##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
 For the fiscal year ended December 31, 2006
 OR
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
 Commission File No.: 001-32434
 MERCANTILE BANCORP, INC.
  Delaware
    
    37-1149138(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification Number)
 440 Maine Street, Quincy, Illinois
    
    62301(Address of Principal Executive Offices)
    
    (Zip Code)
 (217) 223-7300
   Title of Each ClassCommon Stock (par value $.42 per share)
    
    Name of Each Exchange on Which RegisteredAmerican Stock Exchange
  Not Applicable
  o þ
 o þ
 þ o
 þ
  o þ o
 o þ




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##### 



PART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    25Item 1B. Unresolved Staff Comments
    
    
    27Item 2. Properties
    
    
    27Item 3. Legal Proceedings
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 4A. Executive Officers of Registrant
    
    
    27PART II.Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    29Item 6. Selected Financial Data
    
    
    33Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    34Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    75Item 8. Financial Statements and Supplementary Data
    
    
    76Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    76Item 9A. Controls and Procedures
    
    
    77Item 9B. Other Information
    
    
    79PART III.Item 10. Directors and Executive Officers of the Company and Corporate Governance
    
    
    80Item 11. Executive Compensation
    
    
    80Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    80Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    80Item 14. Principal Accounting Fees and Services
    
    
    80PART IV.Item 15. Exhibits, Financial Statement Schedules
    
    
    81SIGNATURES
    
    
    82INDEX TO EXHIBITS
    
    
    83BylawsSubsidiariesCertification of Chief Executive OfficerCertification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer




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DOCUMENTS INCORPORATED BY REFERENCE
  
 PART I
 
 Item 1. Business
 Mercantile Bancorp, Inc.
 www.mercbanx.com
   Banks
 
    
    MTSB, located in Quincy, Illinois;
    
    Marine Bank & Trust (Marine Bank), located in Carthage, Illinois;
    
    Perry State Bank (Perry), located in Perry, Missouri;
    
    Brown County State Bank (Brown County), located in Mt. Sterling, Illinois;
    
    Farmers State Bank of Northern Missouri (Farmers), located in Savannah, Missouri; and
    
    Royal Palm Bancorp, Inc. (Royal Palm) (the sole shareholder of Royal Palm Bank of
Florida (Royal Palm Bank), located in Naples, Florida.
 1




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
    
    36.8% of New Frontier Bancshares, Inc. (New Frontier), the sole shareholder of
New Frontier Bank, located in St. Charles, Missouri;
    
    5.0% of Integrity Bank (Integrity), located in Jupiter, Florida;
    
    0.7% 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;
    
    4.0% 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;
    
    1.4% of Enterprise Financial Services Corp. (Enterprise), the sole shareholder of
Enterprise Bank & Trust, based in Clayton, Missouri; and
    
    0.5% of First Charter Corporation (First Charter), based in Charlotte, North
Carolina.
 2




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3




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Employees
 Business Strategies  Growth and Operations.
 Growth Strategy
  4




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1.
    
    100% acquisitions of existing financial institutions to be consolidated and
operated within the existing structure of the Company;2.
    
    Minority investments in financial institutions with the potential to acquire
controlling or full ownership in the future; and3.
    
    Equity interests in denovo institutions in high-growth markets with proven
management, with the intention of allowing these investments to grow and build value,
resulting in gains to be realized upon future dispositions.
  5




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Operating Strategy
      6




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Products and Services  General
  Lending Activities
 Real Estate Loans
 Farmland Real Estate Loans
   7




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Construction Real Estate Loans
   Mortgage Real Estate Loans
    8




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Commercial, Financial and Agricultural Loans
   9




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Consumer Loans
   Underwriting Strategy
 
    
    granting loans on a sound and collectible basis;
    
    investing funds properly for the benefit of the Companys shareholders and the
protection of its depositors;
    
    serving the legitimate needs of the communities in the Companys markets while
obtaining a balance between maximum yield and minimum risk;
    
    ensuring that primary and secondary sources of repayment are adequate in relation
to the amount of the loan;
    
    developing and maintaining adequate diversification of the loan portfolio as a
whole and of the loans within each category; and
    
    ensuring that each loan is properly documented and, if appropriate, insurance
coverage is adequate. The Companys loan review personnel and compliance officer
interact on a regular basis with commercial, mortgage and consumer lenders to identify
potential underwriting or technical exception variances.
  10




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Markets and Competition
       11




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Mercantile Trust & Savings Bank
       12




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Marine Bank & Trust
    13




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Perry State Bank
       14




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Brown County State Bank
      Farmers State Bank of Northern Missouri
   15




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Mid-America Bancorp, Inc.
     16




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Royal Palm Bancorp, Inc.
       17




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Lending Activities
  Investment Securities Activities
  Sources of Funds
  Laws and Regulations Applicable to Bank Holding Companies
 General.
 Limitation on Acquisitions.
 18




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Limitation on Activities.
 Regulatory Capital Requirements.
   plus minus
    19




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Source of Strength.
 Liability of Commonly Controlled Institutions.
 Laws and Regulations Applicable to the Companys Subsidiary Banks
 General.
  Bank Regulatory Capital Requirements. Laws and Regulations Applicable to Bank Holding Companies Regulatory Capital Requirements
 20




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Deposit Insurance and Assessments.
 Limitations on Interest Rates and Loans to One Borrower.
 Payment of Dividends.
 21




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The USA Patriot Act.
 Community Reinvestment Act.
 Transactions with Affiliates
 Other Laws.
 Laws Governing Interstate Banking and Branching
   22




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Regulation of Other Non-Banking Activities.
  Sarbanes-Oxley Act of 2002
   23




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Changes in Law and Regulation Affecting the Company Generally
 Future Legislation .
 Fiscal Monetary Policies.
   24




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Item 1A  Risk Factors
  Changes in the domestic interest rate environment could negatively affect the Companys net
interest income.
 Liquidity risk may affect the ability of the Company to meet future contractual obligations.
 The financial services industry is highly competitive, and competitive pressures could
intensify and adversely affect the Companys financial results.
 If economic conditions worsen, the Company may suffer from credit risk and the Companys
allowance for loan losses may not be adequate to cover actual losses.
 Changes in accounting standards may materially impact the Companys financial statements.
 The Company relies on other companies to provide key components of the Companys business
infrastructure.
 25




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Significant legal actions could subject the Company to substantial uninsured liabilities.
 The Company faces operational risks, including systems failure risks.
 The Companys stock price can be volatile.
 If the value of real estate in the Companys market area were to decline materially, a
significant portion of the loan portfolio could become under-collateralized, which might have a
material adverse affect on the Company.
 The Company may not be able to influence the activities of the banking organizations in which
it owns a minority interest.
 The Company is subject to the local economies where it operates, and unfavorable economic or
market conditions in these areas could have a material adverse effect on the Companys financial
condition and results of operations.
 26




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The Company may be adversely affected by government regulation.
 
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
    
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 4A. Executive Officers of Registrant
  27




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28




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
       Price Range
    
    Cash Dividends2006 ($)
    
    High($)
    
    Low($)
    
    Declared Per Share($)1st Quarter
    
    
    24.00
    
    
    
    19.34
    
    
    
    .082nd Quarter
    
    
    22.84
    
    
    
    21.17
    
    
    
    .083rd Quarter
    
    
    22.50
    
    
    
    21.50
    
    
    
    .084th Quarter
    
    
    22.62
    
    
    
    21.50
    
    
    
    .0820051st Quarter
    
    
    20.00
    
    
    
    18.50
    
    
    
    .022nd Quarter
    
    
    19.33
    
    
    
    18.50
    
    
    
    .023rd Quarter
    
    
    20.33
    
    
    
    18.75
    
    
    
    .024th Quarter
    
    
    19.75
    
    
    
    19.18
    
    
    
    .24
 29




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Total Number of Shares
    
    Maximum ApproximateFourth Quarter
    
    Total Number of
    
    
    
    
    
    Purchased as Part of
    
    Dollar Value of Shares that2006 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)October
    
    
    2,000
    
    
    $
    21.80
    
    
    
    2,000
    
    
    $
    9,065,543November
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    9,065,543December
    
    
    12,000
    
    
    $
    22.35
    
    
    
    12,000
    
    
    $
    8,797,343Total
    
    
    14,000
    
    
    $
    22.27
    
    
    
    14,000
 
 (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 those shares that were repurchased under the Companys 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 589,104 shares (10% of the number of outstanding shares on
the date the Board approved the program, adjusted to reflect the three-for-one stock split in June
2006), subject to adjustment, but not to exceed $10 million in repurchases.  30




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Company Performance
  Comparison of Cumulative Total Return
 
 BasePeriodCompany/Index
    
    
    Feb-05
    
    
    Mar-05
    
    
    Apr-05
    
    
    May-05
    
    
    Jun-05
    
    
    Jul-05
    
    
    Aug-05
    
    
    Sep-05
    
    
    Oct-05
    
    
    Nov-05
    
    
    Dec-05Mercantile Bancorp, Inc.
    
    
    $
    100.00
    
    
    
    $
    103.11
    
    
    
    $
    100.89
    
    
    
    $
    98.67
    
    
    
    $
    100.45
    
    
    
    $
    101.33
    
    
    
    $
    105.78
    
    
    
    $
    104.89
    
    
    
    $
    103.59
    
    
    
    $
    104.44
    
    
    
    $
    104.00S&P 500 Regional Banks Index
    
    
    $
    100.00
    
    
    
    $
    98.99
    
    
    
    $
    100.28
    
    
    
    $
    100.90
    
    
    
    $
    100.79
    
    
    
    $
    103.58
    
    
    
    $
    101.05
    
    
    
    $
    96.87
    
    
    
    $
    100.02
    
    
    
    $
    102.40
    
    
    
    $
    101.07Russell 2000 Index
    
    
    $
    100.00
    
    
    
    $
    97.00
    
    
    
    $
    91.38
    
    
    
    $
    97.26
    
    
    
    $
    100.88
    
    
    
    $
    107.21
    
    
    
    $
    105.12
    
    
    
    $
    105.32
    
    
    
    $
    101.98
    
    
    
    $
    106.82
    
    
    
    $
    106.18
 31




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##### Table of Contents



Company/Index
    
    
    Jan-06
    
    
    Feb-06
    
    
    Mar-06
    
    
    Apr-06
    
    
    May-06
    
    
    Jun-06
    
    
    Jul-06
    
    
    Aug-06
    
    
    Sep-06
    
    
    Oct-06
    
    
    Nov-06
    
    
    Dec-06Mercantile Bancorp, Inc.
    
    
    $
    117.33
    
    
    
    $
    115.91
    
    
    
    $
    121.78
    
    
    
    $
    117.33
    
    
    
    $
    113.96
    
    
    
    $
    118.93
    
    
    
    $
    116.27
    
    
    
    $
    116.48
    
    
    
    $
    116.27
    
    
    
    $
    116.80
    
    
    
    $
    117.60
    
    
    
    $
    118.67S&P 500 Regional Banks Index
    
    
    $
    100.83
    
    
    
    $
    103.97
    
    
    
    $
    104.39
    
    
    
    $
    109.67
    
    
    
    $
    105.67
    
    
    
    $
    105.17
    
    
    
    $
    107.88
    
    
    
    $
    106.91
    
    
    
    $
    108.73
    
    
    
    $
    109.62
    
    
    
    $
    108.59
    
    
    
    $
    112.03Russell 2000 Index
    
    
    $
    115.64
    
    
    
    $
    115.23
    
    
    
    $
    120.67
    
    
    
    $
    120.58
    
    
    
    $
    113.71
    
    
    
    $
    114.29
    
    
    
    $
    110.49
    
    
    
    $
    113.64
    
    
    
    $
    114.44
    
    
    
    $
    120.94
    
    
    
    $
    123.98
    
    
    
    $
    124.22
 32




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Item 6. Selected Financial Data
  Year Ended December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(dollars in thousands, except per share data)BALANCE SHEET ITEMSSecurities
    
    $
    188,579
    
    
    $
    165,066
    
    
    $
    173,371
    
    
    $
    185,093
    
    
    $
    154,375Loans held for sale
    
    
    1,660
    
    
    
    3,635
    
    
    
    3,367
    
    
    
    4,619
    
    
    
    25,470Loans
    
    
    1,031,656
    
    
    
    857,648
    
    
    
    768,722
    
    
    
    637,937
    
    
    
    582,682Allowance for loan losses
    
    
    10,613
    
    
    
    8,082
    
    
    
    7,115
    
    
    
    5,830
    
    
    
    4,941Total assets
    
    
    1,422,827
    
    
    
    1,137,824
    
    
    
    1,040,553
    
    
    
    906,160
    
    
    
    832,924Total deposits
    
    
    1,166,814
    
    
    
    946,129
    
    
    
    873,427
    
    
    
    758,183
    
    
    
    684,154Short-term borrowings
    
    
    26,338
    
    
    
    32,587
    
    
    
    21,385
    
    
    
    14,367
    
    
    
    19,400Long-term debt
    
    
    107,249
    
    
    
    51,720
    
    
    
    49,758
    
    
    
    48,185
    
    
    
    49,137Minority interest
    
    
    9,198
    
    
    
    7,561
    
    
    
    3,438
    
    
    
    263
    
    
    
    407Stockholders equity
    
    
    100,658
    
    
    
    91,488
    
    
    
    85,982
    
    
    
    80,034
    
    
    
    74,860RESULTS OF OPERATIONSInterest and dividend income
    
    $
    76,150
    
    
    $
    59,780
    
    
    $
    49,786
    
    
    $
    46,201
    
    
    $
    47,694Interest expense
    
    
    38,414
    
    
    
    24,338
    
    
    
    17,993
    
    
    
    17,740
    
    
    
    20,223Net interest income
    
    
    37,736
    
    
    
    35,442
    
    
    
    31,793
    
    
    
    28,461
    
    
    
    27,471Provision for loan losses
    
    
    3,914
    
    
    
    2,368
    
    
    
    1,746
    
    
    
    2,487
    
    
    
    3,906Noninterest income
    
    
    13,930
    
    
    
    8,547
    
    
    
    7,857
    
    
    
    8,519
    
    
    
    8,974Noninterest expense
    
    
    31,616
    
    
    
    27,817
    
    
    
    25,878
    
    
    
    22,986
    
    
    
    22,238Minority interest
    
    
    792
    
    
    
    648
    
    
    
    151
    
    
    
    43
    
    
    
    42Provision for income taxes
    
    
    5,025
    
    
    
    3,652
    
    
    
    3,557
    
    
    
    3,153
    
    
    
    2,707Net income
    
    
    10,319
    
    
    
    9,504
    
    
    
    8,318
    
    
    
    8,311
    
    
    
    7,552CAPITAL RATIOSTotal capital to risk-weighted assets
    
    
    10.92
    %
    
    
    11.75
    %
    
    
    10.42
    %
    
    
    11.70
    %
    
    
    10.80
    %Tier 1 capital to risk-weighted assets
    
    
    9.70
    %
    
    
    10.88
    %
    
    
    9.55
    %
    
    
    10.80
    %
    
    
    10.00
    %Tier 1 capital to average assets
    
    
    8.09
    %
    
    
    9.00
    %
    
    
    7.49
    %
    
    
    8.00
    %
    
    
    7.90
    %PER SHARE DATABasic earnings per share (1)
    
    $
    1.76
    
    
    $
    1.62
    
    
    $
    1.41
    
    
    $
    1.41
    
    
    $
    1.38Cash dividends
    
    
    0.32
    
    
    
    0.30
    
    
    
    0.25
    
    
    
    0.23
    
    
    
    0.21Book value
    
    
    17.26
    
    
    
    15.64
    
    
    
    14.60
    
    
    
    13.59
    
    
    
    12.71OTHER INFORMATIONReturn on average assets
    
    
    0.85
    %
    
    
    0.88
    %
    
    
    0.83
    %
    
    
    0.95
    %
    
    
    0.95
    %Return on average equity
    
    
    10.84
    %
    
    
    10.59
    %
    
    
    9.98
    %
    
    
    10.52
    %
    
    
    10.72
    %Dividend payout ratio
    
    
    18.18
    %
    
    
    18.56
    %
    
    
    17.45
    %
    
    
    16.31
    %
    
    
    16.10
    %Net interest margin
    
    
    3.38
    %
    
    
    3.55
    %
    
    
    3.43
    %
    
    
    3.50
    %
    
    
    3.72
    %Average stockholders equity to
average assets
    
    
    7.87
    %
    
    
    8.33
    %
    
    
    8.34
    %
    
    
    9.00
    %
    
    
    8.87
    %Allowance for loan losses as a
percentage of total loans
    
    
    1.03
    %
    
    
    0.94
    %
    
    
    0.92
    %
    
    
    0.91
    %
    
    
    0.81
    %Full service offices
    
    
    22
    
    
    
    18
    
    
    
    19
    
    
    
    18
    
    
    
    17
 
 (1)
    
    In January 2006, the Companys Board of Directors approved a three-for-one stock split.
Share and per share data in the selected consolidated financial information have been
retroactively restated for the stock split as if it occurred on January 1, 2002. 33




