##### 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, 2007
 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
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)200 N. 33rdStreet, Quincy, Illinois
    
    62301(Address of Principal Executive Offices)
    
    (Zip Code)
 (217) 223-7300
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock (par value $.42 per share)
    
    American Stock Exchange
  Not Applicable
 o þ
 o þ
 þ o
 o
   Large accelerated filer o
    Accelerated filer þ
    Non-accelerated filer o
    Smaller reporting company o(Do not check if a smaller reporting company)




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##### 



PART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    25Item 1B. Unresolved Staff Comments
    
    
    28Item 2. Properties
    
    
    28Item 3. Legal Proceedings
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 4A. Executive Officers of Registrant
    
    
    28PART II.Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    30Item 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
    
    
    78Item 8. Financial Statements and Supplementary Data
    
    
    78Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    79Item 9A. Controls and Procedures
    
    
    79Item 9B. Other Information
    
    
    82PART III.Item 10. Directors and Executive Officers of the Company and Corporate Governance
    
    
    83Item 11. Executive Compensation
    
    
    83Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    83Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    83Item 14. Principal Accounting Fees and Services
    
    
    83PART IV.Item 15. Exhibits, Financial Statement Schedules
    
    
    84SIGNATURES
    
    
    85INDEX TO EXHIBITS
    
    
    86Second Amendment to Executive Employee Salary Continuation AgreementEmployment Agreement - Ted T. AwerkampEmployment Agreement - Michael P. McGrathEmployment Agreement - Daniel J. CookConsulting AgreementSubsidiariesCertificationCertificationCertificationCertification




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##### Table of Contents



DOCUMENTS INCORPORATED BY REFERENCE
  
 PART I
 
 Item 1. Business
 Mercantile Bancorp, Inc.
 www.mercbanx.com
   Wholly-Owned Subsidiaries
 
    
    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;
 1




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##### Table of Contents




    
    Royal Palm Bancorp, Inc. (Royal Palm) (the sole shareholder of Royal Palm Bank of
Florida (Royal Palm Bank), located in Naples, Florida; and
    
    HNB Financial Services, Inc. (HNB Financial) (the sole shareholder of HNB
National Bank (HNB), located in Hannibal, Missouri
   Majority-Owned Subsidiaries.
 Other Investments in Financial Institutions.
 
    
    5.0% of Integrity Bank (Integrity), located in Jupiter, Florida;
    
    0.8% of Premier Bancshares, Inc. (Premier), the sole shareholder of Premier Bank,
located in Jefferson City, Missouri;
    
    5.0% of Premier Community Bank of the Emerald Coast (Premier Community), located
in Crestview, Florida;
    
    4.1% of Paragon National Bank (Paragon), located in Memphis, Tennessee;
    
    0.1% of Integrity Bancshares, Inc. (Integrity Bancshares), the sole shareholder
of Integrity Bank, located in Alpharetta, Georgia;
    
    1.3% of Enterprise Financial Services Corp. (Enterprise), the sole shareholder of
Enterprise Bank & Trust, based in Clayton, Missouri;
    
    0.5% of First Charter Corporation (First Charter), based in Charlotte, North
Carolina;
    
    4.4% of Solera National Bancorp, Inc. (Solera), the sole shareholder of Solera
National Bank, located in Lakewood, Colorado;
 2




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##### Table of Contents




    
    5.0% of Manhattan Bancorp, Inc. (Manhattan), the sole shareholder of Bank of
Manhattan, located in Los Angeles, California; and
    
    5.0% of Brookhaven Bank (Brookhaven), located in Atlanta, Georgia.
    Other 2007 Events.
  3




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Employees
 4




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Business Strategies  Growth and Operations.
 Growth Strategy
     5




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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.
  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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##### Table of Contents



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
 10




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
    
    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.
  Markets and Competition
      11




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Mercantile Trust & Savings Bank
    12




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##### Table of Contents



13




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Marine Bank & Trust
      Perry State Bank
  14




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Brown County State Bank
     15




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Farmers State Bank of Northern Missouri
       16




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##### Table of Contents



Mid-America Bancorp, Inc.
        Royal Palm Bancorp, Inc.
  17




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HNB Financial Services, Inc.
   18




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Lending Activities
  Investment Securities Activities
  Sources of Funds
  19




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##### Table of Contents



Laws and Regulations Applicable to Bank Holding Companies
 General.
 Limitation on Acquisitions.
 Limitation on Activities.
 Regulatory Capital Requirements.
   plus minus
 20




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Source of Strength.
 Liability of Commonly Controlled Institutions.
 Laws and Regulations Applicable to the Companys Subsidiary Banks
 General.
  21




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Bank Regulatory Capital Requirements. Laws and Regulations Applicable to Bank Holding Companies Regulatory Capital Requirements
         Deposit Insurance and Assessments.
 Limitations on Interest Rates and Loans to One Borrower.
 Payment of Dividends.
 22




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The USA Patriot Act.
 Community Reinvestment Act.
 Transactions with Affiliates
 Other Laws.
 Laws Governing Interstate Banking and Branching
   23




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Regulation of Other Non-Banking Activities.
  Sarbanes-Oxley Act of 2002
   24




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Changes in Law and Regulation Affecting the Company Generally
 Future Legislation .
 Fiscal Monetary Policies.
   
 Item 1A  Risk Factors
  Changes in the domestic interest rate environment could negatively affect the Companys net
interest income.
 25




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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.
 Significant legal actions could subject the Company to substantial uninsured liabilities.
 26




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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.
 The Company may be adversely affected by government regulation.
 27




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##### Table of Contents



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
    28




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29




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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 DividendsHigh($)
    
    Low($)
    
    Declared Per Share ($)20071st Quarter
    
    
    15.08
    
    
    
    14.40
    
    
    
    .062nd Quarter
    
    
    15.23
    
    
    
    14.80
    
    
    
    .063rd Quarter
    
    
    16.23
    
    
    
    14.13
    
    
    
    .064th Quarter
    
    
    17.77
    
    
    
    15.30
    
    
    
    .0620061st Quarter
    
    
    16.00
    
    
    
    12.89
    
    
    
    .05332nd Quarter
    
    
    15.23
    
    
    
    14.11
    
    
    
    .05333rd Quarter
    
    
    15.00
    
    
    
    14.33
    
    
    
    .05334th Quarter
    
    
    15.08
    
    
    
    14.33
    
    
    
    .0533
 30




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##### Table of Contents



Total Number of Shares
    
    Maximum ApproximateFourth Quarter
    
    Total Number of
    
    
    
    
    
    Purchased as Part of
    
    Dollar Value of Shares that2007 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
    
    
    0
    
    
    
    n/a
    
    
    
    0
    
    
    $
    8,229,424November
    
    
    0
    
    
    
    n/a
    
    
    
    0
    
    
    $
    8,229,424December
    
    
    0
    
    
    
    n/a
    
    
    
    0
    
    
    $
    8,229,424Total
    
    
    0
    
    
    
    n/a
    
    
    
    0
 
 (1)
    
    The total number of shares purchased and the average price paid per share include, in addition
to other purchases, shares purchased in the open market and through privately negotiated
transactions by the Companys 401(k) Profit Sharing Plan. For the months indicated, there were no
shares purchased by the Plan.(2)
    
    Includes only 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 883,656 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 and the three-for-two stock split in December 2007), subject to adjustment, but not to exceed
$10 million in repurchases. 31




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Company Performance
  
 Company/Index
    
    
    Feb 05
    
    
    Mar 05
    
    
    Jun 05
    
    
    Sep 05
    
    
    Dec 05
    
    
    Mar 06
    
    
    Jun 06
    
    
    Sep 06
    
    
    Dec 06
    
    
    Mar 07
    
    
    Jun 07
    
    
    Sep 07
    
    
    Dec 07Mercantile Bancorp,
Inc.
    
    
    $
    100.00
    
    
    
    $
    103.11
    
    
    
    $
    100.45
    
    
    
    $
    104.89
    
    
    
    $
    104.00
    
    
    
    $
    121.78
    
    
    
    $
    118.93
    
    
    
    $
    116.27
    
    
    
    $
    118.67
    
    
    
    $
    118.67
    
    
    
    $
    121.07
    
    
    
    $
    122.40
    
    
    
    $
    139.60S&P 500 Regional
Banks Index
    
    
    $
    100.00
    
    
    
    $
    98.99
    
    
    
    $
    100.79
    
    
    
    $
    96.87
    
    
    
    $
    101.07
    
    
    
    $
    104.39
    
    
    
    $
    105.17
    
    
    
    $
    108.73
    
    
    
    $
    112.03
    
    
    
    $
    109.56
    
    
    
    $
    107.10
    
    
    
    $
    95.85
    
    
    
    $
    76.69Russell 2000 Index
    
    
    $
    100.00
    
    
    
    $
    97.00
    
    
    
    $
    100.88
    
    
    
    $
    105.32
    
    
    
    $
    106.18
    
    
    
    $
    120.67
    
    
    
    $
    114.29
    
    
    
    $
    114.44
    
    
    
    $
    124.22
    
    
    
    $
    126.28
    
    
    
    $
    131.49
    
    
    
    $
    127.03
    
    
    
    $
    120.81
 32




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Item 6. Selected Financial Data
  Year Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(dollars in thousands, except per share data)BALANCE SHEET ITEMSSecurities
    
    $
    216,257
    
    
    $
    188,579
    
    
    $
    165,066
    
    
    $
    173,371
    
    
    $
    185,093Loans held for sale
    
    
    3,338
    
    
    
    1,660
    
    
    
    3,635
    
    
    
    3,367
    
    
    
    4,619Loans
    
    
    1,201,551
    
    
    
    1,031,656
    
    
    
    857,648
    
    
    
    768,722
    
    
    
    637,937Allowance for loan losses
    
    
    12,794
    
    
    
    10,613
    
    
    
    8,082
    
    
    
    7,115
    
    
    
    5,830Total assets
    
    
    1,639,145
    
    
    
    1,422,827
    
    
    
    1,137,824
    
    
    
    1,040,553
    
    
    
    906,160Total deposits
    
    
    1,319,459
    
    
    
    1,166,814
    
    
    
    946,129
    
    
    
    873,427
    
    
    
    758,183Short-term borrowings
    
    
    45,589
    
    
    
    26,338
    
    
    
    32,587
    
    
    
    21,385
    
    
    
    14,367Long-term debt
    
    
    143,358
    
    
    
    107,249
    
    
    
    51,720
    
    
    
    49,758
    
    
    
    48,185Minority interest
    
    
    9,446
    
    
    
    9,198
    
    
    
    7,561
    
    
    
    3,438
    
    
    
    263Stockholders equity
    
    
    108,282
    
    
    
    100,658
    
    
    
    91,488
    
    
    
    85,982
    
    
    
    80,034RESULTS OF OPERATIONSInterest and dividend income
    
    $
    95,943
    
    
    $
    76,150
    
    
    $
    59,780
    
    
    $
    49,786
    
    
    $
    46,201Interest expense
    
    
    53,461
    
    
    
    38,414
    
    
    
    24,338
    
    
    
    17,993
    
    
    
    17,740Net interest income
    
    
    42,482
    
    
    
    37,736
    
    
    
    35,442
    
    
    
    31,793
    
    
    
    28,461Provision for loan losses
    
    
    2,969
    
    
    
    3,914
    
    
    
    2,368
    
    
    
    1,746
    
    
    
    2,487Noninterest income
    
    
    13,959
    
    
    
    13,930
    
    
    
    8,547
    
    
    
    7,857
    
    
    
    8,519Noninterest expense
    
    
    39,408
    
    
    
    31,616
    
    
    
    27,817
    
    
    
    25,878
    
    
    
    22,986Minority interest
    
    
    622
    
    
    
    792
    
    
    
    648
    
    
    
    151
    
    
    
    43Provision for income taxes
    
    
    3,441
    
    
    
    5,025
    
    
    
    3,652
    
    
    
    3,557
    
    
    
    3,153Net income
    
    
    10,001
    
    
    
    10,319
    
    
    
    9,504
    
    
    
    8,318
    
    
    
    8,311CAPITAL RATIOSTotal capital to risk-weighted assets
    
    
    10.49
    %
    
    
    10.92
    %
    
    
    11.75
    %
    
    
    10.42
    %
    
    
    11.70
    %Tier 1 capital to risk-weighted assets
    
    
    7.86
    %
    
    
    9.70
    %
    
    
    10.88
    %
    
    
    9.55
    %
    
    
    10.80
    %Tier 1 capital to average assets
    
    
    6.72
    %
    
    
    8.09
    %
    
    
    9.00
    %
    
    
    7.49
    %
    
    
    8.00
    %PER SHARE DATABasic earnings per share (1)
    
    $
    1.15
    
    
    $
    1.18
    
    
    $
    1.08
    
    
    $
    .95
    
    
    $
    .95Cash dividends
    
    
    .24
    
    
    
    0.21
    
    
    
    0.20
    
    
    
    0.17
    
    
    
    0.15Book value
    
    
    12.43
    
    
    
    11.50
    
    
    
    10.35
    
    
    
    9.80
    
    
    
    9.12OTHER INFORMATIONReturn on average assets
    
    
    0.68
    %
    
    
    0.85
    %
    
    
    0.88
    %
    
    
    0.83
    %
    
    
    0.95
    %Return on average equity
    
    
    9.60
    %
    
    
    10.84
    %
    
    
    10.59
    %
    
    
    9.98
    %
    
    
    10.52
    %Dividend payout ratio
    
    
    20.87
    %
    
    
    17.80
    %
    
    
    18.52
    %
    
    
    17.89
    %
    
    
    15.79
    %Net interest margin
    
    
    3.18
    %
    
    
    3.38
    %
    
    
    3.55
    %
    
    
    3.43
    %
    
    
    3.50
    %Average stockholders equity to
average assets
    
    
    7.08
    %
    
    
    7.87
    %
    
    
    8.33
    %
    
    
    8.34
    %
    
    
    9.00
    %Allowance for loan losses as a
percentage of total loans
    
    
    1.06
    %
    
    
    1.03
    %
    
    
    0.94
    %
    
    
    0.92
    %
    
    
    0.91
    %Full service offices
    
    
    27
    
    
    
    22
    
    
    
    18
    
    
    
    19
    
    
    
    18
 
 (1)
    
    In December 2007, the Companys Board of Directors approved a three-for-two 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, 2003. 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
  36




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Growth
     37




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Balance Sheet Repositioning
  Increase Cross-Selling
   38




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Asset Quality
  Results of Operations
  39




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Financial Condition
   40




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Capital
  Return on Equity and Assets
 2007
    
    2006
    
    2005Return on assets
(net
income
divided
by
average
total
assets)
    
    
    0.68
    %
    
    
    0.85
    %
    
    
    0.88
    %Return on
equity (net income divided by average equity)
    
    
    9.60
    %
    
    
    10.84
    %
    
    
    10.59
    %Dividend
payout ratio (dividends per share divided by net income per share)
    
    
    20.87
    %
    
    
    17.80
    %
    
    
    18.52
    %Equity to
assets ratio (average equity divided by average total assets)
    
    
    7.08
    %
    
    
    7.87
    %
    
    
    8.33
    %
 Summary of Banking Subsidiaries and Cost and Equity Method Investments
  12/31/07
    
    
    Pre-consolidated Net IncomeDate
    
    
    Ownership
    
    
    2007
    
    
    2006
    
    
    2005Subsidiary
    
    Acquired
    
    
    Percentage
    
    
    (dollars in thousands)Mercantile Trust & Savings Bank
    
    
    4/15/83
    
    
    
    100.00
    %
    
    $
    5,559
    
    
    
    43.2
    %
    
    $
    5,571
    
    
    
    49.9
    %
    
    $
    5,849
    
    
    
    49.7
    %Marine Bank & Trust
    
    
    4/02/91
    
    
    
    100.00
    %
    
    
    1,813
    
    
    
    14.1
    %
    
    
    1,563
    
    
    
    14.0
    %
    
    
    1,777
    
    
    
    15.1
    %Perry State Bank
    
    
    10/04/94
    
    
    
    100.00
    %
    
    
    1,888
    
    
    
    14.7
    %
    
    
    1,601
    
    
    
    14.3
    %
    
    
    1,441
    
    
    
    12.2
    %Brown County State Bank
    
    
    12/07/97
    
    
    
    100.00
    %
    
    
    923
    
    
    
    7.2
    %
    
    
    882
    
    
    
    7.9
    %
    
    
    948
    
    
    
    8.0
    %Farmers State Bank of Northern
Missouri
    
    
    10/4/99
    
    
    
    100.00
    %
    
    
    408
    
    
    
    3.2
    %
    
    
    (246
    )
    
    
    (2.2
    )%
    
    
    358
    
    
    
    3.0
    %Mid America Bancorp, Inc.
    
