##### 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, 2008
 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 33 rd Street  Quincy, ILLINOIS 62301  (Address of principal executive offices including zip code)
 (217) 223-7300
(Registrants telephone number, including area code)
 
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




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##### 



MERCANTILE BANCORP, INC.
 FORM 10-Q
 TABLE OF CONTENTS
 PART I            FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial StatementsConsolidated Balance Sheets
    
    3Consolidated Statements of Operations
    
    4Consolidated Statements of Cash Flows
    
    5Notes to Condensed Consolidated Financial Statements
    
    6-12Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    13-32Item 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
    
    35Item 3. Defaults Upon Senior Securities
    
    35Item 4. Submission of Matters to a Vote of Security Holders
    
    35Item 5. Other Information
    
    35Item 6. Exhibits
    
    36Signatures
    
    37ExhibitsSection 302 CertificationsSection 906 CertificationsEX-10.1EX-10.2EX-10.3EX-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.
 
 Consolidated Balance Sheets
 (In thousands, except par value and share data)
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)AssetsCash and due from banks
    
    $
    71,627
    
    
    $
    38,172Interest-bearing demand deposits
    
    
    26,568
    
    
    
    18,259Federal funds sold
    
    
    1,138
    
    
    
    19,628Cash and cash equivalents
    
    
    99,333
    
    
    
    76,059Available-for-sale securities
    
    
    195,478
    
    
    
    201,739Held-to-maturity securities
    
    
    10,834
    
    
    
    14,518Loans held for sale
    
    
    3,055
    
    
    
    3,338Loans, net of allowance for loan losses of $18,914 and $12,794
    
    
    1,272,201
    
    
    
    1,188,757Interest receivable
    
    
    10,853
    
    
    
    11,343Foreclosed assets held for sale, net
    
    
    4,653
    
    
    
    3,172Federal Home Loan Bank stock
    
    
    8,229
    
    
    
    7,790Cost method investments in common stock
    
    
    5,610
    
    
    
    6,105Deferred income taxes
    
    
    5,888
    
    
    
    2,457Mortgage servicing rights
    
    
    1,364
    
    
    
    1,307Cash surrender value of life insurance
    
    
    25,030
    
    
    
    24,248Premises and equipment
    
    
    41,178
    
    
    
    42,003Goodwill
    
    
    44,539
    
    
    
    43,934Core deposit and other intangibles
    
    
    4,130
    
    
    
    4,514Other
    
    
    14,044
    
    
    
    7,861Total assets
    
    $
    1,746,419
    
    
    $
    1,639,145Liabilities and Stockholders EquityDepositsDemand
    
    $
    121,629
    
    
    $
    133,890Savings, NOW and money market
    
    
    442,611
    
    
    
    420,394Time
    
    
    675,156
    
    
    
    611,676Brokered time
    
    
    203,651
    
    
    
    153,499Total deposits
    
    
    1,443,047
    
    
    
    1,319,459Short-term borrowings
    
    
    41,777
    
    
    
    45,589Long-term debt
    
    
    74,500
    
    
    
    81,500Junior subordinated debentures
    
    
    61,858
    
    
    
    61,858Interest payable
    
    
    4,564
    
    
    
    6,040Other
    
    
    9,217
    
    
    
    6,971Total liabilities
    
    
    1,634,963
    
    
    
    1,521,417Commitments and Contingent LiabilitiesMinority Interest
    
    
    6,986
    
    
    
    9,446Stockholders EquityCommon stock, $.42 par value; authorized 12,000,000 shares;Issued  8,887,113 shares at September 30, 2008 and December 31, 2007Outstanding  8,703,329 shares at September 30, 2008 and 8,709,655
at December 31, 2007
    
    
    3,629
    
    
    
    3,629Additional paid-in capital
    
    
    11,901
    
    
    
    11,989Retained earnings
    
    
    90,878
    
    
    
    94,552Accumulated other comprehensive income
    
    
    357
    
    
    
    305106,765
    
    
    
    110,475Treasury stock, at costCommon; 183,784 shares at September 30, 2008 and 177,458 at
December 31, 2007
    
    
    (2,295
    )
    
    
    (2,193
    )Total stockholders equity
    
    
    104,470
    
    
    
    108,282Total liabilities and stockholders equity
    
    $
    1,746,419
    
    
    $
    1,639,145
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##### Table of Contents



MERCANTILE BANCORP, INC.
 
 Consolidated Statements of Operations
 (In thousands, except per share data)
 (Unaudited)
 Three months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest and Dividend IncomeLoansTaxable
    
    $
    20,739
    
    
    $
    20,932
    
    
    $
    62,672
    
    
    $
    60,392Tax exempt
    
    
    182
    
    
    
    246
    
    
    
    531
    
    
    
    760SecuritiesTaxable
    
    
    1,881
    
    
    
    2,018
    
    
    
    5,832
    
    
    
    5,852Tax exempt
    
    
    487
    
    
    
    452
    
    
    
    1,500
    
    
    
    1,296Federal funds sold
    
    
    97
    
    
    
    275
    
    
    
    337
    
    
    
    1,010Dividends on Federal Home Loan Bank Stock
    
    
    20
    
    
    
    60
    
    
    
    86
    
    
    
    162Deposits with financial institutions and other
    
    
    119
    
    
    
    210
    
    
    
    353
    
    
    
    689Total interest and dividend income
    
    
    23,525
    
    
    
    24,193
    
    
    
    71,311
    
    
    
    70,161Interest ExpenseDeposits
    
    
    9,905
    
    
    
    11,436
    
    
    
    31,782
    
    
    
    32,723Short-term borrowings
    
    
    217
    
    
    
    558
    
    
    
    800
    
    
    
    1,401Long-term debt and junior subordinated
debentures
    
    
    1,723
    
    
    
    1,663
    
    
    
    5,950
    
    
    
    4,688Total interest expense
    
    
    11,845
    
    
    
    13,657
    
    
    
    38,532
    
    
    
    38,812Net Interest Income
    
    
    11,680
    
    
    
    10,536
    
    
    
    32,779
    
    
    
    31,349Provision for Loan Losses
    
    
    4,480
    
    
    
    677
    
    
    
    11,083
    
    
    
    1,858Net Interest Income After Provision For Loan Losses
    
    
    7,200
    
    
    
    9,859
    
    
    
    21,696
    
    
    
