##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010
 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
    
    o Accelerated Filer
    
    þ 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 StatementsCondensed Consolidated Balance Sheets
    
    3Condensed Consolidated Statements of Operations
    
    4Condensed Consolidated Statements of Cash Flows
    
    5Notes to Condensed Consolidated Financial Statements
    
    6-17Item 2
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    17-33Item 3
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    33Item 4
    
    Controls and Procedures
    
    33PART II
    
    OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    34Item 1A
    
    Risk Factors
    
    34Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    34Item 3
    
    Defaults Upon Senior Securities
    
    34Item 4
    
    Not Applicable
    
    34Item 5
    
    Other Information
    
    34Item 6
    
    Exhibits
    
    35SignaturesExhibitsSection 302 CertificationsSection 906 CertificationsEX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 Item 1
    
    Condensed Consolidated Financial Statements.
 MERCANTILE BANCORP, INC.
 
 Condensed Consolidated Balance Sheets
 (In thousands, except par value and share data)
 March 31,2010
    
    
    December 31,(Unaudited)
    
    
    2009AssetsCash and due from banks
    
    $
    9,551
    
    
    $
    8,606Interest-bearing demand deposits
    
    
    71,210
    
    
    
    94,623Federal funds sold
    
    
    7,444
    
    
    
    18,038Cash and cash equivalents
    
    
    88,205
    
    
    
    121,267Available-for-sale securities
    
    
    121,991
    
    
    
    128,150Held-to-maturity securities (fair values of $2,120 and $2,411)
    
    
    2,056
    
    
    
    2,334Loans held for sale
    
    
    788
    
    
    
    681Loans, net of allowance for loan losses of $18,917 and $18,851
    
    
    736,559
    
    
    
    757,138Interest receivable
    
    
    3,703
    
    
    
    3,962Foreclosed assets held for sale, net
    
    
    18,115
    
    
    
    16,409Federal Home Loan Bank stock
    
    
    2,903
    
    
    
    2,900Cost method investments in common stock
    
    
    1,392
    
    
    
    1,392Deferred income taxes
    
    
    9,867
    
    
    
    10,212Mortgage servicing rights
    
    
    877
    
    
    
    885Cash surrender value of life insurance
    
    
    15,149
    
    
    
    15,011Premises and equipment
    
    
    25,221
    
    
    
    25,670Core deposit and other intangibles
    
    
    1,026
    
    
    
    1,066Other assets
    
    
    15,153
    
    
    
    17,413Discontinued operations, assets held for sale
    
    
    
    
    
    
    285,992Total assets
    
    $
    1,043,005
    
    
    $
    1,390,482LiabilitiesDepositsDemand
    
    $
    99,419
    
    
    $
    108,318Savings, NOW and money market
    
    
    232,253
    
    
    
    251,030Time
    
    
    415,198
    
    
    
    421,412Brokered time
    
    
    138,360
    
    
    
    173,764Total deposits
    
    
    885,230
    
    
    
    954,524Short-term borrowings
    
    
    25,899
    
    
    
    30,740Long-term debt
    
    
    15,000
    
    
    
    25,172Junior subordinated debentures
    
    
    61,858
    
    
    
    61,858Interest payable
    
    
    4,542
    
    
    
    4,114Other liabilities
    
    
    4,918
    
    
    
    4,827Discontinued operations, liabilities held for sale
    
    
    
    
    
    
    264,044Total liabilities
    
    
    997,447
    
    
    
    1,345,279Commitments and Contingent LiabilitiesEquityMercantile Bancorp, Inc. stockholders equity
Common stock, $0.42 par value; authorized 14,000,000 shares;
Issued  8,887,113 shares at March 31, 2010 and December 31, 2009
Outstanding  8,703,330 shares at March 31, 2010 and December 31, 2009
    
    
    3,629
    
    
    
    3,629Additional paid-in capital
    
    
    11,919
    
    
    
    11,919Retained earnings
    
    
    26,080
    
    
    
    25,095Accumulated other comprehensive income
    
    
    3,257
    
    
    
    2,95444,885
    
    
    
    43,597Treasury stock, at costCommon; 183,783 shares at March 31, 2010 and December 31, 2009
    
    
    (2,295
    )
    
    
    (2,295
    )Total Mercantile Bancorp, Inc. stockholders equity
    
    
    42,590
    
    
    
    41,302Noncontrolling interest
    
    
    2,968
    
    
    
    3,901Total equity
    
    
    45,558
    
    
    
    45,203Total liabilities and equity
    
    $
    1,043,005
    
    
    $
    1,390,482
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MERCANTILE BANCORP, INC.
 
 Condensed Consolidated Statements of Operations
 (In thousands, except per share data)
 (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Interest and Dividend IncomeLoans, including feesTaxable
    
    $
    10,002
    
    
    $
    11,231Tax exempt
    
    
    236
    
    
    
    173SecuritiesTaxable
    
    
    970
    
    
    
    1,183Tax exempt
    
    
    210
    
    
    
    244Federal funds sold
    
    
    8
    
    
    
    5Dividends on Federal Home Loan Bank Stock
    
    
    4
    
    
    
    5Deposits with financial institutions and other
    
    
    78
    
    
    
    72Total interest and dividend income
    
    
    11,508
    
    
    
    12,913Interest ExpenseDeposits
    
    
    4,171
    
    
    
    6,331Short-term borrowings
    
    
    187
    
    
    
    550Long-term debt and junior subordinated debentures
    
    
    1,013
    
    
    
