UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-32434

MERCANTILE BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware	37-1149138
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)

200 North 33rd Street
Quincy, ILLINOIS 62301
(Address of principal executive offices including zip code)

(217) 223-7300
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o               Accelerated filer þ                         Non-accelerated filer o                         Smaller reporting company o

                                        (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act) Yes o No þ.

As of May 7, 2008 the number of outstanding shares of Common Stock, par value $0.4167 per share was 8,709,655.

MERCANTILE BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements
	Consolidated Balance Sheets	3
	Consolidated Statements of Income (Loss)	4
	Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6-11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12-24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	25
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Submission of Matters to a Vote of Security Holders	26
Item 5.	Other Information	26
Item 6.	Exhibits	27
	Signatures	28
Exhibits
	Section 302 Certifications	29-30
	Section 906 Certifications	31-32

2

PART I
FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

MERCANTILE BANCORP, INC.

Consolidated Balance Sheets

(In thousands, except par value and share data)

	March 31,			December 31,
	2008			2007
	(Unaudited)
Assets
Cash and due from banks	$	45,748		$	38,172
Interest-bearing demand deposits		21,522			18,259
Federal funds sold		12,942			19,628
Cash and cash equivalents		80,212			76,059
Available-for-sale securities		208,909			201,739
Held-to-maturity securities		13,404			14,518
Loans held for sale		4,155			3,338
Loans, net of allowance for loan losses of $17,127 and $12,794		1,192,321			1,188,757
Interest receivable		10,884			11,343
Foreclosed assets held for sale, net		5,029			3,172
Federal Home Loan Bank stock		8,022			7,790
Cost method investments in common stock		6,105			6,105
Deferred income taxes		2,649			2,457
Mortgage servicing rights		1,313			1,307
Cash surrender value of life insurance		24,516			24,248
Premises and equipment		41,724			42,003
Goodwill		43,934			43,934
Core deposit and other intangibles		4,386			4,514
Other		7,556			7,861
Total assets	$	1,655,119		$	1,639,145
Liabilities and Stockholders’ Equity
Deposits
Demand	$	132,535		$	133,890
Savings, NOW and money market		453,081			420,394
Time		655,074			611,676
Brokered time		111,478			153,499
Total deposits		1,352,168			1,319,459
Short-term borrowings		27,769			45,589
Long-term debt		84,500			81,500
Junior subordinated debentures		61,858			61,858
Interest payable		5,957			6,040
Other		6,022			6,971
Total liabilities		1,538,274			1,521,417
Commitments and Contingent Liabilities
Minority Interest		9,179			9,446
Stockholders’ Equity
Common stock, $0.42 par value; authorized 12,000,000 shares;
Issued — 8,887,113 shares at March 31, 2008 and December 31, 2007
Outstanding — 8,709,655 shares at March 31, 2008 and December 31, 2007		3,629			3,629
Additional paid-in capital		12,011			11,989
Retained earnings		92,353			94,552
Accumulated other comprehensive income		1,866			305
		109,859			110,475
Treasury stock, at cost
Common; 177,458 shares at March 31, 2008 and December 31, 2007		(2,193	)		(2,193	)
Total stockholders’ equity		107,666			108,282
Total liabilities and stockholders’ equity	$	1,655,119		$	1,639,145

See accompanying notes to condensed consolidated financial statements

3

MERCANTILE BANCORP, INC.

Consolidated Statements of Income (Loss)

(In thousands, except per share data)

(Unaudited)

Three Months Ended March 31	2008			2007
Interest and Dividend Income
Loans
Taxable	$	21,534		$	19,537
Tax exempt		176			256
Securities
Taxable		1,969			1,888
Tax exempt		540			431
Federal funds sold		159			471
Dividends on Federal Home Loan Bank stock		36			50
Deposits with financial institutions and other		150			275
Total interest and dividend income		24,564			22,908
Interest Expense
Deposits		11,813			10,579
Short-term borrowings		348			368
Long-term debt and junior subordinated debentures		2,204			1,560
Total interest expense		14,365			12,507
Net Interest Income		10,199			10,401
Provision for Loan Losses		4,769			755
Net Interest Income After Provision For Loan Losses		5,430			9,646
Noninterest Income
Fiduciary activities		690			573
Brokerage fees		416			308
Customer service fees		1,100			871
Other service charges and fees		200			182
Net gains (losses) on sales of assets		391			(2	)
Net gains on loan sales		363			108
Loan servicing fees		135			102
Net increase in cash surrender value of life insurance		268			167
Other		190			51
Total noninterest income		3,753			2,360
Noninterest Expense
Salaries and employee benefits		6,901			5,628
Net occupancy expense		885			635
Equipment expense		774			612
Deposit insurance premium		105			36
Professional fees		575			495
Postage and supplies		301			263
Net losses on foreclosed assets		504			15
Net losses on securities		1			—
Loss on equity method investments in common stock		—			3
Amortization of mortgage servicing rights		93			26
Other		1,952			1,498
Total noninterest expense		12,091			9,211
Minority Interest		(287	)		175
Income (Loss) Before Income Taxes Expense (Benefit)		(2,621	)		2,620
Income Tax Expense (Benefit)		(944	)		776
Net Income (Loss)	$	(1,677	)	$	1,844
Basic Earnings (Loss) Per Share	$	(0.19	)	$	0.21
Weighted Average Shares Outstanding		8,709,655			8,747,618

See accompanying notes to condensed consolidated financial statements

4

MERCANTILE BANCORP, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended March 31	2008			2007
Operating Activities
Net income (loss)	$	(1,677	)	$	1,844
Items not requiring (providing) cash
Depreciation		671			491
Provision for loan losses		4,769			755
Amortization (accretion) of premiums and discounts on securities		(19	)		15
Amortization (depreciation) of core deposit intangibles and other purchase accounting adjustments		(88	)		70
Deferred income taxes		(1,113	)		(201	)
Net losses on loan sales		(363	)		(129	)
(Gains) Losses on sale of assets		(391	)		2
Losses on foreclosed assets		504			15
Amortization of mortgage servicing rights		93			26
Loss on equity method investments in common stock		—			3
Federal Home Loan Bank stock dividends		(13	)		(12	)
Net increase in cash surrender value of life insurance		(268	)		(181	)
Minority interest in earnings of subsidiaries		(287	)		176
Changes in Loans originated for sale		(33,014	)		(7,400	)
Proceeds from sales of loans		32,408			5,969
Interest receivable		459			1,030
Other assets		1,220			561
Interest payable		(83	)		(45	)
Other liabilities		(1,904	)		(1,385	)
Net cash provided by operating activities		904			1,604
Investing Activities
Purchases of available-for-sale securities		(23,977	)		(17,412	)
Proceeds from maturities of available-for-sale securities		19,362			11,894
Proceeds from maturities of held-to-maturity securities		1,113			729
Net change in loans		(10,488	)		2,353
Purchases of premises and equipment		(780	)		(1,576	)
Proceeds from sales of foreclosed assets		27			105
Proceeds from sales of assets		767			2
Purchase of Federal Home Loan Bank stock		(391	)		(48	)
Proceeds from sales of Federal Home Loan Bank stock		174			—
Purchase of cost method investment in common stock		—			(504	)
Goodwill acquired in connection with Royal Palm acquisition		—			(4	)
Purchase of intangible assets		—			(17	)
Net cash used in investing activities		(14,193	)		(4,478	)
Financing Activities
Net increase in demand deposits, money market, NOW and savings accounts		31,332			9,886
Net increase (decrease) in time and brokered time deposits		1,412			(31,389	)
Net increase (decrease) in short-term borrowings		(17,820	)		13
Proceeds from long-term debt		17,000			250
Payments on long-term debt		(14,000	)		(3,600	)
Proceeds from issuance of stock to minority interest of Mid-America		41			102
Dividends paid		(523	)		(525	)
Net cash provided by (used in) financing activities		17,442			(25,263	)
Increase (Decrease) In Cash and Cash Equivalents		4,153			(28,137	)
Cash and Cash Equivalents, Beginning of Period		76,059			99,147
Cash and Cash Equivalents, End of Period	$	80,212		$	71,010
Supplemental Cash Flows Information
Interest paid	$	14,448		$	12,552
Net income taxes paid (received)	$	(63	)	$	—
Real estate acquired in settlement of loans	$	2,388		$	8
Increase in additional paid-in-capital due to issuance of stock to minority interest of Mid-America	$	22		$	24

