##### 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, 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
    
    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
  o Large Accelerated Filer
    
    o Accelerated Filer
    
    þ Non-Accelerated Filer
    
    o Smaller Reporting Company(Do not check if a 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
    
    
    6-18Item 2. Managements Discussion and Analysis of Financial
 Condition and Results of Operations
    
    
    18-43Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    43Item 4. Controls and Procedures
    
    
    43PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    44Item 1A. Risk Factors
    
    
    44-45Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45-46Item 3. Defaults Upon Senior Securities
    
    
    46Item 5. Other Information
    
    
    46Item 6. Exhibits
    
    
    46SignaturesExhibitsSection 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)
 September 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)AssetsCash and due from banks
    
    $
    9,239
    
    
    $
    8,606Interest-bearing demand deposits
    
    
    75,936
    
    
    
    94,623Federal funds sold
    
    
    9,919
    
    
    
    18,038Cash and cash equivalents
    
    
    95,094
    
    
    
    121,267Available-for-sale securities
    
    
    117,434
    
    
    
    128,150Held-to-maturity securities (fair values of $1,535 and $2,411)
    
    
    1,481
    
    
    
    2,334Loans held for sale
    
    
    2,871
    
    
    
    681Loans, net of allowance for loan losses of $25,866 and $18,851
    
    
    681,615
    
    
    
    757,138Interest receivable
    
    
    3,881
    
    
    
    3,962Foreclosed assets held for sale, net
    
    
    26,126
    
    
    
    16,409Federal Home Loan Bank stock
    
    
    2,884
    
    
    
    2,900Cost method investments in common stock
    
    
    1,392
    
    
    
    1,392Deferred income taxes
    
    
    10,125
    
    
    
    10,212Mortgage servicing rights
    
    
    880
    
    
    
    885Cash surrender value of life insurance
    
    
    15,430
    
    
    
    15,011Premises and equipment, net
    
    
    24,330
    
    
    
    25,670Core deposit and other intangibles
    
    
    946
    
    
    
    1,066Other assets
    
    
    14,085
    
    
    
    17,413Discontinued operations, assets held for sale
    
    
    
    
    
    
    285,992Total assets
    
    $
    998,573
    
    
    $
    1,390,482LiabilitiesDepositsDemand
    
    $
    102,595
    
    
    $
    108,318Savings, NOW and money market
    
    
    225,920
    
    
    
    251,030Time
    
    
    444,908
    
    
    
    421,412Brokered time
    
    
    95,486
    
    
    
    173,764Total deposits
    
    
    868,909
    
    
    
    954,524Short-term borrowings
    
    
    10,906
    
    
    
    30,740Long-term debt
    
    
    15,000
    
    
    
    25,172Junior subordinated debentures
    
    
    61,858
    
    
    
    61,858Interest payable
    
    
    6,258
    
    
    
    4,114Other liabilities
    
    
    4,742
    
    
    
    4,827Discontinued operations, liabilities held for sale
    
    
    
    
    
    
    264,044Total liabilities
    
    
    967,673
    
    
    
    1,345,279Commitments and Contingent Liabilities (Note 10)EquityMercantile Bancorp, Inc. stockholders equityCommon stock, $0.42 par value; authorized 30,000,000 shares;Issued  8,887,113 shares at September 30, 2010 and December 31, 2009Outstanding  8,703,330 shares at September 30, 2010 and December 31, 2009
    
    
    3,629
    
    
    
    3,629Additional paid-in capital
    
    
    11,919
    
    
    
    11,919Retained earnings
    
    
    14,077
    
    
    
    25,095Accumulated other comprehensive income
    
    
    2,815
    
    
    
    2,95432,439
    
    
    
    43,597Treasury stock, at costCommon; 183,783 shares at September 30, 2010 and December 31, 2009
    
    
    (2,295
    )
    
    
    (2,295
    )Total Mercantile Bancorp, Inc. stockholders equity
    
    
    30,145
    
    
    
    41,302Noncontrolling interest
    
    
    755
    
    
    
    3,901Total equity
    
    
    30,900
    
    
    
    45,203Total liabilities and equity
    
    $
    998,573
    
    
    $
    1,390,482
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##### Table of Contents



MERCANTILE BANCORP, INC.
 
 Condensed Consolidated Statements of Operations
 (In thousands, except per share data)
 (Unaudited)
 Three months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Interest and Dividend IncomeLoansTaxable
    
    $
    9,990
    
    
    $
    11,033
    
    
    $
    29,751
    
    
    $
    33,414Tax exempt
    
    
    235
    
    
    
    158
    
    
    
    707
    
    
    
    504SecuritiesTaxable
    
    
    847
    
    
    
    1,032
    
    
    
    2,743
    
    
    
    3,334Tax exempt
    
    
    231
    
    
    
    234
    
    
    
    737
    
    
    
    714Federal funds sold
    
    
    6
    
    
    
    3
    
    
    
    21
    
    
    
    11Dividends on Federal Home Loan Bank Stock
    
    
    2
    
    
    
    2
    
    
    
    9
    
    
    
    11Deposits with financial institutions and other
    
    
    43
    
    
    
    8
    
    
    
    161
    
    
    
    160Total interest and dividend income
    
    
    11,354
    
    
    
    12,470
    
    
    
    34,129
    
    
    
    38,148Interest ExpenseDeposits
    
    
    3,911
    
    
    
    4,986
    
    
    
    11,970
    
    
    
    17,000Short-term borrowings
    
    
    45
    
    
    
    614
    
    
    
    282
    
    
    
    1,783Long-term debt and junior subordinated debentures
    
    
    1,033
    
    
    
    1,166
    
    
    
    3,091
    
    
    
    3,608Total interest expense
    
    
    4,989
    
    
    
    6,766
    
    
    
    15,343
    
    
    
    22,391Net Interest Income
    
    
    6,365
    
    
    
    5,704
    
    
    
    18,786
    
    
    
    15,757Provision for Loan Losses
    
    
    5,386
    
    
    
    5,341
    
    
    
    16,526
    
    
    
    17,644Net Interest Income After Provision For Loan Losses
    
    
    979
    
    
    
    363
    
    
    
    2,260
    
    
    
    (1,887
    )Noninterest IncomeFiduciary activities
    
    
    581
    
    
    
    569
    
    
    
    1,744
    
    
    
    1,705Brokerage fees
    
    
    243
    
    
    
    302
    
    
    
    899
    
    
    
    742Customer service fees
    
    
    400
    
    
    
    439
    
    
    
    1,183
    
    
    
    1,221Other service charges and fees
    
    
    195
    
    
    
    142
    
    
    
    564
    
    
    
    382Gains (losses) on sales of assets, net
    
    
    (3
    )
    
    
    (6
    )
    
    
    5
    
    
    
    (17
    )Net gains on investments in common stock
    
    
    39
    
    
    
    
    
    
    
    39
    
    
    
    Net gains on loan sales
    
    
    248
    
    
    
    157
    
    
    
    466
    
    
    
    1,046Loan servicing fees
    
    
    126
    
    
    
    122
    
    
    
    373
    
    
    
    349Net increase in cash surrender value of life insurance
    
    
    143
    
    
    
    176
    
    
    
    420
    
    
    
    434Other
    
    
    158
    
    
    
    14
    
    
    
    569
    
    
    
    121Total noninterest income
    
    
    2,130
    
    
    
    1,915
    
    
    
    6,262
    
    
    
