##### Table of Contents



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




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##### 



MERCANTILE BANCORP, INC.
 FORM 10-Q
 TABLE OF CONTENTS
 PART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6-20Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21-46Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    46Item 4.
    
    Controls and Procedures
    
    
    46PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    47Item 1A.
    
    Risk Factors
    
    
    47Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    48Item 3.
    
    Defaults Upon Senior Securities
    
    
    48Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    48Item 5.
    
    Other Information
    
    
    48Item 6.
    
    Exhibits
    
    
    48Signatures
  ExhibitsSection 302 CertificationsSection 906 Certifications
 2




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 Item 1.
    
    Condensed Consolidated Financial Statements.
 MERCANTILE BANCORP, INC.
 
 Consolidated Balance Sheets
 (In thousands, except par value and share data)
 September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)AssetsCash and due from banks
    
    $
    18,397
    
    
    $
    67,595Interest-bearing demand deposits
    
    
    69,276
    
    
    
    16,812Federal funds sold
    
    
    13,734
    
    
    
    5,414Cash and cash equivalents
    
    
    101,407
    
    
    
    89,821Available-for-sale securities
    
    
    194,851
    
    
    
    185,192Held-to-maturity securities (fair values of $6,776 and $9,101)
    
    
    6,577
    
    
    
    8,905Loans held for sale
    
    
    1,984
    
    
    
    4,366Loans, net of allowance for loan losses of $27,427 and $23,467
    
    
    1,250,551
    
    
    
    1,315,907Interest receivable
    
    
    9,768
    
    
    
    10,240Foreclosed assets held for sale, net
    
    
    14,205
    
    
    
    9,959Federal Home Loan Bank stock
    
    
    7,585
    
    
    
    8,213Cost method investments in common stock
    
    
    1,580
    
    
    
    3,314Deferred income taxes
    
    
    12,026
    
    
    
    9,181Mortgage servicing rights
    
    
    1,315
    
    
    
    959Cash surrender value of life insurance
    
    
    27,108
    
    
    
    25,278Premises and equipment
    
    
    39,085
    
    
    
    40,616Goodwill
    
    
    
    
    
    
    44,653Core deposit and other intangibles
    
    
    3,630
    
    
    
    4,002Other
    
    
    14,133
    
    
    
    14,377Total assets
    
    $
    1,685,805
    
    
    $
    1,774,983LiabilitiesDepositsDemand
    
    $
    155,457
    
    
    $
    139,486Savings, NOW and money market
    
    
    436,440
    
    
    
    431,596Time
    
    
    688,302
    
    
    
    672,763Brokered time
    
    
    145,546
    
    
    
    218,431Total deposits
    
    
    1,425,745
    
    
    
    1,462,276Short-term borrowings
    
    
    72,734
    
    
    
    49,227Long-term debt
    
    
    58,552
    
    
    
    84,661Junior subordinated debentures
    
    
    61,858
    
    
    
    61,858Interest payable
    
    
    4,992
    
    
    
    4,280Other
    
    
    11,018
    
    
    
    7,989Total liabilities
    
    
    1,634,899
    
    
    
    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 September 30, 2009 and December 31, 2008Outstanding  8,703,330 shares at September 30, 2009 and December
31, 2008
    
    
    3,629
    
    
    
    3,629Additional paid-in capital
    
    
    11,919
    
    
    
    11,919Retained earnings
    
    
    29,361
    
    
    
    83,642Accumulated other comprehensive income
    
    
    3,973
    
    
    
    2,06248,882
    
    
    
    101,252Treasury stock, at costCommon; 183,783 shares at September 30, 2009 and December 31, 2008
    
    
    (2,295
    )
    
    
    (2,295
    )Total Mercantile Bancorp, Inc. stockholders equity
    
    
    46,587
    
    
    
    98,957Noncontrolling interest
    
    
    4,319
    
    
    
    5,735Total equity
    
    
    50,906
    
    
    
    104,692Total liabilities and equity
    
    $
    1,685,805
    
    
    $
    1,774,983
  3




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##### Table of Contents



MERCANTILE BANCORP, INC.
 
 Consolidated Statements of Operations
 (In thousands, except per share data)
 (Unaudited)
 Three months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest and Dividend IncomeLoansTaxable
    
    $
    18,525
    
    
    $
    20,739
    
    
    $
    56,025
    
    
    $
    62,672Tax exempt
    
    
    182
    
    
    
    182
    
    
    
    578
    
    
    
    531SecuritiesTaxable
    
    
    1,574
    
    
    
    1,881
    
    
    
    4,953
    
    
    
    5,832Tax exempt
    
    
    415
    
    
    
    487
    
    
    
    1,254
    
    
    
    1,500Federal funds sold
    
    
    5
    
    
    
    97
    
    
    
    16
    
    
    
    337Dividends on Federal Home Loan Bank Stock
    
    
    18
    
    
    
    20
    
    
    
    42
    
    
    
    86Deposits with financial institutions and other
    
    
    108
    
    
    
    119
    
    
    
    260
    
    
    
    353Total interest and dividend income
    
    
    20,827
    
    
    
    23,525
    
    
    
    63,128
    
    
    
    71,311Interest ExpenseDeposits
    
    
    7,177
    
    
    
    9,905
    
    
    
    24,054
    
    
    
    31,782Short-term borrowings
    
    
    636
    
    
    
    217
    
    
    
    1,854
    
    
    
    800Long-term debt and junior subordinated debentures
    
    
    1,437
    
    
    
    1,723
    
    
    
    4,555
    
    
    
    5,950Total interest expense
    
    
    9,250
    
    
    
    11,845
    
    
    
    30,463
    
    
    
    38,532Net Interest Income
    
    
    11,577
    
    
    
    11,680
    
    
    
    32,665
    
    
    
    32,779Provision for Loan Losses
    
    
    5,591
    
    
    
    4,480
    
    
    
    18,736
    
    
    
    11,083Net Interest Income After Provision For Loan Losses
    
    
    5,986
    
    
    
    7,200
    
    
    
    13,929
    
    
    
    21,696Noninterest IncomeFiduciary activities
    
    
    652
    
    
    
    673
    
    
    
    1,953
    
    
    
    2,053Brokerage fees
    
    
    382
    
    
    
    481
    
    
    
    940
    
    
    
    1,398Customer service fees
    
    
    1,088
    
    
    
    1,007
    
    
    
    2,912
    
    
    
    3,232Other service charges and fees
    
    
    313
    
    
    
    290
    
    
    
    905
    
    
    
    724Net gains on loan sales
    
    
    299
    
    
    
    181
    
    
    
    1,740
    
    
    
    824Loan servicing fees
    
    
    168
    
    
    
    143
    
    
    
    468
    
    
    
    416Net increase in cash surrender value of life insurance
    
    
    314
    
    
    
    275
    
    
    
    825
    
    
    
    786Net gains on sales of available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    943Other
    
    
    49
    
    
    
    60
    
    
    
    532
    
    
    
    342Total noninterest income
    
    
    3,265
    
    
    
    3,110
    
    
    
    10,275
    
    
    
    10,718Noninterest ExpenseSalaries and employee benefits
    
    
    6,640
    
    
    
    6,745
    
    
    
    19,951
    
    
    
    20,643Net occupancy expense
    
    
    776
    
    
    
    878
    
    
    
    2,536
    
    
    
    2,628Equipment expense
    
    
    922
    
    
    
    904
    
    
    
    2,580
    
    
    
