##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 001-32434
 
 MERCANTILE BANCORP, INC.
 (Exact name of registrant as specified in its charter)
 
 Delaware
    
    37-1149138(State or other jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization)
    
    Identification No.)
 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 Large Accelerated Filer
    
    o Accelerated Filer
    
    þ. Non-Accelerated Filer
 o þ
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MERCANTILE BANCORP, INC.
 FORM 10-Q
 TABLE OF CONTENTS
 PART I FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements
    
    3Consolidated Balance Sheets
    
    3Consolidated Statements of Income
    
    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
    
    12-31Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    31Item 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
    
    34ExhibitsAmendment to Loan Agreement and NoteSection 302 CertificationsSection 906 CertificationsAmendment to Loan Agreement and NoteCertification of Chief Executive OfficerCertification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  2




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##### Table of Contents



PART I
 FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements .
 MERCANTILE BANCORP, INC.
 
 Consolidated Balance Sheets
 (In thousands, except par value and share data)
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)AssetsCash and due from banks
    
    $
    26,903
    
    
    $
    27,761Interest-bearing demand deposits
    
    
    12,992
    
    
    
    14,548Federal funds sold
    
    
    1,410
    
    
    
    1,845Cash and cash equivalents
    
    
    41,305
    
    
    
    44,154Available-for-sale securities
    
    
    140,937
    
    
    
    150,196Held-to-maturity securities
    
    
    13,044
    
    
    
    14,870Loans held for sale
    
    
    3,546
    
    
    
    3,635Loans, net of allowance for loan losses of $8,523 and $8,082
    
    
    899,404
    
    
    
    849,566Interest receivable
    
    
    7,988
    
    
    
    7,896Foreclosed assets held for sale, net
    
    
    437
    
    
    
    341Federal Home Loan Bank stock
    
    
    5,733
    
    
    
    5,432Equity method investments in common stock
    
    
    7,237
    
    
    
    7,105Cost method investments in common stock
    
    
    4,344
    
    
    
    3,350Deferred income taxes
    
    
    4,917
    
    
    
    4,254Mortgage servicing rights
    
    
    972
    
    
    
    1,018Cash surrender value of life insurance
    
    
    16,258
    
    
    
    15,930Premises and equipment
    
    
    18,720
    
    
    
    18,242Goodwill
    
    
    5,208
    
    
    
    5,208Core deposit intangibles
    
    
    2,222
    
    
    
    2,360Other
    
    
    4,629
    
    
    
    4,267Total assets
    
    $
    1,176,901
    
    
    $
    1,137,824Liabilities and Stockholders EquityDepositsDemand
    
    $
    96,124
    
    
    $
    104,320Savings, NOW and money market
    
    
    280,099
    
    
    
    264,008Time
    
    
    439,344
    
    
    
    450,336Brokered time
    
    
    145,873
    
    
    
    127,465Total deposits
    
    
    961,440
    
    
    
    946,129Interest rate swaps at fair value
    
    
    140
    
    
    
    238Short-term borrowings
    
    
    52,522
    
    
    
    32,587Long-term borrowings
    
    
    50,420
    
    
    
    51,720Interest payable
    
    
    3,845
    
    
    
    3,134Other
    
    
    5,560
    
    
    
    4,967Total liabilities
    
    
    1,073,927
    
    
    
    1,038,775Commitments and Contingent LiabilitiesMinority Interest
    
    
    8,935
    
    
    
    7,561Stockholders EquityCommon stock, $.42 par value; authorized 12,000,000 shares;
Issued - 5,924,790 shares at June 30, 2006 and December 31, 2005
Outstanding   5,848,245 shares at June 30, 2006 and December 31, 2005
    
    
    2,469
    
    
    
    2,469Additional paid-in capital
    
    
    13,109
    
    
    
    12,924Retained earnings
    
    
    81,437
    
    
    
    78,200Accumulated other comprehensive loss
    
    
    (1,719
    )
    
    
    (848
    )95,296
    
    
    
    92,745Treasury stock, at cost  76,545 shares at June 30, 2006 and December
31, 2005
    
    
    (1.257
    )
    
    
    (1,257
    )Total stockholders equity
    
    
    94,039
    
    
    
    91,488Total liabilities and stockholders equity
    
    $
    1,176,901
    
    
    $
    1,137,824
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MERCANTILE BANCORP, INC.
 
 Consolidated Statements of Income
 (In thousands, except per share data)
(Unaudited)
 Three months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest and Dividend IncomeLoansTaxable
    
    $
    15,818
    
    
    $
    12,634
    
    
    $
    30,347
    
    
    $
    24,223Tax exempt
    
    
    208
    
    
    
    173
    
    
    
    413
    
    
    
    331SecuritiesTaxable
    
    
    1,288
    
    
    
    1,226
    
    
    
    2,508
    
    
    
    2,434Tax exempt
    
    
    446
    
    
    
    430
    
    
    
    889
    
    
    
    803Federal funds sold
    
    
    9
    
    
    
    9
    
    
    
    52
    
    
    
    53Dividends on Federal Home Loan Bank Stock
    
    
    28
    
    
    
    62
    
    
    
    79
    
    
    
    123Deposits with financial institutions and other
    
    
    87
    
    
    
    60
    
    
    
    270
    
    
    
    154Total interest and dividend income
    
    
    17,884
    
    
    
    14,594
    
    
    
    34,558
    
    
    
    28,121Interest ExpenseDeposits
    
    
    7,519
    
    
    
    4,959
    
    
    
