##### 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 MARCH 31, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission file number 001-32434
 
 MERCANTILE BANCORP, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
Incorporation or organization)
    
    37-1149138
(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 o
  o Large accelerated filer
þ Accelerated filer
o Non-accelerated filer
(Do not check if a smaller reporting company)
o Smaller reporting company o þ




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##### 



MERCANTILE BANCORP, INC.
 FORM 10-Q
 TABLE OF CONTENTS
 PART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6-13Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    14-29Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4.
    
    Controls and Procedures
    
    
    30PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    31Item 1A.
    
    Risk Factors
    
    
    31Item 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
    
    
    32Item 6.
    
    Exhibits
    
    
    33Signatures
    
    
    34ExhibitsSection 302 Certifications
    
    
    35-36Section 906 Certifications
    
    
    37-38EX-31.1EX-31.2EX-32.1EX-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 31,2009
    
    
    December 31,(Unaudited)
    
    
    2008AssetsCash and due from banks
    
    $
    19,218
    
    
    $
    67,595Interest-bearing demand deposits
    
    
    94,828
    
    
    
    16,812Federal funds sold
    
    
    13,335
    
    
    
    5,414Cash and cash equivalents
    
    
    127,381
    
    
    
    89,821Available-for-sale securities
    
    
    198,546
    
    
    
    185,192Held-to-maturity securities (fair values of $7,990 and $9,101)
    
    
    7,803
    
    
    
    8,905Loans held for sale
    
    
    8,909
    
    
    
    4,366Loans, net of allowance for loan losses of $21,944 and $23,467
    
    
    1,288,481
    
    
    
    1,315,907Interest receivable
    
    
    8,626
    
    
    
    10,240Foreclosed assets held for sale, net
    
    
    10,236
    
    
    
    9,959Federal Home Loan Bank stock
    
    
    8,274
    
    
    
    8,213Cost method investments in common stock
    
    
    3,314
    
    
    
    3,314Deferred income taxes
    
    
    8,193
    
    
    
    9,181Mortgage servicing rights
    
    
    979
    
    
    
    959Cash surrender value of life insurance
    
    
    25,527
    
    
    
    25,278Premises and equipment
    
    
    40,059
    
    
    
    40,616Goodwill
    
    
    44,650
    
    
    
    44,653Core deposit and other intangibles
    
    
    3,878
    
    
    
    4,002Other
    
    
    14,928
    
    
    
    14,377Total assets
    
    $
    1,799,784
    
    
    $
    1,774,983LiabilitiesDepositsDemand
    
    $
    148,309
    
    
    $
    139,486Savings, NOW and money market
    
    
    467,166
    
    
    
    431,596Time
    
    
    665,401
    
    
    
    672,763Brokered time
    
    
    224,634
    
    
    
    218,413Total deposits
    
    
    1,505,510
    
    
    
    1,462,276Short-term borrowings
    
    
    54,374
    
    
    
    49,227Long-term debt
    
    
    61,552
    
    
    
    84,661Junior subordinated debentures
    
    
    61,858
    
    
    
    61,858Interest payable
    
    
    4,395
    
    
    
    4,280Other
    
    
    8,687
    
    
    
    7,989Total liabilities
    
    
    1,696,376
    
    
    
    1,670,291Commitments and Contingent LiabilitiesEquityMercantile Bancorp, Inc. stockholders equityCommon stock, $0.42 par value; authorized 14,000,000 shares;
Issued  8,887,113 shares at March 31, 2009 and
December 31, 2008
Outstanding  8,703,330 shares at March 31, 2009 and December 31, 2008
    
    
    3,629
    
    
    
    3,629Additional paid-in capital
    
    
    11,919
    
    
    
    11,919Retained earnings
    
    
    82,766
    
    
    
    83,642Accumulated other comprehensive income
    
    
    1,944
    
    
    
    2,062100,258
    
    
    
    101,252Treasury stock, at costCommon; 183,783 shares at March 31, 2009 and December 31, 2008
    
    
    (2,295
    )
    
    
    (2,295
    )Total Mercantile Bancorp, Inc. stockholders equity
    
    
    97,963
    
    
    
    98,957Noncontrolling interest
    
    
    5,445
    
    
    
    5,735Total equity
    
    
    103,408
    
    
    
    104,692Total liabilities and equity
    
    $
    1,799,784
    
    
    $
    1,774,983
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MERCANTILE BANCORP, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 Three Months Ended March 31
    
    2009
    
    
    2008Interest and Dividend IncomeLoansTaxable
    
    $
    18,772
    
    
    $
    21,708Tax exempt
    
    
    200
    
    
    
    176SecuritiesTaxable
    
    
    1,713
    
    
    
    1,795Tax exempt
    
    
    427
    
    
    
    540Federal funds sold
    
    
    6
    
    
    
    159Dividends on Federal Home Loan Bank stock
    
    
    13
    
    
    
