EXHIBIT 99.6
MERCHANTS BANCORP, INC.
&
MERCHANTS NATIONAL BANK
STRATEGIC PLAN
2005-2007
INTRODUCTION
This Strategic Plan (the "Plan") has been adopted by the Board of
Directors of Merchants Bancorp, Inc. ("Company") and its wholly-owned
subsidiary, Merchants National Bank ("Bank") to provide strategic direction for
the directors and management team of Company and Bank. The Plan is intended to
address potential planning issues during the next three calendar years
(2005-2007).
The Plan is designed to incorporate long-term strategic goals of the board
along with shorter-term tactical and operational issues confronting the Bank and
its management. The Plan identifies specific action plans and responsibilities,
and where possible, timeframes under which the action plans are to be completed.
Through this format, the Plan becomes a working document for management and an
accountability document for the Board. While the completion of each action plan
is important, management and the Board understand that changes in market,
competitive, and economic conditions could impact the action plans and/or the
expected completion dates.
CORPORATE VISION STATEMENT
In developing this Plan, the Board and management incorporate the
Corporate Vision of Company and Bank. Where appropriate, this Corporate Vision
Statement will be communicated to shareholders, customers and employees to
instill the values and culture of Company and Bank.
MERCHANTS NATIONAL BANK
CORPORATE VISION STATEMENT
Merchants National Bank will strive to provide a broad range of financial
service needs for the customers and communities we serve.
The Bank will endeavor to:
- Serve clients in the highest ethical manner possible;
- Convey a level enthusiasm and trust for the client;
- Act as a responsible corporate citizens to the communities we serve;
- Create value for our shareholders by attaining the company's financial
goals; and,
- Foster a work environment and culture that is beneficial to all employees.
2
SITUATION ANALYSIS
A Situation Analysis is an assessment of the strengths, weaknesses,
opportunities and threats (SWOT) of the organization. Input from the board and
senior management team was requested in developing the SWOT analysis for Company
and Bank. The following is a summary of the review:
STRENGTHS
- The Bank's image and reputation
- Personal service and responsiveness to customer needs
- Competitive array of products and services
- Strong senior management leadership
- Solid relationship between board and management
- Respected board of directors
- Strong market share in core markets
- Well capitalized
- Above average level of profitability as compared to peer - strong net
interest margin and low overhead costs
WEAKNESSES
- Lack of overall sales culture - training and cross-selling
- Recent weakness in credit quality
- Branches serve relatively small, low growth markets
- Limited effectiveness of marketing and advertising
- Lack of internet banking product
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- Thin senior management team and flat organization structure
- Overall risk management systems - loan review, internal controls
- Lack of detailed financial reporting systems
- Ineffective board meeting and committee structure
- Limited marketability for the Company's stock
OPPORTUNITIES
- Transport branch models into new communities for profitable growth
- Increased sales initiatives could increase market share in current markets
- Industry consolidation will create increased customer dissatisfaction at
larger financial institutions
- Additional financial reporting tools could uncover profit enhancement
opportunities
- Attracting qualified and experienced bankers to a community bank culture
THREATS
- Without improved risk management systems, profits could be impacted in the
future
- Continued potential shrinking of net interest margins
- Increasing regulatory and SEC reporting costs
- Over-taxing senior management under current organizational structure
- Generating core deposit growth to support loan opportunities
FINANCIAL REVIEW - EXHIBIT 1
- Bank's assets have grown 8.7 percent on an annualized basis since 1999;
loan growth has outpaced deposit growth resulting in a loan to deposit
ratio of 106 percent
- Company maintains over $30 million of equity capital resulting in
well-capitalized levels for both leverage and risk-based ratios
4
- From 1999-2002, Company averaged an ROAA of 1.57% and an ROE of 15.8%; as
a result of increased loan losses, ROAA and ROE dipped to 1.11% and 11.8%
in 2003
- Relative to peer, Bank's current (2004) financial condition compares as
follows:
- The net interest margin is 30-40 basis points higher than the peer
median
- The loan-to-deposit ratio of 106% is higher than the peer median of
99%
- Noninterest income at 50 basis points of assets is 30-40 basis
points below peer
- Bank operates with significantly less overhead costs than peer;
assets per employee and efficiency ratio are all considerably better
than peer; by comparison, Bank is operating with 40 percent fewer
employees than peer
- Bank's ROAA at a normalized 1.25-1.30% is 20-30 basis points above
peer; ROE levels of 16-17% are 500-600 basis points above peer
MARKET REVIEW - EXHIBIT 2
- Bank operates offices in four communities and three counties; total
deposits in these counties exceed $1.5 billion with Bank garnering 17
percent of the three-county market; Highland County is the largest market
with nearly $900 million of deposits (note: NCB has reported a significant
increase in deposits, suggesting that much of this growth may be from
outside the county)
- Bank's largest presence is in Highland County with offices in Hillsboro
and Greenfield; Bank maintains a 20 percent deposit market share ranking
second behind NCB, FSB (45 percent share)
- Bank's next largest presence is in Fayette County with its office in
Washington Court House; Bank maintains a 19 percent deposit market share
ranking third behind Huntington (24 percent) and Advantage Bank (22
percent)
- Bank's smallest presence is in Madison County with the opening of its
London branch in 1999; Bank maintains a 7 percent deposit market share
ranking sixth behind five regional banks and one community bank (Advantage
Bank)
5
- Highland County is the largest county served with a population of over
42,000; population growth is expected to be the highest of any county
served with nearly 5 percent population growth expected from 2004-09;
Hillsboro is the largest community in Highland County at nearly 6,600 with
growth projections similar to the county
- Madison County is next largest at 40,500, but growth estimates are less
than 1 percent over the next five years; London is the largest community
in the county at nearly 9,000, and is expected to grow in population by 2
percent over the next five years
- Fayette County is the smallest county at just over 28,000; Washington
Court House is the largest community in the county at over 13,000, but is
expected to decline in population over the next five years
- Median HH Income statistics indicate that Madison County ($49K) is the
wealthiest county served followed by Fayette ($42K) and Highland ($38K)
6
CORE STRATEGIES
From the SWOT analysis and other input and discussions from management and
the board, core strategy areas were developed for the next three years. The
strategies were divided into four sections. They are summarized as follows:
- Core Strategy Area #1 - Loan Administration: Addresses the loan
origination process, lending staff, reorganization of functional areas
within loan administration, credit administration and loan review.
- Core Strategy Area #2 - Bank Administration and Risk Management: Includes
financial management, internal and external audit, branch administration,
human resources, and information technology.
- Core Strategy Area #3 - Strategic Initiatives: Encompasses geographic
expansion, shareholder relations, value enhancement strategies and board
structure.
- Core Strategy Area #4 - Financial Goals: Outlines financial goals for the
planning period, 2005-2007. The following sections summarize the Core
Strategy Areas and specific action plans within each section.
7
CORE STRATEGY AREA #1 - LOAN ADMINISTRATION
Bank has grown rapidly over the past five years with the most substantial
impact to the loan area. Total loans have increased $100 million since 1999
representing a 55 percent growth in the loan portfolio in just five years.
The Bank's loan growth has strained its capacity to effectively manage and
supervise loan origination and support functions. The most recent Report of
Examination highlighted deficiencies in asset quality, compliance and other
facets pertaining to loan administration. The recommendations highlighted in
this Plan address the immediate deficiencies noted in the Report of Examination.
The action plans also assist with creating an infrastructure to accommodate
longer-range growth and planning needs.
Central to several of the Core Strategy Areas are proposed modifications
to the Bank's organizational structure. Attached as Exhibit 3 is the proposed
organizational chart of Bank to be developed over the next 1-2 years.
The following itemizes loan administration planning priorities and
specific action plans in each area:
1. DESIGNATION OF CHIEF LENDING OFFICER
STRATEGIC ANALYSIS
The executive vice president, under the current organizational structure,
has most functional areas reporting through him, including all lending
activities. In order to reinforce reporting lines of a new loan administration
structure, the executive vice president should formally be designated as chief
lending officer for the bank. Principal responsibilities would encompass
building a loan departmental structure, evaluating current lending staff,
retaining new lenders as needed, supervising formation of a credit
administration function and designing effective loan marketing strategies.
8
In addition, this position would be responsible for monitoring lending
activities including, but not limited to, loan department organizational
structure, lending personnel, loan approval procedures, loan policy development
and overall loan portfolio quality, profitability and management. The position
would also serve as chairman of the bank officers' loan committee.
2. REORGANIZING LENDING FUNCTIONS
STRATEGIC ANALYSIS
Bank will begin evaluating the process of "departmentalizing" the lending
division. This would entail designating officer-level managers of commercial and
retail lending. Each department manager would be responsible for assessing
training needs of loan officers, designing business development sales and
marketing programs, product design, pricing, management of their departments'
portfolio, including yield, growth and credit quality. Commercial lending would
encompass all extensions of credit pertaining to business relationships,
including C&I loans, commercial real estate and agricultural relationships.
Retail lending would encompass personal lines of credit, traditional consumer
installment loans, residential real estate lending and home equity lending.
3. REVISING ROLE OF BRANCH LENDERS
STRATEGIC ANALYSIS
Presently, branch lenders are responsible for evaluating all types of loan
requests within a particular market including commercial, consumer, real estate
and others. "Senior" branch lenders also provide supervision for certain branch
activities within their markets. The future role of branch lenders will need to
be modified to focus on lending specialties that match the priority needs of a
local market and that provide the most substantial opportunities for attaining
profit improvement and volume targets. From a strategic
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planning perspective, this would entail continued focus on small business
lending and residential mortgage activities. Branch market lenders, in order to
maximize their productivity and servicing capabilities, should be increasingly
disengaged from branch supervision activities and non-customer branch
administrative tasks. Centralization of various loan administration duties -
over the entire planning timeframe - will permit branch lenders to become
exclusively sales and customer servicing oriented.
4. ADJUSTMENTS TO LOAN APPROVAL PROCESS/POLICIES
STRATEGIC ANALYSIS
A revised loan administration structure will require reassessment and
revision of internal lending procedures and policies. Increased centralization
of credit administration will permit branch lenders to focus on client sales
opportunities and servicing relationships. Centralization of underwriting
decisions for certain consumer and residential mortgage activity is likely to
enhance consistency of underwriting standards, greater compliance with
regulatory guidelines and improved documentation and reporting. Lending
authorities and limits will need to be re-evaluated for individual lenders, the
officers' loan committee and board of directors' loan committee.
5. CREATING A CREDIT ADMINISTRATION DEPARTMENT
STRATEGIC ANALYSIS
Over the Planning Period, Bank will evaluate establishing a formal credit
department to ensure high loan quality standards and procedures. The credit
department would be responsible for analyzing requests for new and renewal
extensions of credit, preparing loan
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packages with required documentation, analyzing and spreading financial
statements, ratio analyses, preparing cash flow statements, evaluating loan
structures, collateral analysis, and completing an initial write-up of the
aforementioned loan requests.
In addition, the credit department would be responsible for loan
operations, loan file maintenance, monitoring watch list credits, loan review
and collection of retail loans. However, it should be noted that loan review and
collections may initially report under the loan administration structure,
depending upon the experience and qualifications of the credit department
manager. It is anticipated that a newly appointed department manager would
assist with standardizing the loan application and approval processes. The
department and its staff of analysts (perhaps one or two analysts at the outset)
would add a level of independence and oversight to the underwriting, grading and
approval processes. The department manager, reporting to the chief lending
officer, would be charged with developing a staff of credit analysts as well as
other documentation and support personnel. Credit analysts may over time be
trained to be commercial lenders.
Loan review will become increasingly important to overall loan and credit
administration functions. Presently, an outside loan review specialist provides
loan review services on a periodic basis. By the end of the planning time frame,
the Bank may need to retain a full-time in-house loan review manager. The loan
review manager would make recommendations to adjust the allowance for loan and
lease losses (ALLL), as necessary. In addition, a loan review committee of the
board may be required at some point during the planning period.
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MERCHANTS NATIONAL BANK
STRATEGIC ACTION PLANS
CORE STRATEGY AREA #1 - LOAN ADMINISTRATION
GOAL ACTION PLANS RESPONSIBILITY STATUS DEADLINE
------------------------------- -------------------------------- -------------- ------ -------------------
1. NAME CHIEF LENDING OFFICER - Create job description CEO/EVP 12-31-04
- Obtain Board of Directors
approval
2. REORGANIZE LENDING FUNCTIONS - Designate lending division Jim Evans 1st Quarter of
heads John Storrs 2005
- Develop job descriptions Jim Hester
- Develop organizational chart Linda Smith
- Develop lending authorities Paul Pence
and work flow
12
GOAL ACTION PLANS RESPONSIBILITY STATUS DEADLINE
------------------------------- -------------------------------- -------------- ------ -------------------
3. RESTRUCTURE BRANCH LENDING - Senior lenders to analyze Jim Evans 2nd Quarter of
each branch market to assure John Storrs 2005
products and staffing are Jim Hester
tailored to specific markets Linda Smith
- Analyze loan administrative Paul Pence
duties in branch that may be
centralized/reorganized
- Adjustment to organizational
chart
4. ADJUST LOAN APPROVAL - Study to determine which Jim Evans 2nd Quarter of
PROCESS/POLICIES loan products and what John Storrs 2005
dollar thresholds might Jim Hester
benefit from a centralized Linda Smith
approval process Paul Pence
- Review lending authorities
and limits for officers/LC/&
Board LC
13
GOAL ACTION PLANS RESPONSIBILITY STATUS DEADLINE
------------------------------- -------------------------------- -------------- ------ -------------------
5. CREATE CREDIT ADMINISTRATION Credit Administration Department Jim Evans 3rd Quarter of
DEPARTMENT study to be broken down into John Storrs 2005
several functional areas, which Jim Hester
will result in multiple phases Linda Smith
and time frames. Paul Pence
Separate studies to be as
follows:
- loan processing/ servicing
area
- credit analysis function --
prep of new loan packages/
underwriting/grading/ assist
in approval process
- retail loan
collections/monitoring watch
list credits
- loan review function
All above will need:
- integration into
organizational chart
- job descriptions
- time frames for
implementation
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CORE STRATEGY AREA #2 - BANK ADMINISTRATION AND RISK MANAGEMENT
Bank's flat organizational structure results in most principal functional
areas reporting directly to the EVP. The EVP's focus on loan and credit
administration during the initial phases of the planning timeframe will require
managers of other key areas to assume greater supervisory and decision-making
roles. Planning priorities in the following section are focused on financial
management, internal controls and audit, the future role of branch
administration, human resource management and data processing.