    29,491Noninterest IncomeFiduciary activities
    
    
    673
    
    
    
    589
    
    
    
    2,053
    
    
    
    1,734Brokerage fees
    
    
    481
    
    
    
    329
    
    
    
    1,398
    
    
    
    1,091Customer service fees
    
    
    1,007
    
    
    
    1,039
    
    
    
    3,232
    
    
    
    2,893Other service charges and fees
    
    
    290
    
    
    
    164
    
    
    
    724
    
    
    
    519Net gain (loss) on sales of assets
    
    
    (6
    )
    
    
    (2
    )
    
    
    370
    
    
    
    (3
    )Net gain on loan sales
    
    
    181
    
    
    
    230
    
    
    
    824
    
    
    
    515Net gains (losses) on investments in common
stock
    
    
    (1,257
    )
    
    
    2,311
    
    
    
    (577
    )
    
    
    2,303Loan servicing fees
    
    
    143
    
    
    
    106
    
    
    
    416
    
    
    
    307Net increase in cash surrender value of life
insurance
    
    
    275
    
    
    
    209
    
    
    
    786
    
    
    
    652Other
    
    
    60
    
    
    
    57
    
    
    
    342
    
    
    
    152Total noninterest income
    
    
    1,847
    
    
    
    5,032
    
    
    
    9,568
    
    
    
    10,163Noninterest ExpenseSalaries and employee benefits
    
    
    6,745
    
    
    
    5,925
    
    
    
    20,643
    
    
    
    17,115Net occupancy expense
    
    
    878
    
    
    
    732
    
    
    
    2,628
    
    
    
    2,009Equipment expense
    
    
    904
    
    
    
    628
    
    
    
    2,594
    
    
    
    1,881Deposit insurance premium
    
    
    492
    
    
    
    67
    
    
    
    715
    
    
    
    141Professional fees
    
    
    470
    
    
    
    365
    
    
    
    1,593
    
    
    
    1,439Postage and supplies
    
    
    324
    
    
    
    266
    
    
    
    958
    
    
    
    783Loss on foreclosed assets
    
    
    517
    
    
    
    3
    
    
    
    1,010
    
    
    
    18Net loss on securities
    
    
    4,031
    
    
    
    
    
    
    
    4,032
    
    
    
    Amortization of mortgage servicing rights
    
    
    49
    
    
    
    35
    
    
    
    202
    
    
    
    97Other
    
    
    1,929
    
    
    
    1,930
    
    
    
    6,061
    
    
    
    5,100Total noninterest expense
    
    
    16,339
    
    
    
    9,951
    
    
    
    40,436
    
    
    
    28,583Minority Interest
    
    
    (1,662
    )
    
    
    197
    
    
    
    (2,054
    )
    
    
    531Income (Loss) Before Income Taxes
    
    
    (5,630
    )
    
    
    4,743
    
    
    
    (7,118
    )
    
    
    10,540Income Tax Expense (Benefit)
    
    
    (3,937
    )
    
    
    1,450
    
    
    
    (5,011
    )
    
    
    3,027Net Income (Loss)
    
    $
    (1,693
    )
    
    $
    3,293
    
    
    $
    (2,107
    )
    
    $
    7,513Basic Earnings (Loss) Per Share
    
    $
    (.19
    )
    
    $
    0.38
    
    
    $
    (.24
    )
    
    $
    .86Dividends Paid Per Share
    
    $
    .06
    
    
    $
    .06
    
    
    $
    .18
    
    
    $
    .18Weighted Average Shares Outstanding
    
    
    8,703,371
    
    
    
    8,709,855
    
    
    
    8,707,577
    
    
    
    8,733,738
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##### Table of Contents



MERCANTILE BANCORP, INC.
 
 Consolidated Statements of Cash Flows
 (In thousands)
 (Unaudited)
 Nine Months Ended September 30
    
    2008
    
    
    2007Operating ActivitiesNet income (loss)
    
    $
    (2,107
    )
    
    $
    7,513Items not requiring (providing) cashDepreciation
    
    
    2,183
    
    
    
    1,507Provision for loan losses
    
    
    11,083
    
    
    
    1,858Net accretion of premiums and discounts on securities
    
    
    (24
    )
    
    
    (17
    )Amortization (depreciation) of core deposit intangibles and other
purchase accounting adjustments
    
    
    (58
    )
    
    
    (626
    )Deferred income taxes
    
    
    (3,484
    )
    
    
    (1,619
    )Net gains on investments in common stock
    
    
    577
    
    
    
    (2,303
    )Net gains on loan sales
    
    
    (824
    )
    
    
    (515
    )(Gains) Losses on sale of assets
    
    
    (370
    )
    
    
    3Losses on foreclosed assets
    
    
    1,010
    
    
    
    18Amortization of mortgage servicing rights
    
    
    202
    
    
    
    97Federal Home Loan Bank stock dividends
    
    
    (29
    )
    
    
    Net increase in cash surrender value of life insurance
    
    
    (783
    )
    
    
    (652
    )Minority interest in earnings of subsidiaries
    
    
    (2,054
    )
    
    
    531Changes inLoans originated for sale
    
    
    (76,401
    )
    
    
    (33,738
    )Proceeds from sales of loans
    
    
    77,159
    
    
    
    32,858Interest receivable
    
    
    490
    
    
    
    (949
    )Other assets
    
    
    (6,229
    )
    
    
    (906
    )Interest payable
    
    
    (1,476
    )
    
    
    (589
    )Other liabilities
    
    
    2,277
    
    
    
    8,750Net cash provided by operating activities
    
    
    1,142
    
    
    
    11,221Investing ActivitiesCash paid in acquisition of HNB Financial, net of cash received
    
    
    
    
    
    
    (24,771
    )Cash paid in acquisition of Royal Palm
    
    
    
    
    
    
    (5
    )Purchases of available-for-sale securities
    
    
    (46,700
    )
    
    
    (32,627
    )Proceeds from maturities of available-for-sale securities
    
    
    47,579
    
    
    
    26,863Proceeds from the sales of available-for-sale securities
    
    
    4,947
    
    
    
    Proceeds from maturities of held-to-maturity securities
    
    
    3,678
    
    
    
    2,453Net change in loans
    
    
    (99,683
    )
    
    
    (33,210
    )Purchases of premises and equipment
    
    
    (1,780
    )
    
    
    (7,345
    )Proceeds from sales of premises and equipment
    
    
    799
    
    
    