    2,594Deposit insurance premium
    
    
    809
    
    
    
    492
    
    
    
    3,149
    
    
    
    715Professional fees
    
    
    758
    
    
    
    470
    
    
    
    2,475
    
    
    
    1,593Postage and supplies
    
    
    295
    
    
    
    324
    
    
    
    896
    
    
    
    958Losses (gains) on sales of assets, net
    
    
    9
    
    
    
    6
    
    
    
    23
    
    
    
    (370
    )Losses on foreclosed assets, net
    
    
    545
    
    
    
    517
    
    
    
    2,158
    
    
    
    1,010Losses on securities, net
    
    
    
    
    
    
    4,031
    
    
    
    
    
    
    
    4,032Other than temporary losses on available-for-sale
securities and cost method investments
    
    
    692
    
    
    
    1,257
    
    
    
    3,238
    
    
    
    1,520Goodwill impairment losses
    
    
    
    
    
    
    
    
    
    
    44,650
    
    
    
    Amortization of mortgage servicing rights
    
    
    45
    
    
    
    49
    
    
    
    399
    
    
    
    202Other
    
    
    1,857
    
    
    
    1,929
    
    
    
    5,938
    
    
    
    6,061Total noninterest expense
    
    
    13,348
    
    
    
    17,602
    
    
    
    87,993
    
    
    
    41,586Income (Loss) Before Income Tax Benefit
    
    
    (4,097
    )
    
    
    (7,292
    )
    
    
    (63,789
    )
    
    
    (9,172
    )Income Tax Expense (Benefit)
    
    
    (2,249
    )
    
    
    (3,937
    )
    
    
    (8,092
    )
    
    
    (5,011
    )Net Income (Loss)
    
    
    (1,848
    )
    
    
    (3,355
    )
    
    
    (55,697
    )
    
    
    (4,161
    )Less: Net income (loss) attributable to the
Noncontrolling interest
    
    
    (488
    )
    
    
    (1,662
    )
    
    
    (1,415
    )
    
    
    (2,054
    )Net Income (Loss) attributable to Mercantile Bancorp, Inc.
    
    $
    (1,360
    )
    
    $
    (1,693
    )
    
    $
    (54,282
    )
    
    $
    (2,107
    )Basic and Diluted Earnings (Loss) Per Share attributable to
Mercantile Bancorp, Inc. common stockholders
    
    $
    (.16
    )
    
    $
    (.19
    )
    
    $
    (6.24
    )
    
    $
    (.24
    )Dividends Paid Per Share
    
    $
    
    
    
    $
    .06
    
    
    $
    
    
    
    $
    .18Weighted Average Shares Outstanding
    
    
    8,703,330
    
    
    
    8,703,371
    
    
    
    8,703,330
    
    
    
    8,707,577
  4




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##### Table of Contents



MERCANTILE BANCORP, INC.
 
 Consolidated Statements of Cash Flows
 (In thousands)
 (Unaudited)
 Nine Months Ended September 30
    
    2009
    
    
    2008Operating ActivitiesNet income (loss)
    
    $
    (55,697
    )
    
    $
    (4,161
    )Items not requiring (providing) cashDepreciation
    
    
    2,065
    
    
    
    2,183Provision for loan losses
    
    
    18,736
    
    
    
    11,083Amortization (accretion) of premiums and discounts on securities
    
    
    256
    
    
    
    (24
    )Amortization (depreciation) of core deposit intangibles and other
purchase accounting adjustments
    
    
    (13
    )
    
    
    (58
    )Deferred income taxes
    
    
    (3,886
    )
    
    
    (3,484
    )Net realized gains on sales of available-for-sale securities
    
    
    
    
    
    
    (943
    )Other than temporary losses on available for sale securities and
cost method investments
    
    
    3,238
    
    
    
    1,520Losses on foreclosed assets
    
    
    2,158
    
    
    
    1,010(Gains) losses on loan sales
    
    
    (1,740
    )
    
    
    (824
    )Mortgage servicing rights
    
    
    (244
    )
    
    
    Amortization of mortgage servicing rights
    
    
    399
    
    
    
    202(Gains) Losses on sale of premises and equipment
    
    
    23
    
    
    
    (370
    )(Gain) on sale of equity and cost method investments
    
    
    
    
    
    
    Federal Home Loan Bank stock dividends
    
    
    (9
    )
    
    
    (29
    )Net increase in cash surrender value of life insurance
    
    
    (825
    )
    
    
    (786
    )Goodwill impairment losses
    
    
    44,650
    
    
    
    Changes inLoans originated for sale
    
    
    (93,806
    )
    
    
    (76,401
    )Proceeds from sales of loans
    
    
    97,240
    
    
    
    77,159Interest receivable
    
    
    472
    
    
    
    490Other assets
    
    
    635
    
    
    
    (6,229
    )Interest payable
    
    
    712
    
    
    
    (1,476
    )Other liabilities
    
    
    2,624
    
    
    
    2,280Net cash provided by operating activities
    
    
    16,988
    
    
    
    1,142Investing ActivitiesCash paid in acquisition of HNB Financial, net of cash received
    
    
    3
    
    
    
    Purchases of available-for-sale securities
    
    
    (49,508
    )
    
    
    (46,700
    )Proceeds from maturities of available-for-sale securities
    
    
    41,082
    
    
    
    47,579Proceeds from the sales of available-for-sale securities
    
    
    
    
    
    
    4,947Proceeds from maturities of held-to-maturity securities
    
    
    2,325
    
    
    
    3,678Net change in loans
    
    
    39,667
    
    
    
    (99,683
    )Purchases of premises and equipment
    
    
    (592
    )
    
    
    (1,780
    )Proceeds from sales of premises and equipment
    
    
    
    
    
    
    799Purchase of Federal Home Loan Bank stock
    
    
    (80
    )
    
    
    (1,169
    )Proceeds from sales of Federal Home Loan Bank stock
    
    
    718
    
    
    
    759Proceeds from sales of foreclosed assets
    
    
    1,070
    
    
    
    3,117Proceeds from sales of cost method investments
    
    
    
    
    
    
    495Goodwill acquired in connection with HNB data deconversion
    
    
    
    
    
    
    (604
    )Purchase of bank-owned life insurance
    
    
    (1,000
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    33,685
    
    
    
    (88,562
    )Financing ActivitiesNet increase in demand deposits, money market, NOW and savings accounts
    
    
    20,816
    
    
    
    9,956Net increase (decrease) in time and brokered time deposits
    
    
    (57,301
    )
    
    
    113,712Net increase (decrease) in short-term borrowings
    
    
    8,398
    
    
    
    (3,812
    )Proceeds from long-term debt
    
    
    500
    
    
    
    17,000Repayments of long-term debt
    
    
    (11,500
    )
    
    
    (24,000
    )Purchase of stock from noncontrolling interest of Mid-America
    
    
    
    
    
    
    (555
    )Proceeds from issuance of stock to noncontrolling interest of Mid-America
    
    
    
    
    
    
    62Purchase of treasury stock
    
    
    
    
    
    
    (102
    )Dividends paid
    
    
    
    
    
    
    (1,567
    )Net cash provided by (used in) financing activities
    
    
    (39,087
    )
    
    
    110,694Increase In Cash and Cash Equivalents
    
    
    11,586
    
    
    
    23,274Cash and Cash Equivalents, Beginning of Period
    
    
    89,821
    
    
    