1. FINANCE DEPARTMENT AND CFO
STRATEGIC ANALYSIS
The increasing complexity of bank and SEC reporting requires a
comprehensive and sophisticated approach to financial management
responsibilities. The finance area, and CFO, will provide oversight
responsibilities of budgeting, financial forecasting, capital management,
asset/liability management, investments, SEC reporting, preparation of internal
financial reports for the board of directors and management and oversight of the
controller function. Other key responsibilities will encompass profitability
analysis of products, customers, branches and alternative lines of business. The
CFO should also serve as a supervisor for bank operations and data processing
functions. Lastly, the CFO would analyze and coordinate special projects such as
branch expansion, acquisitions, data processing alternatives, and other capital
improvement projects. In the proposed organizational structure, the CFO would
report to the CEO.
15
2. INTERNAL CONTROLS
STRATEGIC ANALYSIS
A key planning priority derived from Bank's response to its most recent
examination is the retention of BKD, LLP to assist management with evaluating
internal controls and procedures as part of a comprehensive internal audit
program. Attached as Exhibit 4 is the internal audit schedule that identifies
audit areas and completion time frames.
3. EXTERNAL AUDIT
STRATEGIC ANALYSIS
Company has retained Deloitte & Touche to provide external auditing
services for Bank and Company. Company will evaluate the external audit services
on an annual basis.
4. BRANCH ADMINISTRATION
STRATEGIC ANALYSIS
In the revised organizational structure, branch administration will be
expanded to encompass branch operations and sales. The branch administrator will
be responsible for managing branch personnel, training branch staff, branch
teller operations, sales training and branch performance measurement.
Branch managers within the current structure are, in many cases,
considered to be de facto area executives. Their principal functions encompass
serving as the bank's lead community contact and as "image shapers" at the local
community level. Some "regional" managers have commercial and retail lending
authority. As noted earlier in this planning document, regional managers whose
16
principal responsibilities are lending would report to the chief lending
officer, thereby allowing for delegation of local branch management
responsibilities (non-lending duties). They would serve in a front-end
application and sales function for deposit relationships. The branch
administrator would also assist executive management with: (i) identification of
expansion markets; (ii) developing a standardized approach to evaluating branch
performance; (iii) creating a bank-wide branch staffing model; (iv) supervising
branch operations; and (v) assisting with the implementation of sales training
and measurement tools at the branch level.
5. HUMAN RESOURCE MANAGEMENT
STRATEGIC ANALYSIS
Bank does not have a professionally staffed human resource ("HR")
department. Presently, the secretary to the CEO performs the HR duties. A
professional HR manager would be responsible for managing employee benefits,
payroll, EEOC compliance, employee recruitment and training. As the Bank
continues to grow, the needs for an expanded array of HR support services, such
as assessment of alternative forms of compensation, benefits, training,
performance appraisal assistance, employee communications, stock incentives,
among others, will increase. The HR manager, on the proposed organization chart,
would report to the CEO.
6. DATA PROCESSING/TECHNOLOGY
STRATEGIC ANALYSIS
The Bank currently utilizes an ITI in-house data processing system. The
"shelf-life" of most data processing systems is 3-5 years before substantial
upgrades to hardware and software are required. As an ongoing planning priority,
the CFO and appropriate management committee should be responsible for
evaluating the benefits, shortfalls and costs associated with maintaining its
current
17
operating environment compared with outsourcing to a third-party vendor. A
subsequent report and recommendations would be submitted to the board for their
review and decision. Also included in this area, would be the evaluation of an
Internet Banking product for Bank.
7. COMPENSATION STRUCTURE
STRATEGIC ANALYSIS
In reorganizing and expanding the departmental areas described previously,
the Bank should evaluate its overall compensation structure, predominantly at
the officer level. The Bank needs to be competitive in the marketplace as it
potentially recruits from larger metropolitan markets such as Cincinnati and
Columbus. In addition, Company should evaluate the benefits and market
conditions for equity based compensation plans such as stock option plans. None
of these areas, however, should be evaluated in isolation. A study should be
performed that considers the total compensation programs at the Bank.
18
MERCHANTS NATIONAL BANK
STRATEGIC ACTION PLANS
CORE STRATEGY AREA #2 - BANK ADMINISTRATION AND RISK MANAGEMENT
GOAL ACTION PLANS RESPONSIBILITY STATUS DEADLINE
------------------------------- -------------------------------- ----------------- ------ -------------------
1. CREATE FINANCE DEPARTMENT - Write job description that Jim Evans 1st - 2nd
AND CFO POSITION encompasses "Finance" and Paul Pence Quarter of 2005
Operations/Data Processing
areas
- Develop area organizational
charts
- Contact trade association
and business contacts to
begin search
2. INTERNAL CONTROLS See plan document Board Audit Comm.
BKD
Nancy Hendrickson
3. EXTERNAL AUDIT See plan document Board Audit Comm.
Deloitte & Touche
Paul Pence
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GOAL ACTION PLANS RESPONSIBILITY STATUS DEADLINE
------------------------------- -------------------------------- ----------------- ------ -------------------
4. BRANCH ADMINISTRATION
A. REDEFINE OR CLARIFY THE - Create job description for Wilma Counter 1st Quarter 2005
RESPONSIBILITIES OF PRESENT Branch Administrator Jim Evans
BRANCH ADMINISTRATION - Define major areas of Linda Siders
responsibilities in bank Paul Pence
marketing, branch
operations, staffing and
training
- Establish clear
understanding of how
branch administrator fits
into organizational chart
with the proposed changes
in loan administration
B. DESIGN TRAINING PROGRAMS FOR - Develop structured training Wilma Coulter 3rd Quarter 2005
BRANCH PERSONNEL programs for deposit side Linda Siders
employees Linda Smith
C. IMPROVE EVALUATION OF BRANCH - Develop a standard set of Wilma Coulter 4th Quarter 2005
PERFORMANCE operational measures for Nancy Hendrickson
branch performance to Jim Evans
enhance accountability and
performance
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GOAL ACTION PLANS RESPONSIBILITY STATUS DEADLINE
------------------------------- -------------------------------- ----------------- ------ -------------------
5. PROFESSIONAL HUMAN RESOURCES - Conduct study to determine Paul Pence 2nd Quarter of
MANAGER need/benefit of this Jim Evans 2006
position for MNB
- Determine areas of
responsibility and create
job description
- Advertise and hire if
applicable
6. DATA PROCESSING/TECHNOLOGY - Data processing, study to New CFO and Deferred until CFO
STUDY include: representative Retained
- in-house v. outsource from functional
- alternative vendors areas
- personnel issues
- cost/benefit
- future growth
- internet banking
- Report results to senior
management/board of
directors
- If a go -- then implement
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GOAL ACTION PLANS RESPONSIBILITY STATUS DEADLINE
------------------------------- -------------------------------- ----------------- ------ -------------------
7. COMPENSATION STRUCTURE Evaluation of overall Board 2nd & 3rd
compensation and alternatives to CEO Quarter 2005
include: EVP
- defined benefit retirement
plan
- 401 K
- equity-based compensation
- incentive compensation
- benefit plans -- health,
vacation, etc.
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CORE STRATEGY AREA #3 - STRATEGIC INITIATIVES
This area of the Plan encompasses more of the strategic and less of the
tactical areas of the Plan. This includes such important components as
geographic expansion, shareholder relations, value enhancement strategies and
board and committee structure.
1. RESTRUCTURING OF THE BOARD OF DIRECTORS
STRATEGIC ANALYSIS
As noted previously, Company and Bank are facing continuing increases in
regulation, both at the Bank and SEC level that will require increased level of
participation and sophistication at the Board level. In turn, the Board should
be structured to efficiently and effectively meet the requirements of directors.
In addition, a board of directors is, ideally, a reflection of the communities
and customers which the institution serves. Company and Bank's Board of
Directors have effectively served over the years; however, several modification
may be considered in the following areas: (i) financial reporting to the board
should be streamlined to a summary of pertinent financial and other data; (ii)
regular board meetings should be scheduled monthly (as opposed to twice a
month); (iii) committees should become actively engaged in their specific areas
of responsibility and should include, at a minimum, a board loan, audit,
compensation and loan review committee; and, (iv) the Board should consider
adding at least two new directors over the next one-to-two years with special
consideration for financial experts and residents of communities not presently
served on the board.
23
2. BRANCH EXPANSION
STRATEGIC ANALYSIS
Bank entered Washington Court House in 1990 and London in 1999. Washington
Court House currently maintains total deposits and loans of $58 and $94 million,
respectively. In just five years, London has generated $27 million in deposits
and $47 million of loans. Both of these de novo branches have been successful,
by several different measurements, and now represent important components of
Company's franchise. The success of these expansions were a function of several
different variables, including: (i) the caliber of the personnel hired in each
market; (ii) the type and size of market, including the nature of the
competition; and, (iii) the ability of existing management to oversee the
project and integrate Bank's culture in the new offices.
Given the demographic and economic environment in Bank's existing offices,
including Washington Court House and London, Bank will need to carefully
evaluate and execute one or two additional branch locations during this planning
period. Planning for the next branch office can begin immediately. Attached as
Exhibit 5, is summary information on several markets that may represent
expansion markets for Bank.
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3. SHAREHOLDER RELATIONS/VALUE ENHANCEMENT ISSUES
STRATEGIC ANALYSIS
Company currently maintains over 800 shareholders and therefore reports to
the SEC. With increased disclosure and reporting obligations, it is estimated
that Company will expend at least $100,000 annually to comply with SEC reporting
requirements. Given Company's strategic direction and stock ownership profile,
continued reporting to the SEC is unlikely to provide shareholders with any
tangible value in the long-term. In order to deregister from the SEC, Company
would need to "go-private" by reducing shareholders to less than 300. The
largest 300 shareholders hold 97 percent of the outstanding shares. This would
require the elimination of over 500 shareholders, but only 80,000 shares (3% of
outstanding shares). The repurchase of 80,000 shares is estimated to amount to
$2 million in capital. Repurchase of this amount (or more) of capital can be
funded with internal capital or with the issuance of trust preferred securities
with Company and Bank still remaining well-capitalized.
Outside of a "going-private" transaction, Company should consider
alternatives to manage the shareholder base through stock repurchases. Stock
repurchases can also be an effective capital management tool. On-going
repurchases assist in providing shareholders with liquidity for their shares and
prevents from building excess amounts of capital that will depress ROE ratios.
More significant repurchases may require Company considering a trust preferred
offering to solidify regulatory capital ratios.
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MERCHANTS NATIONAL BANK
STRATEGIC ACTION PLANS
CORE STRATEGY AREA #3 - STRATEGIC INITIATIVES
GOAL ACTION PLANS RESPONSIBILITY STATUS DEADLINE
--------------------------------- ---------------------------------- ------------------ ------ ------------------
1. Restructure Board of Directors Comprehensive study to include: Board of Directors 2nd Quarter 2005
- improved financial reporting
- board and committee structure
and responsibilities
- committee structure and
responsibilities
- ideal board size and
composition
2. Branch Expansion Study of branching opportunities Board 1st Quarter 2005
to include: Paul Pence
- market analysis Jim Evans
- staffing issues
- financial analysis
- risk assessment
3. Shareholder Relations/Value Study areas to include: Board 1st Quarter 2005
Enhancement Issues - "going private" Jim Evans
- stock repurchase program Paul Pence
- market maker for bancorp stock
26
CORE STRATEGY AREA #4 - FINANCIAL GOALS
A strategic plan should incorporate specific financial goals of the Board
of Directors. These goals can then be used in a variety of ways including: (i)
benchmarking actual results to plan objectives; (ii) evaluating and rewarding
management performance; and, (iii) projecting value enhancement potential for
shareholders. The Board has identified the following long-term financial goals
of the Company:
ANNUAL ASSET GROWTH 6-10 PERCENT
ANNUAL RETURN ON AVERAGE EQUITY 14-16 PERCENT
ANNUAL CASH DIVIDENDS TO NET INCOME 35-45 PERCENT
ANNUAL INCREASE IN EARNINGS PER SHARE 6-10 PERCENT
With these overall goals established, Exhibit 6 provides financial
projections that meet this criterion at the low and high-end of the established
ranges.
