EXHIBIT 99.4
VALUATION OF
MERCHANTS BANCORP, INC.
HILLSBORO, OHIO
AS OF MARCH 31, 2005
--------------------------------------------------------------------------------
PREPARED FOR:
BOARD OF DIRECTORS OF
MERCHANTS BANCORP, INC.
--------------------------------------------------------------------------------
PREPARED BY:
[AUSTIN ASSOCIATES, LLC LOGO]
TOLEDO, OHIO
JUNE 2005
VALUATION OF
MERCHANTS BANCORP, INC.
AS OF MARCH 31, 2005
TABLE OF CONTENTS
Page
----
I. Executive Summary 1
II. Valuation Approaches and Methodology 2
III. Company Analysis 3
IV. Discounted Cash Flow Value 6
V. Net Asset Value 8
VI. Guideline Transactions 11
VII. Market Price 14
VIII. Fair Market Value 14
IX. Fairness Opinion 16
Tables Tab
------ ---
Historical Performance 1.1 - 1.12 1
Discounted Cash Flow Value 2.1 - 2.3 2
Net Asset Value 3.1 - 3.7 3
Guideline Transactions - Indications of Value
Derived From Minority Share Transactions 4.1 - 4.4 4
Guideline Transactions - Indications of Value
Derived From Sale of Control Transactions 5.1 - 5.5 5
Summary Presentation 6.1 6
Share Repurchase 7.1 - 7.2 7
Exhibits
Economic and Demographic Data A 8
Deposit Growth Trends B-D
Summary of Restricted Stock Studies E
Summary of Marketability Discount Tax Cases F
VALUATION OF
MERCHANTS BANCORP, INC.
AS OF MARCH 31, 2005
I. EXECUTIVE SUMMARY
Austin Associates, LLC ("Austin Associates"), a Toledo, Ohio-based
financial institution consulting firm has been retained by the Board of
Directors of Merchants Bancorp, Inc., Hillsboro, Ohio, ("Company") to determine
the fair market value ("FMV") of the common stock of Company as of March 31,
2005. Austin Associates understands that Company is interested in pursuing a
transaction to reduce the number of shareholders of record to fewer than 300 to
deregister from SEC. FMV has been determined on a minority share basis.
For purposes of this appraisal, FMV is defined as "the probable price at
which shares would change hands between a willing buyer and a willing seller,
neither being under compulsion to buy or sell, each having reasonable knowledge
of all relevant facts." The FMV of a minority share is attributed to
transactions involving small blocks of Company's common shares, such as arm's
length trades, redemptions, purchases by an ESOP, issuance of stock options, and
other similar transactions. Austin Associates will discuss the concept of FMV
and any necessary adjustments to FMV as part of the proposed transaction.
In connection with the preparation of this appraisal, Austin Associates
has considered the following factors: (i) the nature of the business and history
of the enterprise; (ii) the economic outlook in general and the condition and
outlook of the specific industry in particular; (iii) the financial condition of
the business; (iv) the earning capacity of the company; (v) the dividend-paying
capacity of the company; (vi) the nature and value of the tangible and
intangible assets of the business; (vii) sale of the stock and the size of the
block to be valued; (viii) the market price of the stocks of corporations
engaged in the same or similar lines of business having their stocks actively
traded in a free and open market, either on an exchange or over-the-counter;
(ix) the
1
marketability or lack thereof, of the securities being valued; and (x)
determination of any control premiums or minority share discounts.
Presented below is a summary of our FMV conclusion. Specific discussion of
the assumptions and methodology used in our analysis is included in the
remaining sections of the report.
VALUE MULTIPLE
PER SHARE % OF BOOK OF LTM EPS
--------- --------- ----------
FAIR MARKET VALUE $23.00 193% 13.5
Austin Associates has determined the above value based upon information
supplied to us by Company and Bank. We do not express an opinion on the accuracy
of information supplied to us which we used in the preparation of this report,
and we are not responsible for errors or omissions that might be contained in
such materials. In addition, our firm does not have a present or contemplated
future interest with Company or Bank or any other interest that might tend to
prevent us from making a fair and unbiased appraisal.
II. VALUATION APPROACHES AND METHODOLOGY
The appraisal methodology utilized by Austin Associates includes the
following:
A. DISCOUNTED CASH FLOW VALUE TECHNIQUE: Discounted cash flow analysis
based on earnings capacity.
B. NET ASSET VALUE APPROACH: Market value of assets less market value of
liabilities.
C. GUIDELINE TRANSACTIONS: This analysis is based on two sets of guideline
transactions, including: (1) price-to-earnings multiples and price-to-book value
ratios for selected publicly traded companies; and (2) price-to-earnings
multiples, price-to-book value ratios and premium over book value as a percent
of core deposits for selected bank sale transactions. We have applied a minority
share discount to all sale transaction multiples to determine appropriate
minority share level indications of value under this methodology.
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D. MARKET PRICE: The actual price for minority shares of Company's stock
traded in arm's length transactions.
The valuation must also consider the liquidity of the market for the stock
being valued. The end of this report provides empirical information on the use
of marketability discounts and specific factors considered in this appraisal.
III. COMPANY ANALYSIS
A. COMPANY PROFILE
Company operates Bank as a wholly-owned subsidiary. Bank operates its main
office in Hillsboro, Ohio and has additional branch offices in Greenfield,
London, and Washington Court House.
At March 31, 2005, Company reported total assets of $362.5 million, and
consolidated equity of $31.7 million, or $11.89 per share. Company's
consolidated net income for the last twelve months ending March 31, 2005 equaled
$4.6 million or $1.71 per share. Company has one class of capital stock
outstanding, consisting of 2,666,650 shares of common stock.
B. MARKETS
Bank is headquartered in Hillsboro, Ohio with additional locations in
Greenfield, London, and Washington Court House. Bank's locations are in Fayette,
Highland, and Madison Counties. The following chart presents population data for
Bank's market area along with the State of Ohio:
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%
---------- ---------- --------- ---------- ---------
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%
---------- ---------- --------- ---------- ---------
3
This data indicates that Hillsboro and London are characterized by above
average population growth over the next five years when compared to the State of
Ohio. Presented in the following chart are median household income figures for
Bank's market area:
2000 2004 CHANGE 2009 CHANGE
MEDIAN HH INCOME CENSUS CURRENT 2000-2004 PROJECTED 2004-2009
---------------- ------- ------- --------- --------- ---------
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%
------- ------- --------- --------- ---------
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%
------- ------- --------- --------- ---------
This data indicates that Bank's market area is characterized by
below-average income levels when compared to the State of Ohio, with the
exception of Madison County. A more complete economic and demographic analysis
is provided in Exhibit A in Section 8.
