Press release from Mercantile Bancorp;

Mercantile Bancorp, Inc. Announces Third Quarter Earnings and Strategic Developments

- Steps Announced to Reduce Debt, Fortify Capital Structure
- Company to Execute a Debt Exchange for Missouri Bank
- Reaches Definitive Agreement to Sell Two Illinois Banks

Quincy, IL, November 23, 2009 - Mercantile Bancorp, Inc. (NYSE Amex: MBR) today reported an unaudited net loss of $1.4 million or $(.16) per share for the quarter ended September 30, 2009, compared with a net loss of $1.7 million or $(0.19) per share for the third quarter 2008. The Company reported $1.69 billion of total assets at September 30, 2009, compared with $1.77 billion at December 31, 2008 and $1.75 billion at September 30, 2008. Total loans, net of allowance for loan losses, stood at $1.25 billion at September 30, 2009, compared with $1.32 billion at year-end 2008 and $1.27 billion at September 30, 2008.

The Company also announced the second stage in a planned multi-step recapitalization plan to reduce its current debt and significantly increase its capital strength and balance sheet performance, positioning the Company for profitable future operations. Mercantile Bancorp has reached an agreement with R. Dean Phillips, the sole shareholder of Great River Bancshares, Inc. ("Great River"), to restructure debt owed to Mr. Phillips and Great River. As part of the restructuring, subject to the satisfaction of certain conditions, the Company will receive an additional $11 million in debt from Mr. Phillips and Great River, as well as a $7 million line of credit, and will repay approximately $28 million of the $33 million in outstanding debt owed to Mr. Phillips and Great River, by agreeing to exchange $28 million of debt for all of the issued and outstanding stock of HNB National Bank ("HNB Bank") headquartered in Hannibal, Missouri.

The Company also announced it reached a definitive agreement to sell its two smallest banks, Brown County State Bank ("Brown") and Marine Bank & Trust ("Marine"), both based in Illinois, to United Community Bancorp, Inc., of Chatham, Illinois, for a combined total of approximately $25.6 million, plus a possible additional amount of up to $2.3 million in the future, based on certain provisions being met. The sales are expected to yield a pre-tax gain to the Company of approximately $4.0 million, and are anticipated to close in the first quarter of 2010, pending regulatory approval. The Company plans to use the initial proceeds generated by the debt restructuring and the bank sales, a total of $53.6 million, to reduce its debt, soundly enhance the capital ratios of its remaining subsidiary banks and conserve cash to act as a source of strength to its remaining subsidiary banks.

"The banks we will divest are well-run, profitable institutions serving wonderful communities, and we had a number of interested parties," said Awerkamp. "Throughout Mercantile's ownership, they operated with relative independence and with their own brand identities. As such, our Board of Directors felt their exchange and sale would provide the next step to re-building our capital and cash positions without government assistance or shareholder dilution. When closed, these sales will reduce our total assets to approximately $1.08 billion." Awerkamp added, "Though a difficult decision to divest quality banks, under the circumstances of the stressed economies we serve and the current regulatory focus on capital and liquidity, our Board of Directors determined it was in the best interests of our shareholders and the Company to pay down debt and restore capital levels both at the Company and its banks as efficiently and expeditiously as possible. This is an appropriate course for the Company, and is another positive step to solid capital restoration."

HNB Bank had assets of $328.2 million at September 30, 2009, versus $353.2 million at September 30, 2008. Awerkamp said HNB's performance has been improving throughout 2009. Though reporting a year-to-date net loss of $11.4 million, the bank absorbed a one-time goodwill impairment charge in the second quarter of $14.0 million. This is in comparison to net income of $2.3 million at September 30, 2008. HNB Bank had loans outstanding of $262.7 million at September 30, 2009, versus $268.4 a year ago and deposits of $286.3 million compared with $274.6 million for the same period in 2008. 

Marine Bank & Trust had assets of $194.0 million at September 30, 2009, versus $177.3 million at September 30, 2008. Awerkamp said Marine's performance has been stable throughout 2009, reporting year-to-date net income of $1.4 million, with loans of $140.6 million at September 30, 2009, up slightly from a year ago and deposits of $167.4 million compared with $149.5 million for the same period in 2008. Brown County State Bank reported assets of $84.0 million with loan levels of $67.0 million at September 30, 2009, compared with $64.5 million at September 30, 2008. Brown County reported net income of $996,000 for the nine-month period ending September 30, 2009, generating a net interest margin of 4.17% and return on average assets of 1.59%, both ratios comparing favorably with peer group benchmarks, according to the Company.

In mid-October, the Company announced that pending regulatory approval, it had filed an application to merge Royal Palm Bank of Florida into Mercantile Bank. Given the restructuring of its debt, sale of three of its subsidiary banks, and the resulting increased capitalization of its remaining subsidiary banks, the Company expects to withdraw the application for that proposed merger and keep the Florida bank charter as it will be able to meet all regulatory capital requirements. "That step was predicated on a most efficient use of our capital and the necessary timetable to meet requirements prior to reaching an agreement on the asset divestitures," Awerkamp said. "Once the collective asset sales and debt restructuring materialized, it allowed us to rethink that decision."