    5,983Noninterest ExpenseSalaries and employee benefits
    
    
    4,310
    
    
    
    4,432
    
    
    
    13,004
    
    
    
    13,234Net occupancy expense
    
    
    675
    
    
    
    467
    
    
    
    1,899
    
    
    
    1,658Equipment expense
    
    
    552
    
    
    
    712
    
    
    
    1,721
    
    
    
    1,928Deposit insurance premium
    
    
    645
    
    
    
    561
    
    
    
    1,717
    
    
    
    2,259Professional fees
    
    
    610
    
    
    
    665
    
    
    
    1,566
    
    
    
    2,210Postage and supplies
    
    
    131
    
    
    
    164
    
    
    
    406
    
    
    
    465Losses on foreclosed assets, net
    
    
    508
    
    
    
    512
    
    
    
    890
    
    
    
    2,067Other than temporary losses on available-for-sale
securities and cost method investments
    
    
    
    
    
    
    692
    
    
    
    566
    
    
    
    3,238Goodwill impairment losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,417Amortization of mortgage servicing rights
    
    
    117
    
    
    
    38
    
    
    
    196
    
    
    
    379Other
    
    
    1,577
    
    
    
    1,175
    
    
    
    4,422
    
    
    
    3,785Total noninterest expense
    
    
    9,125
    
    
    
    9,418
    
    
    
    26,387
    
    
    
    61,640Loss from Continuing Operations Before Income Taxes
    
    
    (6,016
    )
    
    
    (7,140
    )
    
    
    (17,865
    )
    
    
    (57,544
    )Income Tax Expense (Benefit)
    
    
    2,765
    
    
    
    (2,971
    )
    
    
    (272
    )
    
    
    (10,321
    )Loss from Continuing Operations
    
    
    (8,781
    )
    
    
    (4,169
    )
    
    
    (17,593
    )
    
    
    (47,223
    )Discontinued OperationsIncome (loss) from discontinued operations (including
gain on sale in 2010 of $4,496), net of income tax
expense of $1,733 and $355, respectively
    
    
    219
    
    
    
    2,321
    
    
    
    3,429
    
    
    
    (8,474
    )Net Loss
    
    
    (8,562
    )
    
    
    (1,848
    )
    
    
    (14,164
    )
    
    
    (55,697
    )Less: Net loss attributable to the
Noncontrolling interest
    
    
    (1,035
    )
    
    
    (488
    )
    
    
    (3,146
    )
    
    
    (1,415
    )Net Loss attributable to Mercantile Bancorp, Inc.
    
    $
    (7,527
    )
    
    $
    (1,360
    )
    
    $
    (11,018
    )
    
    $
    (54,282
    )Weighted Average Shares Outstanding
    
    
    8,703,330
    
    
    
    8,703,330
    
    
    
    8,703,330
    
    
    
    8,703,330Basic Earnings (Loss) Per ShareContinuing operations
    
    $
    (0.89
    )
    
    $
    (0.42
    )
    
    $
    (1.66
    )
    
    $
    (5.27
    )Discontinued operations
    
    $
    0.03
    
    
    $
    0.27
    
    
    $
    0.39
    
    
    $
    (0.97
    )
  4




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##### Table of Contents



MERCANTILE BANCORP, INC.
 
 Condensed Consolidated Statements of Cash Flows  (In thousands)  (Unaudited)
 Nine Months Ended September 30
    
    2010
    
    
    2009Operating ActivitiesNet loss before attribution of noncontrolling interest
    
    $
    (14,164
    )
    
    $
    (55,697
    )Net loss attributable to noncontrolling interest
    
    
    (3,146
    )
    
    
    (1,415
    )Net income (loss) attributable to Mercantile Bancorp, Inc.
    
    
    (11,018
    )
    
    
    (54,282
    )Items not requiring (providing) cashDepreciation
    
    
    1,358
    
    
    
    2,065Provision for loan losses
    
    
    16,574
    
    
    
    18,736Amortization (accretion) of premiums and discounts on securities
    
    
    482
    
    
    
    256Amortization (depreciation) of core deposit intangibles and other purchase
accounting adjustments
    
    
    120
    
    
    
    (13
    )Deferred income taxes
    
    
    638
    
    
    
    (3,886
    )Other-than-temporary losses on available-for-sale and cost method investments
    
    
    566
    
    
    
    3,238Losses on foreclosed assets
    
    
    890
    
    
    
    2,158Gains on loan sales
    
    
    (474
    )
    
    
    (1,740
    )Recovery of mortgage servicing rights
    
    
    
    
    
    
    (244
    )Amortization of mortgage servicing rights
    
    
    196
    
    
    
    399(Gain) on sale of Marine Bank & Trust and Brown County State Bank
    
    
    (4,496
    )
    
    
    Net (gains) losses on sale of premises and equipment
    
    
    (5
    )
    
    
    23Net (gains) on investments of common stock
    
    
    (39
    )
    
    
    Federal Home Loan Bank stock dividends
    
    
    (6
    )
    
    
    (9
    )Net increase in cash surrender value of life insurance
    
    
    (458
    )
    
    
    (825
    )Goodwill impairment
    
    
    
    
    
    
    44,650Changes inLoans originated for sale
    
    
    (38,828
    )
    
    
    (93,806
    )Proceeds from sales of loans
    
    
    36,914
    
    
    
    97,240Interest receivable
    
    
    102
    
    
    
    472Other assets
    
    
    3,047
    
    
    
    635Interest payable
    
    
    2,140
    
    
    
    712Other liabilities
    
    
    (113
    )
    
    
    2,624Noncontrolling interest in subsidiary
    
    
    (3,146
    )
    
    
    (1,415
    )Net cash provided by operating activities
    
    
    4,444
    
    
    
    16,988Investing ActivitiesCash paid in acquisition of HNB Financial, net of cash received
    
    
    
    
    
    
    3Cash received from sales of Marine Bank & Trust and Brown County State Bank
    
    
    14,823
    
    
    
    Purchases of available-for-sale securities
    
    
    (19,821
    )
    
    
    (49,508
    )Proceeds from maturities of available-for-sale securities
    
    
    31,116
    
    
    
    41,082Proceeds from the sales of available-for-sale securities
    
    
    373
    
    
    
    Proceeds from maturities of held-to-maturity securities
    
    
    947
    
    
    
    2,325Net change in loans
    
    
    43,183
    
    
    
    39,667Purchases of premises and equipment
    
    
    (55
    )
    
    
    (592
    )Purchase of Federal Home Loan Bank stock
    
    
    
    
    
    
    (80
    )Proceeds from sales of Federal Home Loan Bank stock
    
    
    22
    
    
    
    718Proceeds from sales of foreclosed assets
    
    
    8,422
    
    
    
    1,070Purchase of bank-owned life insurance
    
    
    
    
    
    
    (1,000
    )Net cash provided by investing activities
    
    
    79,010
    
    
    
    33,685Financing ActivitiesNet increase (decrease) in demand deposits, money market, NOW and savings accounts
    
    
    (38,123
    )
    
    
    20,816Net (decrease) in time and brokered time deposits
    
    
    (54,406
    )
    
    
    (57,301
    )Net increase (decrease) in short-term borrowings
    
    
    (9,050
    )
    
    
    8,398Net increase in long-term debt
    
    
    
    
    
    
    500Repayments of long-term debt
    
    
    (10,172
    )
    
    
    (11,500
    )Net cash used in financing activities
    
    
    (111,751
    )
    