    29Proceeds from sales of foreclosed assets
    
    
    3,117
    
    
    
    162Purchase of Federal Home Loan Bank stock
    
    
    (1,169
    )
    
    
    (483
    )Proceeds from sales of Federal Home Loan Bank stock
    
    
    759
    
    
    
    449Purchase of cost method investment in common stock
    
    
    
    
    
    
    (4,218
    )Proceeds from sales of cost method investments
    
    
    495
    
    
    
    6,791Goodwill acquired in connection with HNB data deconversion
    
    
    (604
    )
    
    
    Purchase of intangible assets
    
    
    
    
    
    
    (18
    )Net cash used in investing activities
    
    
    (88,562
    )
    
    
    (65,930
    )Financing ActivitiesNet increase in demand deposits, money market, NOW and savings accounts
    
    
    9,956
    
    
    
    10,218Net increase (decrease) in time and brokered time deposits
    
    
    113,712
    
    
    
    (9,582
    )Net increase (decrease) in short-term borrowings
    
    
    (3,812
    )
    
    
    12,504Proceeds from long-term debt
    
    
    17,000
    
    
    
    46,269Payments on long-term debt
    
    
    (24,000
    )
    
    
    (26,160
    )Proceeds from issuance of junior subordinated debentures
    
    
    
    
    
    
    62Proceeds from issuance of stock to minority interest of Mid-America
    
    
    62
    
    
    
    Purchase of stock from minority interest of Mid-America
    
    
    (555
    )
    
    
    Purchase of treasury stock
    
    
    (102
    )
    
    
    Repurchase of common stock
    
    
    
    
    
    
    (569
    )Dividends paid
    
    
    (1,567
    )
    
    
    (1,572
    )Net cash provided by financing activities
    
    
    110,694
    
    
    
    31,170Increase (Decrease) In Cash and Cash Equivalents
    
    
    23,274
    
    
    
    (23,539
    )Cash and Cash Equivalents, Beginning of Period
    
    
    76,059
    
    
    
    99,147Cash and Cash Equivalents, End of Period
    
    $
    99,333
    
    
    $
    75,608Supplemental Cash Flows InformationInterest paid
    
    $
    40,008
    
    
    $
    38,793Income taxes paid
    
    $
    2,087
    
    
    $
    2,143Real estate acquired in settlement of loans
    
    $
    5,608
    
    
    $
    1,941Available-for-sale securities received from sale of equity method investment
    
    $
    
    
    
    $
    234Net (decrease) increase in additional paid-in-capital due to (purchase)
issuance of stock (from) to minority interest of Mid-America
    
    $
    (78
    )
    
    $
    65Decrease in core deposit intangibles from sale of equity method investment
    
    $
    
    
    
    $
    535
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MERCANTILE BANCORP, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (table dollar amounts in thousands)
 1. BASIS OF PRESENTATION
    2. EARNINGS PER COMMON SHARE
  3. NEW ACCOUNTING PRONOUNCEMENTS
    6




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4. 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.
  Available-for-Sale Securities
   Fair Value Measurements UsingQuotes Prices inActive Markets for
    
    Significant Other
    
    SignificantIdentical Assets
    
    Observable Inputs
    
    Unobservable InputsFair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Available-for-sale securities
    
    $
    195,478
    
    
    $
    5,707
    
    
    $
    182,712
    
    
    $
    7,059
 7




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##### Table of Contents



Available-for-saleSecuritiesBalance, July 1, 2008
    
    $
    13,377Total realized and unrealized gains and losses:Included in net income
    
    
    (4,000
    )Included in other comprehensive income
    
    
    Purchases, issuances and settlements
    
    
    314Transfers in and/or out of Level 3
    
    
    (2,632
    )Balance, September 30, 2008
    
    $
    7,059Total gains or losses for the period included
in net income attributable to the change in
unrealized gains or losses related to assets
and liabilities still held at the reporting
date
    
    $
    
  Available-for-saleSecuritiesBalance, December 31, 2007
    
    $
    11,400Total realized and unrealized gains and losses:Included in net income
    
    
    (4,000
    )Included in other comprehensive income
    
    
    Purchases, issuances and settlements
    
    
    2,291Transfers in and/or out of Level 3
    
    
    (2,632
    )Balance, September 30, 2008
    
    $
    7,059Total gains or losses for the period included
in net income attributable to the change in
unrealized gains or losses related to assets
and liabilities still held at the reporting
date
    
    $
    
  Fair Value Measurements UsingQuotes Prices inActive Markets for
    
    Significant Other
    
    SignificantIdentical Assets
    
    Observable Inputs
    
    Unobservable InputsFair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Impaired Loans
    
    $
    33,318
    
    
    $
    
    
    
    $
    
    
    
    $
    33,318
 Impaired Loans
  8




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5. OFF BALANCE SHEET CREDIT COMMITMENTS
    9




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##### Table of Contents



6. CRITICAL ACCOUNTING POLICIES
        10




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##### Table of Contents



7. COMPREHENSIVE INCOME (LOSS)
  For the Three MonthsEnded September 30,2008
    
    
    2007Net income (loss)
    
    $
    (1,693
    )
    
    $
    3,293Other comprehensive income (loss):Unrealized appreciation (depreciation)
on available-for-sale securities:Unrealized appreciation on
available-for-sale securities,
net of tax expense of $432 for
2008 and $1,552 for 2007
    
    
    635
    
    
    
    2,205Less reclassification adjustment
for realized gains (losses)
included in income net of tax
expense (benefit) of $(477) for
2008 and $0 for 2007
    
    
    (780
    )
    
    
    Total unrealized appreciation on
available-for-sale securities, net of
tax expense of $909 for 2008 and
$1,552 for 2007
    
    
    1,415
    
    
    
    2,205Accumulated other comprehensive income
of equity method investee
    
    
    
    
    
    
    57Total other comprehensive income, net of tax
    
    
    1,415
    
    
    
    2,262Comprehensive income (loss)
    
    $
    (278
    )
    
    $
    5,555
 For the Nine MonthsEnded September 30,2008
    
    
    2007Net income (loss)
    
    $
    (2,107
    )
    
    $
    7,513Other 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 $(178) for 2008
and $(74) and for 2007
    
    
    (326
    )
    
    
    (77
    )Less reclassification adjustment for
realized gains (losses) included in
income net of tax expense (benefit) of
$(219) for 2008 and $0 for 2007
    