Exhibit B presents a map and deposit growth trends of Company's locations.
Exhibits C and D present deposit growth and market share for Company's market
area. Deposits held by financial institutions operating offices in Fayette
County have increased by 2.2 percent annually from $291 million to $325 million
from June 1999 to June 2004. During the same period, Bank's deposits have
increased from $41 million to $60 million, or by 7.8 percent annually. Bank
ranks third in county market share out of seven reporting institutions.
Deposits held by financial institutions operating offices in Highland
County have increased by 7.2 percent annually from $566 million to $802 million
from June 1999 to June 2004. During the same period, Bank's deposits increased
from $151 million to $187 million, or by 4.3 percent annually. Bank ranks second
in county market share out of nine institutions.
Deposits held by financial institutions operating offices in Madison
County have increased by 3.3 percent annually from $305 million to $359 million
from June 1999 to June 2004. During the same period, Bank's deposits have
increased from $10 million to $28 million, or by 23 percent annually. Bank ranks
sixth in county market share out of ten institutions.
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C. HISTORICAL PERFORMANCE (TABLES 1.1 THROUGH 1.12)
Austin Associates has reviewed pertinent historical financial information
of Company from 2000 through March 31, 2005. Tables 1.1 - 1.5 contain the
historical performance of Company on an annual basis since 2000. Tables 1.6 -
1.10 present Company's quarterly performance since December 31, 2003. Tables
1.11 - 1.12 highlight Company's financial performance (consolidated and
parent-only) since 2000. Presented below are summary financial highlights:
1. GROWTH: Company's total assets have increased from $279.2 million as of
December 31, 2000 to $362.5 million as of March 31, 2005. This represents growth
of 6.3 percent compounded annually. Total deposits increased from $233.9 million
to $283.0 million over the same time frame, or by 4.6 percent annually. Total
loans of $294.6 million, equaling 81 percent of assets as of March 31, 2005,
increased 6.8 percent annually since 2000.
2. CAPITAL: As of March 31, 2005, Company's equity capital equaled $31.7
million and its Tier 1 leverage ratio equaled 8.74 percent, compared to 8.17
percent as of March 31, 2004. The loan loss reserve level of Company was $2.6
million, or 0.87 percent of total loans. In 2004, Company paid dividends of $1.9
million.
3. ASSET QUALITY: Company reported $1.6 million in non-performing loans and
$1.1 million in Other Real Estate Owned as of March 31, 2005. As a percent of
total assets, nonperforming assets decreased from 1.10 percent at March 31, 2004
to 0.73 percent at March 31, 2005. Company recorded net charge-offs to average
total loans of 0.22 percent in the last twelve months ending March 31, 2005 and
has averaged 0.28 percent from 2000 through 2004.
4. EARNINGS: The Company reported net income of $3.9 million for the last
twelve months ending March 31, 2004 and $4.6 million for the same period in
2005. Earnings per share measured $1.37 and $1.71, respectively, for the same
periods. Company's net income for the last twelve months ending March 31, 2005
of $4.6 million corresponds to a return on average assets (ROAA) of 1.27 percent
and a return on average equity of (ROAE) 14.96 percent. Company's
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ROAA and ROAE for the last twelve months ending March 31, 2004 equaled 1.13
percent and 12.74 percent, respectively.
Company's net interest income (TE) to average assets for the last twelve
months ending March 31, 2005 was 3.78 percent, compared with 3.98 percent for
the same period in 2004. Overhead expenses relative to average assets increased
from 1.99 percent for the last twelve months ending March 31, 2004 to 2.24
percent for the same period in 2005. For the same periods, noninterest income
increased from 0.46 percent of average assets to 0.54 percent of average assets.
5. PER SHARE DATA: As of March 31, 2005, Company reported one class of
capital stock outstanding, consisting of 2,666,650 shares of common stock. Book
value per share measured $11.89. Company's last twelve months ending March 31,
2005 earnings per share equaled $1.71 compared to earnings per share of $1.37
for the same period in 2004.
IV. DISCOUNTED CASH FLOW VALUE (TABLES 2.1 THROUGH 2.3)
The discounted cash flow ("DCF") value technique developed by Austin
Associates determines the value of a bank on an earnings basis through the use
of a DCF model. The model projects net income over a period of five years. From
these projections, excess capital or "cash flow" is determined based upon the
bank's required equity capital to asset ratio. The future cash flows are
"discounted" to a present value equivalent. This involves the use of an
appropriate discount rate that accounts for the degree of risk related to not
obtaining the estimated cash flows. At the end of five years, a residual value
is calculated. The residual value is converted to its present value equivalent
by the discounting method. The present value of the projected cash flows added
to the present value of the residual value determines the DCF value.
Table 2.1 projects Company's net income over the next five years. Total
assets, net income and return on average asset projections for the next five
years are presented in the following table:
6
(DOLLAR AMOUNTS IN THOUSANDS)
-------------------------------------------------------------
PERIOD 1 PERIOD 2 PERIOD 3 PERIOD 4 PERIOD 5
-------- -------- -------- -------- --------
TOTAL ASSETS $380,612 $399,643 $419,625 $440,606 $462,637
NET INCOME $ 4,679 $ 4,976 $ 5,292 $ 5,627 $ 5,983
ROAA 1.26% 1.28% 1.29% 1.31% 1.32%
Net interest income (TE) is projected equal 3.80 percent of average assets
in period one, increasing to 3.88 percent by period five. Noninterest income is
projected to equal 0.55 percent of average assets over the next five years.
Total overhead expense as a percent of average assets is projected to equal 2.28
percent in period one through period five. The provision for loan loss is
projected to be $725,000 in period one increasing to $825,000 in period five.
The net income projections detailed in Table 2.1 are the basis of the DCF
model. Other key assumptions are presented below:
1. The required equity capital to asset ratio is 7.50 percent. For purposes of
the DCF value, equity capital excludes the market value adjustment on
investment securities classified as available-for-sale.
2. Asset growth is projected to be 5.0 percent in period one through period
five.
3. To establish a reasonable discount rate, Austin Associates reviewed long-term
compound annual stock market returns for various market indices. According to
the Ibbotson Associates, Inc. widely recognized Stocks, Bonds, Bills, and
Inflation (SBBI) 2005 Yearbook, the compound annual return for the period
1926-2004 for large company stocks was 10.4 percent and for small company
stocks was 12.7 percent. Based on our experience in valuing community banks
and the Ibbotson SBBI database, we have selected a specific discount rate of
12.0 percent for this appraisal.