    76,059Cash and Cash Equivalents, End of Period
    
    $
    101,407
    
    
    $
    99,333Supplemental Cash Flows InformationInterest paid
    
    $
    29,750
    
    
    $
    40,008Income taxes paid (received)
    
    $
    (3,811
    )
    
    $
    2,087Real estate acquired in settlement of loans
    
    $
    7,475
    
    
    $
    5,608Net decrease in additional paid-in-capital due to purchase of stock from
noncontrolling interest of Mid-America
    
    $
    
    
    
    $
    (78
    )
  5




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##### Table of Contents



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




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4. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
       7




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##### Table of Contents



5. GOODWILL IMPAIRMENT
   6. FEDERAL HOME LOAN BANK STOCK
  7. SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale Securities:September 30, 2009:U.S. government agencies
    
    $
    1,748
    
    
    $
    54
    
    
    $
    
    
    
    $
    1,802Mortgage-backed securities
    
    
    139,829
    
    
    
    4,521
    
    
    
    (133
    )
    
    
    144,217State and political
subdivisions
    
    
    42,646
    
    
    
    1,705
    
    
    
    (11
    )
    
    
    44,340Equity securities
    
    
    4,490
    
    
    
    219
    
    
    
    (217
    )
    
    
    4,492$
    188,713
    
    
    $
    6,499
    
    
    $
    (361
    )
    
    $
    194,851Available-for-sale Securities:December 31, 2008:U.S. government agencies
    
    $
    4,697
    
    
    $
    90
    
    
    $
    
    
    
    $
    4,787Mortgage-backed securities
    
    
    125,691
    
    
    
    2,783
    
    
    
    (29
    )
    
    
    128,445State and political
subdivisions
    
    
    44,892
    
    
    
    808
    
    
    
    (34
    )
    
    
    45,666Equity securities
    
    
    6,500
    
    
    
    
    
    
    
    (206
    )
    
    
    6,294$
    181,780
    
    
    $
    3,681
    
    
    $
    (269
    )
    
    $
    185,192
 8




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##### Table of Contents



Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueHeld-to-maturity Securities:September 30, 2009:Mortgage-backed securities
    
    $
    4,177
    
    
    $
    143
    
    
    $
    
    
    
    $
    4,320State and political
subdivisions
    
    
    2,400
    
    
    
    56
    
    
    
    
    
    
    
    2,456$
    6,577
    
    
    $
    199
    
    
    $
    
    
    
    $
    6,776December 31, 2008:Mortgage-backed securities
    
    $
    5,992
    
    
    $
    149
    
    
    $
    (1
    )
    
    $
    6,140State and political
subdivisions
    
    
    2,913
    
    
    
    48
    
    
    
    
    
    
    
    2,961$
    8,905
    
    
    $
    197
    
    
    $
    (1
    )
    
    $
    9,101
  Available-for-sale
    
    
    Held-to-maturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueWithin one year
    
    $
    6,483
    
    
    $
    6,515
    
    
    $
    455
    
    
    $
    458One to five years
    
    
    28,461
    
    
    
    29,703
    
    
    
    1,367
    
    
    
    1,397Five to ten years
    
    
    8,237
    
    
    
    8,625
    
    
    
    578
    
    
    
    601After ten years
    
    
    1,213
    
    
    
    1,299
    
    
    
    
    
    
    
    44,394
    
    
    
    46,142
    
    
    
    2,400
    
    
    
    2,456Mortgage-backed securities
    
    
    139,829
    
    
    
    144,217
    
    
    
    4,177
    
    
    
    4,320Equity securities
    
    
    4,490
    
    
    
    4,492
    
    
    
    
    
    
    
    Totals
    
    $
    188,713
    
    
    $
    194,851
    
    
    $
    6,577
    
    
    $
    6,776
   9




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##### Table of Contents



Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedSecurities
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesSeptember 30, 2009Mortgage-backed securities
    
    $
    8,588
    
    
    $
    (103
    )
    
    $
    791
    
    
    $
    (30
    )
    
    $
    9,379
    
    
    $
    (133
    )State and political subdivisions
    
    
    2,096
    
    
    
    (10
    )
    
    
    420
    
    
    
    (1
    )
    
    
    2,516
    
    
    
    (11
    )Equity securities
    
    
    1,359
    
    
    
    (217
    )
    
    
    
    
    
    
    
    
    
    
    1,359
    
    
    
    (217
    )Total temporarily impaired
securities
    
    $
    12,043
    
    
    $
    (330
    )
    
    $
    1,211
    
    
    $
    (31
    )
    
    $
    13,254
    
    
    $
    (361
    )December 31, 2008Mortgage-backed securities
    
    $
    7,594
    
    
    $
    (28
    )
    
    $
    106
    
    
    $
    (1
    )
    
    $
    7,700
    
    
    $
    (29
    )State and political subdivisions
    
    
    3,406
    
    
    
    (30
    )
    
    
    1,021
    
    
    
    (4
    )
    
    
    4,427
    
    
    
    (34
    )Equity securities
    
    
    840
    
    
    
    (206
    )
    
    
    
    
    
    
    
    
    
    
    840
    
    
    
    (206
    )Total temporarily impaired
securities
    
    $
    11,840
    
    
    $
    (264
    )
    
    $
    1,127
    
    
    $
    (5
    )
    
    $
    12,967
    
    
    $
    (269
    )
  8. COST METHOD INVESTMENTS IN COMMON STOCK
   9. FAIR VALUE MEASUREMENT
    10




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##### Table of Contents



Level 1
    
    Valuations for assets and liabilities traded in active exchange markets,
such as the New York Stock Exchange. Valuations are obtained from readily available
pricing sources for market transactions involving identical assets or liabilities.
 Level 2
    
    Valuations for assets and liabilities traded in less active dealer or broker
markets. Valuations are obtained from third party pricing services for identical or
comparable assets or liabilities which use observable inputs other than Level 1 prices,
such as quoted prices for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
 Level 3
    
    Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities.
 Recurring Basis
  Available-for-sale securities
  Fair Value Measurements UsingQuotes Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsSeptember 30, 2009
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. government agencies
    
    $
    1,802
    
    
    $
    
    
    
    $
    1,802
    
    
    $
    Mortgage-backed securities
    
    
    144,217
    
    
    
    
    
    
    
    144,217
    
    
    
    State and political
subdivisions
    
    
    44,340
    
    
    
    
    
    
    
    43,931
    
    
    
    409Equity securities
    
    
    4,492
    
    
    
    3,512
    
    
    
    
    
    
    
    980$
    194,851
    
    
    $
    3,512
    
    
    $
    189,950
    
    
    $
    1,389
 Fair Value Measurements UsingQuotes Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsDecember 31, 2008
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. government agencies
    
    $
    4,787
    
    
    $
    
    
    
    $
    4,787
    
    
    $
    Mortgage-backed securities
    
    
    128,445
    
    
    
    
    
    
    
    128,445
    
    
    
    State and political
subdivisions
    
    
    45,666
    
    
    
    
    
    
    
    45,143
    
    
    
    523Equity securities
    
    
    6,294
    
    
    
    4,811
    
    
    
    
    
    
    
    1,483$
    185,192
    
    
    $
    4,811
    
    
    $
    178,375
    
    
    $
    2,006
 11




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##### Table of Contents



For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30
    
    
    September 302009
    
    
    2008
    
    
    2009
    
    
    2008Beginning balance
    
    $
    1,447
    
    
    $
    13,377
    
    
    $
    2,006
    
    
    $
    11,400Total realized and unrealized
gains and losses:Included in net income
    