Debt Restructuring

As of September 30, 2009, the Company was current on its interest and principal payments, but in breach of certain financial covenants under its loan agreement with Great River. On November 21, 2009, the Company and Great River entered into a second waiver and amendment under the loan agreement that, among other things, waived the Company's breaches of financial covenants and extended certain of the maturity dates of the principal payments under the loan agreement with Great River to January 15, 2010 and March 31, 2010, as applicable. As a result of the waiver of defaults, the Company is not considered in breach of the loan agreement at this time.

In addition, as part of the second waiver and amendment under the loan agreement, subject to the satisfaction of certain conditions, the Company will borrow $11 million from Great River on a short-term basis, for use by the Company to maintain its subsidiary banks' capital ratios at or above well-capitalized status, which will be repaid with the proceeds of the closing of the asset sales and the exchange for HNB Bank. The second waiver and amendment under the loan agreement also provides the Company with a $7 million revolving credit line until December 31, 2010, for future liquidity needs, if necessary. Upon the closing of all planned transactions, the Company anticipates no immediate need to use the line.      

Core Operations Remain Stable

Awerkamp noted that the Company's core operations demonstrated encouraging results and relative stability year-over-year. Total deposits of $1.43 billion at September 30, 2009, were consistent with $1.44 billion at September 30, 2008, and down slightly compared with $1.46 billion at December 31, 2008. Third quarter 2009 net interest income was $11.6 million compared with $11.7 million in the third quarter of 2008. Total noninterest income of $3.3 million in the third quarter of 2009 rose slightly compared with $3.1 million for the three months ended September 30, 2008. Asset management and brokerage activities were down slightly year-over-year, offset by higher customer service fee income and gains on loan sales.

"The performance of our flagship Mercantile Bank, continued to reflect strength and, in some key areas, growth," said Awerkamp. "We noted a number of positive trends at Mercantile, including year-over-year growth in loans, net interest income and the net interest margin ratio. Sound management of interest rate exposure enabled bank to lower its cost of funds in each of the past six quarters, while expanding its net interest margin. The bank recorded third quarter 2009 net income of $1.3 million, its highest in several quarters."

Addressing the recapitalization plan, Awerkamp explained: "For several quarters, the Company's performance has felt the negative impact of legacy loan issues at our Florida and Kansas subsidiaries. We have taken aggressive steps to turn these banks around and are seeing positive results, though slower than we would like. The loan issues have been identified and are being managed through conclusion at a pace dictated by the economy and jurisdiction, but this action will give the management teams of those banks the freedom and capital adequacy to focus on a return to profitability."

He also noted the management team at Heartland Bank in Leawood, Kansas, working closely with Mercantile Bancorp management, has generated consecutive quarter improvements in net interest margin in 2009. Mercantile has a 56% controlling interest in Heartland's parent corporation, Mid-America Bancorp, Inc. Awerkamp explained Heartland has been aggressive in reserving for potential losses and in working to liquidate their problem assets, and narrowed its net loss in the third quarter of 2009 compared with third quarter 2008. For the nine months ended September 30, 2009, Mercantile Bancorp recognized a loss of $1.8 million related to its interest in Mid-America versus a $2.6 million loss for the same period in 2008.

For the nine months ended September 30, 2009, Mercantile Bancorp reported a net loss of $54.3 million or $(6.24) per share compared with a net loss of $2.1 million or $(0.24) per share in the first nine months of 2008. A significant portion of the 2009 loss reflects a non-cash goodwill impairment loss of $44.6 million related to its Royal Palm acquisition, which was recorded in the second quarter of 2009. Also in the first nine months of 2009, the Company recognized non-cash impairment charges on its equity investments in other financial institutions of $3.2 million. Expenses during the period include deposit insurance premiums of $3.1 million compared with $715,000 in the nine months of 2008. These increased premiums include a special assessment levied by the FDIC in second quarter 2009.

Net interest income in the nine-month period ended September 30, 2009, was $32.7 million compared with $32.8 million for the same period in the prior year. Awerkamp explained that the Company's ability to significantly lower total interest expense was a key factor in maintaining 2009 net interest income at a level comparable to 2008. Management noted the Company, on a year-over-year basis, had slightly lower operating costs, including salaries and benefits, occupancy and equipment expense. Numerous cost and expense management programs were implemented more than a year ago, and these have helped its subsidiary banks maintain stable performance in a difficult economy while providing uncompromised levels of service to customers.

Awerkamp concluded, "The deliberate and decisive actions taken will contract the company, but soundly position it to go forward with reduced debt, a solid capital footing and sound management teams. We retain considerable future upside in our Illinois, Indiana, Missouri, Kansas and Florida markets, particularly as the economy strengthens."

"While these steps will change the makeup of our Company's assets, they will not change our commitment and dedication to our shareholders, our customers, our employees and the communities we serve.  This is, and always has been our strength and our greatest opportunity.  As we go forward, we will continue to focus and build upon these core values."

The Board of Directors continues to evaluate strategic initiatives to further strengthen the Company's capital base and enhance shareholder value.  These strategic alternatives may include asset sales, capital raising and other recapitalization transactions. 

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About Mercantile Bancorp

Mercantile Bancorp, Inc. is a Quincy, Illinois-based bank holding company with majority-owned subsidiaries consisting of three banks in Illinois and one each in Missouri, Kansas, and Florida, where the Company conducts full-service commercial and consumer banking business, engages in mortgage banking, trust services and asset management, and provides other financial services and products. The Company also operates a Mercantile Bank branch office in Indiana. In addition, the Company has minority investments in eight community banks in Missouri, Georgia, Florida, Colorado, California and Tennessee.