    
    (39,087
    )Increase (Decrease) In Cash and Cash Equivalents
    
    
    (28,297
    )
    
    
    11,586Cash and Cash Equivalents, Beginning of Period
    
    
    123,391
    
    
    
    89,821Cash and Cash Equivalents, End of Period
    
    $
    95,094
    
    
    $
    101,407Supplemental Cash Flows InformationInterest paid
    
    $
    14,335
    
    
    $
    29,750Income taxes paid (received)
    
    $
    (530
    )
    
    $
    (3,811
    )Real estate acquired in settlement of loans
    
    $
    19,029
    
    
    $
    7,475
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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. RECENT ACCOUNTING PRONOUNCEMENTS
 FASB ASC Topic 310, Receivables: Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses.
 FSAB ASC Topic 815, Derivatives and Hedging.
 FASB ASC Topic 820, Fair Value Measurements and Disclosures  Improving Disclosures about Fair
Value Measurements.
 6




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##### Table of Contents



FASB ASC Topic 860, Transfers and Servicing  Accounting for Transfers of Financial Assets.
 4. FEDERAL HOME LOAN BANK STOCK
  5. SECURITIES
  Amortized
    
    
    Gross Unrealized
    
    
    Gross UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale Securities:September 30, 2010:U.S. Government agencies
    
    $
    3,914
    
    
    $
    100
    
    
    $
    
    
    
    $
    4,014Mortgage-backed
securities: GSE residential
    
    
    75,070
    
    
    
    2,214
    
    
    
    (2
    )
    
    
    77,282State and political
subdivisions
    
    
    32,625
    
    
    
    956
    
    
    
    (239
    )
    
    
    33,342Equity securities
    
    
    2,674
    
    
    
    122
    
    
    
    
    
    
    
    2,796$
    114,283
    
    
    $
    3,392
    
    
    $
    (241
    )
    
    $
    117,434December 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:September 30, 2010:Mortgage-backed
securities: GSE residential
    
    $
    1,481
    
    
    $
    54
    
    
    $
    
    
    
    $
    1,535December 31, 2009:Mortgage-backed
securities: GSE residential
    
    $
    2,334
    
    
    $
    77
    
    
    $
    
    
    
    $
    2,411
  7




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##### Table of Contents



Available-for-sale
    
    
    Held-to-maturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueWithin one year
    
    $
    3,605
    
    
    $
    3,605
    
    
    $
    
    
    
    $
    One to five years
    
    
    20,227
    
    
    
    21,109
    
    
    
    
    
    
    
    Five to ten years
    
    
    10,656
    
    
    
    10,704
    
    
    
    
    
    
    
    After ten years
    
    
    2,051
    
    
    
    1,938
    
    
    
    
    
    
    
    36,539
    
    
    
    37,356
    
    
    
    
    
    
    
    Mortgage-backed
securities:GSE residential
    
    
    75,070
    
    
    
    77,282
    
    
    
    1,481
    
    
    
    1,535Equity securities
    
    
    2,674
    
    
    
    2,796
    
    
    
    
    
    
    
    Totals
    
    $
    114,283
    
    
    $
    117,434
    
    
    $
    1,481
    
    
    $
    1,535
    Description of
    
    Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalSecurities
    
    Fair Value
    
    
    Unrealized Losses
    
    
    Fair Value
    
    
    Unrealized Losses
    
    
    Fair Value
    
    
    Unrealized LossesSeptember 30, 2010Mortgage-backed securities: GSE residential
    
    $
    368
    
    
    $
    (2
    )
    
    $
    
    
    
    $
    
    
    
    $
    368
    
    
    $
    (2
    )State and political subdivisions
    
    
    5,081
    
    
    
    (239
    )
    
    
    
    
    
    
    
    
    
    
    5,081
    
    
    
    (239
    )Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total temporarily
impaired securities
    
    $
    5,449
    
    
    $
    (241
    )
    
    $
    
    
    
    $
    
    
    
    $
    5,449
    
    
    $
    (241
    )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
  8




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##### Table of Contents



7. FAIR VALUE MEASUREMENT
   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 inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsSeptember 30, 2010
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Government agencies
    
    $
    4,014
    
    
    $
    
    
    
    $
    4,014
    
    
    $
    Mortgage-backed
securities:GSE residential
    
    
    77,282
    
    
    
    
    
    
    
    77,282
    
    
    
    State and political
subdivisions
    
    
    33,342
    
    
    
    
    
    
    
    33,342
    
    
    
    Equity securities
    
    
    2,796
    
    
    
    2,699
    
    
    
    
    
    
    
    97$
    117,434
    
    
    $
    2,699
    
    
    $
    114,638
    
    
    $
    97
 9




---



##### Table of Contents



Fair Value Measurements UsingQuotes Prices in ActiveMarkets for Identical
    
    
    Significant Other
    
    
    SignificantAssets
    
    
    Observable Inputs
    
    
    Unobservable 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
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009Beginning balance
    
    $
    97
    
    
    $
    1,447
    
    
    $
    135
    
    
    $
    2,006Total realized and unrealized
gains and losses:Included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Included in other
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchases, issuances and settlements
    
    
    
    
    
    
    (58
    )
    
    
    (38
    )
    
    
    (617
    )Transfers in and/or out of Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, September 30
    
    $
    97
    
    
    $
    1,389
    
    
    $
    97
    
    
    $
    1,389Total 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
 10




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##### Table of Contents



Mortgage Servicing Rights
 Cost Method Investments
  Fair Value Measurements UsingQuotes Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsCarrying value at September 30, 2010
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired loans
    
    $
    43,226
    
    
    $
    
    
    
    $
    
    
    
    $
    43,226Foreclosed assets held for sale
    
    
    830
    
    
    
    
    
    
    
    
    
    
    
    830Mortgage servicing rights
    
    
    880
    
    
    
    
    
    
    
    
    
    
    
    880
 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
   11




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##### Table of Contents



September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueFinancial assetsCash and cash equivalents
    
    $
    95,094
    
    
    $
    95,094
    
    
    $
    121,267
    
    
    $
    121,267Available-for-sale securities
    
    
    117,434
    
    
    
    117,434
    
    
    
    128,150
    
    
    
    128,150Held-to-maturity securities
    
    
    1,481
    
    
    
    1,535
    
    
    
    2,334
    
    
    
    2,441Loans held for sale
    
    
    2,871
    
    
    
    2,871
    
    
    
    681
    
    
    
    681Loans, net of allowance for loan losses
    
    
    681,615
    
    
    
    677,890
    
    
    
    757,138
    
    
    
    757,721Federal Home Loan Bank stock
    
    
    2,884
    
    
    
    2,884
    
    
    
    2,900
    
    
    
    2,900Cost method investments in common stock
    
    
    1,392
    
    
    
    1,392
    
    
    
    1,392
    
    
    
    1,392Interest receivable
    
    
    3,881
    
    
    
    3,881
    
    
    
    3,962
    
    
    
    3,962Financial liabilitiesDeposits
    
    
    868,909
    
    
    
    864,682
    
    
    
    954,524
    
    
    
    952,611Short-term borrowings
    
    
    10,906
    
    
    
    10,906
    
    
    
    30,740
    
    
    
    30,740Long-term debt and junior subordinated
debentures
    
    
    76,858
    
    
    
    46,492
    
    
    
    87,030
    
    
    
    56,368Interest payable
    
    
    6,258
    
    
    
    6,258
    
    
    
    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 
 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 
 12