    
    2/28/05
    
    
    
    54.60
    %
    
    
    1,322
    
    
    
    10.3
    %
    
    
    1,655
    
    
    
    14.8
    %
    
    
    1,407
    
    
    
    12.0
    %Royal Palm Bancorp, Inc.
    
    
    11/10/06
    
    
    
    100.00
    %
    
    
    444
    
    
    
    3.4
    %
    
    
    148
    
    
    
    1.3
    %
    
    
    
    
    
    
    0.0
    %HNB Financial Services, Inc.
    
    
    9/07/07
    
    
    
    100.00
    %
    
    
    497
    
    
    
    3.9
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Total
    
    
    
    
    
    
    
    
    
    $
    12,854
    
    
    
    100.0
    %
    
    $
    11,174
    
    
    
    100.0
    %
    
    $
    11,780
    
    
    
    100.0
    %
  41




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##### Table of Contents



(1)Premier Community Bank of
    
    
    (2)
    
    
    (3)the 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    $
    1,00006/21/06
    
    
    99,500
    
    
    $
    9953/9/07Total as of 12/31/07
    
    
    99,500
    
    
    $
    995
    
    
    
    69,500
    
    
    $
    695
    
    
    
    100,000
    
    
    $
    1,000Ownership
Percentage as of
12/31/07
    
    
    4.98
    %
    
    
    
    
    
    
    5.0
    %
    
    
    
    
    
    
    .82
    %
 (4)
    
    
    (5)Solera National Bancorp, Inc.
    
    
    Brookhaven BankNumber of
    
    
    
    
    
    
    Number ofDate
    
    Shares
    
    
    Cost
    
    
    Shares
    
    
    Cost(dollars in thousands)6/20/07
    
    
    105,030
    
    
    $
    1,0507/17/07
    
    
    
    
    
    
    
    
    
    
    112,275
    
    
    $
    1,1239/17/07
    
    
    
    
    
    
    
    
    
    
    4,396
    
    
    
    44Total as of 12/31/07
    
    
    105,050
    
    
    $
    1,050
    
    
    
    116,671
    
    
    $
    1,167Ownership
Percentage as of
12/31/07
    
    
    4.4
    %
    
    
    
    
    
    
    5.0
    %
 
 (1)
    
    Premier Community Bank of the Emerald Coast is a publicly held bank holding company located
in Crestview, Florida, with total assets of $73 million as of December 31, 2007.(2)
    
    Integrity Bank is a privately held bank located in Jupiter, Florida with total assets of $124
million as of December 31, 2007.(3)
    
    Premier Bancshares, Inc. is a privately held bank holding company located in Jefferson City,
Missouri, with total assets of $1.6 billion as of December 31, 2007.(4)
    
    Solera Bancshares, Inc. is a privately held bank holding company located in Lakewood,
Colorado, with total assets of $24.8 million as of December 31, 2007.(5)
    
    Brookhaven Bank is a privately held bank located in Atlanta, Georgia with total assets of $39
million as of December 31, 2007. 42




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##### Table of Contents



Critical Accounting Policies
  Allowance for Loan Losses
   Goodwill and Core Deposit and Other Intangibles
   43




---



##### Table of Contents



Revenue Recognition
   Effect of Inflation
  Results of Operations
 Summary
 2007 versus 2006.
   44




---



##### Table of Contents



2006 versus 2005.
 45




---



##### Table of Contents



46




---



##### Table of Contents



Earning Assets, Sources of Funds, And Net Interest Margin
  Selected Statistical Information
  47




---



##### Table of Contents



Consolidated Average Balance Sheets
  AtDecember 31
    
    
    Years Ended December 31,2007
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    
    
    
    

    2006
    
    
    
    

    
    
    
    
    
    

    2005Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Cost
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateAssetsInterest-bearing demand deposits
    
    
    4.00
    %
    
    $
    16,887
    
    
    $
    899
    
    
    
    5.32
    %
    
    $
    21,703
    
    
    $
    767
    
    
    
    3.53
    %
    
    $
    11,796
    
    
    $
    358
    
    
    
    3.03
    %Federal funds sold
    
    
    3.00
    %
    
    
    23,157
    
    
    
    1,219
    
    
    
    5.26
    %
    
    
    11,117
    
    
    
    577
    
    
    
    5.19
    %
    
    
    4,461
    
    
    
    134
    
    
    
    3.00
    %SecuritiesTaxableU.S. treasuries and government
agencies
    
    
    4.39
    %
    
    
    26,359
    
    
    
    1,379
    
    
    
    5.23
    %
    
    
    16,572
    
    
    
    776
    
    
    
    4.69
    %
    
    
    6,665
    
    
    
    219
    
    
    
    3.29
    %Mortgage-backed securities
    
    
    4.82
    %
    
    
    41,610
    
    
    
    2,120
    
    
    
    5.09
    %
    
    
    42,906
    
    
    
    2,062
    
    
    
    8.81
    %
    
    
    55,067
    
    
    
    2,316
    
    
    
    4.21
    %Other securities
    
    
    7.14
    %
    
    
    83,517
    
    
    
    4,466
    
    
    
    5.35
    %
    
    
    62,952
    
    
    
    2,936
    
    
    
    4.66
    %
    
    
    61,530
    
    
    
    2,256
    
    
    
    3.67
    %Total taxable
    
    
    
    
    
    
    151,486
    
    
    
    7,965
    
    
    
    5.26
    %
    
    
    122,430
    
    
    
    5,774
    
    
    
    4.72
    %
    
    
    123,262
    
    
    
    4,791
    
    
    
    3.89
    %Non-taxable  State and political
subdivision (3)
    
    
    3.58
    %
    
    
    50,298
    
    
    
    1,830
    
    
    
    3.64
    %
    
    
    48,991
    
    
    
    1,783
    
    
    
    3.64
    %
    
    
    46,635
    
    
    
    1,775
    
    
    
    3.81
    %Loans (net of unearned discount) (1)(2)
    
    
    6.80
    %
    
    
    1,085,606
    
    
    
    83,848
    
    
    
    7.72
    %
    
    
    907,671
    
    
    
    67,060
    
    
    
    7.39
    %
    
    
    806,955
    
    
    
    52,487
    
    
    
    6.50
    %Federal Home Loan Bank stock
    
    
    3.91
    %
    
    
    6,399
    
    
    
    182
    
    
    
    2.84
    %
    
    
    5,654
    
    
    
    189
    
    
    
    3.34
    %
    
    
    5,287
    
    
    
    235
    
    
    
    4.44
    %Total interest-earning assets (1)
    
    
    
    
    
    $
    1,333,833
    
    
    $
    95,943
    
    
    
    7.19
    %
    
    $
    1,117,566
    
    
    $
    76,150
    
    
    
    6.81
    %
    
    $
    998,396
    
    
    $
    59,780
    
    
    
    5.99
    %Cash & due from banks
    
    
    
    
    
    $
    26,511
    
    
    
    
    
    
    
    
    
    
    $
    25,153
    
    
    
    
    
    
    
    
    
    
    $
    23,387Premises and equipment
    
    
    
    
    
    
    30,881
    
    
    
    
    
    
    
    
    
    
    
    19,313
    
    
    
    
    
    
    
    
    
    
    
    17,301Foreclosed assets held for sale, net
    
    
    
    
    
    
    1,187
    
    
    
    
    
    
    
    
    
    
    
    411
    
    
    
    
    
    
    
    
    
    
    
    509Equity method investment in common
stock
    
    
    
    
    
    
    2,765
    
    
    
    
    
    
    
    
    
    
    
    5,641
    
    
    
    
    
    
    
    
    
    
    
    6,433Cost method investment in common stock
    
    
    
    
    
    
    5,481
    
    
    
    
    
    
    
    
    
    
    
    3,715
    
    
    
    
    
    
    
    
    
    
    
    1,849Interest receivable
    
    
    
    
    
    
    10,506
    
    
    
    
    
    
    
    
    
    
    
    8,758
    
    
    
    
    
    
    
    
    
    
    
    7,040Cash surrender value of life insurance
    
    
    
    
    
    
    19,677
    
    
    
    
    
    
    
    
    
    
    
    16,450
    
    
    
    
    
    
    
    
    
    
    
    15,617Allowance for loan loss
    
    
    
    
    
    
    (11,713
    )
    
    
    
    
    
    
    
    
    
    
    (8,812
    )
    
    
    
    
    
    
    
    
    
    
    (7,513
    )Goodwill
    
    
    
    
    
    
    36,237
    
    
    
    
    
    
    
    
    
    
    
    2,005
    
    
    
    
    
    
    
    
    
    
    
    1,716Intangible assets
    
    
    
    
    
    
    3,806
    
    
    
    
    
    
    
    
    
    
    
    7,839
    
    
    
    
    
    
    
    
    
    
    
    6,193Other
    
    
    
    
    
    
    13,566
    
    
    
    
    
    
    
    
    
    
    
    12,461
    
    
    
    
    
    
    
    
    
    
    
    7,030Total assets
    
    
    
    
    
    $
    1,472,737
    
    
    
    
    
    
    
    
    
    
    $
    1,210,500
    
    
    
    
    
    
    
    
    
    
    $
    1,077,958LiabilitiesInterest-bearing transaction deposits
    
    
    1.42
    %
    
    $
    116,908
    
    
    $
    1,892
    
    
    
    1.62
    %
    
    $
    107,126
    
    
    $
    1,499
    
    
    
    1.40
    %
    
    $
    110,763
    
    
    $
    1,066
    
    
    
    0.96
    %Savings deposits
    
    
    2.21
    %
    
    
    74,353
    
    
    
    1,847
    
    
    
    2.48
    %
    
    
    54,572
    
    
    
    876
    
    
    
    1.61
    %
    
    
    54,372
    
    
    
    536
    
    
    
    0.99
    %Money-market deposits
    
    
    2.40
    %
    
    
    191,934
    
    
    
    7,402
    
    
    
    3.90
    %
    
    
    124,484
    
    
    
    4,165
    
    
    
    3.35
    %
    
    
    100,227
    
    
    
    1,925
    
    
    
    1.92
    %Time and brokered time deposits
    
    
    4.23
    %
    
    
    696,542
    
    
    
    33,630
    
    
    
    4.83
    %
    
    
    610,202
    
    
    
    26,531
    
    
    
    4.35
    %
    
    
    544,096
    
    
    
    17,658
    
    
    
    3.25
    %Short-term borrowings
    
    
    5.31
    %
    
    
    38,772
    
    
    
    1,945
    
    
    
    4.89
    %
    
    
    28,738
    
    
    
    1,389
    
    
    
    4.83
    %
    
    
    22,272
    
    
    
    676
    
    
    
    3.04
    %Long-term debt
    
    
    5.46
    %
    
    
    68,239
    
    
    
    3,437
    
    
    
    5.06
    %
    
    
    44,022
    
    
    
    2,293
    
    
    
    5.66
    %
    
    
    46,380
    
    
    
    2,257
    
    
    
    4.87
    %Junior subordinated debentures
    
    
    6.79
    %
    
    
    48,112
    
    
    
    3,308
    
    
    
    6.64
    %
    
    
    25,775
    
    
    
    1,661
    
    
    
    6.44
    %
    
    
    3,631
    
    
    
    220
    
    
    
    6.06
    %Total interest-bearing liabilities
    
    
    
    
    
    $
    1,234,860
    
    
    $
    53,461
    
    
    
    4.33
    %
    
    $
    994,919
    
    
    $
    38,414
    
    
    
    3.86
    %
    
    $
    881,741
    
    
    $
    24,338
    
    
    
    2.76
    %Demand deposits
    
    
    
    
    
    $
    112,091
    
    
    
    
    
    
    
    
    
    
    $
    101,302
    
    
    
    
    
    
    
    
    
    
    $
    93,450Interest payable
    
    
    
    
    
    
    6,110
    
    
    
    
    
    
    
    
    
    
    
    4,698
    
    
    
    
    
    
    
    
    
    
    
    2,828Other liabilities
    
    
    
    
    
    
    5,995
    
    
    
    
    
    
    
    
    
    
    
    6,064
    
    
    
    
    
    
    
    
    
    
    
    4,783Minority interest
    
    
    
    
    
    
    9,480
    
    
    
    
    
    
    
    
    
    
    
    8,301
    
    
    
    
    
    
    
    
    
    
    
    5,386Stockholders equity
    
    
    
    
    
    
    104,201
    
    
    
    
    
    
    
    
    
    
    
    95,216
    
    
    
    
    
    
    
    
    
    
    
    89,770Total Liabilities and Stockholders
Equity
    
    
    