    1,206Total interest expense
    
    
    5,371
    
    
    
    8,087Net Interest Income
    
    
    6,137
    
    
    
    4,826Provision for Loan Losses
    
    
    3,990
    
    
    
    2,785Net Interest Income After Provision For Loan Losses
    
    
    2,147
    
    
    
    2,041Noninterest IncomeFiduciary activities
    
    
    581
    
    
    
    568Brokerage fees
    
    
    299
    
    
    
    193Customer service fees
    
    
    365
    
    
    
    365Other service charges and fees
    
    
    139
    
    
    
    107Net gains (losses) on sales of assets
    
    
    8
    
    
    
    (10
    )Net gains on loan sales
    
    
    92
    
    
    
    517Loan servicing fees
    
    
    124
    
    
    
    113Net increase in cash surrender value of life insurance
    
    
    138
    
    
    
    123Other
    
    
    187
    
    
    
    6Total noninterest income
    
    
    1,933
    
    
    
    1,982Noninterest ExpenseSalaries and employee benefits
    
    
    4,405
    
    
    
    4,464Net occupancy expense
    
    
    598
    
    
    
    600Equipment expense
    
    
    563
    
    
    
    585Deposit insurance premium
    
    
    471
    
    
    
    610Professional fees
    
    
    491
    
    
    
    559Postage and supplies
    
    
    148
    
    
    
    176Losses on foreclosed assets, net
    
    
    212
    
    
    
    102Amortization of mortgage servicing rights
    
    
    39
    
    
    
    203Other
    
    
    1,489
    
    
    
    1,238Total noninterest expense
    
    
    8,416
    
    
    
    8,537Loss from Continuing Operations Before Income Taxes
    
    
    (4,336
    )
    
    
    (4,514
    )Income Tax Benefit
    
    
    (1,190
    )
    
    
    (1,685
    )Loss from Continuing Operations
    
    
    (3,146
    )
    
    
    (2,829
    )Discontinued OperationsIncome from discontinued operations (including gain on
sale in 2010 of $4,254), net of income tax expense of
$2,045 and $691, respectively
    
    
    3,197
    
    
    
    1,664Net Income (Loss)
    
    
    51
    
    
    
    (1,165
    )Less: Net Loss attributable to noncontrolling interest
    
    
    (933
    )
    
    
    (289
    )Net Income (Loss) attributable to Mercantile Bancorp, Inc.
    
    $
    984
    
    
    $
    (876
    )Weighted Average Shares Outstanding
    
    
    8,703,330
    
    
    
    8,703,330Basic Earnings Per ShareContinuing operations
    
    $
    (0.25
    )
    
    $
    (0.29
    )Discontinued operations
    
    $
    0.36
    
    
    $
    0.19
  4




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MERCANTILE BANCORP, INC.
 
 Condensed Consolidated Statements of Cash Flows
 (In thousands)
 (Unaudited)
 Three Months Ended March 31
    
    2010
    
    
    2009Operating ActivitiesNet income (loss) before attribution of noncontrolling interest
    
    $
    51
    
    
    $
    (1,165
    )Net loss attributable to noncontrolling interest
    
    
    (933
    )
    
    
    (289
    )Net income (loss) attributable to Mercantile Bancorp, Inc.
    
    
    984
    
    
    
    (876
    )Items not requiring (providing) cashDepreciation
    
    
    454
    
    
    
    688Provision for loan losses
    
    
    4,038
    
    
    
    3,180Amortization (accretion) of premiums and discounts on securities
    
    
    169
    
    
    
    (69
    )Amortization (depreciation) of core deposit intangibles and other
purchase accounting adjustments
    
    
    38
    
    
    
    33Deferred income taxes
    
    
    616
    
    
    
    1,171Losses on foreclosed assets
    
    
    212
    
    
    
    128Gains on loan sales
    
    
    (101
    )
    
    
    (810
    )Amortization of mortgage servicing rights
    
    
    39
    
    
    
    210(Gain) on sale of Marine Bank & Trust and Brown County State Bank
    
    
    (4,254
    )
    
    
    (Gains) Losses on sale of premises and equipment
    
    
    (8
    )
    
    
    13Federal Home Loan Bank stock dividends
    
    
    (2
    )
    
    
    (3
    )Net increase in cash surrender value of life insurance
    
    
    (177
    )
    
    
    (245
    )Changes inLoans originated for sale
    
    
    (6,601
    )
    
    
    (68,887
    )Proceeds from sales of loans
    
    
    6,556
    
    
    
    64,865Interest receivable
    
    
    279
    
    
    
    1,614Other assets
    
    
    1,981
    
    
    
    (153
    )Interest payable
    
    
    424
    
    
    
    115Other liabilities
    
    
    (62
    )
    
    
    292Noncontrolling interest in subsidiary
    
    
    (933
    )
    
    
    (289
    )Net cash provided by operating activities
    
    
    3,652
    
    
    
    977Investing ActivitiesCash paid in acquisition of HNB Financial, net of cash received
    
    
    
    
    
    
    3Cash received from sales of Marine Bank & Trust and Brown County State Bank
    
    
    14,706
    
    
    
    Purchases of available-for-sale securities
    
    
    (3,156
    )
    
    
    (27,738
    )Proceeds from maturities of available-for-sale securities
    
    
    11,814
    
    
    
    14,064Proceeds from maturities of held-to-maturity securities
    
    
    371
    
    
    