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Forward-Looking Statements
   
    
    projections of revenues, income, earnings per share, capital expenditures, assets,
liabilities, dividends, capital structure, or other financial items;
    
    descriptions of plans or objectives of management for future operations, products, or
services, including pending acquisition transactions;
    
    forecasts of future economic performance; and
    
    descriptions of assumptions underlying or relating to any of the foregoing.
   
    
    general business and economic conditions on both a regional and national level;
    
    worldwide political and social unrest, including acts of war and terrorism;
    
    increased competition in the products and services we offer and the markets in which we
conduct our business;
    
    the interest rate environment;
    
    fluctuations in the capital markets, which may directly or indirectly affect our asset portfolio;
    
    legislative or regulatory developments, including changes in laws concerning taxes,
banking, securities, insurance and other aspects of the financial services industry;
    
    technological changes, including the impact of the Internet;
    
    monetary and fiscal policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board; and
    
    accounting principles, policies, practices or guidelines.
 34




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Overview
 General
      35




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Our Strategy
   Improving Core Profitability
  Growth
  36




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Balance Sheet Repositioning
  37




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Increase Cross-Selling
    Asset Quality
  38




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Results of Operations
     Financial Condition
  39




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Capital
  Return on Equity and Assets
 2006
    
    2005
    
    2004Return on
assets
(net
income
divided
by
average
total
assets)
    
    
    0.85
    %
    
    
    0.88
    %
    
    
    0.83
    %Return
on
equity
(net
income
divided
by
average
equity)
    
    
    10.84
    %
    
    
    10.59
    %
    
    
    9.98
    %Dividend
payout
ratio
(dividends
per
share
divided
by
net
income
per
share)
    
    
    18.18
    %
    
    
    18.56
    %
    
    
    17.45
    %Equity to
assets
ratio
(average
equity
divided
by
average
total
assets)
    
    
    7.87
    %
    
    
    8.33
    %
    
    
    8.34
    %
 Summary of Banking Subsidiaries and Cost and Equity Method Investments
  12/31/06Date
    
    
    Ownership
    
    
    
    
    
    
    
    
    
    
    Pre-consolidated Net IncomeSubsidiary
    
    Acquired
    
    
    Percentage
    
    
    2006
    
    
    2005
    
    2004(dollars in thousands)Mercantile Trust & Savings Bank
    
    
    4/15/83
    
    
    
    100.00
    %
    
    $
    5,571
    
    
    
    49.9
    %
    
    $
    5,849
    
    
    
    49.7
    %
    
    $
    4,578
    
    
    
    50.3
    %Marine Bank & Trust
    
    
    4/02/91
    
    
    
    100.00
    %
    
    
    1,563
    
    
    
    14.0
    %
    
    
    1,777
    
    
    
    15.1
    %
    
    
    1,750
    
    
    
    19.3
    %Perry State Bank
    
    
    10/04/94
    
    
    
    100.00
    %
    
    
    1,601
    
    
    
    14.3
    %
    
    
    1,441
    
    
    
    12.2
    %
    
    
    1,074
    
    
    
    11.8
    %Brown County State Bank
    
    
    12/07/97
    
    
    
    100.00
    %
    
    
    882
    
    
    
    7.9
    %
    
    
    948
    
    
    
    8.0
    %
    
    
    833
    
    
    
    9.2
    %Farmers State Bank of Northern Missouri
    
    
    10/4/99
    
    
    
    100.00
    %
    
    
    (246
    )
    
    
    (2.2
    )%
    
    
    358
    
    
    
    3.0
    %
    
    
    600
    
    
    
    6.6
    %Mid America Bancorp, Inc.
    
    
    2/28/05
    
    
    
    52.73
    %
    
    
    1,655
    
    
    
    14.8
    %
    
    
    1,407
    
    
    
    12.0
    %
    
    
    249
    
    
    
    2.8
    %Royal Palm Bancorp, Inc.
    
    
    11/10/06
    
    
    
    100.00
    %
    
    
    148
    
    
    
    1.3
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.00
    %Total
    
    
    
    
    
    
    
    
    
    $
    11,174
    
    
    
    100.0
    %
    
    $
    11,780
    
    
    
    100.0
    %
    
    $
    9,084
    
    
    
    100.0
    %
 40




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##### Table of Contents



(1)New Frontier Bancshares, Inc.Number ofDate
    
    Shares
    
    Cost(dollars in thousands)7/10/00
    
    
    12,000
    
    
    
    $1,32010/09/012/01/028/27/02
    
    
    2,300
    
    
    
    3001/03/03
    
    
    4,100
    
    
    
    5005/08/03
    
    
    3,600
    
    
    
    4506/23/03
    
    
    3,396
    
    
    
    4247/02/038/29/0310/17/0312/22/031/13/05
    
    
    3,937
    
    
    
    9846/01/058/10/05
    
    
    3,314
    
    
    
    829Original Cost (2)
    
    
    
    
    
    
    $4,807Carrying value as of 12/31/06
    
    
    32,647
    
    
    
    $4,119Ownership Percentage as of 12/31/06
    
    
    36.8
    %
 
 (1)
    
    New Frontier Bancshares, Inc. is a privately held bank holding company located in St.
Charles, Missouri, with total assets of $153,797 as of December 31, 2006.(2)
    
    Includes gross core deposit intangibles. 41




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##### Table of Contents



(1)Premier Community Bank of the
    
    
    (2)
    
    
    (3)Emerald Coast
    
    
    Integrity Bank
    
    
    Premier Bancshares, Inc.Number of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    Number ofDate
    
    Shares
    
    
    Cost
    
    
    Shares
    
    
    Cost
    
    
    Shares
    
    
    Cost(dollars in thousands)12/02/03
    
    
    
    
    
    
    
    
    
    
    69,500
    
    
    $
    69511/29/05
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    $
    1,00012/14/05
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    50006/21/06
    
    
    99,500
    
    
    $
    995Total as of 12/31/06
    
    
    99,500
    
    
    $
    995
    
    
    
    69,500
    
    
    $
    695
    
    
    
    75,000
    
    
    $
    1,500Ownership
Percentage as of
12/31/06
    
    
    4.98
    %
    
    
    
    
    
    
    5.0
    %
    
    
    
    
    
    
    0.7
    %
 
 (1)
    
    Premier Community Bank of the Emerald Coast is a publicly held bank holding company located
in Crestview, Florida, with total assets of $32.0 million as of December 31, 2006.(2)
    
    Integrity Bank is a privately held bank located in Jupiter, Florida with total assets of
$105.8 million as of December 31, 2006.(3)
    
    Premier Bancshares, Inc. is a privately held bank holding company located in Jefferson City,
Missouri, with total assets of $1.2 billion as of December 31, 2006. Critical Accounting Policies
   42




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##### Table of Contents



Revenue Recognition
   Effect of Inflation
  43




---



##### Table of Contents



Results of Operations
 Summary
 2006 versus 2005.
    44




---



##### Table of Contents



2005 versus 2004.
  45




---



##### Table of Contents



Earning Assets, Sources of Funds, And Net Interest Margin
  Selected Statistical Information
  46




---



##### Table of Contents



Consolidated Average Balance Sheets
  AtDecember 31
    
    Years Ended December 31,2006
    
    2006
    
    
    2005
    
    
    2004Yield/
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Cost
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateAssetsInterest-bearing demand deposits
    
    
    5.10
    %
    
    $
    21,703
    
    
    $
    767
    
    
    
    3.53
    %
    
    $
    11,796
    
    
    $
    358
    
    
    
    3.03
    %
    
    $
    8,317
    
    
    $
    170
    
    
    
    2.04
    %Federal funds sold
    
    
    5.00
    %
    
    
    11,117
    
    
    
    577
    
    
    
    5.19
    %
    
    
    4,461
    
    
    
    134
    
    
    
    3.00
    %
    
    
    5,798
    
    
    
    84
    
    
    
    1.45
    %SecuritiesTaxableU.S. treasuries and government agencies
    
    
    4.26
    %
    
    
    16,572
    
    
    
    777
    
    
    
    4.69
    %
    
    
    6,665
    
    
    
    219
    
    
    
    3.29
    %
    
    
    3,932
    
    
    
    152
    
    
    
    3.87
    %Mortgage-backed securities
    
    
    4.63
    %
    
    
    42,906
    
    
    
    2,062
    
    
    
    8.81
    %
    
    
    55,067
    
    
    
    2,316
    
    
    
    4.21
    %
    
    
    72,532
    
    
    
    2,869
    
    
    
    3.96
    %Other securities
    
    
    6.82
    %
    
    
    62,952
    
    
    
    2,935
    
    
    
    4.66
    %
    
    
    61,530
    
    
    
    2,256
    
    
    
    3.67
    %
    
    
    63,685
    
    
    
    2,128
    
    
    
    3.34
    %Total taxable
    
    
    
    
    
    
    122,430
    
    
    
    5,774
    
    
    
    4.72
    %
    
    
    123,262
    
    
    
    4,791
    
    
    
    3.89
    %
    
    
    140,149
    
    
    
    5,149
    
    
    
    3.67
    %Non-taxable  State and political subdivision (3)
    
    
    3.59
    %
    
    
    48,991
    
    
    
    1,783
    
    
    
    3.64
    %
    
    
    46,635
    
    
    
    1,775
    
    
    
    3.81
    %
    
    
    39,917
    
    
    
    1,553
    
    
    
    3.89
    %Loans (net of unearned discount) (1)(2)
    
    
    7.33
    %
    
    
    907,671
    
    
    
    67,060
    
    
    
    7.39
    %
    
    
    806,955
    
    
    
    52,487
    
    
    
    6.50
    %
    
    
    728,388
    
    
    
    42,571
    
    
    
    5.84
    %Federal Home Loan Bank stock
    
    
    3.75
    %
    
    
    5,654
    
    
    
    189
    
    
    
    3.34
    %
    
    
    5,287
    
    
    
    235
    
    
    
    4.44
    %
    
    
    4,895
    
    
    
    259
    
    
    
    5.29
    %Total interest-earning assets (1)
    
    
    
    
    
    $
    1,117,566
    
    
    $
    76,150
    
    
    
    6.81
    %
    
    $
    998,396
    
    
    $
    59,780
    
    
    
    5.99
    %
    
    $
    927,464
    
    
    $
    49,786
    
    
    
    5.37
    %Cash & due from banks
    
    
    
    
    
    $
    25,153
    
    
    
    
    
    
    
    
    
    
    $
    23,387
    
    
    
    
    
    
    
    
    
    
    $
    22,752Premises and equipment
    
    
    
    
    
    
    19,313
    
    
    
    
    
    
    
    
    
    
    
    17,301
    
    
    
    
    
    
    
    
    
    
    
    15,857Foreclosed assets held for sale, net
    
    
    
    
    
    
    411
    
    
    
    
    
    
    
    
    
    
    
    509
    
    
    
    
    
    
    
    
    
    
    
    729Equity method investment in common stock
    
    
    
    
    
    
    5,641
    
    
    
    
    
    
    
    
    
    
    
    6,433
    
    
    
    
    
    
    
    
    
    
    
    4,702Cost method investment in common stock
    
    
    
    
    
    
    3,715
    
    
    
    
    
    
    
    
    
    
    
    1,849
    
    
    
    
    
    
    
    
    
    
    
    1,849Interest receivable
    
    
    
    
    
    
    8,758
    
    
    
    
    
    
    
    
    
    
    
    7,040
    
    
    
    
    
    
    
    
    
    
    
    6,295Cash surrender value of life insurance
    
    
    
    
    
    
    16,450
    
    
    
    
    
    
    
    
    
    
    
    15,617
    
    
    
    
    
    
    
    
    
    
    
    15,026Allowance for loan loss
    
    
    
    
    
    
    (8,812
    )
    
    
    
    
    
    
    
    
    
    
    (7,513
    )
    
    
    
    
    
    
    
    
    
    
    (6,766
    )Other
    
    
    
    
    
    
    22,305
    
    
    
    
    
    
    
    
    
    
    
    14,939
    
    
    
    
    
    
    
    
    
    
    
    11,572Total assets
    
    
    
    
    
    $
    1,210,500
    
    
    
    
    
    
    
    
    
    
    $
    1,077,958
    
    
    
    
    
    
    
    
    
    
    $
    999,480LiabilitiesInterest-bearing transaction deposits
    
    
    1.53
    %
    
    $
    107,126
    
    
    $
    1,499
    
    
    
    1.40
    %
    
    $
    110,763
    
    
    $
    1,066
    
    
    
    0.96
    %
    
    $
    110,643
    
    
    $
    516
    
    
    
    0.47
    %Savings deposits
    
    
    2.50
    %
    
    
    54,572
    
    
    
    876
    
    
    
    1.61
    %
    
    
    54,372
    
    
    
    536
    
    
    
    0.99
    %
    
    
    45,409
    
    
    
    240
    
    
    
    0.53
    %Money-market deposits
    
    
    3.20
    %
    
    
    124,484
    
    
    
    4,165
    
    
    
    3.35
    %
    
    
    100,227
    
    
    
    1,925
    
    
    
    1.92
    %
    
    
    96,682
    
    
    
    905
    
    
    
    0.94
    %Time and brokered time deposits
    
    
    4.62
    %
    
    
    610,202
    
    
    
    26,531
    
    
    
    4.35
    %
    
    
    544,096
    
    
    
    17,658
    
    
    
    3.25
    %
    
    
    498,288
    
    
    
    13,815
    
    
    
    2.77
    %Short-term borrowings
    
    
    5.25
    %
    
    
    28,738
    
    
    
    1,389
    
    
    
    4.83
    %
    
    
    22,272
    
    
    
    676
    
    
    
    3.04
    %
    
    
    19,801
    
    
    
    286
    
    
    
    1.44
    %Long-term debt
    
    
    6.02
    %
    
    
    69,797
    
    
    
    3,954
    
    
    
    5.66
    %
    
    
    50,011
    
    
    
    2,477
    
    
    
    4.95
    %
    
    
    51,281
    
    
    
    2,231
    
    
    
    4.35
    %Total interest-bearing liabilities
    
    
    
    
    
    $
    994,919
    
    
    $
    38,414
    
    
    
    3.86
    %
    
    $
    881,741
    
    
    $
    24,338
    
    
    
    2.76
    %
    
    $
    822,104
    
    
    $
    17,993
    
    
    
    2.19
    %Demand deposits
    
    
    
    
    
    $
    101,302
    
    
    
    
    
    
    
    
    
    
    $
    93,450
    
    
    
    
    
    
    
    
    
    
    $
    85,197Interest payable
    
    
    
    
    
    
    4,698
    
    
    
    
    
    
    
    
    
    
    
    2,828
    
    
    
    
    
    
    
    
    
    
    
    2,113Other liabilities
    
    
    
    
    
    
    6,064
    
    
    
    
    
    
    
    
    
    
    
    4,783
    
    
    
    
    
    
    
    
    
    
    
    3,552Minority interest
    
    
    
    
    
    
    8,301
    
    
    
    
    
    
    
    
    
    
    
    5,386
    
    
    
    
    
    
    
    
    
    
    
    3,149Stockholders equity
    
    
    
    
    
    
    95,216
    
    
    
    
    
    
    
    
    
    
    
    89,770
    
    
    
    
    
    
    
    
    
    
    
    83,365Total Liabilities and Stockholders Equity
    
    
    
    
    
    $
    1,210,500
    
    
    
    
    
    
    
    
    
    
    $
    1,077,958
    
    
    
    
    
    
    
    
    
    
    $
    999,480Interest spread
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.95
    %
    
    
    
    
    
    
    
    
    
    
    3.23
    %
    
    
    
    
    
    
    
    
    
    
    3.18
    %Net interest income
    
    
    
    
    
    
    
    
    
    
    37,736
    
    
    
    
    
    
    
    
    
    
    
    35,442
    
    
    
    
    
    
    
    
    
    
    
    31,793Net interest margin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.38
    %
    
    
    
    
    
    
    
    
    
    
    3.55
    %
    
    
    
    
    
    
    
    
    
    
    3.43
    %Interest-earning assets to interest-bearing liabilities
    
    
    
    
    
    
    112.33
    %
    
    
    
    
    
    
    
    
    
    
    113.23
    %
    
    
    
    
    
    
    
    
    
    
    112.82
    %
 
 (1)
    
    Non-accrual loans have been included in average loans, net of unearned discount(2)
    
    Includes loans held for sale(3)
    
    The tax exempt income for state and political subdivisions is not recorded on a tax
equivalent basis. 47




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##### Table of Contents



Changes in Net Interest Income
 Rate/Volume Analysis
 Years Ended December 31, 2006, 2005 and 2004Year 2006 vs. 2005 Change
    
    
    Year 2005 vs. 2004 ChangeAverage
    
    
    Average
    
    
    Total
    
    
    Average
    
    
    Average
    
    
    TotalVolume
    
    
    Yield/Rate
    
    
    Change
    
    
    Volume
    
    
    Yield/Rate
    
    
    Change(dollars in thousands)Increase (decrease) in interest income:Interest-bearing bank deposits
    