    
    
    
    
    
    (4,000
    )
    
    
    
    
    
    
    (4,000
    )Included in other
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchases, issuances and settlements
    
    
    (58
    )
    
    
    314
    
    
    
    (617
    )
    
    
    2,291Transfers in and/or out of Level 3
    
    
    
    
    
    
    (2,632
    )
    
    
    
    
    
    
    (2,632
    )Balance, September 30
    
    $
    1,389
    
    
    $
    7,059
    
    
    $
    1,389
    
    
    $
    7,059Total gains or losses for the
period included in net income
attributable to the change in
unrealized gains or losses related
to assets and liabilities still
held at the reporting date
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Nonrecurring Basis
  Impaired loans
  Other Real Estate
 Mortgage Servicing Rights
 Cost Method Investments
 Goodwill
 12




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##### Table of Contents



Fair Value Measurements UsingQuotes Prices in
    
    
    
    
    
    SignificantActive Markets for
    
    Significant Other
    
    UnobservableIdentical Assets
    
    Observable Inputs
    
    InputsCarrying value at September 30, 2009
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Impaired loans
    
    $
    45,296
    
    
    $
    
    
    
    $
    
    
    
    $
    45,296Other real estate
    
    
    4,718
    
    
    
    
    
    
    
    
    
    
    
    4,718Mortgage servicing rights
    
    
    1,315
    
    
    
    
    
    
    
    
    
    
    
    1,315Cost method investments
    
    
    1,019
    
    
    
    
    
    
    
    
    
    
    
    1,019Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Fair Value Measurements UsingQuotes Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsCarrying value at December 31, 2008
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Impaired loans
    
    $
    30,966
    
    
    $
    
    
    
    $
    
    
    
    $
    30,966Mortgage servicing rights
    
    
    959
    
    
    
    
    
    
    
    
    
    
    
    959Cost method investments
    
    
    3,314
    
    
    
    
    
    
    
    
    
    
    
    3,314
    September 30, 2009
    
    December 31, 2008Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assetsCash and cash equivalents
    
    $
    101,407
    
    
    $
    101,407
    
    
    $
    89,821
    
    
    $
    89,821Available-for-sale securities
    
    
    194,851
    
    
    
    194,851
    
    
    
    185,192
    
    
    
    185,192Held-to-maturity securities
    
    
    6,577
    
    
    
    6,776
    
    
    
    8,905
    
    
    
    9,101Loans held for sale
    
    
    1,984
    
    
    
    1,984
    
    
    
    4,366
    
    
    
    4,366Loans, net of allowance for loan losses
    
    
    1,250,551
    
    
    
    1,258,502
    
    
    
    1,315,907
    
    
    
    1,325,196Federal Home Loan Bank stock
    
    
    7,585
    
    
    
    7,585
    
    
    
    8,213
    
    
    
    8,213Cost method investments in common stock
    
    
    1,580
    
    
    
    1,580
    
    
    
    3,314
    
    
    
    3,314Interest receivable
    
    
    9,768
    
    
    
    9,768
    
    
    
    10,240
    
    
    
    10,240Financial liabilitiesDeposits
    
    
    1,425,745
    
    
    
    1,426,527
    
    
    
    1,462,276
    
    
    
    1,460,654Short-term borrowings
    
    
    72,734
    
    
    
    72,734
    
    
    
    49,227
    
    
    
    49,227Long-term debt and junior subordinated
debentures
    
    
    120,410
    
    
    
    88,355
    
    
    
    146,519
    
    
    
    141,317Interest payable
    
    
    4,992
    
    
    
    4,992
    
    
    
    4,280
    
    
    
    4,280Unrecognized financial instruments (net
of contract amount)Commitments to originate loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Letters of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lines of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 13




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##### Table of Contents



Cash and Cash Equivalents, Federal Home Loan Bank Stock, Interest Receivable, and Cost Method
Investments in Common Stock 
 Loans Held for Sale 
 Loans 
 Deposits 
 Short-Term Borrowings and Interest Payable 
 Long-Term Debt and Junior Subordinated Debentures 
 Commitments to Originate Loans, Letters of Credit, and Lines of Credit 
     14




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




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##### Table of Contents



12. COMPREHENSIVE INCOME (LOSS)
  For the Three MonthsEnded September 30,2009
    
    
    2008Net income (loss)
    
    $
    (1,848
    )
    
    $
    (3,355
    )Other comprehensive income (loss):Unrealized appreciation (depreciation) on
available-for-sale securities:Unrealized appreciation (depreciation) on
available-for-sale securities, net of tax expense
of $294 for 2009 and $432 for 2008
    
    
    538
    
    
    
    635Less reclassification adjustment for other than
temporary losses included in income net of tax
benefit of $(263) for 2009 and $(477) for 2008
    
    
    (428
    )
    
    
    (780
    )Total Unrealized appreciation (depreciation) on
available-for-sale securities, net of tax expense
(benefit) of $557 for 2009 and $909 for 2008
    
    
    966
    
    
    
    1,415Adjustment of ASC 715 (formerly SFAS 158) liability,
net of tax expense of $0 for 2009 and $0 for 2008
    
    
    
    
    
    
    Total other comprehensive income (loss), net of tax
    
    
    966
    
    
    
    1,415Comprehensive (loss)
    
    
    (882
    )
    
    
    (1,940
    )Comprehensive (loss) attributable to the noncontrolling
interest
    
    
    (488
    )
    
    
    (1,662
    )Comprehensive (loss) attributable to Mercantile Bancorp, Inc.
    
    $
    (394
    )
    
    $
    (278
    )
 16




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##### Table of Contents



For the Nine MonthsEnded September 30,2009
    
    
    2008Net (loss)
    
    $
    (55,697
    )
    
    $
    (4,161
    )Other comprehensive income (loss):Unrealized appreciation (depreciation) on
available-for-sale securities:Unrealized appreciation (depreciation) on
available-for-sale securities, net of tax benefit
of $(169) for 2009 and $(178) and for 2008
    
    
    (116
    )
    
    
    (326
    )Less reclassification adjustment for realized
gains (losses) included in income net of tax
expense of $0 for 2009 and $(358) for 2008
    
    
    
    
    
    
    585Less reclassification adjustment for other than
temporary gains (losses) included in income net of
tax benefit of $(1,230) for 2009 and $(577) for
2008
    
    
    (2,007
    )
    
    
    (943
    )Total Unrealized appreciation (depreciation) on
available-for-sale securities, net of tax expense
(benefit) of $1,061 for 2009 and $41 for 2008
    
    
    1,891
    
    
    
    32Adjustment of ASC 715 (formerly SFAS 158) liability,
net of tax expense of $(12) for 2009 and $(12) for 2008
    
    
    20
    
    
    
    20Total other comprehensive income (loss), net of tax
    
    
    1,911
    
    
    
    52Comprehensive income (loss)
    
    
    (53,786
    )
    
    
    (4,109
    )Comprehensive (loss) attributable to the noncontrolling
interest
    
    
    (1,415
    )
    
    
    (2,054
    )Comprehensive (loss) attributable to Mercantile Bancorp, Inc.
    