    1,101Net change in loans
    
    
    13,652
    
    
    
    23,666Purchases of premises and equipment
    
    
    (23
    )
    
    
    (156
    )Purchase of Federal Home Loan Bank stock
    
    
    
    
    
    
    (58
    )Proceeds from sales of foreclosed assets
    
    
    4,235
    
    
    
    350Net cash provided by investing activities
    
    
    41,599
    
    
    
    11,232Financing ActivitiesNet increase (decrease) in demand deposits, money market, NOW and savings
accounts
    
    
    (34,968
    )
    
    
    44,393Net (decrease) in time and brokered time deposits
    
    
    (41,242
    )
    
    
    (1,080
    )Net increase in short-term borrowings
    
    
    5,945
    
    
    
    5,147Net (decrease) in long-term debt
    
    
    
    
    
    
    (15,109
    )Repayments of long-term debt
    
    
    (10,172
    )
    
    
    (8,000
    )Net cash provided by (used in) financing activities
    
    
    (80,437
    )
    
    
    25,351Increase (Decrease) In Cash and Cash Equivalents
    
    
    (35,186
    )
    
    
    37,560Cash and Cash Equivalents, Beginning of Period
    
    
    123,391
    
    
    
    89,821Cash and Cash Equivalents, End of Period
    
    $
    88,205
    
    
    $
    127,381Supplemental Cash Flows InformationInterest paid
    
    $
    6,077
    
    
    $
    10,800Income taxes paid (received)
    
    $
    (530
    )
    
    $
    (244
    )Real estate acquired in settlement of loans
    
    $
    6,152
    
    
    $
    755
  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. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
   4. FEDERAL HOME LOAN BANK STOCK
  6




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##### Table of Contents



5. SECURITIES
  Amortized
    
    
    Gross Unrealized
    
    
    Gross UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale Securities:March 31, 2010:Mortgage-backed
securities: GSE
residential
    
    $
    87,209
    
    
    $
    2,614
    
    
    $
    (113
    )
    
    $
    89,710State and political
subdivisions
    
    
    27,351
    
    
    
    1,124
    
    
    
    (23
    )
    
    
    28,452Equity securities
    
    
    3,573
    
    
    
    570
    
    
    
    (314
    )
    
    
    3,829$
    118,133
    
    
    $
    4,308
    
    
    $
    (450
    )
    
    $
    121,991Available-for-sale Securities:December 31, 2009:Mortgage-backed
securities: GSE
residential
    
    $
    92,710
    
    
    $
    2,789
    
    
    $
    (145
    )
    
    $
    95,354State and political
subdivisions
    
    
    28,525
    
    
    
    1,019
    
    
    
    (5
    )
    
    
    29,539Equity securities
    
    
    3,603
    
    
    
    162
    
    
    
    (508
    )
    
    
    3,257$
    124,838
    
    
    $
    3,970
    
    
    $
    (658
    )
    
    $
    128,150
 Amortized
    
    
    Gross Unrealized
    
    
    Gross UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueHeld-to-maturity Securities:March 31, 2010:Mortgage-backed
securities: GSE
residential
    
    $
    2,056
    
    
    $
    64
    
    
    $
    
    
    
    $
    2,120December 31, 2009:Mortgage-backed
securities: GSE
residential
    
    $
    2,334
    
    
    $
    77
    
    
    $
    
    
    
    $
    2,411
  Available-for-sale
    
    
    Held-to-maturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueWithin one year
    
    $
    3,628
    
    
    $
    3,670
    
    
    $
    
    
    
    $
    One to five years
    
    
    17,865
    
    
    
    18,826
    
    
    
    
    
    
    
    Five to ten years
    
    
    2,212
    
    
    
    2,310
    
    
    
    
    
    
    
    After ten years
    
    
    3,646
    
    
    
    3,646
    
    
    
    
    
    
    
    27,351
    
    
    
    28,452
    
    
    
    
    
    
    
    Mortgage-backed
securities: GSE
residential
    
    
    87,209
    
    
    
    89,710
    
    
    
    2,056
    
    
    
    2,120Equity securities
    
    
    3,573
    
    
    
    3,829
    
    
    
    
    
    
    
    Totals
    
    $
    118,133
    
    
    $
    121,991
    
    
    $
    2,056
    
    
    $
    2,120
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Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedSecurities
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesMarch 31, 2010Mortgage-backed securities: GSE
residential
    
    $
    9,903
    
    
    $
    (113
    )
    
    $
    
    
    
    $
    
    
    
    $
    9,903
    
    
    $
    (113
    )State and political subdivisions
    
    
    1,068
    
    
    
    (23
    )
    
    
    182
    
    
    
    
    
    
    
    1,250
    
    
    
    (23
    )Equity securities
    
    
    1,261
    
    
    
    (314
    )
    
    
    
    
    
    
    
    
    
    
    1,261
    
    
    
    (314
    )Total temporarily impaired
securities
    
    $
    12,232
    
    
    $
    (450
    )
    
    $
    182
    
    
    $
    
    
    
    $
    12,414
    
    
    $
    (450
    )December 31, 2009Mortgage-backed securities: GSE
residential
    
    $
    12,518
    
    
    $
    (145
    )
    
    $
    92
    
    
    $
    
    
    
    $
    12,610
    
    
    $
    (145
    )State and political subdivisions
    
    
    1,831
    
    
    
    (5
    )
    
    
    182
    
    
    
    
    
    
    
    2,013
    
    
    