    $
    342
    
    
    $
    67
    
    
    $
    409
    
    
    $
    87
    
    
    $
    101
    
    
    $
    188Federal funds sold
    
    
    298
    
    
    
    145
    
    
    
    443
    
    
    
    (23
    )
    
    
    73
    
    
    
    50Investment securities:U.S. treasuries and agencies
    
    
    433
    
    
    
    125
    
    
    
    558
    
    
    
    93
    
    
    
    (26
    )
    
    
    67Mortgage-backed securities
    
    
    (556
    )
    
    
    302
    
    
    
    (254
    )
    
    
    (725
    )
    
    
    172
    
    
    
    (553
    )States and political subdivision (1)
    
    
    88
    
    
    
    (80
    )
    
    
    8
    
    
    
    256
    
    
    
    (34
    )
    
    
    222Other securities
    
    
    53
    
    
    
    626
    
    
    
    679
    
    
    
    (74
    )
    
    
    202
    
    
    
    128Loans (net of unearned discounts)
    
    
    6,977
    
    
    
    7,596
    
    
    
    14,573
    
    
    
    4,845
    
    
    
    5,071
    
    
    
    9,916Federal Home Loan Bank stock
    
    
    15
    
    
    
    (61
    )
    
    
    (46
    )
    
    
    20
    
    
    
    (44
    )
    
    
    (24
    )Change in interest income (1)
    
    
    7,650
    
    
    
    8,720
    
    
    
    16,370
    
    
    
    4,479
    
    
    
    5,515
    
    
    
    9,994Increase (decrease) in interest expense:Interest-bearing transaction deposits
    
    
    (36
    )
    
    
    469
    
    
    
    433
    
    
    
    1
    
    
    
    549
    
    
    
    550Savings deposit
    
    
    2
    
    
    
    338
    
    
    
    340
    
    
    
    55
    
    
    
    241
    
    
    
    296Money-market deposits
    
    
    551
    
    
    
    1,689
    
    
    
    2,240
    
    
    
    34
    
    
    
    986
    
    
    
    1,020Time and brokered time deposits
    
    
    2,337
    
    
    
    6,536
    
    
    
    8,873
    
    
    
    1,346
    
    
    
    2,497
    
    
    
    3,843Short-term borrowings
    
    
    234
    
    
    
    479
    
    
    
    713
    
    
    
    40
    
    
    
    350
    
    
    
    390Long-term debt
    
    
    1,083
    
    
    
    394
    
    
    
    1,477
    
    
    
    (56
    )
    
    
    302
    
    
    
    246Change in interest expense
    
    
    4,171
    
    
    
    9,905
    
    
    
    14,076
    
    
    
    1,420
    
    
    
    4,925
    
    
    
    6,345Increase (decrease) in net interest income (1)
    
    $
    3,479
    
    
    $
    (1,185
    )
    
    $
    2,294
    
    
    $
    3,059
    
    
    $
    590
    
    
    $
    3,649
 
 (1)
    
    The tax exempt income for state and political subdivision is not recorded on a tax equivalent
basis. 2006 versus 2005.
 48




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##### Table of Contents



49




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##### Table of Contents



2005 versus 2004.
      50




---



##### Table of Contents



Provision for Loan Losses
  2006 versus 2005.
 2005 versus 2004.
 51




---



##### Table of Contents



Noninterest Income
 2006 versus 2005.
  2005 versus 2004.
 52




---



##### Table of Contents



Noninterest Expense
 2006 versus 2005.
 53




---



##### Table of Contents



2005 versus 2004.
    54




---



##### Table of Contents



Provision for Income Taxes
  2006 versus 2005.
 2005 versus 2004.
 Financial Condition
 Summary
  55




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##### Table of Contents



Earning Assets
  Investment Securities
     December 31,2006
    
    
    2005
    
    
    2004Amortize
    
    
    Fair
    
    
    Amortize
    
    
    Fair
    
    
    Amortize
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value(dollars in thousands)U.S. Treasury
    
    $
    500
    
    
    $
    497
    
    
    $
    5,375
    
    
    $
    5,361
    
    
    $
    2,496
    
    
    $
    2,487U.S. government agencies
    
    
    7,992
    
    
    
    7,943
    
    
    
    3,507
    
    
    
    3,461
    
    
    
    4,350
    
    
    
    4,352Mortgage-backed securities
    
    
    96,140
    
    
    
    96,030
    
    
    
    85,399
    
    
    
    84,740
    
    
    
    96,665
    
    
    
    97,424State and political subdivision
    
    
    49,781
    
    
    
    49,362
    
    
    
    50,665
    
    
    
    50,343
    
    
    
    36,607
    
    
    
    37,379Corporate bonds
    
    
    11,000
    
    
    
    11,000
    
    
    
    6,007
    
    
    
    6,014
    
    
    
    11,614
    
    
    
    11,643Equity securities
    
    
    10,212
    
    
    
    11,347
    
    
    
    277
    
    
    
    277
    
    
    
    196
    
    
    
    196Total
    
    $
    175,625
    
    
    $
    176,179
    
    
    $
    151,230
    
    
    $
    150,196
    
    
    $
    151,928
    
    
    $
    153,481
 56




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##### Table of Contents



Due in 1 year
    
    
    Due after 1 year
    
    
    Due after 5 years
    
    
    Due afteror less
    
    
    through 5 years
    
    
    through 10 years
    
    
    10 years
    
    
    Equity SecuritiesWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedFair
    
    
    Average
    
    
    Fair
    
    
    Average
    
    
    Fair
    
    
    Average
    
    
    Fair
    
    
    Average
    
    
    Fair
    
    
    AverageValue
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Total(dollars in thousands)U.S. Treasury
    
    $
    497
    
    
    
    4.30
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    497U.S. government agencies
    
    
    2,557
    
    
    
    4.00
    %
    
    
    4,840
    
    
    
    4.34
    %
    
    
    546
    
    
    
    2.82
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    7,943Mortgage-backed securities (1)
    
    
    11,129
    
    
    
    3.80
    %
    
    
    75,755
    
    
    
    4.88
    %
    
    
    9,146
    
    
    
    5.55
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    96,030States and political subdivisions
    
    
    5,590
    
    
    
    3.69
    %
    
    
    22,011
    
    
    
    3.45
    %
    
    
    19,630
    
    
    
    3.72
    %
    
    
    2,131
    
    
    
    4.84
    %
    
    
    
    
    
    
    0.00
    %
    
    
    49,362Corporate bonds
    
    
    
    
    
    
    0.00
    %
    
    
    1,500
    
    
    
    5.25
    %
    
    
    9,500
    
    
    
    7.39
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    11,00019,773
    
    
    
    
    
    
    
    104,106
    
    
    
    
    
    
    
    38,822
    
    
    
    
    
    
    
    2,131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    164,832Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,347
    
    
    
    
    
    
    
    11,347Total
    
    $
    19,773
    
    
    
    3.81
    %
    
    $
    104,106
    
    
    
    4.48
    %
    
    $
    38,822
    
    
    
    3.23
    %
    
    $
    2,131
    
    
    
    4.84
    %
    
    $
    11,347
    
    
    
    0.00
    %
    
    $
    176,179
 
 (1)
    
    The maturities for mortgage-backed securities are based on prepayment speed assumptions
and the constant prepayment rate estimated by management based on the current interest rate
environment. The assumption rates vary by the individual security.  December 31,2006
    
    

2005
    
    

2004Amortize
    
    
    Fair
    
    
    Amortize
    
    
    Fair
    
    
    Amortize
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value(dollars in thousands)Mortgage-backed securities
    
    $
    11,181
    
    
    $
    11,066
    
    
    $
    14,453
    
    
    $
    14,207
    
    
    $
    19,336
    
    
    $
    19,378State and political subdivision
    
    
    219
    
    
    
    218
    
    
    
    417
    
    
    
    415
    
    
    
    554
    
    
    
    555Corporate bonds
    
    
    1,000
    
    
    
    997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    12,400
    
    
    $
    12,281
    
    
    $
    14,870
    
    
    $
    14,622
    
    
    $
    19,890
    
    
    $
    19,933
  Due in 1 year
    
    
    Due after 1 year
    
    
    Due after 5 years
    
    
    Due afteror less
    
    
    through 5 years
    
    
    through 10 years
    
    
    10 yearsWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAmortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    AverageCost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Total(dollars in thousands)Mortgage-backed securities (1)
    
    $
    3,300
    
    
    
    3.43
    %
    
    $
    7,881
    
    
    
    3.54
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    11,181Corporate bonds
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    1,000
    
    
    
    8.25
    %
    
    
    
    
    
    
    0.00
    %
    
    
    1,000State and political subdivisions
    
    
    120
    
    
    
    3.10
    %
    
    
    
    
    
    
    0.00
    %
    
    
    99
    
    
    
    4.80
    %
    
    
    
    
    
    
    0.00
    %
    
    
    219Total
    
    $
    3,420
    
    
    
    3.42
    %
    
    $
    7,881
    
    
    
    3.54
    %
    
    $
    1,099
    
    
    
    7.94
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    12,400
 
 (1)
    
    The maturities for mortgage-backed securities are based on prepayment speed assumptions
and the constant prepayment rate estimated by management based on the current interest rate
environment. The assumption rates vary by the individual security. 57




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##### Table of Contents



Loan Portfolio
     1)
    
    Limit potential concentrations to any one borrower or industry.2)
    
    Expand the geographic region of the Company. If the areas in which the Company
operates are broadened, then the negative impact of an economic downturn in one area will
be lessened. The Companys acquisitions of Mid-America, Royal Palm and other equity
interests in banks located in higher growth urban areas were done with the intent of
reducing geographic risk and reliance on areas heavily dependent on agriculture.3)
    
    Establish relationships with banks outside of the Companys geographic region in order
to purchase commercial, residential real estate and commercial real estate loan
participations. Although these banks are primarily in Illinois, Missouri and Iowa, the
loan participations help to diversify the Companys geographic concentration in its loan
portfolio.
 58




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##### Table of Contents



59




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##### Table of Contents



December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCommercial and financial
    
    $
    167,687
    
    
    
    16.24
    %
    
    $
    180,906
    
    
    
    21.00
    %
    
    $
    179,380
    
    
    
    23.23
    %
    
    $
    154,405
    
    
    
    24.02
    %
    
    $
    150,849
    
    
    
    24.81
    %Agricultural
    
    
    57,393
    
    
    
    5.55
    %
    
    
    59,325
    
    
    
    6.89
    %
    
    
    54,181
    
    
    
    7.02
    %
    
    
    50,507
    
    
    
    7.86
    %
    
    
    51,708
    
    
    
    8.50
    %Real estate  farmland
    
    
    72,999
    
    
    
    7.06
    %
    
    
    66,172
    
    
    
    7.68
    %
    
    
    64,891
    
    
    
    8.40
    %
    
    
    60,735
    
    
    
    9.45
    %
    
    
    62,291
    
    
    
    10.24
    %Real estate  construction
    
    
    152,553
    
    
    
    14.76
    %
    
    
    66,812
    
    
    
    7.76
    %
    
    
    28,105
    
    
    
    3.64
    %
    
    
    18,861
    
    
    
    2.94
    %
    
    
    24,217
    
    
    
    3.98
    %Real estate  commercial
    
    
    190,724
    
    
    
    18.46
    %
    
    
    154,132
    
    
    
    17.90
    %
    
    
    153,766
    
    
    
    19.92
    %
    
    
    113,861
    
    
    
    17.72
    %
    
    
    100,414
    
    
    
    16.51
    %Real estate  mortgage (1)
    
    
    267,237
    
    
    
    25.86
    %
    
    
    219,644
    
    
    
    25.50
    %
    
    
    197,582
    
    
    
    25.59
    %
    
    
    156,659
    
    
    
    24.38
    %
    
    
    135,107
    
    
    
    22.22
    %Installment loans to individuals
    
    
    124,723
    
    
    
    12.07
    %
    
    
    114,292
    
    
    
    13.27
    %
    
    
    94,184
    
    
    
    12.20
    %
    
    
    87,528
    
    
    
    13.63
    %
    
    
    83,566
    
    
    
    13.74
    %Total loans (1)
    
    
    1,033,316
    
    
    
    100.00
    %
    
    
    861,283
    
    
    
    100.00
    %
    
    
    772,089
    
    
    
    100.00
    %
    
    
    642,556
    
    
    
    100.00
    %
    
    
    608,152
    
    
    
    100.00
    %Allowance for loan loss
    
    
    10,613
    
    
    
    
    
    
    
    8,082
    
    
    
    
    
    
    
    7,115
    
    
    
    
    
    
    
    5,830
    
    
    
    
    
    
    
    4,941Total loans, including loans
held for sale, net of allowance
for loan loss
    
    $
    1,022,703
    
    
    
    
    
    
    $
    853,201
    
    
    
    
    
    
    $
    764,974
    
    
    
    
    
    
    $
    636,726
    
    
    
    
    
    
    $
    603,211
 
 (1)
    
    Includes loans held for sale  1 Year or Less
    
    
    1 to 5 Years
    
    
    Over 5 Years
    
    
    Total(dollars in thousands)Commercial, financial, and agricultural
    
    $
    138,630
    
    
    $
    60,383
    
    
    $
    26,067
    
    
    $
    225,080Real estate  construction
    
    
    152,553
    
    
    
    
    
    
    
    
    
    
    
    152,553Total
    
    $
    291,183
    
    
    $
    60,383
    
    
    $
    26,067
    
    
    $
    377,633Interest rate sensitivity of selected loansFixed rate
    
    $
    127,449
    
    
    $
    49,490
    
    
    $
    6,812
    
    
    $
    183,751Adjustable rate
    
    
    163,734
    
    
    
    10,893
    
    
    
    19,255
    
    
    
    193,882Total
    
    $
    291,183
    
    
    $
    60,383
    
    
    $
    26,067
    
    
    $
    377,633
 60




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##### Table of Contents



Allowance for Loan Losses
       61




---



##### Table of Contents



Year Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(dollars in thousands)Average loans outstanding during year
    
    $
    907,671
    
    
    $
    806,955
    
    
    $
    728,388
    
    
    $
    629,067
    
    
    $
    550,171Allowance for loan losses:Balance at beginning of year
    
    $
    8,082
    
    
    $
    7,115
    
    
    $
    5,830
    
    
    $
    4,941
    
    
    $
    4,370Loans charged-off:Commercial and financial
    
    
    1,833
    
    
    
    429
    
    
    
    275
    
    
    
    706
    
    
    
    1,012Agricultural
    
    
    85
    
    
    
    54
    
    
    
    101
    
    
    
    159
    
    
    
    1,610Real estate  farmland
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    16
    
    
    
    23Real estate  construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Real estate  commercial
    
    
    139
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    Real estate  mortgage
    
    
    139
    
    
    
    172
    
    
    
    169
    
    
    
    300
    
    
    
    368Installment loans to individuals
    
    
    1,129
    
    
    
    956
    
    
    
    790
    
    
    
    879
    
    
    
    846Total charge-offs
    
    
    3,325
    
    
    
    1,741
    
    
    
    1,335
    
    
    
    2,060
    
    
    
    3,859Recoveries:Commercial and financial
    
    
    47
    
    
    
    112
    
    
    
    129
    
    
    
    290
    
    
    
    300Agricultural
    
    
    20
    
    
    
    26
    
    
    
    13
    
    
    
    10
    
    
    
    41Real estate  farmland
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    17
    
    
    
    23Real estate  construction
    
    
    1
    
    
    
    2
    
    
    
    5
    
    
    
    
    
    
    
    Real estate  commercial
    
    
    1
    
    
    
    36
    
    
    
    7
    
    
    
    1
    
    
    
    1Real estate  mortgage
    
    
    12
    
    
    
    24
    
    
    
    63
    
    
    
    12
    
    
    
    1Installment loans to individuals
    
    
    136
    
    
    
    140
    
    
    
    147
    
    
    
    132
    
    
    
    158Total recoveries
    
    
    217
    
    
    
    340
    
    
    
    398
    
    
    
    462
    
    
    
    524Net charge-offs
    
    
    3,108
    
    
    
    1,401
    
    
    
    937
    
    
    
    1,598
    
    
    
    3,335Provision for loan losses
    
    
    3,914
    
    
    
    2,368
    
    
    
    1,746
    
    
    
    2,487
    
    
    
    3,906Purchased allowance
    
    
    1,725
    
    
    
    
    
    
    
    476
    
    
    
    
    
    
    
    Balance at end of year
    
    $
    10,613
    
    
    $
    8,082
    
    
    $
    7,115
    
    
    $
    5,830
    
    
    $
    4,941Allowance for loan losses as a
percent of total loans outstanding
at year end (1)
    
    
    1.03
    %
    
    
    0.94
    %
    
    
    0.92
    %
    
    
    0.91
    %
    
    
    0.81
    %Allowance for loan losses as a
percent of total nonperforming loans
    
    
    165.98
    %
    
    
    162.29
    %
    
    
    157.87
    %
    
    
    111.84
    %
    
    
    120.63
    %Ratio of net charge-offs to average
total loans
    
    
    0.34
    %
    
    
    0.17
    %
    
    
    0.13
    %
    
    
    0.25
    %
    
    
    0.61
    %
 
 (1)
    