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MERCHANTS NATIONAL BANK
STRATEGIC ACTION PLANS
CORE STRATEGY AREA #4 - FINANCIAL GOALS
GOAL ACTION PLANS RESPONSIBILITY STATUS DEADLINE
------------------------------ --------------------------- --------------------- ---------------------------- ------------------
1. ANNUAL ASSET GROWTH OF 6-10 - 2005 asset target $397 Senior Management CFO and Management Team to Board to review
PERCENT - 2006 asset target $429 Group and CFO upon develop a new, more quarterly during
- 2007 asset target $463 his retention by Bank comprehensive quarterly the year
- committee structure and reporting process for Board
responsibilities of Directors that provides
- ideal board size and performance indicators
composition comparing actual performance
with budget/plan objectives
2. ANNUAL RETURN ON AVERAGE - 2005 target 15.52% Senior Management CFO and Management Team to Board to review
EQUITY OF 14-16 PERCENT - 2006 target 15.67% Group and CFO upon develop a new, more quarterly during
- 2007 target 15.81% his retention by Bank comprehensive quarterly the year
reporting process for Board
of Directors that provides
performance indicators
comparing actual performance
with budget/plan objectives
28
GOAL ACTION PLANS RESPONSIBILITY STATUS DEADLINE
------------------------------ --------------------------- --------------------- ---------------------------- ------------------
3. ANNUAL CASH DIVIDENDS TO - 2005 $0.84 per share Senior Management CFO and Management Team to Board to review
NET INCOME OF 25-45 PERCENT - 2006 $0.92 per share Group and CFO upon develop a new, more quarterly during
- 2007 $1.01 per share his retention by Bank comprehensive quarterly the year
reporting process for Board
of Directors that provides
performance indicators
comparing actual performance
with budget/plan objectives
4. ANNUAL INCREASE IN - 2005 EPS $1.86 Senior Management CFO and Management Team to Board to review
EARNINGS PER SHARE OF - 2006 EPS $2.04 Group and CFO upon develop a new, more quarterly during
6-10 PERCENT - 2007 EPS $2.25 his retention by Bank comprehensive quarterly the year
reporting process for Board
of Directors that provides
performance indicators
comparing actual performance
with budget/plan objectives
29
MERCHANTS BANCORP, INC.
&
MERCHANTS NATIONAL BANK
STRATEGIC PLAN
2005-2007
EXHIBITS EXHIBIT #
-------- ---------
Financial Performance Summary vs. Peer Group 1
Market Analysis 2
Proposed Organizational Chart 3
Internal Audit Schedule 4
Potential Expansion Markets 5
Financial Projections 6
EXHIBIT 1
Financial Performance Summary vs. Peer Group
EXHIBIT 1.1
MERCHANTS NATIONAL BANK OF HILLSBORO
PEER GROUP PERFORMANCE ANALYSIS
SELECTIVE COMMERCIAL BANKS HEADQUARTERED IN OH, IN, OR MI
TOTAL ASSETS $300 - $400 MILLION
LAST TWELVE MONTHS - PERIOD ENDING MARCH 31, 2004
-------------------------------------------------
TOTAL
TOTAL EQUITY TOTAL TOTAL
DATE ASSETS CAPITAL LOANS DEPOSITS
COMPANY NAME CITY STATE ESTABLISHED ($000) ($000) ($000) ($000)
------------------------------------ ------------- ----- ----------- -------- ------- -------- --------
1 First Farmers Bank & Trust Company Converse IN 07/01/1885 $397,037 $40,396 $303,514 $314,430
2 First National Bank of America East Lansing MI 05/06/55 $394,255 $72,216 $331,030 $208,892
3 North Side Bank & Trust Company Cincinnati OH 01/01/1892 $388,624 $52,311 $287,134 $280,787
4 Community Central Bank Mount Clemens MI 10/28/96 $371,125 $31,044 $302,228 $274,859
5 State Bank Fenton MI 12/25/1898 $359,595 $28,001 $236,449 $316,284
6 First Bank of Berne Berne IN 10/21/1891 $358,517 $40,954 $253,069 $246,457
7 Heartland Bank Croton OH 01/01/11 $356,056 $29,141 $254,571 $318,521
8 United Bank of Michigan Grand Rapids MI 01/01/03 $355,754 $30,041 $301,459 $289,482
9 Citizens National Bank of Bluffton Bluffton OH 01/13/20 $352,675 $30,915 $278,463 $255,068
10 Jackson County Bank Seymour IN 01/01/00 $324,147 $31,332 $238,417 $257,576
11 Bloomfield State Bank Bloomfield IN 01/01/1873 $322,863 $30,843 $223,758 $255,470
12 Southern Michigan Bank & Trust Coldwater MI 01/16/1872 $320,926 $28,221 $236,434 $261,443
13 Commercial and Savings Bank Millersburg OH 01/01/1879 $317,668 $33,023 $218,221 $241,143
14 Farmers State Bank Lagrange IN 07/16/1835 $317,542 $29,540 $242,490 $256,229
15 St. Joseph Capital Bank Mishawaka IN 02/13/97 $305,331 $26,250 $229,274 $210,732
16 Bank of Holland Holland MI 10/14/98 $303,544 $24,861 $275,865 $251,153
-------- ------- -------- --------
AVERAGE $346,604 $34,943 $263,274 $264,908
MEDIAN $354,215 $30,879 $253,820 $256,903
-------- ------- -------- --------
12-MONTHS ENDED 03/31/2004
MERCHANTS NATIONAL BANK OF HILLSBORO HILLSBORO OH 01/01/1879 $355,225 $28,002 $287,633 $275,822
-------- ------- -------- --------
ANNUALIZED 6-MONTHS ENDED 06/30/2004
MERCHANTS NATIONAL BANK OF HILLSBORO HILLSBORO OH 01/01/1879 $352,070 $27,682 $293,115 $275,372
-------- ------- -------- --------
LAST TWELVE MONTHS - PERIOD ENDING MARCH 31, 2004
-------------------------------------------------
LOANS/ NET INCOME
DATE DEPOSITS (LOSS) ROAA ROAE
COMPANY NAME CITY STATE ESTABLISHED (%) ($000) (%) (%)
------------------------------------ ------------- ----- ----------- -------- ---------- ---- -----
1 First Farmers Bank & Trust Company Converse IN 07/01/1885 96.5% $ 5,503 1.41% 14.17%
2 First National Bank of America East Lansing MI 05/06/55 158.5% $ 11,203 2.60% 15.60%
3 North Side Bank & Trust Company Cincinnati OH 01/01/1892 102.3% $ 4,290 1.08% 8.39%
4 Community Central Bank Mount Clemens MI 10/28/96 110.0% $ 2,916 0.85% 9.75%
5 State Bank Fenton MI 12/25/1898 74.8% $ 3,538 1.01% 12.91%
6 First Bank of Berne Berne IN 10/21/1891 102.7% $ 3,892 1.09% 9.95%
7 Heartland Bank Croton OH 01/01/11 79.9% $ 4,183 1.25% 15.52%
8 United Bank of Michigan Grand Rapids MI 01/01/03 104.1% $ 3,949 1.16% 14.03%
9 Citizens National Bank of Bluffton Bluffton OH 01/13/20 109.2% $ 3,153 0.92% 10.06%
10 Jackson County Bank Seymour IN 01/01/00 92.6% $ 3,112 0.99% 10.50%
11 Bloomfield State Bank Bloomfield IN 01/01/1873 87.6% $ 3,137 1.03% 10.78%
12 Southern Michigan Bank & Trust Coldwater MI 01/16/1872 90.4% $ 3,206 1.02% 11.87%
13 Commercial and Savings Bank Millersburg OH 01/01/1879 90.5% $ 2,039 0.67% 6.25%
14 Farmers State Bank Lagrange IN 07/16/1835 94.6% $ 3,795 1.22% 13.15%
15 St. Joseph Capital Bank Mishawaka IN 02/13/97 108.8% $ 2,213 0.80% 9.22%
16 Bank of Holland Holland MI 10/14/98 109.8% $ 2,321 0.86% 10.46%
----- ---------- ---- -----
AVERAGE 100.8% $ 3,903 1.12% 11.41%
MEDIAN 99.4% $ 3,372 1.03% 10.64%
----- ---------- ---- -----
12-MONTHS ENDED 03/31/2004
MERCHANTS NATIONAL BANK OF HILLSBORO HILLSBORO OH 01/01/1879 104.3% $ 3,543 1.04% 16.44%
----- ---------- ---- -----
ANNUALIZED 6-MONTHS ENDED 06/30/2004
MERCHANTS NATIONAL BANK OF HILLSBORO HILLSBORO OH 01/01/1879 106.4% $ 4,452 1.26% 17.06%
----- ---------- ---- -----
Austin Associates, LLC
EXHIBIT 1.2
MERCHANTS NATIONAL BANK OF HILLSBORO
PEER GROUP PERFORMANCE ANALYSIS
TOTAL ASSETS ($MILS.)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median $305 $310 $347 $354
Merchants NB $299 $313 $348 $355 $352
TOTAL LOANS ($MILS.)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median $214 $225 $248 $254
Merchants NB $223 $246 $287 $288 $293
TOTAL DEPOSITS ($MILS.)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median $246 $249 $257 $257
Merchants NB $259 $261 $268 $276 $275
LOAN/ASSET RATIO
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 70% 73% 71% 72%
Merchants NB 75% 79% 82% 81% 83%
Austin Associates, LLC
EXHIBIT 1.3
MERCHANTS NATIONAL BANK OF HILLSBORO
PEER GROUP PERFORMANCE ANALYSIS
ASSET GROWTH (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 10.5% 7.2% 7.4% 3.6%
Merchants NB 9.5% 4.7% 11.0% 8.7% -3.6%
LOAN GROWTH (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 3.7% 10.8% 8.3% 5.0%
Merchants NB 0.6% 10.3% 16.5% 1.3% 7.6%
DEPOSIT GROWTH (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 7.5% 5.0% 7.9% 3.3%
Merchants NB 10.9% 0.7% 2.6% 11.8% -0.7%
Note: Quarterly growth rates have been annualized.