    36Deposits with financial institutions and other
    
    
    72
    
    
    
    150Total interest and dividend income
    
    
    21,203
    
    
    
    24,564Interest ExpenseDeposits
    
    
    8,862
    
    
    
    11,813Short-term borrowings
    
    
    577
    
    
    
    348Long-term debt and junior subordinated debentures
    
    
    1,537
    
    
    
    2,204Total interest expense
    
    
    10,976
    
    
    
    14,365Net Interest Income
    
    
    10,227
    
    
    
    10,199Provision for Loan Losses
    
    
    3,180
    
    
    
    4,769Net Interest Income After Provision For Loan Losses
    
    
    7,047
    
    
    
    5,430Noninterest IncomeFiduciary activities
    
    
    651
    
    
    
    690Brokerage fees
    
    
    238
    
    
    
    416Customer service fees
    
    
    840
    
    
    
    1,100Other service charges and fees
    
    
    259
    
    
    
    200Net gains (losses) on sales of assets
    
    
    (13
    )
    
    
    391Net gains on loan sales
    
    
    810
    
    
    
    363Loan servicing fees
    
    
    146
    
    
    
    135Net increase in cash surrender value of life insurance
    
    
    245
    
    
    
    268Other
    
    
    78
    
    
    
    190Total noninterest income
    
    
    3,254
    
    
    
    3,753Noninterest ExpenseSalaries and employee benefits
    
    
    6,707
    
    
    
    6,901Net occupancy expense
    
    
    900
    
    
    
    885Equipment expense
    
    
    794
    
    
    
    774Deposit insurance premium
    
    
    832
    
    
    
    105Professional fees
    
    
    635
    
    
    
    575Postage and supplies
    
    
    336
    
    
    
    301Losses on foreclosed assets, net
    
    
    128
    
    
    
    504Losses on securities, net
    
    
    
    
    
    
    1Amortization of mortgage servicing rights
    
    
    210
    
    
    
    93Other
    
    
    1,918
    
    
    
    1,952Total noninterest expense
    
    
    12,460
    
    
    
    12,091(Loss) Before Income Tax Benefit
    
    
    (2,159
    )
    
    
    (2,908
    )Income Tax (Benefit)
    
    
    (994
    )
    
    
    (944
    )Net (Loss)
    
    
    (1,165
    )
    
    
    (1,964
    )Less: Net (loss) attributable to the noncontrolling interest
    
    
    (289
    )
    
    
    (287
    )Net (Loss) attributable to Mercantile Bancorp, Inc.
    
    $
    (876
    )
    
    $
    (1,677
    )Basic (Loss) Per Share attributable to Mercantile Bancorp, Inc. common
stockholders
    
    $
    (0.10
    )
    
    $
    (0.19
    )Weighted Average Shares Outstanding
    
    
    8,703,330
    
    
    
    8,709,655
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MERCANTILE BANCORP, INC.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Three Months Ended March 31
    
    2009
    
    
    2008Operating ActivitiesNet loss
    
    $
    (1,165
    )
    
    $
    (1,964
    )Items not requiring (providing) cashDepreciation
    
    
    688
    
    
    
    671Provision for loan losses
    
    
    3,180
    
    
    
    4,769Amortization (accretion) of premiums and discounts on securities
    
    
    (69
    )
    
    
    (19
    )Amortization (depreciation) of core deposit intangibles and other
purchase accounting adjustments
    
    
    33
    
    
    
    (88
    )Deferred income taxes
    
    
    1,171
    
    
    
    (1,113
    )Losses on foreclosed assets
    
    
    128
    
    
    
    504Net (gains) on loan sales
    
    
    (810
    )
    
    
    (363
    )Amortization of mortgage servicing rights
    
    
    210
    
    
    
    93(Gains) Losses on sales of premises and equipment
    
    
    13
    
    
    
    (391
    )(Gain) on sale of equity and cost method investments
    
    
    
    
    
    
    (100
    )Federal Home Loan Bank stock dividends
    
    
    (3
    )
    
    
    (13
    )Net increase in cash surrender value of life insurance
    
    
    (245
    )
    
    
    (268
    )Changes inLoans originated for sale
    
    
    (68,887
    )
    
    
    (33,014
    )Proceeds from sales of loans
    
    
    64,865
    
    
    
    32,408Interest receivable
    
    
    1,614
    
    
    
    459Other assets
    
    
    (153
    )
    
    
    1,220Interest payable
    
    
    115
    
    
    
    (83
    )Other liabilities
    
    
    292
    
    
    
    (1,904
    )Net cash provided by operating activities
    
    
    977
    
    
    
    804Investing ActivitiesCash paid in acquisition of HNB Financial, net of cash received
    
    
    3
    
    
    
    Purchases of available-for-sale securities
    
    
    (27,738
    )
    