See accompanying notes to condensed consolidated financial statements

5

MERCANTILE BANCORP, INC.

Notes to Condensed Consolidated Financial Statements
(table dollar amounts in thousands)

1. BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements include the accounts of Mercantile Bancorp, Inc. (the “Company”) and its wholly and majority owned subsidiaries, Mercantile Bank, Perry State Bank, Farmers State Bank of Northern Missouri, Marine Bank and Trust (formerly Marine Trust Company of Carthage), Brown County State Bank, Royal Palm Bancorp, Inc. (the sole shareholder of Royal Palm Bank), HNB Financial Services, Inc. (the sole shareholder of HNB National Bank) and Mid-America Bancorp, Inc. (the sole shareholder of Heartland Bank), (“Banks”). All material intercompany accounts and transactions have been eliminated in the consolidated report of the Company.

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal and recurring adjustments, necessary to present fairly the Company’s consolidated financial position at March 31, 2008 and the Company’s consolidated results of operations and cash flows for the three months ended March 31, 2008 and 2007. Interim period results are not necessarily indicative of results of operations or cash flows for a full-year period. The 2007 year-end consolidated balance sheet data was derived from audited financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America.

These financial statements and the notes thereto should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2007 appearing in the Company’s Annual Report on Form 10-K filed in 2008.

2. EARNINGS PER COMMON SHARE

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period.

3. NEW ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R) (SFAS 141(R)), “Business Combination.” SFAS 141(R) will significantly change the financial accounting and reporting of business combination transactions. SFAS 141(R) establishes principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for acquisition dates in fiscal years beginning after December 15, 2008. The Company does not expect the implementation of SFAS 141(R) to have a material impact on its consolidated financial statements.

6

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (SFAS 160), “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.” SFAS 160 requires that a noncontrolling interest in a subsidiary be reported separately within equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in deconsolidation. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company is evaluating the impact on its consolidated financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), “Disclosures About Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.” SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for fiscal years beginning after November 15, 2008. The Company does not expect the implementation of SFAS 161 to have a material impact on its consolidated financial statements.

4. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

SFAS 157

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157 (SFAS 157), “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 has been applied prospectively as of the beginning of the period.

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

In accordance with SFAS 157, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1	Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2	Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet.

Available-for-Sale Securities

The fair value of available-for-sale securities are determined by various valuation methodologies. Where quoted market prices are available in an active market, securities are classified within Level 1. Level 1 securities include exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models or quoted prices of securities with similar characteristics. Level 2 securities include obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, mortgage-backed securities, collateralized mortgage obligations and corporate bonds. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include debentures and other less liquid securities.

7

The following table presents the Company’s assets that are measured at fair value on a recurring basis and the level within the SFAS 157 hierarchy in which their fair value measurements fall as of March 31, 2008 (in thousands):

			Fair Value Measurements Using
			Quotes Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities	$	208,909	$	11,139	$	187,734	$	10,036

The change in fair value of assets measured using significant unobservable (Level 3) inputs on a recurring basis is summarized as follows (in thousands):

	Available-for-
	sale Securities
Balance, December 31, 2007	$	11,400
Total realized and unrealized gains and losses:
Included in net income		—
Included in other comprehensive income		—
Purchases, issuances and settlements		(1,364	)
Transfers in and/or out of Level 3		—
Balance, March 31, 2008	$	10,036
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date	$	—

The Company may be required, from time to time, to measure certain other financial assets and liabilities at fair value on a nonrecurring basis. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis in the first three months of 2008 that were still held in the balance sheet at March 31, 2008, the following table provides the level of valuation assumptions used to determine each adjustment and the fair value of the assets at March 31, 2008 (in thousands):

			Fair Value Measurements Using
			Quotes Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	22,492	$	—	$	—	$	22,492

Impaired Loans

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment in accordance with the provisions of Financial Accounting Standard No. 114 (SFAS 114) “Accounting by Creditors for Impairment of a Loan.” Allowable methods for estimating fair value include using the fair value of the collateral for collateral dependent loans or, where a loan is determined not to be collateral dependent, using the discounted cash flow method.

8

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value based on the Company’s loan review policy and procedures. If the impaired loan is determined not to be collateral dependent, then the discounted cash flow method is used. This method requires the impaired loan to be recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate. The effective interest rate of a loan is the contractual interest rate adjusted for any net deferred loan fees or costs, premiums, or discounts existing at origination or acquisition of the loan.

Management establishes a specific reserve for loans that have an estimated fair value that is below the carrying value. Impaired loans for which the specific reserve was adjusted in accordance with SFAS 114 during the first quarter of 2008 had a carrying amount of $22.5 million with specific loss exposures of $6.1 million, an increase of $5.3 million from December 31, 2007. The increase in specific loss exposures was the result of several loans added to substandard classifications which had impairments and management’s analysis of updated information in the valuation of real estate and other collateral on existing impaired loans.

When there is little prospect for collecting either principal or interest, loans, or portions of loans may be charged off to the allowance for loan losses. Losses are recognized in the period an obligation becomes uncollectible. The recognition of a loss does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan even though partial recovery may be effected in the future. During the first quarter of 2008, the Company charged off $113 thousand of impaired loans to the allowance for loan losses.

SFAS 159

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (SFAS 159), “The Fair Value Option for Financial Assets and Financial Liabilities – Including amendment of FASB Statement No. 115.” SFAS 159 allows companies to report selected financial assets and liabilities at fair value. The changes in fair value are recognized in earnings and the assets and liabilities measured under this methodology are required to be displayed separately in the balance sheet. The main intent of SFAS 159 is to mitigate the difficulty in determining reported earnings caused by a “mixed-attribute model” (that is, reporting some assets at fair value and others using a different valuation method such as amortized cost). The project is separated into two phases. This first phase addresses the creation of a fair value option for financial assets and liabilities. A second phase will address creating a fair value option for selected non-financial items. SFAS 159 is effective for all financial statements issued for fiscal years beginning after November 15, 2007. The Company has not elected the fair value option for any financial assets or liabilities at March 31, 2008.