    (5
    )Equity securities
    
    
    2,839
    
    
    
    (508
    )
    
    
    
    
    
    
    
    
    
    
    2,839
    
    
    
    (508
    )Total temporarily impaired
securities
    
    $
    17,188
    
    
    $
    (658
    )
    
    $
    274
    
    
    $
    
    
    
    $
    17,462
    
    
    $
    (658
    )
  6. COST METHOD INVESTMENTS IN COMMON STOCK
   7. FAIR VALUE MEASUREMENT
   8




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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
    
    
    InputsMarch 31, 2010
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Mortgage-backed securities:GSE residential
    
    $
    89,710
    
    
    $
    
    
    
    $
    89,710
    
    
    $
    State and political
subdivisions
    
    
    28,452
    
    
    
    
    
    
    
    28,452
    
    
    
    Equity securities
    
    
    3,829
    
    
    
    3,732
    
    
    
    
    
    
    
    97$
    121,991
    
    
    $
    3,732
    
    
    $
    118,162
    
    
    $
    97
 Fair Value Measurements UsingQuotes Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsDecember 31, 2009
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Mortgage-backed
securities:GSE residential
    
    $
    95,354
    
    
    $
    
    
    
    $
    95,354
    
    
    $
    State and political
subdivisions
    
    
    29,539
    
    
    
    
    
    
    
    29,500
    
    
    
    39Equity securities
    
    
    3,257
    
    
    
    3,161
    
    
    
    
    
    
    
    96$
    128,150
    
    
    $
    3,161
    
    
    $
    124,854
    
    
    $
    135
  9




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##### Table of Contents



For the Three Months EndedMarch 312010
    
    
    2009Beginning balance
    
    $
    135
    
    
    $
    250Total realized and unrealized gains and losses:Included in net income
    
    
    
    
    
    
    Included in other comprehensive income
    
    
    
    
    
    
    Settlements
    
    
    (38
    )
    
    
    (115
    )Transfers in and/or out of Level 3
    
    
    
    
    
    
    Balance, March 31
    
    $
    97
    
    
    $
    135Total 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
  Foreclosed Assets Held for Sale
 Mortgage Servicing Rights
  Fair Value Measurements UsingQuotes Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsCarrying value at March 31, 2010
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired loans
    
    $
    15,875
    
    
    $
    
    
    
    $
    
    
    
    $
    15,875Foreclosed assets held for sale
    
    
    2,284
    
    
    
    
    
    
    
    
    
    
    
    2,284Mortgage servicing rights
    
    
    877
    
    
    
    
    
    
    
    
    
    
    
    877
 10




---



##### Table of Contents



Fair Value Measurements UsingQuotes Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsCarrying value at December 31, 2009
    

    Fair Value



    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired loans
    
    $
    44,142
    
    
    $
    
    
    
    $
    
    
    
    $
    44,142Foreclosed assets held for sale
    
    
    885
    
    
    
    
    
    
    
    
    
    
    
    885Mortgage servicing rights
    
    
    1,331
    
    
    
    
    
    
    
    
    
    
    
    1,331Cost method investments
    
    
    5,409
    
    
    
    
    
    
    
    
    
    
    
    5,409
    March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueFinancial assetsCash and cash equivalents
    
    $
    88,205
    
    
    $
    88,205
    
    
    $
    121,267
    
    
    $
    121,267Available-for-sale securities
    
    
    121,991
    
    
    
    121,991
    
    
    
    128,150
    
    
    
    128,150Held-to-maturity securities
    
    
    2,056
    
    
    
    2,120
    
    
    
    2,334
    
    
    
    2,441Loans held for sale
    
    
    788
    
    
    
    788
    
    
    
    681
    
    
    
    681Loans, net of allowance for loan losses
    
    
    736,559
    
    
    
    734,234
    
    
    
    757,138
    
    
    
    757,721Federal Home Loan Bank stock
    
    
    2,903
    
    
    
    2,903
    
    
    
    2,900
    
    
    
    2,900Cost method investments in common stock
    
    
    1,392
    
    
    
    1,392
    
    
    
    1,392
    
    
    
    1,392Interest receivable
    
    
    3,703
    
    
    
    3,703
    
    
    
    3,962
    
    
    
    3,962Financial liabilitiesDeposits
    
    
    885,230
    
    
    
    881,533
    
    
    
    954,524
    
    
    
    952,611Short-term borrowings
    
    
    25,899
    
    
    
    25,899
    
    
    
    30,740
    
    
    
    30,740Long-term debt and junior subordinated
debentures
    
    
    76,858
    
    
    
    46,384
    
    
    
    87,030
    
    
    
    56,368Interest payable
    
    
    4,542
    
    
    
    4,542
    
    
    
    4,114
    
    
    
    4,114Unrecognized financial instruments (net
of contract amount)Commitments to originate loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Letters of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lines of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Cash and Cash Equivalents, Federal Home Loan Bank Stock, Interest Receivable, and Cost Method
Investments in Common Stock 
 Held-to-Maturity Securities 
 11




---



##### Table of Contents



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 
     8. INCOME TAXES
  March 31,
    
    
    December 31,2010
    
    
    2009Computed at the statutory rate (35%)
    
    $
    (1,518
    )
    
    $
    (1,580
    )Increase (decrease) resulting fromGraduated tax rates
    
    
    43
    
    
    
    45Tax exempt income
    
    
    (144
    )
    
    
    (136
    )State income taxes
    
    
    (377
    )
    