    Includes loans held for sale 62




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##### Table of Contents



2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002% of Loans to

    
    
    
    
    
    % of Loans to

    
    
    
    
    
    % of Loans to

    
    
    
    
    
    % of Loans to

    
    
    
    
    
    % of Loans toAmount
    
    
    Total Loans*

    
    Amount
    
    
    Total Loans*

    
    Amount
    
    
    Total Loans*

    
    Amount
    
    
    Total Loans*

    
    Amount
    
    
    Total Loans*Commercial and financial
    
    $
    2,767,535
    
    
    
    26.07
    %
    
    $
    2,721,029
    
    
    
    33.67
    %
    
    $
    2,651,722
    
    
    
    37.27
    %
    
    $
    2,146,373
    
    
    
    36.82
    %
    
    $
    1,819,079
    
    
    
    36.82
    %Agricultural
    
    
    164,176
    
    
    
    1.55
    %
    
    
    161,417
    
    
    
    2.00
    %
    
    
    157,306
    
    
    
    2.21
    %
    
    
    127,327
    
    
    
    2.18
    %
    
    
    107,921
    
    
    
    2.18
    %Real estate  farmland
    
    
    649,073
    
    
    
    6.12
    %
    
    
    673,040
    
    
    
    8.33
    %
    
    
    559,708
    
    
    
    7.87
    %
    
    
    107,272
    
    
    
    1.84
    %
    
    
    136,372
    
    
    
    2.76
    %Real estate  construction
    
    
    1,910,323
    
    
    
    18.00
    %
    
    
    460,234
    
    
    
    5.69
    %
    
    
    282,651
    
    
    
    3.97
    %
    
    
    241,362
    
    
    
    4.14
    %
    
    
    272,743
    
    
    
    5.52
    %Real estate  commercial
    
    
    2,182,023
    
    
    
    20.56
    %
    
    
    1,517,846
    
    
    
    18.78
    %
    
    
    1,420,770
    
    
    
    19.97
    %
    
    
    1,516,558
    
    
    
    26.01
    %
    
    
    1,211,434
    
    
    
    24.52
    %Real estate  mortgage
    
    
    1,174,936
    
    
    
    11.07
    %
    
    
    817,301
    
    
    
    10.11
    %
    
    
    765,030
    
    
    
    10.75
    %
    
    
    816,608
    
    
    
    14.01
    %
    
    
    652,311
    
    
    
    13.20
    %Installment loans  consumer
    
    
    1,306,972
    
    
    
    12.31
    %
    
    
    1,335,151
    
    
    
    16.52
    %
    
    
    1,084,141
    
    
    
    15.24
    %
    
    
    874,500
    
    
    
    15.00
    %
    
    
    741,140
    
    
    
    15.00
    %Unallocated
    
    
    457,962
    
    
    
    4.32
    %
    
    
    395,982
    
    
    
    4.90
    %
    
    
    193,672
    
    
    
    2.72
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %Total
    
    $
    10,613,000
    
    
    
    100.00
    %
    
    $
    8,082,000
    
    
    
    100.00
    %
    
    $
    7,115,000
    
    
    
    100.00
    %
    
    $
    5,830,000
    
    
    
    100.00
    %
    
    $
    4,941,000
    
    
    
    100.00
    %*Total loans
    
    
    1,033,316,000
    
    
    
    
    
    
    
    857,648,000
    
    
    
    
    
    
    
    768,722,000
    
    
    
    
    
    
    
    637,937,000
    
    
    
    
    
    
    
    582,682,000
 Non-Performing Assets
   At December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(dollars in thousands)Non-accrual loans (1)Commercial and financial
    
    $
    429
    
    
    $
    1,504
    
    
    $
    1,471
    
    
    $
    1,173
    
    
    $
    168Agricultural
    
    
    473
    
    
    
    223
    
    
    
    6
    
    
    
    886
    
    
    
    1,089Real estate  farmland
    
    
    12
    
    
    
    105
    
    
    
    357
    
    
    
    593
    
    
    
    377Real estate  construction
    
    
    1,147
    
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    Real estate  commercial
    
    
    2,083
    
    
    
    417
    
    
    
    208
    
    
    
    104
    
    
    
    346Real estate  mortgage
    
    
    1,040
    
    
    
    839
    
    
    
    596
    
    
    
    740
    
    
    
    506Installment loans to individuals
    
    
    213
    
    
    
    544
    
    
    
    353
    
    
    
    433
    
    
    
    685Total non-accrual loans (1)
    
    
    5,397
    
    
    
    3,632
    
    
    
    3,057
    
    
    
    3,929
    
    
    
    3,171Loans 90 days past due and still
accruing
    
    
    993
    
    
    
    1,342
    
    
    
    1,009
    
    
    
    1,274
    
    
    
    870Restructured loans
    
    
    4
    
    
    
    6
    
    
    
    441
    
    
    
    10
    
    
    
    55Total nonperforming loans
    
    
    6,394
    
    
    
    4,980
    
    
    
    4,507
    
    
    
    5,213
    
    
    
    4,096Repossessed assets
    
    
    361
    
    
    
    494
    
    
    
    577
    
    
    
    795
    
    
    
    1,479Other assets acquired in
satisfaction of debts previously
contracted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total nonperforming other assets
    
    
    361
    
    
    
    494
    
    
    
    577
    
    
    
    795
    
    
    
    1,479Total nonperforming loans and
nonperforming other assets
    
    $
    6,755
    
    
    $
    5,474
    
    
    $
    5,084
    
    
    $
    6,008
    
    
    $
    5,575Nonperforming loans to loans,
before allowance for loan losses
    
    
    0.62
    %
    
    
    0.58
    %
    
    
    0.58
    %
    
    
    0.81
    %
    
    
    0.67
    %Nonperforming loans and
nonperforming other assets to
loans, before allowance for loan
losses
    
    
    0.65
    %
    
    
    0.64
    %
    
    
    0.66
    %
    
    
    0.94
    %
    
    
    0.92
    %
 
 (1)
    
    Interest income that would have been recorded in 2006 related to nonaccrual loans was $343
thousand, none of which is included in interest income or net income for 2006. 63




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64




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Potential Problem Loans
  Other Interest-Bearing Assets
  Other Assets
     65




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Deposits
   66




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##### Table of Contents



December 31,2006
    
    
    2005
    
    
    2004Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    % Total
    
    
    Rate
    
    
    Balance
    
    
    % Total
    
    
    Rate
    
    
    Balance
    
    
    % Total
    
    
    Rate(dollars in thousands)Non-interest bearing demand
deposits
    
    $
    101,302
    
    
    
    10.2
    %
    
    
    0.00
    %
    
    $
    93,450
    
    
    
    10.3
    %
    
    
    0.00
    %
    
    $
    85,197
    
    
    
    10.2
    %
    
    
    0.00
    %Interest bearing demand deposit
    
    
    107,126
    
    
    
    10.7
    %
    
    
    1.40
    %
    
    
    110,763
    
    
    
    12.3
    %
    
    
    0.96
    %
    
    
    110,643
    
    
    
    13.2
    %
    
    
    0.47
    %Savings/Money market
    
    
    179,056
    
    
    
    17.9
    %
    
    
    2.82
    %
    
    
    154,599
    
    
    
    17.1
    %
    
    
    1.59
    %
    
    
    142,091
    
    
    
    17.0
    %
    
    
    0.81
    %Time deposits
    
    
    610,202
    
    
    
    61.2
    %
    
    
    4.35
    %
    
    
    544,096
    
    
    
    60.3
    %
    
    
    3.25
    %
    
    
    498,288
    
    
    
    59.6
    %
    
    
    2.77
    %Total
    
    $
    997,686
    
    
    
    100.0
    %
    
    
    3.69
    %
    
    $
    902,908
    
    
    
    100.0
    %
    
    
    2.62
    %
    
    $
    836,219
    
    
    
    100.0
    %
    
    
    2.06
    %
 December 31,2006
    
    2005
    
    2004
    
    2003(dollars in thousands)High month-end balance of total deposits
    
    $
    1,166,814
    
    
    $
    944,672
    
    
    $
    875,344
    
    
    $
    770,043Low month-end balance of total deposits
    
    
    973,258
    
    
    
    869,226
    
    
    
    752,187
    
    
    
    687,891
  December 31, 2006(dollars in thousands)Under 3 months
    
    $
    103,2103 months to 6 months
    
    
    72,2806 months to 12 months
    
    
    57,000Over 12 months
    
    
    43,000$
    275,490
 67




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Short-term Borrowings
  Federal fundpurchased and
    
    
    
    
    
    Short-termsecurities sold
    
    
    
    
    
    Federal Homeunder agreements
    
    Other short-term
    
    Loan Bankto repurchase
    
    borrowings
    
    borrowings(dollars in thousands)2006Balance, December 31, 2006
    
    $
    24,553
    
    
    $
    1,785
    
    
    $
    Weighted average interest rate at end of year
    
    
    4.82
    %
    
    
    5.04
    %
    
    
    0.00
    %Maximum amount outstanding at any month end
    
    $
    24,553
    
    
    $
    2,513
    
    
    $
    34,060Average daily balance
    
    $
    22,481
    
    
    $
    995
    
    
    $
    9,418Weighted average interest rate during year (1)
    
    
    3.71
    %
    
    
    6.00
    %
    
    
    5.27
    %2005Balance, December 31, 2005
    
    $
    15,315
    
    
    $
    1,122
    
    
    $
    16,150Weighted average interest rate at end of year
    
    
    3.53
    %
    
    
    4.00
    %
    
    
    4.30
    %Maximum amount outstanding at any month end
    
    $
    26,161
    
    
    $
    2,127
    
    
    $
    16,150Average daily balance
    
    $
    15,598
    
    
    $
    976
    
    
    $
    2,582Weighted average interest rate during year (1)
    
    
    1.43
    %
    
    
    3.01
    %
    
    
    4.08
    %2004Balance, December 31, 2004
    
    $
    13,830
    
    
    $
    2,069
    
    
    $
    5,482Weighted average interest rate at end of year
    
    
    2.00
    %
    
    
    1.95
    %
    
    
    2.47
    %Maximum amount outstanding at any month end
    
    $
    24,952
    
    
    $
    2,069
    
    
    $
    8,526Average daily balance
    
    $
    14,407
    
    
    $
    846
    
    
    $
    4,548Weighted average interest rate during year (1)
    
    
    1.44
    %
    
    
    1.18
    %
    
    
    1.50
    %
 
 (1)
    
    The weighted average interest rate is computed by dividing total interest for the year by the
average daily balance outstanding. Other Liabilities
  68




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Liquidity
     Years Ended December 31,2006
    
    
    2005
    
    
    2004(dollars in thousands)Cash and due from banks
    
    $
    25,153
    
    
    $
    23,387
    
    
    $
    22,752Interest-bearing demand deposits
    
    
    21,703
    
    
    
    11,796
    
    
    
    8,317Federal funds sold
    
    
    11,117
    
    
    
    4,461
    
    
    
    5,798Total
    
    $
    57,973
    
    
    $
    39,644
    
    
    $
    36,867Percent of average total assets
    
    
    4.79
    %
    
    
    3.68
    %
    
    
    3.69
    %
  December 31,2006
    
    
    2005
    
    
    2004(dollars in thousands)Cash and due from banks
    
    $
    28,854
    
    
    $
    27,761
    
    
    $
    24,356Interest-bearing demand deposits
    
    
    29,188
    
    
    
    14,548
    
    
    
    10,098Federal funds sold
    
    
    41,105
    
    
    
    1,845
    
    
    
    5,265Total
    
    $
    99,147
    
    
    $
    44,154
    
    
    $
    39,719Percent of average total assets
    
    
    6.96
    %
    
    
    3.88
    %
    
    
    3.82
    %
  69




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70




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71




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72




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Next 12
    
    
    13-36
    
    
    37-60
    
    
    More thanMonths
    
    
    Months
    
    
    Months
    
    
    60 Months
    
    
    Totals(dollars in thousands)Contractual obligations:Certificates of deposit
    
    $
    514,715
    
    
    $
    136,627
    
    
    $
    53,396
    
    
    $
    1,695
    
    
    $
    706,433Long-term borrowing (1)
    
    
    9,510
    
    
    
    36,000
    
    
    
    13,000
    
    
    
    48,739
    
    
    
    107,249Interest payments on
long-term borrowings
    
    
    6,298
    
    
    
    9,900
    
    
    
    5,961
    
    
    
    4,029
    
    
    
    26,188Minimum operating
lease commitments
    
    
    240
    
    
    
    420
    
    
    
    278
    
    
    
    126
    
    
    
    1,064Totals
    
    $
    530,763
    
    
    $
    182,947
    
    
    $
    72,635
    
    
    $
    54,589
    
    
    $
    840,934
 
 (1)
    
    The long-term borrowings include: Federal Home Loan Bank advances totaling $44.8 million at
fixed rates ranging from 3.66% to 5.50%; bank notes payable totaling $21.2 million at
variable rates of interest ranging from 6.62% to 6.75% at December 31, 2006; junior
subordinated debentures totaling $10.3 million at a fixed rate of 6.10% until November 2015;
junior subordinated debentures totaling $10.3 million at a fixed rate of 7.17% until September
2011; and junior subordinated debentures totaling $20.6 million at a variable rate of 7.02% at
December 31,2006.  Next 12
    
    
    13-36
    
    
    37-60
    
    
    More thanMonths
    
    
    Months
    
    
    Months
    
    
    60 Months
    
    
    Totals(dollars in thousands)Unfunded commitments:Letters of credit
    
    $
    7,650
    
    
    $
    237
    
    
    $
    
    
    
    $
    2,570
    
    
    $
    10,457Lines of credit
    
    
    149,340
    
    
    
    25,876
    
    
    
    20,529
    
    
    
    5,658
    
    
    
    201,403Totals
    
    $
    156,990
    
    
    $
    26,113
    
    
    $
    20,529
    
    
    $
    8,228
    
    
    $
    211,860
    73




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##### Table of Contents



Rate Sensitive Assets and Liabilities
   Rate Sensitive WithinFair1 year
    
    
    1-2 years
    
    
    2-3 years
    
    
    3-4 years
    
    
    4-5 years
    
    
    Thereafter
    
    
    Total
    
    
    Value(dollars in thousands)Interest bearing deposits
    
    $
    29,188
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    29,188
    
    
    $
    29,188Federal funds sold
    
    
    41,105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,105
    
    
    
    41,105SecuritiesU.S. treasuries and agencies
    
    
    3,054
    
    
    
    2,454
    
    
    
    2,438
    
    
    
    
    
    
    
    
    
    
    
    546
    
    
    
    8,492
    
    
    
    8,440Mortgage-backed securities
    
    
    54,036
    
    
    
    44,482
    
    
    
    8,803
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,321
    
    
    
    107,096State and political subdivisions
    
    
    5,710
    
    
    
    5,203
    
    
    
    6,112
    
    
    
    3,901
    
    
    
    7,214
    
    
    
    21,860
    
    
    
    50,000
    
    
    
    49,580Corporate bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500
    
    
    
    10,500
    
    
    
    12,000
    
    
    
    11,997Equity securities
    
    
    10,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,212
    
    
    
    11,347Loans and loans held for sale
    
    
    544,016
    
    
    
    130,253
    
    
    
    107,629
    
    
    
    81,196
    
    
    
    60,319
    
    
    
    109,903
    
    
    
    1,033,316
    
    
    
    1,025,027Total rate-sensitive assets
    
    $
    687,321
    
    
    $
    182,392
    
    
    $
    124,982
    
    
    $
    85,097
    
    
    $
    69,033
    
    
    $
    142,809
    
    
    $
    1,291,634
    
    
    $
    1,283,780Interest bearing transaction deposits
    
    $
    16,584
    
    
    $
    14,155
    
    
    $
    5,961
    
    
    $
    29,847
    
    
    $
    16,155
    
    
    $
    34,348
    
    
    $
    117,050
    
    
    $
    117,050Savings deposits
    
    
    40,278
    
    
    
    16,997
    
    
    
    6,421
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,696
    
    
    
    63,696Money market deposits
    
    
    140,372
    
    
    
    20,691
    
    
    
    6,703
    
    
    
    738
    
    
    
    
    
    
    
    
    
    
    
    168,504
    
    
    
    168,504Time and brokered time deposits
    
    
    514,715
    
    
    
    81,141
    
    
    
    55,486
    
    
    
    47,166
    
    
    
    6,230
    
    
    
    1,695
    
    
    
    706,433
    
    
    
    702,381Short-term borrowings
    
    
    26,338
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,338
    
    
    
    26,338Long-term debt
    
    
    9,510
    
    
    
    21,375
    
    
    
    14,625
    
    
    
    5,000
    
    
    
    8,000
    
    
    
    48,739
    
    
    
    107,249
    
    
    