    
    
    $
    1,472,737
    
    
    
    
    
    
    
    
    
    
    $
    1,210,500
    
    
    
    
    
    
    
    
    
    
    $
    1,077,958Interest spread
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    2.95
    %
    
    
    
    
    
    
    
    
    
    
    3.23
    %Net interest income
    
    
    
    
    
    
    
    
    
    
    42,482
    
    
    
    
    
    
    
    
    
    
    
    37,736
    
    
    
    
    
    
    
    
    
    
    
    35,442Net interest margin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.18
    %
    
    
    
    
    
    
    
    
    
    
    3.38
    %
    
    
    
    
    
    
    
    
    
    
    3.55
    %Interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    108.01
    %
    
    
    
    
    
    
    
    
    
    
    112.33
    %
    
    
    
    
    
    
    
    
    
    
    113.23
    %
 
 (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. 48




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##### Table of Contents



Changes in Net Interest Income
 Rate/Volume Analysis
 Years Ended December 31, 2007, 2006 and 2005Year 2007 vs. 2006 Change
    
    
    Year 2006 vs. 2005 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
    
    $
    (196
    )
    
    $
    328
    
    
    $
    132
    
    
    $
    342
    
    
    $
    67
    
    
    $
    409Federal funds sold
    
    
    634
    
    
    
    8
    
    
    
    642
    
    
    
    298
    
    
    
    145
    
    
    
    443Investment securities:U.S. treasuries and agencies
    
    
    503
    
    
    
    100
    
    
    
    603
    
    
    
    433
    
    
    
    125
    
    
    
    558Mortgage-backed securities
    
    
    (64
    )
    
    
    122
    
    
    
    58
    
    
    
    (556
    )
    
    
    302
    
    
    
    (254
    )States and political subdivision (1)
    
    
    48
    
    
    
    (1
    )
    
    
    47
    
    
    
    88
    
    
    
    (80
    )
    
    
    8Other securities
    
    
    1,056
    
    
    
    474
    
    
    
    1,530
    
    
    
    53
    
    
    
    626
    
    
    
    679Loans (net of unearned discounts)
    
    
    13,631
    
    
    
    3,157
    
    
    
    16,788
    
    
    
    6,977
    
    
    
    7,596
    
    
    
    14,573Federal Home Loan Bank stock
    
    
    23
    
    
    
    (30
    )
    
    
    (7
    )
    
    
    15
    
    
    
    (61
    )
    
    
    (46
    )Change in interest income (1)
    
    
    15,635
    
    
    
    4,158
    
    
    
    19,793
    
    
    
    7,650
    
    
    
    8,720
    
    
    
    16,370Increase (decrease) in interest expense:Interest-bearing transaction deposits
    
    
    145
    
    
    
    248
    
    
    
    393
    
    
    
    (36
    )
    
    
    469
    
    
    
    433Savings deposit
    
    
    387
    
    
    
    584
    
    
    
    971
    
    
    
    2
    
    
    
    338
    
    
    
    340Money-market deposits
    
    
    2,526
    
    
    
    711
    
    
    
    3,237
    
    
    
    551
    
    
    
    1,689
    
    
    
    2,240Time and brokered time deposits
    
    
    3,987
    
    
    
    3,112
    
    
    
    7,099
    
    
    
    2,337
    
    
    
    6,536
    
    
    
    8,873Short-term borrowings
    
    
    502
    
    
    
    54
    
    
    
    556
    
    
    
    234
    
    
    
    479
    
    
    
    713Long-term debt
    
    
    2,697
    
    
    
    94
    
    
    
    2,791
    
    
    
    1,083
    
    
    
    394
    
    
    
    1,477Change in interest expense
    
    
    10,244
    
    
    
    4,803
    
    
    
    15,047
    
    
    
    4,171
    
    
    
    9,905
    
    
    
    14,076Increase (decrease) in net interest
income (1)
    
    $
    5,391
    
    
    $
    (645
    )
    
    $
    4,746
    
    
    $
    3,479
    
    
    $
    (1,185
    )
    
    $
    2,294
 
 (1)
    
    The tax exempt income for state and political subdivision is not recorded on a tax equivalent
basis. 2007 versus 2006.
 49




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##### Table of Contents



50




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##### Table of Contents



2006 versus 2005.
      51




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##### Table of Contents



Provision for Loan Losses
 2007 versus 2006.
 2006 versus 2005.
 Noninterest Income
 2007 versus 2006.
 52




---



##### Table of Contents



2006 versus 2005.
  53




---



##### Table of Contents



Noninterest Expense
 2007 versus 2006.
    54




---



##### Table of Contents



2006 versus 2005.
    55




---



##### Table of Contents



Provision for Income Taxes
  2007 versus 2006.
 2006 versus 2005.
 Financial Condition
 Summary
   56




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##### Table of Contents



Earning Assets
  Investment Securities
     December 31,2007
    
    
    2006
    
    
    2005Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value(dollars in thousands)U.S. Treasury
    
    $
    993
    
    
    $
    999
    
    
    $
    500
    
    
    $
    497
    
    
    $
    5,375
    
    
    $
    5,361U.S. government agencies
    
    
    16,517
    
    
    
    16,726
    
    
    
    7,992
    
    
    
    7,943
    
    
    
    3,507
    
    
    
    3,461Mortgage-backed securities
    
    
    108,129
    
    
    
    108,799
    
    
    
    96,140
    
    
    
    96,030
    
    
    
    85,399
    
    
    
    84,740State and political subdivision
    
    
    53,708
    
    
    
    53,798
    
    
    
    49,781
    
    
    
    49,362
    
    
    
    50,665
    
    
    
    50,343Corporate bonds
    
    
    9,500
    
    
    
    9,500
    
    
    
    11,000
    
    
    
    11,000
    
    
    
    6,007
    
    
    
    6,014Equity securities
    
    
    12,232
    
    
    
    11,917
    
    
    
    10,419
    
    
    
    11,347
    
    
    
    277
    
    
    
    277Total
    
    $
    201,079
    
    
    $
    201,739
    
    
    $
    175,832
    
    
    $
    176,179
    
    
    $
    151,230
    
    
    $
    150,196
 57




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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
    
    $
    999
    
    
    
    4.04
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    999U.S. government agencies
    
    
    10,510
    
    
    
    4.60
    %
    
    
    5,766
    
    
    
    4.78
    %
    
    
    450
    
    
    
    5.58
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    16,726Mortgage-backed securities (1)
    
    
    16,499
    
    
    
    4.27
    %
    
    
    88,403
    
    
    
    5.11
    %
    
    
    3,897
    
    
    
    5.50
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    108,799States and political subdivisions
    
    
    7,661
    
    
    
    4.97
    %
    
    
    27,237
    
    
    
    5.34
    %
    
    
    15,809
    
    
    
    5.47
    %
    
    
    3,091
    
    
    
    6.45
    %
    
    
    
    
    
    
    0.00
    %
    
    
    53,798Corporate bonds
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    9,500
    
    
    
    7.39
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    9,500Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,917
    
    
    
    
    
    
    
    11,917Total
    
    $
    35,669
    
    
    
    4.51
    %
    
    $
    121,406
    
    
    
    5.14
    %
    
    $
    29,656
    
    
    
    6.10
    %
    
    $
    3,091
    
    
    
    6.45
    %
    
    $
    11,917
    
    
    
    0.00
    %
    
    $
    201,739
 
 (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 31,2007
    
    
    2006
    
    
    2006Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value(dollars in thousands)Mortgage-backed securities
    
    $
    8,329
    
    
    $
    8,401
    
    
    $
    11,181
    
    
    $
    11,066
    
    
    $
    14,453
    
    
    $
    14,207State and political subdivision
    
    
    5,189
    
    
    
    5,223
    
    
    
    219
    
    
    
    218
    
    
    
    417
    
    
    
    415Corporate bonds
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    997
    
    
    
    
    
    
    
    Total
    
    $
    14,518
    
    
    $
    14,624
    
    
    $
    12,400
    
    
    $
    12,281
    
    
    $
    14,870
    
    
    $
    14,622
  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
    
    
    
    9.5
    %
    
    $
    8,238
    
    
    
    4.85
    %
    
    $
    80
    
    
    
    5.57
    %
    
    $
    8
    
    
    
    8.00
    %
    
    $
    8,329Corporate bonds
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    1,000
    
    
    
    4.00
    %
    
    
    1,000State and political subdivisions
    
    
    315
    
    
    
    6.02
    %
    
    
    2,815
    
    
    
    6.08
    %
    
    
    2,059
    
    
    
    6.78
    %
    
    
    
    
    
    

    
    %
    
    
    5,189Total
    
    $
    318
    
    
    
    6.06
    %
    
    $
    11,053
    
    
    
    5.17
    %
    
    $
    2,139
    
    
    
    6.73
    %
    
    $
    1,008
    
    
    
    4.03
    %
    
    $
    14,518
 
 (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. 58




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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 which will help to diversify the Companys geographic concentration in its
loan portfolio.
 59




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##### Table of Contents



2007 versus 2006.
 2006 versus 2005.
  60




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##### Table of Contents



December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCommercial and financial
    
    $
    173,817
    
    
    
    14.43
    %
    
    $
    167,687
    
    
    
    16.24
    %
    
    $
    180,906
    
    
    
    21.00
    %
    
    $
    179,380
    
    
    
    23.23
    %
    
    $
    154,405
    
    
    
    24.02
    %Agricultural
    
    
    64,399
    
    
    
    5.34
    %
    
    
    57,393
    
    
    
    5.55
    %
    
    
    59,325
    
    
    
    6.89
    %
    
    
    54,181
    
    
    
    7.02
    %
    
    
    50,507
    
    
    
    7.86
    %Real estate  farmland
    
    
    91,488
    
    
    
    7.59
    %
    
    
    72,999
    
    
    
    7.06
    %
    
    
    66,172
    
    
    
    7.68
    %
    
    
    64,891
    
    
    
    8.40
    %
    
    
    60,735
    
    
    
    9.45
    %Real estate  construction
    
    
    215,850
    
    
    
    17.91
    %
    
    
    152,553
    
    
    
    14.76
    %
    
    
    66,812
    
    
    
    7.76
    %
    
    
    28,105
    
    
    
    3.64
    %
    
    
    18,861
    
    
    
    2.94
    %Real estate  commercial
    
    
    204,338
    
    
    
    16.96
    %
    
    
    190,724
    
    
    
    18.46
    %
    
    
    154,132
    
    
    
    17.90
    %
    
    
    153,766
    
    
    
    19.92
    %
    
    
    113,861
    
    
    
    17.72
    %Real estate  residential (1)
    
    
    323,936
    
    
    
    26.89
    %
    
    
    267,237
    
    
    
    25.86
    %
    
    
    219,644
    
    
    
    25.50
    %
    
    
    197,582
    
    
    
    25.59
    %
    
    
    156,659
    
    
    
    24.38
    %Installment loans to individuals
    
    
    131,061
    
    
    
    10.88
    %
    
    
    124,723
    
    
    
    12.07
    %
    
    
    114,292
    
    
    
    13.27
    %
    
    
    94,184
    
    
    
    12.20
    %
    
    
    87,528
    
    
    
    13.63
    %Total loans (1)
    
    
    1,204,889
    
    
    
    100.00
    %
    
    
    1,033,316
    
    
    
    100.00
    %
    
    
    861,283
    
    
    
    100.00
    %
    
    
    772,089
    
    
    
    100.00
    %
    
    
    642,556
    
    
    
    100.00
    %Allowance for loan loss
    
    
    12,794
    
    
    
    
    
    
    
    10,613
    
    
    
    
    
    
    
    8,082
    
    
    
    
    
    
    
    7,115
    
    
    
    
    
    
    
    5,830Total loans, including loans
held for sale, net of allowance
for loan loss
    
    $
    1,192,095
    
    
    
    
    
    
    $
    1,022,703
    
    
    
    
    
    
    $
    853,201
    
    
    
    
    
    
    $
    764,974
    
    
    
    
    
    
    $
    636,726
 
 (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
    
    $
    143,988
    
    
    $
    63,817
    
    
    $
    30,411
    
    
    $
    238,216Real estate  construction
    
    
    215,850
    
    
    
    
    
    
    
    
    
    
    
    215,850Total
    
    $
    359,838
    
    
    $
    63,817
    
    
    $
    30,411
    
    
    $
    454,066Interest rate sensitivity of selected loansFixed rate
    
    $
    171,531
    
    
    $
    46,278
    
    
    $
    10,152
    
    
    $
    227,961Adjustable rate
    
    
    188,307
    
    
    
    17,539
    
    
    
    20,259
    
    
    
    226,105Total
    
    $
    359,838
    
    
    $
    63,817
    
    
    $
    30,411
    
    
    $
    454,066
 61




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##### Table of Contents



Allowance for Loan Losses
       62




---



##### Table of Contents



Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(dollars in thousands)Average loans outstanding during year
    
    $
    1,085,606
    
    
    $
    907,671
    
    
    $
    806,955
    
    
    $
    728,388
    
    
    $
    629,067Allowance for loan losses:Balance at beginning of year
    
    
    10,613
    
    
    $
    8,082
    
    
    $
    7,115
    
    
    $
    5,830
    
    
    $
    4,941Loans charged-off:Commercial and financial
    
    
    493
    
    
    
    1,833
    
    
    
    429
    
    
    
    275
    
    
    
    706Agricultural
    
    
    75
    
    
    
    85
    
    
    
    54
    
    
    
    101
    
    
    
    159Real estate  farmland
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    16Real estate  construction
    
    
    284
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Real estate  commercial
    
    
    18
    
    
    
    139
    
    
    
    50
    
    
    
    
    
    
    
    Real estate  residential
    
    
    399
    
    
    
    139
    
    
    
    172
    
    
    
    169
    
    
    
    300Installment loans to individuals
    
    
    906
    
    
    
    1,129
    
    
    
    956
    
    
    
    790
    
    
    
    879Total charge-offs
    
    
    2,175
    
    
    
    3,325
    
    
    
    1,741
    
    
    
    1,335
    
    
    
    2,060Recoveries:Commercial and financial
    
    
    55
    
    
    
    47
    
    
    
    112
    
    
    
    129
    
    
    
    290Agricultural
    
    
    15
    
    
    
    20
    
    
    
    26
    
    
    
    13
    
    
    
    10Real estate  farmland
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    17Real estate  construction
    
    
    2
    
    
    
    1
    
    
    
    2
    
    
    
    5
    
    
    
    Real estate  commercial
    
    
    1
    
    
    
    1
    
    
    
    36
    
    
    
    7
    
    
    
    1Real estate  residential
    
    
    38
    
    
    
    12
    
    
    
    24
    
    
    