    
    (23,977
    )Proceeds from maturities of available-for-sale securities
    
    
    14,064
    
    
    
    19,462Proceeds from maturities of held-to-maturity securities
    
    
    1,101
    
    
    
    1,113Net change in loans
    
    
    23,666
    
    
    
    (10,488
    )Purchases of premises and equipment
    
    
    (156
    )
    
    
    (780
    )Proceeds from sales of premises and equipment
    
    
    
    
    
    
    767Purchase of Federal Home Loan Bank stock
    
    
    (58
    )
    
    
    (391
    )Proceeds from sales of Federal Home Loan Bank stock
    
    
    
    
    
    
    174Proceeds from sales of foreclosed assets
    
    
    350
    
    
    
    27Net cash provided by (used in) investing activities
    
    
    11,232
    
    
    
    (14,093
    )Financing ActivitiesNet increase in demand deposits, money market, NOW and savings accounts
    
    
    44,393
    
    
    
    31,332Net increase (decrease) in time and brokered time deposits
    
    
    (1,080
    )
    
    
    1,412Net (decrease) in short-term borrowings
    
    
    (9,962
    )
    
    
    (17,820
    )Proceeds from long-term debt
    
    
    
    
    
    
    17,000Repayments of long-term debt
    
    
    (8,000
    )
    
    
    (14,000
    )Proceeds from issuance of stock to noncontrolling interest of Mid-America
    
    
    
    
    
    
    41Dividends paid
    
    
    
    
    
    
    (523
    )Net cash provided by financing activities
    
    
    25,351
    
    
    
    17,442Increase In Cash and Cash Equivalents
    
    
    37,560
    
    
    
    4,153Cash and Cash Equivalents, Beginning of Period
    
    
    89,821
    
    
    
    76,059Cash and Cash Equivalents, End of Period
    
    $
    127,381
    
    
    $
    80,212Supplemental Cash Flows InformationInterest paid
    
    $
    10,800
    
    
    $
    14,448Net income taxes paid (received)
    
    $
    (244
    )
    
    $
    (63
    )Real estate acquired in settlement of loans
    
    $
    755
    
    
    $
    2,388Increase in additional paid-in-capital due to issuance of stock to
noncontrolling interest of Mid-America
    
    $
    
    
    
    $
    22Transfer of long-term debt to short-term borrowings
    
    $
    15,109
    
    
    $
    
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MERCANTILE BANCORP, INC.
 
 Notes to Condensed Consolidated Financial Statements
(table dollar amounts in thousands)
 1. BASIS OF PRESENTATION
    2. EARNINGS (LOSS) PER COMMON SHARE
  3. NEW AND RECENT ACCOUNTING PRONOUNCEMENTS
    6




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4. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
  5. FAIR VALUE MEASUREMENT
 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.
 7




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Level 3
    
    Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities.
 Recurring Basis
  Available-for-sale
securities
  Fair Value Measurements UsingQuotes Prices inActive Markets for
    
    Significant Other
    
    SignificantIdentical Assets
    
    Observable Inputs
    
    Unobservable InputsMarch 31, 2009
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Available-for-sale securities
    
    $
    198,546
    
    
    $
    3,176
    
    
    $
    193,426
    
    
    $
    1,944
 Fair Value Measurements UsingQuotes Prices inActive Markets for
    
    Significant Other
    
    SignificantIdentical Assets
    
    Observable Inputs
    
    Unobservable InputsDecember 31, 2008
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Available-for-sale securities
    
    $
    185,192
    
    
    $
    4,811
    
    
    $
    178,375
    
    
    $
    2,006
  For the Three Months Ended March 312009
    
    
    2008Beginning balance
    
    $
    2,006
    
    
    $
    11,400Total realized and unrealized gains and losses:Included in net income
    
    
    
    
    
    
    Included in other comprehensive income
    
    
    
    
    
    
    Purchases, issuances and settlements
    
    
    (62
    )
    
    
    (1,364
    )Transfers in and/or out of Level 3
    
    
    
    
    
    
    Balance, March 31, 2009
    
    $
    1,944
    
    
    $
    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
    
    $
    
    
    
    $
    
 Nonrecurring Basis
  8




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Impaired
loans
  Other Real Estate
  Fair Value Measurements UsingQuotes Prices in ActiveMarkets for Identical
    
    Significant Other
    
    SignificantAssets
    
    Observable Inputs
    
    Unobservable InputsCarrying value at March 31, 2009
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Impaired loans
    
    $
    8,580
    
    
    $
    
    
    
    $
    
    
    
    $
    8,580Other real estate
    
    $
    2,769
    
    
    $
    
    
    
    $
    
    
    
    $
    2,769
 Fair Value Measurements UsingQuotes Prices in ActiveMarkets for Identical
    
    Significant Other
    
    SignificantAssets
    
    Observable Inputs
    
    Unobservable InputsCarrying value at December 31, 2008
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Impaired loans
    