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##### Table of Contents



8. INCOME TAXES
  September 30,
    
    
    December 31,2010
    
    
    2009Computed at the statutory rate (35%)
    
    $
    (6,252
    )
    
    $
    (1,580
    )Increase (decrease) resulting fromGraduated tax rates
    
    
    179
    
    
    
    45Tax exempt income
    
    
    (470
    )
    
    
    (136
    )State income taxes
    
    
    (922
    )
    
    
    (2
    )Increase in cash surrender value of life insurance
    
    
    (142
    )
    
    
    (42
    )Changes in the deferred tax asset valuation allowance
    
    
    7,352
    
    
    
    Other
    
    
    (17
    )
    
    
    30Actual tax expense (benefit)
    
    $
    (272
    )
    
    $
    (1,685
    )
 13




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##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009Deferred tax assetsAllowance for loan losses
    
    $
    9,542
    
    
    $
    6,885Accrued compensated absences
    
    
    122
    
    
    
    115Deferred compensation
    
    
    796
    
    
    
    759Accrued postretirement benefits
    
    
    136
    
    
    
    125Deferred loss on investments
    
    
    2,301
    
    
    
    2,050Capital loss carryforward on disposal of HNB
    
    
    3,810
    
    
    
    5,773Net operating loss carryforward
    
    
    7,484
    
    
    
    2,395Stock options
    
    
    111
    
    
    
    111Deferred loan fees
    
    
    55
    
    
    
    80Alternative minimum tax credits
    
    
    1,059
    
    
    
    149Other
    
    
    1,421
    
    
    
    1,02926,837
    
    
    
    19,471Deferred tax liabilitiesFederal Home Loan Bank stock dividends
    
    
    249
    
    
    
    277Depreciation
    
    
    519
    
    
    
    522State taxes
    
    
    765
    
    
    
    452Mortgage servicing rights
    
    
    341
    
    
    
    334Deferred gain on sale of BOLI policies
    
    
    
    
    
    
    770Unrealized gains on available-for-sale securities
    
    
    1,623
    
    
    
    1,161Purchase accounting adjustments
    
    
    76
    
    
    
    35Other
    
    
    197
    
    
    
    1183,770
    
    
    
    3,669Net deferred tax asset before valuation allowance
    
    
    23,067
    
    
    
    15,802Valuation allowanceBeginning balance
    
    $
    (5,590
    )
    
    $
    (Increase) decrease during the period
    
    
    (7,352
    )
    
    
    (5,590
    )Ending balance
    
    
    (12,942
    )
    
    
    (5,590
    )Net deferred tax asset
    
    $
    10,125
    
    
    $
    10,212
   9. DISCONTINUED OPERATIONS
  14




---



##### 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
   Three Months Ended
    
    
    Nine Months Ended2010
    
    
    2009
    
    
    2010
    
    
    2009Interest and dividend income
    
    $
    
    
    
    $
    8,261
    
    
    $
    2,206
    
    
    $
    24,898Interest expense
    
    
    
    
    
    
    2,384
    
    
    
    572
    
    
    
    7,973Net interest margin
    
    
    
    
    
    
    5,877
    
    
    
    1,634
    
    
    
    16,925Provision for loan loss
    
    
    
    
    
    
    250
    
    
    
    48
    
    
    
    1,092Noninterest income
    
    
    238
    
    
    
    1,309
    
    
    
    4,754
    
    
    
    4,179Noninterest expense
    
    
    
    
    
    
    4,006
    
    
    
    866
    
    
    
    26,612Net income (loss) before taxes
    
    
    238
    
    
    
    2,930
    
    
    
    5,474
    
    
    
    (6,600
    )Income tax expense
    
    
    19
    
    
    
    609
    
    
    
    2,045
    
    
    
    1,874Net income
    
    $
    219
    
    
    $
    2,321
    
    
    $
    3,429
    
    
    $
    (8,474
    )
 10. OFF BALANCE SHEET CREDIT COMMITMENTS
   15




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##### Table of Contents



11. COMPREHENSIVE LOSS
  For the Three MonthsEnded September 30,2010
    
    
    2009Net loss
    
    $
    (8,562
    )
    
    $
    (1,848
    )Other comprehensive income (loss):Unrealized appreciation (depreciation) on available-for-sale
securities:Unrealized appreciation (depreciation) on
available-for-sale securities, net of tax expense (benefit)
of $(184) for 2010 and $(294) for 2009
    
    
    (307
    )
    
    
    538Less reclassification adjustment for realized gains
(losses) included in income net of tax expense (benefit) of
$14 for 2010 and $0 for 2009
    
    
    25
    
    
    
    Less reclassification adjustment for other than temporary
losses included in income net of tax expense (benefit) of
$(0) for 2010 and $(263) for 2009
    
    
    
    
    
    
    (428
    )Total unrealized appreciation (depreciation) on
available-for-sale securities, net of tax expense (benefit)
of $(198) for 2010 and $557 for 2009
    
    
    (332
    )
    
    
    966Adjustment of ASC 715 (formerly SFAS 158) liability, net of
tax expense (benefit) of $(0) for 2010 and $0 for 2009
    
    
    (1
    )
    
    
    Total other comprehensive income (loss), net of tax
    
    
    (333
    )
    
    
    966Comprehensive loss
    
    
    (8,895
    )
    
    
    (882
    )Comprehensive loss attributable to the noncontrolling interest
    
    
    (1,035
    )
    
    
    (488
    )Comprehensive loss attributable to Mercantile Bancorp, Inc.
    
    $
    (7,860
    )
    
    $
    (394
    )
 16




---



##### Table of Contents



For the Nine MonthsEnded September 30,2010
    
    
    2009Net loss
    
    $
    (14,164
    )
    
    $
    (55,697
    )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
$(256) for 2010 and $(169) for 2009
    
    
    (482
    )
    
    
    (116
    )Less reclassification adjustment for realized gains
(losses) included in income net of tax expense (benefit)
of $14 for 2010 and $0 for 2009
    
    
    25
    
    
    
    Less reclassification adjustment for other than temporary
losses included in income net of tax benefit of $(215) for
2010 and $(1,230) for 2009
    
    
    (351
    )
    
    
    (2,007
    )Total unrealized appreciation (depreciation) on
available-for-sale securities, net of tax expense (benefit)
of $(55) for 2010 and $1,061 for 2009
    
    
    (156
    )
    
    
    1,891Adjustment of SFAS 158 liability, net of tax expense of $(10)
for 2010 and $(12) for 2009
    
    
    17
    
    
    
    20Total other comprehensive income, net of tax
    
    
    (139
    )
    
    
    1,911Comprehensive loss
    
    
    (14,303
    )
    
    
    (53,876
    )Comprehensive loss attributable to the noncontrolling interest
    
    
    (3,146
    )
    
    
    (1,415
    )Comprehensive loss attributable to Mercantile Bancorp, Inc.
    