    63
    
    
    
    12Installment loans to individuals
    
    
    150
    
    
    
    136
    
    
    
    140
    
    
    
    147
    
    
    
    132Total recoveries
    
    
    261
    
    
    
    217
    
    
    
    340
    
    
    
    398
    
    
    
    462Net charge-offs
    
    
    1,914
    
    
    
    3,108
    
    
    
    1,401
    
    
    
    937
    
    
    
    1,598Provision for loan losses
    
    
    2,969
    
    
    
    3,914
    
    
    
    2,368
    
    
    
    1,746
    
    
    
    2,487Purchased allowance
    
    
    1,126
    
    
    
    1,725
    
    
    
    
    
    
    
    476
    
    
    
    Balance at end of year
    
    $
    12,794
    
    
    $
    10,613
    
    
    $
    8,082
    
    
    $
    7,115
    
    
    $
    5,830Allowance for loan losses as a
percent of total loans outstanding
at year end (1)
    
    
    1.06
    %
    
    
    1.03
    %
    
    
    0.94
    %
    
    
    0.92
    %
    
    
    0.91
    %Allowance for loan losses as a
percent of total nonperforming loans
    
    
    55.62
    %
    
    
    165.98
    %
    
    
    162.29
    %
    
    
    157.87
    %
    
    
    111.84
    %Ratio of net charge-offs to average
total loans
    
    
    .18
    %
    
    
    0.34
    %
    
    
    0.17
    %
    
    
    0.13
    %
    
    
    0.25
    %
 
 (1)
    
    Includes loans held for sale 63




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##### Table of Contents



2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003% 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
    
    $
    2,848,584
    
    
    
    22.26
    %
    
    $
    2,767,535
    
    
    
    26.07
    %
    
    $
    2,721,029
    
    
    
    33.67
    %
    
    $
    2,651,722
    
    
    
    37.27
    %
    
    $
    2,146,373
    
    
    
    36.82
    %Agricultural
    
    
    149,926
    
    
    
    1.17
    %
    
    
    164,176
    
    
    
    1.55
    %
    
    
    161,417
    
    
    
    2.00
    %
    
    
    157,306
    
    
    
    2.21
    %
    
    
    127,327
    
    
    
    2.18
    %Real estate  farmland
    
    
    795,329
    
    
    
    6.22
    %
    
    
    649,073
    
    
    
    6.12
    %
    
    
    673,040
    
    
    
    8.33
    %
    
    
    559,708
    
    
    
    7.87
    %
    
    
    107,272
    
    
    
    1.84
    %Real estate  construction
    
    
    2,413,365
    
    
    
    18.86
    %
    
    
    1,910,323
    
    
    
    18.00
    %
    
    
    460,234
    
    
    
    5.69
    %
    
    
    282,651
    
    
    
    3.97
    %
    
    
    241,362
    
    
    
    4.14
    %Real estate  commercial
    
    
    3,937,425
    
    
    
    30.78
    %
    
    
    2,182,023
    
    
    
    20.56
    %
    
    
    1,517,846
    
    
    
    18.78
    %
    
    
    1,420,770
    
    
    
    19.97
    %
    
    
    1,516,558
    
    
    
    26.01
    %Real estate  residential
    
    
    1,312,475
    
    
    
    10.26
    %
    
    
    1,174,936
    
    
    
    11.07
    %
    
    
    817,301
    
    
    
    10.11
    %
    
    
    765,030
    
    
    
    10.75
    %
    
    
    816,608
    
    
    
    14.01
    %Installment loans  consumer
    
    
    1,146,659
    
    
    
    8.96
    %
    
    
    1,306,972
    
    
    
    12.31
    %
    
    
    1,335,151
    
    
    
    16.52
    %
    
    
    1,084,141
    
    
    
    15.24
    %
    
    
    874,500
    
    
    
    15.00
    %Unallocated
    
    
    190,237
    
    
    
    1.49
    %
    
    
    457,962
    
    
    
    4.32
    %
    
    
    395,982
    
    
    
    4.90
    %
    
    
    193,672
    
    
    
    2.72
    %
    
    
    
    
    
    
    0.00
    %Total
    
    $
    12,794,000
    
    
    
    100.00
    %
    
    $
    10,613,000
    
    
    
    100.00
    %
    
    $
    8,082,000
    
    
    
    100.00
    %
    
    $
    7,115,000
    
    
    
    100.00
    %
    
    $
    5,830,000
    
    
    
    100.00
    %*Total loans
    
    
    1,204,889,000
    
    
    
    
    
    
    
    1,033,316,000
    
    
    
    
    
    
    
    857,648,000
    
    
    
    
    
    
    
    768,722,000
    
    
    
    
    
    
    
    637,937,000
 Non-Performing Assets
   At December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(dollars in thousands)Non-accrual loans (1)Commercial and financial
    
    $
    581
    
    
    $
    429
    
    
    $
    1,504
    
    
    $
    1,471
    
    
    $
    1,173Agricultural
    
    
    308
    
    
    
    473
    
    
    
    223
    
    
    
    6
    
    
    
    886Real estate  farmland
    
    
    296
    
    
    
    12
    
    
    
    105
    
    
    
    357
    
    
    
    593Real estate  construction
    
    
    6,716
    
    
    
    1,147
    
    
    
    
    
    
    
    66
    
    
    
    Real estate  commercial
    
    
    3,152
    
    
    
    2,083
    
    
    
    417
    
    
    
    208
    
    
    
    104Real estate  residential
    
    
    8,571
    
    
    
    1,040
    
    
    
    839
    
    
    
    596
    
    
    
    740Installment loans to individuals
    
    
    195
    
    
    
    213
    
    
    
    544
    
    
    
    353
    
    
    
    433Total non-accrual loans (1)
    
    
    19,819
    
    
    
    5,397
    
    
    
    3,632
    
    
    
    3,057
    
    
    
    3,929Loans 90 days past due and still
accruing
    
    
    3,184
    
    
    
    993
    
    
    
    1,342
    
    
    
    1,009
    
    
    
    1,274Restructured loans
    
    
    
    
    
    
    4
    
    
    
    6
    
    
    
    441
    
    
    
    10Total nonperforming loans
    
    
    23,003
    
    
    
    6,394
    
    
    
    4,980
    
    
    
    4,507
    
    
    
    5,213Repossessed assets
    
    
    3,273
    
    
    
    361
    
    
    
    494
    
    
    
    577
    
    
    
    795Other assets acquired in
satisfaction of debts previously
contracted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total nonperforming other assets
    
    
    3,273
    
    
    
    361
    
    
    
    494
    
    
    
    577
    
    
    
    795Total nonperforming loans and
nonperforming other assets
    
    $
    26,276
    
    
    $
    6,755
    
    
    $
    5,474
    
    
    $
    5,084
    
    
    $
    6,008Nonperforming loans to loans,
before allowance for loan losses
    
    
    1.91
    %
    
    
    0.62
    %
    
    
    0.58
    %
    
    
    0.58
    %
    
    
    0.81
    %Nonperforming loans and
nonperforming other assets to
loans, before allowance for loan
losses
    
    
    2.18
    %
    
    
    0.65
    %
    
    
    0.64
    %
    
    
    0.66
    %
    
    
    0.94
    %
 
 (1)
    
    Interest income that would have been recorded in 2007 related to nonaccrual loans was $514
thousand, none of which is included in interest income or net income for 2007. 64




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65




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Potential Problem Loans
  Other Interest-Bearing Assets
  Other Assets
     66




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##### Table of Contents



Deposits
    December 31,2007
    
    
    2006
    
    
    2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    % Total
    
    
    Rate
    
    
    Balance
    
    
    % Total
    
    
    Rate
    
    
    Balance
    
    
    % Total
    
    
    Rate(dollars in thousands)Non-interest bearing demand
deposits
    
    $
    112,091
    
    
    
    9.4
    %
    
    
    0.00
    %
    
    $
    101,302
    
    
    
    10.2
    %
    
    
    0.00
    %
    
    $
    93,450
    
    
    
    10.3
    %
    
    
    0.00
    %Interest bearing demand deposit
    
    
    116,908
    
    
    
    9.8
    %
    
    
    1.62
    %
    
    
    107,126
    
    
    
    10.7
    %
    
    
    1.40
    %
    
    
    110,763
    
    
    
    12.3
    %
    
    
    0.96
    %Savings/Money market
    
    
    266,287
    
    
    
    22.3
    %
    
    
    3.47
    %
    
    
    179,056
    
    
    
    17.9
    %
    
    
    2.82
    %
    
    
    154,599
    
    
    
    17.1
    %
    
    
    1.59
    %Time deposits
    
    
    696,542
    
    
    
    58.5
    %
    
    
    4.83
    %
    
    
    610,202
    
    
    
    61.2
    %
    
    
    4.35
    %
    
    
    544,096
    
    
    
    60.3
    %
    
    
    3.25
    %Total
    
    $
    1,191,828
    
    
    
    100.00
    %
    
    
    4.15
    %
    
    $
    997,686
    
    
    
    100.0
    %
    
    
    3.69
    %
    
    $
    902,908
    
    
    
    100.0
    %
    
    
    2.62
    %
 67




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December 31,2007
    
    2006
    
    2005
    
    2004(dollars in thousands)High month-end balance of total deposits
    
    $
    1,319,459
    
    
    $
    1,166,814
    
    
    $
    944,672
    
    
    $
    875,344Low month-end balance of total deposits
    
    
    1,120,863
    
    
    
    973,258
    
    
    
    869,226
    
    
    
    752,187
  December 31, 2007(dollars in thousands)Under 3 months
    
    $
    2,1843 months to 6 months
    
    
    35,1596 months to 12 months
    
    
    80,013Over 12 months
    
    
    125,995$
    243,351
  68




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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)2007Balance, December 31, 2007
    
    $
    29,936
    
    
    $
    2,763
    
    
    $
    12,890Weighted average interest rate at end of year
    
    
    4.48
    %
    
    
    4.00
    %
    
    
    4.43
    %Maximum amount outstanding at any month end
    
    $
    29,936
    
    
    $
    4,006
    
    
    $
    34,581Average daily balance
    
    $
    25,093
    
    
    $
    1,162
    
    
    $
    23,291Weighted average interest rate during year (1)
    
    
    4.24
    %
    
    
    4.80
    %
    
    
    3.54
    %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
    %
 
 (1)
    
    The weighted average interest rate is computed by dividing total interest for the year by the
average daily balance outstanding. Other Liabilities
  69




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Liquidity
    Years Ended December 31,2007
    
    
    2006
    
    
    2005(dollars in thousands)Cash and due from banks
    
    $
    26,511
    
    
    $
    25,153
    
    
    $
    23,387Interest-bearing demand deposits
    
    
    16,887
    
    
    
    21,703
    
    
    
    11,796Federal funds sold
    
    
    23,157
    
    
    
    11,117
    
    
    
    4,461Total
    
    $
    66,555
    
    
    $
    57,973
    
    
    $
    39,644Percent of average total assets
    
    
    4.52
    %
    
    
    4.79
    %
    
    
    3.68
    %
  December 31,2007
    
    
    2006
    
    
    2005(dollars in thousands)Cash and due from banks
    
    $
    38,172
    
    
    $
    28,854
    
    
    $
    27,761Interest-bearing demand deposits
    
    
    18,259
    
    
    
    29,188
    
    
    
    14,548Federal funds sold
    
    
    19,628
    
    
    
    41,105
    
    
    
    1,845Total
    
    $
    76,059
    
    
    $
    99,147
    
    
    $
    44,154Percent of total assets
    
    
    4.64
    %
    
    
    6.96
    %
    
    
    3.88
    %
  70




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71




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72




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73




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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
    
    $
    528,103
    
    
    $
    187,894
    
    
    $
    44,528
    
    
    $
    4,650
    
    
    $
    765,175Long-term borrowing (1)
    
    
    24,000
    
    
    
    30,000
    
    
    
    13,000
    
    
    
    76,358
    
    
    
    143,358Interest payments on
long-term borrowings
    
    
    6,705
    
    
    
    12,741
    
    
    
    5,922
    
    
    
    9,024
    
    
    
    34,392Minimum operating
lease commitments
    
    
    373
    
    
    
    645
    
    
    
    503
    
    
    
    705
    
    
    
    2,226Totals
    
    $
    559,181
    
    
    $
    231,280
    
    
    $
    63,953
    
    
    $
    90,737
    
    
    $
    945,151
 
 (1)
    
    The long-term borrowings include: Federal Home Loan Bank advances totaling $57.5 million at
fixed rates ranging from 4.18% to 5.37%; bank notes payable totaling $24.0 million at variable
rates of interest ranging from 6.09% to 7.25% at December 31, 2007; 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;
junior subordinated debentures totaling $20.6 million at a variable rate of 6.88% at December
31,2007. ; and junior subordinated debentures totaling $20.6 million at a fixed rate of 6.84%
until October 2017.  Next 12
    
    
    13-36
    
    
    37-60
    
    
    More thanMonths
    
    
    Months
    
    
    Months
    
    
    60 Months
    
    
    Totals(dollars in thousands)Unfunded commitments:Letters of credit
    
    $
    13,211
    
    
    $
    289
    
    
    $
    25
    
    
    $
    2,264
    
    
    $
    15,789Lines of credit
    
    
    155,701
    
    
    
    112,526
    
    
    
    6,410
    
    
    
    6,749
    
    
    
    281,386Totals
    
    $
    168,912
    
    
    $
    112,815
    
    
    $
    6,435
    
    
    $
    9,013
    
    
    $
    297,175
 74




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Rate Sensitive Assets and Liabilities
   Rate Sensitive Within
    
    

Fair1 year
    
    
    1-2 years
    
    
    2-3 years
    
    
    3-4 years
    
    
    4-5 years
    
    
    Thereafter
    
    
    Total
    
    

Value(dollars in thousands)Interest bearing deposits
    
    $
    18,259
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18,259
    
    
    $
    18,259Federal funds sold
    
    
    19,628
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,628
    
    
    
    19,628SecuritiesU.S. treasuries and agencies
    
    
    11,509
    
    
    
    1,363
    
    
    
    2,012
    
    
    
    1,223
    
    
    
    1,168
    
    
    
    450
    
    
    
    17,725
    
    
    
    17,725Mortgage-backed securities
    
    
    16,502
    
    
    
    22,843
    
    
    
    33,729
    
    
    
    20,498
    
    
    
    19,571
    
    
    
    3,985
    
    
    
    117,128
    
    
    
    117,200State and political subdivisions
    
    
    7,976
    
    
    
    7,105
    
    
    
    10,488
    
    
    
    6,374
    
    
    
    6,085
    
    
    
    20,959
    
    
    