The above assumptions allow Company's asset and equity base to be
projected for five years and, as a result, excess capital or cash flow can be
determined. The calculation of the residual value is a process of capitalizing
the fifth year earnings projection. The appropriate capitalization rate was
determined to be the 12.0 percent discount rate less an estimated annual
7
growth rate after year five. We have projected a three percent growth in
earnings for years six and beyond. As a result, the residual value at the end of
the fifth year is estimated to be $65.2 million, or 190 percent of Company's
projected tangible book value at the end of the fifth year.
The next step of the DCF model present values the cash flows and residual
value based on the 12.0 percent discount rate. This results in a present value
of the residual value of $37.0 million and a present value of the cash flows of
$18.4 million.
Finally, the DCF value of Company is calculated by adding the present
value of the projected cash flows to the present value of the residual value.
The DCF value of Company, as a result, equals $55.4 million. Table 2.3 provides
the indication of value derived from this approach. Presented below are summary
results from this analysis:
DISCOUNTED CASH FLOW VALUE RESULTS
Indication of Value $ 20.78
% of Book Value 175%
Multiple of LTM EPS 12.2
These results do not reflect any discount for lack of marketability of the
stock. This potential discount will be discussed in Section VIII.
V. NET ASSET VALUE (TABLES 3.1 THROUGH 3.7)
The second method utilized in determining value is termed the net asset
value approach. This process involves taking the book value of the bank and
assessing premiums or discounts to the balance sheet accounts based upon the
current market value of the assets and liabilities. A summary of the adjustments
is provided in Table 3.1, while the detailed specifics of the calculations are
provided in supporting Tables 3.2 through 3.6. The following adjustments were
determined:
1. An adjustment to the securities portfolio is made based upon market value
comparison. Available-for-sale securities are already adjusted in the
equity portion of the balance sheet. No additional adjustment has been
made to the available-for-sale portfolio.
8
2. The loan portfolio was adjusted based on the yield, repricing and maturity
structures of the portfolio. Premiums and discounts are calculated for
above and below market rate yielding loans, respectively. Company's loan
yield was calculated based on March 31, 2005 reports, while the market
rate was based on Company's loan portfolio composition and the national
average loan rate for each loan category from Banxquote.com. From this
analysis, a premium of $657,000 to the loan portfolio was calculated.
Refer to Table 3.2.
3. The loan portfolio is also valued on a credit quality basis. The allowance
for loan losses is a valuation reserve which theoretically reflects
management's estimate of future potential loss due to credit quality in
the loan portfolio. The calculation of the adequacy of the loan loss
reserve, as prepared by management, has been utilized to set the credit
quality adjustment for the loan portfolio. As of March 31, 2005, Company
has estimated it is fully funded resulting in neither a premium nor
discount.
AUSTIN ASSOCIATES DID NOT PERFORM AN INDEPENDENT INVESTIGATION OF THE LOAN
PORTFOLIO TO DETERMINE THE ADEQUACY OF THE LOAN LOSS RESERVE. WE HAVE
RELIED ON MANAGEMENT'S ASSESSMENT OF POTENTIAL LOSS AS PRESENTED IN THE
INFORMATION SUPPLIED TO US.
4. No current appraisals were available on Company's fixed assets. As a
result, no adjustment has been made to the fixed asset account of Company.
5. As of March 31, 2005, Company had other real estate owned (OREO) totaling
$1.1 million. A discount is typically applied to reflect the opportunity
cost of nonearning assets, carrying costs, legal and administrative
expenses, and the potential for future loss exposure. A 10 percent
discount to this account was applied to reflect the nonperforming status
of these assets. Refer to Table 3.3.
6. The certificate of deposit accounts (CDs) were adjusted to market value
based on the cost and maturity structure of the portfolio. To do this, we
compare the cost structure of the CD portfolio to current market rates.
Utilizing the rates and maturity structure outlined in Table 3.4, a
discount of $437,000 was determined.
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7. Company's borrowings were adjusted to market value based on the cost and
maturity structure of the outstanding borrowings. Based on a comparison of
the cost structure of the outstanding borrowings and current market rates,
a discount of $561,000 was determined. Refer to Table 3.5.
8. Table 3.6 reflects Company's core deposit value, representing the goodwill
or going concern value of Company. We have calculated a core deposit
premium of $5.9 million or 4.2 percent of total core deposits.
Presented below is a summary of the adjustments made using the net asset
value method:
$000
--------
Securities (Held-to-Maturity) $ 0
Loan Portfolio - Yield Basis $ 657
Loan Portfolio - Credit Quality $ 0
Premises and Fixed Assets $ 0
Other Real Estate Owned ($ 106)
Certificates of Deposit ($ 437)
Borrowings ($ 561)
Other Assets $ 0
Core Deposit Value $5,933
------
Total Adjustments $5,486
Based upon the above adjustments, we have determined the net asset value
of Company to be $37.2 million. This represents 117 percent of Company's March
31, 2005 equity capital. Table 3.7 provides the indication of value derived from
this approach. Presented below are summary results from this analysis:
NET ASSET VALUE RESULTS
Indication of Value $ 13.95
% of Book Value 117%
Multiple of LTM EPS 8.2
These results do not reflect any discount for lack of marketability of the
stock. This potential discount will be discussed in Section VIII.
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VI. GUIDELINE TRANSACTIONS
The third valuation method utilized is a guideline transactions approach.
Given that most community bank stocks do not trade in an efficient market, we
have used a guideline transactions approach based on both a minority stock
trading level and a sale of control basis. In order to adjust the bank sale
pricing multiples to an appropriate minority share level of value, we applied a
minority share discount.
A. INDICATIONS OF VALUE DERIVED FROM MINORITY SHARE TRANSACTIONS (TABLES
4.1 THROUGH 4.4): Table 4.1 presents summary financial and stock performance
information for publicly traded banks in the nation by asset size, core ROAE,
and region. Table 4.2 presents financial and stock performance information for
publicly traded banks in Midwest with total assets between $250 million and $600
million and core ROAE between 12.0 percent and 18.0 percent. Table 4.3 presents
financial and stock performance information for publicly traded banks in the
nation with total assets between $300 million and $500 million and core ROAE
between 14.0 percent and 16.0 percent.