    
    (358
    )
    
    
    Total unrealized appreciation (depreciation)
on available-for-sale securities, net of tax
expense (benefit) of $41 for 2008 and $(74)
for 2007
    
    
    32
    
    
    
    (77
    )Accumulated other comprehensive income of
equity method investee
    
    
    
    
    
    
    28Adjustment of SFAS 158 liability, net of tax
expense (benefit) of $(12) for 2008 and $0
for 2007
    
    
    20
    
    
    
    Total other comprehensive income (loss), net of tax
    
    
    52
    
    
    
    (49
    )Comprehensive income (loss)
    
    $
    (2,055
    )
    
    $
    7,464
 11




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##### Table of Contents



8. SUBSEQUENT EVENT
   9. NONCOMPLIANCE WITH DEBT COVENANTS
    12




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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
  
    
    general business and economic conditions in the markets the Company
serves change or are less favorable than it expected;
    
    deposit attrition, operating costs, customer loss and business
disruption are greater than the Company expected;
    
    competitive factors including product and pricing pressures among
financial services organizations may increase;
    
    changes in the interest rate environment reduce the Companys interest margins;
    
    changes in market rates and prices may adversely impact securities,
loans, deposits, mortgage servicing rights, and other financial
instruments;
    
    legislative or regulatory developments including changes in laws
concerning taxes, banking, securities, insurance and other aspects of
the financial securities industry may adversely affect the Companys
business;
    
    personal or commercial bankruptcies increase;
    
    the Companys ability to expand and grow its business and operations,
including the establishment of additional branches and acquisition of
additional banks or branches of banks may be more difficult or costly
than the Company expected;
    
    any future acquisitions may be more difficult to integrate than
expected and the Company may be unable to realize any cost savings and
revenue enhancements the Company may have projected in connection with
such acquisitions;
    
    changes in accounting principles, policies or guidelines;
    
    The goodwill we have recorded with acquisitions could become impaired
and have an adverse impact on our profitability;
    
    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; and
    
    technology-related changes may be harder to make or more expensive than the Company anticipated.
 13




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##### Table of Contents



New Accounting Standards Adopted During 2008
    General
  Wholly-Owned Subsidiaries
 
    
    Mercantile Bank (Mercantile), located in Quincy, Illinois;
    
    Marine Bank & Trust (Marine), located in Carthage, Illinois;
    
    Brown County State Bank (Brown County), located in Mt. Sterling, Illinois;
    
    Royal Palm Bancorp, Inc. (Royal Palm), the sole shareholder of Royal Palm Bank of
Florida (Royal Palm Bank), located in Naples, Florida; and
    
    HNB Financial Services, Inc. (HNB Financial), the sole shareholder of HNB
National Bank (HNB), located in Hannibal, Missouri.
 Majority-Owned Subsidiary.
 14




---



##### Table of Contents



Other Investments in Financial Institutions.
 
    
    5.0% of Integrity Bank (Integrity), located in Jupiter, Florida;
    
    0.8% of Premier Bancshares, Inc. (Premier), the sole shareholder of Premier Bank,
located in Jefferson City, Missouri;
    
    5.0% 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;
    
    0.1% of Integrity Bancshares, Inc. (Integrity Bancshares), the sole shareholder
of Integrity Bank, located in Alpharetta, Georgia;
    
    1.3% of Enterprise Financial Services Corp. (Enterprise), the sole shareholder of
Enterprise Bank & Trust, based in Clayton, Missouri;
    
    4.4% of Solera National Bancorp, Inc. (Solera), the sole shareholder of Solera
National Bank, located in Lakewood, Colorado;
    
    5.0% of Manhattan Bancorp, Inc. (Manhattan), the sole shareholder of Bank of
Manhattan, located in Los Angeles, California; and
    
    5.0% of Brookhaven Bank (Brookhaven), located in Atlanta, Georgia.
   Results of Operations
 Comparison of Operating Results for the Three Months Ended September 30, 2008 and 2007
 Overview.
   Net Interest Income.
 15




---



##### Table of Contents



16




---



##### Table of Contents



For the three months ended September 302008
    
    
    
    
    
    
    
    
    
    
    2007Income/
    
    
    
    
    
    
    
    
    
    
    Income/Average Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand
deposits
    
    $
    23,611
    
    
    $
    119
    
    
    
    2.02
    %
    
    $
    15,898
    
    
    $
    210
    
    
    
    5.28
    %Federal funds sold
    
    
    16,344
    
    
    
    97
    
    
    
    2.37
    %
    
    
    21,367
    
    
    
    275
    
    
    
    5.15
    %Securities:TaxableU.S. treasuries
and government
agencies
    
    
    6,126
    
    
    
    76
    
    
    
    4.96
    %
    
    
    28,806
    
    
    
    368
    
    
    
    5.11
    %Mortgage-backed
securities
    
    
    54,951
    
    
    
    631
    
    
    
    4.59
    %
    
    
    41,728
    
    
    
    540
    
    
    
    5.18
    %Other securities
    
    
    88,076
    
    
    
    1,174
    
    
    
    5.34
    %
    
    
    84,670
    
    
    
    1,110
    
    
    
    5.24
    %Total taxable
    
    
    149,153
    
    
    
    1,881
    
    
    
    5.05
    %
    
    
    155,204
    
    
    
    2,018
    
    
    
    5.20
    %Non-taxable  State and
political subdivision (3)
    
    
    53,922
    
    
    
    487
    
    
    
    3.61
    %
    
    
    49,520
    
    
    
    452
    
    
    
    3.65
    %Loans (net of unearned
discount ) (1)(2)
    
    
    1,275,671
    
    
    
    20,921
    
    
    
    6.56
    %
    
    
    1,077,182
    
    
    
    21,178
    
    
    
    7.86
    %Federal Home Loan Bank stock
    
    
    8,132
    
    
    
    20
    
    
    
    0.98
    %
    
    
    6,430
    
    
    
    60
    
    
    
    3.73
    %Total
interest-earning
assets (1)
    
    
    1,526,833
    
    
    $
    23,525
    
    
    
    6.16
    %
    
    
    1,325,601
    
    
    $
    24,193
    
    
    
    7.30
    %Cash and due from banks
    
    
    37,893
    
    
    
    
    
    
    
    
    
    
    
    25,165Premises and equipment
    
    
    41,376
    
    
    
    
    