    $
    (52,371
    )
    
    $
    (2,055
    )
 13. FDIC SPECIAL ASSESSMENT
  14. OPERATING AND LIQUIDITY MATTERS
  17




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##### Table of Contents



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




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##### Table of Contents



15. SUBSEQUENT EVENT
      19




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##### Table of Contents



20




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Special Cautionary Notice Regarding Forward-looking Statements
  
    
    projections of revenues, income, earnings per share, capital expenditures, assets,
liabilities, dividends, capital structure, or other financial items;
    
    descriptions of plans or objectives of management for future operations, products,
or services, including pending acquisition transactions;
    
    forecasts of future economic performance; and
    
    descriptions of assumptions underlying or relating to any of the foregoing.
  
    
    general business and economic conditions in the markets the Company
serves change or are less favorable than it expected;
    
    deposit attrition, operating costs, customer loss and business
disruption are greater than the Company expected;
    
    competitive factors including product and pricing pressures among
financial services organizations may increase;
    
    changes in the interest rate environment reduce the Companys interest margins;
    
    changes in market rates and prices may adversely impact securities,
loans, deposits, mortgage servicing rights, and other financial
instruments;
    
    legislative or regulatory developments including changes in laws
concerning taxes, banking, securities, insurance and other aspects of
the financial securities industry may adversely affect the Companys
business;
    
    personal or commercial bankruptcies increase;
    
    the Companys ability to expand and grow its business and operations,
including the establishment of additional branches and acquisition of
additional banks or branches of banks may be more difficult or costly
than the Company expected;
    
    any future acquisitions may be more difficult to integrate than
expected and the Company may be unable to realize any cost savings and
revenue enhancements the Company may have projected in connection with
such acquisitions;
    
    changes in accounting principles, policies or guidelines;
    
    construction and development loans are based upon estimates of costs
and value associated with the complete project. These estimates may
be inaccurate, and cause the Company to be exposed to more losses on
these projects than on other loans;
 21




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##### Table of Contents




    
    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
      22




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##### Table of Contents



General
  Wholly Owned Subsidiaries
 
    
    Mercantile Bank (Mercantile Bank), located in Quincy, Illinois;
    
    Marine Bank & Trust (Marine Bank), located in Carthage, Illinois;
    
    Brown County State Bank (Brown County), located in Mt. Sterling, Illinois;
    
    Royal Palm Bancorp, Inc. (Royal Palm), the sole shareholder of Royal Palm Bank of
Florida (Royal Palm Bank), located in Naples, Florida; and
    
    HNB Financial Services, Inc. (HNB Financial), the sole shareholder of HNB
National Bank (HNB), located in Hannibal, Missouri.
 Majority-Owned Subsidiary.
 Other Investments in Financial Institutions.
 
    
    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;
 23




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##### Table of Contents




    
    2.9% of Manhattan Bancorp, Inc. (Manhattan), the sole shareholder of Bank of
Manhattan, located in Los Angeles, California; and
    
    4.9% of Brookhaven Bank (Brookhaven), located in Atlanta, Georgia.
      Results of Operations
 Comparison of Operating Results for the Three Months Ended September 30, 2009 and 2008
 Overview
 24




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##### Table of Contents



Net Interest Income
    25




---



##### Table of Contents



For the three months ended September 302009
    
    
    
    
    
    
    
    
    
    
    2008Income/
    
    
    
    
    
    
    
    
    
    
    Income/Average Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand
deposits
    
    $
    87,579
    
    
    $
    108
    
    
    
    0.49
    %
    
    $
    23,611
    
    
    $
    119
    
    
    
    2.02
    %Federal funds sold
    
    
    11,184
    
    
    
    5
    
    
    
    0.18
    %
    
    
    16,344
    
    
    
    97
    
    
    
    2.37
    %Securities:TaxableU.S. treasuries
and government
agencies
    
    
    1,748
    
    
    
    20
    
    
    
    4.58
    %
    
    
    6,126
    
    
    
    76
    
    
    
    4.96
    %Mortgage-backed
securities
    
    
    61,198
    
    
    
    573
    
    
    
    3.75
    %
    
    
    54,951
    
    
    
    631
    
    
    
    4.59
    %Other securities
    
    
    88,290
    
    
    
    981
    
    
    
    4.44
    %
    
    
    88,076
    
    
    
    1,174
    
    
    
    5.34
    %Total taxable
    
    
    151,236
    
    
    
    1,574
    
    
    
    4.16
    %
    
    
    149,153
    
    
    
    1,881
    
    
    
    5.05
    %Non-taxable  State and
political subdivision (3)
    
    
    45,917
    
    
    
    415
    
    
    
    3.62
    %
    
    
    53,922
    
    
    
    487
    
    
    
    3.61
    %Loans (net of unearned
discount ) (1)(2)
    
    
    1,296,650
    
    
    
    18,707
    
    
    
    5.77
    %
    
    
    1,275,671
    
    
    
    20,921
    
    
    
    6.56
    %Federal Home Loan Bank
stock
    
    
    7,634
    
    
    
    18
    
    
    
    0.94
    %
    
    
    8,132
    
    
    
    20
    
    
    
    0.98
    %Total
interest-earning
assets
    
    
    1,600,200
    
    
    $
    20,827
    
    
    
    5.21
    %
    
    
    1,526,833
    
    
    $
    23,525
    
    
    
    6.16
    %Cash and due from banks
    
    
    19,453
    
    
    
    
    
    
    
    
    
    
    
    37,893Interest receivable
    
    
    9,231
    
    
    
    
    
    
    
    
    
    
    
    10,413Foreclosed assets held for
sale, net
    
    
    11,298
    
    
    
    
    
    
    
    
    
    
    
    4,149Cost method investments in
common stock
    
    
    2,271
    
    
    
    
    
    
    
    
    
    
    
    5,610Cash surrender value of
life insurance
    
    
    26,926
    
    
    
    
    
    
    
    
    
    
    
    24,898Premises and equipment
    
    
    39,350
    
    
    
    
    
    
    
    
    
    
    
    41,376Allowance for loan loss
    
    
    (28,074
    )
    
    
    
    
    
    
    
    
    
    
    (16,128
    )Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,282Intangible assets
    
    
    4,988
    
    
    
    
    
    
    
    
    
    
    
    4,117Other
    
    
    23,767
    
    
    
    
    
    
    
    
    
    
    
    23,024Total assets
    
    $
    1,709,410
    
    
    
    
    
    
    
    
    
    
    $
    1,706,467Liabilities and Stockholders EquityInterest-bearing
transaction deposits
    
    $
    150,844
    
    
    $
    148
    
    
    
    0.39
    %
    
    $
    135,805
    
    
    $
    314
    
    
    $
    0.92
    %Savings deposits
    
    
    87,016
    
    
    
    86
    
    
    
    0.40
    %
    
    
    86,764
    
    
    
    281
    
    
    
    1.30
    %Money-market deposits
    
    
    238,521
    
    
    
    437
    
    
    
    0.73
    %
    
    
    223,297
    
    
    
    1,138
    
    
    
    2.04
    %Time and brokered time
deposits
    
    
    836,266
    
    
    
    6,506
    
    
    
    3.11
    %
    
    
    840,996
    
    
    
    8,172
    
    
    
    3.89
    %Short-term borrowings
    
    
    62,598
    
    
    
    636
    
    
    
    4.06
    %
    
    
    33,523
    
    
    
    217
    
    
    
    2.59
    %Long term debt
    
    
    58,552
    
    
    
    618
    
    
    
    4.22
    %
    
    
    72,258
    
    
    
    789
    
    
    
    4.37
    %Junior subordinated
debentures
    
    
    61,858
    
    
    