The following chart details the median financial and stock performance
results for the two selective peer groups and for Company:
TG EQUITY/ LTM CORE PRICE/ PRICE/ LTM
PEER GROUP ASSETS TG ASSETS LTM CORE ROAA ROAE TG. BOOK CORE EPS
---------- -------- ---------- ------------- -------- -------- ----------
Midwest $366,733 8.42% 1.14% 13.72% 195% 14.9
Nation $368,715 7.99% 1.22% 14.83% 243% 17.5
-------- ---- ---- ----- --- ----
COMPANY $362,488 8.75% 1.27% 14.96% 200% (1) 15.0 (1)
-------- ---- ---- ----- --- ----
----------
(1) Selected multiples.
In determining a comparable price-to-book multiple, we have considered
various factors, including: (1) Company's underlying financial condition and
performance in relation to the selected organizations; and (2) the nature of the
geographic market area served by Company in relation to the selected
organizations. After considering these and other factors, we have selected a
price-to-book ratio of 200 percent and price-to-earnings multiple of 15.0 to
develop an
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indication of value for Company. Refer to Table 4.4. Presented below are summary
results from this analysis:
GUIDELINE (MINORITY SHARE) TRANSACTION SUMMARY
Based on Price/ Tangible Book Approach $23.79
Based on Price/ LTM Earnings Approach $25.63
These results do not reflect any discount for lack of marketability of the
stock. This potential discount will be discussed in Section VIII.
B. INDICATION OF VALUE DERIVED FROM SALE OF CONTROL TRANSACTIONS (TABLES
5.1 THROUGH 5.5): Table 5.1 presents summary financial information and
transaction multiples for bank transactions in the nation from March 31, 2004
through March 31, 2005 by asset size, ROAE, and region. Tables 5.2 and 5.3
provide transaction data, including price paid and financial performance for two
selective peer groups. The first peer group includes all bank sale transactions
in the Midwest announced during 2004 through first quarter 2005 with seller's
assets between $200 million and $750 million and ROAE greater than 10.0 percent.
The second peer group includes bank sale transactions nationally with seller's
assets between $250 million and $600 million, ROAE greater than 10.0 percent,
and tangible equity to assets between 6.0 percent and 10.0 percent. The
following chart details the median financial and deal statistics for the two
selective transaction groups and for Company:
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EQUITY/ PRICE/ PRICE/ LTM PREMIUM TO
M&A PEER ASSETS ASSETS YTD ROAA YTD ROA TG. BOOK EARNINGS CORE DEPOSITS
-------- -------- ------- -------- -------- -------- ---------- -------------
Midwest $236,334 7.47% 0.98% 12.43% 247% 19.7 17.4%
Nation $456,550 7.42% 0.92% 11.96% 293% 26.1 21.5%
-------- ---- ---- ----- --- ---- ----
COMPANY $362,488 8.75% 1.27% 14.96% 275% (1) 20.0 (1) 20.0% (1)
-------- ---- ---- ----- --- ---- ----
----------
(1) Selected multiples.
Based on our analysis of these transactions, we have selected a
price-to-book ratio of 275 percent, price-to-earnings multiple of 20.0 and a
premium to core deposits value as a percent of assets ratio of 20.0 percent to
establish indications of value for Company under this guideline transactions
methodology.
The information in Table 5.4 reflects control premium information for bank
sale transactions since 2000. The average and median prices paid in these
transactions over the pre-announced stock trading levels of the target companies
approximated between 22 - 56 percent. For the first quarter of 2005, the average
3-month control premium measured 27.9 percent. Based on this data, we have
selected a 40.0 percent control premium, resulting in an implied minority share
discount of 28.6 percent. [1 - (1/(1+control premium))]. This minority discount
has been applied to the selected control level multiples to establish
indications of value on a minority interest level.
Presented below are summary results from this analysis:
GUIDELINE (SALE OF CONTROL) TRANSACTION SUMMARY
Price/ Tangible Book Approach $23.36
Price/ LTM Earnings Approach $24.41
Franchise Premium/ Core Deposits Value Approach $21.77
These results do not reflect any discount for lack of marketability of the
stock. This potential discount will be discussed in Section VIII.
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VII. MARKET PRICE
The final valuation method considered is the market price of Company's
stock as reflected in actual trading prices of the common stock. Company is
privately held, and its stock is not listed on any exchange or quoted
over-the-counter. In 2005, approximately 23,000 shares were traded in arm's
length transactions ranging from $18.00 per share to $24.00 per share. In April
alone, approximately 7,300 shares were traded ranging from $19.00 per share to
$24.00 per share.
VIII. FAIR MARKET VALUE
A. DESCRIPTION OF TRANSACTION
This valuation is being used by the Board of Directors to establish the
FMV of Company's shares on a minority share basis. Company is interested in
pursuing a transaction to reduce the number of shareholders of record to fewer
than 300 to deregister from SEC. In this transaction, Company will be forcing
certain shareholders to take cash (or another form of security) for their
holdings in the Company. Depending on the structure of the transaction,
shareholders may be entitled to dissent from the transaction and request "fair
cash value" under the State of Ohio's dissenters' statute. We have been advised
by legal counsel to the transaction, that past Ohio Court cases have allowed
both a minority share and marketability discount in arriving at "fair cash
value." In that respect, "fair cash value" would be the same as "fair market
value." Therefore, we have considered a marketability discount in the following
section.
B. MARKETABILITY OF STOCK BEING VALUED
The market for a minority share may be "efficient" if the shares of the
underlying company trade actively in an open exchange or market. Company's stock
trades infrequently and has traded more recently in the range of $19.00 to
$24.00 a share. This trading range approximates the range of valuation results
before considering a marketability discount. Based on the pre-discounted results
of the valuation and the trading prices of Company, as well as, the
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nature of the transaction for which the shares are being valued, Austin
Associates does not believe a lack of marketability discount is appropriate.
C. FAIR MARKET VALUE
Austin Associates has considered each valuation methodology in determining
a per share fair market value. No specific formula or weighting was utilized in
this appraisal to reach our fair market value conclusion. Presented below is a
summary of the results:
INDICATION OF
VALUE PER SHARE
---------------
DISCOUNTED CASH FLOW VALUE TECHNIQUE $20.78
NET ASSET VALUE APPROACH $13.95
GUIDELINE TRANSACTIONS
Based on Minority Share Transactions
Price to Tangible Book Value $23.79
Price to Earnings Value $25.63
Based on Sale of Control Transactions
Price to Tangible Book Value $23.36
Price to Earnings Value $24.41
Premium to Core Deposits Value $21.77
MARKET PRICE $19.00 - $24.00
INDICATION OF VALUE (MARKETABLE MINORITY INTEREST) $23.00
Marketability Discount 0%
------
FAIR MARKET VALUE $23.00
------
% of Book Value 193%
Multiple of LTM EPS 13.5
------
BASED ON THE PRECEDING DISCUSSION AND ANALYSIS, THE FMV OF COMPANY ON A
MINORITY SHARE BASIS IS DETERMINED TO BE $23.00 PER SHARE. THIS EQUALS 193
PERCENT OF MARCH 31, 2005 EQUITY CAPITAL AND 13.5 TIMES LAST TWELVE MONTHS
ENDING MARCH 31, 2005 EARNINGS.