    
    
    
    
    
    
    30,990Foreclosed assets held for
sale, net
    
    
    4,149
    
    
    
    
    
    
    
    
    
    
    
    1,450Equity method investments
in common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,775Cost method investments in
common stock
    
    
    5,610
    
    
    
    
    
    
    
    
    
    
    
    7,379Interest receivable
    
    
    10,413
    
    
    
    
    
    
    
    
    
    
    
    10,814Cash surrender value of
life insurance
    
    
    24,898
    
    
    
    
    
    
    
    
    
    
    
    19,766Allowance for loan loss
    
    
    (16,128
    )
    
    
    
    
    
    
    
    
    
    
    (11,993
    )Goodwill
    
    
    44,282
    
    
    
    
    
    
    
    
    
    
    
    32,787Intangible assets
    
    
    4,117
    
    
    
    
    
    
    
    
    
    
    
    5,861Other
    
    
    23,024
    
    
    
    
    
    
    
    
    
    
    
    12,337Total assets
    
    $
    1,706,467
    
    
    
    
    
    
    
    
    
    
    $
    1,462,932Liabilities and Stockholders EquityInterest-bearing
transaction deposits
    
    $
    135,805
    
    
    $
    314
    
    
    $
    0.92
    %
    
    $
    111,297
    
    
    $
    455
    
    
    
    1.64
    %Savings deposits
    
    
    86,764
    
    
    
    281
    
    
    
    1.30
    %
    
    
    76,002
    
    
    
    508
    
    
    
    2.67
    %Money-market deposits
    
    
    223,297
    
    
    
    1,138
    
    
    
    2.04
    %
    
    
    200,184
    
    
    
    1,993
    
    
    
    3.98
    %Time and brokered time
deposits
    
    
    840,996
    
    
    
    8,172
    
    
    
    3.89
    %
    
    
    687,722
    
    
    
    8,480
    
    
    
    4.93
    %Short-term borrowings
    
    
    33,523
    
    
    
    217
    
    
    
    2.59
    %
    
    
    42,897
    
    
    
    558
    
    
    
    5.20
    %Long-term debt
    
    
    72,258
    
    
    
    789
    
    
    
    4.37
    %
    
    
    65,053
    
    
    
    818
    
    
    
    5.03
    %Subordinated debenture bonds
    
    
    61,858
    
    
    
    934
    
    
    
    6.04
    %
    
    
    48,112
    
    
    
    845
    
    
    
    7.03
    %Total
interest-bearing
liabilities
    
    
    1,454,501
    
    
    $
    11,845
    
    
    $
    3.26
    %
    
    
    1,231,267
    
    
    $
    13,657
    
    
    
    4.44
    %Demand deposits
    
    
    125,725
    
    
    
    
    
    
    
    
    
    
    
    104,646Interest payable
    
    
    4,833
    
    
    
    
    
    
    
    
    
    
    
    5,781Other liabilities
    
    
    7,804
    
    
    
    
    
    
    
    
    
    
    
    7,794Minority interest
    
    
    7,782
    
    
    
    
    
    
    
    
    
    
    
    9,634Stockholders equity
    
    
    105,822
    
    
    
    
    
    
    
    
    
    
    
    103,810Total
liabilities and
stockholders
equity
    
    $
    1,706,467
    
    
    
    
    
    
    
    
    
    
    $
    1,462,932Interest spread
    
    
    
    
    
    
    
    
    
    
    2.90
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %Net interest income
    
    
    
    
    
    $
    11,680
    
    
    
    
    
    
    
    
    
    
    $
    10,536Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.06
    %
    
    
    
    
    
    
    
    
    
    
    3.18
    %Interest-earning assets to
interest-bearing
liabilities
    
    
    104.97
    %
    
    
    
    
    
    
    
    
    
    
    107.66
    %
 
 (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. 17




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##### Table of Contents



For the three months ended September 30,2008 vs. 2007Increase (Decrease) Due toChange inVolume
    
    
    Rate
    
    
    TotalIncrease (decrease) in interest income:Interest-bearing bank deposits
    
    $
    74
    
    
    $
    (165
    )
    
    $
    (91
    )Federal funds sold
    
    
    (54
    )
    
    
    (124
    )
    
    
    (178
    )Investment securities:U.S. Treasuries and Agencies
    
    
    (282
    )
    
    
    (10
    )
    
    
    (292
    )Mortgage-backed securities
    
    
    157
    
    
    
    (66
    )
    
    
    91States and political subdivision (1)
    
    
    40
    
    
    
    (5
    )
    
    
    35Other securities
    
    
    45
    
    
    
    20
    
    
    
    65Loans (net of unearned discounts)
    
    
    3,562
    
    
    
    (3,819
    )
    
    
    (257
    )Federal Home Loan Bank stock
    
    
    13
    
    
    
    (53
    )
    
    
    (40
    )Change in interest income (1)
    
    
    3,555
    
    
    
    (4,222
    )
    
    
    (667
    )Increase (decrease) in interest expense:Interest-bearing transaction deposits
    
    
    86
    
    
    
    (227
    )
    
    
    (141
    )Savings deposits
    
    
    64
    
    
    
    (291
    )
    
    
    (227
    )Money-market deposits
    
    
    209
    
    
    
    (1,064
    )
    
    
    (855
    )Time and brokered time deposits
    
    
    1,685
    
    
    
    (1,993
    )
    
    
    (308
    )Short-term borrowings
    
    
    (103
    )
    
    
    (238
    )
    
    
    (341
    )Long-term debt
    
    
    285
    
    
    
    (225
    )
    
    
    60Change in interest expense
    
    
    2,226
    
    
    
    (4,038
    )
    
    
    (1,812
    )Increase (decrease) in net interest income (1)
    
    $
    1,329
    
    
    $
    (184
    )
    
    $
    1,145
 
 (1)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis. Provision for Loan Losses.
  18




---



##### Table of Contents



Noninterest Income.
 For the Three Months EndedSeptember 30:2008
    
    
    2007Fiduciary activities
    
    $
    673
    
    
    $
    589Brokerage fees
    
    
    481
    
    
    
    329Customer service fees
    
    
    1,007
    
    
    
    1,039Other service charges and fees
    
    
    290
    
    
    
    164Net gain (loss) on sales of assets
    
    
    (6
    )
    
    
    (2
    )Net gain on loan sales
    
    
    181
    
    
    