    14,309
    
    
    
    9,462Short-term borrowings
    
    
    393
    
    
    
    172
    
    
    
    667
    
    
    
    277Long-term debt
    
    
    610
    
    
    
    594
    
    
    
    1,268
    
    
    
    1,169Total interest expense
    
    
    8,522
    
    
    
    5,725
    
    
    
    16,244
    
    
    
    10,908Net Interest Income
    
    
    9,362
    
    
    
    8,869
    
    
    
    18,314
    
    
    
    17,213Provision for Loan Losses
    
    
    768
    
    
    
    680
    
    
    
    1,403
    
    
    
    1,229Net Interest Income After Provision For Loan Losses
    
    
    8,594
    
    
    
    8,189
    
    
    
    16,911
    
    
    
    15,984Noninterest IncomeFiduciary activities
    
    
    494
    
    
    
    448
    
    
    
    979
    
    
    
    898Brokerage fees
    
    
    302
    
    
    
    108
    
    
    
    621
    
    
    
    232Customer service fees
    
    
    917
    
    
    
    866
    
    
    
    1,739
    
    
    
    1,603Other service charges and fees
    
    
    164
    
    
    
    161
    
    
    
    334
    
    
    
    313Net gains on loan sales
    
    
    148
    
    
    
    125
    
    
    
    292
    
    
    
    215Net losses on sales of fixed assets
    
    
    (12
    )
    
    
    0
    
    
    
    (12
    )
    
    
    0Net gains on sales of foreclosed assets
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    27Loan servicing fees
    
    
    96
    
    
    
    94
    
    
    
    195
    
    
    
    169Net increase in cash surrender value of life
insurance
    
    
    157
    
    
    
    140
    
    
    
    328
    
    
    
    292Income on equity method investments in common
stock
    
    
    88
    
    
    
    41
    
    
    
    183
    
    
    
    54Other
    
    
    83
    
    
    
    2
    
    
    
    113
    
    
    
    166Total noninterest income
    
    
    2,437
    
    
    
    1,985
    
    
    
    4,772
    
    
    
    3,969Noninterest ExpenseSalaries and employee benefits
    
    
    4,355
    
    
    
    3,795
    
    
    
    8,755
    
    
    
    7,897Net occupancy expense
    
    
    452
    
    
    
    387
    
    
    
    923
    
    
    
    771Equipment expense
    
    
    451
    
    
    
    428
    
    
    
    894
    
    
    
    823Deposit insurance premium
    
    
    29
    
    
    
    29
    
    
    
    62
    
    
    
    63Professional fees
    
    
    474
    
    
    
    419
    
    
    
    802
    
    
    
    717Postage and supplies
    
    
    183
    
    
    
    197
    
    
    
    428
    
    
    
    439Amortization of mortgage servicing rights
    
    
    107
    
    
    
    42
    
    
    
    157
    
    
    
    68Amortization of core deposit intangibles
    
    
    69
    
    
    
    30
    
    
    
    138
    
    
    
    50Other
    
    
    1,401
    
    
    
    1,311
    
    
    
    3,147
    
    
    
    2,662Total noninterest expense
    
    
    7,521
    
    
    
    6,638
    
    
    
    15,306
    
    
    
    13,490Minority Interest
    
    
    161
    
    
    
    133
    
    
    
    386
    
    
    
    227Income Before Income Taxes
    
    
    3,349
    
    
    
    3,403
    
    
    
    5,991
    
    
    
    6,236Provision For Income Taxes
    
    
    1,100
    
    
    
    1,001
    
    
    
    1,818
    
    
    
    1,817Net Income
    
    $
    2,249
    
    
    $
    2,402
    
    
    $
    4,173
    
    
    $
    4,419Basic Earnings Per Share
    
    $
    .38
    
    
    $
    .41
    
    
    $
    .71
    
    
    $
    .75Dividends Paid Per Share
    
    $
    .08
    
    
    $
    .02
    
    
    $
    .16
    
    
    $
    .04Weighted Average Shares Outstanding
    
    
    5,848,245
    
    
    
    5,891,040
    
    
    
    5,848,245
    
    
    
    5,891,040
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MERCANTILE BANCORP, INC.
 
 Consolidated Statements of Cash Flows
 (In thousands)
(Unaudited)
 Six Months Ended June 30
    
    2006
    
    
    2005Operating ActivitiesNet income
    
    $
    4,173
    
    
    $
    4,419Items not requiring (providing) cashDepreciation
    
    
    746
    
    
    
    575Provision for loan losses
    
    
    1,403
    
    
    
    1,229Amortization of premiums and discounts on securities
    
    
    721
    
    
    
    569Amortization of core deposit intangibles
    
    
    138
    
    
    
    50Deferred income taxes
    
    
    (177
    )
    
    
    57Net gains on loan sales
    
    
    (292
    )
    
    
    (215
    )Loss on sale of premises and equipment
    
    
    12
    
    
    
    Net gains on sales of foreclosed assets
    
    
    
    
    
    
    (27
    )Amortization of mortgage servicing rights
    
    
    157
    
    
    
    68Income on equity method investments in common stock
    
    
    (183
    )
    
    
    (54
    )Federal Home Loan Bank stock dividends
    
    
    (36
    )
    
    
    (123
    )Net increase in cash surrender value of life insurance
    
    
    (328
    )
    
    
    (292
    )Minority interest in earnings of subsidiaries
    
    
    386
    
    
    
    227Changes inLoans originated for sale
    
    
    (18,255
    )
    