AS STATED PREVIOUSLY, WE BELIEVE THE $23.00 PER SHARE PRICE ALSO
REPRESENTS FAIR CASH VALUE FOR COMPANY'S SHARES IN CONNECTION WITH THE PROPOSED
TRANSACTION.
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IX. FAIRNESS OPINION
Austin Associates has previously performed a shareholder analysis
indicating the number of shareholders and corresponding ownership. As part of
that analysis, Austin Associates evaluated the transaction at prices of up to
$25.00 per share. In some going-private transactions, companies pay slight
premiums for shares repurchased. The $25.00 share price is approximately 8.7
percent above the FMV result of $23.00. Moreover, Austin Associates determined
that Company and remaining shareholders will realize reasonable financial
benefits from going-private even at $25.00 per share. An update analysis is
included in Tables 7.1 and 7.2.
In addition, we have reviewed the proposed terms of a preferred stock
security to be offered to certain shareholders in lieu of cash. Among other
terms, the preferred stock will have the following features:
- No voting rights, preemptive rights or conversion rights.
- A 10-year maturity
- Cash dividend equal to the common stock dividend in that year
Based on these terms, we are prepared to issue our fairness opinion at
cash prices of $23.00 to $25.00 per share, as well as, the terms of the
preferred stock noted above and par values of $23.00 to $25.00 per share.
This opinion and range of values is subject to further discussion and
information discovery from March 31, 2005.
16
TABLE 1.1
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY YEAR
BALANCE SHEET 2000Y 2001Y 2002Y 2003Y 2004Y YTD 03/05
--------------------------------------------- -------- -------- -------- --------- --------- ----------
ASSETS
CASH AND DUE FROM BANKS - NONINTEREST BEARING $ 10,301 $ 13,527 $ 13,794 $ 13,159 $ 12,486 $ 11,152
CASH AND DUE FROM BANKS - INTEREST BEARING $ 25 $ 47 $ 59 $ 610 $ 13 $ 324
INVESTMENT SECURITIES $ 39,685 $ 38,221 $ 40,012 $ 33,085 $ 31,979 $ 35,418
FEDERAL FUNDS SOLD & REPURCHASE AGREEMENTS $ 0 $ 16,600 $ 8,350 $ 8,625 $ 16,225 $ 11,575
REAL ESTATE LOANS (INCLUDING COMMERCIAL RE) $163,637 $163,181 $181,256 $221,827 $231,585 $ 231,438
COMMERCIAL RE $ 36,049 $ 37,909 $ 46,555 $ 51,461 $ 52,997 $ 54,078
COMMERCIAL & INDUSTRIAL LOANS $ 23,665 $ 24,740 $ 25,794 $ 25,165 $ 26,350 $ 26,884
INSTALLMENT LOANS $ 23,811 $ 23,650 $ 25,817 $ 27,827 $ 25,085 $ 24,273
AGRICULTURAL LOANS $ 8,565 $ 9,579 $ 12,556 $ 11,057 $ 9,005 $ 9,461
ALL OTHER LOANS $ 2,742 $ 2,577 $ 2,854 $ 2,781 $ 2,585 $ 2,549
LESS: UNEARNED INCOME $ 12 $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- -------- ---------
TOTAL LOANS (NET OF UNEARNED INCOME) $222,432 $223,727 $248,277 $288,657 $294,610 $ 294,605
LESS: LOAN LOSS RESERVE $ 1,911 $ 1,960 $ 2,105 $ 2,432 $ 2,518 $ 2,558
-------- -------- -------- -------- -------- ---------
NET LOANS $220,521 $221,767 $246,172 $286,225 $292,092 $ 292,047
PREMISES AND FIXED ASSETS $ 4,427 $ 4,343 $ 4,347 $ 3,844 $ 3,624 $ 3,524
OTHER REAL ESTATE OWNED $ 42 $ 42 $ 141 $ 358 $ 1,040 $ 1,064
TOTAL INTANGIBLE ASSETS (INCLUDING MSRS) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
MORTGAGE SERVICING RIGHTS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
OTHER ASSETS $ 4,182 $ 10,854 $ 6,779 $ 7,823 $ 7,115 $ 7,384
-------- -------- -------- -------- -------- ---------
TOTAL ASSETS $279,183 $305,401 $319,654 $353,729 $364,574 $ 362,488
======== ======== ======== ======== ======== =========
LIABILITIES
DEMAND DEPOSITS $ 26,167 $ 31,220 $ 30,202 $ 31,693 $ 34,834 $ 30,440
NOW AND OTHER $ 46,207 $ 59,012 $ 63,755 $ 64,645 $ 63,486 $ 64,875
-------- -------- -------- -------- -------- ---------
TOTAL TRANSACTION ACCOUNTS $ 72,374 $ 90,232 $ 93,957 $ 96,338 $ 98,320 $ 95,315
MMDA & OTHER SAVINGS DEPOSITS $ 23,377 $ 26,969 $ 38,003 $ 43,810 $ 46,393 $ 47,200
TIME DEPOSITS < $100,000 $108,742 $111,469 $101,836 $ 97,969 $105,110 $ 105,355
TIME DEPOSITS > $100,000 $ 29,367 $ 30,618 $ 27,296 $ 29,799 $ 34,294 $ 35,083
-------- -------- -------- -------- -------- ---------
TOTAL DEPOSITS $233,860 $259,288 $261,092 $267,916 $284,117 $ 282,953
FED. FUNDS PURCHASED & REPURCHASE AGREEMENTS $ 8,933 $ 4,744 $ 4,998 $ 5,300 $ 6,658 $ 6,460
OTHER BORROWED MONEY $ 7,000 $ 8,993 $ 17,470 $ 43,706 $ 39,920 $ 38,949
SUBORDINATED NOTES AND DEBENTURES $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
OTHER LIABILITIES (1) $ 2,280 $ 2,143 $ 2,586 $ 8,580 $ 3,100 $ 2,409
-------- -------- -------- -------- -------- ---------
TOTAL LIABILITIES $252,073 $275,168 $286,146 $325,502 $333,795 $ 330,771
MINORITY INTEREST (1) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
STOCKHOLDERS' EQUITY
PREFERRED STOCK $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
COMMON STOCK - PAR VALUE $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000
COMMON STOCK - SURPLUS $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 8,000 $ 8,000
UNDIVIDED PROFITS AND RESERVES $ 22,861 $ 25,706 $ 28,682 $ 30,571 $ 27,311 $ 28,418
ACCUMULATED OTHER COMPREHENSIVE INCOME $ 249 $ 527 $ 826 $ 656 $ 468 $ 299
OTHER EQUITY CAPITAL COMPONENTS $ 0 $ 0 $ 0 ($ 7,000) ($ 7,000) ($ 7,000)
-------- -------- -------- -------- -------- ---------
TOTAL EQUITY $ 27,110 $ 30,233 $ 33,508 $ 28,227 $ 30,779 $ 31,717
-------- -------- -------- -------- -------- ---------
TOTAL LIAB. AND STOCKHOLDERS' EQUITY $279,183 $305,401 $319,654 $353,729 $364,574 $ 362,488
======== ======== ======== ======== ======== =========
(1) Beginning in 2004, trust preferred securities are included in Other
Liabilities.