    230Net gains (losses) on investments in common stock
    
    
    (1,257
    )
    
    
    2,311Loan servicing fees
    
    
    143
    
    
    
    106Net increase in cash surrender value of life insurance
    
    
    275
    
    
    
    209Other
    
    
    60
    
    
    
    57Total noninterest income
    
    $
    1,847
    
    
    $
    5,032
     Noninterest Expense.
  For the Three Months EndedSeptember 302008
    
    
    2007Salaries and employee benefits
    
    $
    6,745
    
    
    $
    5,925Net occupancy expense
    
    
    878
    
    
    
    732Equipment expense
    
    
    904
    
    
    
    628Deposit insurance premium
    
    
    492
    
    
    
    67Professional fees
    
    
    470
    
    
    
    365Postage and supplies
    
    
    324
    
    
    
    266Loss on foreclosed assets
    
    
    517
    
    
    
    3Net loss on securities
    
    
    4,031
    
    
    
    Amortization of mortgage servicing rights
    
    
    49
    
    
    
    35Other
    
    
    1,929
    
    
    
    1,930Total noninterest expense
    
    $
    16,339
    
    
    $
    9,951
 19




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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, 2008 and 2007
 Overview.
  20




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##### Table of Contents



Net Interest Income.
   21




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##### Table of Contents



For the nine months ended September 302008
    
    
    2007Average
    
    
    Income/
    
    
    
    
    
    
    Average
    
    
    Income/Balance
    
    
    Expense
    
    
    Yield/Rate
    
    
    Balance
    
    
    Expense
    
    
    Yield/Rate(dollars in thousands)AssetsInterest-bearing demand deposits
    
    $
    20,129
    
    
    $
    353
    
    
    
    2.34
    %
    
    $
    16,597
    
    
    $
    689
    
    
    
    5.54
    %Federal funds sold
    
    
    17,169
    
    
    
    337
    
    
    
    2.62
    %
    
    
    24,859
    
    
    
    1,010
    
    
    
    5.42
    %Securities:TaxableU.S. treasuries and government agencies
    
    
    12,232
    
    
    
    398
    
    
    
    4.34
    %
    
    
    24,668
    
    
    
    951
    
    
    
    5.14
    %Mortgage-backed securities
    
    
    50,538
    
    
    
    1,813
    
    
    
    4.78
    %
    
    
    41,903
    
    
    
    1,613
    
    
    
    5.13
    %Other securities
    
    
    87,129
    
    
    
    3,621
    
    
    
    5.54
    %
    
    
    82,526
    
    
    
    3,288
    
    
    
    5.31
    %Total taxable
    
    
    149,899
    
    
    
    5,832
    
    
    
    5.19
    %
    
    
    149,097
    
    
    
    5,852
    
    
    
    5.23
    %Non-taxable  State and political subdivision (3)
    
    
    55,110
    
    
    
    1,500
    
    
    
    3.63
    %
    
    
    47,465
    
    
    
    1,296
    
    
    
    3.64
    %Loans (net of unearned discount ) (1)(2)
    
    
    1,246,939
    
    
    
    63,203
    
    
    
    6.76
    %
    
    
    1,045,762
    
    
    
    61,152
    
    
    
    7.80
    %Federal Home Loan Bank stock
    
    
    8,324
    
    
    
    86
    
    
    
    1.38
    %
    
    
    5,916
    
    
    
    162
    
    
    
    3.65
    %Total interest-earning assets (1)
    
    
    1,497,570
    
    
    $
    71,311
    
    
    
    6.35
    %
    
    
    1,289,696
    
    
    $
    70,161
    
    
    
    7.25
    %Cash and due from banks
    
    
    34,986
    
    
    
    
    
    
    
    
    
    
    
    25,933Premises and equipment
    
    
    41,617
    
    
    
    
    
    
    
    
    
    
    
    27,870Foreclosed assets held for sale, net
    
    
    4,246
    
    
    
    
    
    
    
    
    
    
    
    678Equity method investments in common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,687Cost method investments in common stock
    
    
    5,907
    
    
    
    
    
    
    
    
    
    
    
    4,888Interest receivable
    
    
    10,391
    
    
    
    
    
    
    
    
    
    
    
    9,887Cash surrender value of life insurance
    
    
    24,664
    
    
    
    
    
    
    
    
    
    
    
    18,818Allowance for loan loss
    
    
    (15,432
    )
    
    
    
    
    
    
    
    
    
    
    (11,356
    )Goodwill
    
    
    44,282
    
    
    
    
    
    
    
    
    
    
    
    30,230Intangible assets
    
    
    5,017
    
    
    
    
    
    
    
    
    
    
    
    6,034Other
    
    
    20,793
    
    
    
    
    
    
    
    
    
    
    
    12,078Total assets
    
    $
    1,674,041
    
    
    
    
    
    
    
    
    
    
    $
    1,418,443Liabilities and Stockholders EquityInterest-bearing transaction deposits
    
    $
    135,499
    
    
    $
    1,040
    
    
    
    1.02
    %
    
    $
    115,073
    
    
    $
    1,514
    
    
    
    1.75
    %Savings deposits
    
    
    85,137
    
    
    
    924
    
    
    
    1.45
    %
    
    
    72,049
    
    
    
    1,369
    
    
    
    2.53
    %Money-market deposits
    
    
    220,295
    
    
    
    3,859
    
    
    
    2.34
    %
    
    
    183,914
    
    
    
    5,391
    
    
    
    3.91
    %Time and brokered time deposits
    
    
    795,585
    
    
    
    25,959
    
    
    
    4.35
    %
    
    
    675,049
    
    
    
    24,449
    
    
    
    4.83
    %Short-term borrowings
    
    
    35,223
    
    
    
    800
    
    
    
    3.03
    %
    
    
    36,404
    
    
    
    1,401
    
    
    
    5.13
    %Long term debt
    
    
    86,359
    
    
    
    3,049
    
    
    
    4.71
    %
    
    
    62,142
    
    
    
    2,433
    
    
    
    5.22
    %Subordinated debenture bonds
    
    
    61,858
    
    
    
    2,901
    
    
    
    6.25
    %
    
    
    43,530
    
    
    
    2,255
    
    
    
    6.91
    %Total interest-bearing liabilities
    
    
    1,419,956
    
    
    $
    38,532
    
    
    
    3.62
    %
    
    
    1,188,161
    
    
    $
    38,812
    
    
    