    58,987
    
    
    
    59,021Corporate bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,500
    
    
    
    10,500
    
    
    
    10,500Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,917
    
    
    
    11,917
    
    
    
    11,917Loans and loans held for sale
    
    
    450,862
    
    
    
    160,158
    
    
    
    181,560
    
    
    
    75,597
    
    
    
    54,468
    
    
    
    282,244
    
    
    
    1,204,889
    
    
    
    1,203,313Total rate-sensitive assets
    
    $
    524,736
    
    
    $
    191,469
    
    
    $
    227,789
    
    
    $
    103,692
    
    
    $
    81,292
    
    
    $
    330,055
    
    
    $
    1,459,033
    
    
    $
    1,457,563Interest bearing transaction deposits
    
    $
    26,564
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    99,575
    
    
    $
    126,139
    
    
    $
    126,139Savings deposits
    
    
    22,532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,868
    
    
    
    79,400
    
    
    
    79,400Money market deposits
    
    
    214,855
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    214,855
    
    
    
    214,855Time and brokered time deposits
    
    
    528,103
    
    
    
    126,250
    
    
    
    61,644
    
    
    
    33,820
    
    
    
    10,708
    
    
    
    4,650
    
    
    
    765,175
    
    
    
    759,199Short-term borrowings
    
    
    45,589
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,589
    
    
    
    45,589Long-term debt and junior
subordinated debentures
    
    
    24,000
    
    
    
    21,000
    
    
    
    9,000
    
    
    
    8,000
    
    
    
    5,000
    
    
    
    76,358
    
    
    
    143,358
    
    
    
    144,217Total rate-sensitive liabilities
    
    $
    861,643
    
    
    $
    147,250
    
    
    $
    70,644
    
    
    $
    41,820
    
    
    $
    15,708
    
    
    $
    237,451
    
    
    $
    1,374,516
    
    
    $
    1,369,399Rate sensitive assets  rate
sensitive liabilities
    
    $
    (376,907
    )
    
    $
    44,219
    
    
    $
    157,145
    
    
    $
    61,872
    
    
    $
    65,584
    
    
    $
    92,604
    
    
    $
    84,517
    
    
    $
    88,164Cumulative Gap
    
    $
    (336,907
    )
    
    $
    (292,688
    )
    
    $
    (135,543
    )
    
    $
    (73,671
    )
    
    $
    (8,087
    )
    
    $
    84,517Cumulative amounts as % of total
rate-sensitive assets
    
    
    (23.09
    )%
    
    
    (20.06
    )%
    
    
    (9.29
    )%
    
    
    (5.05
    )%
    
    
    (.55
    )%
    
    
    5.79
    %Cumulative Ratio
    
    
    .61
    
    
    
    .71
    
    
    
    .87
    
    
    
    .93
    
    
    
    .99
    
    
    
    1.06
 75




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Capital Resources
    Regulatory Considerations
  76




---



##### Table of Contents



Accounting Pronouncements
     77




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 8. Financial Statements and Supplementary Data
  Consolidated Quarterly Financial Data
 2007December 31
    
    
    September 30
    
    
    June 30
    
    
    March 31(dollars in thousands, except per share data)Interest income
    
    $
    25,782
    
    
    $
    24,193
    
    
    $
    23,060
    
    
    $
    22,908Interest expense
    
    
    14,649
    
    
    
    13,657
    
    
    
    12,648
    
    
    
    12,507Net interest income
    
    
    11,133
    
    
    
    10,536
    
    
    
    10,412
    
    
    
    10,401Provision for loan losses
    
    
    1,111
    
    
    
    677
    
    
    
    426
    
    
    
    755Noninterest income
    
    
    3,814
    
    
    
    5,029
    
    
    
    2,774
    
    
    
    2,342Noninterest expense
    
    
    10,843
    
    
    
    9,948
    
    
    
    9,424
    
    
    
    9,193Minority interest
    
    
    91
    
    
    
    197
    
    
    
    159
    
    
    
    175Income before income taxes
    
    
    2,902
    
    
    
    4,743
    
    
    
    3,177
    
    
    
    2,620Income taxes
    
    
    414
    
    
    
    1,450
    
    
    
    801
    
    
    
    776Net income
    
    $
    2,488
    
    
    $
    3,293
    
    
    $
    2,376
    
    
    $
    1,844Basic earnings per share
    
    
    .29
    
    
    
    .38
    
    
    
    .27
    
    
    
    .21
 78




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##### Table of Contents



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
    
    
    0.37
    
    
    
    0.33
    
    
    
    0.26
    
    
    
    0.22
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Disclosure Controls and Procedures
  Management Report on Internal Control Over Financial Reporting
   79




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80




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Report of Independent Registered Public Accounting Firm
 
        BKD, llp
 
 81




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information
  82




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##### 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
  83




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
   
    84




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##### Table of Contents



SIGNATURES
  MERCANTILE BANCORP, INC.(Registrant)By:
    
    /s/ Ted T. AwerkampName:
    Ted T. AwerkampTitle:
    President and Chief Executive OfficerDated:
    March 17, 2008
  Signature
    
    Title
    
    Date/s/ Ted T. Awerkamp
    
    President and Chief Executive Officer
    
    March
17, 2008Ted T. Awerkamp
    
    (principal executive officer)/s/ Michael P. McGrath
    
    Executive Vice President, Treasurer, Secretary
    
    March
17, 2008Michael P. McGrath
    
    and Chief Financial Officer(principal financial officer/principal accountingofficer)/s/ Ted T. Awerkamp
    
    Director
    
    March
17, 2008Ted T. Awerkamp/s/ Dan S. Dugan
    
    Chairman, Director
    
    March
17, 2008Dan S. Dugan/s/ Michael J. Foster
    
    Director
    
    March
17, 2008Michael J. Foster/s/ William G. Keller, Jr.
    
    Director
    
    March
17, 2008William G. Keller, Jr./s/ Frank H. Musholt
    
    Director
    
    March
17, 2008Frank H. Musholt/s/ Dennis M. Prock
    
    Director
    
    March
17, 2008Dennis M. Prock/s/ Walter D. Stevenson, III
    
    Director
    
    March
17, 2008Walter D. Stevenson, III/s/ James W. Tracy
    
    Director
    
    March
17, 2008James W. Tracy
 85




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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 as Exhibit 99.1 to a Current Report on Form 8-K
filed November 21, 2007.4.1
    
    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
    
    Second Amendment to Awerkamp Executive Employee Salary Continuation Agreement dated
December 18, 2007, filed herewith.10.8
    
    Employment Agreement dated January 1, 2008, between the Company and Ted T. Awerkamp,
filed herewith.10.9
    
    Employment Agreement dated January 1, 2008, between the Company and Michael P.
McGrath, filed herewith.10.10
    
    Employment Agreement dated January 1, 2008, between the Company and Daniel J. Cook,
filed herewith.10.11
    
    Mercantile Bancorp, Inc. Incentive Compensation Plan, filed as Exhibit 10.4 to a
Current Report on Form 8-K filed on April 18, 2007.10.12
    
    Mercantile Bancorp, Inc. Profit Sharing Plan and Trust, filed as Exhibit 10.7 with
the Registration Statement.10.13
    
    401(k) Plan Adoption Agreement, filed as Exhibit 10.8 with the Registration Statement.
 86




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.14
    
    Amendment to the Profit Sharing Plan and Trust, filed as Exhibit 10.9 with the
Registration Statement.10.15
    
    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, 2007.10.16
    
    Consulting Agreement dated January 15, 2008 between Mercantile Bancorp, Inc. and Dan
S. Dugan, filed herewith.10.17
    
    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
2006 Third Quarter Form
10-Q).10.18
    
    First Amendment to Third Amended and Restated Loan Agreement between Mercantile
Bancorp, Inc. and U.S. Bank National Association, dated March 20, 2007, filed as
Exhibit 10.1 to a Current Report on Form 8-K filed March 24, 2007.10.19
    
    Second Amendment to Third Amended and Restated Loan Agreement between Mercantile
Bancorp, Inc. and U.S. Bank National Association, dated as of June 30, 2007, filed as
Exhibit 10.1 to a Current Report on Form 8-K filed July 19, 2007.10.20
    
    Third Amendment to Third Amended and Restated Loan Agreement between Mercantile
Bancorp, Inc. and U.S. Bank National Association, dated September 7, 2007, filed as
Exhibit 10.1 to a Current Report on Form 8-K filed September 12, 2007.10.21
    
    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
2006 Third Quarter Form 10-Q.10.22
    
    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
2006 Third Quarter Form 10-Q.14.1
    
    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 herewith.31.2
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended, filed herewith.32.1
    
    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 herewith.32.2
    
    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. 87




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    89Consolidated Balance Sheets at December 31, 2007 and 2006
    
    
    90Consolidated Statements of Income for the Years Ended December 31, 2007, 2006, and 2005
    
    
    91Consolidated Statement of Stockholders Equity for the Years Ended December 31, 2007, 2006, and 2005
    
    
    92Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005
    
    
    93Notes to Consolidated Financial Statements
    
    
    94
 88




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Report of Independent Registered Public Accounting Firm
 
    Internal Control-Integrated Framework
 BKD, LLP
 
 89




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##### Table of Contents



Mercantile Bancorp, Inc.
 
 Consolidated Balance Sheets
 December 31, 2007 and 2006
 (in thousands, except share data)
 2007
    
    
    2006AssetsCash and due from banks
    
    $
    38,172
    
    
    $
    28,854Interest-bearing demand deposits
    
    
    18,259
    
    
    
    29,188Federal funds sold
    
    
    19,628
    
    
    
    41,105Cash and cash equivalents
    
    
    76,059
    
    
    
    99,147Available-for-sale securities
    
    
    201,739
    
    
    
    176,179Held-to-maturity securities
    
    
    14,518
    
    
    
    12,400Loans held for sale
    
    
    3,338
    
    
    
    1,660Loans, net of allowance for loan losses
of $12,794 and $10,613 at December 31,
2007 and 2006
    
    
    1,188,757
    
    
    
    1,021,043Interest receivable
    
    
    11,343
    
    
    
    10,277Foreclosed assets held for sale, net
    
    
    3,172
    
    
    
    291Federal Home Loan Bank stock
    
    
    7,790
    
    
    
    5,699Equity method investments in common stock
    
    
    
    
    
    
    4,119Cost method investments in common stock
    
    
    6,105
    
    
    
    3,190Deferred income taxes
    
    
    2,457
    
    
    
    3,071Mortgage servicing rights
    
    
    1,307
    
    
    
    994Cash surrender value of life insurance
    
    
    24,248
    
    
    
    18,143Premises and equipment
    
    
    42,003
    
    
    
    25,693Goodwill
    
    
    43,934
    
    
    
    32,120Core deposit and other intangibles
    
    
    4,514
    
    
    
    2,110Other
    
    
    7,861
    
    
    
    6,691Total assets
    
    $
    1,639,145
    
    
    $
    1,422,827Liabilities and Stockholders EquityLiabilitiesDepositsDemand
    
    $
    133,890
    
    
    $
    111,131Savings, NOW and money market
    
    
    420,394
    
    
    
    349,250Time
    
    
    611,676
    
    
    
    551,688Brokered time
    
    
    153,499
    
    
    
    154,745Total deposits
    
    
    1,319,459
    
    
    
    1,166,814Short-term borrowings
    
    
    45,589
    
    
    
    26,338Long-term debt
    
    
    81,500
    
    
    
    66,010Junior subordinated debentures
    
    
    61,858
    
    
    
    41,239Interest payable
    
    
    6,040
    
    
    
    6,039Other
    
    
    6,971
    
    
    
    6,531Total liabilities
    
    
    1,521,417
    
    
    
    1,312,971Commitments and Contingent LiabilitiesMinority Interest
    
    
    9,446
    
    
    
    9,198Stockholders EquityCommon stock, $0.42 par value; authorized 12,000,000 shares;Issued  8,887,113 sharesOutstanding  8,709,655 and 8,747,618 shares at December 31, 2007 and 2006
    
    
    3,629
    
    
    
    3,629Additional paid-in capital
    
    
    11,989
    
    
    
    11,982Retained earnings
    
    
    94,552
    
    
    
    86,648Accumulated other comprehensive income
    
    
    305
    
    
    
    23110,475
    
    
    
    102,282Treasury stock, at costCommon; 177,458 shares and 139,567 shares December 31, 2007 and 2006
    
    
    (2,193
    )
    
    
    (1,624
    )Total stockholders equity
    
    
    108,282
    
    
    
    100,658Total liabilities and stockholders equity
    
    $
    1,639,145
    
    
    $
    1,422,827
  90




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##### Table of Contents



Mercantile Bancorp, Inc.
 