    107,639Total rate-sensitive liabilities
    
    $
    747,797
    
    
    $
    154,359
    
    
    $
    89,196
    
    
    $
    82,751
    
    
    $
    30,385
    
    
    $
    84,782
    
    
    $
    1,189,270
    
    
    $
    1,185,608Rate sensitive assets  rate
sensitive liabilities
    
    $
    (60,476
    )
    
    $
    28,033
    
    
    $
    35,786
    
    
    $
    2,346
    
    
    $
    38,648
    
    
    $
    58,027
    
    
    $
    102,364
    
    
    $
    98,172Cumulative Gap
    
    $
    (60,476
    )
    
    $
    (32,443
    )
    
    $
    3,343
    
    
    $
    5,689
    
    
    $
    44,337
    
    
    $
    102,364Cumulative amounts as % of total
rate-sensitive assets
    
    
    (4.68
    )%
    
    
    (2.51
    )%
    
    
    0.26
    %
    
    
    0.44
    %
    
    
    3.43
    %
    
    
    7.93
    %Cumulative Ratio
    
    
    0.92
    
    
    
    0.96
    
    
    
    1.00
    
    
    
    1.01
    
    
    
    1.04
    
    
    
    1.09
   74




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Capital Resources
    Regulatory Considerations
  Accounting Pronouncements
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  75




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
  Consolidated Quarterly Financial Data
 2006December 31
    
    
    September 30
    
    
    June 30
    
    
    March 31(dollars in thousands, except per share data)Interest income
    
    $
    21,862
    
    
    $
    19,730
    
    
    $
    17,884
    
    
    $
    16,674Interest expense
    
    
    11,815
    
    
    
    10,355
    
    
    
    8,522
    
    
    
    7,722Net interest income
    
    
    10,047
    
    
    
    9,375
    
    
    
    9,362
    
    
    
    8,952Provision for loan losses
    
    
    1,654
    
    
    
    857
    
    
    
    768
    
    
    
    635Noninterest income
    
    
    5,388
    
    
    
    3,758
    
    
    
    2,449
    
    
    
    2,335Noninterest expense
    
    
    8,563
    
    
    
    7,735
    
    
    
    7,533
    
    
    
    7,785Minority interest
    
    
    207
    
    
    
    199
    
    
    
    161
    
    
    
    225Income before income taxes
    
    
    5,011
    
    
    
    4,342
    
    
    
    3,349
    
    
    
    2,642Income taxes
    
    
    1,787
    
    
    
    1,420
    
    
    
    1,100
    
    
    
    718Net income
    
    $
    3,224
    
    
    $
    2,922
    
    
    $
    2,249
    
    
    $
    1,924Basic earnings per share
    
    
    0.55
    
    
    
    0.50
    
    
    
    0.38
    
    
    
    0.33
 2005December 31
    
    
    September 30
    
    
    June 30
    
    
    March 31(dollars in thousands, except per share data)Interest income
    
    $
    16,269
    
    
    $
    15,390
    
    
    $
    14,584
    
    
    $
    13,527Interest expense
    
    
    6,951
    
    
    
    6,479
    
    
    
    5,725
    
    
    
    5,183Net interest income
    
    
    9,318
    
    
    
    8,911
    
    
    
    8,869
    
    
    
    8,344Provision for loan losses
    
    
    688
    
    
    
    451
    
    
    
    680
    
    
    
    549Noninterest income
    
    
    2,420
    
    
    
    2,158
    
    
    
    1,985
    
    
    
    1,984Noninterest expense
    
    
    7,267
    
    
    
    7,060
    
    
    
    6,638
    
    
    
    6,852Minority interest
    
    
    119
    
    
    
    302
    
    
    
    133
    
    
    
    94Income before income taxes
    
    
    3,664
    
    
    
    3,256
    
    
    
    3,403
    
    
    
    2,833Income taxes
    
    
    1,201
    
    
    
    634
    
    
    
    1,001
    
    
    
    816Net income
    
    $
    2,463
    
    
    $
    2,622
    
    
    $
    2,402
    
    
    $
    2,017Basic earnings per share
    
    
    0.42
    
    
    
    0.45
    
    
    
    0.41
    
    
    
    0.34
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  76




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##### Table of Contents



Item 9A. Controls and Procedures
 Disclosure Controls and Procedures
  Management Report on Internal Control Over Financial Reporting
        
  
 77




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
       78




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##### Table of Contents



BKD, LLP
 
 Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information
  79




---



##### Table of Contents



PART III
 
 Item 10. Directors and Executive Officers of the Company and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accounting Fees and Services
  80




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
   
   81




---



##### Table of Contents



SIGNATURES
  MERCANTILE BANCORP, INC.(Registrant)By:
    
    /s/ Ted T. AwerkampName:
    
    Ted T. AwerkampTitle:
    
    President and Chief Executive OfficerDated:
    
    March 15, 2007
  Signature
    
    Title
    
    Date/s/ Ted T. Awerkamp

Ted T. Awerkamp
    
    President and Chief Executive Officer
(principal executive officer)
    
    March 15, 2007/s/ Michael P. McGrath

Michael P. McGrath
    
    Executive Vice President, Treasurer,
Secretary and Chief Financial Officer
(principal financial officer/principal
accounting officer)
    
    March 15, 2007/s/ Ted T. Awerkamp

Ted T. Awerkamp
    
    Director
    
    March 15, 2007/s/ Dan S. Dugan

Dan S. Dugan
    
    Chairman, Director
    
    March 15, 2007/s/ Michael J. Foster

Michael J. Foster
    
    Director
    
    March 15, 2007/s/ William G. Keller, Jr.

William G. Keller, Jr.
    
    Director
    
    March 15, 2007/s/ Frank H. Musholt

Frank H. Musholt
    
    Director
    
    March 15, 2007/s/ Dennis M. Prock

Dennis M. Prock
    
    Director
    
    March 15, 2007/s/ Walter D. Stevenson III

Walter D. Stevenson III
    
    Director
    
    March 15, 2007
 82




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit3.1
    
    Certificate of Incorporation of Mercantile Bancorp, Inc., as amended, filed with the Registration Statement on Form 10
dated May 12, 2004 (File No. 000-50757)(the Registration Statement), under the same exhibit number.3.2
    
    Bylaws of Mercantile Bancorp, Inc., as amended, filed herewith.4.1
    
    Shareholder Rights Agreement dated
July 9, 1999 between the Company and Mercantile Trust & Savings Bank, filed under same exhibit number with the Registration Statement.4.2
    
    Amendment to Shareholder Rights Agreement dated May 15, 2000 between the Company and
Mercantile Trust & Savings Bank, filed under same exhibit number with the
Registration Statement.10.1
    
    Amendment in its Entirety to Employment Agreement dated December 19, 2005,
between Mercantile Bancorp, Inc. and Mercantile Trust & Savings Bank and Dan S.
Dugan, filed as Exhibit 10.1 with the Annual Report on Form 10-K for the fiscal year
ended December 31, 2005.10.2
    
    Executive Employee Salary Continuation Agreement dated December 8, 1994 between
Mercantile Trust & Savings Bank and Dan S. Dugan, filed as Exhibit 10.3 with the
Registration Statement.10.3
    
    Amendment to Dugan Executive Employee Salary Continuation Agreement dated April
26, 2004, filed as Exhibit 10.4 with the Registration Statement.10.4
    
    Second Amendment to Dugan Executive Employee Salary Continuation Agreement dated
December 29, 2006, filed as Exhibit 10.1 to a Current Report on Form 8-K filed
January 5, 2007.10.5
    
    Executive Employee Salary Continuation Agreement dated December 8, 1994 between
Mercantile Trust & Savings Bank and Ted T. Awerkamp, filed as Exhibit 10.5 with the
Registration Statement.10.6
    
    Amendment to Awerkamp Executive Employee Salary Continuation Agreement dated
April 26, 2004, filed as Exhibit 10.6 with the Registration Statement.10.7
    
    Mercantile Bancorp, Inc. Profit Sharing Plan and Trust, filed as Exhibit 10.7 with
the Registration Statement.10.8
    
    401(k) Plan Adoption Agreement, filed as Exhibit 10.8 with the Registration Statement.10.9
    
    Amendment to the Profit Sharing Plan and Trust, filed as Exhibit 10.9 with the
Registration Statement.10.10
    
    Consulting Agreement dated March 2, 2007 between Mercantile Bancorp, Inc. and Dan S.
Dugan, filed as Exhibit 10.1 to a Current Report on Form 8-K filed March 7, 2007.10.11
    
    Third Amended and Restated Term Loan Agreement dated November 10, 2006 by and between
Mercantile Bancorp, Inc., Borrower and U.S. Bank National Association, formerly known
as Firstar Bank, N.A., Lender, filed as Exhibit 10.1 with the Periodic Report on Form
10-Q for the quarter ended September 30, 2006 (the Third Quarter Form 10-Q).10.12
    
    Construction Agreement dated August 24, 2006 by and between Mercantile Trust &
Savings Bank, Owner and Clayco, Inc., Contractor, filed as Exhibit 10.2 with the
Third Quarter Form 10-Q.10.13
    
    General Conditions of the Contract for Construction by and between Mercantile Trust &
Savings Bank, Owner and Clayco, Inc., Contractor, filed as Exhibit 10.3 with the
Third Quarter Form 10-Q.
 83




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit14.1
    
    Code of Ethics, filed under same exhibit number with Annual Report on Form 10-K for
fiscal year ended December 31, 2004.21.1
    
    Subsidiaries of registrant, 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, filed herewith31.2
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended, filed herewith32.1
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, filed herewith32.2
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, filed herewith
 
 
    
    Management contract or compensatory plan or arrangement. 84




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    86Consolidated Balance Sheets at December 31, 2006 and 2005
    
    
    87Consolidated Statements of Income for the Years Ended December 31,
2006, 2005, and 2004
    
    
    88Consolidated Statement of Stockholders Equity for the Years Ended
December 31, 2006, 2005, and 2004
    
    
    89Consolidated Statements of Cash Flows for the Years Ended December 31,
2006, 2005, and 2004
    
    
    90Notes to Consolidated Financial Statements
    
    
    91
 85




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##### Table of Contents



Report of Independent
 Registered Public Accounting Firm
 
    Internal Control 
Integrated Frame Work
 BKD, Llp
 
 86




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##### Table of Contents



Mercantile Bancorp, Inc.
 
 Consolidated Balance Sheets
 December 31, 2006 and 2005
 (in thousands, except share data)
 2006
    
    
    2005AssetsCash and due from banks
    
    $
    28,854
    
    
    $
    27,761Interest-bearing demand deposits
    
    
    29,188
    
    
    
    14,548Federal funds sold
    
    
    41,105
    
    
    
    1,845Cash and cash equivalents
    
    
    99,147
    
    
    
    44,154Available-for-sale securities
    
    
    176,179
    
    
    
    150,196Held-to-maturity securities
    
    
    12,400
    
    
    
    14,870Loans held for sale
    
    
    1,660
    
    
    
    3,635Loans, net of allowance for loan losses
of $10,613 and $8,082 at December 31,
2006 and 2005
    
    
    1,021,043
    
    
    
    849,566Interest receivable
    
    
    10,277
    
    
    
    7,896Foreclosed assets held for sale, net
    
    
    291
    
    
    
    341Federal Home Loan Bank stock
    
    
    5,699
    
    
    
    5,432Equity method investments in common stock
    
    
    4,119
    
    
    
    7,105Cost method investments in common stock
    
    
    3,190
    
    
    
    3,350Deferred income taxes
    
    
    3,071
    
    
    
    4,254Mortgage servicing rights
    
    
    994
    
    
    
    1,018Cash surrender value of life insurance
    
    
    18,143
    
    
    
    15,930Premises and equipment
    
    
    25,693
    
    
    
    18,242Goodwill
    
    
    32,120
    
    
    
    5,208Core deposit and other intangibles
    
    
    2,110
    
    
    
    2,360Other
    
    
    6,691
    
    
    
    4,267Total assets
    
    $
    1,422,827
    
    
    $
    1,137,824Liabilities and Stockholders EquityLiabilitiesDepositsDemand
    
    $
    111,131
    
    
    $
    104,320Savings, NOW and money market
    
    
    349,250
    
    
    
    264,008Time
    
    
    551,688
    
    
    
    450,336Brokered time
    
    
    154,745
    
    
    
    127,465Total deposits
    
    
    1,166,814
    
    
    
    946,129Interest rate swaps at fair value
    
    
    
    
    
    
    238Short-term borrowings
    
    
    26,338
    
    
    
    32,587Long-term debt
    
    
    66,010
    
    
    
    41,410Junior subordinated debentures
    
    
    41,239
    
    
    
    10,310Interest payable
    
    
    6,039
    
    
    
    3,134Other
    
    
    6,531
    
    
    
    4,967Total liabilities
    
    
    1,312,971
    
    
    
    1,038,775Commitments and Contingent LiabilitiesMinority Interest
    
    
    9,198
    
    
    
    7,561Stockholders EquityCommon stock, $0.42 par value; authorized 12,000,000 shares;Issued  5,924,790 sharesOutstanding  5,831,745 and 5,848,245 shares at
December 31, 2006 and 2005
    
    
    2,469
    
    
    
    2,469Additional paid-in capital
    
    
    13,142
    
    
    
    12,924Retained earnings
    
    
    86,648
    
    
    
    78,200Accumulated other comprehensive income (loss)
    
    
    23
    
    
    
    (848
    )102,282
    
    
    
    92,745Treasury stock, at costCommon; 93,045 shares and 76,545 shares at December 31, 2006 and 2005
    
    
    (1,624
    )
    
    
    (1,257
    )Total stockholders equity
    
    
    100,658
    
    
    
    91,488Total liabilities and stockholders equity
    
    $
    1,422,827
    
    
    $
    1,137,824
  87




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##### Table of Contents



Mercantile Bancorp, Inc.
 
 Consolidated Statements of Income
 Years Ended December 31, 2006, 2005 and 2004
 (in thousands, except share data)
 2006
    
    
    2005
    
    
    2004Interest and Dividend IncomeLoansTaxable
    
    $
    66,152
    
    
    $
    51,767
    
    
    $
    42,015Tax exempt
    
    
    908
    
    
    
    720
    
    
    
    556SecuritiesTaxable
    
    
    5,774
    
    
    
    4,791
    
    
    
    5,149Tax exempt
    
    
    1,783
    
    
    
    1,775
    
    
    
    1,553Federal funds sold
    
    
    577
    
    
    
    134
    
    
    
    84Dividends on Federal Home Loan Bank Stock
    
    
    189
    
    
    
    235
    
    
    
    259Deposits with financial institutions and other
    
    
    767
    
    
    
    358
    
    
    
    170Total interest and dividend income
    
    
    76,150
    
    
    
    59,780
    
    
    
    49,786Interest ExpenseDeposits
    
    
    33,071
    
    
    
    21,185
    
    
    
    15,476Short-term borrowings
    
    
    1,389
    
    
    
    676
    
    
    
    286Long-term debt and junior subordinated debentures
    
    
    3,954
    
    
    
    2,477
    
    
    
    2,231Total interest expense
    
    
    38,414
    
    
    
    24,338
    
    
    
    17,993Net Interest Income
    
    
    37,736
    
    
    
    35,442
    
    
    
    31,793Provision for Loan Losses
    
    
    3,914
    
    
    
    2,368
    
    
    
    1,746Net Interest Income After Provision for Loan Losses
    
    
    33,822
    
    
    
    33,074
    
    
    
    30,047Noninterest IncomeFiduciary activities
    
    
    2,191
    
    
    
    1,910
    
    
    
    1,670Brokerage fees
    
    
    1,120
    
    
    
    430
    
    
    
    373Customer service fees
    
    
    3,610
    
    
    
    3,407
    
    
    
    3,394Other service charges and fees
    
    
    599
    
    
    
    621
    
    
    
    546Net gains on loan sales
    
    
    612
    
    
    
    548
    
    
    
    521Net gains on sale of equity and cost method investments
    
    
    4,318
    
    
    
    
    
    
    
    Loan servicing fees
    
    
    388
    
    
    
    372
    
    
    
    366Net realized losses on sale of available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    (4
    )Net increase in cash surrender value of life insurance
    
    
    653
    
    
    
    606
    
    
    
    619Income on equity method investments in common stock
    
    
    251
    
    
    
    182
    
    
    
    187Other
    
    
    188
    
    
    
    471
    
    
    
    185Total noninterest income
    
    
    13,930
    
    
    
    8,547
    
    
    
    7,857Noninterest ExpenseSalaries and employee benefits
    
    
    18,254
    
    
    
    15,937
    
    
    
    15,182Net occupancy expense
    
    
    2,001
    
    
    
    2,061
    
    
    
    1,487Equipment expense
    
    
    1,777
    
    
    
    1,667
    
    
    
    1,612Deposit insurance premium
    
    
    122
    
    
    
    119
    
    
    
    119Professional fees
    
    
    1,782
    
    
    
    1,361
    
    
    
    1,243Postage and supplies
    
    
    941
    
    
    
    857
    
    
    
    838Losses on sale of premises and equipment
    
    
    107
    
    
    
    70
    
    
    
    Loss on foreclosed assets, net
    
    
    35
    
    
    
    94
    
    
    
    134Amortization of mortgage servicing rights
    
    
    224
    
    
    
    196
    
    
    
    185Other
    
    
    6,373
    
    
    
    5,455
    
    
    
    5,078Total noninterest expense
    
    
    31,616
    
    
    
    27,817
    
    
    
    25,878Minority Interest
    
    
    792
    
    
    
    648
    
    
    
    151Income Before Income Taxes
    
    
    15,344
    
    
    
    13,156
    
    
    
    11,875Provision for Income Taxes
    
    
    5,025
    
    
    
    3,652
    
    
    
    3,557Net Income
    
    $
    10,319
    
    
    $
    9,504
    
    
    $
    8,318Basic Earnings Per Share
    
    $
    1.76
    
    
    $
    1.62
    
    
    $
    1.41Weighted average shares outstanding
    
    
    5,846,983
    
    
    
    5,879,016
    
    
    
    5,891,040
  88




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##### Table of Contents



Mercantile Bancorp, Inc.
 