Austin Associates, LLC
EXHIBIT 1.4
MERCHANTS NATIONAL BANK OF HILLSBORO
PEER GROUP PERFORMANCE ANALYSIS
INTEREST INCOME TO AVERAGE ASSETS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 7.17% 6.13% 5.44% 5.12%
Merchants NB 7.86% 6.85% 6.00% 5.75% 5.67%
INTEREST EXPENSE TO AVERAGE ASSETS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 3.58% 2.43% 1.91% 1.70%
Merchants NB 3.83% 2.62% 2.14% 1.92% 1.88%
NET INTEREST INCOME TO AVERAGE ASSETS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 3.71% 3.80% 3.57% 3.46%
Merchants NB 4.02% 4.22% 3.86% 3.83% 3.79%
Austin Associates, LLC
EXHIBIT 1.5
MERCHANTS NATIONAL BANK OF HILLSBORO
PEER GROUP PERFORMANCE ANALYSIS
LOAN YIELD (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 8.30% 7.21% 6.51% 6.04%
Merchants NB 8.89% 7.87% 6.84% 6.51% 6.42%
EARNING ASSET YIELD (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 7.70% 6.61% 5.84% 5.53%
Merchants NB 8.41% 7.35% 6.40% 6.14% 6.03%
COST OF INTEREST BEARING DEPOSITS (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 4.45% 2.88% 2.20% 1.89%
Merchants NB 4.65% 3.09% 2.17% 1.93% 1.88%
Austin Associates, LLC
EXHIBIT 1.6
MERCHANTS NATIONAL BANK OF HILLSBORO
PEER GROUP PERFORMANCE ANALYSIS
NOW RATE (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 2.06% 1.25% 0.76% 0.61%
Merchants NB 2.54% 1.82% 1.35% 1.12% 1.13%
SAVINGS/MONEY MARKET RATE (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 2.70% 1.36% 0.95% 0.75%
Merchants NB 2.59% 2.14% 1.52% 1.33% 1.36%
CD RATE (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 5.57% 3.94% 2.91% 2.62%
Merchants NB 5.70% 3.85% 2.80% 2.56% 2.56%
Austin Associates, LLC
EXHIBIT 1.7
MERCHANTS NATIONAL BANK OF HILLSBORO
PEER GROUP PERFORMANCE ANALYSIS
CONSTRUCTION AND LAND DEVELOPMENT LOANS/TOTAL LOANS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Average 6.17% 5.56% 5.88% 5.73%
Merchants NB 1.60% 2.66% 3.28% 3.36% 3.56%
1-4 FAMILY LOANS/TOTAL LOANS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Average 33.15% 35.68% 35.19% 34.66%
Merchants NB 41.41% 38.67% 44.24% 44.59% 44.65%
COMMERCIAL REAL ESTATE LOANS/TOTAL LOANS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Average 26.44% 27.01% 27.86% 28.73%
Merchants NB 16.99% 18.59% 17.70% 17.83% 17.33%
COMMERCIAL LOANS/TOTAL LOANS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Average 17.92% 17.20% 16.83% 16.56%
Merchants NB 10.80% 10.16% 8.51% 8.95% 8.61%
Austin Associates, LLC
EXHIBIT 1.8
MERCHANTS NATIONAL BANK OF HILLSBORO
PEER GROUP PERFORMANCE ANALYSIS
NONINTEREST BEARING DEPOSITS/TOTAL DEPOSITS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Average 13.11% 13.72% 13.42% 13.03%
Merchants NB 12.04% 11.57% 11.83% 10.58% 11.41%
NOW DEPOSITS/TOTAL DEPOSITS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Average 13.37% 14.01% 9.22% 8.72%
Merchants NB 22.76% 24.42% 24.13% 25.05% 24.51%
SAVINGS+MONEY MARKET DEPOSITS/TOTAL DEPOSITS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Average 21.67% 23.95% 29.46% 30.46%
Merchants NB 10.40% 14.56% 16.35% 17.29% 17.13%
TIME DEPOSITS/TOTAL DEPOSITS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Average 51.86% 48.32% 47.89% 47.79%
Merchants NB 54.80% 49.45% 47.69% 47.07% 46.95%
Austin Associates, LLC
EXHIBIT 1.9
MERCHANTS NATIONAL BANK OF HILLSBORO
PEER GROUP PERFORMANCE ANALYSIS
SERVICE CHARGES ON DEPOSITS/AVERAGE ASSETS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 0.22% 0.26% 0.25% 0.23%
Merchants NB 0.40% 0.38% 0.35% 0.33% 0.34%
OTHER NONINTEREST INCOME TO AVERAGE ASSETS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 0.44% 0.63% 1.03% 0.60%
Merchants NB 0.12% 0.12% 0.10% 0.16% 0.17%
TOTAL NONINTEREST INCOME TO AVERAGE ASSETS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 0.66% 0.88% 1.28% 0.83%
Merchants NB 0.52% 0.50% 0.45% 0.49% 0.51%
Austin Associates, LLC
EXHIBIT 1.10
MERCHANTS NATIONAL BANK OF HILLSBORO
PEER GROUP PERFORMANCE ANALYSIS
SALARIES & BENEFITS EXPENSE TO AVERAGE ASSETS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 1.51% 1.61% 1.68% 1.67%
Merchants NB 1.18% 1.16% 0.96% 1.16% 1.16%
OCCUPANCY EXPENSE TO AVERAGE ASSETS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 0.37% 0.42% 0.42% 0.39%
Merchants NB 0.35% 0.34% 0.33% 0.28% 0.28%
OTHER NONINTEREST EXPENSE TO AVERAGE ASSETS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 0.87% 1.08% 1.18% 1.12%
Merchants NB 0.80% 0.86% 0.78% 0.84% 0.82%
OVERHEAD EXPENSE TO AVERAGE ASSETS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 2.75% 3.10% 3.27% 3.18%
Merchants NB 2.33% 2.36% 2.07% 2.28% 2.26%
Austin Associates, LLC
EXHIBIT 1.11
MERCHANTS NATIONAL BANK OF HILLSBORO
PEER GROUP PERFORMANCE ANALYSIS
TOTAL ASSETS PER EMPLOYEE ($000)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median $2,706 $2,780 $2,913 $2,809
Merchants NB $3,479 $3,559 $3,863 $3,947 $3,827
PERSONNEL EXPENSE PER EMPLOYEE ($000)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median $42.4 $43.5 $48.1 $47.9
Merchants NB $38.8 $39.8 $35.5 $45.2 $44.8
EFFICIENCY RATIO (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 62.4% 60.1% 62.2% 64.5%
Merchants NB 51.2% 49.9% 48.0% 52.8% 52.5%
PROVISION EXPENSE TO AVERAGE ASSETS
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 0.22% 0.24% 0.18% 0.14%
Merchants NB 0.06% 0.14% 0.87% 0.17% 0.20%
Austin Associates, LLC
EXHIBIT 1.12
MERCHANTS NATIONAL BANK OF HILLSBORO
PEER GROUP PERFORMANCE ANALYSIS
ROAA (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 1.14% 1.11% 1.08% 0.96%
Merchants NB 1.49% 1.53% 0.99% 1.27% 1.26%
ROAE (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 11.46% 11.68% 11.27% 10.73%
Merchants NB 18.04% 18.35% 16.18% 18.30% 15.98%
NET INCOME ($000%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median $3,192 $3,282 $3,540 $ 855
Merchants NB $4,208 $4,608 $3,305 $1,114 $1,112
Austin Associates, LLC
EXHIBIT 1.13
MERCHANTS NATIONAL BANK OF HILLSBORO
PEER GROUP PERFORMANCE ANALYSIS
TIER ONE LEVERAGE RATIO (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 8.67% 8.91% 8.54% 8.65%
Merchants NB 8.14% 6.01% 5.75% 7.78% 7.74%
TOTAL RISK-BASED CAPITAL RATIO (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 12.94% 13.44% 12.21% 12.32%
Merchants NB 12.54% 12.40% 11.75% 11.41% 11.14%
NONPERFORMING ASSETS/TOTAL ASSETS (%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 0.71% 0.56% 0.50% 0.43%
Merchants NB 0.69% 0.59% 0.94% 1.10% 0.80%
NET LOAN CHARGE-OFFS/AVERAGE LOANS(%)
[BAR CHART]
2001Y 2002Y 2003Y 2004Q1 2004Q2
Peer Median 0.26% 0.15% 0.14% 0.04%
Merchants NB 0.06% 0.12% 0.97% 0.12% 0.26%
Austin Associates, LLC
EXHIBIT 2
Market Analysis
EXHIBIT 2.1
MERCHANTS BANCORP
ECONOMIC AND DEMOGRAPHIC DATA
2000 2004 % CHANGE 2009 % CHANGE
POPULATION CENSUS CURRENT 2000-2004 PROJECTED 2004-2009
---------------------- ---------- ---------- --------- ---------- ---------
Greenfield 4,906 4,891 -0.3% 4,894 0.1%
Hillsboro 6,368 6,599 3.6% 6,886 4.3%
London 8,771 8,956 2.1% 9,124 1.9%
Washington Court House 13,524 13,117 -3.0% 12,617 -3.8%
Fayette County 28,433 28,004 -1.5% 27,459 -1.9%
Highland County 40,875 42,573 4.2% 44,667 4.9%
Madison County 40,213 40,505 0.7% 40,844 0.8%
State of Ohio 11,353,140 11,454,693 0.9% 11,576,840 1.1%
---------- ---------- ---- ---------- ----
HOUSEHOLDS
Greenfield 1,955 1,963 0.4% 1,982 1.0%
Hillsboro 2,686 2,815 4.8% 2,977 5.8%
London 3,590 3,703 3.1% 3,829 3.4%
Washington Court House 5,483 5,353 -2.4% 5,188 -3.1%
Fayette County 11,054 10,970 -0.8% 10,860 -1.0%
Highland County 15,587 16,334 4.8% 17,269 5.7%
Madison County 13,672 13,882 1.5% 14,139 1.9%
State of Ohio 4,445,773 4,515,087 1.6% 4,601,331 1.9%
---------- ---------- ---- ---------- ----
Austin Associates, LLC
EXHIBIT 2.1 (CON'T)
MERCHANTS BANCORP
ECONOMIC AND DEMOGRAPHIC DATA
2000 2004 % CHANGE 2009 % CHANGE
AVERAGE HH INCOME CENSUS CURRENT 2000-2004 PROJECTED 2004-2009
---------------------- ---------- ---------- --------- ---------- ---------
Greenfield $ 36,050 $ 38,460 6.7% $ 40,942 6.5%
Hillsboro $ 35,041 $ 37,424 6.8% $ 40,348 7.8%
London $ 43,888 $ 48,530 10.6% $ 55,454 14.3%
Washington Court House $ 44,379 $ 49,101 10.6% $ 56,576 15.2%
Fayette County $ 45,752 $ 51,790 13.2% $ 60,238 16.3%
Highland County $ 42,684 $ 47,459 11.2% $ 53,293 12.3%
Madison County $ 52,150 $ 58,702 12.6% $ 66,711 13.6%
State of Ohio $ 52,836 $ 58,089 9.9% $ 64,825 11.6%
---------- ---------- ---- ---------- ----
MEDIAN HH INCOME
Greenfield $ 30,017 $ 31,964 6.5% $ 33,885 6.0%
Hillsboro $ 26,161 $ 27,869 6.5% $ 29,988 7.6%
London $ 35,737 $ 39,130 9.5% $ 44,052 12.6%
Washington Court House $ 33,745 $ 37,220 10.3% $ 43,690 17.4%
Fayette County $ 37,134 $ 42,118 13.4% $ 48,072 14.1%
Highland County $ 35,343 $ 38,515 9.0% $ 42,537 10.4%
Madison County $ 44,580 $ 48,952 9.8% $ 54,958 12.3%
State of Ohio $ 41,499 $ 44,607 7.5% $ 48,633 9.0%
---------- ---------- ---- ---------- ----
PER CAPITA INCOME
Greenfield $ 14,306 $ 15,772 10.2% $ 16,913 7.2%
Hillsboro $ 15,400 $ 16,304 5.9% $ 17,765 9.0%
London $ 18,404 $ 20,568 11.8% $ 23,768 15.6%
Washington Court House $ 18,618 $ 20,599 10.6% $ 23,893 16.0%
Fayette County $ 18,063 $ 20,629 14.2% $ 24,200 17.3%
Highland County $ 16,521 $ 18,301 10.8% $ 20,692 13.1%
Madison County $ 18,721 $ 21,113 12.8% $ 24,100 14.1%
State of Ohio $ 21,003 $ 23,192 10.4% $ 26,076 12.4%
---------- ---------- ---- ---------- ----
Source: Claritas
Austin Associates, LLC
EXHIBIT 2.2
MERCHANTS BANCORP
DEPOSIT TREND ANALYSIS BY BRANCH
JUN-98 JUN-99
DATE DEPOSITS DEPOSITS
BRANCH ADDRESS CITY COUNTY ESTABLISHED ($000) ($000)
------------------------- ---------------------- -------- ----------- -------- --------
1 100 N High St Hillsboro Highland 12/25/1879 $ 72,428 $ 77,789
2 128 S North St Washington Court House Fayette 06/11/1990 $ 34,067 $ 41,401
3 117-119 S Washington St Greenfield Highland 01/01/1911 $ 31,731 $ 33,249
3 1470 N High St Hillsboro Highland 08/27/1973 $ 24,143 $ 25,916
4 145 W Beech St Hillsboro Highland NA NA NA
5 279 Lafayette St London Madison 12/07/1998 NA $ 10,091
6 104 Jefferson St Greenfield Highland 06/19/1967 $ 13,599 $ 14,249
-------- --------
TOTAL $175,968 $202,695
-------- --------
JUN-98/
JUN-00 JUN-01 JUN-02 JUN-03 JUN-03
DATE DEPOSITS DEPOSITS DEPOSITS DEPOSITS C.A.G.R.