    819
    
    
    
    5.30
    %
    
    
    61,858
    
    
    
    934
    
    
    
    6.04
    %Total
interest-bearing
liabilities
    
    
    1,495,655
    
    
    $
    9,250
    
    
    
    2.47
    %
    
    
    1,454,501
    
    
    $
    11,845
    
    
    $
    3.26
    %Demand deposits
    
    
    148,539
    
    
    
    
    
    
    
    
    
    
    
    125,725Interest payable
    
    
    5,122
    
    
    
    
    
    
    
    
    
    
    
    4,833Other liabilities
    
    
    7,606
    
    
    
    
    
    
    
    
    
    
    
    7,804Noncontrolling interest
    
    
    4,682
    
    
    
    
    
    
    
    
    
    
    
    7,782Stockholders equity
    
    
    47,806
    
    
    
    
    
    
    
    
    
    
    
    105,822Total
liabilities and
stockholders
equity
    
    $
    1,709,410
    
    
    
    
    
    
    
    
    
    
    $
    1,706,467Interest spread
    
    
    
    
    
    
    
    
    
    
    2.73
    %
    
    
    
    
    
    
    
    
    
    
    2.90
    %Net interest income
    
    
    
    
    
    $
    11,577
    
    
    
    
    
    
    
    
    
    
    $
    11,680Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.89
    %
    
    
    
    
    
    
    
    
    
    
    3.06
    %Interest-earning assets to
interest-bearing
liabilities
    
    
    106.99
    %
    
    
    
    
    
    
    
    
    
    
    104.97
    %
 
 (1)
    
    Non-accrual loans have been included in average loans, net of unearned discount 104.97%(2)
    
    Includes loans held for sale(3)
    
    The tax exempt income for state and political subdivisions in not recorded on a tax equivalent basis. 26




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##### Table of Contents



For the three months ended September 30,2009 vs. 2008Increase (Decrease) Due toChange inVolume
    
    
    Rate
    
    
    TotalIncrease (decrease) in interest income:Interest-bearing bank deposits
    
    $
    132
    
    
    $
    (143
    )
    
    $
    (11
    )Federal funds sold
    
    
    (23
    )
    
    
    (69
    )
    
    
    (92
    )Investment securities:U.S. Treasuries and Agencies
    
    
    (51
    )
    
    
    (5
    )
    
    
    (56
    )Mortgage-backed securities
    
    
    67
    
    
    
    (125
    )
    
    
    (58
    )States and political subdivision (1)
    
    
    (72
    )
    
    
    
    
    
    
    (72
    )Other securities
    
    
    3
    
    
    
    (196
    )
    
    
    (193
    )Loans (net of unearned discounts)
    
    
    339
    
    
    
    (2,553
    )
    
    
    (2,214
    )Federal Home Loan Bank stock
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )Change in interest income
    
    
    394
    
    
    
    (3,092
    )
    
    
    (2,698
    )Increase (decrease) in interest expense:Interest-bearing transaction deposits
    
    
    32
    
    
    
    (198
    )
    
    
    (166
    )Savings deposits
    
    
    1
    
    
    
    (196
    )
    
    
    (195
    )Money-market deposits
    
    
    73
    
    
    
    (774
    )
    
    
    (701
    )Time and brokered time deposits
    
    
    (46
    )
    
    
    (1,620
    )
    
    
    (1,666
    )Short-term borrowings
    
    
    253
    
    
    
    166
    
    
    
    419Long-term debt and junior subordinated
debentures
    
    
    (169
    )
    
    
    (117
    )
    
    
    (286
    )Change in interest expense
    
    
    144
    
    
    
    (2,739
    )
    
    
    (2,595
    )Increase (decrease) in net interest income
    
    $
    250
    
    
    $
    (353
    )
    
    $
    (103
    )
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses
  27




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##### Table of Contents



Noninterest Income.
  For the Three Months EndedSeptember 302009
    
    
    2008Fiduciary activities
    
    $
    652
    
    
    $
    673Brokerage fees
    
    
    382
    
    
    
    481Customer service fees
    
    
    1,088
    
    
    
    1,007Other service charges and fees
    
    
    313
    
    
    
    290Net gains on loan sales
    
    
    299
    
    
    
    181Loan servicing fees
    
    
    168
    
    
    
    143Net increase in cash surrender value of life insurance
    
    
    314
    
    
    
    275Other
    
    
    49
    
    
    
    60Total noninterest income
    
    $
    3,265
    
    
    $
    3,110
    Noninterest Expense
  For the Three Months EndedSeptember 302009
    
    
    2008Salaries and employee benefits
    
    $
    6,640
    
    
    $
    6,745Net occupancy expense
    
    
    776
    
    
    
    878Equipment expense
    
    
    922
    
    
    
    904Deposit insurance premium
    
    
    809
    
    
    
    492Professional fees
    
    
    758
    
    
    
    470Postage and supplies
    
    
    295
    
    
    
    324Losses on sales of assets, net
    
    
    9
    
    
    
    6Losses on sales of foreclosed assets, net
    
    
    545
    
    
    
    517Losses on securities, net
    
    
    
    
    
    
    4,031Other than temporary losses on
available-for-sale securities and cost
method investments
    
    
    692
    
    
    
    1,257Amortization of mortgage servicing rights
    
    
    45
    
    
    
    49Other
    
    
    1,857
    
    
    
    1,929Total noninterest expense
    
    $
    13,348
    
    
    $
    17,602
 28




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##### Table of Contents



Income Taxes Expense (Benefit)
  Results of Operations
 Comparison of Operating Results for the Nine Months Ended September 30, 2009 and 2008
 Overview.
  Net Interest Income.
 29




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##### Table of Contents



30




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##### Table of Contents



For the nine months ended September 302009
    
    
    2008Average
    
    
    Income/
    
    
    
    
    
    
    Average
    
    
    Income/Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand deposits
    
    $
    78,893
    
    
    $
    260
    
    
    
    0.44
    %
    
    $
    20,129
    
    
    $
    353
    
    
    
    2.34
    %Federal funds sold
    
    
    15,291
    
    
    
    16
    
    
    
    0.14
    %
    
    
    17,169
    
    
    
    337
    
    
    
    2.62
    %Securities:TaxableU.S. treasuries and
government agencies
    
    
    3,999
    
    
    
    94
    
    
    
    3.13
    %
    
    
    12,232
    
    
    
    398
    
    
    
    4.34
    %Mortgage-backed securities
    
    
    53,800
    
    
    
    1,689
    
    
    
    4.19
    %
    
    
    50,538
    
    
    
    1,813
    
    
    
    4.78
    %Other securities
    
    
    91,350
    
    
    
    3,170
    
    
    
    4.63
    %
    
    
    87,129
    
    
    
    3,621
    
    
    
    5.54
    %Total taxable
    
    
    149,149
    
    
    
    4,967
    
    
    
    4.43
    %
    
    
    149,899
    
    
    
    5,832
    
    
    
    5.19
    %Non-taxable  State and political
subdivision (3)
    
    
    46,385
    
    
    
    1,254
    
    
    
    3.60
    %
    
    
    55,110
    
    
    
    1,500
    
    
    
    3.63
    %Loans (net of unearned 
discount) (1)(2)
    
    
    1,314,928
    
    
    
    56,603
    
    
    
    5.74
    %
    
    
    1,246,939
    
    
    
    63,203
    
    
    