EITF 06-4

In September 2006, the Financial Accounting Standards Board (FASB) ratified Emerging Issues Task Force (EITF) No. 06-4, Postretirement Benefits Associated with Split-Dollar Life Insurance (EITF 06-4). EITF 06-4 requires deferred-compensation or postretirement benefit aspects of an endorsement-type split-dollar life insurance arrangement to be recognized as a liability by the employer. The liability for future benefits should be recognized based on the substantive agreement with the employee, which may be either to provide a future death benefit or to pay for the future cost of the life insurance. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The Company adopted EITF 06-4 as of January 1, 2008, through a cumulative effect adjustment as a liability and a decrease to retained earnings of $75,000.

5. OFF BALANCE SHEET CREDIT COMMITMENTS

In the normal course of business, the Company enters into various transactions, which, in accordance with accounting principles generally accepted in the United States of America, are not included in its consolidated balance sheets. These transactions are referred to as “off balance-sheet commitments.” The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby letters of credit, which involve elements of credit risk in excess of the amounts recognized in the consolidated balance sheet. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.

The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Customers use credit commitments to ensure that funds will be available for working capital purposes, for capital expenditures and to ensure access to funds at specified terms and conditions. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for loan losses.

9

Outstanding commitments to originate loans totaled $7.3 million at March 31, 2008 and $2.0 at December 31, 2007. The commitments extend over varying periods of time with the majority being disbursed within a one-year period. At March 31, 2008 and December 31, 2007, the Company had granted unused lines of credit to borrowers totaling $273 million and $262 million, respectively, for commercial lines and open-end consumer lines.

Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The Company’s policies generally require that standby letters of credit arrangements contain collateral and debt covenants similar to those contained in loan agreements. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, the Company would be entitled to seek recovery from the customer. Standby letters of credit totaled $20.4 million at March 31, 2008 and $15.8 million at December 31, 2007. At March 31, 2008, the outstanding standby letters of credit had a weighted average term of approximately one year. As of March 31, 2008 and December 31, 2007, no liability for the fair value of the Company’s potential obligations under these guarantees has been recorded since the amount is deemed immaterial.

6. CRITICAL ACCOUNTING POLICIES

The Company’s accounting policies are integral to understanding the results reported. The Company’s accounting policies are described in detail in Note 1 to its consolidated financial statements included in its Annual Report on Form 10-K. The Company believes that of its significant accounting policies the allowance for loan losses, goodwill and core deposit and other intangibles may involve a higher degree of judgment and complexity.

The allowance for loan losses provides coverage for probable losses inherent in the Company’s loan portfolio. Management evaluates the adequacy of the allowance for loan losses each quarter based on changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, regulatory guidance and economic factors. This evaluation is inherently subjective, as it requires the use of significant management estimates. Many factors can affect management’s estimates of specific and expected losses, including volatility of default probabilities, rating migrations, loss severity and economic and political conditions. The allowance is increased through provisions charged to operating earnings and reduced by net charge-offs.

The Company determines the amount of the allowance based on relative risk characteristics of the loan portfolio. The allowance recorded for commercial loans is based on reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss experience. The allowance recorded for homogeneous consumer loans is based on an analysis of loan mix, risk characteristics of the portfolio, fraud loss and bankruptcy experiences, and historical losses, adjusted for current trends, for each homogeneous category or group of loans. The allowance for loan losses relating to impaired loans is based on the loan’s observable market price, the collateral for certain collateral–dependent loans, or the discounted cash flows using the loan’s effective interest rate.

Regardless of the extent of the Company’s analysis of customer performance, portfolio trends or risk management processes, certain inherent but undetected losses are probable within the loan portfolio. This is due to several factors including inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions, the judgmental nature of individual loan evaluations, collateral assessments and the interpretation of economic trends. Volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogeneous groups of loans are among other factors. The Company estimates a range of inherent losses related to the existence of the exposures. The estimates are based upon the Company’s evaluation of imprecision risk associated with the commercial and consumer allowance levels and the estimated impact of the current economic environment.

Goodwill and core deposit and other intangibles were recognized from the Company’s acquisition of other entities. Core deposit and other intangibles were determined through a core deposit intangible study and, as a result, the Company recorded the core deposit intangibles based on the determined fair value.

The Company tests goodwill for impairment on an annual basis. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value.

10

Core deposit and other intangibles are amortized on the straight-line basis over periods ranging from five to ten years. Such assets and intangible assets with indefinite lives are periodically evaluated as to the recoverability of their carrying value.

7. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) components and related taxes were as follows:

	For the Three Months
	Ended March 31,
	2008			2007
Net income (loss)	$	(1,677	)	$	1,844
Other comprehensive loss:
Unrealized appreciation (depreciation) on available-for-sale securities:
Unrealized appreciation (depreciation) on available-for-sale securities, net of tax expense (benefit) of $935 and $(348) for 2008 and 2007		1,586			(506	)
Accumulated other comprehensive income of equity method investee		—			13
Adjustment of SFAS 158 liability, net of tax benefit of ($15) for 2008 and $0 for 2007		25			—
Total other comprehensive income (loss), net of tax		1,561			(493	)
Comprehensive income (loss)	$	(116	)	$	1,351

8. SUBSEQUENT EVENT

Farmers State Bank of Northern Missouri, a bank subsidiary, merged into Mercantile Bank, another bank subsidiary, on April 18, 2008.

11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Cautionary Notice Regarding Forward-looking Statements

Statements and financial discussion and analysis contained in the Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of invoking these safe harbor provisions. These forward-looking statements include information about possible or assumed future results of the Company’s operations or performance. Use of the words “believe,” “expect”, “anticipate”, “estimate”, “continue”, “intend”, “may”, “will”, “should”, or similar expressions, identifies these forward-looking statements. Many possible factors or events could affect the future financial results and performance of the Company and could cause those financial results or performance to differ materially from those expressed in the forward-looking statement. These possible events or factors include, without limitation:

• general business and economic conditions in the markets the Company serves change or are less favorable than it expected;

• deposit attrition, operating costs, customer loss and business disruption are greater than the Company expected;

• competitive factors including product and pricing pressures among financial services organizations may increase;

• changes in the interest rate environment reduce the Company’s interest margins;

• changes in market rates and prices may adversely impact securities, loans, deposits, mortgage servicing rights, and other financial instruments;

• legislative or regulatory developments including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial securities industry may adversely affect the Company’s business;

• personal or commercial bankruptcies increase;

• the Company’s ability to expand and grow its business and operations, including the establishment of additional branches and acquisition of additional banks or branches of banks may be more difficult or costly than the Company expected;

• any future acquisitions may be more difficult to integrate than expected and the Company may be unable to realize any cost savings and revenue enhancements the Company may have projected in connection with such acquisitions;

• changes in accounting principles, policies or guidelines;

• changes occur in the securities markets; and

• technology-related changes may be harder to make or more expensive than the Company anticipated.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. The Company believes it has chosen the assumptions or bases in good faith and that they are reasonable. However, the Company cautions you that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. Any forward-looking statements made or incorporated by reference in this report are made as of the date of this report, and, except as required by applicable law, the Company assumes no obligation to update such statements or to update the reasons why actual results could differ from those projected in such statements. You should consider these risks and uncertainties in evaluating forward-looking statements and you should not place undue reliance on these statements.

12

New Accounting Standards Adopted During 2008

In September 2006, the Financial Accounting Standards Board (FASB) ratified Emerging Issues Task Force (EITF) No. 06-4, Postretirement Benefits Associated with Split-Dollar Life Insurance (EITF 06-4). EITF 06-4 requires deferred-compensation or postretirement benefit aspects of an endorsement-type split-dollar life insurance arrangement to be recognized as a liability by the employer. The liability for future benefits should be recognized based on the substantive agreement with the employee, which may be either to provide a future death benefit or to pay for the future cost of the life insurance. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The Company adopted EITF 06-4 as of January 1, 2008, through a cumulative effect adjustment as a liability and a decrease to retained earnings of $75,000.