    
    (2
    )Increase in cash surrender value of life insurance
    
    
    (47
    )
    
    
    (42
    )Changes in the deferred tax asset valuation allowance
    
    
    829
    
    
    
    Other
    
    
    23
    
    
    
    30Actual tax expense (benefit)
    
    $
    (1,190
    )
    
    $
    (1,685
    )
 12




---



##### Table of Contents



March 31,
    
    
    December 31,2010
    
    
    2009Deferred tax assetsAllowance for loan losses
    
    $
    7,026
    
    
    $
    6,885Accrued compensated absences
    
    
    121
    
    
    
    115Deferred compensation
    
    
    828
    
    
    
    759Accrued postretirement benefits
    
    
    144
    
    
    
    125Deferred loss on investments
    
    
    2,126
    
    
    
    2,050Capital loss carryforward on disposal of HNB
    
    
    4,169
    
    
    
    5,773Net operating loss carryforward
    
    
    4,921
    
    
    
    2,395Stock options
    
    
    111
    
    
    
    111Deferred loan fees
    
    
    76
    
    
    
    80Alternative minimum tax credits
    
    
    149
    
    
    
    149Other
    
    
    1,168
    
    
    
    1,02920,839
    
    
    
    19,471Deferred tax liabilitiesFederal Home Loan Bank stock dividends
    
    
    284
    
    
    
    277Depreciation
    
    
    543
    
    
    
    522State taxes
    
    
    528
    
    
    
    452Mortgage servicing rights
    
    
    343
    
    
    
    334Deferred gain on sale of BOLI policies
    
    
    798
    
    
    
    770Unrealized gains on available-for-sale securities
    
    
    1,886
    
    
    
    1,161Purchase accounting adjustments
    
    
    50
    
    
    
    35Other
    
    
    121
    
    
    
    1184,553
    
    
    
    3,669Net deferred tax asset before valuation allowance
    
    $
    16,286
    
    
    $
    15,802Valuation allowanceBeginning balance
    
    $
    (5,590
    )
    
    $
    (Increase) decrease during the period
    
    
    (829
    )
    
    
    (5,590
    )Ending balance
    
    
    (6,419
    )
    
    
    (5,590
    )Net deferred tax asset
    
    $
    9,867
    
    
    $
    10,212
   9. DISCONTINUED OPERATIONS
  13




---



##### Table of Contents



Cash and cash equivalents
    
    $
    4,343Available-for-sale securities
    
    
    39,306Held-to-maturity securities
    
    
    1,027Loans, net of allowance for loan losses of $1,183
    
    
    206,872Interest receivable
    
    
    2,300Federal Home Loan Bank stock
    
    
    1,574Premises and equipment
    
    
    3,698Other assets
    
    
    19,465Total assets disposed
    
    
    278,585Deposits
    
    
    232,330Long-term debt
    
    
    13,500Interest payable
    
    
    559Other liabilities
    
    
    10,469Total liabilities released
    
    
    256,858Net assets disposed
    
    $
    21,727
   2010
    
    
    2009Interest and dividend income
    
    $
    2,206
    
    
    $
    8,294Interest expense
    
    
    572
    
    
    
    2,893Net interest margin
    
    
    1,634
    
    
    
    5,401Provision for loan loss
    
    
    48
    
    
    
    395Noninterest income
    
    
    4,522
    
    
    
    1,247Noninterest expense
    
    
    866
    
    
    
    3,898Net income (loss) before taxes
    
    
    5,242
    
    
    
    2,355Income tax expense
    
    
    2,045
    
    
    
    691Net income
    
    $
    3,197
    
    
    $
    1,664
 10. OFF BALANCE SHEET CREDIT COMMITMENTS
   14




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##### Table of Contents



11. SIGNIFICANT ACCOUNTING POLICIES
     15




---



##### Table of Contents



12. COMPREHENSIVE INCOME (LOSS)
  For the Three MonthsEnded March 31,2010
    
    
    2009Net income (loss)
    
    $
    51
    
    
    $
    (1,165
    )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 $206 for 2010 and $(183) for
2009
    
    
    303
    
    
    
    (118
    )Less reclassification adjustment for other than temporary losses
included in income net of tax benefit of $0 for 2010 and $0 for
2009
    
    
    
    
    
    
    Total Unrealized appreciation (depreciation) on available-for-sale
securities, net of tax expense (benefit) of $206 for 2010 and $(183)
for 2009
    
    
    303
    
    
    
    (118
    )Comprehensive income (loss)
    
    
    354
    
    
    
    (1,283
    )Comprehensive income (loss) attributable to the noncontrolling interest
    
    
    (933
    )
    
    
    (289
    )Comprehensive income (loss) attributable to Mercantile Bancorp, Inc.
    