 Consolidated Statements of Income
 Years Ended December 31, 2007, 2006 and 2005
 (in thousands, except share data)
 2007
    
    
    2006
    
    
    2005Interest and Dividend IncomeLoansTaxable
    
    $
    82,912
    
    
    $
    66,152
    
    
    $
    51,767Tax exempt
    
    
    936
    
    
    
    908
    
    
    
    720SecuritiesTaxable
    
    
    7,965
    
    
    
    5,774
    
    
    
    4,791Tax exempt
    
    
    1,830
    
    
    
    1,783
    
    
    
    1,775Federal funds sold
    
    
    1,219
    
    
    
    577
    
    
    
    134Dividends on Federal Home Loan Bank Stock
    
    
    182
    
    
    
    189
    
    
    
    235Deposits with financial institutions and other
    
    
    899
    
    
    
    767
    
    
    
    358Total interest and dividend income
    
    
    95,943
    
    
    
    76,150
    
    
    
    59,780Interest ExpenseDeposits
    
    
    44,771
    
    
    
    33,071
    
    
    
    21,185Short-term borrowings
    
    
    1,945
    
    
    
    1,389
    
    
    
    676Long-term debt and junior subordinated debentures
    
    
    6,745
    
    
    
    3,954
    
    
    
    2,477Total interest expense
    
    
    53,461
    
    
    
    38,414
    
    
    
    24,338Net Interest Income
    
    
    42,482
    
    
    
    37,736
    
    
    
    35,442Provision for Loan Losses
    
    
    2,969
    
    
    
    3,914
    
    
    
    2,368Net Interest Income After Provision for Loan Losses
    
    
    39,513
    
    
    
    33,822
    
    
    
    33,074Noninterest IncomeFiduciary activities
    
    
    2,411
    
    
    
    2,191
    
    
    
    1,910Brokerage fees
    
    
    1,468
    
    
    
    1,120
    
    
    
    430Customer service fees
    
    
    4,136
    
    
    
    3,610
    
    
    
    3,407Other service charges and fees
    
    
    713
    
    
    
    599
    
    
    
    621Net gains on loan sales
    
    
    698
    
    
    
    612
    
    
    
    548Net gains on sale of equity and cost method investments
    
    
    2,908
    
    
    
    4,318
    
    
    
    Loan servicing fees
    
    
    464
    
    
    
    388
    
    
    
    372Net increase in cash surrender value of life insurance
    
    
    926
    
    
    
    653
    
    
    
    606Income (loss) on equity method investments in common stock
    
    
    (6
    )
    
    
    251
    
    
    
    182Other
    
    
    241
    
    
    
    188
    
    
    
    471Total noninterest income
    
    
    13,959
    
    
    
    13,930
    
    
    
    8,547Noninterest ExpenseSalaries and employee benefits
    
    
    23,253
    
    
    
    18,254
    
    
    
    15,937Net occupancy expense
    
    
    2,695
    
    
    
    2,001
    
    
    
    2,061Equipment expense
    
    
    2,494
    
    
    
    1,777
    
    
    
    1,667Deposit insurance premium
    
    
    223
    
    
    
    122
    
    
    
    119Professional fees
    
    
    1,993
    
    
    
    1,782
    
    
    
    1,361Postage and supplies
    
    
    1,085
    
    
    
    941
    
    
    
    857Losses on sale of premises and equipment
    
    
    23
    
    
    
    107
    
    
    
    70Losses on foreclosed assets, net
    
    
    86
    
    
    
    35
    
    
    
    94Amortization of mortgage servicing rights
    
    
    134
    
    
    
    224
    
    
    
    196Other
    
    
    7,422
    
    
    
    6,373
    
    
    
    5,455Total noninterest expense
    
    
    39,408
    
    
    
    31,616
    
    
    
    27,817Minority Interest
    
    
    622
    
    
    
    792
    
    
    
    648Income Before Income Taxes
    
    
    13,442
    
    
    
    15,344
    
    
    
    13,156Provision for Income Taxes
    
    
    3,441
    
    
    
    5,025
    
    
    
    3,652Net Income
    
    $
    10,001
    
    
    $
    10,319
    
    
    $
    9,504Basic Earnings Per Share
    
    $
    1.15
    
    
    $
    1.18
    
    
    $
    1.08Weighted average shares outstanding
    
    
    8,727,933
    
    
    
    8,770,475
    
    
    
    8,818,524
  91




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Mercantile Bancorp, Inc.
 
 Consolidated Statements of Stockholders Equity
 Years Ended December 31, 2007, 2006 and 2005
 (in thousands, except share data)
 AccumulatedCommon Stock
    
    
    
    
    
    
    
    
    
    
    OtherShares
    
    
    
    
    
    
    Additional Paid-In
    
    
    Retained
    
    
    ComprehensiveOutstanding
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Treasury Stock
    
    
    TotalBalance, January 1, 2005
    
    
    8,836,560
    
    
    $
    3,629
    
    
    $
    11,464
    
    
    $
    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, $0.20 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,757
    )
    
    
    
    
    
    
    
    
    
    
    (1,757
    )Purchase of treasury stock
    
    
    (64,193
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (836
    )
    
    
    (836
    )Balance, December 31, 2005
    
    
    8,772,367
    
    
    
    3,629
    
    
    
    11,764
    
    
    
    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, $0.21 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,871
    )
    
    
    
    
    
    
    
    
    
    
    (1,871
    )Purchase of treasury stock
    
    
    (24,750
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (367
    )
    
    
    (367
    )Adjustment to initially apply FAS
Statement No. 158, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (163
    )
    
    
    
    
    
    
    (163
    )Balance, December 31, 2006
    
    
    8,747,617
    
    
    
    3,629
    
    
    
    11,982
    
    
    
    86,648
    
    
    
    23
    
    
    
    (1,624
    )
    
    
    100,658Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,001
    
    
    
    
    
    
    
    
    
    
    
    10,001Change in unrealized appreciation on
available-for-sale securities, net
of taxes and reclassification
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    240
    
    
    
    
    
    
    
    240Accumulated other comprehensive loss
of equity method investee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    28Defined benefit postretirement plan
 transition obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    14Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,283Issuance of stock to minority
shareholders of Mid-America
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Dividends on common stock, $0.24 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,097
    )
    
    
    
    
    
    
    
    
    
    
    (2,097
    )Purchase of treasury stock
    
    
    (37,962
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (569
    )
    
    
    (569
    )Balance, December 31, 2007
    
    
    8,709,655
    
    
    $
    3,629
    
    
    $
    11,989
    
    
    $
    94,552
    
    
    $
    305
    
    
    $
    (2,193
    )
    
    $
    108,282
  92




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##### Table of Contents



Mercantile Bancorp, Inc.
 
 Statements of Cash Flows
 December 31, 2007, 2006 and 2005
 (in thousands, except share data)
 2007
    
    
    2006
    
    
    2005Operating ActivitiesNet income
    
    $
    10,001
    
    
    $
    10,319
    
    
    $
    9,504Items not requiring (providing) cashDepreciation
    
    
    1,898
    
    
    
    1,535
    
    
    
    1,652Provision for loan losses
    
    
    2,969
    
    
    
    3,914
    
    
    
    2,368Amortization (depreciation) of premiums and discounts on securities
    
    
    (28
    )
    
    
    1,062
    
    
    
    943Amortization (depreciation) of core deposit intangibles and other purchase
accounting adjustments
    
    
    (970
    )
    
    
    247
    
    
    
    161Deferred income taxes
    
    
    (482
    )
    
    
    2,091
    
    
    
    (1,252
    )Losses on sales of foreclosed assets
    
    
    86
    
    
    
    35
    
    
    
    94Net gains on loan sales
    
    
    (698
    )
    
    
    (612
    )
    
    
    (548
    )Amortization of mortgage servicing rights
    
    
    134
    
    
    
    224
    
    
    
    196Losses on sale of premises and equipment
    
    
    23
    
    
    
    107
    
    
    
    70Gain on sale of equity and cost method investments
    
    
    (2,908
    )
    
    
    (4,318
    )
    
    
    (Income) loss on equity method investments in common stock
    
    
    6
    
    
    
    (251
    )
    
    
    (182
    )Federal Home Loan Bank stock dividends
    
    
    (56
    )
    
    
    (58
    )
    
    
    (223
    )Net increase in cash surrender value of life insurance
    
    
    (926
    )
    
    
    (653
    )
    
    
    (606
    )Minority interest in earnings of subsidiary
    
    
    622
    
    
    
    792
    
    
    
    648Changes inLoan originated for sale
    
    
    (48,113
    )
    
    
    (38,755
    )
    
    
    (32,513
    )Proceeds from sales of loans
    
    
    46,842
    
    
    
    41,142
    
    
    
    32,481Interest receivable
    
    
    (188
    )
    
    
    (1,736
    )
    
    
    (1,378
    )Other assets
    
    
    (1,068
    )
    
    
    (1,662
    )
    
    
    (1,298
    )Interest payable
    
    
    (607
    )
    
    
    2,256
    
    
    
    988Other liabilities
    
    
    61
    
    
    
    373
    
    
    
    673Net cash provided by operating activities
    
    
    6,598
    
    
    
    16,052
    
    
    
    11,778Investing ActivitiesCash paid in acquisition of HNB Financial, net of cash received
    
    
    (24,790
    )
    
    
    
    
    
    
    Cash paid in acquisition of Royal Palm, net of cash received
    
    
    
    
    
    
    (21,804
    )
    
    
    Purchases of available-for-sale securities
    
    
    (44,091
    )
    
    
    (113,362
    )
    
    
    (63,953
    )Proceeds from maturities of available-for-sale securities
    
    
    47,015
    
    
    
    104,625
    
    
    
    63,983Purchases of held-to-maturity securities
    
    
    (1,000
    )
    
    
    
    
    
    
    Proceeds from maturities of held-to-maturity securities
    
    
    3,368
    
    
    
    3,375
    
    
    
    4,745Net change in loans
    
    
    (58,888
    )
    
    
    (54,535
    )
    
    
    (90,886
    )Purchases of premises and equipment
    
    
    (11,504
    )
    
    
    (5,313
    )
    
    
    (3,940
    )Proceeds from sales of premises and equipment
    
    
    25
    
    
    
    20
    
    
    
    35Purchases of Federal Home Loan Bank stock
    
    
    (710
    )
    
    
    (841
    )
    
    
    (109
    )Proceeds from sales of Federal Home Loan Bank stock
    
    
    449
    
    
    
    1,152
    
    
    
    Proceeds from the sales of foreclosed assets
    
    
    275
    
    
    
    469
    
    
    
    743Purchase of cost method investment in common stock
    
    
    (3,234
    )
    
    
    (995
    )
    
    
    (1,501
    )Proceeds from sale of cost method investments
    
    
    513
    
    
    
    
    
    
    
    Purchases of equity method investment in common stock
    
    
    
    
    
    
    
    
    
    
    (2,986
    )Proceeds from sales of equity method investments
    
    
    6,791
    
    
    
    1,347
    
    
    
    Purchase of bank-owned life insurance
    
    
    (1,887
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (87,668
    )
    
    
    (85,862
    )
    
    
    (93,869
    )Financing ActivitiesNet increase in demand deposits, money market, NOW and savings accounts
    
    
    22,064
    
    
    
    59,617
    
    
    
    16,837Net increase in time and brokered time deposits
    
    
    1,641
    
    
    
    22,145
    
    
    
    55,865Net increase (decrease) in short-term borrowings
    
    
    18,361
    
    
    
    (6,249
    )
    
    
    11,202Proceeds from long-term debt
    
    
    27,650
    
    
    
    28,750
    
    
    
    2,902Repayment of long-term debt
    
    
    (29,160
    )
    
    
    (9,150
    )
    
    
    (11,250
    )Proceeds from issuance of junior subordinated debentures
    
    
    20,619
    
    
    
    30,929
    
    
    
    10,310Purchase of stock from minority interest of Mid America
    
    
    (612
    )
    
    
    
    
    
    
    Proceeds from issuance of stock to minority interest of Mid-America
    
    
    103
    
    
    
    1,395
    
    
    
    3,307Purchase of intangible assets
    
    
    (18
    )
    
    
    (396
    )
    
    
    Purchase of treasury stock
    
    
    (569
    )
    
    
    (367
    )
    
    
    (836
    )Dividends paid
    
    
    (2,097
    )
    
    
    (1,871
    )
    
    
    (1,757
    )Dividends paid on minority shares
    
    
    
    
    
    
    
    
    
    
    (54
    )Net cash provided by financing activities
    
    
    57,982
    
    
    
    124,803
    
    
    
    86,526Increase (Decrease) in Cash and Cash Equivalents
    
    
    (23,088
    )
    
    
    54,993
    
    
    
    4,435Cash and Cash Equivalents, Beginning of Year
    
    
    99,147
    
    
    
    44,154
    
    
    
    39,719Cash and Cash Equivalents, End of Year
    
    $
    76,059
    
    
    $
    99,147
    
    
    $
    44,154Supplemental Cash Flows InformationInterest paid
    
    $
    54,398
    
    
    $
    36,158
    
    
    $
    23,350Income taxes paid (net of refunds)
    
    $
    2,164
    
    
    $
    4,917
    
    
    $
    4,423Real estate acquired in settlement of loans
    
    $
    3,082
    
    
    $
    454
    
    
    $
    655Increase in additional paid-in-capital due to issuance of stock to minority interest of
Mid-America at a price over book
    
    $
    7
    
    
    $
    218
    
    
    $
    300Increase in core deposit intangibles due to purchase of Mid-America at a price over book
    
    $
    99
    
    
    $
    
    
    
    $
    413Available-for-sale securities received in sale of equity and cost method investments
    
    $
    700
    
    
    $
    8,035
    
    
    $
    Purchase of minority interest shares including goodwill in Security State Bank of
Hamilton recognized as other liabilities
    
    $
    
    
    
    $
    580
    
    
    $
    Capitalized interest
    
    $
    330
    
    
    $
    23
    
    
    $
    
  93




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##### Table of Contents



Mercantile Bancorp, Inc.
 
 Notes to Consolidated Financial Statements
 December 31, 2007, 2006 and 2005
 (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
  94




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
  Cash Equivalents
  Securities
    Equity Method Investments
  Cost Method Investments
  95




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(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
  96




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
    Premises and Equipment
  Federal Home Loan Bank Stock
   97




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Foreclosed Assets Held for Sale
  Goodwill
  Core Deposit and Other Intangibles
  Mortgage Servicing Rights
  Loan Servicing Income
  Treasury Stock
  98




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Income Taxes
  Self Insurance
  Earnings Per Share
  Trust Assets
  Reclassifications
  99




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Note 2: Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale Securities:December 31, 2007:U.S. Treasury
    
    $
    993
    
    
    $
    6
    
    
    $
    
    
    
    $
    999U.S. government
agencies
    
    
    16,517
    
    
    
    222
    
    
    
    (13
    )
    
    
    16,726Mortgage-backed
securities
    
    
    108,129
    
    
    
    902
    
    
    
    (232
    )
    
    
    108,799State and political
subdivisions
    
    
    53,708
    
    
    
    337
    
    
    
    (247
    )
    
    
    53,798Corporate bonds
    
    
    9,500
    
    
    
    
    
    
    
    
    
    
    
    9,500Equity securities
    
    
    12,232
    
    
    
    961
    
    
    
    (1,276
    )
    
    
    11,917$
    201,079
    
    
    $
    2,428
    
    
    $
    (1,768
    )
    
    $
    201,739
 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
    
    
    10,419
    
    
    
    928
    
    
    
    
    
    
    
    11,347$
    175,832
    
    
    $
    1,656
    
    
    $
    (1,309
    )
    
    $
    176,179
 100




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueHeld-to-maturity SecuritiesDecember 31, 2007:Mortgage-backed
securities
    
    $
    8,329
    
    
    $
    73
    
    
    $
    (1
    )
    
    $
    8,401State and
political
subdivisions
    
    
    5,189
    
    
    
    36
    
    
    
    (2
    )
    
    
    5,223Corporate bonds
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000$
    14,518
    
    
    $
    109
    
    
    $
    (3
    )
    
    $
    14,624December 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
    )
    
    $
    12,281
  Available-for-sale
    
    
    Held-to-maturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueWithin one year
    
    $
    19,165
    
    
    $
    19,170
    
    
    $
    315
    
    
    $
    316One to five years
    
    
    32,828
    
    
    
    33,003
    
    
    
    2,815
    
    
    
    2,831Five to ten years
    
    
    25,688
    
    
    
    25,759
    
    
    
    2,059
    
    
    
    2,076After ten years
    
    
    3,037
    
    
    
    3,091
    
    
    