In September 2006, the Financial Account Standards Board (FASB) issued SFAS No. 157 “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The Company adopted SFAS 157 on January 1, 2008 and additional disclosures can be found in the footnotes of the Company’s financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, which permits companies to choose to measure many financial instruments and certain other items at fair value. The objective of the new pronouncement is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective for the Company in 2008. The Company did not elect to apply the options available in SFAS 159.

General

Mercantile Bancorp, Inc. is an eight-bank holding company headquartered in Quincy, Illinois with 30 banking facilities (27 full service offices, 1 stand-alone drive-up facility, 1 mortgage banking facility and one loan production office) serving 23 communities located throughout west-central Illinois, central Indiana, northern Missouri, eastern Kansas and southwestern Florida. The Company is focused on meeting the financial needs of its markets by offering competitive financial products, services and technologies. It is engaged in retail, commercial and agricultural banking, and its core products include loans, deposits, trust and investment management. The Company derives substantially all of its net income from its subsidiary banks.

Wholly-Owned Subsidiaries. As of March 31, 2008, the Company was the sole shareholder of the following banking subsidiaries:

• Mercantile Bank (“Mercantile Bank”), 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;

• 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. As of March 31, 2008, the Company was the majority, but not sole, shareholder of Mid-America Bancorp, Inc. (“Mid-America”), the sole shareholder of Heartland Bank (“Heartland”), located in Leawood, Kansas, in which the Company owns 54.6% of the outstanding voting stock. The Company’s percentage ownership of Mid-America remained unchanged from December 31, 2007 to March 31, 2008.

13

Other Investments in Financial Institutions. As of March 31, 2008, the Company had less than majority ownership interests in several additional banking organizations located throughout the United States. Specifically, the Company owned the following percentages of the outstanding voting stock of these banking entities:

• 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;

• 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.

On January 1, 2008, Mercantile Trust & Savings changed its name to Mercantile Bank after receiving regulatory approval.

On February 19, 2008, the Company announced the opening of a loan production office in Carmel, Indiana, a suburb of Indianapolis. This office will initially operate as an adjunct of Mercantile Bank, but the Company’s intent is to develop it into a full service banking facility.

On April 21, 2008, the Company successfully executed the merger of two wholly-owned subsidiaries. Farmers was merged into Mercantile Bank with the expectation to generate operational and technological efficiencies, and to further leverage the successes achieved in expanding trust and wealth management services by both banks. Farmers locations will operate as full-service branches of Mercantile Bank.

During the second quarter of 2008, the Company expects a pre-tax gain of approximately $1.1 million at the closing
of Fifth Third Bancorp’s acquisition of Charlotte-based First Charter Corporation (FCTR), of which the Company owns 164,012 shares. Scheduled to close by June 30, Fifth Third will pay $31 per share for First Charter, a premium of more than fifty percent based on First Charter’s stock price of $20.25 at the time the deal was announced.

Results of Operations

Comparison of Operating Results for the Three Months Ended March 31, 2008 and 2007

Overview. Net loss for the three months ended March 31, 2008 was $1.7 million, a decrease of $3.5 million compared with net income of $1.8 million for the same period in 2007. The primary factors contributing to the decrease in net income were a decrease in net interest income of $202 thousand, an increase in provision for loan losses of $4.0 million and an increase in noninterest expense of $2.9 million, partially offset by an increase in noninterest income of $1.4 million, a decrease in minority interest of $462 thousand and a decrease in provision for income taxes of $1.7 million. Basic earnings (loss) per share (EPS) for the three months ended March 31, 2008 was ($.19) compared with $.21 for the same period in 2007.

Total assets at March 31, 2008 were $1.66 billion compared with $1.64 billion at December 31, 2007, an increase of $16.0 million or 1.0%, attributable to slight increases in cash and cash equivalents, loans and investment securities. Total loans, including loans held for sale, at March 31, 2008 were $1.21 billion compared with $1.20 billion at December 31, 2007, an increase of $8.7 million or .7%. Total deposits at March 31, 2008 were $1.35 billion compared with $1.32 billion at December 31, 2007, an increase of $32.7 million or 2.5%. Total stockholders’ equity at March 31, 2008 was $107.7 million compared with $108.3 million at December 31, 2007, a decrease of $616 thousand or .6%.

14

The Company’s annualized return on average assets was (.41%) for the three months ended March 31, 2008, compared with .53% for the same period in 2007. The annualized return on average stockholders’ equity was (6.2%) for the three months ended March 31, 2008, compared to 7.4% for the same period in 2007.

Net Interest Income. For the three months ended March 31, 2008, net interest income decreased $202 thousand, or 1.9%, to $10.2 million compared with $10.4 million for the same period in 2007. The decrease was primarily due to decreased volume of federal funds sold, increased volumes of time and brokered time deposits, money market deposits and long-term debt, a decrease in rates on loans and an increase in rates on time and brokered time deposits, largely offset by the increased volume of loans and decreased rates on money market deposits. For the three months ended March 31, 2008 and 2007, the net interest margin decreased by 46 basis points to 2.79% from 3.25% while the net interest spread decreased by 32 basis points to 2.58% from 2.90%, respectively.

Interest and dividend income for the three months ended March 31, 2008 increased $1.7 million, or 7.2%, to $24.6 million compared with $22.9 million for the same period in 2007. This increase was due primarily to an increase in loan interest income of $1.9 million. Average total loans for the three months ended March 31, 2008 increased $180 million, or 17.5%, to $1.2 billion compared with $1.0 billion for the same period in 2007, while the average yield on total loans decreased 51 basis points to 7.18% for the same period. Average total investments for the three months ended March 31, 2008 increased $16.6 million, or 8.7%, to $207.1 million compared with $190.5 million for the same period in 2007, while the average yield on investments decreased 2 basis points to 4.85% for the same period. For the three months ended March 31, 2008, compared to the same period in 2007, the yield on total average earning assets decreased by 44 basis points to 6.72%.

Interest expense for the three months ended March 31, 2008 increased $1.9 million, or 14.9%, to $14.4 million compared with $12.5 million for the same period in 2007. This increase was due primarily to increases in interest expense on deposits of $1.2 million and interest expense on long-term debt and junior subordinated debentures of $644 thousand. Average total interest-bearing deposits for the three months ended March 31, 2008 increased $161.5 million, or 15.6%, to $1.2 billion compared with $1.0 billion for the same period in 2007, while the average cost of funds on total interest-bearing deposits decreased 14 basis points to 3.94% for the same period. The average cost of funds on all categories of deposits other than time and brokered time deposits decreased in the three months ended March 31, 2008, compared to the same period in 2007, due to the decline in general market rates. However, the average cost of funds on time and brokered time deposits increased to 4.93% for the first quarter of 2008 , compared to 4.70% for the first quarter of 2007, due to the Company recognizing unamortized broker fees on certain brokered time deposits that were called in the first quarter of 2008 prior to their maturity dates. The Company exercised its option to call these certificates due to the declining interest rate environment, and by re-deploying the proceeds into lower-cost funding sources, expects to achieve a long-term reduction in its cost of funds. Average total long-term debt and junior subordinated debentures for the three months ended March 31, 2008 increased $46.4 million, or 43.7%, to $152.7 million compared with $106.2 million for the same period in 2007, primarily due to the issuance of term debt and junior subordinated debentures in September 2007 as financing for the HNB Financial acquisition, while the average cost of funds on long-term debt and junior subordinated debentures decreased 10 basis points to 5.78% for the same period. For the three months ended March 31, 2008, compared to the same period in 2007, the cost of funds on total average interest-bearing liabilities decreased by 12 basis points to 4.14%.