 Consolidated Statements of Stockholders Equity
 Years Ended December 31, 2006, 2005 and 2004
 (in thousands, except share data)
 AccumulatedCommon Stock
    
    
    
    
    
    
    
    
    
    
    OtherShares
    
    
    
    
    
    
    Additional Paid-
    
    
    Retained
    
    
    ComprehensiveOutstanding
    
    
    Amount
    
    
    In Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Treasury Stock
    
    
    TotalBalance, January 1, 2004
    
    
    5,891,040
    
    
    $
    2,469
    
    
    $
    12,498
    
    
    $
    63,588
    
    
    $
    1,900
    
    
    $
    (421
    )
    
    $
    80,034Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,318
    
    
    
    
    
    
    
    
    
    
    
    8,318Change in unrealized
appreciation on
available-for-sale
securities, net of
taxes and
reclassification
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (951
    )
    
    
    
    
    
    
    (951
    )Accumulated other
comprehensive loss
of equity method
investee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Change in unrealized
loss on interest
rate swaps, net of
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76
    )
    
    
    
    
    
    
    (76
    )Total
comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,275Issuance of stock to
minority shareholders of
Mid-America
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126Dividends on common
stock, $0.25 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,453
    )
    
    
    
    
    
    
    
    
    
    
    (1,453
    )Balance, December 31, 2004
    
    
    5,891,040
    
    
    
    2,469
    
    
    
    12,624
    
    
    
    70,453
    
    
    
    857
    
    
    
    (421
    )
    
    
    85,982Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,504
    
    
    
    
    
    
    
    
    
    
    
    9,504Change in unrealized
depreciation on
available-for-sale
securities, net of
taxes and
reclassification
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,606
    )
    
    
    
    
    
    
    (1,606
    )Accumulated other
comprehensive loss
of equity method
investee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    (27
    )Change in unrealized
loss on interest
rate swaps, net of
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    
    
    
    
    (72
    )Total
comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,799Issuance of stock to
minority shareholders of
Mid-America
    
    
    
    
    
    
    
    
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300Dividends on common
stock, $0.30 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,757
    )
    
    
    
    
    
    
    
    
    
    
    (1,757
    )Purchase of treasury stock
    
    
    (42,795
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (836
    )
    
    
    (836
    )Balance, December 31, 2005
    
    
    5,848,245
    
    
    
    2,469
    
    
    
    12,924
    
    
    
    78,200
    
    
    
    (848
    )
    
    
    (1,257
    )
    
    
    91,488Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,319
    
    
    
    
    
    
    
    
    
    
    
    10,319Change in unrealized
appreciation on
available-for-sale
securities, net of
taxes and
reclassification
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    892
    
    
    
    
    
    
    
    892Accumulated other
comprehensive loss
of equity method
investee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Change in unrealized
loss on interest
rate swaps, net of
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147
    
    
    
    
    
    
    
    147Total
comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,353Issuance of stock to
minority shareholders of
Mid-America
    
    
    
    
    
    
    
    
    
    
    218
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218Dividends on common
stock, $0.32 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,871
    )
    
    
    
    
    
    
    
    
    
    
    (1,871
    )Purchase of treasury stock
    
    
    (16,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (367
    )
    
    
    (367
    )Adjustment to initially
apply FAS Statement No.
158, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (163
    )
    
    
    
    
    
    
    (163
    )Balance, December 31, 2006
    
    
    5,831,745
    
    
    $
    2,469
    
    
    $
    13,142
    
    
    $
    86,648
    
    
    $
    23
    
    
    $
    (1,624
    )
    
    $
    100,658
  89




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##### Table of Contents



Mercantile Bancorp, Inc.
 
 Statements of Cash Flows
 December 31, 2006, 2005 and 2004
 (in thousands, except share data)
 2006
    
    
    2005
    
    
    2004Operating ActivitiesNet income
    
    $
    10,319
    
    
    $
    9,504
    
    
    $
    8,318Items not requiring (providing) cashDepreciation
    
    
    1,535
    
    
    
    1,652
    
    
    
    1,257Provision for loan losses
    
    
    3,914
    
    
    
    2,368
    
    
    
    1,746Amortization of premiums and discounts on securities
    
    
    1,062
    
    
    
    943
    
    
    
    1,287Amortization of core deposit intangibles
    
    
    247
    
    
    
    161
    
    
    
    145Deferred income taxes
    
    
    2,091
    
    
    
    (1,252
    )
    
    
    (91
    )Net realized losses on sales of available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    4Losses on sales of foreclosed assets
    
    
    35
    
    
    
    94
    
    
    
    134Net gains on loan sales
    
    
    (612
    )
    
    
    (548
    )
    
    
    (521
    )Amortization of mortgage servicing rights
    
    
    224
    
    
    
    196
    
    
    
    185Losses on sale of premises and equipment
    
    
    107
    
    
    
    70
    
    
    
    Gain on sale of equity and cost method investments
    
    
    (4,318
    )
    
    
    
    
    
    
    Income on equity method investments in common stock
    
    
    (251
    )
    
    
    (182
    )
    
    
    (187
    )Federal Home Loan Bank stock dividends
    
    
    (58
    )
    
    
    (223
    )
    
    
    (246
    )Net increase in cash surrender value of life insurance
    
    
    (653
    )
    
    
    (606
    )
    
    
    (619
    )Minority interest in earnings of subsidiary
    
    
    792
    
    
    
    648
    
    
    
    151Changes inLoan originated for sale
    
    
    (38,755
    )
    
    
    (32,513
    )
    
    
    (35,064
    )Proceeds from sales of loans
    
    
    41,142
    
    
    
    32,481
    
    
    
    36,644Interest receivable
    
    
    (1,736
    )
    
    
    (1,378
    )
    
    
    (98
    )Other assets
    
    
    (1,662
    )
    
    
    (1,298
    )
    
    
    (471
    )Interest payable
    
    
    2,256
    
    
    
    988
    
    
    
    197Other liabilities
    
    
    373
    
    
    
    673
    
    
    
    933Net cash provided by operating activities
    
    
    16,052
    
    
    
    11,778
    
    
    
    13,704Investing ActivitiesCash received in acquisition of Mid-America
    
    
    
    
    
    
    
    
    
    
    3,691Cash paid for additional shares of Mid-America
    
    
    
    
    
    
    
    
    
    
    (770
    )Cash paid in acquisition of Royal Palm, net of cash received
    
    
    (21,804
    )
    
    
    
    
    
    
    Purchases of available-for-sale securities
    
    
    (113,362
    )
    
    
    (63,953
    )
    
    
    (45,747
    )Proceeds from maturities of available-for-sale securities
    
    
    104,625
    
    
    
    63,983
    
    
    
    45,213Proceeds from the sales of available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    2,775Purchases of held-to-maturity securities
    
    
    
    
    
    
    
    
    
    
    (199
    )Proceeds from maturities of held-to-maturity securities
    
    
    3,375
    
    
    
    4,745
    
    
    
    6,810Net change in loans
    
    
    (54,535
    )
    
    
    (90,886
    )
    
    
    (82,784
    )Purchases of premises and equipment
    
    
    (5,313
    )
    
    
    (3,940
    )
    
    
    (1,402
    )Proceeds from sales of premises and equipment
    
    
    20
    
    
    
    35
    
    
    
    Purchases of Federal Home Loan Bank stock
    
    
    (841
    )
    
    
    (109
    )
    
    
    (309
    )Proceeds from sales of Federal Home Loan Bank stock
    
    
    1,152
    
    
    
    
    
    
    
    Proceeds from the sales of foreclosed assets
    
    
    469
    
    
    
    743
    
    
    
    1,003Purchase of cost method investment in common stock
    
    
    (995
    )
    
    
    (1,501
    )
    
    
    Purchases of equity method investment in common stock
    
    
    
    
    
    
    (2,986
    )
    
    
    Proceeds from sales of equity method investments
    
    
    1,347
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (85,862
    )
    
    
    (93,869
    )
    
    
    (71,719
    )Financing ActivitiesNet increase in demand deposits, money market, NOW and savings accounts
    
    
    59,617
    
    
    
    16,837
    
    
    
    40,524Net increase in time and brokered time deposits
    
    
    22,145
    
    
    
    55,865
    
    
    
    30,846Net increase (decrease) in short-term borrowings
    
    
    (6,249
    )
    
    
    11,202
    
    
    
    2,084Proceeds from long-term debt
    
    
    28,750
    
    
    
    2,902
    
    
    
    3,250Repayment of long-term debt
    
    
    (9,150
    )
    
    
    (11,250
    )
    
    
    (4,677
    )Proceeds from issuance of junior subordinated debentures
    
    
    30,929
    
    
    
    10,310
    
    
    
    Proceeds from issuance of stock to minority interest of Mid-America
    
    
    1,395
    
    
    
    3,307
    
    
    
    392Purchase of intangible assets
    
    
    (396
    )
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    (367
    )
    
    
    (836
    )
    
    
    Dividends paid
    
    
    (1,871
    )
    
    
    (1,757
    )
    
    
    (1,453
    )Dividends paid on minority shares
    
    
    
    
    
    
    (54
    )
    
    
    Net cash provided by financing activities
    
    
    124,803
    
    
    
    86,526
    
    
    
    70,966Increase in Cash and Cash Equivalents
    
    
    54,993
    
    
    
    4,435
    
    
    
    12,951Cash and Cash Equivalents, Beginning of Year
    
    
    44,154
    
    
    
    39,719
    
    
    
    26,768Cash and Cash Equivalents, End of Year
    
    $
    99,147
    
    
    $
    44,154
    
    
    $
    39,719Supplemental Cash Flows InformationInterest paid
    
    $
    36,158
    
    
    $
    23,350
    
    
    $
    17,796Income taxes paid (net of refunds)
    
    $
    4,917
    
    
    $
    4,423
    
    
    $
    3,205Real estate acquired in settlement of loans
    
    $
    454
    
    
    $
    655
    
    
    $
    917Mid-America equity method investment recorded at acquisition
    
    $
    
    
    
    $
    
    
    
    $
    3,059Increase in additional paid-in-capital due to issuance of stock to
minority interest of Mid-America at a price over book
    
    $
    218
    
    
    $
    300
    
    
    $
    126Increase in core deposit intangibles due to purchase of Mid-America at
a price over book
    
    $
    
    
    
    $
    413
    
    
    $
    Core deposit intangible reclassified to goodwill
    
    $
    
    
    
    $
    
    
    
    $
    760Available-for-sale securities received in sale of equity and cost
method investments
    
    $
    8,035
    
    
    $
    
    
    
    $
    Purchase of
minority interest shares including goodwill in Security State Bank of Hamilton recognized as other liabilities
    
    $
    580
    
    
    $
    
    
    
    $
    
  90




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##### Table of Contents



Mercantile Bancorp, Inc.
 
 Notes to Consolidated Financial Statements
 December 31, 2006, 2005 and 2004
 (Table dollar amounts in thousands)
 Note 1: Nature of Operations and Summary of Significant Accounting Policies
 Nature of Operations
  Investment Subsidiary
  Principles of Consolidation
  Use of Estimates
  91




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
  Cash Equivalents
  Securities
    Equity Method Investments
  Cost Method Investments
  92




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Derivative Financial Instruments and Hedging Transactions
  Accounting for Derivative Instruments and Hedging Activities
 Loans Held for Sale
  Loans
   Allowance for Loan Losses
  93




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
    Premises and Equipment
  Federal Home Loan Bank Stock
  Foreclosed Assets Held for Sale
  94




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Goodwill
  Core Deposit and Other Intangibles
  Mortgage Servicing Rights
  Loan Servicing Income
  Treasury Stock
  Income Taxes
  Self Insurance
  95




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Earnings Per Share
  Trust Assets
  Reclassifications
  Note 2: Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale Securities:December 31, 2006:U.S. Treasury
    
    $
    500
    
    
    $
    
    
    
    $
    (3
    )
    
    $
    497U.S. government
agencies
    
    
    7,992
    
    
    
    4
    
    
    
    (53
    )
    
    
    7,943Mortgage-backed
securities
    
    
    96,140
    
    
    
    587
    
    
    
    (697
    )
    
    
    96,030State and political
subdivisions
    
    
    49,781
    
    
    
    137
    
    
    
    (556
    )
    
    
    49,362Corporate bonds
    
    
    11,000
    
    
    
    
    
    
    
    
    
    
    
    11,000Equity securities
    
    
    10,212
    
    
    
    1,135
    
    
    
    
    
    
    
    11,347$
    175,625
    
    
    $
    1,863
    
    
    $
    (1,309
    )
    
    $
    176,179
 96




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale Securities:December 31, 2005:U.S. Treasury
    
    $
    5,375
    
    
    $
    
    
    
    $
    (14
    )
    
    $
    5,361U.S. government
agencies
    
    
    3,507
    
    
    
    
    
    
    
    (46
    )
    
    
    3,461Mortgage-backed
securities
    
    
    85,399
    
    
    
    279
    
    
    
    (938
    )
    
    
    84,740State and political
subdivisions
    
    
    50,665
    
    
    
    287
    
    
    
    (609
    )
    
    
    50,343Corporate bonds
    
    
    6,007
    
    
    
    7
    
    
    
    
    
    
    
    6,014Equity securities
    
    
    277
    
    
    
    
    
    
    
    
    
    
    
    277$
    151,230
    
    
    $
    573
    
    
    $
    (1,607
    )
    
    $
    150,196
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueHeld-to-maturity SecuritiesDecember 31, 2006:Mortgage-backed
securities
    
    $
    11,181
    
    
    $
    2
    
    
    $
    (117
    )
    
    $
    11,066State and
political
subdivisions
    
    
    219
    
    
    
    
    
    
    
    (1
    )
    
    
    218Corporate bonds
    
    
    1,000
    
    
    
    
    
    
    
    (3
    )
    
    
    997$
    12,400
    
    
    $
    2
    
    
    $
    (121
    )
    
    $
    12,281December 31, 2005:Mortgage-backed
securities
    
    $
    14,453
    
    
    $
    5
    
    
    $
    (251
    )
    
    $
    14,207State and
political
subdivisions
    
    
    417
    
    
    
    
    
    
    
    (2
    )
    
    
    415$
    14,870
    
    
    $
    5
    
    
    $
    (253
    )
    
    $
    14,622
 97




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
  Available-for-sale
    
    
    Held-to-maturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueWithin one year
    
    $
    8,794
    
    
    $
    8,763
    
    
    $
    1,120
    
    
    $
    1,116One to five years
    
    
    27,312
    
    
    
    27,061
    
    
    
    
    
    
    
    Five to ten years
    
    
    31,038
    
    
    
    30,848
    
    
    
    99
    
    
    
    99After ten years
    
    
    2,129
    
    
    
    2,130
    
    
    
    
    
    
    
    69,273
    
    
    
    68,802
    
    
    
    1,219
    
    
    
    1,215Mortgage-backed securities
    
    
    96,140
    
    
    
    96,030
    
    
    
    11,181
    
    
    
    11,066Equity securities
    
    
    10,212
    
    
    
    11,347
    
    
    
    
    
    
    
    Totals
    
    $
    175,625
    
    
    $
    176,179
    
    
    $
    12,400
    
    
    $
    12,281
       98




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
  Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedSecurities
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesDecember 31, 2006U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    497
    
    
    $
    (3
    )
    
    $
    497
    
    
    $
    (3
    )U.S. Government
agencies
    
    
    2,435
    
    
    
    (4
    )
    
    
    4,372
    
    
    
    (49
    )
    
    
    6,807
    
    
    
    (53
    )Mortgage-backed
securities
    
    
    17,792
    
    
    
    (75
    )
    
    
    52,830
    
    
    
    (739
    )
    
    
    70,622
    
    
    
    (814
    )State and political
subdivisions
    
    
    6,983
    
    
    
    (31
    )
    
    
    32,906
    
    
    
    (526
    )
    
    
    39,889
    
    
    
    (557
    )Corporate bonds
    
    
    
    
    
    
    
    
    
    
    997
    
    
    
    (3
    )
    
    
    997
    
    
    
    (3
    )Total
temporarily
impaired
securities
    
    $
    27,210
    
    
    $
    (110
    )
    
    $
    91,602
    
    
    $
    (1,320
    )
    
    $
    118,812
    
    
    $
    (1,430
    )December 31, 2005U.S. Government
agencies
    
    $
    2,490
    
    
    $
    (28
    )
    
    $
    1,968
    
    
    $
    (32
    )
    
    $
    4,458
    
    
    $
    (60
    )Mortgage-backed
securities
    
    
    44,498
    
    
    
    (483
    )
    
    
    37,271
    
    
    
    (706
    )
    
    
    81,769
    
    
    
    (1,189
    )State and political
subdivisions
    
    
    26,215
    
    
    
    (416
    )
    
    
    7,248
    
    
    
    (195
    )
    
    
    33,463
    
    
    
    (611
    )Total
temporarily
impaired
securities
    
    $
    73,203
    
    
    $
    (927
    )
    
    $
    46,487
    
    
    $
    (933
    )
    
    $
    119,690
    
    
    $
    (1,860
    )
 99




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Note 3: Equity and Cost Method Investments in Common Stock
   Investment AmountEntity
    
    2006
    
    
    2005New Frontier Bancshares, Inc.
    