    6.76
    %Federal Home Loan Bank stock
    
    
    8,015
    
    
    
    42
    
    
    
    0.70
    %
    
    
    8,324
    
    
    
    86
    
    
    
    1.38
    %Total interest-earning 
assets (1)
    
    
    1,612,661
    
    
    $
    63,128
    
    
    
    5.22
    %
    
    
    1,497,570
    
    
    $
    71,311
    
    
    
    6.35
    %Cash and due from banks
    
    
    20,271
    
    
    
    
    
    
    
    
    
    
    
    34,986Interest receivable
    
    
    9,124
    
    
    
    
    
    
    
    
    
    
    
    10,391Foreclosed assets held for sale, net
    
    
    10,917
    
    
    
    
    
    
    
    
    
    
    
    4,246Cost method investments in common stock
    
    
    2,935
    
    
    
    
    
    
    
    
    
    
    
    5,907Cash surrender value of life insurance
    
    
    26,211
    
    
    
    
    
    
    
    
    
    
    
    24,664Premises and equipment
    
    
    39,844
    
    
    
    
    
    
    
    
    
    
    
    41,617Allowance for loan loss
    
    
    (24,404
    )
    
    
    
    
    
    
    
    
    
    
    (15,432
    )Goodwill
    
    
    29,865
    
    
    
    
    
    
    
    
    
    
    
    44,282Intangible assets
    
    
    4,479
    
    
    
    
    
    
    
    
    
    
    
    5,017Other
    
    
    23,066
    
    
    
    
    
    
    
    
    
    
    
    20,793Total assets
    
    $
    1,754,969
    
    
    
    
    
    
    
    
    
    
    $
    1,674,041Liabilities and Stockholders EquityInterest-bearing transaction deposits
    
    $
    149,604
    
    
    $
    476
    
    
    
    0.42
    %
    
    $
    135,499
    
    
    $
    1,040
    
    
    
    1.02
    %Savings deposits
    
    
    86,762
    
    
    
    321
    
    
    
    0.49
    %
    
    
    85,137
    
    
    
    924
    
    
    
    1.45
    %Money-market deposits
    
    
    231,817
    
    
    
    1,652
    
    
    
    0.95
    %
    
    
    220,295
    
    
    
    3,859
    
    
    
    2.34
    %Time and brokered time deposits
    
    
    862,690
    
    
    
    21,605
    
    
    
    3.34
    %
    
    
    795,585
    
    
    
    25,959
    
    
    
    4.35
    %Short-term borrowings
    
    
    58,718
    
    
    
    1,854
    
    
    
    4.21
    %
    
    
    35,223
    
    
    
    800
    
    
    
    3.03
    %Long term debt
    
    
    61,563
    
    
    
    2,033
    
    
    
    4.40
    %
    
    
    86,359
    
    
    
    3,049
    
    
    
    4.71
    %Subordinated debenture bonds
    
    
    61,858
    
    
    
    2,522
    
    
    
    5.44
    %
    
    
    61,858
    
    
    
    2,901
    
    
    
    6.25
    %Total interest-bearing
liabilities
    
    
    1,513,012
    
    
    $
    30,463
    
    
    
    2.68
    %
    
    
    1,419,956
    
    
    $
    38,532
    
    
    
    3.62
    %Demand deposits
    
    
    145,055
    
    
    
    
    
    
    
    
    
    
    
    125,809Interest payable
    
    
    4,702
    
    
    
    
    
    
    
    
    
    
    
    5,312Other liabilities
    
    
    7,061
    
    
    
    
    
    
    
    
    
    
    
    6,996Minority interest
    
    
    5,082
    
    
    
    
    
    
    
    
    
    
    
    8,992Stockholders equity
    
    
    80,057
    
    
    
    
    
    
    
    
    
    
    
    106,976Total liabilities and
stockholders equity
    
    $
    1,754,969
    
    
    
    
    
    
    
    
    
    
    $
    1,674,041Interest spread
    
    
    
    
    
    
    
    
    
    
    2.53
    %
    
    
    
    
    
    
    
    
    
    
    2.73
    %Net interest income
    
    
    
    
    
    $
    32,665
    
    
    
    
    
    
    
    
    
    
    $
    32,779Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.70
    %
    
    
    
    
    
    
    
    
    
    
    2.92
    %Interest-earning assets to
interest-bearing liabilities
    
    
    106.59
    %
    
    
    
    
    
    
    
    
    
    
    105.47
    %
 
 (1)
    
    Non-accrual loans have been included in average loans, net of unearned discount(2)
    
    Includes loans held for sale(3)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent
basis. 31




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##### Table of Contents



For the nine months ended September 30,2009 vs. 2008Increase (Decrease) Due toChange inVolume
    
    
    Rate
    
    
    TotalIncrease (decrease) in interest income:Interest-bearing bank deposits
    
    $
    376
    
    
    $
    (469
    )
    
    $
    (93
    )Federal funds sold
    
    
    (33
    )
    
    
    (288
    )
    
    
    (321
    )Investment securities:U.S. Treasuries and Agencies
    
    
    (215
    )
    
    
    (89
    )
    
    
    (304
    )Mortgage-backed securities
    
    
    112
    
    
    
    (236
    )
    
    
    (124
    )States and political subdivision (1)
    
    
    (236
    )
    
    
    (10
    )
    
    
    (246
    )Other securities
    
    
    169
    
    
    
    (620
    )
    
    
    (451
    )Loans (net of unearned discounts)
    
    
    3,308
    
    
    
    (9,908
    )
    
    
    (6,600
    )Federal Home Loan Bank stock
    
    
    (3
    )
    
    
    (41
    )
    
    
    (44
    )Change in interest income (1)
    
    
    3,478
    
    
    
    (11,661
    )
    
    
    (8,183
    )Increase in interest expense:Interest-bearing transaction deposits
    
    
    99
    
    
    
    (663
    )
    
    
    (564
    )Savings deposits
    
    
    17
    
    
    
    (620
    )
    
    
    (603
    )Money-market deposits
    
    
    192
    
    
    
    (2,399
    )
    
    
    (2,207
    )Time and brokered time deposits
    
    
    2,054
    
    
    
    (6,408
    )
    
    
    (4,354
    )Short-term borrowings
    
    
    665
    
    
    
    389
    
    
    
    1,054Long-term debt and junior subordinated debentures
    
    
    (941
    )
    
    
    (454
    )
    
    
    (1,395
    )Change in interest expense
    
    
    2,086
    
    
    
    (10,155
    )
    
    
    (8,069
    )Increase (decrease) in net interest income (1)
    
    $
    1,392
    
    
    $
    (1,506
    )
    
    $
    (114
    )
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses.
 Noninterest Income.
 32




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##### Table of Contents



For the Nine Months EndedSeptember 302009
    
    
    2008Fiduciary activities
    
    $
    1,953
    
    
    $
    2,053Brokerage fees
    
    
    940
    
    
    
    1,398Customer service fees
    
    
    2,912
    
    
    
    3,232Other service charges and fees
    
    
    905
    
    
    
    724Net gains on loan sales
    
    
    1,740
    
    
    
    824Loan servicing fees
    
    
    468
    
    
    
    416Net increase in cash surrender value of life insurance
    
    
    825
    
    
    
    786Net gains on sales of available-for-sale securities
    
    
    
    
    
    
    943Other
    
    
    532
    
    
    