TABLE 1.2
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY YEAR
INCOME STATEMENT 2000Y 2001Y 2002Y 2003Y 2004Y YTD 03/05
-------------------------------------------- ------- ------- ------- ------- ------- ---------
INTEREST AND FEE INCOME ON LOANS & LEASES $18,891 $20,000 $18,478 $18,413 $18,395 $ 4,656
BALANCES DUE FROM DEPOSITORY INSTITUTIONS $ 1 $ 5 $ 4 $ 3 $ 9 $ 1
INTEREST/DIVIDEND INCOME ON SECURITIES $ 2,309 $ 2,089 $ 2,170 $ 1,606 $ 1,507 $ 388
TRADING ACCOUNTS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
INTEREST INCOME ON FEDERAL FUNDS SOLD $ 98 $ 204 $ 92 $ 157 $ 166 $ 72
OTHER INTEREST INCOME $ 0 $ 133 $ 121 $ 131 $ 192 $ 29
------- ------- ------- ------- ------- -------
TOTAL INTEREST INCOME $21,299 $22,431 $20,865 $20,310 $20,269 $ 5,146
INTEREST ON DEPOSITS $ 9,801 $10,130 $ 6,837 $ 5,138 $ 5,052 $ 1,362
INTEREST EXPENSE ON FEDERAL FUNDS PURCHASED $ 247 $ 218 $ 154 $ 140 $ 160 $ 38
INTEREST EXPENSE ON BORROWED FUNDS $ 347 $ 445 $ 902 $ 1,446 $ 1,726 $ 411
INTEREST EXPENSE ON SUBORDINATED DEBT $ 0 $ 0 $ 0 $ 0 $ 34 $ 0
OTHER INTEREST EXPENSE $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
------- ------- ------- ------- ------- -------
TOTAL INTEREST EXPENSE $10,395 $10,793 $ 7,893 $ 6,724 $ 6,972 $ 1,811
------- ------- ------- ------- ------- -------
NET INTEREST INCOME $10,904 $11,638 $12,972 $13,586 $13,297 $ 3,335
LOAN LOSS PROVISION $ 177 $ 177 $ 436 $ 2,907 $ 676 $ 180
------- ------- ------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION $10,727 $11,461 $12,536 $10,679 $12,621 $ 3,155
INCOME FROM FIDUCIARY ACTIVITIES $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
SERVICE CHARGES ON DEPOSIT ACCOUNTS $ 983 $ 1,135 $ 1,157 $ 1,179 $ 1,174 $ 275
OTHER OPERATING INCOME $ 586 $ 337 $ 352 $ 328 $ 696 $ 253
------- ------- ------- ------- ------- -------
TOTAL NONINTEREST INCOME $ 1,569 $ 1,472 $ 1,509 $ 1,507 $ 1,870 $ 528
SALARIES AND EMPLOYEE BENEFITS $ 3,283 $ 3,334 $ 3,505 $ 3,195 $ 3,980 $ 1,136
OCCUPANCY EXPENSES $ 843 $ 991 $ 1,028 $ 1,114 $ 945 $ 228
INTANGIBLE AMORT. & OTHER OPERATING EXPENSES $ 2,007 $ 2,251 $ 2,574 $ 2,604 $ 3,017 $ 738
INTANGIBLE AMORTIZATION EXPENSE NA $ 0 $ 0 $ 0 $ 0 $ 0
------- ------- ------- ------- ------- -------
TOTAL NONINTEREST EXPENSE $ 6,133 $ 6,576 $ 7,107 $ 6,913 $ 7,942 $ 2,102
------- ------- ------- ------- ------- -------
SUBTOTAL $ 6,163 $ 6,357 $ 6,938 $ 5,273 $ 6,549 $ 1,581
SECURITY TRANSACTIONS (GROSS) $ 1 $ 0 $ 0 $ 0 $ 0 $ 0
------- ------- ------- ------- ------- -------
INCOME BEFORE TAXES $ 6,164 $ 6,357 $ 6,938 $ 5,273 $ 6,549 $ 1,581
APPLICABLE TAXES $ 1,964 $ 1,952 $ 2,162 $ 1,482 $ 1,942 $ 474
------- ------- ------- ------- ------- -------
NET INCOME BEFORE EXTRAORDINARY ITEMS $ 4,200 $ 4,405 $ 4,776 $ 3,791 $ 4,607 $ 1,107
EXTRAORDINARY ITEMS AND MINORITY INTERESTS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
------- ------- ------- ------- ------- -------
NET INCOME $ 4,200 $ 4,405 $ 4,776 $ 3,791 $ 4,607 $ 1,107
======= ======= ======= ======= ======= =======
MEMO ITEMS:
TAX-EXEMPT INCOME $ 446 $ 564 $ 1,011 $ 1,084 $ 1,045 $ 249
NET INTEREST INCOME - TAXABLE EQUIVALENT $11,060 $11,835 $13,326 $13,965 $13,663 $ 3,422
Note: Net Interest Income (TE) based on 35% tax rate.