The following table sets forth for the periods indicated an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average rate earned on total interest-earning assets, the average rate paid on total interest-bearing liabilities and the net interest margin on average total interest-earning assets for the same periods. All average balances are daily average balances and nonaccruing loans have been included in the table as loans carrying a zero yield.

15

	For the three months ended March 31
	2008								2007
				Income/								Income/
	Average Balance			Expense		Yield/Rate			Average Balance			Expense		Yield/Rate
	(dollars in thousands)
Assets
Interest-bearing demand deposits	$	18,124		$	150		3.31	%	$	19,198		$	275		5.73	%
Federal funds sold		19,088			159		3.33	%		35,069			471		5.37	%
Securities:
Taxable
U.S. treasuries and government agencies		24,577			208		3.39	%		22,219			284		5.11	%
Mortgage-backed securities		44,367			560		5.05	%		40,127			510		5.08	%
Other securities		81,174			1,201		5.92	%		80,648			1,094		5.43	%
Total taxable		150,118			1,969		5.25	%		142,994			1,888		5.28	%
Non-taxable — State and political subdivision (3)		56,988			540		3.79	%		47,550			431		3.63	%
Loans (net of unearned discount) (1)(2)		1,209,462			21,710		7.18	%		1,029,444			19,793		7.69	%
Federal Home Loan Bank stock		8,061			36		1.79	%		5,703			50		3.51	%
Total interest-earning assets		1,461,841		$	24,564		6.72	%		1,279,958		$	22,908		7.16	%
Cash and due from banks		35,268								25,609
Interest receivable		10,903								9,559
Foreclosed assets held for sale, net		3,151								254
Equity method investments in common stock		—								4,143
Cost method investments in common stock		6,105								3,694
Cash surrender value of life insurance		24,354								18,225
Premises and equipment		41,913								25,313
Other		23,439								10,514
Goodwill		43,934								29,255
Intangible assets		4,791								6,162
Allowance for loan loss		(12,996	)							(10,760	)
Total assets	$	1,642,703							$	1,401,926
Liabilities and Stockholders’ Equity
Interest-bearing transaction deposits	$	133,399		$	400		1.20	%	$	118,436		$	528		1.78	%
Savings deposits		80,523			353		1.75	%		67,316			394		2.34	%
Money-market deposits		212,174			1,524		2.87	%		168,831			1,633		3.87	%
Time and brokered time deposits		772,941			9,536		4.93	%		682,942			8,024		4.70	%
Short-term borrowings		34,759			348		4.00	%		29,681			368		4.96	%
Long term debt		90,807			1,175		5.18	%		64,988			854		5.26	%
Junior subordinated debentures		61,858			1,029		6.65	%		41,239			706		6.85	%
Total interest-bearing liabilities		1,386,461		$	14,365		4.14	%		1,173,433		$	12,507		4.26	%
Demand deposits		124,597								105,609
Interest payable		6,453								6,280
Other liabilities		6,524								5,779
Minority interest		9,416								9,386
Stockholders’ equity		109,252								101,439
Total liabilities and stockholders’ equity	$	1,642,703							$	1,401,926
Interest spread							2.58	%							2.90	%
Net interest income					10,199								10,401
Net interest margin							2.79	%							3.25	%
Interest-earning assets to interest-bearing liabilities		105.44	%							109.08	%

(1)	Non-accrual loans have been included in average loans, net of unearned discount
(2)	Includes loans held for sale
(3)	The tax exempt income for state and political subdivisions in not recorded on a tax equivalent basis.

16

The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for the major components of interest-earning assets and interest-bearing liabilities and distinguishes between the increase (decrease) attributable to changes in volume and changes in interest rates. For purposes of this table, changes attributable to both volume and rate have been allocated proportionately to the change due to volume and rate.

	For the three months ended March 31,
	2008 vs. 2007
	Increase (Decrease) Due to
	Change in
	Volume			Rate			Total
Increase (decrease) in interest income:
Interest-bearing bank deposits	$	(15	)	$	(110	)	$	(125	)
Federal funds sold		(170	)		(142	)		(312	)
Investment securities:
U.S. Treasuries and Agencies		28			(104	)		(76	)
Mortgage-backed securities		54			(4	)		50
States and political subdivision (1)		89			20			109
Other securities		7			100			107
Loans (net of unearned discounts)		3,295			(1,378	)		1,917
Federal Home Loan Bank stock		16			(30	)		(14	)
Change in interest income		3,304			(1,648	)		1,656
Increase (decrease) in interest expense:
Interest-bearing transaction deposits		61			(189	)		(128	)
Savings deposits		69			(110	)		(41	)
Money-market deposits		365			(474	)		(109	)
Time and brokered time deposits		1,096			416			1,512
Short-term borrowings		57			(77	)		(20	)
Long-term debt and junior subordinated debentures		671			(27	)		644
Change in interest expense		2,319			(461	)		1,858
Increase (decrease) in net interest income	$	985		$	(1,187	)	$	(202	)

(1) The tax exempt income for state and political subdivisions is not recorded on a tax equivalent basis.

Provision for Loan Losses. Provisions for loan losses are charged against income to bring the Company’s allowance for loan losses to a level deemed appropriate by management. For the three months ended March 31, 2008, the provision increased by $4.0 million to $4.8 million, compared with $755 thousand for the same period in 2007. The additional expense was primarily due to the continued deterioration of the commercial real estate markets in several of the Company’s locations, particularly in southwest Florida, resulting in nonperforming and impaired loan totals in excess of historical averages. In the three months ended March 31, 2008, the Company addressed this issue aggressively by increasing its provision for loan losses. The allowance for loan losses at March 31, 2008 was $17.1 million, or 1.41% of total loans, an increase of $4.3 million from $12.8 million or 1.06% of total loans at December 31, 2007. Nonperforming loans were $23.9 million, or 1.97% of total loans as of March 31, 2008, compared with $23.0 million, or 1.91% of total loans as of December 31, 2007. Impaired loans increased from $29.6 million at December 31, 2007 to $42.1 million at March 31, 2008. A significant portion of these increases reflects several commercial real estate loans to developers who experienced cash flow problems due to a slowing economy and oversupply of commercial properties. Although secured by real estate, the Company anticipates a portion of the loans will eventually be charged off, but believes it has adequately reserved for these losses based on circumstances existing as of March 31, 2008.

Noninterest Income. Noninterest income for the three months ended March 31, 2008 increased $1.4 million to $3.8 million compared with $2.4 million for the same period in 2007. The increase in noninterest income was primarily due to increases in fiduciary activities, brokerage fees, customer service fees, net gains on sales of assets and net gains on loan sales.