    $
    30,966
    
    
    $
    
    
    
    $
    
    
    
    $
    30,966Mortgage servicing rights
    
    $
    959
    
    
    $
    
    
    
    $
    
    
    
    $
    959Cost method investments
    
    $
    3,314
    
    
    $
    
    
    
    $
    
    
    
    $
    3,314
 6. OFF BALANCE SHEET CREDIT COMMITMENTS
   9




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7. CRITICAL ACCOUNTING POLICIES
        10




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8. COMPREHENSIVE INCOME (LOSS)
  For the Three MonthsEnded March 31,2009
    
    
    2008Net (loss)
    
    $
    (1,165
    )
    
    $
    (1,964
    )Other comprehensive loss:Unrealized appreciation (depreciation) on available-for-sale
securities:Unrealized appreciation (depreciation) on available-for-sale
securities, net of tax expense (benefit) of $(183) for 2009
and $935 for 2008
    
    
    (118
    )
    
    
    1,586Adjustment of SFAS 158 liability, net of tax benefit of $0 for
2009 and $(15) for 2008
    
    
    
    
    
    
    25Total other comprehensive income (loss), net of tax
    
    
    (118
    )
    
    
    1,561Comprehensive (loss)
    
    
    (1,283
    )
    
    
    (403
    )Comprehensive loss attributable to the noncontrolling interest
    
    
    289
    
    
    
    287Comprehensive (loss) attributable to Mercantile Bancorp, Inc.
    
    $
    (994
    )
    
    $
    (116
    )
 9. FDIC SPECIAL ASSESSMENT
  10. OPERATING AND LIQUIDITY MATTERS
   11




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
    
    the occurrence of an event of default under any of the loan agreements;
    
    the Company should fail to perform any additional covenant;
    
    any changes in regulatory agreements;
    
    the Company, any subsidiary holding company or any subsidiary bank being placed
in receivership or being taken over by any regulatory agency;
    
    the note holder determines in its sole discretion that there has been any
change in the business operations or condition, financial or otherwise, of the Company,
any subsidiary holding company, any subsidiary bank or any consolidated subsidiary that
could have a material adverse effect; or
    
    September 30, 2009
   11. SUBSEQUENT EVENT
   12




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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
  
    
    projections of revenues, income, earnings per share, capital expenditures, assets,
liabilities, dividends, capital structure, or other financial items;
    
    descriptions of plans or objectives of management for future operations, products,
or services, including pending acquisition transactions;
    
    forecasts of future economic performance; and
    
    descriptions of assumptions underlying or relating to any of the foregoing.
  
    
    general business and economic conditions in the markets the Company
serves change or are less favorable than it expected;
    
    deposit attrition, operating costs, customer loss and business
disruption are greater than the Company expected;
    
    competitive factors including product and pricing pressures among
financial services organizations may increase;
    
    changes in the interest rate environment reduce the Companys interest margins;
    
    changes in market rates and prices may adversely impact securities,
loans, deposits, mortgage servicing rights, and other financial
instruments;
    
    legislative or regulatory developments including changes in laws
concerning taxes, banking, securities, insurance and other aspects of
the financial securities industry may adversely affect the Companys
business;
    
    personal or commercial bankruptcies increase;
    
    the Companys ability to expand and grow its business and operations,
including the establishment of additional branches and acquisition of
additional banks or branches of banks may be more difficult or costly
than the Company expected;
    
    any future acquisitions may be more difficult to integrate than
expected and the Company may be unable to realize any cost savings and
revenue enhancements the Company may have projected in connection with
such acquisitions;
    
    changes in accounting principles, policies or guidelines;
    
    the goodwill recorded from recent acquisitions could become impaired
and have an adverse impact on our profitability;
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
    
    Construction and development loans are based upon estimates of costs
and value associated with the complete project. These estimates may
be inaccurate, and cause the Company to be exposed to more losses on
these projects than on other loans;
    
    changes occur in the securities markets;
    
    technology-related changes may be harder to make or more expensive than the Company anticipated;
    
    worldwide political and social unrest, including acts of war and terrorism; and
    
    changes occur in monetary and fiscal policies of the U.S. government,
including policies of the U.S. Treasury and the Federal Reserve Board.
  New Accounting Standards Adopted During 2009
    General
  15




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Wholly-Owned Subsidiaries
 
    
    Mercantile Bank (Mercantile Bank), located in Quincy, Illinois;
    
    Marine Bank & Trust (Marine Bank), located in Carthage, Illinois;
    
    Brown County State Bank (Brown County), located in Mt. Sterling, Illinois;
    
    Royal Palm Bancorp, Inc. (Royal Palm), the sole shareholder of Royal Palm Bank of
Florida (Royal Palm Bank), located in Naples, Florida; and
    
    HNB Financial Services, Inc. (HNB Financial), the sole shareholder of HNB
National Bank (HNB), located in Hannibal, Missouri.
 Majority-Owned Subsidiary.
 Other Investments in Financial Institutions.
 