TABLE 1.3
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY YEAR
2000Y 2001Y 2002Y 2003Y 2004Y YTD 03/05
-------- -------- -------- -------- --------- ---------
OTHER FINANCIAL INFORMATION
COMMON DIVIDENDS $ 1,350 $ 1,560 $ 1,800 $ 1,902 $ 1,867 $ 0
PREFERRED DIVIDENDS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
EFFECTIVE TAX RATE 31.86% 30.71% 31.16% 28.11% 29.65% 29.98%
FULL-TIME EQUIVALENT EMPLOYEES 85 86 88 90 92 92
LOAN LOSS RESERVE RECONCILIATION
BEGINNING OF PERIOD RESERVE $ 1,905 $ 1,911 $ 1,960 $ 2,105 $ 2,432 $ 2,518
-------- -------- -------- -------- --------- ---------
ADD: PROVISION FOR LOAN LOSSES $ 177 $ 177 $ 436 $ 2,907 $ 676 $ 180
LESS: LOSSES CHARGED TO RESERVE $ 203 $ 182 $ 356 $ 2,608 $ 654 $ 166
ADD: RECOVERIES $ 32 $ 54 $ 65 $ 28 $ 64 $ 26
ADJUSTMENTS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------- ---------
NET LOAN LOSSES $ 171 $ 128 $ 291 $ 2,580 $ 590 $ 140
END OF PERIOD RESERVE $ 1,911 $ 1,960 $ 2,105 $ 2,432 $ 2,518 $ 2,558
MARKET VALUE OF SECURITIES PORTFOLIO $ 39,685 $ 38,221 $ 40,012 $ 33,085 $ 31,979 $ 35,418
NONPERFORMING LOANS
90+ DAYS PAST DUE AND ACCRUING INTEREST $ 668 $ 1,649 $ 1,133 $ 1,444 $ 452 $ 847
NONACCRUAL LOANS $ 319 $ 383 $ 572 $ 1,462 $ 728 $ 747
-------- -------- -------- -------- --------- ---------
TOTAL NONPERFORMING LOANS $ 987 $ 2,032 $ 1,705 $ 2,906 $ 1,180 $ 1,594
OTHER REAL ESTATE OWNED $ 42 $ 42 $ 141 $ 358 $ 1,040 $ 1,064
-------- -------- -------- -------- --------- ---------
TOTAL NONPERFORMING ASSETS $ 1,029 $ 2,074 $ 1,846 $ 3,264 $ 2,220 $ 2,658
EARNINGS AND PROFITABILITY
PERCENT OF AVERAGE ASSETS
NET INTEREST INCOME (TE) 4.19% 4.12% 4.34% 4.08% 3.82% 3.81%
TAX EQUIVALENT ADJUSTMENT 0.06% 0.07% 0.12% 0.11% 0.10% 0.10%
NET INTEREST INCOME 4.13% 4.05% 4.22% 3.97% 3.71% 3.71%
PROVISION: LOAN/LEASE LOSSES 0.07% 0.06% 0.14% 0.85% 0.19% 0.20%
NET INTEREST INCOME AFTER PROVISION 4.06% 3.99% 4.08% 3.12% 3.53% 3.51%
NONINTEREST INCOME 0.59% 0.51% 0.49% 0.44% 0.52% 0.59%
OVERHEAD EXPENSE 2.32% 2.29% 2.31% 2.02% 2.22% 2.34%
SUBTOTAL 2.34% 2.21% 2.26% 1.54% 1.83% 1.76%
SECURITIES GAINS (LOSSES) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
INCOME BEFORE TAXES 2.34% 2.21% 2.26% 1.54% 1.83% 1.76%
APPLICABLE INCOME TAXES 0.74% 0.68% 0.70% 0.43% 0.54% 0.53%
SUBTOTAL 1.59% 1.53% 1.55% 1.11% 1.29% 1.23%
EXTRAORDINARY ITEMS/MINORITY INTERESTS 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
NET INCOME - ROAA 1.59% 1.53% 1.55% 1.11% 1.29% 1.23%
RETURN ON AVERAGE EQUITY 16.54% 15.27% 15.03% 11.77% 15.49% 14.17%
MARGIN ANALYSIS
AVERAGE EARNING ASSETS TO AVERAGE ASSETS 95.34% 95.54% 94.05% 93.67% 94.15% 94.61%
AVERAGE INT-BEARING DEPOSITS TO AVERAGE ASSETS 75.50% 75.78% 74.71% 68.30% 67.82% 69.79%
INTEREST INCOME TO AVERAGE EARNING ASSETS 8.46% 8.17% 7.22% 6.34% 6.01% 6.05%
INTEREST EXPENSE TO AVERAGE EARNING ASSETS 4.13% 3.93% 2.73% 2.10% 2.07% 2.13%
NET INTEREST INCOME TO AVG. EARNING ASSETS 4.33% 4.24% 4.49% 4.24% 3.95% 3.92%
NET INTEREST INCOME (FTE) TO AVG. EARNING ASSETS 4.40% 4.31% 4.61% 4.36% 4.05% 4.02%
AVERAGE ASSETS $263,919 $287,505 $307,147 $341,962 $ 357,948 $ 359,522
AVERAGE EARNING ASSETS $251,624 $274,688 $288,880 $320,309 $ 337,002 $ 340,127
AVERAGE EQUITY $ 25,399 $ 28,839 $ 31,775 $ 32,215 $ 29,748 $ 31,248
TABLE 1.4
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY YEAR
2000Y 2001Y 2002Y 2003Y 2004Y YTD 03/05
-------- -------- -------- -------- --------- ---------
PERCENT OF AVERAGE ASSETS
INCOME COMPOSITION
INCOME FROM FIDUCIARY ACTIVITIES 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
SERVICE CHARGES ON DEPOSIT ACCOUNTS 0.37% 0.39% 0.38% 0.34% 0.33% 0.31%
OTHER OPERATING INCOME 0.22% 0.12% 0.11% 0.10% 0.19% 0.28%
EXPENSE COMPOSITION
PERSONNEL EXPENSE 1.24% 1.16% 1.14% 0.93% 1.11% 1.26%
OCCUPANCY EXPENSE 0.32% 0.34% 0.33% 0.33% 0.26% 0.25%
AMORTIZATION & OTHER OPERATING EXPENSE 0.76% 0.78% 0.84% 0.76% 0.84% 0.82%
-------- -------- -------- -------- --------- ---------
TOTAL OVERHEAD EXPENSE 2.32% 2.29% 2.31% 2.02% 2.22% 2.34%