    $
    1,287
    
    
    $
    (994
    )
 13. OPERATING AND LIQUIDITY MATTERS
     16




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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;
 17




---



##### Table of Contents




    
    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;
    
    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.
  General
  Wholly Owned Subsidiaries
 
    
    Mercantile Bank (Mercantile Bank), located in Quincy, Illinois; and
    
    Royal Palm Bancorp, Inc. (Royal Palm), the sole shareholder of Royal
Palm Bank of Florida (Royal Palm Bank), located in Naples, Florida.
 Majority-Owned Subsidiary.
 18




---



##### Table of Contents



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;
    
    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.
     19




---



##### Table of Contents



Results of Operations
 Comparison of Operating Results for the Three Months Ended March 31, 2010 and 2009
 Overview
   Discontinued Operations
 Net Interest Income
  20




---



##### Table of Contents



21




---



##### Table of Contents



For the three months ended March 312010
    
    
    
    
    
    
    
    
    
    
    2009Income/
    
    
    
    
    
    
    
    
    
    
    Income/Average Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand deposits
    
    $
    78,721
    
    
    $
    78
    
    
    
    0.40
    %
    
    $
    67,269
    
    
    $
    72
    
    
    
    0.43
    %Federal funds sold
    
    
    13,695
    
    
    
    8
    
    
    
    0.23
    %
    
    
    17,144
    
    
    
    5
    
    
    
    0.12
    %Securities:TaxableU.S. treasuries and government agencies
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    2,272
    
    
    
    13
    
    
    
    2.29
    %Mortgage-backed securities: GSE residential
    
    
    34,183
    
    
    
    290
    
    
    
    3.39
    %
    
    
    23,940
    
    
    
    272
    
    
    
    4.54
    %Other securities
    
    
    65,639
    
    
    
    680
    
    
    
    4.14
    %
    
    
    74,696
    
    
    
    898
    
    
    
    4.81
    %Total taxable
    
    
    99,822
    
    
    
    970
    
    
    
    3.89
    %
    
    
    100,908
    
    
    
    1,183
    
    
    
    4.69
    %Non-taxable  State and political subdivision (3)
    
    
    28,755
    
    
    
    210
    
    
    
    2.92
    %
    
    
    28,720
    
    
    
    244
    
    
    
    3.40
    %Loans (net of unearned discount ) (1)(2)
    
    
    772,837
    
    
    
    10,238
    
    
    
    5.30
    %
    
    
    850,252
    
    
    
    11,404
    
    
    
    5.36
    %Federal Home Loan Bank stock
    
    
    2,900
    
    
    
    4
    
    
    
    0.55
    %
    
    
    3,614
    
    
    
    5
    
    
    
    0.55
    %Total interest-earning assets
    
    
    996,280
    
    
    $
    11,508
    
    
    
    4.62
    %
    
    
    1,067,907
    
    
    $
    12,913
    
    
    
    4.84
    %Cash and due from banks
    
    
    10,010
    
    
    
    
    
    
    
    
    
    
    
    15,612Interest receivable
    
    
    3,797
    
    
    
    
    
    
    
    
    
    
    
    4,611Foreclosed assets held for sale, net
    
    
    14,833
    
    
    
    
    
    
    
    
    
    
    
    7,785Cost method investments in common stock
    
    
    1,392
    
    
    
    
    
    
    
    
    
    
    
    3,314Cash surrender value of life insurance
    
    
    15,083
    
    
    
    
    
    
    
    
    
    
    
    13,494Premises and equipment
    
    
    25,444
    
    
    
    
    
    
    
    
    
    
    
    27,048Other
    
    
    22,867
    
    
    
    
    
    
    
    
    
    
    
    22,332Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,974Intangible assets
    
    
    1,922
    
    
    
    
    
    
    
    
    
    
    
    2,633Allowance for loan loss
    
    
    (19,001
    )
    
    
    
    
    
    
    
    
    
    
    (18,273
    )Discontinued operations, Assets held for sale
    
    
    172,547
    
    
    
    
    
    
    
    
    
    
    
    635,089Total assets
    
    $
    1,245,174
    
    
    
    
    
    
    
    
    
    
    $
    1,810,526Liabilities and Stockholders EquityInterest-bearing transaction deposits
    
    $
    68,745
    
    
    $
    46
    
    
    
    0.27
    %
    
    $
    63,179
    
    
    $
    56
    
    
    
    0.35
    %Savings deposits
    
    
    48,104
    
    
    
    45
    
    
    
    0.37
    %
    
    
    45,965
    
    
    
    89
    
    
    
    0.77
    %Money-market deposits
    
    
    133,485
    
    
    
    201
    
    
    
    0.60
    %
    
    
    146,721
    
    
    
    364
    
    
    
    0.99
    %Time and brokered time deposits
    
    
    572,973
    
    
    
    3,879
    
    
    
    2.71
    %
    
    
    636,299
    
    
    
    5,822
    
    
    
    3.66
    %Short-term borrowings
    
    
    25,426
    
    
    
    187
    
    
    
    2.94
    %
    
    
    64,252
    
    
    
    550
    
    
    
    3.42
    %Long term debt
    
    
    17,063
    
    
    
    220
    
    
    
    5.16
    %
    
    
    35,052
    
    
    
    349
    
    
    
    3.98
    %Junior subordinated debentures
    
    
    61,858
    
    
    
    793
    
    
    
    5.13
    %
    
    
    61,858
    
    
    
    857
    
    
    
    5.54
    %Total interest-bearing liabilities
    
    
    927,654
    
    
    $
    5,371
    
    
    
    2.32
    %
    
    
    1,053,326
    
    
    $
    8,087
    
    
    
    3.07
    %Demand deposits
    
    
    99,303
    
    
    
    
    
    
    
    
    
    
    
    76,162Interest payable
    
    
    4,475
    
    
    
    
    
    
    
    
    
    
    
    3,075Other liabilities
    
    
    4,728
    
    
    
    
    
    
    
    
    
    
    
    4,229Discontinued operations, Liabilities held for sale
    
    
    22,867
    
    
    
    
    
    
    
    
    
    
    
    569,410Noncontrolling interest
    
    
    3,517
    
    
    
    
    
    
    
    
    