BRANCH ADDRESS CITY COUNTY ESTABLISHED ($000) ($000) ($000) ($000) (%)
------------------------- ---------------------- -------- ----------- -------- -------- -------- -------- --------
1 100 N High St Hillsboro Highland 12/25/1879 $ 85,741 $ 89,353 $ 93,460 $ 65,333 -2.0%
2 128 S North St Washington Court House Fayette 06/11/1990 $ 49,979 $ 54,325 $ 46,382 $ 58,490 11.4%
3 117-119 S Washington St Greenfield Highland 01/01/1911 $ 34,644 $ 34,832 $ 35,372 $ 33,498 1.1%
3 1470 N High St Hillsboro Highland 08/27/1973 $ 28,570 $ 29,660 $ 31,153 $ 33,267 6.6%
4 145 W Beech St Hillsboro Highland NA NA NA NA $ 32,067 NA
5 279 Lafayette St London Madison 12/07/1998 $ 18,422 $ 22,457 $ 25,695 $ 25,386 NA
6 104 Jefferson St Greenfield Highland 06/19/1967 $ 14,848 $ 14,928 $ 15,159 $ 14,356 1.1%
-------- -------- -------- -------- --------
TOTAL $232,204 $245,555 $247,221 $262,397 8.3%
-------- -------- -------- -------- --------
Austin Associates, LLC
EXHIBIT 2.3
MERCHANTS BANCORP
DEPOSIT TREND ANALYSIS BY COUNTY
FAYETTE COUNTY, OHIO
INSTITUTION ADDRESS JUN-98
------------------- TOTAL DEPOSITS
HOLDING COMPANY TYPE INSTITUTION CITY STATE BRANCHES ($000)
------------------------------ ------- ------------------------- ----------- ------ -------- --------
1 Huntington Bancshares Inc. Bank Huntington National Bank Columbus OH 1 $ 75,727
2 Camco Financial Corp. Savings Advantage Bank Cambridge OH 2 $ 62,518
3 Merchants Bancorp Inc. Bank Merchants NB of Hillsboro Hillsboro OH 1 $ 34,067
4 Fifth Third Bancorp Bank Fifth Third Bank Cincinnati OH 1 $ 43,403
5 National City Corp. Bank National City Bank Cleveland OH 1 $ 40,488
6 U.S. Bancorp Bank U.S. Bank NA Cincinnati OH 1 $ 18,186
7 Park National Corp. Bank Security National B&TC Springfield OH 1 $ 10,738
8 NB&T Financial Group Inc. Bank National Bank & Trust Co. Wilmington OH 1 $ 0
-- --------
TOTAL 9 $285,127
-- --------
JUN-03 JUN-02/ JUN-98/ JUN-03
DEPOSITS JUN-03 JUN-03 MARKET
HOLDING COMPANY TYPE INSTITUTION ($000) % CHANGE C.A.G.R. SHARE
------------------------------ ------- ------------------------- -------- -------- -------- ------
1 Huntington Bancshares Inc. Bank Huntington National Bank $ 74,821 -0.8% -0.2% 23.8%
2 Camco Financial Corp. Savings Advantage Bank $ 69,105 -7.0% 2.0% 22.0%
3 Merchants Bancorp Inc. Bank Merchants NB of Hillsboro $ 58,490 26.1% 11.4% 18.6%
4 Fifth Third Bancorp Bank Fifth Third Bank $ 48,063 -16.8% 2.1% 15.3%
5 National City Corp. Bank National City Bank $ 38,793 4.6% -0.9% 12.3%
6 U.S. Bancorp Bank U.S. Bank NA $ 12,063 20.8% -7.9% 3.8%
7 Park National Corp. Bank Security National B&TC $ 11,763 3.3% 1.8% 3.7%
8 NB&T Financial Group Inc. Bank National Bank & Trust Co. $ 1,506 15.5% NA 0.5%
-------- ----- ---- ----
$314,604 0.3% 2.0% 100%
-------- ----- ---- ----
HIGHLAND COUNTY, OHIO
INSTITUTION ADDRESS JUN-98
------------------- TOTAL DEPOSITS
HOLDING COMPANY TYPE INSTITUTION CITY STATE BRANCHES ($000)
-------------------------------- ------ ------------------------- ---------- ------- -------- --------
1 Natl Consumer Cooperative Bk Thrift NCB FSB Hillsboro OH 1 $108,664
2 Merchants Bancorp Inc. Bank Merchants NB of Hillsboro Hillsboro OH 5 $141,901
3 Fifth Third Bancorp Bank Fifth Third Bank Cincinnati OH 5 $119,123
4 Home Building & Loan Co Thrift Home Building & Loan Co Greenfield OH 1 $ 24,855
5 U.S. Bancorp Bank U.S. Bank NA Cincinnati OH 2 $ 63,190
6 Leesburg FSB Thrift Leesburg FSB Leesburg OH 2 $ 22,246
7 Liberty Capital Inc. Thrift Liberty SB FSB Wilmington OH 2 $ 33,766
8 Home Builders Assn. Thrift Home Builders Assn. Lynchburg OH 1 $ 20,004
9 NB&T Financial Group Bank National Bank & Trust Co. Wilmington OH 1 $ 2,665
-- --------
TOTAL 20 $536,414
-- --------
JUN-03 JUN-02/ JUN-98/ JUN-03
DEPOSITS JUN-03 JUN-03 MARKET
HOLDING COMPANY TYPE INSTITUTION ($000) % CHANGE C.A.G.R. SHARE
-------------------------------- ------ ------------------------- -------- -------- -------- ------
1 Natl Consumer Cooperative Bk Thrift NCB FSB $394,281 55.6% 29.4% 45.1%
2 Merchants Bancorp Inc. Bank Merchants NB of Hillsboro $178,521 1.9% 4.7% 20.4%
3 Fifth Third Bancorp Bank Fifth Third Bank $119,470 0.2% 0.1% 13.7%
4 Home Building & Loan Co Thrift Home Building & Loan Co $ 42,280 10.3% 11.2% 4.8%
5 U.S. Bancorp Bank U.S. Bank NA $ 37,641 -12.0% -9.8% 4.3%
6 Leesburg FSB Thrift Leesburg FSB $ 36,763 6.5% 10.6% 4.2%
7 Liberty Capital Inc. Thrift Liberty SB FSB $ 36,147 -5.7% 1.4% 4.1%
8 Home Builders Assn. Thrift Home Builders Assn. $ 17,711 8.3% -2.4% 2.0%
9 NB&T Financial Group Bank National Bank & Trust Co. $ 10,550 17.2% 31.7% 1.2%
-------- ----- ---- ----
$873,364 20.1% 10.2% 100%
-------- ----- ---- ----
MADISON COUNTY, OHIO
INSTITUTION ADDRESS JUN-98
------------------- TOTAL DEPOSITS
HOLDING COMPANY TYPE INSTITUTION CITY STATE BRANCHES ($000)
---------------------------- ------- ------------------------- ----------- ------ -------- --------
1 Huntington Bancshares Bank Huntington National Bank Columbus OH 2 $ 99,137
2 FirstMerit Corp. Bank FirstMerit Bank NA Akron OH 3 $ 50,264
3 National City Corp. Bank National City Bank Cleveland OH 2 $ 46,929
4 Camco Financial Corp. Savings Advantage Bank Cambridge OH 1 $ 31,229
5 J.P. Morgan Chase & Co. Bank Bank One NA Columbus OH 1 $ 44,104
6 Merchants Bancorp Inc. Bank Merchants NB of Hillsboro Hillsboro OH 1 $ 0
7 Park National Corp. Bank Citizens NB of Urbana Urbana OH 1 $ 12,836
8 Community Frst Finl Bncp Bank First NB of New Holland New Holland OH 1 $ 0
9 Futura Banc Corp. Bank Champaign National Bank Urbana OH 1 $ 7,602
10 First Community Bank Bank First Community Bank Columbus OH 1 $ 6,397
-- --------
TOTAL 14 $298,498
-- --------
JUN-03 JUN-02/ JUN-98/ JUN-03
DEPOSITS JUN-03 JUN-03 MARKET
HOLDING COMPANY TYPE INSTITUTION ($000) % CHANGE C.A.G.R. SHARE
---------------------------- ------- ------------------------- -------- -------- -------- ------
1 Huntington Bancshares Bank Huntington National Bank $ 93,012 8.8% -1.3% 26.2%
2 FirstMerit Corp. Bank FirstMerit Bank NA $ 51,740 -10.4% 0.6% 14.6%
3 National City Corp. Bank National City Bank $ 51,017 9.9% 1.7% 14.4%
4 Camco Financial Corp. Savings Advantage Bank $ 44,167 2.3% 7.2% 12.5%
5 J.P. Morgan Chase & Co. Bank Bank One NA $ 40,931 -0.2% -1.5% 11.5%
6 Merchants Bancorp Inc. Bank Merchants NB of Hillsboro $ 25,386 -1.2% NA 7.2%
7 Park National Corp. Bank Citizens NB of Urbana $ 18,042 5.6% 7.0% 5.1%
8 Community Frst Finl Bncp Bank First NB of New Holland $ 12,839 33.6% NA 3.6%
9 Futura Banc Corp. Bank Champaign National Bank $ 10,615 0.6% 6.9% 3.0%
10 First Community Bank Bank First Community Bank $ 6,864 -5.9% 1.4% 1.9%
-------- ----- ---- ----
$354,613 3.1% 3.5% 100%
-------- ----- ---- ----
Source: SNL Financial
Austin Associates, LLC
EXHIBIT 3
Proposed Organizational Chart
PROPOSED ORGANIZATIONAL STRUCTURE
MERCHANTS NATIONAL BANK
[FLOW CHART]
EXHIBIT 4
Internal Audit Schedule
Merchants National Bank
Resource Scheduling - SOX 404
(Proposed on 5/25/04)
ENGAGEMENT
ACTIVITIES BY PHASE TEAM/INDIVIDUAL JUL-04 AUG04 SEP-04 OCT-04 NOV-04 DEC-04
------------------- --------------- -------- ------- -------- -------- -------- --------
PHASE I - PLANNING & SCOPING
Meet with external auditor x
Develop summarized client map/org chart x x
Identify team members x
Evaluate documentation methodology x x
Assign leadership to documentation units x
Assign targeted completion dates x
Identify other Sarbanes Oxley compliance needs x x
Complete summary memo x x
Re-evaluate BKD participation x x x x x
Provide progress report
PHASE II - TRAINING
Evaluate broad training needs x
Obtain general transaction flow understanding x x x x x x x x
Evaluate training needs for various levels of
participation x
Schedule training x
Prepare training materials x
Perform training x
PHASE III - DOCUMENTATION
Prepare Overview of financial statements /
business units x x
Document company-wide controls x x x x
Evaluate business processes x x
Provide specific documentation assignments x
Revise targeted completion notes as necessary x
Document activities
Cycle / unit one x x x x x x x x
Cycle / unit two x x x x x x x
Cycle / unit three x x
Cycle / unit four
Cycle / unit five
Cycle / unit six
Review documentation by cycle / unit with
management and auditors
Cycle / unit one x
Cycle / unit two
Cycle / unit three
Cycle / unit four
Cycle / unit five
Cycle / unit six
PHASE-IV TESTING & REMEDIATION
Design tests of controls to be performed
Cycle / unit one x
Cycle / unit two
Cycle / unit three
Cycle / unit four
Cycle / unit five
Cycle / unit six
Perform walkthroughs and other testing
Cycle / unit one x x
Cycle / unit two
Cycle / unit three
Cycle / unit four
Cycle / unit five
Cycle / unit six
Identify design and operating weaknesses x x x
Assist with remediation of weaknesses x x x
PHASE-V CERTIFICATION & ASSERTIONS
Obtain department-level statements
Obtain executive-level certifications
PHASE-VI AUDITOR'S TEST OF CONTROLS
ACTIVITIES BY PHASE JAN-05 FEB-05 MAR-05 APR-05 MAY-05 JUN-05 JUL-05 AUG-05
------------------- -------- -------- -------- -------- -------- -------- -------- --------
PHASE I - PLANNING & SCOPING
Meet with external auditor
Develop summarized client map/org chart
Identify team members
Evaluate documentation methodology
Assign leadership to documentation units
Assign targeted completion dates
Identify other Sarbanes Oxley compliance needs
Complete summary memo
Re-evaluate BKD participation x x x x x x x x
Provide progress report
PHASE II - TRAINING
Evaluate broad training needs
Obtain general transaction flow understanding
Evaluate training needs for various levels of
participation
Schedule training
Prepare training materials
Perform training
PHASE III - DOCUMENTATION
Prepare Overview of financial statements /
business units
Document company-wide controls
Evaluate business processes
Provide specific documentation assignments
Revise targeted completion notes as necessary
Document activities
Cycle / unit one
Cycle / unit two x
Cycle / unit three x x x x x x
Cycle / unit four x x x x x x x x
Cycle / unit five x x x x x x x x
Cycle / unit six x x x x x x x x
Review documentation by cycle / unit with
management and auditors
Cycle / unit one x
Cycle / unit two x
Cycle / unit three x
Cycle / unit four x
Cycle / unit five x
Cycle / unit six x
PHASE IV - TESTING & REMEDIATION
Designs tests of controls to be performed
Cycle / unit one
Cycle / unit two x
Cycle / unit three x
Cycle / unit four x
Cycle / unit five x
Cycle / unit six x
Perform walkthroughs and other testing
Cycle / unit one x x x
Cycle / unit two x x x x x
Cycle / unit three x x x x x
Cycle / unit four x x x x x
Cycle / unit five x x x x x
Cycle / unit six x x x x x
Identify design and operating weaknesses x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x
Assist with remediation of weaknesses x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x
PHASE-V CERTIFICATION & ASSERTIONS
Obtain department-level statements
Obtain executive-level cartifications
x x x x x x x x x x x x
PHASE VI - AUDITOR'S TEST OF CONTROLS
ACTIVITIES BY PHASE SEP-05 OCT-05 NOV-05 DEC-05
------------------- -------- -------- -------- --------
PHASE I - PLANNING & SCOPING
Meet with external auditor
Develop summarized client map/org chart
Identify team members
Evaluate documentation methodology
Assign leadership to documentation units
Assign targeted completion dates
Identify other Sarbanes Oxley compliance needs
Complete summary memo
Re-evaluate BKD participation x x x x
Provide progress report
PHASE II - TRAINING
Evaluate bread training needs
Obtain general transaction flow understanding
Evaluate training needs for various levels of
participation
Schedule training
Prepare training materials
Perform training
PHASE III - DOCUMENTATION
Prepare Overview of financial statements /
business units
Document company wide controls
Evaluate business processes
Provide specific documentation assignments
Revise targeted completion notes as necessary
Document activities
Cycle / unit one
Cycle / unit two
Cycle / unit three
Cycle / unit four
Cycle / unit five
Cycle / unit six
Review documentation by cycle / unit with
management and auditors
Cycle / unit one
Cycle / unit two
Cycle / unit three
Cycle / unit four
Cycle / unit five
Cycle / unit six
PHASE IV - TESTING & REMEDIATION
Designs tests of controls to be performed
Cycle / unit one
Cycle / unit two
Cycle / unit three
Cycle / unit four