    
    (11,235
    )Proceeds from sales of loans
    
    
    18,525
    
    
    
    11,408Interest receivable
    
    
    (92
    )
    
    
    95Other assets
    
    
    (362
    )
    
    
    (449
    )Interest payable
    
    
    711
    
    
    
    240Other liabilities
    
    
    593
    
    
    
    259Net cash provided by operating activities
    
    
    7,840
    
    
    
    6,801Investing ActivitiesProceeds from maturities of available-for-sale securities
    
    
    23,629
    
    
    
    35,648Purchases of available-for-sale securities
    
    
    (16,437
    )
    
    
    (41,043
    )Proceeds from maturities of held-to-maturity securities
    
    
    1,755
    
    
    
    2,386Purchases of cost method investments
    
    
    (995
    )
    
    
    Net change in loans
    
    
    (51,566
    )
    
    
    (39,906
    )Purchases of premises and equipment
    
    
    (1,278
    )
    
    
    (1,835
    )Proceeds from sales of premises and equipment
    
    
    42
    
    
    
    Proceeds from the sales of foreclosed assets
    
    
    229
    
    
    
    128Purchase of Federal Home Loan Bank stock
    
    
    (642
    )
    
    
    (124
    )Proceeds from redemption of Federal Home Loan Bank stock
    
    
    377
    
    
    
    Purchase of equity method investment in common stock
    
    
    
    
    
    
    (2,245
    )Net cash used in investing activities
    
    
    (44,886
    )
    
    
    (46,991
    )Financing ActivitiesNet increase in demand deposits, money market, NOW and savings accounts
    
    
    7,895
    
    
    
    8,710Net increase in time and brokered time deposits
    
    
    7,416
    
    
    
    16,509Net increase in short-term borrowings
    
    
    19,935
    
    
    
    8,326Proceeds from long-term debt
    
    
    6,700
    
    
    
    1,667Payments on long-term debt
    
    
    (8,000
    )
    
    
    (4,250
    )Proceeds from issuance of stock to minority interest of Mid-America
    
    
    1,187
    
    
    
    2,317Dividends paid
    
    
    (936
    )
    
    
    (236
    )Dividends paid to minority interest
    
    
    
    
    
    
    (54
    )Net cash provided by financing activities
    
    
    34,197
    
    
    
    32,989Decrease In Cash and Cash Equivalents
    
    
    (2,849
    )
    
    
    (7,201
    )Cash and Cash Equivalents, Beginning of Period
    
    
    44,154
    
    
    
    39,719Cash and Cash Equivalents, End of Period
    
    $
    41,305
    
    
    $
    32,518Supplemental Cash Flows InformationInterest paid
    
    $
    15,533
    
    
    $
    10,668Income taxes paid
    
    $
    2,392
    
    
    $
    2,209Real estate acquired in settlement of loans
    
    $
    325
    
    
    $
    401Increase in additional paid-in-capital due to issuance of stock to
minority interest of Mid-America
    
    $
    185
    
    
    $
    224
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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
 Accounting Changes and Error Corrections  a replacement of APB Opinion No. 20 and FASB Statement
No. 3
 Accounting for Certain Hybrid Financial
Instruments: an amendment of FASB Statements No. 133 and 140
 Accounting for Servicing of Financial Assets, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
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Accounting for Uncertainty in
Income Taxes  an Interpretation of FASB Statement 109
 4. OFF BALANCE SHEET CREDIT COMMITMENTS
    5. CRITICAL ACCOUNTING POLICIES
  7




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6. ROYAL PALM ACQUISITION
  7. SALE OF COST METHOD INVESTMENT
  8




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8. STOCK SPLIT
  9. SUBSEQUENT EVENTS
     9




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10. COMPREHENSIVE INCOME
  For the Three MonthsEnded June 30,2006
    
    
    2005Net income
    
    $
    2,249
    
    
    $
    2,402Other comprehensive loss:Unrealized appreciation (depreciation) on available-for-sale securities:Unrealized appreciation (depreciation) on available-for-sale
securities, net of tax expense (benefit) of $(391) for 2006 and $121
for 2005
    
    
    (687
    )
    
    
    198Less reclassification adjustment for realized gains (losses), net of
tax expense (benefit) of $0 for 2006 and $0 for 2005
    
    
    0
    
    
    
    0Net change in unrealized appreciation (depreciation) on
available-for-sale securities, net of tax expense (benefit) of $(391)
for 2006 and $121 for 2005
    
    
    (687
    )
    
    
    198Accumulated other comprehensive loss of equity method investee
    
    
    (29
    )
    
    
    18Unrealized loss on interest rate swaps:Unrealized holding gains, net of tax expense of $(9) for 2006 and $36
for 2005
    
    
    (9
    )
    
    
    57Less reclassification adjustment to interest income, net of tax expense
(benefit) of $(31) for 2006 and $0 for 2005
    
    
    (45
    )
    
    
    (1
    )Net change in unrealized gain on interest rate swaps, net of tax
expense of $22 for 2006 and $36 for 2005
    
    
    36
    
    
    
    58Total other comprehensive loss, net of tax
    
    
    (680
    )
    
    
    274Comprehensive income
    
    $
    1,569
    
    
    $
    2,676
 For the Six MonthsEnded June 30,2006
    
    
    2005Net income
    
    $
    4,173
    
    
    $
    4,419Other comprehensive loss:Unrealized appreciation (depreciation) on available-for-sale securities:Unrealized (depreciation) on available-for-sale securities, net of tax
(benefit) of $(523) for 2006 and $(392) for 2005
    