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The following table presents, for the periods indicated, the major categories of noninterest income:

	For the Three Months
	Ended March 31
	2008		2007
Fiduciary activities	$	690	$	573
Brokerage fees		416		308
Customer service fees		1,100		871
Other service charges and fees		200		182
Net gains/(losses) on sales of assets		391		(2	)
Net gains on loan sales		363		108
Loan servicing fees		135		102
Net increase in cash surrender value of life insurance		268		167
Other		190		51
Total noninterest income	$	3,753	$	2,360

Fiduciary activities for the three months ended March 31, 2008 increased $117 thousand to $690 thousand compared with $573 thousand for the same period in 2007, primarily due to an increase in trust assets under management at Mercantile Bank as well as the September 2007 acquisition of HNB Financial.

Brokerage fees for the three months ended March 31, 2008 increased $108 thousand to $416 thousand compared with $308 thousand for the same period in 2007, primarily due to the retail brokerage operation established at Heartland in the fourth quarter of 2006 along with continued growth of this line of business at the Company’s other subsidiary banks.

Customer service fees for the three months ended March 31, 2008 increased $229 thousand to $1.1 million compared with $871 thousand for the same period in 2007, primarily due to increased overdraft fees and expansion of the number of accounts that generate transaction fees, as well as the September 2007 acquisition of HNB Financial.

Net gains on sales of assets for the three months ended March 31, 2008 increased $393 thousand to $391 thousand compared with a net loss of $2 thousand for the same period in 2007, primarily due to HNB Financial’s sale of a vacant lot in February 2008.

Net gains on loan sales for the three months ended March 31, 2008 increased $255 thousand to $363 thousand compared with $108 thousand for the same period in 2007, primarily due to increased residential mortgage refinancings as a result of the lower interest rate environment.

Noninterest Expense. For the three months ended March 31, 2008, noninterest expense increased $2.9 million, or 31.3% to $12.1 million compared with $9.2 million for the same period in 2007, primarily due to increases in salaries and employee benefits, net occupancy expense, net losses on foreclosed assets, and other noninterest expense.

18

The following table presents, for the periods indicated, the major categories of noninterest expense:

	For the Three Months Ended
	March 31
	2008		2007
Salaries and employee benefits	$	6,901	$	5,628
Net occupancy expense		885		635
Equipment expense		774		612
Deposit insurance premium		105		36
Professional fees		575		495
Postage and supplies		301		263
Net losses on foreclosed assets		504		15
Net losses on securities		1		—
Loss on equity method investments in common stock		—		3
Amortization of mortgage servicing rights		93		26
Other		1,952		1,498
Total noninterest expense	$	12,091	$	9,211

Salaries and employee benefits increased $1.3 million or 22.6% for the three months ended March 31, 2008 to $6.9 million, from $5.6 million for the same period in 2007. Approximately $777 thousand of this increase was due to the September 2007 acquisition of HNB Financial. The remainder of the increase was due primarily to the establishment of a loan production office in Carmel, IN, severance payments and additional salaries and benefits associated with new management personnel at Royal Palm, and cost-of-living increases in salaries and employee benefits. As a percent of average assets, annualized salaries and employee benefits increased to 1.69% for the three months ended March 31, 2008, compared to 1.63% for the same period in 2007. The Company had 453 full-time equivalent employees at March 31, 2008 compared to 375 at March 31, 2007, an increase of 78 full-time equivalent employees, primarily due to the acquisition of HNB Financial.

Net occupancy expense increased $250 thousand or 39.4% for the three months ended March 31, 2008 to $885 thousand, from $635 thousand for the same period in 2007, due to the September 2007 acquisition of HNB Financial, which generated approximately $111 thousand of net occupancy expense in the first quarter of 2008. This increase was also due to Mercantile Bank placing a new building into service in January 2008 generating approximately $124 thousand of additional net occupancy expense in the first quarter of 2008.

Net losses on foreclosed assets increased $489 thousand for the three months ended March 31, 2008 to $504 thousand, from $15 thousand for the same period in 2007, primarily due to the first quarter 2008 reduction in carrying value of several foreclosed properties held by Royal Palm, reflecting the continued weakness in the commercial real estate market in southwest Florida.

Other noninterest expense increased $454 thousand or 30.3% for the three months ended March 31, 2008 to $2.0 million, from $1.5 million for the same period in 2007, mainly due to the September 2007 acquisition of HNB Financial, which generated approximately $438 thousand of other noninterest expense in the first quarter of 2008.

Provision for Income Taxes. The effective tax rate was (36.0%) for the three-month period ended March 31, 2008 compared to 29.6% for the same period in 2007. The decrease in 2008 was primarily due the Company reporting a net loss.

The Company adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” on January 1, 2007. The Company has recognized no increase in its liability for unrecognized tax benefits as a result of the implementation of FIN 48. The Company files income tax returns in the U.S. federal jurisdiction and the states of Illinois, Missouri, Kansas and Florida jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2003.

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Financial Condition
March 31, 2008 Compared to December 31, 2007

Loan Portfolio. Total loans, including loans held for sale, increased $8.7 million or .72% to $1.21 billion as of March 31, 2008 from $1.20 billion as of December 31, 2007. The Company’s subsidiary banks experienced minimal loan growth in the first quarter of 2008 due to the stagnant economy and the fear of recession causing potential borrowers to reduce their spending. At March 31, 2008 and December 31, 2007, the ratio of total loans to total deposits was 89.8% and 91.3%, respectively. For the same periods, total loans represented 73.3% and 73.5% of total assets, respectively.

The following table summarizes the loan portfolio of the Company by type of loan at the dates indicated:

	March 31, 2008					December 31, 2007
	Amount		Percent			Amount		Percent
	(dollars in thousands)
Commercial and financial	$	178,434		14.70	%	$	173,817		14.43	%
Agricultural		54,661		4.50	%		64,399		5.34	%
Real estate — farmland		94,672		7.80	%		91,488		7.59	%
Real estate — construction		231,616		19.09	%		215,850		17.91	%
Real estate — commercial		198,119		16.33	%		204,338		16.96	%
Real estate — residential (1)		326,952		26.94	%		323,936		26.89	%
Installment loans to individuals		129,149		10.64	%		131,061		10.88	%
Total loans		1,213,603		100.00	%		1,204,889		100.00	%
Allowance for loan losses		17,127					12,794
Total loans, including loans held for sale, net of allowance for loan losses	$	1,196,476				$	1,192,095

(1) Includes loans held for sale

Nonperforming Assets. Nonperforming assets consist of nonaccrual loans, loans 90 days or more past due, restructured loans, repossessed assets and other assets acquired in satisfaction of debts previously contracted. It is management’s policy to place loans on nonaccrual status when interest or principal is 90 days or more past due. Such loans may continue on accrual status only if they are both well-secured and in the process of collection.

Total nonperforming loans increased to $23.9 million as of March 31, 2008 from $23.0 million as of December 31, 2007, while total nonperforming loans and nonperforming other assets increased to $29.0 million as of March 31, 2008 from $26.3 million as of December 31, 2007. Impaired loans increased from $29.6 million at December 31, 2007 to $42.1 million to March 31, 2008. A significant portion of these increases reflects several commercial real estate loans to developers in the Midwest and Florida who experienced cash flow problems due to a slowing economy and oversupply of commercial properties. Although secured by real estate, the Company anticipates a portion of the loans will eventually be charged off, but believes it has adequately reserved for these losses based on circumstances existing as of March 31, 2008. Nonperforming other assets is comprised primarily of the carrying value of several foreclosed commercial real estate properties in the Midwest and Florida that the Company intends to sell, with the carrying value representing management’s assessment of the net realizable value in the current market. The ratio of nonperforming loans to total loans increased to 1.97% as of March 31, 2008, from 1.91 % as of December 31, 2007. The ratio of nonperforming loans and nonperforming other assets to total loans increased to 2.39% as of March 31, 2008 from 2.18% as of December 31, 2007.