    
    4.3% of Integrity Bank (Integrity), located in Jupiter, Florida;
    
    0.8% of Premier Bancshares, Inc. (Premier), the sole shareholder of Premier Bank,
located in Jefferson City, Missouri;
    
    2.5% of Premier Community Bank of the Emerald Coast (Premier Community), located
in Crestview, Florida;
    
    4.1% of Paragon National Bank (Paragon), located in Memphis, Tennessee;
    
    1.4% of Enterprise Financial Services Corp. (Enterprise), the sole shareholder of
Enterprise Bank & Trust, based in Clayton, Missouri;
    
    4.1% of Solera National Bancorp, Inc. (Solera), the sole shareholder of Solera
National Bank, located in Lakewood, Colorado;
    
    2.9% of Manhattan Bancorp, Inc. (Manhattan), the sole shareholder of Bank of
Manhattan, located in Los Angeles, California; and
    
    4.9% of Brookhaven Bank (Brookhaven), located in Atlanta, Georgia.
     16




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##### Table of Contents



Results of Operations  Comparison of Operating Results for the Three Months Ended March 31, 2009 and 2008
 Overview
   Net Interest Income
    17




---



##### Table of Contents



For the three months ended March 312009
    
    
    2008Income/
    
    
    
    
    
    
    
    
    
    
    Income/Average Balance
    

    Expense
    
    Yield/Rate
    
    Average Balance
    
    Expense
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand
deposits
    
    $
    69,148
    
    
    $
    72
    
    
    
    0.42
    %
    
    $
    18,124
    
    
    $
    150
    
    
    
    3.31
    %Federal funds sold
    
    
    19,360
    
    
    
    6
    
    
    
    0.12
    %
    
    
    19,088
    
    
    
    159
    
    
    
    3.33
    %Securities:TaxableU.S. treasuries
and government
agencies
    
    
    5,080
    
    
    
    41
    
    
    
    3.23
    %
    
    
    24,577
    
    
    
    208
    
    
    
    3.39
    %Mortgage-backed
securities
    
    
    48,937
    
    
    
    564
    
    
    
    4.61
    %
    
    
    44,367
    
    
    
    560
    
    
    
    5.05
    %Other securities
    
    
    94,462
    
    
    
    1,108
    
    
    
    4.69
    %
    
    
    70,674
    
    
    
    1,027
    
    
    
    5.81
    %Total taxable
    
    
    148,479
    
    
    
    1,713
    
    
    
    4.61
    %
    
    
    139,618
    
    
    
    1,795
    
    
    
    5.14
    %Non-taxable  State and
political subdivision (3)
    
    
    47,364
    
    
    
    427
    
    
    
    3.61
    %
    
    
    56,988
    
    
    
    540
    
    
    
    3.79
    %Loans (net of unearned
discount) (1)(2)
    
    
    1,329,208
    
    
    
    18,972
    
    
    
    5.71
    %
    
    
    1,219,962
    
    
    
    21,884
    
    
    
    7.18
    %Federal Home Loan Bank
stock
    
    
    8,289
    
    
    
    13
    
    
    
    0.63
    %
    
    
    8,061
    
    
    
    36
    
    
    
    1.79
    %Total
interest-earning
assets
    
    
    1,621,848
    
    
    $
    21,203
    
    
    
    5.23
    %
    
    
    1,461,841
    
    
    $
    24,564
    
    
    
    6.72
    %Cash and due from banks
    
    
    22,209
    
    
    
    
    
    
    
    
    
    
    
    35,268Interest receivable
    
    
    9,597
    
    
    
    
    
    
    
    
    
    
    
    10,903Foreclosed assets held for
sale, net
    
    
    8,372
    
    
    
    
    
    
    
    
    
    
    
    3,151Cost method investments in
common stock
    
    
    3,314
    
    
    
    
    
    
    
    
    
    
    
    6,105Cash surrender value of
life insurance
    
    
    25,383
    
    
    
    
    
    
    
    
    
    
    
    24,354Premises and equipment
    
    
    40,327
    
    
    
    
    
    
    
    
    
    
    
    41,913Other
    
    
    26,604
    
    
    
    
    
    
    
    
    
    
    
    23,439Goodwill
    
    
    43,934
    
    
    
    
    
    
    
    
    
    
    
    43,934Intangible assets
    
    
    4,791
    
    
    
    
    
    
    
    
    
    
    
    4,791Allowance for loan loss
    
    
    (22,736
    )
    
    
    
    
    
    
    
    
    
    
    (12,996
    )Total assets
    
    $
    1,783,643
    
    
    
    
    
    
    
    
    
    
    $
    1,642,703Liabilities and Stockholders EquityInterest-bearing
transaction deposits
    