    $
    (11,157
    )
    
    $
    (52,371
    )
 12. OPERATING AND LIQUIDITY MATTERS
     17




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##### Table of Contents



12. SUBSEQUENT EVENTS
  
 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
 18




---



##### Table of Contents




    
    descriptions of assumptions underlying or relating to any of the foregoing
  
    
    the effects of current and future 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;
    
    the effects of changes in interest rates on the level and
composition of deposits, loan demand, the values of loan
collateral, securities and interest sensitive assets and
liabilities may lead to a reduction in the Companys net interest
margins;
    
    changes in market rates and prices may adversely impact securities,
loans, deposits, mortgage servicing rights, and other financial
instruments;
    
    the legislative or regulatory developments, including changes in
laws concerning taxes, banking, securities, insurance and other
aspects of the financial securities industry, such as the recently
enacted Dodd-Frank Wall Street Reform and Consumer Protection Act
(the Dodd-Frank Act), and the extensive rule making it requires
to be undertaken by various regulatory agencies may adversely
affect the Companys business, financial condition and results of
operations;
    
    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;
    
    credit risks, including credit risks resulting from the devaluation of
collateral debt obligations and/or structured investment vehicles on
the capital markets to which the Company currently has no direct
exposure;
    
    the failure of assumptions underlying the Companys deferred tax valuation assumptions;
    
    the failure of assumptions underlying the establishment of the Companys allowance for loan losses;
    
    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.
 19




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##### Table of Contents



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.
 Other Investments in Financial Institutions.
 
    
    2.5% of Premier Community Bank of the Emerald Coast (Premier Community),
located in Crestview, Florida;
    
    3.7% of Paragon National Bank (Paragon), located in Memphis, Tennessee;
    
    0.9% 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.
  20




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##### Table of Contents



Results of Operations
 Comparison of Operating Results for the Three Months Ended September 30, 2010 and 2009
 Overview
  21




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##### Table of Contents



Discontinued Operations
 Net Interest Income
    22




---



##### Table of Contents



For the three months ended September 302010
    
    
    2009Income/
    
    
    
    
    
    
    
    
    
    
    Income/Average Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand deposits
    
    $
    71,794
    
    
    $
    43
    
    
    
    0.24
    %
    
    $
    86,706
    
    
    $
    8
    
    
    
    0.04
    %Federal funds sold
    
    
    10,679
    
    
    
    6
    
    
    
    0.22
    %
    
    
    8,504
    
    
    
    3
    
    
    
    0.14
    %Securities:TaxableU.S. treasuries and government agencies
    
    
    4,079
    
    
    
    24
    
    
    
    2.33
    %
    
    
    
    
    
    
    3
    
    
    
    0.00
    %Mortgage-backed securities: GSE residential
    
    
    33,052
    
    
    
    244
    
    
    
    2.93
    %
    
    
    24,012
    
    
    
    241
    
    
    
    3.98
    %Other securities
    
    
    58,283
    
    
    
    579
    
    
    
    3.94
    %
    
    
    69,193
    
    
    
    788
    
    
    
    4.52
    %Total taxable
    
    
    95,414
    
    
    
    847
    
    
    
    3.52
    %
    
    
    93,205
    
    
    
    1,032
    
    
    
    4.39
    %Non-taxable  State and political subdivision (3)
    
    
    27,164
    
    
    
    231
    
    
    
    3.37
    %
    
    
    27,612
    
    
    
    234
    
    
    
    3.36
    %Loans (net of unearned discount) (1)(2)
    
    
    717,608
    
    
    
    10,225
    
    
    
    5.65
    %
    
    
    825,305
    
    
    
    11,191
    
    
    
    5.38
    %Federal Home Loan Bank stock
    
    
    2,949
    
    
    
    2
    
    
    
    0.27
    %
    
    
    2,947
    
    
    
    2
    
    
    
    0.27
    %Total interest-earning assets
    
    
    925,608
    
    
    $
    11,354
    
    
    
    4.87
    %
    
    
    1,044,279
    
    
    $
    12,470
    
    
    
    4.74
    %Cash and due from banks
    
    
    10,350
    
    
    
    
    
    
    
    
    
    
    
    12,359Interest receivable
    
    
    3,847
    
    
    
    
    
    
    
    
    
    
    
    4,288Foreclosed assets held for sale, net
    
    
    25,876
    
    
    
    
    
    
    
    
    
    
    
    10,401Cost method investments in common stock
    
    
    1,392
    
    
    
    
    
    
    
    
    
    
    
    2,210Cash surrender value of life insurance
    
    
    15,337
    
    
    
    
    
    
    
    
    
    
    
    14,783Premises and equipment
    
    
    24,618
    
    
    
    
    
    
    
    
    
    
    
    26,254Other
    
    
    26,855
    
    
    
    
    
    
    
    
    
    
    
    20,290Intangible assets
    
    
    1,861
    
    
    
    
    
    
    
    
    
    
    
    1,992Allowance for loan loss
    
    
    (22,184
    )
    
    
    
    
    
    
    
    
    
    
    (23,271
    )Discontinued operations, Assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    595,767Total assets
    
    $
    1,013,560
    
    
    
    
    
    
    
    
    
    
    $
    1,709,352Liabilities and Stockholders EquityInterest-bearing transaction deposits
    
    $
    66,345
    
    
    $
    44
    
    
    
    0.26
    %
    
    $
    63,078
    
    
    $
    48
    
    
    
    0.30
    %Savings deposits
    
    
    45,604
    
    
    
    38
    
    
    
    0.33
    %
    
    
    46,873
    
    
    
    64
    
    
    
    0.54
    %Money-market deposits
    
    
    112,432
    
    
    
    163
    
    
    
    0.58
    %
    
    
    160,918
    
    
    
    315
    
    
    
    0.78
    %Time and brokered time deposits
    
    
    554,268
    
    
    
    3,666
    
    
    
    2.62
    %
    
    
    584,364
    
    
    
    4,559
    
    
    
    3.10
    %Short-term borrowings
    
    
    14,907
    
    
    
    45
    
    
    
    1.20
    %
    
    
    65,039
    
    
    
    614
    
    
    
    3.75
    %Long term debt
    
    
    15,001
    
    
    
    159
    
    
    
    4.21
    %
    
    
    35,052
    
    
    
    347
    
    
    
    3.93
    %Junior subordinated debentures
    
    
    61,858
    
    
    
    874
    
    
    
    5.61
    %
    
    
    61,858
    
    
    
    819
    
    
    
    5.25
    %Total interest-bearing liabilities
    
    
    870,415
    
    
    $
    4,989
    
    
    
    2.27
    %
    
    
    1,017,182
    
    
    $
    6,766
    
    
    
    2.64
    %Demand deposits
    
    
    93,773
    
    
    
    
    
    
    
    
    
    
    
    85,234Interest payable
    
    
    6,063
    
    
    
    
    
    
    
    
    
    
    
    3,796Other liabilities
    
    
    4,594
    
    
    
    
    
    
    
    
    
    
    
    4,650Discontinued operations, Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    544,499Noncontrolling interest
    
    
    1,723
    
    
    
    
    
    
    
    
    
    
    
    4,682Stockholders equity
    
    
    36,992
    
    
    
    
    
    
    
    
    
    
    
    49,309Total liabilities and stockholders equity
    
    $
    1,013,560
    
    
    
    
    
    
    
    
    
    
    $
    1,709,352Interest spread
    
    
    
    
    
    
    
    
    
    
    2.60
    %
    
    
    
    
    
    
    
    
    
    
    2.10
    %Net interest income
    
    
    
    
    
    $
    6,365
    
    
    
    
    
    
    
    
    
    
    $
    5,704Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.73
    %
    
    
    
    
    
    
    
    
    
    
    2.17
    %Interest-earning assets to interest-bearing liabilities
    
    
    106.34
    %
    
    
    
    
    
    
    
    
    
    
    102.66
    %
 
 (1)
    
    Non-accrual loans have been included in average loans, net of unearned discount(2)
    