    1,000
    
    
    
    1,00080,718
    
    
    
    81,023
    
    
    
    6,189
    
    
    
    6,223Mortgage-backed securities
    
    
    108,129
    
    
    
    108,799
    
    
    
    8,329
    
    
    
    8,401Equity securities
    
    
    12,232
    
    
    
    11,917
    
    
    
    
    
    
    
    Totals
    
    $
    201,079
    
    
    $
    201,739
    
    
    $
    14,518
    
    
    $
    14,624
 101




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
       102




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(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, 2007U.S. Government
agencies
    
    $
    2,566
    
    
    $
    (1
    )
    
    $
    2,687
    
    
    $
    (12
    )
    
    $
    5,253
    
    
    $
    (13
    )Mortgage-backed
securities
    
    
    13,018
    
    
    
    (154
    )
    
    
    15,210
    
    
    
    (79
    )
    
    
    28,228
    
    
    
    (233
    )State and political
subdivisions
    
    
    4,726
    
    
    
    (23
    )
    
    
    28,190
    
    
    
    (226
    )
    
    
    32,916
    
    
    
    (249
    )Equity securities
    
    
    7,051
    
    
    
    (1,276
    )
    
    
    
    
    
    
    
    
    
    
    7,051
    
    
    
    (1,276
    )Total
temporarily
impaired
securities
    
    $
    27,361
    
    
    $
    (1,454
    )
    
    $
    46,087
    
    
    $
    (317
    )
    
    $
    73,448
    
    
    $
    (1,771
    )December 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
    )
 103




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Note 3:
    
    Equity and Cost Method Investments in Common Stock
    As of and for theYear EndedDecember 31,2006Total assets
    
    $
    153,797Total liabilities
    
    
    142,617Total equity
    
    
    11,181Net income
    
    
    320
  104




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
    105




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Note 4:
    
    Loans and Allowance for Loan Losses
  2007
    
    
    2006Commercial and agricultural
    
    $
    231,614
    
    
    $
    214,916Commercial real estate
    
    
    511,676
    
    
    
    416,276Residential real estate
    
    
    320,598
    
    
    
    265,577Consumer
    
    
    131,061
    
    
    
    124,723Floor plan loans
    
    
    6,602
    
    
    
    10,164Total loans
    
    
    1,201,551
    
    
    
    1,031,656LessAllowance for loan losses
    
    
    12,794
    
    
    
    10,613Net loans
    
    $
    1,188,757
    
    
    $
    1,021,043
  2007
    
    
    2006
    
    
    2005Balance, beginning of year
    
    $
    10,613
    
    
    $
    8,082
    
    
    $
    7,115Purchased allowance
    
    
    1,126
    
    
    
    1,725
    
    
    
    Provision charged to expense
    
    
    2,969
    
    
    
    3,914
    
    
    
    2,368Losses charged off, net of
recoveries of $261 for
2007, $284 for 2006 and
$340 for 2005
    
    
    (1,914
    )
    
    
    (3,108
    )
    
    
    (1,401
    )Balance, end of year
    
    $
    12,794
    
    
    $
    10,613
    
    
    $
    8,082
    106




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Note 5:
    
    Premises and Equipment
  2007
    
    
    2006Land
    
    $
    6,612
    
    
    $
    4,270Buildings and improvements
    
    
    23,517
    
    
    
    18,832Leasehold improvements
    
    
    2,173
    
    
    
    2,221Equipment
    
    
    16,383
    
    
    
    12,455Construction in progress
    
    
    13,892
    
    
    
    3,96262,577
    
    
    
    41,740Less accumulated depreciation
    
    
    20,574
    
    
    
    16,047Net premises and equipment
    
    $
    42,003
    
    
    $
    25,693
  Note 6:
    
    Derivative Financial Instruments
   Note 7:
    
    Goodwill
  2007
    
    
    2006Balance as of January 1
    
    $
    32,120
    
    
    $
    5,208Goodwill acquired in Royal Palm acquisition
    
    
    (36
    )
    
    
    26,640Goodwill acquired in HNB acquisition
    
    
    11,850
    
    
    
    Goodwill acquired through acquisition of
minority interest in merger of
subsidiaries
    
    
    
    
    
    
    272Balance as of December 31
    
    $
    43,934
    
    
    $
    32,120
 107




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
   Note 8:
    
    Other Intangible Assets
  2007
    
    
    2006Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationCore deposits
    
    $
    4,681
    
    
    $
    581
    
    
    $
    2,161
    
    
    $
    448Intangible
asset with
indefinite
life
    
    
    414
    
    
    
    
    
    
    
    397
    
    
    
    $
    5,095
    
    
    $
    581
    
    
    $
    2,558
    
    
    $
    448
  2007
    
    
    2006Accumulated
    
    
    
    
    
    
    AccumulatedCarrying Values
    
    
    Amortization
    
    
    Carrying Values
    
    
    AmortizationBalance as of January 1
    
    $
    2,558
    
    
    $
    448
    
    
    $
    2,732
    
    
    $
    372Acquisition of HNB
    
    
    3,183
    
    
    
    
    
    
    
    
    
    
    
    Purchase of additional
Mid-America stock
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    Disposal of New Frontier
    
    
    (762
    )
    
    
    (227
    )
    
    
    
    
    
    
    Acquisition of Royal Palm
    
    
    
    
    
    
    
    
    
    
    303
    
    
    
    Disposal of NorthStar
    
    
    
    
    
    
    
    
    
    
    (873
    )
    
    
    (171
    )Amortization of core
deposit intangibles
    
    
    
    
    
    
    360
    
    
    
    
    
    
    
    247Acquisition of
intangible with
indefinite life
    
    
    17
    
    
    
    
    
    
    
    396
    
    
    
    Balance as of December 31
    
    $
    5,095
    
    
    $
    581
    
    
    $
    2,558
    
    
    $
    448
 108




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
  2008
    
    $
    511,0002009
    
    
    496,0002010
    
    
    478,0002011
    
    
    449,0002012
    
    
    440,000
 Note 9:
    
    Loan Servicing
    2007
    
    
    2006
    
    
    2005Mortgage servicing rightsBalance, beginning of year
    
    $
    994
    
    
    $
    1,018
    
    
    $
    998Servicing rights capitalized
    
    
    171
    
    
    
    200
    
    
    
    216Servicing rights from HNB acquisition
    
    
    276
    
    
    
    
    
    
    
    Amortization of servicing rights
    
    
    (134
    )
    
    
    (224
    )
    
    
    (196
    )Balance, end of year
    
    $
    1,307
    
    
    $
    994
    
    
    $
    1,018
 Note 10:
    
    Interest-Bearing Deposits
  109




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
  2008
    
    $
    528,1032009
    
    
    126,2502010
    
    
    61,6442011
    
    
    33,8202012
    
    
    10,708Thereafter
    
    
    4,650$
    765,175
 Note 11:
    
    Short-Term Borrowings
  2007
    
    
    2006Federal funds purchased
    
    $
    4,874
    
    
    $
    902Securities sold under agreements to repurchase
    
    
    25,062
    
    
    
    23,651U.S. Treasury demand notes
    
    
    2,763
    
    
    
    1,785Short-term Federal Home Loan Bank borrowings
    
    
    12,890
    
    
    
    Total short-term borrowings
    
    $
    45,589
    
    
    $
    26,338
  Note 12:
    
    Long-Term Debt and Junior Subordinated Debentures
  2007
    
    
    2006Federal Home Loan Bank advances, fixed rates from 4.18% to
5.37%, due at various dates through 2017
    
    $
    57,500
    
    
    $
    44,825Revolving line of credit, variable rate, due June 30, 2008
    
    
    
    
    
    
    6,185Bank note payable, fixed rate of 6.13%, due August 31, 2010
    
    
    5,000
    
    
    
    Bank note payable, fixed rate of 6.27%, due August 31, 2010
    
    
    2,000
    
    
    
    Bank note payable, fixed rate of 6.09%, due November 10, 2009
    
    
    15,000
    
    
    
    15,000Junior subordinated debenture, variable rate, due June 30, 2013
    
    
    2,000
    
    
    
    Junior subordinated debentures owed to unconsolidated
subsidiaries
    
    
    61,858
    
    
    
    41,239Total long-term debt
    
    $
    143,358
    
    
    $
    107,249
 110




---



##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
        111




---



##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
   112




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
     2008
    
    $
    24,3752009
    
    
    20,8752010
    
    
    8,7502011
    
    
    8,0002012
    
    
    5,000Thereafter
    
    
    76,358$
    143,358
 113




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Note 13:
    
    Income Taxes
  2007
    
    
    2006
    
    
    2005Taxes currently payableFederal
    
    $
    3,373
    
    
    $
    2,696
    
    
    $
    4,292State
    
    
    550
    
    
    
    238
    
    
    
    612Deferred income taxesFederal
    
    
    (376
    )
    
    
    1,714
    
    
    
    (1,078
    )State
    
    
    (106
    )
    
    
    377
    
    
    
    (174
    )Income tax expense
    
    $
    3,441
    
    
    $
    5,025
    
    
    $
    3,652
  2007
    
    
    2006
    
    
    2005Computed at the statutory rate (34%)
    
    $
    4,570
    
    
    $
    5,217
    
    
    $
    4,473Increase (decrease) resulting fromTax exempt income
    
    
    (940
    )
    
    
    (836
    )
    
    
    (782
    )State income taxes
    
    
    293
    
    
    
    406
    
    
    
    263Increase in cash surrender
value of life insurance
    
    
    (340
    )
    
    
    (219
    )
    
    
    (225
    )Change in deferred tax rate
for Mid-America
    
    
    
    
    
    
    
    
    
    
    (328
    )Other
    
    
    (142
    )
    
    
    457
    
    
    
    251Actual tax expense
    
    $
    3,441
    
    
    $
    5,025
    
    
    $
    3,652
 114




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
  2007
    
    
    2006Deferred tax assetsAllowance for loan losses
    
    $
    4,652
    
    
    $
    3,901Accrued compensated absences
    
    
    214
    
    
    
    206Deferred compensation
    
    
    1,376
    
    
    
    1,087Accrued postretirement benefits
    
    
    241
    
    
    
    228Equity method investments
    
    
    
    
    
    
    26Net operating loss carryforward of Mid-America
Bancorp, Inc.
    
    
    454
    
    
    
    777Stock options
    
    
    87
    
    
    
    38Deferred loan fees
    
    
    145
    
    
    
    32Purchase accounting adjustments
    
    
    
    
    
    
    6267,169
    
    
    
    6,921Deferred tax liabilitiesFederal Home Loan Bank stock dividends
    
    
    366
    
    
    
    375Depreciation
    
    
    312
    
    
    
    468State taxes
    
    
    91
    
    
    
    43Mortgage servicing rights
    
    
    488
    
    
    
    376Deferred gain on investments
    
    
    1,746
    
    
    
    1,652Unrealized gains on available-for-sale securities
    
    
    192
    
    
    
    119Core deposit intangible for Mid-America Bancorp, Inc.
    
    
    226
    
    
    
    226Purchase accounting adjustments
    
    
    991
    
    
    
    Other
    
    
    300
    
    
    
    5914,712
    
    
    
    3,850Net deferred tax asset
    
    $
    2,457
    
    
    $
    3,071
  115




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Note 14:
    
    Other Comprehensive Income (Loss)
  2007
    
    
    2006
    
    
    2005Unrealized appreciation (depreciation)
on available-for-sale securities:Unrealized appreciation
(depreciation) on
available-for-sale securities,
net of tax expense (benefit) of
$73 for 2007, $580 for 2006 and
$(981) for 2005
    
    $
    240
    
    
    $
    892
    
    
    $
    (1,606
    )Net change in unrealized
appreciation (depreciation)
on available-for-sale
securities, net of tax
benefit of $73 for 2007,
$580 for 2006 and $(981) for
2005
    
    $
    240
    
    
    $
    892
    
    
    $
    (1,606
    )Accumulated other comprehensive loss
of equity method investee
    
    $
    28
    
    
    $
    (5
    )
    
    $
    (27
    )Defined benefit post-retirement
liability, net of tax expense of $0
for 2007, $100 for 2006 and $0 for
2005
    
    $
    14
    
    
    $
    (163
    )
    
    $
    Unrealized loss on interest rate swaps:Unrealized holding gains
(losses), net of tax expense
(benefit) of $0 for 2007, $(19)
for 2006 and $(61) for 2005
    
    $
    
    
    
    $
    (28
    )
    
    $
    (99
    )Less reclassification adjustment
to interest income, net of tax
expense (benefit) of $0 for 2007,
$(104) for 2006 and $(16) for
2005
    
    
    
    
    
    
    (175
    )
    
    
    (27
    )Net change in unrealized
loss on interest rate swaps,
net of tax expense (benefit)
of $0 for 2007, $91 for 2006
and $(43) for 2005
    
    $
    
    
    
    $
    147
    
    
    $
    (72
    )
 116




---



##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
  2007
    
    
    2006Net unrealized gain on securities available-for-sale
    
    $
    660
    
    
    $
    347Net unrealized loss on equity method investments
    
    
    
    
    
    
    (28
    )Net unrealized loss on defined benefit post-retirement liability
    
    
    (263
    )
    
    
    (277
    )397
    
    
    
    42Tax effect
    
    
    (92
    )
    
    
    (19
    )Net-of-tax amount
    
    $
    305
    
    
    $
    23
 Note 15:
    
    Regulatory Matters
     117




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
  To Be Well CapitalizedUnder PromptFor Capital Adequacy
    
    Corrective ActionActual
    
    Provisions
    
    ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2007Total capital (to risk-weighted assets)Consolidated
    
    $
    141,156
    
    
    
    10.5
    %
    
    $
    107,643
    
    
    
    8.0
    %
    
    $
    134,554
    
    
    
    N/AMercantile Trust &
Savings Bank
    
    
    53,017
    
    
    
    10.2
    %
    
    
    41,478
    
    
    
    8.0
    %
    
    
    51,848
    
    
    
    10.0
    %Perry State Bank
    
    
    13,968
    
    
    
    10.3
    %
    
    
    10,846
    
    
    
    8.0
    %
    
    
    13,558
    
    
    
    10.0
    %Farmers State Bank of
Northern Missouri
    
    
    7,501
    
    
    
    10.7
    %
    
    
    5,634
    
    
    
    8.0
    %
    
    
    7,043
    
    
    
    10.0
    %Marine Bank and Trust
    
    
    13,441
    
    
    
    10.7
    %
    
    
    10,053
    
    
    
    8.0
    %
    
    
    12,566
    
    
    
    10.0
    %Brown County State Bank
    
    
    6,321
    
    
    
    10.2
    %
    
    
    4,980
    
    
    