    
    (894
    )
    
    
    (639
    )Less reclassification adjustment for realized gains (losses), net of
tax expense (benefit) of $0 for 2006 and 2005
    
    
    0
    
    
    
    0Net change in unrealized (depreciation) on available-for-sale
securities, net of tax (benefit) of $(523) for 2006 and $(392) for 2005
    
    
    (894
    )
    
    
    (639
    )
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For the Six MonthsEnded June 30,2006
    
    
    2005Accumulated other comprehensive loss of equity method investee
    
    $
    (37
    )
    
    $
    (3
    )Unrealized gains (losses) on interest rate swaps:Unrealized holding gains (losses), net of tax expense (benefit) of
$(16) for 2006 and $(6) for 2005
    
    
    (21
    )
    
    
    (10
    )Less reclassification adjustment to interest (expense) income, net of
tax expense (benefit) of $(54) for 2006 and $6 for 2005
    
    
    (81
    )
    
    
    10Net change in unrealized gain (loss) on interest rate swaps, net of tax
expense (benefit) of $38 for 2006 and $(12) for 2005
    
    
    60
    
    
    
    (20
    )Total other comprehensive loss, net of tax
    
    
    (871
    )
    
    
    (662
    )Comprehensive income
    
    $
    3,302
    
    
    $
    3,757
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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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General
  
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  
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  
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Results of Operations  Comparison of Operating Results for the Three months Ended June 30, 2006 and 2005
 Overview.
  Net Interest Income.
 16




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For the three months ended June 302006
    
    
    2005Income/
    
    
    
    
    
    
    
    
    
    
    Income/Average Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand
deposits
    
    $
    13,822
    
    
    $
    87
    
    
    
    2.52
    %
    
    $
    9,038
    
    
    $
    60
    
    
    
    2.66
    %Federal funds sold
    
    
    685
    
    
    
    9
    
    
    
    5.26
    %
    
    
    1,268
    
    
    
    9
    
    
    
    2.84
    %Securities:TaxableU.S. treasuries
and government
agencies
    
    
    7,617
    
    
    
    82
    
    
    
    4.31
    %
    
    
    5,910
    
    
    
    49
    
    
    
    3.32
    %Mortgage-backed
securities
    
    
    43,579
    
    
    
    528
    
    
    
    4.85
    %
    
    
    56,742
    
    
    
    595
    
    
    
    4.19
    %Other securities
    
    
    55,843
    
    
    
    678
    
    
    
    4.86
    %
    
    
    65,111
    
    
    
    582
    
    
    
    3.58
    %Total taxable
    
    
    107,039
    
    
    
    1,288
    
    
    
    4.81
    %
    
    
    127,763
    
    
    
    1,226
    
    
    
    3.84
    %Non-taxable  State and
political subdivision (3)
    
    
    48,645
    
    
    
    446
    
    
    
    3.67
    %
    
    
    44,087
    
    
    
    430
    
    
    
    3.90
    %Loans (net of unearned
discount) (1)(2)
    
    
    883,940
    
    
    
    16,026
    
    
    
    7.25
    %
    
    
    796,772
    
    
    
    12,807
    
    
    
    6.43
    %Federal Home Loan Bank
stock
    
    
    5,433
    
    
    
    28
    
    
    
    2.06
    %
    
    
    5,256
    
    
    
    62
    
    
    
    4.72
    %Total
interest-earning
assets (1)
    
    $
    1,059,564
    
    
    $
    17,884
    
    
    
    6.75
    %
    
    $
    984,184
    
    
    $
    14,594
    
    
    
    5.93
    %Cash and due from banks
    
    $
    23,566
    
    
    
    
    
    
    
    
    
    
    $
    22,742Premises and equipment
    
    
    18,552
    
    
    
    
    
    
    
    
    
    
    
    16,909Foreclosed assets held for
sale, net
    
    
    412
    
    
    
    
    
    
    
    
    
    
    
    733Equity method investments
in common stock
    
    
    7,226
    
    
    
    
    
    
    
    
    
    
    
    5,859Cost method investments in
common stock
    
    
    3,640
    
    
    
    
    
    
    
    
    
    
    
    1,849Interest receivable
    
    
    7,775
    
    
    
    
    
    
    
    
    
    
    
    6,338Cash surrender value of
life insurance
    
    
    16,176
    
    
    
    
    
    
    
    
    
    
    
    15,545Allowance for loan loss
    
    
    (8,305
    )
    
    
    
    
    
    
    
    
    
    
    (7,349
    )Other
    
    
    18,020
    
    
    
    
    
    
    
    
    
    
    
    13,951Total assets
    
    $
    1,146,626
    
    
    
    
    
    
    
    
    
    
    $
    1,060,761Liabilities and Stockholders EquityInterest-bearing
transaction deposits
    
    $
    107,962
    
    
    $
    377
    
    
    
    1.40
    %
    
    $
    111,741
    
    
    $
    257
    
    
    
    0.92
    %Savings deposits
    
    
    52,335
    
    
    
    169
    
    
    
    1.29
    %
    
    
    56,698
    
    
    
    138
    
    
    
    0.97
    %Money-market deposits
    
    
    117,944
    
    
    
    922
    
    
    
    3.13
    %
    
    
    100,888
    
    
    
    456
    
    
    
    1.81
    %Time and brokered time
deposits
    
    
    581,271
    
    
    
    6,051
    
    
    
    4.16
    %
    
    
    530,395
    
    
    
    4,108
    
    
    