    4.36
    %Demand deposits
    
    
    125,809
    
    
    
    
    
    
    
    
    
    
    
    106,782Interest payable
    
    
    5,312
    
    
    
    
    
    
    
    
    
    
    
    6,042Other liabilities
    
    
    6,996
    
    
    
    
    
    
    
    
    
    
    
    5,732Minority interest
    
    
    8,992
    
    
    
    
    
    
    
    
    
    
    
    9,418Stockholders equity
    
    
    106,976
    
    
    
    
    
    
    
    
    
    
    
    102,308Total liabilities and stockholders equity
    
    $
    1,674,041
    
    
    
    
    
    
    
    
    
    
    $
    1,418,443Interest spread
    
    
    
    
    
    
    
    
    
    
    2.73
    %
    
    
    
    
    
    
    
    
    
    
    2.90
    %Net interest income
    
    
    
    
    
    $
    32,779
    
    
    
    
    
    
    
    
    
    
    $
    31,349Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.92
    %
    
    
    
    
    
    
    
    
    
    
    3.24
    %Interest-earning assets to interest-bearing liabilities
    
    
    105.47
    %
    
    
    
    
    
    
    
    
    
    
    108.55
    %
 
 (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




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##### Table of Contents



For the nine months ended September 30,2008 vs. 2007Increase (Decrease) Due toChange inVolume
    
    
    Rate
    
    
    TotalIncrease (decrease) in interest income:Interest-bearing bank deposits
    
    $
    124
    
    
    $
    (460
    )
    
    $
    (336
    )Federal funds sold
    
    
    (252
    )
    
    
    (421
    )
    
    
    (673
    )Investment securities:U.S. Treasuries and Agencies
    
    
    (422
    )
    
    
    (131
    )
    
    
    (553
    )Mortgage-backed securities
    
    
    315
    
    
    
    (115
    )
    
    
    200States and political subdivision (1)
    
    
    208
    
    
    
    (4
    )
    
    
    204Other securities
    
    
    188
    
    
    
    145
    
    
    
    333Loans (net of unearned discounts)
    
    
    10,838
    
    
    
    (8,787
    )
    
    
    2,051Federal Home Loan Bank stock
    
    
    50
    
    
    
    (126
    )
    
    
    (76
    )Change in interest income (1)
    
    
    11,049
    
    
    
    (9,899
    )
    
    
    1,150Increase in interest expense:Interest-bearing transaction deposits
    
    
    235
    
    
    
    (709
    )
    
    
    (474
    )Savings deposits
    
    
    217
    
    
    
    (662
    )
    
    
    (445
    )Money-market deposits
    
    
    925
    
    
    
    (2,457
    )
    
    
    (1,532
    )Time and brokered time deposits
    
    
    4,087
    
    
    
    (2,577
    )
    
    
    1,510Short-term borrowings
    
    
    (44
    )
    
    
    (557
    )
    
    
    (601
    )Long-term debt
    
    
    1,742
    
    
    
    (480
    )
    
    
    1,262Change in interest expense
    
    
    7,162
    
    
    
    (7,442
    )
    
    
    (280
    )Increase in net interest income (1)
    
    $
    3,887
    
    
    $
    (2,457
    )
    
    $
    1,430
 
 (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 Nine Months EndedSeptember 302008
    
    
    2007Fiduciary activities
    
    $
    2,053
    
    
    $
    1,734Brokerage fees
    
    
    1,398
    
    
    
    1,091Customer service fees
    
    
    3,232
    
    
    
    2,893Other service charges and fees
    
    
    724
    
    
    
    519Net gain (loss) on sales of assets
    
    
    370
    
    
    
    (3
    )Net gain on loan sales
    
    
    824
    
    
    
    515Net gains (losses) on investments in common stock
    
    
    (577
    )
    
    
    2,303Loan servicing fees
    
    
    416
    
    
    
    307Net increase in cash surrender value of life insurance
    
    
    786
    
    
    
    652Other
    
    
    342
    
    
    
    152Total noninterest income
    
    $
    9,568
    
    
    $
    10,163
        24




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##### Table of Contents



Noninterest Expense.
  For the Nine Months EndedSeptember 302008
    
    
    2007Salaries and employee benefits
    
    $
    20,643
    
    
    $
    17,115Net occupancy expense
    
    
    2,628
    
    
    
    2,009Equipment expense
    
    
    2,594
    
    
    
    1,881Deposit insurance premium
    
    
    715
    
    
    
    141Professional fees
    
    
    1,593
    
    
    
    1,439Postage and supplies
    
    
    958
    
    
    
    783Loss on foreclosed assets
    
    
    1,010
    
    
    
    18Net loss on securities
    
    
    4,032
    
    
    
    Amortization of mortgage servicing rights
    
    
    202
    
    
    
    97Other
    
    
    6,061
    
    
    
    5,100Total noninterest expense
    
    $
    40,436
    
    
    $
    28,583
       25




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##### Table of Contents



Income Tax Expense (Benefit).
  Financial Condition   September 30, 2008 Compared to December 31, 2007
 Loan Portfolio.
  September 30, 2008
    
    
    December 31, 2007Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(dollars in thousands)Commercial and financial
    
    $
    192,573
    
    
    
    14.88
    %
    
    $
    173,817
    
    
    
    14.43
    %Agricultural
    
    
    61,533
    
    
    
    4.75
    %
    
    
    64,399
    
    
    
    5.34
    %Real estate  farmland
    
    
    106,850
    
    
    
    8.26
    %
    
    
    91,488
    
    
    
    7.59
    %Real estate  construction
    
    
    242,561
    
    
    
    18.74
    %
    
    
    215,850
    
    
    
    17.91
    %Real estate  commercial
    
    
    214,109
    
    
    
    16.54
    %
    
    
    204,338
    
    
    
    16.96
    %Real estate  residential (1)
    
    
    339,995
    
    
    
    26.28
    %
    
    
    323,936
    
    
    
    26.89
    %Installment loans to individuals
    
    
    136,589
    
    
    
    10.55
    %
    
    
    131,061
    
    
    
    10.88
    %Total loans
    
    
    1,294,170
    
    
    
    100.00
    %
    
    
    1,204,889
    
    
    
    100.00
    %Allowance for loan losses
    
    
    18,914
    
    
    
    
    
    
    
    12,794Total loans, including loans
held for sale, net of allowance
for loan losses
    