    Includes loans held for sale(3)
    
    The tax exempt income for state and political subdivisions in not recorded on a tax equivalent basis. 23




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##### Table of Contents



For the three months ended September 30,2010 vs. 2009Increase (Decrease) Due to Change inVolume

    
    Rate
    
    
    TotalIncrease (decrease) in interest income:Interest-bearing bank deposits
    
    $
    (2
    )
    
    $
    37
    
    
    $
    35Federal funds sold
    
    
    1
    
    
    
    2
    
    
    
    3Investment securities:U.S. Treasuries and Agencies
    
    
    
    
    
    
    21
    
    
    
    21Mortgage-backed securities: GSE residential
    
    
    77
    
    
    
    (74
    )
    
    
    3States and political subdivision (1)
    
    
    (4
    )
    
    
    1
    
    
    
    (3
    )Other securities
    
    
    (115
    )
    
    
    (94
    )
    
    
    (209
    )Loans (net of unearned discounts)
    
    
    (1,514
    )
    
    
    548
    
    
    
    (966
    )Federal Home Loan Bank stock
    
    
    
    
    
    
    
    
    
    
    Change in interest income
    
    
    (1,557
    )
    
    
    441
    
    
    
    (1,116
    )Increase (decrease) in interest expense:Interest-bearing transaction deposits
    
    
    2
    
    
    
    (6
    )
    
    
    (4
    )Savings deposits
    
    
    (2
    )
    
    
    (24
    )
    
    
    (26
    )Money-market deposits
    
    
    (82
    )
    
    
    (70
    )
    
    
    (152
    )Time and brokered time deposits
    
    
    (226
    )
    
    
    (667
    )
    
    
    (893
    )Short-term borrowings
    
    
    (302
    )
    
    
    (267
    )
    
    
    (569
    )Long-term debt and junior subordinated debentures
    
    
    (259
    )
    
    
    126
    
    
    
    (133
    )Change in interest expense
    
    
    (869
    )
    
    
    (908
    )
    
    
    (1,777
    )Increase (decrease) in net interest income
    
    $
    (688
    )
    
    $
    1,349
    
    
    $
    661
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses
  24




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##### Table of Contents



Noninterest Income.
  For the Three MonthsEnded September 302010
    
    
    2009Fiduciary activities
    
    $
    581
    
    
    $
    569Brokerage fees
    
    
    243
    
    
    
    302Customer service fees
    
    
    400
    
    
    
    439Other service charges and fees
    
    
    195
    
    
    
    142Net gains (losses) on sales of assets
    
    
    (3
    )
    
    
    (6
    )Net gains on investments in common stock
    
    
    39
    
    
    
    Net gains on loan sales
    
    
    248
    
    
    
    157Loan servicing fees
    
    
    126
    
    
    
    122Net increase in cash surrender value of life insurance
    
    
    143
    
    
    
    176Other
    
    
    158
    
    
    
    14Total noninterest income
    
    $
    2,130
    
    
    $
    1,915
     Noninterest Expense
  For the Three MonthsEnded September 302010
    
    
    2009Salaries and employee benefits
    
    $
    4,310
    
    
    $
    4,432Net occupancy expense
    
    
    675
    
    
    
    467Equipment expense
    
    
    552
    
    
    
    712Deposit insurance premium
    
    
    645
    
    
    
    561Professional fees
    
    
    610
    
    
    
    665Postage and supplies
    
    
    131
    
    
    
    164Losses on foreclosed assets, net
    
    
    508
    
    
    
    512Other than temporary losses on
available-for-sale securities and cost
method investments
    
    
    
    
    
    
    692Amortization of mortgage servicing rights
    
    
    117
    
    
    
    38Other
    
    
    1,577
    
    
    
    1,175Total noninterest expense
    
    $
    9,125
    
    
    $
    9,418
 25




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##### Table of Contents



Income Tax Expense (Benefit)
  Results of Operations
 Comparison of Operating Results for the Nine Months Ended September 30, 2010 and 2009
 Overview
  Discontinued Operations
 Net Interest Income
  26




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##### Table of Contents



27




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##### Table of Contents



For the nine months ended September 302010
    
    
    2009Income/
    
    
    
    
    
    
    
    
    
    
    Income/Average Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand deposits
    
    $
    72,611
    
    
    $
    161
    
    
    
    0.30
    %
    
    $
    77,582
    
    
    $
    160
    
    
    
    0.28
    %Federal funds sold
    
    
    11,892
    
    
    
    21
    
    
    
    0.24
    %
    
    
    12,058
    
    
    
    11
    
    
    
    0.12
    %Securities:TaxableU.S. treasuries and government agencies
    
    
    2,328
    
    
    
    49
    
    
    
    2.81
    %
    
    
    1,722
    
    
    
    25
    
    
    
    1.94
    %Mortgage-backed securities: GSE residential
    
    
    33,632
    
    
    
    800
    
    
    
    3.18
    %
    
    
    23,834
    
    
    
    784
    
    
    
    4.40
    %Other securities
    
    
    61,739
    
    
    
    1,894
    
    
    
    4.10
    %
    
    
    72,509
    
    
    
    2,525
    
    
    
    4.66
    %Total taxable
    
    
    97,699
    
    
    
    2,743
    
    
    
    3.75
    %
    
    
    98,065
    
    
    
    3,334
    
    
    
    4.55
    %Non-taxable  State and political subdivision (3)
    
    
    27,727
    
    
    
    737
    
    
    
    3.55
    %
    
    
    28,103
    
    
    
    714
    
    
    
    3.40
    %Loans (net of unearned discount) (1)(2)
    
    
    743,006
    
    
    
    30,458
    
    
    
    5.48
    %
    
    
    840,834
    
    
    
    33,918
    
    
    
    5.39
    %Federal Home Loan Bank stock
    
    
    2,899
    
    
    
    9
    
    
    
    0.42
    %
    
    
    3,332
    
    
    
    11
    
    
    
    0.44
    %Total interest-earning assets
    
    
    955,834
    
    
    $
    34,129
    
    
    
    4.77
    %
    
    
    1,059,974
    
    
    $
    38,148
    
    
    
    4.81
    %Cash and due from banks
    
    
    9,334
    
    
    
    
    
    
    
    
    
    
    
    12,432Interest receivable
    
    
    3,797
    
    
    
    
    
    
    
    
    
    
    
    4,351Foreclosed assets held for sale, net
    
    
    20,507
    
    
    
    
    
    
    
    
    
    
    
    10,177Cost method investments in common stock
    
    
    1,392
    
    
    
    
    
    
    
    
    
    
    
    2,874Cash surrender value of life insurance
    
    
    15,221
    
    
    
    
    
    
    
    
    
    
    
    14,194Premises and equipment
    
    
    24,993
    
    
    
    
    
    
    
    
    
    
    
    26,664Other
    
    
    24,497
    
    
    
    
    
    
    
    
    
    
    
    19,269Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,480Intangible assets
    
    
    1,890
    
    
    
    
    
    
    
    
    
    
    
    1,545Allowance for loan loss
    
    
    (20,183
    )
    
    
    
    
    
    
    
    
    
    
    (19,798
    )Discontinued operations, Assets held for sale
    
    
    58,130
    
    
    
    
    
    
    
    
    
    
    
    602,904Total assets
    
    $
    1,095,412
    
    
    
    
    
    
    
    
    
    
    $
    1,755,066Liabilities and Stockholders EquityInterest-bearing transaction deposits
    