    3.10
    %Short-term borrowings
    
    
    33,271
    
    
    
    393
    
    
    
    4.74
    %
    
    
    23,453
    
    
    
    172
    
    
    
    2.93
    %Long-term borrowings
    
    
    44,338
    
    
    
    610
    
    
    
    5.50
    %
    
    
    49,550
    
    
    
    594
    
    
    
    4.80
    %Total
interest-bearing
liabilities
    
    $
    937,121
    
    
    $
    8,522
    
    
    
    3.64
    %
    
    $
    872,725
    
    
    $
    5,725
    
    
    
    2.62
    %Demand deposits
    
    $
    97,601
    
    
    
    
    
    
    
    
    
    
    $
    90,661Interest payable
    
    
    4,146
    
    
    
    
    
    
    
    
    
    
    
    2,617Other liabilities
    
    
    5,923
    
    
    
    
    
    
    
    
    
    
    
    4,396Minority interest
    
    
    8,075
    
    
    
    
    
    
    
    
    
    
    
    4,644Stockholders equity
    
    
    93,760
    
    
    
    
    
    
    
    
    
    
    
    85,718Total
liabilities and
stockholders
equity
    
    $
    1,146,626
    
    
    
    
    
    
    
    
    
    
    $
    1,060,761Interest spread
    
    
    
    
    
    
    
    
    
    
    3.11
    %
    
    
    
    
    
    
    
    
    
    
    3.31
    %Net interest income
    
    
    
    
    
    $
    9,362
    
    
    
    
    
    
    
    
    
    
    $
    8,869Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.53
    %
    
    
    
    
    
    
    
    
    
    
    3.60
    %Interest-earning assets to
interest-bearing
liabilities
    
    
    113.07
    %
    
    
    
    
    
    
    
    
    
    
    112.77
    %
 
 (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. 18




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##### Table of Contents



For the three months ended June 30,2006 vs. 2005Increase (Decrease) Due to Change inVolume
    
    
    Rate
    
    
    TotalIncrease (decrease) in interest income:Interest-bearing bank deposits
    
    $
    30
    
    
    $
    (3
    )
    
    $
    27Federal funds sold
    
    
    (5
    )
    
    
    5
    
    
    
    Investment securities:U.S. Treasuries and Agencies
    
    
    16
    
    
    
    17
    
    
    
    33Mortgage-backed securities
    
    
    (151
    )
    
    
    84
    
    
    
    (67
    )States and political subdivision (1)
    
    
    43
    
    
    
    (27
    )
    
    
    16Other securities
    
    
    (91
    )
    
    
    187
    
    
    
    96Loans (net of unearned discounts)
    
    
    1,484
    
    
    
    1,735
    
    
    
    3,219Federal Home Loan Bank stock
    
    
    2
    
    
    
    (36
    )
    
    
    (34
    )Change in interest income (1)
    
    
    1,328
    
    
    
    1,962
    
    
    
    3,290Increase (decrease) in interest expense:Interest-bearing transaction deposits
    
    
    (9
    )
    
    
    129
    
    
    
    120Savings deposits
    
    
    (11
    )
    
    
    42
    
    
    
    31Money-market deposits
    
    
    88
    
    
    
    378
    
    
    
    466Time and brokered time deposits
    
    
    424
    
    
    
    1,519
    
    
    
    1,943Short-term borrowings
    
    
    90
    
    
    
    131
    
    
    
    221Long-term debt
    
    
    (66
    )
    
    
    82
    
    
    
    16Change in interest expense
    
    
    516
    
    
    
    2,281
    
    
    
    2,797Increase (decrease) in net interest income (1)
    
    $
    812
    
    
    $
    (319
    )
    
    $
    493
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses.
 Noninterest Income.
 19




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##### Table of Contents



For the Three Months EndedJune 30:2006
    
    
    2005Fiduciary activities
    
    $
    494
    
    
    $
    448Brokerage fees
    
    
    302
    
    
    
    107Customer service fees
    
    
    917
    
    
    
    866Other service charges and fees
    
    
    164
    
    
    
    162Net gains on loan sales
    
    
    148
    
    
    
    125Net losses on sales of fixed assets
    
    
    (12
    )
    
    
    Loan servicing fees
    
    
    96
    
    
    
    94Net increase in cash surrender value of life insurance
    
    
    157
    
    
    
    140Income on equity method investments in common stock
    
    
    88
    
    
    
    41Other
    
    
    83
    
    
    
    2Total noninterest income
    
    $
    2,437
    
    
    $
    1,985
     Noninterest Expense.
  For the Three Months EndedJune 302006
    
    
    2005Salaries and employee benefits
    
    $
    4,355
    
    
    $
    3,795Net occupancy expense
    
    
    452
    
    
    
    387Equipment expense
    
    
    451
    
    
    
    428Deposit insurance premium
    
    
    29
    
    
    
    29Professional fees
    
    
    474
    
    
    
    419Postage and supplies
    
    
    183
    
    
    
    197Amortization of mortgage servicing rights
    
    
    107
    
    
    
    42Amortization of core deposit intangibles
    
    
    69
    
    
    
    30Other
    
    
    1,401
    
    
    
    1,311Total noninterest expense
    
    $
    7,521
    
    
    $
    6,638
 20




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##### Table of Contents



Provision for Income Taxes.
 Results of Operations
Comparison of Operating Results for the Six months Ended June 30, 2006 and 2005
 Overview.
  Net Interest Income.
 21