    $
    1,275,256
    
    
    
    
    
    
    $
    1,192,095
 
 (1)
    
    Includes loans held for sale Nonperforming Assets
 26




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##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007Nonaccrual loans
Commercial and financial
    
    $
    1,784
    
    
    $
    581Agricultural
    
    
    157
    
    
    
    308Real estate  farmland
    
    
    126
    
    
    
    296Real estate  construction
    
    
    21,269
    
    
    
    6,716Real estate  commercial
    
    
    969
    
    
    
    3,152Real estate  residential
    
    
    3,029
    
    
    
    8,571Installment loans to individuals
    
    
    234
    
    
    
    195Total nonaccrual loans
    
    
    27,568
    
    
    
    19,819Loans 90 days past due and still accruing
    
    
    4,833
    
    
    
    3,184Restructured loans
    
    
    58
    
    
    
    Total nonperforming loans
    
    
    32,459
    
    
    
    23,003Repossessed assets
    
    
    4,689
    
    
    
    3,273Other assets acquired in satisfaction of debt previously
contracted
    
    
    
    
    
    
    Total nonperforming other assets
    
    
    4,689
    
    
    
    3,273Total nonperforming loans and nonperforming other assets
    
    $
    37,148
    
    
    $
    26,276Nonperforming loans to loans, before allowance for loan losses
    
    
    2.51
    %
    
    
    1.91
    %Nonperforming loans and nonperforming other assets to loans,
before allowance for loan losses
    
    
    2.87
    %
    
    
    2.18
    %
 Allowance for Loan Losses
 27




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28




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##### Table of Contents



As of and forthe Nine Months
    
    
    As of and forEnded
    
    
    the Year EndedSeptember 30,
    
    
    December 31,2008
    
    
    2007Average loans outstanding during year
    
    $
    1,246,939
    
    
    $
    1,085,606Allowance for loan losses:Balance at beginning of year
    
    $
    12,794
    
    
    $
    10,613Loans charged-off:Commercial and financial
    
    
    523
    
    
    
    493Agricultural
    
    
    136
    
    
    
    75Real estate  farmland
    
    
    
    
    
    
    Real estate  construction
    
    
    2,133
    
    
    
    284Real estate  commercial
    
    
    1,220
    
    
    
    18Real estate  residential
    
    
    738
    
    
    
    399Installment loans to individuals
    
    
    615
    
    
    
    906Total charge-offs
    
    
    5,365
    
    
    
    2,175Recoveries:Commercial and financial
    
    
    285
    
    
    
    55Agricultural
    
    
    6
    
    
    
    15Real estate  farmland
    
    
    
    
    
    
    Real estate  construction
    
    
    
    
    
    
    2Real estate  commercial
    
    
    26
    
    
    
    1Real estate  residential
    
    
    
    
    
    
    38Installment loans to individuals
    
    
    85
    
    
    
    150Total recoveries
    
    
    402
    
    
    
    261Net charge-offs
    
    
    4,963
    
    
    
    1,914Provision for loan losses
    
    
    11,083
    
    
    
    2,969Purchased allowance
    
    
    
    
    
    
    1,126Balance at end of year
    
    $
    18,914
    
    
    $
    12,794Allowance for loan losses as a percent of
total loans outstanding at year end
    
    
    1.46
    %
    
    
    1.06
    %Allowance for loan losses as a percent of
total nonperforming loans
    
    
    58.27
    %
    
    
    55.62
    %Ratio of net charge-offs to average total loans
    
    
    0.40
    %
    
    
    0.18
    %
 29




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##### Table of Contents



Securities
     Deposits
 Borrowings
  30




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##### Table of Contents



Liquidity and Capital Resources
 Liquidity
       31




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##### Table of Contents



Capital Resources
  Effect of Inflation and Changing Prices.
  Recent Developments
     32




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##### Table of Contents



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




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
        34




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total Number of Shares
    
    Maximum ApproximateThird Quarter
    
    Total Number of
    
    
    
    
    
    Purchased as Part of
    
    Dollar Value of Shares that2008 Calendar
    
    Shares Purchased
    
    Average Price
    
    Publicly Announced
    
    May Yet Be Purchased UnderMonth
    
    (1)
    
    Paid per Share (1)
    
    Plans or Programs (2)
    
    the Plans or Programs (3)July
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    $
    8,130,224August
    
    
    126
    
    
    $
    17.65
    
    
    
    126
    
    
    $
    8,128,000September
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    $
    8,128,000Total
    
    
    126
    
    
    $
    17.65
    
    
    
    126
 
 (1)
    
    The total number of shares purchased and the average price paid per share include, in addition
to other purchases, shares purchased in the open market and through privately negotiated
transactions by the Companys 401(k) Profit Sharing Plan. For the months indicated, there were no
shares purchased by the Plan.(2)
    
    Includes only shares subject to publicly announced stock repurchase program, i.e. the $10
million stock repurchase program approved by the Board on August 15, 2005 and announced on August
17, 2005 (the 2005 Repurchase Program). Does not include shares purchased by the Companys
401(k) Profit Sharing Plan.(3)
    
    Dollar amount of repurchase authority remaining at month-end under the 2005 Repurchase
Program, the Companys only publicly announced repurchase program in effect at such dates. The
2005 Repurchase Program is limited to 883,656 shares (10% of the number of outstanding shares on
the date the Board approved the program, adjusted for the three-for-one stock split in June of 2006
and the three-for-two split in December of 2007) but not to exceed $10 million in repurchases. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  35




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Item 6. Exhibits
 ExhibitNumber
    
    Identification of Exhibit10.1
    
    Amendment to Employment Agreement dated July 15, 2008, between
Company and Ted T. Awerkamp, filed herewith.10.2
    
    Amendment to Employment Agreement dated July 15, 2008, between
Company and Michael P. McGrath, filed herewith.10.3
    
    Amendment to Employment Agreement dated July 15, 2008, between
Company and Daniel J. Cook, filed herewith.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.
 36




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##### Table of Contents



SIGNATURES
  Date: November 10, 2008
    By:
    /s/   Ted T. AwerkampTed T. AwerkampPresident and Chief Executive Officer
(principal executive officer)Date: November 10, 2008
    By:
    /s/  Michael P. McGrathMichael P. McGrathExecutive Vice President, Treasurer, Secretary and
Chief Financial Officer
(principal financial officer/
principal accounting officer) 37