    $
    4,119
    
    
    $
    4,024NorthStar Bancshares, Inc.
    
    
    
    
    
    
    3,081$
    4,119
    
    
    $
    7,105
  As of and for the Years EndedDecember 31,2006
    
    2005Total assets
    
    $
    153,797
    
    
    $
    122,354Total liabilities
    
    
    142,617
    
    
    
    111,336Total equity
    
    
    11,181
    
    
    
    11,018Net income
    
    
    320
    
    
    
    262
  100




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
      101




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Note 4: Loans and Allowance for Loan Losses
  2006
    
    
    2005Commercial and agricultural
    
    $
    214,916
    
    
    $
    229,159Commercial real estate
    
    
    416,276
    
    
    
    293,179Residential real estate
    
    
    265,577
    
    
    
    209,946Consumer
    
    
    124,723
    
    
    
    114,292Floor plan loans
    
    
    10,164
    
    
    
    11,072Total loans
    
    
    1,031,656
    
    
    
    857,648LessAllowance for loan losses
    
    
    10,613
    
    
    
    8,082Net loans
    
    $
    1,021,043
    
    
    $
    849,566
  2006
    
    
    2005
    
    
    2004Balance, beginning of year
    
    $
    8,082
    
    
    $
    7,115
    
    
    $
    5,830Purchased allowance
    
    
    1,725
    
    
    
    
    
    
    
    476Provision charged to expense
    
    
    3,914
    
    
    
    2,368
    
    
    
    1,746Losses charged off, net of
recoveries of $284 for
2006, $340 for 2005, and
$398 for 2004
    
    
    (3,108
    )
    
    
    (1,401
    )
    
    
    (937
    )Balance, end of year
    
    $
    10,613
    
    
    $
    8,082
    
    
    $
    7,115
    102




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Note 5: Premises and Equipment
  2006
    
    
    2005Land
    
    $
    4,270
    
    
    $
    3,085Buildings and improvements
    
    
    18,832
    
    
    
    17,643Leasehold improvements
    
    
    2,221
    
    
    
    597Equipment
    
    
    12,455
    
    
    
    12,144Construction in progress
    
    
    3,962
    
    
    
    43541,740
    
    
    
    33,904Less accumulated depreciation
    
    
    16,047
    
    
    
    15,662Net premises and equipment
    
    $
    25,693
    
    
    $
    18,242
  Note 6: Derivative Financial Instruments
   Note 7: Goodwill
  2006
    
    
    2005Balance as of January 1
    
    $
    5,208
    
    
    $
    5,208Goodwill acquired in Royal Palm acquisition
    
    
    26,640
    
    
    
    Goodwill acquired through acquisition of
minority interest in merger of
subsidiaries
    
    
    272
    
    
    
    Balance as of December 31
    
    $
    32,120
    
    
    $
    5,208
 103




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
   Note 8: Other Intangible Assets
  2006
    
    
    2005Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationCore deposits
    
    $
    2,161
    
    
    $
    448
    
    
    $
    2,732
    
    
    $
    372Intangible
asset with
indefinite
life
    
    
    397
    
    
    
    
    
    
    
    
    
    
    
    $
    2,558
    
    
    $
    448
    
    
    $
    2,732
    
    
    $
    372
  2006
    
    
    2005Accumulated
    
    
    
    
    
    
    AccumulatedCarrying Values
    
    
    Amortization
    
    
    Carrying Values
    
    
    AmortizationBalance as of January 1
    
    $
    2,732
    
    
    $
    372
    
    
    $
    1,414
    
    
    $
    211Acquisition of Mid-America
    
    
    
    
    
    
    
    
    
    
    413
    
    
    
    Acquisition of New Frontier
    
    
    
    
    
    
    
    
    
    
    421
    
    
    
    Acquisition of NorthStar
    
    
    
    
    
    
    
    
    
    
    484
    
    
    
    Acquisition of Royal Palm
    
    
    303
    
    
    
    
    
    
    
    
    
    
    
    Disposal of NorthStar
    
    
    (873
    )
    
    
    (171
    )
    
    
    
    
    
    
    Amortization of core
deposit intangibles
    
    
    
    
    
    
    247
    
    
    
    
    
    
    
    161Acquisition of intangible
with indefinite life
    
    
    396
    
    
    
    
    
    
    
    
    
    
    
    Balance as of December 31
    
    $
    2,558
    
    
    $
    448
    
    
    $
    2,732
    
    
    $
    372
 104




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
  2007
    
    $
    372,0002008
    
    
    348,0002009
    
    
    333,0002010
    
    
    315,0002011
    
    
    286,000
 Note 9: Loan Servicing
    2006
    
    
    2005
    
    
    2004Mortgage servicing rightsBalance, beginning of year
    
    $
    1,018
    
    
    $
    998
    
    
    $
    990Servicing rights capitalized
    
    
    200
    
    
    
    216
    
    
    
    193Amortization of servicing rights
    
    
    (224
    )
    
    
    (196
    )
    
    
    (185
    )Balance, end of year
    
    $
    994
    
    
    $
    1,018
    
    
    $
    998
 105




---



##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Note 10: Interest-Bearing Deposits
   2007
    
    $
    514,7152008
    
    
    81,1412009
    
    
    55,4862010
    
    
    47,1662011
    
    
    6,230Thereafter
    
    
    1,695$
    706,433
 Note 11: Short-Term Borrowings
  2006
    
    
    2005Federal funds purchased
    
    $
    902
    
    
    $
    998Securities sold under agreements to repurchase
    
    
    23,651
    
    
    
    14,317U.S. Treasury demand notes
    
    
    1,785
    
    
    
    1,122Short term Federal Home Loan Bank borrowings
    
    
    
    
    
    
    16,150Total short-term borrowings
    
    $
    26,338
    
    
    $
    32,587
  106




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Note 12: Long-Term Debt and Junior Subordinated Debentures
  2006
    
    
    2005Federal Home Loan Bank advances, fixed rates from
3.66% to 5.50%, due at various dates through 2016.
    
    $
    44,825
    
    
    $
    37,475Bank note payable, variable rate, due June 30, 2007
    
    
    6,185
    
    
    
    3,935Bank note payable, variable rate, final payment
due November 10, 2009
    
    
    15,000
    
    
    
    Junior subordinated debenture owed to
unconsolidated subsidiaries
    
    
    41,239
    
    
    
    10,310Total long-term debt
    
    $
    107,249
    
    
    $
    51,720
    107




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##### Table of Contents



Mercantile
Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
   108




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
     2007
    
    $
    9,5102008
    
    
    21,3752009
    
    
    14,6252010
    
    
    5,0002011
    
    
    8,000Thereafter
    
    
    48,739$
    107,249
 109




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Note 13: Income Taxes
  2006
    
    
    2005
    
    
    2004Taxes currently payableFederal
    
    $
    2,696
    
    
    $
    4,292
    
    
    $
    3,309State
    
    
    238
    
    
    
    612
    
    
    
    339Deferred income taxesFederal
    
    
    1,714
    
    
    
    (1,078
    )
    
    
    (75
    )State
    
    
    377
    
    
    
    (174
    )
    
    
    (16
    )Income tax expense
    
    $
    5,025
    
    
    $
    3,652
    
    
    $
    3,557
  2006
    
    
    2005
    
    
    2004Computed at the statutory rate (34%)
    
    $
    5,217
    
    
    $
    4,473
    
    
    $
    4,038Increase (decrease) resulting fromTax exempt income
    
    
    (836
    )
    
    
    (782
    )
    
    
    (719
    )State income taxes
    
    
    406
    
    
    
    263
    
    
    
    174Increase in cash surrender
value of life insurance
    
    
    (219
    )
    
    
    (225
    )
    
    
    (210
    )Change in deferred tax rate
for Mid-America
    
    
    
    
    
    
    (328
    )
    
    
    Other
    
    
    457
    
    
    
    251
    
    
    
    274Actual tax expense
    
    $
    5,025
    
    
    $
    3,652
    
    
    $
    3,557
 110




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
  2006
    
    
    2005Deferred tax assetsAllowance for loan losses
    
    $
    3,901
    
    
    $
    3,002Accrued compensated absences
    
    
    206
    
    
    
    190Deferred compensation
    
    
    1,087
    
    
    
    1,066Accrued postretirement benefits
    
    
    142
    
    
    
    62Equity method investments
    
    
    26
    
    
    
    165Net operating loss carryforward of Mid-America
Bancorp, Inc.
    
    
    777
    
    
    
    906Unrealized loss on interest rate swap
    
    
    
    
    
    
    91Unrealized losses on available-for-sale securities
    
    
    
    
    
    
    377Stock options
    
    
    38
    
    
    
    FAS 158
    
    
    100
    
    
    
    Purchase accounting adjustments
    
    
    626
    
    
    
    Other
    
    
    
    
    
    
    596,903
    
    
    
    5,918Deferred tax liabilitiesFederal Home Loan Bank stock dividends
    
    
    375
    
    
    
    447Depreciation
    
    
    468
    
    
    
    482State taxes
    
    
    43
    
    
    
    123Mortgage servicing rights
    
    
    376
    
    
    
    386Deferred gain on investments
    
    
    1,652
    
    
    
    Unrealized gains on available-for-sale securities
    
    
    203
    
    
    
    Core deposit intangible for Mid-America Bancorp, Inc.
    
    
    226
    
    
    
    226Other
    
    
    489
    
    
    
    3,832
    
    
    
    1,664Net deferred tax asset
    
    $
    3,071
    
    
    $
    4,254
  111




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Note 14: Other Comprehensive Loss
  2006
    
    
    2005
    
    
    2004Unrealized appreciation (depreciation)
on available-for-sale securities:Unrealized appreciation
(depreciation) on
available-for-sale securities,
net of tax expense (benefit) of
$580 for 2006, $(981) for 2004
and $(646) for 2004
    
    $
    892
    
    
    $
    (1,606
    )
    
    $
    (954
    )Less reclassification adjustment
for realized losses, net of tax
benefit of $0 for 2006, $0 for
2005 and $(1) for 2004
    
    
    
    
    
    
    
    
    
    
    (3
    )Net change in unrealized
appreciation (depreciation)
on available-for-sale
securities, net of tax
benefit of $580 for 2006,
$(981) for 2005 and $(646)
for 2004
    
    $
    892
    
    
    $
    (1,606
    )
    
    $
    (951
    )Accumulated other comprehensive loss
of equity method investee
    
    $
    (5
    )
    
    $
    (27
    )
    
    $
    (16
    )Unrealized loss on interest rate swaps:Unrealized holding gains
(losses), net of tax expense
(benefit) of $(19) for 2006,
$(61) for 2005 and $38 for 2004
    
    $
    (28
    )
    
    $
    (99
    )
    
    $
    63Less reclassification adjustment
to interest income, net of tax
expense (benefit) of $(104) for
2006, $(16) for 2005 and $85 for
2004
    
    
    (175
    )
    
    
    (27
    )
    
    
    139Net change in unrealized
loss on interest rate swaps,
net of tax expense (benefit)
of $91 for 2006, $(43) for
2005 and $(47) for 2004
    
    $
    147
    
    
    $
    (72
    )
    
    $
    (76
    )
 112




---



##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Note 15: Regulatory Matters
     113




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
  To Be Well CapitalizedFor Capital Adequacy
    
    Under Prompt CorrectiveActual
    
    Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2006Total capital
(to risk-weighted assets)Consolidated
    
    $
    124,138
    
    
    
    10.9
    %
    
    $
    90,954
    
    
    
    8.0
    %
    
    $
    113,692
    
    
    
    N/AMercantile Trust & Savings Bank
    
    
    51,981
    
    
    
    11.2
    
    
    
    37,276
    
    
    
    8.0
    %
    
    
    46,595
    
    
    
    10.0
    %Perry State Bank
    
    
    13,606
    
    
    
    10.6
    
    
    
    10,234
    
    
    
    8.0
    %
    
    
    12,792
    
    
    
    10.0
    %Farmers State Bank of Northern
Missouri
    
    
    6,829
    
    
    
    10.6
    
    
    
    5,157
    
    
    
    8.0
    %
    
    
    6,446
    
    
    
    10.0
    %Marine Bank and Trust
    
    
    14,308
    
    
    
    11.9
    
    
    
    9,599
    
    
    
    8.0
    %
    
    
    11,999
    
    
    
    10.0
    %Brown County State Bank
    
    
    6,330
    
    
    
    11.4
    
    
    
    4,453
    
    
    
    8.0
    %
    
    
    5,567
    
    
    
    10.0
    %Heartland Bank
    
    
    17,388
    
    
    
    10.7
    
    
    
    12,987
    
    
    
    8.0
    %
    
    
    16,234
    
    
    
    10.0
    %Royal Palm Bank of Florida
    
    
    15,696
    
    
    
    12.1
    
    
    
    10,420
    
    
    
    8.0
    %
    
    
    13,025
    
    
    
    10.0
    %Tier I capital
(to risk-weighted assets)Consolidated
    
    
    110,273
    
    
    
    9.7
    
    
    
    45,477
    
    
    
    4.0
    %
    
    
    68,215
    
    
    
    N/AMercantile Trust & Savings Bank
    
    
    48,450
    
    
    
    10.4
    
    
    
    18,638
    
    
    
    4.0
    %
    
    
    27,957
    
    
    
    6.0
    %Perry State Bank
    
    
    12,162
    
    
    
    9.5
    
    
    
    5,117
    
    
    
    4.0
    %
    
    
    7,675
    
    
    
    6.0
    %Farmers State Bank of Northern
Missouri
    
    
    6,040
    
    
    
    9.4
    
    
    
    2,579
    
    
    
    4.0
    %
    
    
    3,868
    
    
    
    6.0
    %Marine Bank and Trust
    
    
    13,177
    
    
    
    11.0
    
    
    
    4,799
    
    
    
    4.0
    %
    
    
    7,199
    
    
    
    6.0
    %Brown County State Bank
    
    
    5,931
    
    
    
    10.7
    
    
    
    2,227
    
    
    
    4.0
    %
    
    
    3,340
    
    
    
    6.0
    %Heartland Bank
    
    
    13,795
    
    
    
    8.5
    
    
    
    6,494
    
    
    
    4.0
    %
    
    
    9,741
    
    
    
    6.0
    %Royal Palm Bank of Florida
    
    
    14,067
    
    
    
    10.8
    
    
    
    5,210
    
    
    
    4.0
    %
    
    
    7,815
    
    
    
    6.0
    %Tier I capital
(to average assets)Consolidated
    
    
    110,273
    
    
    
    8.1
    
    
    
    54,527
    
    
    
    4.0
    %
    
    
    68,159
    
    
    
    N/AMercantile Trust & Savings Bank
    
    
    48,450
    
    
    
    8.2
    
    
    
    23,664
    
    
    
    4.0
    %
    
    
    29,580
    
    
    
    5.0
    %Perry State Bank
    
    
    12,162
    
    
    
    8.2
    
    
    
    5,951
    
    
    
    4.0
    %
    
    
    7,438
    
    
    
    5.0
    %Farmers State Bank of Northern
Missouri
    
    
    6,040
    
    
    
    6.8
    
    
    
    3,550
    
    
    
    4.0
    %
    
    
    4,438
    
    
    
    5.0
    %Marine Bank and Trust
    
    
    13,177
    
    
    
    8.1
    
    
    
    6,481
    
    
    
    4.0
    %
    
    
    8,101
    
    
    
    5.0
    %Brown County State Bank
    
    
    5,931
    
    
    
    7.7
    
    
    
    3,094
    
    
    
    4.0
    %
    
    
    3,868
    
    
    
    5.0
    %Heartland Bank
    
    
    13,795
    
    
    
    8.4
    
    
    
    6,579
    
    
    
    4.0
    %
    
    
    8,224
    
    
    
