )
    
    
    (142
    )
    
    
    (312
    )Investment securities:U.S. Treasuries and Agencies
    
    
    28
    
    
    
    (104
    )
    
    
    (76
    )Mortgage-backed securities
    
    
    54
    
    
    
    (4
    )
    
    
    50States and political subdivision (1)
    
    
    89
    
    
    
    20
    
    
    
    109Other securities
    
    
    7
    
    
    
    100
    
    
    
    107Loans (net of unearned discounts)
    
    
    3,295
    
    
    
    (1,378
    )
    
    
    1,917Federal Home Loan Bank stock
    
    
    16
    
    
    
    (30
    )
    
    
    (14
    )Change in interest income
    
    
    3,304
    
    
    
    (1,648
    )
    
    
    1,656Increase (decrease) in interest expense:Interest-bearing transaction deposits
    
    
    61
    
    
    
    (189
    )
    
    
    (128
    )Savings deposits
    
    
    69
    
    
    
    (110
    )
    
    
    (41
    )Money-market deposits
    
    
    365
    
    
    
    (474
    )
    
    
    (109
    )Time and brokered time deposits
    
    
    1,096
    
    
    
    416
    
    
    
    1,512Short-term borrowings
    
    
    57
    
    
    
    (77
    )
    
    
    (20
    )Long-term debt and junior subordinated
debentures
    
    
    671
    
    
    
    (27
    )
    
    
    644Change in interest expense
    
    
    2,319
    
    
    
    (461
    )
    
    
    1,858Increase (decrease) in net interest income
    
    $
    985
    
    
    $
    (1,187
    )
    
    $
    (202
    )
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses
 Noninterest Income.
 17




---



##### 



For the Three MonthsEnded March 312008
    
    
    2007Fiduciary activities
    
    $
    690
    
    
    $
    573Brokerage fees
    
    
    416
    
    
    
    308Customer service fees
    
    
    1,100
    
    
    
    871Other service charges and fees
    
    
    200
    
    
    
    182Net gains/(losses) on sales of assets
    
    
    391
    
    
    
    (2
    )Net gains on loan sales
    
    
    363
    
    
    
    108Loan servicing fees
    
    
    135
    
    
    
    102Net increase in cash surrender value of life insurance
    
    
    268
    
    
    
    167Other
    
    
    190
    
    
    
    51Total noninterest income
    
    $
    3,753
    
    
    $
    2,360
      Noninterest Expense
 18




---



##### 



For the Three Months EndedMarch 312008
    
    
    2007Salaries and employee benefits
    
    $
    6,901
    
    
    $
    5,628Net occupancy expense
    
    
    885
    
    
    
    635Equipment expense
    
    
    774
    
    
    
    612Deposit insurance premium
    
    
    105
    
    
    
    36Professional fees
    
    
    575
    
    
    
    495Postage and supplies
    
    
    301
    
    
    
    263Net losses on foreclosed assets
    
    
    504
    
    
    
    15Net losses on securities
    
    
    1
    
    
    
    Loss on equity method investments in common stock
    
    
    
    
    
    
    3Amortization of mortgage servicing rights
    
    
    93
    
    
    
    26Other
    
    
    1,952
    
    
    
    1,498Total noninterest expense
    
    $
    12,091
    
    
    $
    9,211
     Provision for Income Taxes.
  19




---



##### 



Financial Condition  March 31, 2008 Compared to December 31, 2007
 Loan Portfolio
  March 31, 2008
    
    
    December 31, 2007Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(dollars in thousands)Commercial and financial
    
    $
    178,434
    
    
    
    14.70
    %
    
    $
    173,817
    
    
    
    14.43
    %Agricultural
    
    
    54,661
    
    
    
    4.50
    %
    
    
    64,399
    
    
    
    5.34
    %Real estate  farmland
    
    
    94,672
    
    
    
    7.80
    %
    
    
    91,488
    
    
    
    7.59
    %Real estate  construction
    
    
    231,616
    
    
    
    19.09
    %
    
    
    215,850
    
    
    
    17.91
    %Real estate  commercial
    
    
    198,119
    
    
    
    16.33
    %
    
    
    204,338
    
    
    
    16.96
    %Real estate  residential (1)
    
    
    326,952
    
    
    
    26.94
    %
    
    
    323,936
    
    
    
    26.89
    %Installment loans to individuals
    
    
    129,149
    
    
    
    10.64
    %
    
    
    131,061
    
    
    
    10.88
    %Total loans
    
    
    1,213,603
    
    
    
    100.00
    %
    
    
    1,204,889
    
    
    
    100.00
    %Allowance for loan losses
    
    
    17,127
    
    
    
    
    
    
    
    12,794Total loans, including loans
held for sale, net of allowance
for loan losses
    
    $
    1,196,476
    
    
    
    
    
    
    $
    1,192,095
 
 (1)
    