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##### Table of Contents



22




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##### Table of Contents



For the six months ended June 302006
    
    
    
    
    
    
    
    
    
    
    2005Average
    
    
    Income/
    
    
    
    
    
    
    
    
    
    
    Income/Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand
deposits
    
    $
    18,293
    
    
    $
    270
    
    
    
    2.95
    %
    
    $
    10,158
    
    
    $
    154
    
    
    
    3.03
    %Federal funds sold
    
    
    2,321
    
    
    
    52
    
    
    
    4.48
    %
    
    
    4,423
    
    
    
    53
    
    
    
    2.40
    %Securities:TaxableU.S. government
agencies
    
    
    8,846
    
    
    
    171
    
    
    
    3.87
    %
    
    
    6,176
    
    
    
    92
    
    
    
    2.98
    %Mortgage-backed
securities
    
    
    45,658
    
    
    
    1,063
    
    
    
    4.66
    %
    
    
    58,409
    
    
    
    1,208
    
    
    
    4.14
    %Other securities
    
    
    54,821
    
    
    
    1,274
    
    
    
    4.64
    %
    
    
    65,290
    
    
    
    1,134
    
    
    
    3.47
    %Total taxable
    
    
    109,325
    
    
    
    2,508
    
    
    
    4.59
    %
    
    
    129,875
    
    
    
    2,434
    
    
    
    3.75
    %Non-taxable  State and
political subdivision (3)
    
    
    48,703
    
    
    
    889
    
    
    
    3.65
    %
    
    
    41,358
    
    
    
    803
    
    
    
    3.88
    %Loans (net of unearned
discount) (1)(2)
    
    
    872,169
    
    
    
    30,760
    
    
    
    7.05
    %
    
    
    784,366
    
    
    
    24,554
    
    
    
    6.26
    %Federal Home Loan Bank
stock
    
    
    5,434
    
    
    
    79
    
    
    
    2.91
    %
    
    
    5,190
    
    
    
    123
    
    
    
    4.74
    %Total
interest-earning
assets (1)
    
    $
    1,056,245
    
    
    $
    34,558
    
    
    
    6.54
    %
    
    $
    975,370
    
    
    $
    28,121
    
    
    
    5.77
    %Cash and due from banks
    
    $
    23,799
    
    
    
    
    
    
    
    
    
    
    $
    23,042Premises and equipment
    
    
    18,514
    
    
    
    
    
    
    
    
    
    
    
    16,629Foreclosed assets held for
sale, net
    
    
    407
    
    
    
    
    
    
    
    
    
    
    
    618Equity method investments
in common stock
    
    
    7,190
    
    
    
    
    
    
    
    
    
    
    
    5,859Cost method investments in
common stock
    
    
    3,504
    
    
    
    
    
    
    
    
    
    
    
    1,849Interest receivable
    
    
    7,763
    
    
    
    
    
    
    
    
    
    
    
    6,252Cash surrender value of
life insurance
    
    
    16,095
    
    
    
    
    
    
    
    
    
    
    
    15,469Allowance for loan loss
    
    
    (8,219
    )
    
    
    
    
    
    
    
    
    
    
    (7,299
    )Other
    
    
    17,730
    
    
    
    
    
    
    
    
    
    
    
    13,601Total assets
    
    $
    1,143,028
    
    
    
    
    
    
    
    
    
    
    $
    1,051,390Liabilities and Stockholders EquityInterest-bearing
transaction deposits
    
    $
    109,449
    
    
    $
    742
    
    
    
    1.36
    %
    
    $
    112,121
    
    
    $
    480
    
    
    
    0.86
    %Savings deposits
    
    
    51,374
    
    
    
    298
    
    
    
    1.16
    %
    
    
    55,823
    
    
    
    266
    
    
    
    0.95
    %Money-market deposits
    
    
    110,173
    
    
    
    1,610
    
    
    
    2.92
    %
    
    
    96,316
    
    
    
    766
    
    
    
    1.59
    %Time and brokered time
deposits
    
    
    584,379
    
    
    
    11,659
    
    
    
    3.99
    %
    
    
    528,223
    
    
    
    7,950
    
    
    
    3.01
    %Short-term borrowings
    
    
    30,127
    
    
    
    667
    
    
    
    4.43
    %
    
    
    21,474
    
    
    
    277
    
    
    
    2.58
    %Long-term borrowings
    
    
    47,429
    
    
    
    1,268
    
    
    
    5.35
    %
    
    
    49,930
    
    
    
    1,169
    
    
    
    4.69
    %Total
interest-bearing
liabilities
    
    $
    932,931
    
    
    $
    16,244
    
    
    
    3.48
    %
    
    $
    863,887
    
    
    $
    10,908
    
    
    
    2.53
    %Demand deposits
    
    $
    99,513
    
    
    
    
    
    
    
    
    
    
    $
    90,558Interest payable
    
    
    3,875
    
    
    
    
    
    
    
    
    
    
    
    2,513Other liabilities
    
    
    5,484
    
    
    
    
    
    
    
    
    
    
    
    4,314Minority interest
    
    
    7,857
    
    
    
    
    
    
    
    
    
    
    
    3,605Stockholders equity
    
    
    93,368
    
    
    
    
    
    
    
    
    
    
    
    86,513Total
liabilities and
stockholders
equity
    
    $
    1,143,028
    
    
    
    
    
    
    
    
    
    
    $
    1,051,390Interest spread
    
    
    
    
    
    
    
    
    
    
    3.06
    %
    
    
    
    
    
    
    
    
    