    
    
    5,543Stockholders equity
    
    
    43,280
    
    
    
    
    
    
    
    
    
    
    
    98,781Total liabilities and stockholders equity
    
    $
    1,245,174
    
    
    
    
    
    
    
    
    
    
    $
    1,810,526Interest spread
    
    
    
    
    
    
    
    
    
    
    2.30
    %
    
    
    
    
    
    
    
    
    
    
    1.77
    %Net interest income
    
    
    
    
    
    $
    6,137
    
    
    
    
    
    
    
    
    
    
    $
    4,826Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.46
    %
    
    
    
    
    
    
    
    
    
    
    1.81
    %Interest-earning assets to interest-bearing liabilities
    
    
    107.40
    %
    
    
    
    
    
    
    
    
    
    
    101.38
    %
 
 (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. 22




---



##### Table of Contents



For the three months ended March 31,2010 vs. 2009Increase (Decrease) Due to Change inVolume
    
    
    Rate
    
    
    TotalIncrease (decrease) in interest income:Interest-bearing bank deposits
    
    $
    11
    
    
    $
    (5
    )
    
    $
    6Federal funds sold
    
    
    (1
    )
    
    
    4
    
    
    
    3Investment securities:U.S. Treasuries and Agencies
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )Mortgage-backed securities: GSE residential
    
    
    98
    
    
    
    (80
    )
    
    
    18States and political subdivision (1)
    
    
    
    
    
    
    (34
    )
    
    
    (34
    )Other securities
    
    
    (102
    )
    
    
    (116
    )
    
    
    (218
    )Loans (net of unearned discounts)
    
    
    (1,027
    )
    
    
    (139
    )
    
    
    (1,166
    )Federal Home Loan Bank stock
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Change in interest income
    
    
    (1,035
    )
    
    
    (370
    )
    
    
    (1,405
    )Increase (decrease) in interest expense:Interest-bearing transaction deposits
    
    
    5
    
    
    
    (15
    )
    
    
    (10
    )Savings deposits
    
    
    4
    
    
    
    (48
    )
    
    
    (44
    )Money-market deposits
    
    
    (30
    )
    
    
    (133
    )
    
    
    (163
    )Time and brokered time deposits
    
    
    (538
    )
    
    
    (1,405
    )
    
    
    (1,943
    )Short-term borrowings
    
    
    (294
    )
    
    
    (69
    )
    
    
    (363
    )Long-term debt and junior subordinated debentures
    
    
    (230
    )
    
    
    37
    
    
    
    (193
    )Change in interest expense
    
    
    (1,083
    )
    
    
    (1,633
    )
    
    
    (2,716
    )Increase (decrease) in net interest income
    
    $
    48
    
    
    $
    1,263
    
    
    $
    1,311
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses
  23




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##### Table of Contents



Noninterest Income.
  For the Three MonthsEnded March 312010
    
    
    2009Fiduciary activities
    
    $
    581
    
    
    $
    568Brokerage fees
    
    
    299
    
    
    
    193Customer service fees
    
    
    365
    
    
    
    365Other service charges and fees
    
    
    139
    
    
    
    107Net gains (losses) on sales of assets
    
    
    8
    
    
    
    (10
    )Net gains on loan sales
    
    
    92
    
    
    
    517Loan servicing fees
    
    
    124
    
    
    
    113Net increase in cash surrender value of life insurance
    
    
    138
    
    
    
    123Other
    
    
    187
    
    
    
    6Total noninterest income
    
    $
    1,933
    
    
    $
    1,982
     Noninterest Expense
  For the Three MonthsEnded March 312010
    
    
    2009Salaries and employee benefits
    
    $
    4,405
    
    
    $
    4,464Net occupancy expense
    
    
    598
    
    
    
    600Equipment expense
    
    
    563
    
    
    
    585Deposit insurance premium
    
    
    471
    
    
    
    610Professional fees
    
    
    491
    
    
    
    559Postage and supplies
    
    
    148
    
    
    
    176Losses on foreclosed assets, net
    
    
    212
    
    
    
    102Amortization of mortgage servicing rights
    
    
    39
    
    
    
    203Other
    
    
    1,489
    
    
    
    1,238Total noninterest expense
    
    $
    8,416
    
    
    $
    8,537
 24




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##### Table of Contents



Income Taxes Expense (Benefit)
  Financial Condition
March 31, 2010 Compared to December 31, 2009
 Loan Portfolio
  March 31, 2010
    
    
    December 31, 2009Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(dollars in thousands)Commercial and financial
    
    $
    161,321
    
    
    
    21.33
    %
    
    $
    161,702
    
    
    
    21.38
    %Agricultural
    
    
    8,738
    
    
    
    1.16
    %
    
    
    9,832
    
    
    
    1.30
    %Real estate  farmland
    
    
    17,932
    
    
    
    2.37
    %
    
    
    19,655
    
    
    
    2.60
    %Real estate  construction
    
    
    141,797
    
    
    
    18.75
    %
    
    
    153,578
    
    
    
    20.31
    %Real estate  commercial
    
    
    165,616
    
    
    
    21.90
    %
    
    
    163,292
    
    
    
    21.59
    %Real estate  residential (1)
    
    
    191,942
    
    
    
    25.38
    %
    
    
    193,818
    
    
    
    25.63
    %Installment loans to individuals
    
    
    68,918
    
    
    
    9.11
    %
    
    
    74,793
    
    
    
    9.89
    %Total loans
    
    
    756,264
    
    
    