    $
    67,476
    
    
    $
    137
    
    
    
    0.27
    %
    
    $
    65,152
    
    
    $
    158
    
    
    
    0.32
    %Savings deposits
    
    
    46,921
    
    
    
    123
    
    
    
    0.35
    %
    
    
    46,705
    
    
    
    218
    
    
    
    0.62
    %Money-market deposits
    
    
    120,516
    
    
    
    533
    
    
    
    0.59
    %
    
    
    153,013
    
    
    
    1,057
    
    
    
    0.92
    %Time and brokered time deposits
    
    
    559,397
    
    
    
    11,177
    
    
    
    2.67
    %
    
    
    606,800
    
    
    
    15,567
    
    
    
    3.43
    %Short-term borrowings
    
    
    20,056
    
    
    
    282
    
    
    
    1.88
    %
    
    
    69,195
    
    
    
    1,783
    
    
    
    3.45
    %Long term debt
    
    
    15,687
    
    
    
    538
    
    
    
    4.59
    %
    
    
    35,052
    
    
    
    1,085
    
    
    
    4.14
    %Junior subordinated debentures
    
    
    61,858
    
    
    
    2,553
    
    
    
    5.52
    %
    
    
    61,858
    
    
    
    2,523
    
    
    
    5.45
    %Total interest-bearing liabilities
    
    
    891,911
    
    
    $
    15,343
    
    
    
    2.30
    %
    
    
    1,037,775
    
    
    $
    22,391
    
    
    
    2.88
    %Demand deposits
    
    
    97,320
    
    
    
    
    
    
    
    
    
    
    
    81,043Interest payable
    
    
    5,239
    
    
    
    
    
    
    
    
    
    
    
    3,341Other liabilities
    
    
    4,190
    
    
    
    
    
    
    
    
    
    
    
    4,414Discontinued operations, Liabilities held for sale
    
    
    53,479
    
    
    
    
    
    
    
    
    
    
    
    541,608Noncontrolling interest
    
    
    2,800
    
    
    
    
    
    
    
    
    
    
    
    5,082Stockholders equity
    
    
    40,473
    
    
    
    
    
    
    
    
    
    
    
    81,803Total liabilities and stockholders equity
    
    $
    1,095,412
    
    
    
    
    
    
    
    
    
    
    $
    1,755,066Interest spread
    
    
    
    
    
    
    
    
    
    
    2.47
    %
    
    
    
    
    
    
    
    
    
    
    1.93
    %Net interest income
    
    
    
    
    
    $
    18,786
    
    
    
    
    
    
    
    
    
    
    $
    15,757Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.63
    %
    
    
    
    
    
    
    
    
    
    
    1.99
    %Interest-earning assets to interest-bearing liabilities
    
    
    107.17
    %
    
    
    
    
    
    
    
    
    
    
    102.14
    %
 
 (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. 28




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##### Table of Contents



For the nine months ended September 30,2010 vs. 2009Increase (Decrease) Due to Change inVolume
    
    
    Rate
    
    
    TotalIncrease (decrease) in interest income:Interest-bearing bank deposits
    
    $
    (11
    )
    
    $
    12
    
    
    $
    1Federal funds sold
    
    
    
    
    
    
    10
    
    
    
    10Investment securities:U.S. Treasuries and Agencies
    
    
    11
    
    
    
    13
    
    
    
    24Mortgage-backed securities: GSE residential
    
    
    269
    
    
    
    (253
    )
    
    
    16States and political subdivision (1)
    
    
    (10
    )
    
    
    33
    
    
    
    23Other securities
    
    
    (350
    )
    
    
    (281
    )
    
    
    (631
    )Loans (net of unearned discounts)
    
    
    (4,002
    )
    
    
    542
    
    
    
    (3,460
    )Federal Home Loan Bank stock
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )Change in interest income
    
    
    (4,094
    )
    
    
    75
    
    
    
    (4,019
    )Increase (decrease) in interest expense:Interest-bearing transaction deposits
    
    
    5
    
    
    
    (26
    )
    
    
    (21
    )Savings deposits
    
    
    1
    
    
    
    (96
    )
    
    
    (95
    )Money-market deposits
    
    
    (195
    )
    
    
    (329
    )
    
    
    (524
    )Time and brokered time deposits
    
    
    (1,146
    )
    
    
    (3,244
    )
    
    
    (4,390
    )Short-term borrowings
    
    
    (915
    )
    
    
    (586
    )
    
    
    (1,501
    )Long-term debt and junior subordinated debentures
    
    
    (759
    )
    
    
    242
    
    
    
    (517
    )Change in interest expense
    
    
    (3,009
    )
    
    
    (4,039
    )
    
    
    (7,048
    )Increase (decrease) in net interest income
    
    $
    (1,085
    )
    
    $
    4,114
    
    
    $
    3,029
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses
  29




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##### Table of Contents



Noninterest Income.
  For the Nine Months EndedSeptember 302010
    
    
    2009Fiduciary activities
    
    $
    1,744
    
    
    $
    1,705Brokerage fees
    
    
    899
    
    
    
    742Customer service fees
    
    
    1,183
    
    
    
    1,221Other service charges and fees
    
    
    564
    
    
    
    382Net gains (losses) on sales of assets
    
    
    5
    
    
    
    (17
    )Net gains on investments in common stock
    
    
    39
    
    
    
    Net gains on loan sales
    
    
    466
    
    
    
    1,046Loan servicing fees
    
    
    373
    
    
    
    349Net increase in cash surrender value of life insurance
    
    
    420
    
    
    
    434Other
    
    
    569
    
    
    
    121Total noninterest income
    
    $
    6,262
    
    
    $
    5,983
     Noninterest Expense
  For the Nine Months EndedSeptember 302010
    
    
    2009Salaries and employee benefits
    
    $
    13,004
    
    
    $
    13,234Net occupancy expense
    
    
    1,899
    
    
    
    1,658Equipment expense
    
    
    1,721
    
    
    
    1,928Deposit insurance premium
    
    
    1,717
    
    
    
    2,259Professional fees
    
    
    1,566
    
    
    
    2,210Postage and supplies
    
    
    406
    
    
    
    465Losses on foreclosed assets, net
    
    
    890
    
    
    
    2,067Other than temporary losses on
available-for-sale securities and cost
method investments
    
    
    566
    
    
    
    3,238Goodwill impairment losses
    
    
    
    
    
    
    30,417Amortization of mortgage servicing rights
    
    
    196
    
    
    
    379Other
    
    
    4,422
    
    
    
    3,785Total noninterest expense
    
    $
    26,387
    
    
    $
    61,640
 30




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##### Table of Contents



Income Tax Benefit
  Financial Condition
September 30, 2010 Compared to December 31, 2009
 Loan Portfolio
  September 30, 2010
    
    
    December 31, 2009Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(dollars in thousands)Commercial and financial
    
    $
    152,586
    
    
    
    21.48
    %
    
    $
    161,702
    
    
    
    20.82
    %Agricultural
    
    
    11,820
    
    
    
    1.66
    %
    
    
    9,832
    
    
    
    1.27
    %Real estate  farmland
    
    
    17,201
    
    
    
    2.42
    %
    
    
    19,655
    
    
    
    2.53
    %Real estate  construction
    
    
    112,954
    
    
    
    15.90
    %
    
    
    153,578
    
    
    
    19.77
    %Real estate  commercial
    
    
    161,200
    
    
    