    342Total noninterest income
    
    $
    10,275
    
    
    $
    10,718
      Noninterest Expense.
 33




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##### Table of Contents



For the Nine Months EndedSeptember 302009
    
    
    2008Salaries and employee benefits
    
    $
    19,951
    
    
    $
    20,643Net occupancy expense
    
    
    2,536
    
    
    
    2,628Equipment expense
    
    
    2,580
    
    
    
    2,594Deposit insurance premium
    
    
    3,149
    
    
    
    715Professional fees
    
    
    2,475
    
    
    
    1,593Postage and supplies
    
    
    896
    
    
    
    958Losses (gains) on sales of assets, net
    
    
    23
    
    
    
    (370
    )Losses on foreclosed assets, net
    
    
    2,158
    
    
    
    1,010Losses on securities, net
    
    
    
    
    
    
    4,032Other than temporary losses on
available-for-sale securities and cost
method investments
    
    
    3,238
    
    
    
    1,520Goodwill impairment losses
    
    
    44,650
    
    
    
    Amortization of mortgage servicing rights
    
    
    399
    
    
    
    202Other
    
    
    5,938
    
    
    
    6,061Total noninterest expense
    
    $
    87,993
    
    
    $
    41,586
        34




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##### Table of Contents



Income Tax Expense (Benefit).
  Financial Condition
 September 30, 2009 Compared to December 31, 2008
 Loan Portfolio
  September 30, 2009
    
    
    December 31, 2008Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(dollars in thousands)Commercial and financial
    
    $
    227,217
    
    
    
    17.75
    %
    
    $
    235,438
    
    
    
    17.52
    %Agricultural
    
    
    60,748
    
    
    
    4.75
    %
    
    
    68,192
    
    
    
    5.07
    %Real estate  farmland
    
    
    112,343
    
    
    
    8.78
    %
    
    
    111,244
    
    
    
    8.28
    %Real estate  construction
    
    
    196,826
    
    
    
    15.38
    %
    
    
    238,922
    
    
    
    17.78
    %Real estate  commercial
    
    
    225,197
    
    
    
    17.59
    %
    
    
    214,317
    
    
    
    15.95
    %Real estate  residential (1)
    
    
    332,156
    
    
    
    25.95
    %
    
    
    343,627
    
    
    
    25.58
    %Installment loans to individuals
    
    
    125,475
    
    
    
    9.80
    %
    
    
    132,000
    
    
    
    9.82
    %Total loans
    
    
    1,279,962
    
    
    
    100.00
    %
    
    
    1,343,740
    
    
    
    100.00
    %Allowance for loan losses
    
    
    27,427
    
    
    
    
    
    
    
    23,467Total loans, including loans
held for sale, net of allowance
for loan losses
    
    $
    1,252,535
    
    
    
    
    
    
    $
    1,320,273
 
 (1)
    
    Includes loans held for sale Nonperforming Assets
  35




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##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008Nonaccrual loansCommercial and financial
    
    $
    1,267
    
    
    $
    762Agricultural
    
    
    685
    
    
    
    234Real estate  farmland
    
    
    207
    
    
    
    Real estate  construction
    
    
    34,326
    
    
    
    25,948Real estate  commercial
    
    
    9,897
    
    
    
    1,361Real estate  residential
    
    
    11,207
    
    
    
    5,455Installment loans to individuals
    
    
    282
    
    
    
    337Total nonaccrual loans
    
    
    57,871
    
    
    
    34,097Loans 90 days past due and still accruing
    
    
    1,332
    
    
    
    3,856Restructured loans
    
    
    510
    
    
    
    58Total nonperforming loans
    
    
    59,713
    
    
    
    38,011Repossessed assets
    
    
    14,259
    
    
    
    10,015Other assets acquired in satisfaction of debt previously
contracted
    
    
    
    
    
    
    Total nonperforming other assets
    
    
    14,259
    
    
    
    10,015Total nonperforming loans and nonperforming other assets
    
    $
    73,972
    
    
    $
    48,026Nonperforming loans to loans, before allowance for loan losses
    
    
    4.67
    %
    
    
    2.83
    %Nonperforming loans and nonperforming other assets to loans,
before allowance for loan losses
    
    
    5.78
    %
    
    
    3.57
    %
 Allowance for Loan Losses
 36




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##### Table of Contents



As of and for the
    
    
    As of and forNine Months Ended
    
    
    the Year EndedSeptember 30,
    
    
    December 31,2009
    
    
    2008Average loans outstanding during year
    
    $
    1,314,928
    
    
    $
    1,274,660Allowance for loan losses:Balance at beginning of year
    
    $
    23,467
    
    
    $
    12,794Loans charged-off:Commercial and financial
    
    
    1,050
    
    
    
    5,447Agricultural
    
    
    46
    
    
    
    147Real estate  farmland
    
    
    
    
    
    
    Real estate  construction
    
    
    6,222
    
    
    
    4,082Real estate  commercial
    
    
    1,048
    
    
    
    2,276Real estate  residential
    
    
    5,825
    
    
    
    823Installment loans to individuals
    
    
    981
    
    
    
    901Total charge-offs
    
    
    15,172
    
    
    
    13,676Recoveries:Commercial and financial
    
    
    21
    
    
    
    296Agricultural
    
    
    45
    
    
    
    15Real estate  farmland
    
    
    80
    
    
    
    Real estate  construction
    
    
    33
    
    
    
    1Real estate  commercial
    
    
    6
    
    
    
    43Real estate  residential
    
    
    30
    
    
    
    46Installment loans to individuals
    
    
    181
    
    
    
    103Total recoveries
    
    
    396
    
    
    
    504Net charge-offs
    
    
    14,776
    
    
    
    13,172Provision for loan losses
    
    
    18,736
    
    
    
    23,845Balance at end of year
    
    $
    27,427
    
    
    $
    23,467Allowance for loan losses as a
percent of total loans
outstanding at year end
    
    
    2.14
    %
    
    
    1.75
    %Allowance for loan losses as
a percent of total nonperforming loans
    
    
    45.93
    %
    
    
    61.74
    %Ratio of net charge-offs to
average total loans
    
    
    1.12
    %
    
    
    1.03
    %
 37




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Securities
     Foreclosed Assets Held for Sale.
 Deposits
 38




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Borrowings
      39




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Liquidity
        40




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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
      41




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42




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Capital Resources
      43




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Regulatory Matters
        44




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Effect of Inflation and Changing Prices.
  Recent Developments
   45




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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
 46




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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.
 There is no assurance the Company will be able to implement successfully its capital
restoration and debt restructuring plan.
   47




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total Number of Shares
    
    Maximum ApproximateThird Quarter
    
    Total Number of
    
    
    
    
    
    Purchased as Part of
    
    Dollar Value of Shares that2009 Calendar
    
    Shares Purchased
    
    Average Price
    
    Publicly Announced
    
    May Yet Be Purchased UnderMonth
    
    (1)
    
    Paid per Share (1)
    
    Plans or Programs (2)
    
    the Plans or Programs (3)July
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    $
    8,128,000August
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    $
    8,128,000September
    
    
    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
  
 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.
 48




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SIGNATURES
  Date: November 24, 2009
    By:
    /s/ Ted T. AwerkampTed T. AwerkampPresident and Chief Executive Officer
(principal executive officer)Date: November 24, 2009
    By:
    /s/ Michael P. McGrathMichael P. McGrathExecutive Vice President, Treasurer, Secretary and 
Chief Financial Officer
(principal financial officer/ 
principal accounting officer) 49