    8.0
    %
    
    
    6,225
    
    
    
    10.0
    %Heartland Bank
    
    
    20,907
    
    
    
    11.3
    %
    
    
    14,790
    
    
    
    8.0
    %
    
    
    18,488
    
    
    
    10.0
    %Royal Palm Bank of Florida
    
    
    16,554
    
    
    
    13.8
    %
    
    
    9,592
    
    
    
    8.0
    %
    
    
    11,990
    
    
    
    10.0
    %HNB Bank
    
    
    13,127
    
    
    
    10.9
    %
    
    
    9,608
    
    
    
    8.0
    %
    
    
    12,010
    
    
    
    10.0
    %Tier I capital (to risk-weighted assets)Consolidated
    
    
    105,788
    
    
    
    7.9
    %
    
    
    53,821
    
    
    
    4.0
    %
    
    
    80,732
    
    
    
    N/AMercantile Trust &
Savings Bank
    
    
    49,162
    
    
    
    9.5
    %
    
    
    20,739
    
    
    
    4.0
    %
    
    
    31,109
    
    
    
    6.0
    %Perry State Bank
    
    
    12,414
    
    
    
    9.2
    %
    
    
    5,423
    
    
    
    4.0
    %
    
    
    8,135
    
    
    
    6.0
    %Farmers State Bank of
Northern Missouri
    
    
    6,617
    
    
    
    9.4
    %
    
    
    2,817
    
    
    
    4.0
    %
    
    
    4,226
    
    
    
    6.0
    %Marine Bank and Trust
    
    
    12,369
    
    
    
    9.8
    %
    
    
    5,026
    
    
    
    4.0
    %
    
    
    7,540
    
    
    
    6.0
    %Brown County State Bank
    
    
    5,882
    
    
    
    9.5
    %
    
    
    2,490
    
    
    
    4.0
    %
    
    
    3,735
    
    
    
    6.0
    %Heartland Bank
    
    
    16,754
    
    
    
    9.1
    %
    
    
    7,395
    
    
    
    4.0
    %
    
    
    11,093
    
    
    
    6.0
    %Royal Palm Bank of Florida
    
    
    15,099
    
    
    
    12.6
    %
    
    
    4,796
    
    
    
    4.0
    %
    
    
    7,194
    
    
    
    6.0
    %HNB Bank
    
    
    12,069
    
    
    
    10.0
    %
    
    
    4,804
    
    
    
    4.0
    %
    
    
    7,206
    
    
    
    6.0
    %Tier I capital (to average assets)Consolidated
    
    
    105,788
    
    
    
    6.7
    %
    
    
    62,933
    
    
    
    4.0
    %
    
    
    78,666
    
    
    
    N/AMercantile Trust &
Savings Bank
    
    
    49,162
    
    
    
    8.4
    %
    
    
    23,490
    
    
    
    4.0
    %
    
    
    29,363
    
    
    
    5.0
    %Perry State Bank
    
    
    12,414
    
    
    
    8.2
    %
    
    
    6,087
    
    
    
    4.0
    %
    
    
    7,609
    
    
    
    5.0
    %Farmers State Bank of
Northern Missouri
    
    
    6,617
    
    
    
    6.8
    %
    
    
    3,874
    
    
    
    4.0
    %
    
    
    4,842
    
    
    
    5.0
    %Marine Bank and Trust
    
    
    12,369
    
    
    
    7.4
    %
    
    
    6,687
    
    
    
    4.0
    %
    
    
    8,359
    
    
    
    5.0
    %Brown County State Bank
    
    
    5,882
    
    
    
    7.5
    %
    
    
    3,132
    
    
    
    4.0
    %
    
    
    3,915
    
    
    
    5.0
    %Heartland Bank
    
    
    16,754
    
    
    
    8.6
    %
    
    
    7,804
    
    
    
    4.0
    %
    
    
    9,754
    
    
    
    5.0
    %Royal Palm Bank of Florida
    
    
    15,099
    
    
    
    10.6
    %
    
    
    5,681
    
    
    
    4.0
    %
    
    
    7,101
    
    
    
    5.0
    %HNB Bank
    
    
    12,069
    
    
    
    7.4
    %
    
    
    6,565
    
    
    
    4.0
    %
    
    
    8,207
    
    
    
    5.0
    %




---



##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 To Be Well CapitalizedUnder PromptFor Capital Adequacy
    
    
    Corrective ActionActual
    
    
    Purposes
    
    
    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
    %




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
  Note 16: Related Party Transactions
   Balances, January 1, 2007
    
    $
    17,235,000Change in composition of related parties
    
    
    1,612,000New loans, including renewals
    
    
    5,998,000Payments, including renewals
    
    
    (4,072,000
    )Balances, December 31, 2007
    
    $
    20,773,000
  Note 17: Leases
   Operating Leases2008
    
    $
    372,9072009
    
    
    361,0642010
    
    
    283,6102011
    
    
    250,9132012
    
    
    252,397Thereafter
    
    
    705,128Total minimum lease payments
    
    $
    2,226,019




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Note 18: Acquisitions
   Cash and cash equivalents
    
    $
    6,511Available-for-sale securities
    
    
    27,392Held-to-maturity securities
    
    
    4,500Loans, net of allowance for loan losses of $1,126
    
    
    114,095Interest receivable
    
    
    878Federal Home Loan Bank stock
    
    
    1,775Premises and equipment
    
    
    6,785Core deposit intangibles
    
    
    3,183Goodwill
    
    
    11,850Other assets
    
    
    4,034Total assets acquired
    
    
    181,003Deposits
    
    
    129,603Short-term borrowings
    
    
    889Deferred income taxes
    
    
    748Long-term debt
    
    
    17,000Interest payable
    
    
    608Other liabilities
    
    
    854Total liabilities assumed
    
    
    149,702Net assets acquired
    
    $
    31,301




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
  Year Ended December 31,2007
    
    2006Net interest income
    
    $
    44,739
    
    
    $
    42,302Net income
    
    
    9,664
    
    
    
    10,547Basic earnings per share
    
    
    1.11
    
    
    
    1.21
   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
    
    
    1,515Premises and equipment
    
    
    3,800Core deposit intangibles
    
    
    303Goodwill
    
    
    26,604Other 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




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
   Year Ended December 31,2006
    
    2005Net interest income
    
    $
    42,332
    
    
    $
    39,180Net income
    
    
    10,639
    
    
    
    9,546Basic earnings per share
    
    
    1.82
    
    
    
    1.62
 Note 19: Employee Benefits
  Postretirement Benefits
    123




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Note 20: Disclosures about Fair Value of Financial Instruments
  December 31, 2007
    
    
    December 31, 2006Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueFinancial assetsCash and cash equivalents
    
    $
    76,059
    
    
    $
    76,059
    
    
    $
    99,147
    
    
    $
    99,147Available-for-sale securities
    
    
    201,739
    
    
    
    201,739
    
    
    
    176,179
    
    
    
    176,179Held-to-maturity securities
    
    
    14,518
    
    
    
    14,624
    
    
    
    12,400
    
    
    
    12,281Loans held for sale
    
    
    3,338
    
    
    
    3,338
    
    
    
    1,660
    
    
    
    1,660Loans, net of allowance for loan losses
    
    
    1,188,757
    
    
    
    1,187,181
    
    
    
    1,021,043
    
    
    
    1,023,367Federal Home Loan Bank stock
    
    
    7,790
    
    
    
    7,790
    
    
    
    5,699
    
    
    
    5,699Cost method investments in
common stock
    
    
    6,105
    
    
    
    6,105
    
    
    
    3,190
    
    
    
    3,190Interest receivable
    
    
    11,343
    
    
    
    11,343
    
    
    
    10,277
    
    
    
    10,277Financial liabilitiesDeposits
    
    
    1,319,459
    
    
    
    1,313,483
    
    
    
    1,166,814
    
    
    
    1,162,762Short-term borrowings
    
    
    45,589
    
    
    
    45,589
    
    
    
    26,338
    
    
    
    26,338Long-term debt and junior
subordinated debentures
    
    
    143,358
    
    
    
    144,217
    
    
    
    107,249
    
    
    
    107,639Interest payable
    
    
    6,040
    
    
    
    6,040
    
    
    
    6,039
    
    
    
    6,039Unrecognized 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




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
  Cash and Cash Equivalents, Federal Home Loan Bank Stock, and Cost Method Investments in Common
Stock
  Securities
  Loans Held for Sale
  Loans
  Deposits
  Short-Term Borrowings and Interest Payable
  Long-Term Debt and Junior Subordinated Debentures




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(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
  126




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
  Standby Letters of Credit
   Lines of Credit
   General Litigation
  127




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Note 23: Stock Split
  Note 24: Future Change in Accounting Principles
 Postretirement Benefits Associated with Split-Dollar Life
Insurance
 Fair Value Measurements
 The Fair Value Option for Financial
Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115
 128




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Business Combinations
 Non-controlling Interest in
Consolidated Financial Statements  an amendment of ARB No. 51
 Note 25: Subsequent Events
   129




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Note 26: Condensed Financial Information (Parent Company Only)
  Condensed Balance Sheets
 December 31,2007
    
    
    2006AssetsCash
    
    $
    250
    
    
    $
    214Investment in common stock of subsidiaries
    
    
    173,696
    
    
    
    142,432Available-for-sale securities
    
    
    11,521
    
    
    
    11,130Equity method investments in common stock
    
    
    
    
    
    
    4,119Cost method investments in common stock
    
    
    4,412
    
    
    
    2,195Core deposit intangibles
    
    
    831
    
    
    
    1,427Other
    
    
    4,069
    
    
    
    3,715Total assets
    
    $
    194,779
    
    
    $
    165,232LiabilitiesLong-term debt
    
    $
    22,000
    
    
    $
    21,185Junior subordinated debentures
    
    
    61,858
    
    
    
    41,239Deferred income tax
    
    
    1,944
    
    
    
    1,844Other
    
    
    695
    
    
    
    306Total liabilities
    
    
    86,497
    
    
    
    64,574Stockholders Equity
    
    
    108,282
    
    
    
    100,658Total liabilities and stockholders equity
    
    $
    194,779
    
    
    $
    165,232




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Condensed Statements of Income
 Years Ended December 31,2007
    
    
    2006
    
    
    2005IncomeDividends from subsidiaries
    
    $
    15,679
    
    
    $
    4,840
    
    
    $
    7,150Income (loss) on equity
method investments
    
    
    (6
    )
    
    
    251
    
    
    
    182Net gains on sale of
equity and cost method
investments
    
    
    2,775
    
    
    
    4,318
    
    
    
    Other income
    
    
    449
    
    
    
    17
    
    
    
    2Total income
    
    
    18,897
    
    
    
    9,426
    
    
    
    7,334ExpensesOther expenses
    
    
    6,957
    
    
    
    4,331
    
    
    
    2,764Total expenses
    
    
    6,957
    
    
    
    4,331
    
    
    
    2,764Income Before Income Tax and
Equity in Undistributed Income
of Subsidiaries
    
    
    11,940
    
    
    
    5,095
    
    
    
    4,570Income Tax Expense (Benefit)
    
    
    (1,510
    )
    
    
    316
    
    
    
    (953
    )Income Before Equity in
Undistributed Income of
Subsidiaries
    
    
    13,450
    
    
    
    4,779
    
    
    
    5,523Equity in Undistributed Income
of Subsidiaries
    
    
    (3,449
    )
    
    
    5,540
    
    
    
    3,981Net Income
    
    $
    10,001
    
    
    $
    10,319
    
    
    $
    9,504




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##### Table of Contents



Mercantile Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(Table dollar amounts in thousands)
 Condensed Statements of Cash Flows
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Operating ActivitiesNet income
    
    $
    10,001
    
    
    $
    10,319
    
    
    $
    9,504Items not requiring (providing) cash
(Income) loss on equity method investment
    
    
    6
    
    
    
    (251
    )
    
    
    (182
    )Amortization of core deposit intangibles
    
    
    161
    
    
    
    230
    
    
    
    161Equity in undistributed income of
subsidiaries
    
    
    3,449
    
    
    
    (5,540
    )
    
    
    (3,981
    )Deferred income taxes
    
    
    (250
    )
    
    
    1,530
    
    
    
    Gain on sale of equity and cost method
investments
    
    
    (2,775
    )
    
    
    (4,319
    )
    
    
    Net change in
Other assets
    
    
    (354
    )
    
    
    (1,407
    )
    
    
    (102
    )Other liabilities
    
    
    1,358
    
    
    
    (48
    )
    
    
    353Net cash provided by operating activities
    
    
    11,596
    
    
    
    514
    
    
    
    5,753Investing ActivitiesCash paid for additional shares of Mid-America
    
    
    (611
    )
    
    
    
    
    
    
    (4,668
    )Purchase of equity method investments in
common stock
    
    
    
    
    
    
    
    
    
    
    (2,986
    )Proceeds from sales of equity method
investments
    
    
    6,791
    
    
    
    1,347
    
    
    
    Purchase of cost method investments in common
stock
    
    
    (2,217
    )
    
    
    (500
    )
    
    
    (1,501
    )Payments for investments and advances to
subsidiaries
    
    
    (1,750
    )
    
    
    (2,800
    )
    
    
    Purchase of available-for-sale securities
    
    
    (1,240
    )
    
    
    (1,959
    )
    
    
    Cash paid in acquisition of HNB
    
    
    (31,301
    )
    
    
    
    
    
    
    Cash paid in acquisition of Royal Palm
    
    
    
    
    
    
    (42,816
    )
    
    
    Net cash used in investing activities
    
    
    (30,328
    )
    
    
    (46,728
    )
    
    
    (9,155
    )Financing ActivitiesProceeds from long-term debt
    
    
    15,650
    
    
    
    17,250
    
    
    
    Repayment of long-term debt
    
    
    (14,835
    )
    
    
    
    
    
    
    (4,098
    )Proceeds from issuance of junior subordinated
debentures
    
    
    20,619
    
    
    
    30,929
    
    
    
    10,310Purchase of treasury stock
    
    
    (569
    )
    
    
    (367
    )
    
    
    (836
    )Dividends paid
    
    
    (2,097
    )
    
    
    (1,871
    )
    
    
    (1,757
    )Dividends paid on minority shares
    
    
    
    
    
    
    
    
    
    
    (54
    )Net cash provided by financing activities
    
    
    18,768
    
    
    
    45,941
    
    
    
    3,565Net Change in Cash
    
    
    36
    
    
    
    (273
    )
    
    
    163Cash at Beginning of Year
    
    
    214
    
    
    
    487
    
    
    
    324Cash at End of Year
    
    $
    250
    
    
    $
    214
    
    
    $
    487