    22.70
    %
    
    
    163,292
    
    
    
    21.02
    %Real estate  residential (1)
    
    
    190,338
    
    
    
    26.79
    %
    
    
    193,818
    
    
    
    24.96
    %Installment loans to individuals
    
    
    64,253
    
    
    
    9.05
    %
    
    
    74,793
    
    
    
    9.63
    %Total loans
    
    
    710,352
    
    
    
    100.00
    %
    
    
    776,670
    
    
    
    100.00
    %Allowance for loan losses
    
    
    25,866
    
    
    
    
    
    
    
    18,851Total loans, including loans
held for sale, net of allowance
for loan losses
    
    $
    684,486
    
    
    
    
    
    
    $
    757,819
 
 (1)
    
    Includes loans held for sale Nonperforming Assets
 31




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##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009Nonaccrual loansCommercial and financial
    
    $
    2,882
    
    
    $
    1,439Agricultural
    
    
    
    
    
    
    248Real estate  farmland
    
    
    715
    
    
    
    62Real estate  construction
    
    
    30,656
    
    
    
    33,946Real estate  commercial
    
    
    7,316
    
    
    
    7,378Real estate  residential
    
    
    6,797
    
    
    
    6,803Installment loans to individuals
    
    
    164
    
    
    
    154Total nonaccrual loans
    
    
    48,530
    
    
    
    50,030Loans 90 days past due and still accruing
    
    
    3,773
    
    
    
    393Restructured loans
    
    
    3,622
    
    
    
    397Total nonperforming loans
    
    
    55,925
    
    
    
    50,820Repossessed assets
    
    
    26,178
    
    
    
    16,409Other assets acquired in satisfaction of debt previously contracted
    
    
    
    
    
    
    Total nonperforming other assets
    
    
    26,178
    
    
    
    16,409Total nonperforming loans and nonperforming other assets
    
    $
    82,103
    
    
    $
    67,229Nonperforming loans to loans, before allowance for loan losses
    
    
    7.87
    %
    
    
    6.54
    %Nonperforming loans and nonperforming other assets to loans,
before allowance for loan losses
    
    
    11.56
    %
    
    
    8.66
    %
 Allowance for Loan Losses
 32




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33




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##### Table of Contents



As of and for theNine Months Ended
    
    
    As of and for theSeptember 30,
    
    
    Year Ended December2010
    
    
    31, 2009Average loans outstanding during year
    
    $
    743,006
    
    
    $
    840,834Allowance for loan losses:Balance at beginning of year
    
    $
    18,851
    
    
    $
    19,038Loans charged-off:Commercial and financial
    
    
    2,777
    
    
    
    927Agricultural
    
    
    13
    
    
    
    438Real estate  farmland
    
    
    39
    
    
    
    Real estate  construction
    
    
    4,037
    
    
    
    10,938Real estate  commercial
    
    
    1,019
    
    
    
    2,055Real estate  residential
    
    
    1,220
    
    
    
    7,218Installment loans to individuals
    
    
    627
    
    
    
    899Total charge-offs
    
    
    9,732
    
    
    
    22,475Recoveries:Commercial and financial
    
    
    72
    
    
    
    Agricultural
    
    
    15
    
    
    
    13Real estate  farmland
    
    
    
    
    
    
    Real estate  construction
    
    
    52
    
    
    
    34Real estate  commercial
    
    
    1
    
    
    
    7Real estate  residential
    
    
    20
    
    
    
    8Installment loans to individuals
    
    
    61
    
    
    
    143Total recoveries
    
    
    221
    
    
    
    205Net charge-offs
    
    
    9,511
    
    
    
    22,270Provision for loan losses
    
    
    16,526
    
    
    
    22,083Balance at end of year
    
    $
    25,866
    
    
    $
    18,851Allowance for loan losses as a percent of
total loans outstanding at year end
    
    
    3.64
    %
    
    
    2.43
    %Allowance for loan losses as a percent of
total nonperforming loans
    
    
    46.25
    %
    
    
    37.09
    %Ratio of net charge-offs to average total loans
    
    
    1.28
    %
    
    
    2.65
    %
 Concentration of Credit Risk
   34




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##### Table of Contents



ecurities
     Foreclosed Assets Held for Sale.
 Deposits
 Borrowings
 35




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##### Table of Contents



Liquidity
     Capital Resources
  36




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37




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##### Table of Contents



Regulatory Matters
   1.
    
    A cease and desist order (CDO) is a formal action by the FDIC requiring a
bank to take corrective measures to address deficiencies identified by the FDIC. The
bank can continue to serve its customers in all areas including making loans,
establishing lines of credit, accepting deposits and processing banking transactions.
All customer deposits remain fully insured to the maximum limits set by the FDIC.2.
    
    A Memorandum of Understanding (MOU) agreement is characterized by regulatory
authorities as an informal action that is neither published nor made publicly available
by the agencies and is used when circumstances warrant a milder form of action than a
formal supervisory action, such as a cease and desist order.3.
    
    A Written Agreement (WA) is a formal enforcement action by the FRB, similar
in nature to an MOU, but is legally binding and will be published and made public.
 The Company.
 38




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##### Table of Contents



Mercantile Bank.
  Royal Palm Bank.
     39




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##### Table of Contents



Royal Palm Bancorp.
 Heartland Bank.
  Mid-America Bancorp.
   Effect of Inflation and Changing Prices.
  40




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##### Table of Contents



Critical Accounting Estimates
   Allowance for Loan Losses.
   Deferred Taxes.
 Regulatory Developments.
 41




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##### Table of Contents



Deposit Insurance
 Trust Preferred Securities
 The Consumer Financial Protection Bureau
 Increased Capital Standards and Enhanced Supervision
 Transactions with Affiliates
 Transactions with Insiders
 Enhanced Lending Limits
 42




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##### Table of Contents



Corporate Governance
  
 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
 43




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##### Table of Contents



PART II   OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  The Company and its subsidiaries are subject to regulatory agreements and orders that restrict the
Company and its subsidiaries from taking certain actions.
 General.
 The Company.
  Banking Subsidiaries
   44




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##### Table of Contents



Capital Injections and Ongoing Compliance
  The Company may have a concentration of credit risk related to its purchased participation loans.
  The Company may not be able to develop and implement successfully its capital plan.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Maximum ApproximateTotal Number of Shares
    
    Dollar Value of SharesPurchased as Part of
    
    that May Yet Be PurchasedThird Quarter
    
    Total Number of
    
    Average Price Paid
    
    Publicly Announced
    
    Under the Plans or2010 Calendar Month
    
    Shares Purchased (1)
    
    per Share (1)
    
    Plans or Programs (2)
    
    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. 45




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##### Table of Contents



(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 5. Other Information
  
 Item 6. Exhibits
 ExhibitNumber
    
    Identification of Exhibit10.1
    
    Dealer-Manager Agreement dated September 23,
2010, between Mercantile Bancorp, Inc. and
McClendon, Morrison & Partners, Inc.
(Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K dated September 23,
2010).31.1
    
    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.
 46




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##### Table of Contents



SIGNATURES
  Date: November 15, 2010
    By:
    /s/ Ted T. AwerkampTed T. AwerkampPresident and Chief Executive Officer

(principal executive officer)Date: November 15, 2010
    By:
    /s/ Michael P. McGrathMichael P. McGrathExecutive Vice President, Treasurer, Secretary and
Chief Financial Officer

(principal financial officer/
principal accounting officer) 47