Cycle / unit five
Cycle / unit six
Perform walkthroughs and other testing
Cycle / unit one
Cycle / unit two
Cycle / unit three
Cycle / unit four
Cycle / unit five
Cycle / unit six
Identify design and operating weaknesses x x x x x x
Assist with remediation of weaknesses
PHASE V - CERTIFICATION & ASSERTIONS
Obtain department-level statements x x x x x x
Obtain executive-level cartifications x x x x
PHASE VI - AUDITOR'S TEST OF CONTROLS x x x x x x x x x x x x x x x x
Merchants National Bank
Internal Audit
Status as of 6/22/04
OVERALL RECOMMENDED
RISK AUDIT FREQUENCY
AREA RATING (EVERY_YRS) 2004 2005 2006
---- ---------- --------------- ---- ---- ----
EXECUTIVE:
Corporate Strategy Low 3 C
Corporate Governance Low 3 C
BRANCHES:
General Control Review Low 3 C
Control Testing at each Location Low 2 x
LENDING:
Commercial Loan Operations High 1 C x x
Mortgage Loan Operations High 1 C x x
Mortgage Banking Low 3 x
Installment Loan Operations Moderate 2 IP x
Credit Function/ALLL Moderate 2 IP x
FINANCIAL CONTROL/ACCOUNTING:
Financial Reporting Moderate 2 C x
Stockholders' Equity Moderate 2 IP x
Asset/Liability Management Moderate 2 x x
Due From Banks Moderate 2 IP x
Accounts Payable Moderate 2 IP x
Purchasing/Fixed Assets Moderate 2 IP x
Insurance Low 3 IP
Other Assets/Other Liabilities Moderate 2 IP x
Other Income/Other Expense Moderate 2 IP x
Debt (including FHLB Advances) Moderate 2 IP x
Fed Funds Moderate 2 IP
Repurchase Agreements Moderate 2 IP
INVESTMENTS:
Reconciliations High 1 IP x x
Transaction Testing High 1 IP x x
Safekeeping High 1 IP x x
HUMAN RESOURCES:
Payroll Administration Low 3 C
Payroll Analytical Review Low 3 x
Employee Policies Low 3 x
Employee File Review Low 3 C
Hiring, Training, etc. Low 3 x
MARKETING:
General Control Review Low 3 x
DEPOSIT OPERATIONS:
Demand, Savings & Time Deposits Moderate 2 x
Data Entry/Accrual Verification Moderate 2 x
ATM/Debit Cards Moderate 2 x
Overdrafts Low 3 x
Dormant & Hold Accounts Low 3 x
Check Kiting Low 3 x
Bank Checks Moderate 2 x
Item Processing/Proof Low 3 x
ACH:
NACHA Compliance (Required) 1 C x x
WIRE TRANSFER:
Reconciliations High 1 C x x
Daylight Overdraft High 1 C x x
System Security High 1 C x x
Transaction Testing High 1 C x x
INFORMATION SYSTEMS:
Information Technology Review High 1 x x x
Information Security Program High 1 x x x
OTHER AREAS
Holding Company Activities Low 3 x
X Scheduled to be performed
IP In process
C Completed
Merchants National Bank
Compliance
Status as of 6/22/04
OVERALL RECOMMENDED
RISK AUDIT FREQUENCY
BANKING LAWS OR REGULATIONS RATING (EVERY_YRS) 2004 2005 2006
--------------------------- ---------- --------------- ---- ---- ----
LOANS
Appraisal & Appraiser Standards
(FIRREA) Low 3 x
Community Reinvestment (Reg BB) Moderate 2 x x
Environmental Hazards (CERCLA) Low 3 x
Equal Credit Opportunity (Reg B) Moderate 2 x x
Fair Credit Reporting Low 3 x
Fair Debt Collection Practices Low 3 x
Fair Housing Low 3 x
Flood Insurance Moderate 2 x x
Home Mortgage Disclosure (Reg C) Moderate 2 x x
Lending on Securities (Reg U) Low 3 x
Loans to insiders (Reg O) Moderate 2 x x
Private Mortgage Insurance Low 3 x
Real Estate Lending Standards Low 3 x
Real Estate Settlement Procedures
(Reg x) Moderate 1 x x x
Soldiers & Sailors' Civil Relief Low 3 x
Truth in Lending (Reg Z) High 1 x x x
Unfair or Deceptive Practices (Reg AA) Low 3 x
DEPOSITS
Bank Secrecy Moderate 2 x
Collections & Returns Low 3 x
Electronic Funds Transfer (Reg E) Low 3 x
Funds Availability (Reg CC) Low 3 x
Funds Transfer (UCC Article 4A) Low 3 x
Interest on Deposits (Reg Q) Low 3 x
IRA Administration Low 3 x
NOW Account Eligibility (Reg Q) Low 3 x
Reserve Requirements (Reg D) Low 3 x
Savings & Money Market Accounts
(Reg D) Low 3 x
Truth in Savings (Reg DD) Low 3 x
ACCOUNTING
Interbank Liabilities (Reg F) Low 3 x
IRS Reporting Regulations Low 3 x
MANAGEMENT
Advertising Regulations (Reg Q, Z, DD,
Fair Housing, Low 3 x
Americans with Disabilities Low 3 x
Anti-Tying Provision Low 3 x
Bank Bribery Act Low 3 x
Bank Protection (H) Low 3 x
Customer Identification (USA PATRIOT) High 1 x x x
General Compliance Administration Low 3 x
Office of Foreign Asset Control
(OFAC) Moderate 2 x
Privacy of Consumer Financial
Information (Reg P) Moderate 2 x x
Record Retention Low 3 x
Right to Financial Privacy Low 3 x
Transactions with Affiliates (Reg W) Low 3 x
X Scheduled to be performed
IP In process
C Completed
OUTLINE OF SOX 404 DOCUMENTATION
CONTROL ENVIRONMENT
Organizational chart and analysis
Code of ethics
Control self assessment results or summary of cultural assessment
RISK ASSESSMENT
Community bank risk assessment
Internal audit risk assessment
CONTROL ACTIVITIES (all information linked together in a logical format)
Financial statements from 10k with significant accounts identified
Business units (location, product line, etc) with significant business
units identified
Business cycles within each business unit identified (commercial loans,
mortgage loans, consumer loans, investments, deposits, human resources,
information systems, financial reporting, etc)
Business processes within each business cycle identified (loan
origination, underwriting, closing, servicing, etc)
Evaluation of risk for each business process
Narrative description of the flow of information for each business
process
Segregation of duties analysis for each business process
Control objectives of each business process identified and linked to
financial statement assertions
Risks associated with each control objective identified
Control activities associated with each risk identified
Control gaps identified and corrected
Testing performed on all control activities and results summarized
Remediation and retesting performed as necessary
INFORMATION AND COMMUNICATION
Bank policies and procedures
Summary of training
Summary of committees and key communications
MONITORING
Summary of monitoring activities
Internal audit plan
EXHIBIT 5
Potential Expansion Markets
EXHIBIT 5.1
ECONOMIC & DEMOGRAPHIC DATA
BY CITY
2000 2004 2009 2000 2004 2009
CITY POPULATION POPULATION POPULATION MED HH INCOME MED HH INCOME MED HH INCOME
---- ---------- ---------- ---------- ------------- ------------- -------------
PLAIN CITY 2,832 2,989 3,202 $44,974 $49,656 $58,773
GROVE CITY 27,075 28,921 31,098 $52,905 $59,990 $68,190
CANAL WINCHESTER 4,478 5,257 6,142 $57,652 $63,987 $73,938
HEBRON 2,034 2,173 2,346 $32,867 $36,044 $42,240
MOUNT ORAB 2,307 2,630 3,007 $33,884 $39,395 $45,481
XENIA 24,164 24,265 24,539 $36,798 $39,082 $43,127
WILMINGTON 11,921 12,189 12,488 $34,886 $35,401 $37,238
CHILLICOTHE 21,796 21,958 22,119 $34,391 $35,239 $37,869
SPRINGFIELD 65,358 62,709 59,465 $32,374 $33,468 $35,498
6/30/1998 6/30/2003 % 2004 POPULATION 6/03 DEPOSITS 6/03 DEPOSITS
DEPOSITS DEPOSITS CHANGE PER PER PER
CITY ($000) ($000) IN DEPOSITS OFFICE CAPITA ($000) OFFICE ($000)
---- --------- --------- ----------- --------------- ------------- -------------
PLAIN CITY $ 46,647 $ 62,234 33.4% 747 $ 20.8 $ 15,559
GROVE CITY $ 440,032 $ 459,474 4.4% 3,213 $ 15.9 $ 51,053
CANAL WINCHESTER $ 145,996 $ 158,462 8.5% 1,051 $ 30.1 $ 31,692
HEBRON $ 36,062 $ 45,844 27.1% 2,173 $ 21.1 $ 45,844
MOUNT ORAB $ 53,830 $ 54,436 1.1% 1,315 $ 20.7 $ 27,218
XENIA $ 331,644 $ 324,003 -2.3% 2,696 $ 13.4 $ 36,000
WILMINGTON $ 335,632 $ 381,564 13.7% 1,016 $ 31.3 $ 31,797
CHILLICOTHE $ 604,239 $ 770,361 27.5% 1,292 $ 35.1 $ 45,315
SPRINGFIELD $1,168,544 $1,259,201 7.8% 1,792 $ 20.1 $ 35,977
Austin Associates, LLC
EXHIBIT 5.1 (CON'T)
ECONOMIC & DEMOGRAPHIC DATA
BY CITY
(USES 2004 POPULATION DATA)
--------------------------------------------------------------------------------------------------
6/98 DEPOSITS 6/99 DEPOSITS 6/00 DEPOSITS 6/01 DEPOSITS 6/02 DEPOSITS 6/03 DEPOSITS
PER PER PER PER PER PER
CITY CAPITA ($000) CAPITA ($000) CAPITA ($000) CAPITA ($000) CAPITA ($000) CAPITA ($000)
---- ------------- ------------- ------------- ------------- ------------- -------------
PLAIN CITY $15.6 $16.3 $16.8 $18.4 $19.7 $20.8
GROVE CITY $15.2 $15.0 $15.5 $15.6 $15.7 $15.9
CANAL WINCHESTER $27.8 $25.6 $27.0 $27.1 $28.4 $30.1
HEBRON $16.6 $16.3 $17.0 $16.7 $20.6 $21.1
MOUNT ORAB $20.5 $19.8 $22.9 $22.2 $22.0 $20.7
XENIA $13.7 $13.4 $13.2 $13.8 $13.9 $13.4
WILMINGTON $27.5 $28.3 $29.6 $29.5 $31.0 $31.3
CHILLICOTHE $27.5 $30.0 $30.2 $31.3 $33.6 $35.1
SPRINGFIELD $18.6 $18.8 $19.4 $19.8 $20.4 $20.1
(BASED ON # OF OPEN OFFICES IN EACH PERIOD)
--------------------------------------------------------------------------------------------------
6/98 DEPOSITS 6/99 DEPOSITS 6/00 DEPOSITS 6/01 DEPOSITS 6/02 DEPOSITS 6/03 DEPOSITS
PER PER PER PER PER PER
CITY OFFICE ($000) OFFICE ($000) OFFICE ($000) OFFICE ($000) OFFICE ($000) OFFICE ($000)
---- ------------- ------------- ------------- ------------- ------------- -------------
PLAIN CITY $11,662 $12,197 $12,568 $13,739 $14,722 $15,559
GROVE CITY $40,003 $48,144 $49,927 $50,039 $50,462 $51,053
CANAL WINCHESTER $29,199 $26,961 $28,373 $28,448 $29,885 $31,692
HEBRON $36,062 $35,511 $36,883 $36,342 $44,718 $45,844
MOUNT ORAB $26,915 $26,000 $30,169 $29,254 $28,928 $27,218
XENIA $33,164 $32,406 $32,124 $33,384 $37,443 $36,000
WILMINGTON $33,563 $34,527 $32,779 $32,653 $37,840 $31,797
CHILLICOTHE $30,212 $32,919 $34,889 $36,142 $43,448 $45,315
SPRINGFIELD $35,410 $35,799 $34,673 $35,480 $37,605 $35,977
Austin Associates, LLC
EXHIBIT 5.2
DEPOSIT MARKET SHARE INFORMATION
BY CITY (BRANCH LEVEL)
PLAIN CITY, OHIO
% CHANGE JUN-98/ JUN-03
JUN-98 JUN-03 SINCE JUN-03 MARKET
BRANCH BRANCH OPEN DEPOSITS DEPOSITS JUN-02 C.A.G.R. SHARE
BANK NAME HQ CITY ST ADDRESS COUNTY STATUS DATE ($000) ($000) (%) (%) (%)
--------- ---------- -- -------------- ------- ------ ---------- -------- -------- -------- -------- ------
1 Richwood Banking Co Richwood OH 601 W Main St Union Active 7/25/1977 $22,283 $27,941 10.3% 4.6% 44.9%
2 Citizens NB of Urbana Urbana OH 105 W Main St Madison Active 1/1/1900 $12,836 $18,042 5.6% 7.0% 29.0%
3 Champaign National Bank Urbana OH 204 W Main St Madison Active 01/01/1887 $ 7,602 $10,615 0.6% 6.9% 17.1%
4 Ranco Employees Credit Union Plain City OH 7996 St Rt 736 Union Active 1/1/1936 $ 3,926 $ 5,636 -4.7% 7.5% 9.1%
---------- ------- ------- ---- --- ----
CITY TOTAL $46,647 $62,234 5.7% 5.9% 100%
---------- ------- ------- ---- --- ----
GROVE CITY, OHIO
JUN-98
BRANCH BRANCH OPEN DEPOSITS
BANK NAME HQ CITY ST ADDRESS COUNTY STATUS DATE ($000)
---------------------------- ---------- -- -------------- -------- ------ --------- ---------
1 KeyBank National Association Cleveland OH 2345 Stringtown Rd Franklin Active 3/29/1963 $ 69,358
2 Huntington National Bank Columbus OH 4141 Hoover Rd Franklin Active 7/19/1971 $ 66,338
3 Heartland Bank Gahanna OH 2233 Stringtown Rd Franklin Active 9/26/1989 $ 43,532
4 Fifth Third Bank Cincinnati OH 2336 Stringtown Rd Franklin Active 12/29/1989 $ 83,168
5 Huntington National Bank Columbus OH 3378 Park St Franklin Active 4/3/1962 $ 39,119
6 National City Bank Cleveland OH 2500 Stringtown Rd Franklin Active 12/2/1976 $ 31,132
7 Fifth Third Bank Cincinnati OH 3990 Broadway Franklin Active 1/1/1900 $ 52,638
8 Bank One National Association Columbus OH 2161 Stringtown Rd Franklin Active 9/1/1991 $ 30,238
9 U.S. Bank NA Cincinnati OH 2508 Columbus St Franklin Active 12/6/1988 $ 19,043
10 National City Bank Cleveland OH 2173 Stringtown Rd Franklin Closed 8/29/1992 $ 5,137
11 Fifth Third Bank Cincinnati OH 4090 Hoover Rd Franklin Closed NA $ 0
12 Huntington National Bank Columbus OH 2474 Stringtown Rd Franklin Closed 12/31/1996 $ 329
---------- --------
CITY TOTAL $440,032
---------- --------
% CHANGE JUN-98/ JUN-03
JUN-03 SINCE JUN-03 MARKET
DEPOSITS JUN-02 C.A.G.R. SHARE
BANK NAME ($000) (%) (%) (%)
---------------------------- -------- -------- -------- ------
1 KeyBank National Association $ 83,011 7.5% 3.7% 18.1%
2 Huntington National Bank $ 79,462 0.6% 3.7% 17.3%
3 Heartland Bank $ 61,104 3.2% 7.0% 13.3%
4 Fifth Third Bank $ 58,990 -9.0% -6.6% 12.8%
5 Huntington National Bank $ 50,813 10.6% 5.4% 11.1%
6 National City Bank $ 38,288 11.8% 4.2% 8.3%
7 Fifth Third Bank $ 38,128 -4.0% -6.2% 8.3%
8 Bank One National Association $ 34,242 3.8% 2.5% 7.5%
9 U.S. Bank NA $ 15,436 3.4% -4.1% 3.4%
10 National City Bank NA NA NA NA
11 Fifth Third Bank NA NA NA NA
12 Huntington National Bank NA NA NA NA
-------- ---- ---- ---
$459,474 1.2% 0.9% 100%
-------- ---- ---- ---
Source:SNL Financial.