    
    3.24
    %Net interest income
    
    
    
    
    
    $
    18,314
    
    
    
    
    
    
    
    
    
    
    $
    17,213Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.47
    %
    
    
    
    
    
    
    
    
    
    
    3.53
    %Interest-earning assets to
interest-bearing
liabilities
    
    
    113.22
    %
    
    
    
    
    
    
    
    
    
    
    112.90
    %
 
 (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. 23




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##### Table of Contents



For the six months ended June 30,2006 vs. 2005Increase (Decrease) Due toChange inVolume
    
    
    Rate
    
    
    TotalIncrease (decrease) in interest income:Interest-bearing bank deposits
    
    $
    120
    
    
    $
    (4
    )
    
    $
    116Federal funds sold
    
    
    (33
    )
    
    
    32
    
    
    
    (1
    )Investment securities:U.S. Treasuries and Agencies
    
    
    47
    
    
    
    32
    
    
    
    79Mortgage-backed securities
    
    
    (285
    )
    
    
    140
    
    
    
    (145
    )States and political subdivision (1)
    
    
    136
    
    
    
    (50
    )
    
    
    86Other securities
    
    
    (202
    )
    
    
    342
    
    
    
    140Loans (net of unearned discounts)
    
    
    2,912
    
    
    
    3,294
    
    
    
    6,206Federal Home Loan Bank stock
    
    
    6
    
    
    
    (50
    )
    
    
    (44
    )Change in interest income (1)
    
    
    2,701
    
    
    
    3,736
    
    
    
    6,437Increase (decrease) in interest expense:Interest-bearing transaction deposits
    
    
    (12
    )
    
    
    274
    
    
    
    262Savings deposits
    
    
    (22
    )
    
    
    54
    
    
    
    32Money-market deposits
    
    
    124
    
    
    
    720
    
    
    
    844Time and brokered time deposits
    
    
    913
    
    
    
    2,796
    
    
    
    3,709Short-term borrowings
    
    
    140
    
    
    
    250
    
    
    
    390Long-term debt
    
    
    (61
    )
    
    
    160
    
    
    
    99Change in interest expense
    
    
    1,082
    
    
    
    4,254
    
    
    
    5,336Increase (decrease) in net interest income (1)
    
    $
    1,619
    
    
    $
    (518
    )
    
    $
    1,101
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses.
 Noninterest Income.
 24




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##### Table of Contents



For the Six Months EndedJune 30:2006
    
    
    2005Fiduciary activities
    
    $
    979
    
    
    $
    898Brokerage fees
    
    
    621
    
    
    
    232Customer service fees
    
    
    1,739
    
    
    
    1,603Other service charges and fees
    
    
    334
    
    
    
    313Net gains on loan sales
    
    
    292
    
    
    
    215Net losses on sales of fixed assets
    
    
    (12
    )
    
    
    Net gains on sales of foreclosed assets
    
    
    
    
    
    
    27Loan servicing fees
    
    
    195
    
    
    
    169Net increase in cash surrender value of life insurance
    
    
    328
    
    
    
    292Income on equity method investments in common stock
    
    
    183
    
    
    
    54Other
    
    
    113
    
    
    
    166Total noninterest income
    
    $
    4,772
    
    
    $
    3,969
    Noninterest Expense.
  For the Six Months EndedJune 302006
    
    
    2005Salaries and employee benefits
    
    $
    8,755
    
    
    $
    7,897Net occupancy expense
    
    
    923
    
    
    
    771Equipment expense
    
    
    894
    
    
    
    823Deposit insurance premium
    
    
    62
    
    
    
    63Professional fees
    
    
    802
    
    
    
    717Postage and supplies
    
    
    428
    
    
    
    439Amortization of mortgage servicing rights
    
    
    157
    
    
    
    68Amortization of core deposit intangibles
    
    
    138
    
    
    
    50Other
    
    
    3,147
    
    
    
    2,662Total noninterest expense
    
    $
    15,306
    
    
    $
    13,490
 25




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##### Table of Contents



Provision for Income Taxes.
 Financial Condition
June 30, 2006 Compared to December 31, 2005
 Loan Portfolio.
  June 30, 2006
    
    
    December 31, 2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(dollars in thousands)Commercial, financial, and
agricultural
    
    $
    231,709
    
    
    
    25.42
    %
    
    $
    240,231
    
    
    
    27.89
    %Real estate  farmland
    
    
    71,054
    
    
    
    7.80
    %
    
    
    66,172
    
    
    
    7.68
    %Real estate  construction
    
    
    85,785
    
    
    
    9.41
    %
    
    
    48,612
    
    
    
    5.64
    %Real estate  commercial
    
    
    176,031
    
    
    
    19.31
    %
    
    
    178,395
    
    
    
    20.71
    %Real estate  residential (1)
    
    
    229,892
    
    
    
    25.22
    %
    
    
    213,581
    
    
    
    24.80
    %Installment loans to individuals
    
    
    117,002
    
    
    
    12.84
    %
    
    
    114,292
    
    
    
    13.28
    %Total loans
    
    
    911,473
    
    
    
    100.00
    %
    
    
    861,283
    
    
    
    100.00
    %Allowance for loan losses
    
    
    8,523
    
    
    
    
    
    
    
    8,082Total loans, including loans
held for sale, net of allowance
for loan losses
    
    $
    902,950
    
    
    
    
    
    
    $
    853,201
 
 (1)
    