    100.00
    %
    
    
    776,670
    
    
    
    102.70
    %Allowance for loan losses
    
    
    18,917
    
    
    
    
    
    
    
    18,851Total loans, including loans
held for sale, net of allowance
for loan losses
    
    $
    737,347
    
    
    
    
    
    
    $
    757,819
 
 (1)
    
    Includes loans held for sale Nonperforming Assets
 25




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##### Table of Contents



March 31,
    
    
    December 31,2010
    
    
    2009Nonaccrual loansCommercial and financial
    
    $
    1,826
    
    
    $
    1,439Agricultural
    
    
    
    
    
    
    248Real estate  farmland
    
    
    62
    
    
    
    62Real estate  construction
    
    
    31,000
    
    
    
    33,946Real estate  commercial
    
    
    5,669
    
    
    
    7,378Real estate  residential
    
    
    7,006
    
    
    
    6,803Installment loans to individuals
    
    
    145
    
    
    
    154Total nonaccrual loans
    
    
    45,708
    
    
    
    50,030Loans 90 days past due and still accruing
    
    
    360
    
    
    
    393Restructured loans
    
    
    68
    
    
    
    397Total nonperforming loans
    
    
    46,136
    
    
    
    50,820Repossessed assets
    
    
    18,181
    
    
    
    16,409Other assets acquired in satisfaction of debt previously contracted
    
    
    
    
    
    
    Total nonperforming other assets
    
    
    18,181
    
    
    
    16,409Total nonperforming loans and nonperforming other assets
    
    $
    64,317
    
    
    $
    67,229Nonperforming loans to loans, before allowance for loan losses
    
    
    6.10
    %
    
    
    6.54
    %Nonperforming loans and nonperforming other assets to loans, before allowance for loan losses
    
    
    8.50
    %
    
    
    8.66
    %
 Allowance for Loan Losses
 26




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##### Table of Contents



As of and for theThree Months Ended
    
    
    As of and for theMarch 31,
    
    
    Year Ended December2010
    
    
    31, 2009Average loans outstanding during year
    
    $
    772,837
    
    
    $
    830,740Allowance for loan losses:Balance at beginning of year
    
    $
    18,851
    
    
    $
    19,038Loans charged-off:Commercial and financial
    
    
    4
    
    
    
    927Agricultural
    
    
    
    
    
    
    438Real estate  farmland
    
    
    
    
    
    
    Real estate  construction
    
    
    1,557
    
    
    
    10,938Real estate  commercial
    
    
    706
    
    
    
    2,055Real estate  residential
    
    
    285
    
    
    
    7,218Installment loans to individuals
    
    
    1,450
    
    
    
    899Total charge-offs
    
    
    4,002
    
    
    
    22,475Recoveries:Commercial and financial
    
    
    36
    
    
    
    Agricultural
    
    
    
    
    
    
    13Real estate  farmland
    
    
    
    
    
    
    Real estate  construction
    
    
    1
    
    
    
    34Real estate  commercial
    
    
    
    
    
    
    7Real estate  residential
    
    
    7
    
    
    
    8Installment loans to individuals
    
    
    34
    
    
    
    143Total recoveries
    
    
    78
    
    
    
    205Net charge-offs
    
    
    3,924
    
    
    
    22,270Provision for loan losses
    
    
    3,990
    
    
    
    22,083Balance at end of year
    
    $
    18,917
    
    
    $
    18,851Allowance for loan losses as a percent of total loans outstanding at year end
    
    
    2.50
    %
    
    
    2.43
    %Allowance for loan losses as a percent of total nonperforming loans
    
    
    41.00
    %
    
    
    37.09
    %Ratio of net charge-offs to average total loans
    
    
    0.51
    %
    
    
    2.68
    %
 27




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##### Table of Contents



Concentration of Credit Risk
  Securities
     Foreclosed Assets Held for Sale.
 28




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##### Table of Contents



Deposits
 Borrowings
    Liquidity
    29




---



##### Table of Contents



Capital Resources
        30




---



##### Table of Contents



Regulatory Matters
     The Company.
  Mercantile Bank.
 Royal Palm Bank.
 31




---



##### Table of Contents



Royal Palm Bancorp.
 Heartland Bank.
 Mid-America Bancorp.
 32




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##### Table of Contents



Effect of Inflation and Changing Prices.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk .
  
 Item 4. Controls and Procedures .
 Evaluation of disclosure controls and procedures.
 Changes in internal controls over financial reporting
 33




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total Number of Shares
    
    Maximum ApproximateFirst Quarter
    
    Total Number of
    
    
    
    
    
    Purchased as Part of
    
    Dollar Value of Shares that2010 Calendar
    
    Shares Purchased
    
    Average Price
    
    Publicly Announced
    
    May Yet Be Purchased UnderMonth
    
    (1)
    
    Paid per Share (1)
    
    Plans or Programs (2)
    
    the Plans or Programs (3)January
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    $
    8,128,000February
    
    
    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. Not Applicable
 
 Item 5. Other Information
  34




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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.
 35




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##### Table of Contents



SIGNATURES
  Date: May 17, 2010
    By:
    /s/ Ted T. AwerkampTed T. AwerkampPresident and Chief Executive Officer
(principal executive officer)Date: May 17, 2010
    By:
    /s/ Michael P. McGrathMichael P. McGrathExecutive Vice President, Treasurer, Secretary and
Chief Financial Officer
(principal financial officer/principal accounting officer) 36