Austin Associates, LLC
EXHIBIT 5.2 (CON'T)
DEPOSIT MARKET SHARE INFORMATION
BY CITY (BRANCH LEVEL)
CANAL WINCHESTER, OHIO
% CHANGE JUN-98/ JUN-03
JUN-98 JUN-03 SINCE JUN-03 MARKET
BRANCH BRANCH OPEN DEPOSITS DEPOSITS JUN-02 C.A.G.R. SHARE
BANK NAME HQ CITY ST ADDRESS COUNTY STATUS DATE ($000) ($000) (%) (%) (%)
-------------------------- ---------- -- -------------- -------- ------ ---- --------- -------- -------- -------- ------
1 Huntington National Bank Columbus OH 37 S High St Franklin Active 12/24/1962 $ 76,674 $ 74,487 4.4% -0.6% 47.0%
2 Fifth Third Bank Cincinnati OH 680 W Waterloo Franklin Active 1/16/1997 $ 35,722 $ 35,438 -10.7% -0.2% 22.4%
3 Bank One National
Association Columbus OH 8 S High St Franklin Active 6/1/1977 $ 33,299 $ 34,276 -7.4% 0.6% 21.6%
4 First Bremen Bank Bremen OH 6360 Prentiss
School Dr Franklin Active 7/8/2002 NA $ 11,463 NA NA 7.2%
5 Park National Bank Newark OH 6095 Gender Rd Franklin Active 4/23/2001 NA $ 2,798 98.2% NA 1.8%
6 Fifth Third Bank Cincinnati OH 11 N High St Fairfield Closed NA $ 0 NA NA NA NA
7 Huntington National Bank Columbus OH 471 Gender Rd Franklin Closed 11/27/1995 $ 301 NA NA NA NA
---------- -------- -------- ---- --- ---
CITY TOTAL $145,996 $158,462 6.0% 1.7% 100%
---------- -------- -------- ---- --- ---
HEBRON, OHIO
% CHANGE JUN-98/ JUN-03
JUN-98 JUN-03 SINCE JUN-03 MARKET
BRANCH BRANCH OPEN DEPOSITS DEPOSITS JUN-02 C.A.G.R. SHARE
BANK NAME HQ CITY ST ADDRESS COUNTY STATUS DATE ($000) ($000) (%) (%) (%)
--------- ------- -- ------- ------ ------ ---- -------- -------- -------- -------- -------
1 Park National Bank Newark OH 103 E Main St Licking Active 4/12/1952 $36,062 $45,844 2.5% 4.9% 100.0%
---------- ------- ------- --- --- -----
CITY TOTAL $36,062 $45,844 2.5% 4.9% 100%
---------- ------- ------- --- --- -----
MOUNT ORAB, OHIO
% CHANGE JUN-98/ JUN-03
JUN-98 JUN-03 SINCE JUN-03 MARKET
BRANCH BRANCH OPEN DEPOSITS DEPOSITS JUN-02 C.A.G.R. SHARE
BANK NAME HQ CITY ST ADDRESS COUNTY STATUS DATE ($000) ($000) (%) (%) (%)
--------- ------- -- ------- ------ ------ ---- -------- -------- -------- -------- -------
1 National Bank
& Trust Co. Wilmington OH 452 W Main St Brown Active 01/01/82 $42,853 $44,555 -4.2% 0.8% 81.8%
2 U.S. Bank NA Cincinnati OH 210 Sterling
Run Blvd Brown Active 02/15/86 $10,977 $ 9,881 -13.0% -2.1% 18.2%
---------- ------- ------- ----- ---- ----
CITY TOTAL $53,830 $54,436 -5.9% 0.2% 100%
---------- ------- ------- ----- ---- ----
Source:SNL Financial.
Austin Associates, LLC
EXHIBIT 5.2 (CON'T)
DEPOSIT MARKET SHARE INFORMATION
BY CITY (BRANCH LEVEL)
XENIA, OHIO
% CHANGE JUN-98/ JUN-03
JUN-98 JUN-03 SINCE JUN-03 MARKET
BRANCH BRANCH OPEN DEPOSITS DEPOSITS JUN-02 C.A.G.R. SHARE
BANK NAME HQ CITY ST ADDRESS COUNTY STATUS DATE ($000) ($000) (%) (%) (%)
--- ---------------------- ----------- --- ------------------ ------ ------ ---------- -------- -------- -------- -------- ------
1 KeyBank National
Association Cleveland OH 120 N Detroit St Greene Active 05/21/79 $ 63,665 $ 73,653 2.3% 3.0% 22.7%
2 Fifth Third Bank Cincinnati OH 100 W Main St Greene Active 01/01/1885 $ 64,982 $ 61,314 -8.8% -1.2% 18.9%
3 Security National B&TC Springfield OH 161 E Main St Greene Active 12/14/80 $ 56,658 $ 53,383 -5.6% -1.2% 16.5%
4 Sky Bank Salineville OH 194 N Detroit St Greene Active 06/30/89 $ 64,388 $ 36,060 -5.7% -10.9% 11.1%
5 Sky Bank Salineville OH 1290 Monroe Dr Greene Active 01/01/1894 $ 22,612 $ 26,975 7.7% 3.6% 8.3%
6 U.S. Bank NA Cincinnati OH 290 Xenia Towne Sq Greene Active 01/07/81 $ 19,411 $ 22,613 -5.8% 3.1% 7.0%
7 Bank One National
Association Columbus OH 306 W 2nd St Greene Active 07/18/80 $ 18,898 $ 22,420 -10.3% 3.5% 6.9%
8 Security National B&TC Springfield OH 82 N Allison Ave Greene Active 10/01/62 $ 14,102 $ 17,372 -2.1% 4.3% 5.4%
9 Fifth Third Bank Cincinnati OH 1700 W Park Sq Greene Active 12/13/94 $ 6,928 $ 10,213 -9.0% 8.1% 3.2%
10 KeyBank National
Association Cleveland OH 101 S Orange St Greene Closed 12/18/61 $ 0 NA NA NA NA
-------- -------- ------ ------ -----
CITY TOTAL $331,644 $324,003 -3.9% -0.5% 100%
-------- -------- ------ ------ -----
WILMINGTON, OHIO
% CHANGE JUN-98/ JUN-03
JUN-98 JUN-03 SINCE JUN-03 MARKET
BRANCH BRANCH OPEN DEPOSITS DEPOSITS JUN-02 C.A.G.R. SHARE
BANK NAME HQ CITY ST ADDRESS COUNTY STATUS DATE ($000) ($000) (%) (%) (%)
--- ------------------------- ---------- --- ----------------- ------- ------ ---------- -------- -------- -------- -------- ------
1 National Bank & Trust Co. Wilmington OH 48 N South St Clinton Active 05/10/1872 $ 85,535 $109,495 6.4% 5.1% 28.7%
2 Wilmington Savings Bank Wilmington OH 184 N South St Clinton Active 01/01/1890 $ 63,239 $ 74,013 2.6% 3.2% 19.4%
3 Liberty SB FSB Wilmington OH 647 Fife Ave Clinton Active NA $ 38,284 $ 46,894 -4.5% 4.1% 12.3%
4 National City Bank Cleveland OH 1373 Rombach Ave Clinton Active 03/10/69 $ 32,944 $ 39,074 7.9% 3.5% 10.2%
5 Fifth Third Bank Cincinnati OH 140 W Main Clinton Active 08/03/92 $ 24,557 $ 36,177 -10.8% 8.1% 9.5%
6 Fifth Third Bank Cincinnati OH 1453 Rombach Ave Clinton Active 02/06/86 $ 30,808 $ 34,742 -6.2% 2.4% 9.1%
7 National Bank & Trust Co. Wilmington OH 1344 Rombach Ave Clinton Active 04/15/68 $ 20,417 $ 24,791 -2.0% 4.0% 6.5%
8 Lebanon Citizens National
Bank Lebanon OH 1243 Rombach Ave Clinton Active 10/15/97 $ 1,535 $ 13,228 4.5% 53.8% 3.5%
9 National Bank & Trust Co. Wilmington OH 1288 Wayne Rd Clinton Active 08/02/65 $ 0 $ 2,127 6.2% NA 0.6%
10 National Bank & Trust Co. Wilmington OH 48 N South St Clinton Active 05/01/00 NA $ 642 25.6% NA 0.2%
11 Liberty SB FSB Wilmington OH 2825 State Rt 72s Clinton Active NA NA $ 209 NA NA 0.1%
12 National Bank & Trust Co. Wilmington OH 150 Cape May Dr Clinton Active 08/15/02 NA $ 172 NA NA 0.0%
13 Fifth Third Bank Cincinnati OH 140 W Main St Clinton Closed NA $ 38,313 NA NA NA NA
-------- -------- ------ ----- -----
CITY TOTAL $335,632 $381,564 0.8% 2.6% 100%
-------- -------- ------ ----- -----
Source: SNL Financial.