    Includes loans held for sale 26




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##### Table of Contents



Nonperforming Assets
   June 30,
    
    
    December 31,2006
    
    
    2005Nonaccrual loansCommercial, financial, and agricultural
    
    $
    951
    
    
    $
    1,727Real estate  farmland
    
    
    
    
    
    
    105Real estate  construction
    
    
    
    
    
    
    Real estate  commercial
    
    
    920
    
    
    
    417Real estate  mortgage
    
    
    543
    
    
    
    839Installment loans to individuals
    
    
    355
    
    
    
    544Total nonaccrual loans
    
    
    2,769
    
    
    
    3,632Loans 90 days past due and still accruing
    
    
    1,414
    
    
    
    1,342Restructured loans
    
    
    4
    
    
    
    6Total nonperforming loans
    
    
    4,187
    
    
    
    4,980Repossessed assets
    
    
    528
    
    
    
    494Other assets acquired in satisfaction of debt previously
contracted
    
    
    
    
    
    
    Total nonperforming other assets
    
    
    528
    
    
    
    494Total nonperforming loans and nonperforming other assets
    
    $
    4,715
    
    
    $
    5,474Nonperforming loans to loans, before allowance for loan losses
    
    
    0.46
    %
    
    
    0.58
    %Nonperforming loans and nonperforming other assets to loans,
before allowance for loan losses
    
    
    0.52
    %
    
    
    0.64
    %
 Allowance for Loan Losses
 27




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##### Table of Contents



28




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##### Table of Contents



As of and for
    
    
    As of and forthe Six months
    
    
    the Year EndedEnded June 30,
    
    
    December 31,2006
    
    
    2005Average loans outstanding during year
    
    $
    872,169
    
    
    $
    806,955Allowance for loan losses:Balance at beginning of year
    
    $
    8,082
    
    
    $
    7,115Loans charged-off:Commercial, financial, and agricultural
    
    
    325
    
    
    
    483Real estate  farmland
    
    
    
    
    
    
    80Real estate  construction
    
    
    
    
    
    
    50Real estate  commercial
    
    
    105
    
    
    
    Real estate  mortgage
    
    
    69
    
    
    
    172Installment loans to individuals
    
    
    591
    
    
    
    956Total charge-offs
    
    
    1,090
    
    
    
    1,741RecoveriesCommercial, financial, and agricultural
    
    
    36
    
    
    
    138Real estate  farmland
    
    
    
    
    
    
    Real estate  construction
    
    
    1
    
    
    
    2Real estate  commercial
    
    
    
    
    
    
    36Real estate  residential
    
    
    3
    
    
    
    24Installment loans to individuals
    
    
    88
    
    
    
    140Total recoveries
    
    
    128
    
    
    
    340Net charge-offs
    
    
    962
    
    
    
    1,401Provision for loan losses
    
    
    1,403
    
    
    
    2,368Adjustments
    
    
    
    
    
    
    Balance at end of year
    
    $
    8,523
    
    
    $
    8,082Allowance for loan losses as a percent of
total loans outstanding at year end (1)
    
    
    0.94
    %
    
    
    0.94
    %Allowance for loan losses as a percent of
total nonperforming loans
    
    
    203.56
    %
    
    
    162.29
    %Ratio of net charge-offs to average total loans
    
    
    0.11
    %
    
    
    0.17
    %
 
 (1)
    
    Includes loans held for sale Securities
  29




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##### Table of Contents



Deposits
 Borrowings
   Liquidity and Capital Resources
 Liquidity
   30




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##### Table of Contents



Capital Resources
  Effect of Inflation and Changing Prices.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk .
  
 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 ApproximateSecond Quarter
    
    Total Number of
    
    
    
    
    
    Purchased as Part of
    
    Dollar Value of Shares that2006 Calendar
    
    Shares Purchased
    
    Average Price
    
    Publicly Announced
    
    May Yet Be Purchased UnderMonth
    
    (1)
    
    Paid per Share (1)
    
    Plans or Programs (2)
    
    the Plans or Programs (3)April
    
    
    0
    
    
    
    n/a
    
    
    
    0
    
    
    $
    9,547,007May
    
    
    0
    
    
    
    n/a
    
    
    
    0
    
    
    $
    9,547,007June
    
    
    275
    
    
    $
    22.35
    
    
    
    0
    
    
    $
    9,547,007Total
    
    
    275
    
    
    $
    22.35
    
    
    
    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 the number of
shares purchased by the Plan are as follows: none in April, none in May and 275 in June.(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



For
    
    WithheldMichael J. Foster
    
    
    1,681,090
    
    
    
    47,395William G. Keller, Jr.
    
    
    1,681,090
    
    
    
    47,395Dennis M. Prock
    
    
    1,725,280
    
    
    
    3,205Frank H. Musholt
    
    
    1,680,990
    
    
    
    47,495Walter D. Stevenson, III
    
    
    1,681,090
    
    
    
    47,395Dan S. Dugan
    
    
    1,680,855
    
    
    
    47,630Ted T. Awerkamp
    
    
    1,680,855
    
    
    
    47,630
    
 Item 5. Other Information
  
 Item 6. Exhibits
 ExhibitNumber
    
    Identification of Exhibit10.1
    
    Amendment to Loan Agreement and Note31.1
    
    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: August 11, 2006
    By:
    /s/ Dan S. DuganDan S. DuganChairman, President and Chief Executive Officer
(principal executive officer)Date: August 11, 2006
    By:
    /s/ Michael P. McGrathMichael P. McGrathVice President, Treasurer and
Chief Financial Officer
(principal financial officer/     
principal accounting officer) 34