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The following table presents information regarding nonperforming assets at the dates indicated:

	March 31,			December 31,
	2008			2007
Nonaccrual loans
Commercial and financial	$	489		$	581
Agricultural		48			308
Real estate — farmland		235			296
Real estate — construction		10,774			6,716
Real estate — commercial		3,236			3,152
Real estate — residential		6,011			8,571
Installment loans to individuals		245			195
Total nonaccrual loans		21,038			19,819
Loans 90 days past due and still accruing		2,822			3,184
Restructured loans		—			—
Total nonperforming loans		23,860			23,003
Repossessed assets		5,123			3,273
Other assets acquired in satisfaction of debt previously contracted		—			—
Total nonperforming other assets		5,123			3,273
Total nonperforming loans and nonperforming other assets	$	28,983		$	26,276
Nonperforming loans to loans, before allowance for loan losses		1.97	%		1.91	%
Nonperforming loans and nonperforming other assets to loans, before allowance for loan losses		2.39	%		2.18	%

Allowance for Loan Losses. In originating loans, the Company recognizes that loan losses will be experienced and the risk of loss will vary with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the quality of the collateral for such loan. Management has established an allowance for loan losses which it believes is adequate to cover probable losses inherent in the loan portfolio. Loans are charged off against the allowance for loan losses when the loans are deemed to be uncollectible. Although the Company believes the allowance for loan losses is adequate to cover probable losses inherent in the loan portfolio, the amount of the allowance is based upon the judgment of management, and future adjustments may be necessary if economic or other conditions differ from the assumptions used by management in making the determinations.

Based on an evaluation of the loan portfolio, management presents a quarterly review of the allowance for loan losses to the board of directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. In making its evaluation, management considers the diversification by industry of the commercial loan portfolio, the effect of changes in the local real estate market on collateral values, the results of recent regulatory examinations, the effects on the loan portfolio of current economic indicators and their probable impact on borrowers, the amount of charge-offs for the period, the amount of nonperforming loans and related collateral security, and the present level of the allowance for loan losses.

A model is utilized to determine the specific and general portions of the allowance for loan losses. Through the loan review process, management assigns one of six loan grades to each loan, according to payment history, collateral values and financial condition of the borrower. The loan grades aid management in monitoring the overall quality of the loan portfolio. Specific reserves are allocated for loans in which management has determined that deterioration has occurred. In addition, a general allocation is made for each loan category in an amount determined based on general economic conditions, historical loan loss experience, and amount of past due loans. Management maintains the allowance based on the amounts determined using the procedures set forth above.

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The allowance for loan losses increased $4.3 million to $17.1 million as of March 31, 2008 from $12.8 million as of December 31, 2007. Provision for loan losses was $4.8 million and net charge-offs were $436 thousand for the three months ended March 31, 2008. The allowance for loan losses as a percent of total loans increased to 1.41% as of March 31, 2008 from 1.06% as of December 31, 2007, primarily due to the continued deterioration of the commercial real estate markets in several of the Company’s locations, particularly in southwest Florida, resulting in nonperforming loan totals in excess of historical averages. In the first quarter of 2008, the Company addressed this issue aggressively by increasing its provision for loan losses. As a percent of nonperforming loans, the allowance for loan losses increased to 71.78% as of March 31, 2008 from 55.62% as of December 31, 2007.

The following table presents for the periods indicated an analysis of the allowance for loan losses and other related data:

	As of and for
	the Three			As of and for
	Months Ended			the Year Ended
	March 31,			December 31,
	2008			2007
Average loans outstanding during year	$	1,209,462		$	1,085,606
Allowance for loan losses:
Balance at beginning of year	$	12,794		$	10,613
Loans charged-off:
Commercial and financial		261			493
Agricultural		119			75
Real estate — farmland		—			—
Real estate — construction		54			284
Real estate — commercial		114			18
Real estate — residential		—			399
Installment loans to individuals		217			906
Total charge-offs		765			2,175
Recoveries:
Commercial and financial		280			55
Agricultural		2			15
Real estate — farmland		—			—
Real estate — construction		—			2
Real estate — commercial		—			1
Real estate — residential		1			38
Installment loans to individuals		46			150
Total recoveries		329			261
Net charge-offs		436			1,914
Provision for loan losses		4,769			2,969
Purchased allowance		—			1,126
Balance at end of year	$	17,127		$	12,794
Allowance for loan losses as a percent of total loans outstanding at year end		1.41	%		1.06	%
Allowance for loan losses as a percent of total nonperforming loans		71.78	%		55.62	%
Ratio of net charge-offs to average total loans		.04	%		0.18	%

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Securities. The Company uses its securities portfolio to ensure liquidity for cash requirements, to manage interest rate risk, to provide a source of income, to ensure collateral is available for municipal pledging requirements and to manage asset quality.

The Company has classified securities as both available-for-sale and held-to-maturity as of March 31, 2008. Available-for-sale securities are held with the option of their disposal in the foreseeable future to meet investment objectives, liquidity needs or other operational needs. Securities available-for-sale are carried at fair value. Held-to-maturity securities are those securities for which the Company has the positive intent and ability to hold until maturity, and are carried at historical cost adjusted for amortization of premiums and accretion of discounts.

As of March 31, 2008, the fair value of the available for-sale securities was $208.9 million and the amortized cost was $205.7 million for an unrealized gain of $3.2 million. The after-tax effect of this unrealized gain was $2.1 million and has been included in stockholders’ equity. As of December 31, 2007, the fair value of the available-for-sale securities was $201.7 million and the amortized cost was $201.1 million for an unrealized gain of $660 thousand. Fluctuations in net unrealized gains and losses on available-for-sale securities are due primarily to increases or decreases in prevailing interest rates for the types of securities held in the portfolio.

As of March 31, 2008, the amortized cost of held-to-maturity securities was $13.4 million, a decrease of $1.1 million from the December 31, 2007 amortized cost of $14.5 million.

As of March 31, 2008, Heartland (wholly-owned subsidiary of Mid-America, of which the Company has a 54.6% equity interest) owns a $4 million subordinated debenture in a financial institution that received a cease and desist order on April 30, 2008 by bank regulators. Heartland has not determined any specific impairment of this investment, but the Company is monitoring the situation for further developments.

The Company owns approximately $3.5 million of Federal Home Loan Bank of Chicago stock included in other assets. During the third quarter of 2007, the Federal Home Loan Bank of Chicago received a Cease and Desist Order from their regulator, the Federal Housing Finance Board. The Federal Home Loan Bank will continue to provide liquidity and funding through advances, however the draft order prohibits capital stock repurchases and redemptions until a time to be determined by the Federal Housing Finance Board. The Board of Directors and management of the Federal Home Loan Bank of Chicago have recently announced it will not longer fund mortgage loan purchases through its MPF Program after July 31, 2008. With regard to dividends, the Federal Home Loan Bank continues to assess its dividend capacity each quarter and make appropriate request for approval. There were no dividends paid by the Federal Home Loan Bank of Chicago during the first quarter of 2008.