Austin Associates, LLC
EXHIBIT 5.2 (CON'T)
DEPOSIT MARKET SHARE INFORMATION
BY CITY (BRANCH LEVEL)
CHILLICOTHE, OHIO
% CHANGE JUN-98/ JUN-03
JUN-98 JUN-03 SINCE JUN-03 MARKET
BRANCH BRANCH OPEN DEPOSITS DEPOSITS JUN-02 C.A.G.R. SHARE
BANK NAME HQ CITY ST ADDRESS COUNTY STATUS DATE ($000) ($000) (%) (%) (%)
------------------------------- ----------- --- ---------------- ------ ------ ---------- -------- -------- -------- -------- ------
1 Homeland CU Chillicothe OH 310 Caldwell St Ross Active 01/01/32 $144,437 $228,266 23.4% 9.6% 29.6%
2 Huntington National Bank Columbus OH 1 N Paint St Ross Active 12/31/79 $ 63,936 $ 98,161 13.1% 9.0% 12.7%
3 Citizens Natl Bk Chillicothe Chillicothe OH 33 W Main St Ross Active 01/01/01 $ 64,453 $ 74,495 -1.8% 2.9% 9.7%
4 Vinton County NB of McArthur McArthur OH 222 E Main St Ross Active 06/30/86 $ 9,210 $ 60,522 9.2% 45.7% 7.9%
5 National City Bank Cleveland OH 800 Western Ave Ross Active 11/30/61 $ 24,022 $ 55,777 -8.0% 18.4% 7.2%
6 Huntington National Bank Columbus OH 445 Western Ave Ross Active 08/09/54 $ 45,051 $ 54,809 13.9% 4.0% 7.1%
7 Oak Hill Banks Jackson OH 49 E Water St Ross Active 10/19/88 $ 35,168 $ 38,817 6.7% 2.0% 5.0%
8 Vinton County NB of McArthur McArthur OH 775 Western Ave Ross Active 08/01/34 $ 13,827 $ 36,721 9.2% 21.6% 4.8%
9 Fifth Third Bank Cincinnati OH 128 W Main St Ross Active 01/01/1887 $ 36,076 $ 35,518 -10.0% -0.3% 4.6%
10 National City Bank Cleveland OH 1080 Bridge St Ross Active 04/14/64 $ 20,622 $ 25,671 1.4% 4.5% 3.3%
11 Fifth Third Bank Cincinnati OH 80 Central Ctr Ross Active 06/30/85 $ 21,399 $ 20,755 -11.8% -0.6% 2.7%
12 Citizens Natl Bk Chillicothe Chillicothe OH 1006 Western Ave Ross Active 03/18/91 $ 8,238 $ 14,578 13.2% 12.1% 1.9%
13 Chivaho Federal Credit Union Chillicothe OH Vamc Bldg 10 Ross Active 06/02/48 $ 9,260 $ 10,932 1.4% 3.4% 1.4%
14 Oak Hill Banks Jackson OH 1470 N Bridge St Ross Active 09/30/94 $ 7,663 $ 10,056 0.9% 5.6% 1.3%
15 Citizens Natl Bk Chillicothe Chillicothe OH 1240 N Bridge St Ross Active 05/30/02 NA $ 4,796 3767.7% NA 0.6%
16 City County Employees FCU Chillicothe OH 15 N Paint St Ross Active 02/13/67 $ 444 $ 487 -2.6% 1.9% 0.1%
17 Huntington National Bank Columbus OH 200 E Main St Ross Active NA NA $ 0 NA NA 0.0%
18 Huntington National Bank Columbus OH 981 N Bridge St Ross Closed 10/31/70 $ 18,998 NA NA NA NA
19 National City Bank Cleveland OH 27 W 2nd St Ross Closed 06/30/79 $ 52,513 NA NA NA NA
20 Universal 1 CU Dayton OH Po Box 596 Ross Closed 10/28/69 $ 170 NA NA NA NA
21 Homeland CU Chillicothe OH Po Box 108 Ross Closed 01/01/47 $ 28,378 NA NA NA NA
22 Huntington National Bank Columbus OH 887 N Bridge St Ross Closed 12/11/96 $ 374 NA NA NA NA
-------- -------- ------ ---- ----
CITY TOTAL $604,239 $770,361 4.3% 5.0% 100%
-------- -------- ------ ---- ----
Sources: SNL Financial. Austin Associates, LLC
EXHIBIT 5.2 (CON'T)
DEPOSIT MARKET SHARE INFORMATION
BY CITY (BRANCH LEVEL)
SPRINGFIELD, OHIO
% CHANGE
JUN-98 JUN-03 SINCE
BRANCH BRANCH OPEN DEPOSITS DEPOSITS JUN-02
BANK NAME HQ CITY ST ADDRESS COUNTY STATUS DATE ($000) ($000) (%)
------------------------------- ----------- --- ---------------------- ------ ------ ---------- ---------- ---------- --------
1 Intl Harvester Emps CU Springfield OH 5000 N Urbana Rd Clark Active 01/01/34 $ 84,477 $ 119,661 4.8%
2 Huntington National Bank Columbus OH 5 W High St Clark Active 09/19/86 $ 126,082 $ 105,795 6.0%
3 Security National B&TC Springfield OH 40 S Limestone St Clark Active 06/05/15 $ 115,177 $ 101,848 -28.3%
4 WesBanco Bank Wheeling WV 28 E Main St Clark Active NA $ 92,419 $ 89,546 -0.5%
5 KeyBank National Association Cleveland OH 1 S Fountain Ave Clark Active 12/31/1835 $ 59,870 $ 68,672 9.1%
6 Home City FSB of Springfield Springfield OH 63 Wmain St Clark Active NA $ 57,503 $ 63,542 -15.3%
7 Huntington National Bank Columbus OH 2962 Derr Rd Clark Active 01/28/74 $ 78,850 $ 62,870 -5.9%
8 National City Bank Cleveland OH 4 W Main St Clark Active 06/30/79 $ 55,818 $ 55,173 5.9%
9 WesBanco Bank Wheeling WV 1480 Upper Valley Pk Clark Active NA $ 43,508 $ 42,913 -8.7%
10 National City Bank Cleveland OH 2025 E Main St Clark Active 05/08/53 $ 35,283 $ 39,152 3.8%
11 KeyBank National Association Cleveland OH 1475 Upper Valley Pike Clark Active 07/28/71 $ 40,926 $ 38,439 -2.6%
12 Home City FSB of Springfield Springfield OH 2454 N Limestone St Clark Active 07/16/01 NA $ 38,326 64.2%
13 Huntington National Bank Columbus OH 1175 Bechtle Ave Clark Active 01/07/56 $ 32,741 $ 37,751 2.5%
14 Provident Bank Cincinnati OH 1270 Upper Valley Pike Clark Active 01/01/1884 $ 33,478 $ 36,564 -11.2%
15 National City Bank Cleveland OH 1500 Upper Valley Pike Clark Active 02/12/73 $ 29,167 $ 36,014 7.0%
16 National City Bank Cleveland OH 2222 N Limestone St Clark Active 12/09/63 $ 30,899 $ 35,470 14.7%
17 KeyBank National Association Cleveland OH 402 S Burnett Rd Clark Active 06/18/56 $ 37,433 $ 32,094 -3.7%
18 Security National B&TC Springfield OH 1600 E Moorefield Rd Clark Active 01/03/64 $ 25,085 $ 25,761 1.3%
19 Security National B&TC Springfield OH 920 W Main St Clark Active 10/03/53 $ 23,989 $ 24,870 1.8%
20 Security National B&TC Springfield OH 2730 E Main St Clark Active 10/02/80 $ 20,578 $ 22,253 -3.5%
21 Security National B&TC Springfield OH 1756 N Limestone St Clark Active 11/24/86 $ 21,529 $ 22,035 -16.5%
22 National City Bank Cleveland OH 1850 S Limestone St Clark Active 12/14/55 $ 18,138 $ 21,165 3.6%
23 KeyBank National Association Cleveland OH 1424 N Limestone St Clark Active 06/18/56 $ 23,295 $ 20,637 -2.1%
24 Fifth Third Bank Cincinnati OH 965 N Bechtel Rd Clark Active 10/13/98 NA $ 20,201 8.9%
25 Huntington National Bank Columbus OH 1607 Selma Rd Clark Active 06/09/56 $ 22,667 $ 19,193 -2.1%
26 Fifth Third Bank Cincinnati OH 2989 Derr Rd Clark Active 11/20/97 $ 3,956 $ 18,554 43.0%
27 New Carlisle FSB New Carlisle OH 833 Villa Rd Clark Active NA $ 9,909 $ 17,850 -14.9%
28 Springfield Credit Union Springfield OH 145 W High St Clark Active 01/01/51 $ 13,143 $ 14,130 -6.4%
29 Liberty SB FSB Wilmington OH 1108 Bechtle Ave Clark Active NA NA $ 11,085 26.2%
30 Springfield Postal Emps FCU Springfield OH 150 N Limestone St Clark Active 12/07/50 $ 4,731 $ 4,186 -9.4%
31 Edison Credit Union Springfield OH 420 S York St Clark Active 01/01/64 $ 2,778 $ 3,926 -1.0%
32 Wittenberg U. FCU Springfield OH Po Box 720 Clark Active 06/20/61 $ 2,173 $ 3,710 10.9%
33 Robbins & Myers Emps FCU Springfield OH 1631 W Main St Clark Active 05/20/35 $ 2,714 $ 3,097 19.1%
34 Fifth Third Bank Cincinnati OH 612 S Burnett Rd Clark Active 12/23/02 NA $ 1,719 NA
35 U.S. Bank NA Cincinnati OH 1500 Hilcrest Ave Clark Active 04/24/00 NA $ 999 18.2%
36 Huntington National Bank Columbus OH 1620 Upper Valley Pike Clark Closed 06/30/85 $ 18,378 NA NA
37 Huntington National Bank Columbus OH 2000 N Limestone Clark Closed 01/01/1892 $ 1,590 NA NA
38 Intl Harvester Emps CU Springfield OH 202 N Limestone St Clark Closed 10/24/35 $ 260 NA NA
---------- ---------- ----
CITY TOTAL $1,168,544 $1,259,201 -1.5%
---------- ---------- ----
JUN-98/ JUN-03
JUN-03 MARKET
C.A.G.R. SHARE
BANK NAME (%) (%)
------------------------------- -------- ------
1 Intl Harvester Emps CU 7.2% 9.5%
2 Huntington National Bank -3.4% 8.4%
3 Security National B&TC -2.4% 8.1%
4 WesBanco Bank -0.6% 7.1%
5 KeyBank National Association 2.8% 5.5%
6 Home City FSB of Springfield 2.0% 5.0%
7 Huntington National Bank -4.4% 5.0%
8 National City Bank -0.2% 4.4%
9 WesBanco Bank -0.3% 3.4%
10 National City Bank 2.1% 3.1%
11 KeyBank National Association -1.2% 3.1%
12 Home City FSB of Springfield NA 3.0%
13 Huntington National Bank 2.9% 3.0%
14 Provident Bank 1.8% 2.9%
15 National City Bank 4.3% 2.9%
16 National City Bank 2.8% 2.8%
17 KeyBank National Association -3.0% 2.5%
18 Security National B&TC 0.5% 2.0%
19 Security National B&TC 0.7% 2.0%
20 Security National B&TC 1.6% 1.8%
21 Security National B&TC 0.5% 1.7%
22 National City Bank 3.1% 1.7%
23 KeyBank National Association -2.4% 1.6%
24 Fifth Third Bank NA 1.6%
25 Huntington National Bank -3.3% 1.5%
26 Fifth Third Bank 36.2% 1.5%
27 New Carlisle FSB 12.5% 1.4%
28 Springfield Credit Union 1.5% 1.1%
29 Liberty SB FSB NA 0.9%
30 Springfield Postal Emps FCU -2.4% 0.3%
31 Edison Credit Union 7.2% 0.3%
32 Wittenberg U. FCU 11.3% 0.3%
33 Robbins & Myers Emps FCU 2.7% 0.2%
34 Fifth Third Bank NA 0.1%
35 U.S. Bank NA NA 0.1%
36 Huntington National Bank NA NA
37 Huntington National Bank NA NA
38 Intl Harvester Emps CU NA NA
---- ---
1.5% 100%
---- ---
Sources: SNL Financial. Austin Associates, LLC
EXHIBIT 6
Financial Projections
EXHIBIT 6
STRATEGIC PLAN PROJECTIONS (2005-2007)
MERCHANTS BANCORP, INC.
PLANNING GOALS
ACTUAL PROJECTED ----------------------------------------- 2005-2007
SCENARIO 1 30-JUN-04 2004 2005 2006 2007 GROWTH RATE
--------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets $ 353,712 $ 367,860 $ 397,289 $ 429,072 $ 463,398 8.0%
Net Income $ 2,289 $ 4,500 $ 4,950 $ 5,445 $ 5,990 10.0%
Cash Dividends $ 906 $ 1,800 $ 2,228 $ 2,450 $ 2,695 14.4%
Equity Capital $ 29,206 $ 30,523 $ 33,246 $ 36,240 $ 39,534 9.0%
ROAA 1.29% 1.27% 1.29% 1.32% 1.34%
ROAE 15.67% 15.41% 15.52% 15.67% 15.81%
Dividend Payout Ratio 39.6% 40.0% 45.0% 45.0% 45.0%
Shares Outstanding 2,667 2,667 2,667 2,667 2,667
Earnings Per Share $ 0.86 $ 1.69 $ 1.86 $ 2.04 $ 2.25 10.0%
Dividends Per Share $ 0.34 $ 0.67 $ 0.84 $ 0.92 $ 1.01 14.4%
Book Value Per Share $ 10.95 $ 11.44 $ 12.47 $ 13.59 $ 14.82 9.0%
Market Price $ 21.00 $ 21.09 $ 23.20 $ 25.52 $ 28.07 10.0%
Multiple of Book 192% 184% 186% 188% 189%
Multiple of Earnings 12.2 12.5 12.5 12.5 12.5
Austin Associates, LLC
EXHIBIT 6 (CON'T)
STRATEGIC PLAN PROJECTIONS (2005-2007)
MERCHANTS BANCORP, INC.
PLANNING GOALS
ACTUAL PROJECTED ----------------------------------------- 2005-2007
SCENARIO 2 30-JUN-04 2004 2005 2006 2007 GROWTH RATE
--------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets $ 353,712 $ 367,860 $ 397,289 $ 429,072 $ 463,398 8.0%
Net Income $ 2,289 $ 4,500 $ 4,950 $ 5,445 $ 5,990 10.0%
Cash Dividends $ 906 $ 1,800 $ 1,980 $ 2,178 $ 2,396 10.0%
Equity Capital $ 29,206 $ 30,523 $ 33,493 $ 36,760 $ 40,354 9.8%
ROAA 1.29% 1.27% 1.29% 1.32% 1.34%
ROAE 15.67% 15.41% 15.46% 15.50% 15.53%
Dividend Payout Ratio 39.6% 40.0% 40.0% 40.0% 40.0%
Shares Outstanding 2,667 2,667 2,667 2,667 2,667
Earnings Per Share $ 0.86 $ 1.69 $ 1.86 $ 2.04 $ 2.25 10.0%
Dividends Per Share $ 0.34 $ 0.67 $ 0.74 $ 0.82 $ 0.90 10.0%
Book Value Per Share $ 10.95 $ 11.44 $ 12.56 $ 13.78 $ 15.13 9.8%
Market Price $ 21.00 $ 21.09 $ 23.20 $ 25.52 $ 28.07 10.0%
Multiple of Book 192% 184% 185% 185% 186%
Multiple of Earnings 12.2 12.5 12.5 12.5 12.5
Austin Associates, LLC