    $
    142,416
    
    
    $
    162
    
    
    
    0.46
    %
    
    $
    133,399
    
    
    $
    400
    
    
    
    1.20
    %Savings deposits
    
    
    85,170
    
    
    
    141
    
    
    
    0.66
    %
    
    
    80,523
    
    
    
    353
    
    
    
    1.75
    %Money-market deposits
    
    
    223,402
    
    
    
    651
    
    
    
    1.17
    %
    
    
    212,174
    
    
    
    1,524
    
    
    
    2.87
    %Time and brokered time
deposits
    
    
    893,380
    
    
    
    7,908
    
    
    
    3.54
    %
    
    
    772,941
    
    
    
    9,536
    
    
    
    4.93
    %Short-term borrowings
    
    
    58,298
    
    
    
    577
    
    
    
    3.96
    %
    
    
    34,759
    
    
    
    348
    
    
    
    4.00
    %Long term debt
    
    
    66,551
    
    
    
    680
    
    
    
    4.09
    %
    
    
    90,807
    
    
    
    1,175
    
    
    
    5.18
    %Junior subordinated
debentures
    
    
    61,858
    
    
    
    857
    
    
    
    5.54
    %
    
    
    61,858
    
    
    
    1,029
    
    
    
    6.65
    %Total
interest-bearing
liabilities
    
    
    1,531,075
    
    
    $
    10,976
    
    
    
    2.87
    %
    
    
    1,386,461
    
    
    $
    14,365
    
    
    
    4.14
    %Demand deposits
    
    
    136,922
    
    
    
    
    
    
    
    
    
    
    
    124,597Interest payable
    
    
    4,482
    
    
    
    
    
    
    
    
    
    
    
    6,453Other liabilities
    
    
    7,001
    
    
    
    
    
    
    
    
    
    
    
    6,524Noncontrolling interest
    
    
    5,574
    
    
    
    
    
    
    
    
    
    
    
    9,416Stockholders equity
    
    
    98,589
    
    
    
    
    
    
    
    
    
    
    
    109,252Total
liabilities and
stockholders
equity
    
    $
    1,783,643
    
    
    
    
    
    
    
    
    
    
    $
    1,642,703Interest spread
    
    
    
    
    
    
    
    
    
    
    2.36
    %
    
    
    
    
    
    
    
    
    
    
    2.58
    %Net interest income
    
    
    
    
    
    $
    10,227
    
    
    
    
    
    
    
    
    
    
    $
    10,199Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.52
    %
    
    
    
    
    
    
    
    
    
    
    2.79
    %Interest-earning assets to
interest-bearing
liabilities
    
    
    105.93
    %
    
    
    
    
    
    
    
    
    
    
    105.44
    %
 
 (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 March 31,2009 vs. 2008Increase (Decrease) Due toChange inVolume
    
    
    Rate
    
    
    TotalIncrease (decrease) in interest income:Interest-bearing bank deposits
    
    $
    141
    
    
    $
    (219
    )
    
    $
    (78
    )Federal funds sold
    
    
    2
    
    
    
    (155
    )
    
    
    (153
    )Investment securities:U.S. Treasuries and Agencies
    
    
    (158
    )
    
    
    (9
    )
    
    
    (167
    )Mortgage-backed securities
    
    
    55
    
    
    
    (51
    )
    
    
    4States and political subdivision (1)
    
    
    (88
    )
    
    
    (25
    )
    
    
    (113
    )Other securities
    
    
    303
    
    
    
    (222
    )
    
    
    81Loans (net of unearned discounts)
    
    
    1,838
    
    
    
    (4,750
    )
    
    
    (2,912
    )Federal Home Loan Bank stock
    
    
    1
    
    
    
    (24
    )
    
    
    (23
    )Change in interest income
    
    
    2,094
    
    
    
    (5,455
    )
    
    
    (3,361
    )Increase (decrease) in interest expense:Interest-bearing transaction deposits
    
    
    25
    
    
    
    (263
    )
    
    
    (238
    )Savings deposits
    
    
    19
    
    
    
    (231
    )
    
    
    (212
    )Money-market deposits
    
    
    77
    
    
    
    (950
    )
    
    
    (873
    )Time and brokered time deposits
    
    
    1,337
    
    
    
    (2,965
    )
    
    
    (1,628
    )Short-term borrowings
    
    
    233
    
    
    
    (4
    )
    
    
    229Long-term debt and junior subordinated
debentures
    
    
    (321
    )
    
    
    (346
    )
    
    
    (667
    )Change in interest expense
    
    
    1,370
    
    
    
    (4,759
    )
    
    
    (3,389
    )Increase (decrease) in net interest income
    
    $
    724
    
    
    $
    (696
    )
    
    $
    28
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses
  19




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##### Table of Contents



Noninterest Income.
  For the Three MonthsEnded March 312009
    
    
    2008Fiduciary activities
    
    $
    651
    
    
    $
    690Brokerage fees
    
    
    238
    
    
    