    5.0
    %Royal Palm Bank of Florida
    
    
    14,067
    
    
    
    9.9
    
    
    
    5,690
    
    
    
    4.0
    %
    
    
    7,112
    
    
    
    5.0
    %
 114




---



##### Table of Contents



Mercantile Bancorp, Inc.
 Notes to Consolidated Financial Statements
 December 31, 2006, 2005 and 2004
 (Table dollar amounts in thousands)
 To Be Well CapitalizedFor Capital Adequacy
    
    Under Prompt CorrectiveActual
    
    Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2005Total capital
(to risk-weighted assets)Consolidated
    
    $
    108,909
    
    
    
    11.8
    %
    
    $
    74,146
    
    
    
    8.0
    %
    
    $
    
    
    
    
    N/AMercantile Trust & Savings Bank
    
    
    46,117
    
    
    
    10.3
    %
    
    
    35,726
    
    
    
    8.0
    %
    
    
    44,658
    
    
    
    10.0
    %Perry State Bank
    
    
    12,729
    
    
    
    10.7
    %
    
    
    9,519
    
    
    
    8.0
    %
    
    
    11,899
    
    
    
    10.0
    %Farmers State Bank of Northern
Missouri
    
    
    6,110
    
    
    
    10.6
    %
    
    
    4,594
    
    
    
    8.0
    %
    
    
    5,743
    
    
    
    10.0
    %Marine Bank and Trust
    
    
    7,662
    
    
    
    10.8
    %
    
    
    5,696
    
    
    
    8.0
    %
    
    
    7,121
    
    
    
    10.0
    %Golden State Bank
    
    
    2,005
    
    
    
    12.2
    %
    
    
    1,315
    
    
    
    8.0
    %
    
    
    1,643
    
    
    
    10.0
    %Security State Bank of Hamilton
    
    
    4,073
    
    
    
    12.2
    %
    
    
    2,669
    
    
    
    8.0
    %
    
    
    3,336
    
    
    
    10.0
    %Brown County State Bank
    
    
    4,865
    
    
    
    12.0
    %
    
    
    3,253
    
    
    
    8.0
    %
    
    
    4,066
    
    
    
    10.0
    %State Bank of Augusta
    
    
    2,265
    
    
    
    12.0
    %
    
    
    1,512
    
    
    
    8.0
    %
    
    
    1,890
    
    
    
    10.0
    %Heartland Bank
    
    
    13,996
    
    
    
    11.3
    %
    
    
    9,909
    
    
    
    8.0
    %
    
    
    12,387
    
    
    
    10.0
    %Tier I capital
(to risk-weighted assets)Consolidated
    
    
    100,828
    
    
    
    10.9
    %
    
    
    37,073
    
    
    
    4.0
    %
    
    
    
    
    
    
    N/AMercantile Trust & Savings Bank
    
    
    42,611
    
    
    
    9.5
    %
    
    
    17,863
    
    
    
    4.0
    %
    
    
    26,795
    
    
    
    6.0
    %Perry State Bank
    
    
    11,425
    
    
    
    9.6
    %
    
    
    4,760
    
    
    
    4.0
    %
    
    
    7,140
    
    
    
    6.0
    %Farmers State Bank of Northern
Missouri
    
    
    5,578
    
    
    
    9.7
    %
    
    
    2,297
    
    
    
    4.0
    %
    
    
    3,446
    
    
    
    6.0
    %Marine Bank and Trust
    
    
    7,022
    
    
    
    9.9
    %
    
    
    2,848
    
    
    
    4.0
    %
    
    
    4,272
    
    
    
    6.0
    %Golden State Bank
    
    
    1,896
    
    
    
    11.5
    %
    
    
    657
    
    
    
    4.0
    %
    
    
    986
    
    
    
    6.0
    %Security State Bank of Hamilton
    
    
    3,791
    
    
    
    11.4
    %
    
    
    1,335
    
    
    
    4.0
    %
    
    
    2,002
    
    
    
    6.0
    %Brown County State Bank
    
    
    4,550
    
    
    
    11.2
    %
    
    
    1,626
    
    
    
    4.0
    %
    
    
    2,440
    
    
    
    6.0
    %State Bank of Augusta
    
    
    2,067
    
    
    
    8.7
    %
    
    
    756
    
    
    
    4.0
    %
    
    
    1,134
    
    
    
    6.0
    %Heartland Bank
    
    
    10,801
    
    
    
    10.9
    %
    
    
    4,955
    
    
    
    4.0
    %
    
    
    7,432
    
    
    
    6.0
    %Tier I capital
(to average assets)Consolidated
    
    
    100,828
    
    
    
    9.4
    %
    
    
    44,626
    
    
    
    4.0
    %
    
    
    
    
    
    
    N/AMercantile Trust & Savings Bank
    
    
    42,611
    
    
    
    7.9
    %
    
    
    21,715
    
    
    
    4.0
    %
    
    
    27,144
    
    
    
    5.0
    %Perry State Bank
    
    
    11,425
    
    
    
    8.1
    %
    
    
    5,665
    
    
    
    4.0
    %
    
    
    7,081
    
    
    
    5.0
    %Farmers State Bank of Northern
Missouri
    
    
    5,578
    
    
    
    7.1
    %
    
    
    3,141
    
    
    
    4.0
    %
    
    
    3,926
    
    
    
    5.0
    %Marine Bank and Trust
    
    
    7,022
    
    
    
    8.3
    %
    
    
    3,391
    
    
    
    4.0
    %
    
    
    4,239
    
    
    
    5.0
    %Golden State Bank
    
    
    1,896
    
    
    
    7.4
    %
    
    
    1,021
    
    
    
    4.0
    %
    
    
    1,276
    
    
    
    5.0
    %Security State Bank of Hamilton
    
    
    3,791
    
    
    
    7.9
    %
    
    
    1,922
    
    
    
    4.0
    %
    
    
    2,403
    
    
    
    5.0
    %Brown County State Bank
    
    
    4,550
    
    
    
    8.4
    %
    
    
    2,169
    
    
    
    4.0
    %
    
    
    2,711
    
    
    
    5.0
    %State Bank of Augusta
    
    
    2,067
    
    
    
    7.4
    %
    
    
    1,115
    
    
    
    4.0
    %
    
    
    1,394
    
    
    
    5.0
    %Heartland Bank
    
    
    10,801
    
    
    
    9.3
    %
    
    
    4,655
    
    
    
    4.0
    %
    
    
    5,819
    
    
    
    5.0
    %
 115




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
  Note 16: Related Party Transactions
   Balances, January 1, 2006
    
    $
    15,238,000Change in composition of related parties
    
    
    2,810,000New loans, including renewals
    
    
    2,704,000Payments, including renewals
    
    
    (3,517,000
    )Balances, December 31, 2006
    
    $
    17,235,000
  Note 17: Leases
   Operating Leases2007
    
    $
    239,6402008
    
    
    218,1112009
    
    
    202,0222010
    
    
    144,1932011
    
    
    134,001Thereafter
    
    
    125,606Total minimum lease payments
    
    $
    1,063,573
 116




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Note 18: Acquisitions
   Cash and cash equivalents
    
    $
    21,012Available-for-sale securities
    
    
    8,706Held-to-maturity securities
    
    
    1,000Loans, net of allowance for loan losses of $1,725
    
    
    121,310Interest receivable
    
    
    645Federal Home Loan Bank stock
    
    
    520Deferred income taxes
    
    
    1,479Premises and equipment
    
    
    3,800Core deposit intangibles
    
    
    303Goodwill
    
    
    26,640Other assets
    
    
    2,321Total assets acquired
    
    
    187,736Deposits
    
    
    138,923Long-term debt
    
    
    5,000Interest payable
    
    
    649Other liabilities
    
    
    348Total liabilities assumed
    
    
    144,920Net assets acquired
    
    $
    42,816
   Year Ended December 31,2006
    
    2005Net interest income
    
    $
    42,332
    
    
    $
    39,180Net income
    
    
    10,639
    
    
    
    9,546Basic earnings per share
    
    
    1.82
    
    
    
    1.62
 117




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
    Cash and cash equivalents
    
    $
    3,691Securities
    
    
    17Loans, net of allowance for loan losses of $476
    
    
    49,379Interest receivable
    
    
    258Federal Home Loan Bank stock
    
    
    516Deferred income taxes
    
    
    360Premises and equipment
    
    
    2,976Core deposit intangibles
    
    
    597Goodwill
    
    
    1,612Other assets
    
    
    381Total assets acquired
    
    
    59,787Deposits
    
    
    43,874Short-term borrowings
    
    
    4,934Long-term debt
    
    
    3,000Other liabilities
    
    
    182Total liabilities assumed
    
    
    51,990Minority interest
    
    
    2,758Net assets acquired
    
    $
    5,039
  118




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
  Year EndedDecember 31,2004Net interest income
    
    $
    32,136Net income
    
    
    8,321Basic earnings per share
    
    
    1.41
 Note 19: Employee Benefits
  Postretirement Benefits
    119




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Note 20: Disclosures about Fair Value of Financial Instruments
  December 31, 2006
    
    December 31, 2005Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assetsCash and cash equivalents
    
    $
    99,147
    
    
    $
    99,147
    
    
    $
    44,154
    
    
    $
    44,154Available-for-sale securities
    
    
    176,179
    
    
    
    176,179
    
    
    
    150,196
    
    
    
    150,196Held-to-maturity securities
    
    
    12,400
    
    
    
    12,281
    
    
    
    14,870
    
    
    
    14,622Loans held for sale
    
    
    1,660
    
    
    
    1,660
    
    
    
    3,635
    
    
    
    3,635Loans, net of allowance for
loan losses
    
    
    1,021,043
    
    
    
    1,023,367
    
    
    
    849,566
    
    
    
    835,002Federal Home Loan Bank stock
    
    
    5,699
    
    
    
    5,699
    
    
    
    5,432
    
    
    
    5,432Cost method investments in
common stock
    
    
    3,190
    
    
    
    3,190
    
    
    
    3,350
    
    
    
    3,350Interest receivable
    
    
    10,277
    
    
    
    10,277
    
    
    
    7,896
    
    
    
    7,896Financial liabilitiesDeposits
    
    
    1,166,814
    
    
    
    1,162,762
    
    
    
    946,129
    
    
    
    943,833Interest rate swaps
    
    
    
    
    
    
    
    
    
    
    238
    
    
    
    238Short-term borrowings
    
    
    26,338
    
    
    
    26,338
    
    
    
    32,587
    
    
    
    32,587Long-term debt and junior
subordinated debentures
    
    
    107,249
    
    
    
    107,639
    
    
    
    51,720
    
    
    
    51,313Interest payable
    
    
    6,039
    
    
    
    6,039
    
    
    
    3,134
    
    
    
    3,134Unrecognized financial instruments
(net of contract amount)Commitments to originate loans
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Letters of credit
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Lines of credit
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
 120




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
  Cash and Cash Equivalents, Federal Home Loan Bank Stock, Cost Method Investments in Common
Stock, and Interest Receivable
  Securities
  Loans Held for Sale
  Loans
  Deposits
  Interest Rate Swap
  Short-Term Borrowings and Interest Payable
  Long-Term Debt and Junior Subordinated Debentures
  121




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Commitments to Originate Loans, Letters of Credit, and Lines of Credit
  Note 21: Significant Estimates and Concentrations
   Note 22: Commitments and Credit Risk
  Commitments to Originate Loans
  122




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
  Standby Letters of Credit
   Lines of Credit
   General Litigation
  123




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Note 23: Stock Split
  Note 24: Future Change in Accounting Principle
 Postretirement Benefits Associated with Split-Dollar Life
Insurance
 Note 25: FDIC One-time Assessment Credit
  Note 26: Subsequent Event
  124




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Note 27: Condensed Financial Information (Parent Company Only)
  Condensed Balance Sheets
 December 31,2006
    
    
    2005AssetsCash
    
    $
    214
    
    
    $
    487Investment in common stock of subsidiaries
    
    
    142,432
    
    
    
    90,838Available-for-sale securities
    
    
    11,130
    
    
    
    Equity method investments in common stock
    
    
    4,119
    
    
    
    7,105Cost method investments in common stock
    
    
    2,195
    
    
    
    3,350Core deposit intangibles
    
    
    1,427
    
    
    
    2,360Other
    
    
    3,715
    
    
    
    1,946Total assets
    
    $
    165,232
    
    
    $
    106,086LiabilitiesLong-term debt
    
    $
    21,185
    
    
    $
    3,935Junior subordinated debentures
    
    
    41,239
    
    
    
    10,310Deferred income tax
    
    
    1,844
    
    
    
    Other
    
    
    306
    
    
    
    353Total liabilities
    
    
    64,574
    
    
    
    14,598Stockholders Equity
    
    
    100,658
    
    
    
    91,488Total liabilities and stockholders equity
    
    $
    165,232
    
    
    $
    106,086
 125




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Condensed Statements of Income
 Years Ended December 31,2006
    
    
    2005
    
    
    2004IncomeDividends from subsidiaries
    
    $
    4,840
    
    
    $
    7,150
    
    
    $
    3,097Income on equity method investments
    
    
    251
    
    
    
    182
    
    
    
    187Net gains on sale of equity and
cost method investments
    
    
    4,318
    
    
    
    
    
    
    
    Other income
    
    
    17
    
    
    
    2
    
    
    
    Total income
    
    
    9,426
    
    
    
    7,334
    
    
    
    3,284ExpensesOther expenses
    
    
    4,331
    
    
    
    2,764
    
    
    
    1,280Total expenses
    
    
    4,331
    
    
    
    2,764
    
    
    
    1,280Income Before Income Tax and Equity in
Undistributed Income of Subsidiaries
    
    
    5,095
    
    
    
    4,570
    
    
    
    2,004Income Tax Expense (Benefit)
    
    
    316
    
    
    
    (953
    )
    
    
    (478
    )Income Before Equity in Undistributed
Income of Subsidiaries
    
    
    4,779
    
    
    
    5,523
    
    
    
    2,482Equity in Undistributed Income of
Subsidiaries
    
    
    5,540
    
    
    
    3,981
    
    
    
    5,836Net Income
    
    $
    10,319
    
    
    $
    9,504
    
    
    $
    8,318
 126




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Table dollar amounts in thousands)
 Condensed Statements of Cash Flows
 Years Ended December 31,2006
    
    
    2005
    
    
    2004Operating ActivitiesNet income
    
    $
    10,319
    
    
    $
    9,504
    
    
    $
    8,318Items not
requiring (providing) cash (Income) loss on equity method investment
    
    
    (251
    )
    
    
    (182
    )
    
    
    (187
    )Amortization of core deposit intangibles
    
    
    230
    
    
    
    161
    
    
    
    145Equity in undistributed income of
subsidiaries
    
    
    (5,540
    )
    
    
    (3,981
    )
    
    
    (5,836
    )Deferred income taxes
    
    
    1,530
    
    
    
    
    
    
    
    Gain on sale of equity and cost method
investments
    
    
    (4,319
    )
    
    
    
    
    
    
    Net change inOther assets
    
    
    (1,407
    )
    
    
    (102
    )
    
    
    (167
    )Other liabilities
    
    
    (48
    )
    
    
    353
    
    
    
    Net cash provided by operating activities
    
    
    514
    
    
    
    5,753
    
    
    
    2,273Investing ActivitiesCash paid for additional shares of Mid-America
    
    
    
    
    
    
    (4,668
    )
    
    
    (770
    )Purchase of equity method investments in
common stock
    
    
    
    
    
    
    (2,986
    )
    
    
    Proceeds from sales of equity method
investments
    
    
    1,347
    
    
    
    
    
    
    
    Purchase of cost method investments in common
stock
    
    
    (500
    )
    
    
    (1,501
    )
    
    
    Payments for investments and advances to
subsidiaries
    
    
    (2,800
    )
    
    
    
    
    
    
    Purchase of available-for-sale securities
    
    
    (1,959
    )
    
    
    
    
    
    
    Cash paid in acquisition of Royal Palm
    
    
    (42,816
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (46,728
    )
    
    
    (9,155
    )
    
    
    (770
    )Financing ActivitiesProceeds from long-term debt
    
    
    17,250
    
    
    
    
    
    
    
    Repayment of long-term debt
    
    
    
    
    
    
    (4,098
    )
    
    
    Proceeds from issuance of junior subordinated
debentures
    
    
    30,929
    
    
    
    10,310
    
    
    
    Purchase of treasury stock
    
    
    (367
    )
    
    
    (836
    )
    
    
    Dividends paid
    
    
    (1,871
    )
    
    
    (1,757
    )
    
    
    (1,453
    )Dividends paid on minority shares
    
    
    
    
    
    
    (54
    )
    
    
    Net cash provided by (used in) financing
activities
    
    
    45,941
    
    
    
    3,565
    
    
    
    (1,453
    )Net Change in Cash
    
    
    (273
    )
    
    
    163
    
    
    
    50Cash at Beginning of Year
    
    
    487
    
    
    
    324
    
    
    
    274Cash at End of Year
    
    $
    214
    
    
    $
    487
    
    
    $
    324
 127