    Includes loans held for sale Nonperforming Assets
  20




---



##### 



March 31,
    
    
    December 31,2008
    
    
    2007Nonaccrual loansCommercial and financial
    
    $
    489
    
    
    $
    581Agricultural
    
    
    48
    
    
    
    308Real estate  farmland
    
    
    235
    
    
    
    296Real estate  construction
    
    
    10,774
    
    
    
    6,716Real estate  commercial
    
    
    3,236
    
    
    
    3,152Real estate  residential
    
    
    6,011
    
    
    
    8,571Installment loans to individuals
    
    
    245
    
    
    
    195Total nonaccrual loans
    
    
    21,038
    
    
    
    19,819Loans 90 days past due and still accruing
    
    
    2,822
    
    
    
    3,184Restructured loans
    
    
    
    
    
    
    Total nonperforming loans
    
    
    23,860
    
    
    
    23,003Repossessed assets
    
    
    5,123
    
    
    
    3,273Other assets acquired in satisfaction of debt previously
contracted
    
    
    
    
    
    
    Total nonperforming other assets
    
    
    5,123
    
    
    
    3,273Total nonperforming loans and nonperforming other assets
    
    $
    28,983
    
    
    $
    26,276Nonperforming loans to loans, before allowance for loan losses
    
    
    1.97
    %
    
    
    1.91
    %Nonperforming loans and nonperforming other assets to loans,
before allowance for loan losses
    
    
    2.39
    %
    
    
    2.18
    %
 Allowance for Loan Losses
   21




---



##### 



As of and forthe Three
    
    
    As of and forMonths Ended
    
    
    the Year EndedMarch 31,
    
    
    December 31,2008
    
    
    2007Average loans outstanding during year
    
    $
    1,209,462
    
    
    $
    1,085,606Allowance for loan losses:Balance at beginning of year
    
    $
    12,794
    
    
    $
    10,613Loans charged-off:Commercial and financial
    
    
    261
    
    
    
    493Agricultural
    
    
    119
    
    
    
    75Real estate  farmland
    
    
    
    
    
    
    Real estate  construction
    
    
    54
    
    
    
    284Real estate  commercial
    
    
    114
    
    
    
    18Real estate  residential
    
    
    
    
    
    
    399Installment loans to individuals
    
    
    217
    
    
    
    906Total charge-offs
    
    
    765
    
    
    
    2,175Recoveries:Commercial and financial
    
    
    280
    
    
    
    55Agricultural
    
    
    2
    
    
    
    15Real estate  farmland
    
    
    
    
    
    
    Real estate  construction
    
    
    
    
    
    
    2Real estate  commercial
    
    
    
    
    
    
    1Real estate  residential
    
    
    1
    
    
    
    38Installment loans to individuals
    
    
    46
    
    
    
    150Total recoveries
    
    
    329
    
    
    
    261Net charge-offs
    
    
    436
    
    
    
    1,914Provision for loan losses
    
    
    4,769
    
    
    
    2,969Purchased allowance
    
    
    
    
    
    
    1,126Balance at end of year
    
    $
    17,127
    
    
    $
    12,794Allowance for loan losses as a percent of
total loans outstanding at year end
    
    
    1.41
    %
    
    
    1.06
    %Allowance for loan losses as a percent of
total nonperforming loans
    
    
    71.78
    %
    
    
    55.62
    %Ratio of net charge-offs to average total loans
    
    
    .04
    %
    
    
    0.18
    %
 22




---



##### 



Securities
      Deposits
 Borrowings
    23




---



##### 



Liquidity and Capital Resources
 Liquidity
    Capital Resources
  Effect of Inflation and Changing Prices.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk .
  24




---



##### 



Item 4. Controls and Procedures .
 Evaluation of disclosure controls and procedures.
 Changes in internal controls over financial reporting
 25




---



##### 



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 ApproximateFirst Quarter
    
    Total Number of
    
    
    
    
    
    Purchased as Part of
    
    Dollar Value of Shares that2008 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)January
    
    
    0
    
    
    
    n/a
    
    
    
    0
    
    
    $
    8,229,424February
    
    
    0
    
    
    
    n/a
    
    
    
    0
    
    
    $
    8,229,424March
    
    
    0
    
    
    
    n/a
    
    
    
    0
    
    
    $
    8,229,424Total
    
    
    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
  
 Item 5. Other Information
  26




---



##### 



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.
 27




---



##### 



SIGNATURES
  Date: May 12, 2008
    By:
    /s/ Ted T. AwerkampTed T. AwerkampPresident and Chief Executive Officer
(principal executive officer)Date: May 12, 2008
    By:
    /s/ Michael P. McGrathMichael P. McGrathExecutive Vice President, Treasurer, Secretary and
Chief Financial Officer
(principal financial officer/
principal accounting officer) 28