    416Customer service fees
    
    
    840
    
    
    
    1,100Other service charges and fees
    
    
    259
    
    
    
    200Net gains/(losses) on sales of assets
    
    
    (13
    )
    
    
    391Net gains on loan sales
    
    
    810
    
    
    
    363Loan servicing fees
    
    
    146
    
    
    
    135Net increase in cash surrender value of life insurance
    
    
    245
    
    
    
    268Other
    
    
    78
    
    
    
    190Total noninterest income
    
    $
    3,254
    
    
    $
    3,753
     Noninterest Expense
 20




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##### Table of Contents



For the Three MonthsEnded March 312009
    
    
    2008Salaries and employee benefits
    
    $
    6,707
    
    
    $
    6,901Net occupancy expense
    
    
    900
    
    
    
    885Equipment expense
    
    
    794
    
    
    
    774Deposit insurance premium
    
    
    832
    
    
    
    105Professional fees
    
    
    635
    
    
    
    575Postage and supplies
    
    
    336
    
    
    
    301Losses on foreclosed assets, net
    
    
    128
    
    
    
    504Losses on securities, net
    
    
    
    
    
    
    1Amortization of mortgage servicing rights
    
    
    210
    
    
    
    93Other
    
    
    1,918
    
    
    
    1,952Total noninterest expense
    
    $
    12,460
    
    
    $
    12,091
     Income Taxes Expense (Benefit)
  21




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##### Table of Contents



Financial Condition
March 31, 2009 Compared to December 31, 2008
 Loan Portfolio
  March 31, 2009
    
    
    December 31, 2008Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(dollars in thousands)Commercial and financial
    
    $
    234,261
    
    
    
    17.76
    %
    
    $
    235,438
    
    
    
    17.52
    %Agricultural
    
    
    58,428
    
    
    
    4.43
    %
    
    
    68,192
    
    
    
    5.07
    %Real estate  farmland
    
    
    108,129
    
    
    
    8.20
    %
    
    
    111,244
    
    
    
    8.28
    %Real estate  construction
    
    
    207,474
    
    
    
    15.73
    %
    
    
    238,922
    
    
    
    17.78
    %Real estate  commercial
    
    
    239,647
    
    
    
    18.16
    %
    
    
    214,317
    
    
    
    15.95
    %Real estate  residential (1)
    
    
    343,547
    
    
    
    26.03
    %
    
    
    343,627
    
    
    
    25.58
    %Installment loans to individuals
    
    
    127,848
    
    
    
    9.69
    %
    
    
    132,000
    
    
    
    9.82
    %Total loans
    
    
    1,319,334
    
    
    
    100.00
    %
    
    
    1,343,740
    
    
    
    100.00
    %Allowance for loan losses
    
    
    21,944
    
    
    
    
    
    
    
    23,467Total loans, including loans
held for sale, net of allowance
for loan losses
    
    $
    1,297,390
    
    
    
    
    
    
    $
    1,320,273
 
 (1)
    
    Includes loans held for sale Nonperforming Assets
   22




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##### Table of Contents



March 31,
    
    
    December 31,2009
    
    
    2008Nonaccrual loansCommercial and financial
    
    $
    873
    
    
    $
    762Agricultural
    
    
    113
    
    
    
    234Real estate  farmland
    
    
    99
    
    
    
    Real estate  construction
    
    
    34,062
    
    
    
    25,948Real estate  commercial
    
    
    4,852
    
    
    
    1,361Real estate  residential
    
    
    5,502
    
    
    
    5,455Installment loans to individuals
    
    
    498
    
    
    
    337Total nonaccrual loans
    
    
    45,999
    
    
    
    34,097Loans 90 days past due and still accruing
    
    
    4,930
    
    
    
    3,856Restructured loans
    
    
    57
    
    
    
    58Total nonperforming loans
    
    
    50,986
    
    
    
    38,011Repossessed assets
    
    
    10,261
    
    
    
    10,015Other assets acquired in satisfaction of debt previously
contracted
    
    
    
    
    
    
    Total nonperforming other assets
    
    
    10,261
    
    
    
    10,015Total nonperforming loans and nonperforming other assets
    
    $
    61,247
    
    
    $
    48,026Nonperforming loans to loans, before allowance for loan losses
    
    
    3.86
    %
    
    
    2.83
    %Nonperforming loans and nonperforming other assets to loans,
before allowance for loan losses
    
    
    4.64
    %
    
    
    3.57
    %
 Allowance for Loan Losses
   23




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##### Table of Contents



As of and forthe Three
    
    
    As of and forMonths Ended
    
    
    the Year EndedMarch 31,
    
    
    December 31,2009
    
    
    2008Average loans outstanding during year
    
    $
    1,329,208
    
    
    $
    1,274,660Allowance for loan losses:Balance at beginning of year
    
    $
    23,467
    
    
    $
    12,794Loans charged-off:Commercial and financial
    
    
    445
    
    
    