Deposits. Total deposits increased $32.7 million or 2.5% to $1.4 billion as of March 31, 2008 from $1.3 billion as of December 31, 2007. Noninterest-bearing deposits decreased $1.4 million or 1.0% to $132.5 million as of March 31, 2008 from $133.9 million as of December 31, 2007, while interest-bearing deposits increased $34.1 million or 2.9% to $1.22 billion as of March 31, 2008 from $1.19 billion as of December 31, 2007. Minimal loan demand due to the sluggish economy reduced funding pressure on the Company’s subsidiary banks, allowing the banks to focus efforts on shifting their funding sources into lower cost alternatives, in particular savings, NOW and money market accounts, which accounted for the majority of the overall increase in deposits during the first quarter of 2008.

Borrowings. The Company utilizes borrowings to supplement deposits in funding its lending and investing activities. Short-term borrowings consist of federal funds purchased, securities sold under agreements to repurchase, U. S. Treasury demand notes and short-term advances from the Federal Home Loan Bank. Long-term debt consists of long-term advances from the Federal Home Loan Bank, and advances on a revolving credit line as well as term debt with a correspondent bank.

As of March 31, 2008, short-term borrowings were $27.8 million, a decrease of $17.8 million from December 31, 2007, due to a shift into lower cost funding sources.

Long-term borrowings were $84.5 million as of March 31, 2008, an increase of $3 million from $81.5 million as of December 31, 2007. Included in long-term borrowings as of March 31, 2008 were long-term FHLB borrowings and subordinated notes totaling $62.5 million, with maturities ranging from the years 2008 to 2017 and interest rates ranging from 3.15% to 5.30%. As of March 31, 2008, the correspondent bank term loans totaled $22 million, with rates ranging from 6.09% to 6.27% and maturities ranging from November 10, 2009 to August 31, 2010.

Junior subordinated debentures were $61.9 million at March 31, 2008 and December 31, 2007. Maturities ranged from the years 2035 to 2037 (callable at the Company’s option in 2011, 2015 and 2017), and interest rates ranged from 6.48% to 7.17%.

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Liquidity and Capital Resources

Liquidity. Liquidity management is the process by which the Company ensures that adequate liquid funds are available to meet the present and future cash flow obligations arising in the daily operations of the business in a timely and efficient manner. These financial obligations consist of needs for funds to meet commitments to borrowers for extensions of credit, funding capital expenditures, withdrawals by customers, maintaining deposit reserve requirements, servicing debt, paying dividends to shareholders, and paying operating expenses. Management believes that adequate liquidity exists to meet all projected cash flow obligations.

The Company achieves a satisfactory degree of liquidity through actively managing both assets and liabilities. Asset management guides the proportion of liquid assets to total assets, while liability management monitors future funding requirements and prices liabilities accordingly.

The Company’s most liquid assets are cash and due from banks, interest-bearing demand deposits, and federal funds sold. The balances of these assets are dependent on the Company’s operating, investing, lending, and financing activities during any given period. As of March 31, 2008, cash and cash equivalents totaled $80.2 million, an increase of $4.2 million from $76.1 million as of December 31, 2007. This increase was the result of normal fluctuations in the Company’s cash flow requirements for funding loan growth and deposit withdrawals.

The Company’s primary sources of funds consist of deposits, investment maturities and sales, loan principal repayment, sales of loans, and capital funds. Additional liquidity is provided by bank lines of credit, repurchase agreements, junior subordinated debentures and the ability to borrow from the Federal Reserve Bank and Federal Home Loan Bank.

Capital Resources. Other than the option of issuing common stock, the Company’s primary source of capital is net income retained by the Company. During the three months ended March 31, 2008, the Company had a net loss of $1.7 million and paid dividends of $523 thousand to stockholders, resulting in a capital reduction of $2.2 million. During the year ended December 31, 2007, the Company earned $10.0 million and paid dividends of $2.1 million to stockholders, resulting in a retention of current earnings of $7.9 million. As of March 31, 2008, total stockholders’ equity was $107.7 million, a decrease of $616 thousand from $108.2 million as of December 31, 2007. This decrease was due to the net loss for the first quarter of 2008, offset by an increase in accumulated other comprehensive income. The increase in accumulated other comprehensive income was primarily due to the after-tax effect of the increase in market value of the Company’s available-for-sale securities.

The Federal Reserve Board uses capital adequacy guidelines in its examination and regulation of bank holding companies and their subsidiary banks. Risk-based capital ratios are established by allocating assets and certain off-balance sheet commitments into four risk-weighted categories. These balances are then multiplied by the factor appropriate for that risk-weighted category. The guidelines require bank holding companies and their subsidiary banks to maintain a total capital to total risk-weighted asset ratio of not less than 8.00%, of which at least one half must be Tier 1 capital, and a Tier 1 leverage ratio of not less than 4.00%. As of March 31, 2008, the Company exceeds these regulatory capital guidelines. Likewise, the individual ratios for each of the Company’s bank subsidiaries also exceed the regulatory guidelines.

Effect of Inflation and Changing Prices.

The condensed consolidated financial statements and related financial data presented herein have been prepared in accordance with accounting procedures generally accepted in the United States of America which require the measurement of financial position and operating results in terms of historical dollars, without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes since December 31, 2007. For more information regarding quantitative and qualitative disclosures about market risk, please refer to the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2007, and in particular, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Rate Sensitive Assets and Liabilities” and Item 7A “Quantitative and Qualitative Disclosures About Market Risk.”

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Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures. The Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported to the Company’s management within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in internal controls over financial reporting. There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

There are no material changes from the risk factors previously discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

There were the following issuer purchases of equity securities (i.e., the Company’s common stock) during the three months ended March 31, 2008:

					Total Number of Shares		Maximum Approximate
First Quarter	Total Number of				Purchased as Part of		Dollar Value of Shares that
2008 Calendar	Shares Purchased		Average Price		Publicly Announced		May Yet Be Purchased Under
Month	(1)		Paid per Share (1)		Plans or Programs (2)		the Plans or Programs (3)
January		0		n/a		0	$	8,229,424
February		0		n/a		0	$	8,229,424
March		0		n/a		0	$	8,229,424
Total		0		n/a		0

(1)	The total number of shares purchased and the average price paid per share include, in addition to other purchases, shares purchased in the open market and through privately negotiated transactions by the Company’s 401(k) Profit Sharing Plan. For the months indicated, there were no shares purchased by the Plan.
(2)	Includes only shares subject to publicly announced stock repurchase program, i.e. the $10 million stock repurchase program approved by the Board on August 15, 2005 and announced on August 17, 2005 (the “2005 Repurchase Program”). Does not include shares purchased by the Company’s 401(k) Profit Sharing Plan.
(3)	Dollar amount of repurchase authority remaining at month-end under the 2005 Repurchase Program, the Company’s only publicly announced repurchase program in effect at such dates. The 2005 Repurchase Program is limited to 883,656 shares (10% of the number of outstanding shares on the date the Board approved the program, adjusted for the three-for-one stock split in June of 2006 and the three-for-two split in December of 2007) but not to exceed $10 million in repurchases.

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

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Item 6. Exhibits

Exhibit
Number	Identification of Exhibit
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 12, 2008	By:	/s/ Ted T. Awerkamp
		Ted T. Awerkamp
		President and Chief Executive Officer (principal executive officer)
Date: May 12, 2008	By:	/s/ Michael P. McGrath
		Michael P. McGrath
		Executive Vice President, Treasurer, Secretary and Chief Financial Officer (principal financial officer/ principal accounting officer)

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