    5,447Agricultural
    
    
    27
    
    
    
    147Real estate  farmland
    
    
    
    
    
    
    Real estate  construction
    
    
    3,333
    
    
    
    4,082Real estate  commercial
    
    
    580
    
    
    
    2,276Real estate  residential
    
    
    223
    
    
    
    823Installment loans to individuals
    
    
    379
    
    
    
    901Total charge-offs
    
    
    4,987
    
    
    
    13,676Recoveries:Commercial and financial
    
    
    7
    
    
    
    296Agricultural
    
    
    32
    
    
    
    15Real estate  farmland
    
    
    80
    
    
    
    Real estate  construction
    
    
    31
    
    
    
    1Real estate  commercial
    
    
    1
    
    
    
    43Real estate  residential
    
    
    13
    
    
    
    46Installment loans to individuals
    
    
    120
    
    
    
    103Total recoveries
    
    
    284
    
    
    
    504Net charge-offs
    
    
    4,703
    
    
    
    13,172Provision for loan losses
    
    
    3,180
    
    
    
    23,845Balance at end of year
    
    $
    21,944
    
    
    $
    23,467Allowance for loan losses as a percent of
total loans outstanding at year end
    
    
    1.66
    %
    
    
    1.75
    %Allowance for loan losses as a percent of
total nonperforming loans
    
    
    43.04
    %
    
    
    61.74
    %Ratio of net charge-offs to average total loans
    
    
    0.35
    %
    
    
    1.03
    %
 24




---



##### Table of Contents



Securities
     Foreclosed Assets Held for Sale.
 Deposits
 Borrowings
  25




---



##### Table of Contents



Liquidity
      26




---



##### Table of Contents




    
    the occurrence of an event of default under any of the loan agreements;
    
    the Company should fail to perform any additional covenant;
    
    any changes in regulatory agreements;
    
    the Company, any subsidiary holding company or any subsidiary bank being placed
in receivership or being taken over by any regulatory agency;
    
    the note holder determines in its sole discretion that there has been any
change in the business operations or condition, financial or otherwise, of the Company,
any subsidiary holding company, any subsidiary bank or any consolidated subsidiary that
could have a material adverse effect; or
    
    September 30, 2009
   27




---



##### Table of Contents



Capital Resources
     Regulatory Matters
      28




---



##### Table of Contents



Effect of Inflation and Changing Prices.
  Recent Developments
     29




---



##### Table of Contents



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
 30




---



##### Table of Contents



PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 The Company and certain of its banking subsidiaries are subject to regulatory enforcement
actions.
 The Company has been in noncompliance with certain loan covenants with its primary lender.
  31




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total Number of Shares
    
    Maximum ApproximateTotal Number of
    
    
    
    
    
    Purchased as Part of
    
    Dollar Value of Shares thatFirst Quarter 2009
    
    Shares Purchased
    
    Average Price Paid
    
    Publicly Announced
    
    May Yet Be Purchased UnderCalendar Month
    
    (1)
    
    per Share (1)
    
    Plans or Programs (2)
    
    the Plans or Programs (3)January
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    $
    8,128,000February
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    $
    8,128,000March
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    $
    8,128,000Total
    
    
    0
    
    
    
    N/A
    
    
    
    0
 
 (1)
    
    The total number of shares purchased and the average price paid per share include, in addition
to other purchases, shares purchased in the open market and through privately negotiated
transactions by the Companys 401(k) Profit Sharing Plan. For the months indicated, there were no
shares purchased by the Plan.(2)
    
    Includes only shares subject to publicly announced stock repurchase program, i.e. the $10
million stock repurchase program approved by the Board on August 15, 2005 and announced on August
17, 2005 (the 2005 Repurchase Program). Does not include shares purchased by the Companys
401(k) Profit Sharing Plan.(3)
    
    Dollar amount of repurchase authority remaining at month-end under the 2005 Repurchase
Program, the Companys only publicly announced repurchase program in effect at such dates. The
2005 Repurchase Program is limited to 883,656 shares (10% of the number of outstanding shares on
the date the Board approved the program, adjusted for the three-for-one stock split in June of 2006
and the three-for-two split in December of 2007) but not to exceed $10 million in repurchases. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  32




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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Identification of Exhibit31.1
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.32.1
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 33




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##### Table of Contents



SIGNATURES
  Date: May 11, 2009
    By:
    /s/ Ted T. AwerkampTed T. AwerkampPresident and Chief Executive Officer
(principal executive officer)Date: May 11, 2009
    By:
    /s/ Michael P. McGrathMichael P. McGrathExecutive Vice President, Treasurer, Secretary and
Chief Financial Officer
(principal financial officer/
principal accounting officer) 34