NET OVERHEAD 1.73% 1.78% 1.82% 1.58% 1.70% 1.75%
EFFICIENCY RATIO 49.17% 50.16% 49.08% 45.80% 52.36% 54.41%
PERSONNEL EXPENSE
TOTAL ASSETS PER EMPLOYEE $ 3,285 $ 3,551 $ 3,632 $ 3,930 $ 3,963 $ 3,940
PERSONNEL EXPENSE PER EMPLOYEE (ANNUALIZED) $ 39 $ 39 $ 40 $ 36 $ 43 $ 49
INCOME STATEMENT GROWTH RATES (ANNUALIZED)
NET INTEREST INCOME 8.84% 6.73% 11.46% 4.73% -2.13% 0.32%
NET INTEREST INCOME - TAXABLE EQUIVALENT 8.93% 7.01% 12.59% 4.80% -2.17% 0.19%
LOAN LOSS PROVISION EXPENSE 36.15% 0.00% 146.33% 566.74% -76.75% 6.51%
NONINTEREST INCOME 10.88% -6.18% 2.51% -0.13% 24.09% 12.94%
OVERHEAD EXPENSE 6.38% 7.22% 8.07% -2.73% 14.88% 5.87%
PRE-TAX INCOME 11.24% 3.13% 9.14% -24.00% 24.20% -3.44%
NET INCOME 11.23% 4.88% 8.42% -20.62% 21.52% -3.89%
ASSETS, PERCENT OF ASSETS
REAL ESTATE LOANS 58.61% 53.43% 56.70% 62.71% 63.52% 63.85%
COMMERCIAL & INDUSTRIAL LOANS 8.48% 8.10% 8.07% 7.11% 7.23% 7.42%
INSTALLMENT LOANS 8.53% 7.74% 8.08% 7.87% 6.88% 6.70%
AGRICULTURAL LOANS 3.07% 3.14% 3.93% 3.13% 2.47% 2.61%
ALL OTHER LOANS 0.98% 0.84% 0.89% 0.79% 0.71% 0.70%
TOTAL LOANS (NET OF UNEARNED INCOME) 79.67% 73.26% 77.67% 81.60% 80.81% 81.27%
LESS: LOSS RESERVE 0.68% 0.64% 0.66% 0.69% 0.69% 0.71%
NET LOANS AND LEASES 78.99% 72.62% 77.01% 80.92% 80.12% 80.57%
INTEREST BEARING BANK BALANCES 0.01% 0.02% 0.02% 0.17% 0.00% 0.09%
FEDERAL FUNDS SOLD & RESALES 0.00% 5.44% 2.61% 2.44% 4.45% 3.19%
INVESTMENT SECURITIES 14.21% 12.52% 12.52% 9.35% 8.77% 9.77%
TOTAL EARNING ASSETS 93.90% 91.22% 92.82% 93.57% 94.03% 94.33%
NONINTEREST CASH & DUE FROM BANKS 3.69% 4.43% 4.32% 3.72% 3.42% 3.08%
PREMISES, FIXED ASSETS, CAPITAL LEASES 1.59% 1.42% 1.36% 1.09% 0.99% 0.97%
OTHER REAL ESTATE OWNED 0.02% 0.01% 0.04% 0.10% 0.29% 0.29%
OTHER ASSETS 1.50% 3.55% 2.12% 2.21% 1.95% 2.04%
TABLE 1.5
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY YEAR
2000Y 2001Y 2002Y 2003Y 2004Y YTD 03/05
-------- -------- -------- -------- --------- ---------
LIABILITIES, PERCENT OF ASSETS
DEMAND DEPOSITS 9.37% 10.22% 9.45% 8.96% 9.55% 8.40%
NOW & SUPER NOW DEPOSITS 16.55% 19.32% 19.95% 18.28% 17.41% 17.90%
-------- -------- -------- -------- --------- ---------
TOTAL TRANSACTION ACCOUNTS 25.92% 29.55% 29.39% 27.23% 26.97% 26.29%
MMDA & OTHER SAVINGS DEPOSITS 8.37% 8.83% 11.89% 12.39% 12.73% 13.02%
TIME DEPOSITS < $100,000 38.95% 36.50% 31.86% 27.70% 28.83% 29.06%
TIME DEPOSITS > $100,000 10.52% 10.03% 8.54% 8.42% 9.41% 9.68%
FEDERAL FUNDS PURCHASED & REPURCHASE AGREEMENT 3.20% 1.55% 1.56% 1.50% 1.83% 1.78%
BORROWINGS 2.51% 2.94% 5.47% 12.36% 10.95% 10.74%
SUBORDINATED NOTES AND DEBENTURES 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
OTHER LIABILITIES 0.82% 0.70% 0.81% 2.43% 0.85% 0.66%
TOTAL LIABILITIES 90.29% 90.10% 89.52% 92.02% 91.56% 91.25%
MINORITY INTEREST 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
ALL COMMON & PREFERRED CAPITAL 9.71% 9.90% 10.48% 7.98% 8.44% 8.75%
TOTAL LIABILITIES AND CAPITAL 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
BALANCE SHEET GROWTH RATES (ANNUALIZED)
TOTAL LOANS & LEASES 18.89% 0.58% 10.97% 16.26% 2.06% -0.01%
TOTAL ASSETS 12.99% 9.39% 4.67% 10.66% 3.07% -2.29%
TOTAL DEPOSITS 8.35% 10.87% 0.70% 2.61% 6.05% -1.64%
ASSET QUALITY
AVERAGE TOTAL LOANS $210,314 $225,113 $235,281 $270,685 $290,722 $292,372
NET LOAN LOSS TO AVERAGE TOTAL LOANS AND LEASES 0.08% 0.06% 0.12% 0.95% 0.20% 0.19%
PROVISION FOR LOAN LOSS TO AVERAGE TOTAL LOANS AND LEASES 0.08% 0.08% 0.19% 1.07% 0.23% 0.25%
LOSS RESERVE TO NET LOANS AND LEASES 0.87% 0.88% 0.86% 0.85% 0.86% 0.88%
NONPERFORMING LOANS TO TOTAL LOANS AND LEASES:
90+ DAYS PAST DUE 0.30% 0.74% 0.46% 0.50% 0.15% 0.29%
NONACCRUAL 0.14% 0.17% 0.23% 0.51% 0.25% 0.25%
TOTAL NONPERFORMING LOANS 0.44% 0.91% 0.69% 1.01% 0.40% 0.54%
LLR/NONPERFORMING LOANS 193.62% 96.46% 123.46% 83.69% 213.39% 160.48%
OREO AS A % OF TOTAL ASSETS 0.02% 0.01% 0.04% 0.10% 0.29% 0.29%
NONPERFORMING ASSETS AS A % OF TOTAL ASSETS 0.37% 0.68% 0.58% 0.92% 0.61% 0.73%
CAPITAL ADEQUACY
CORE LEVERAGE RATIO (TANGIBLE) 9.71% 9.92% 10.29% 7.74% 8.31% 8.74%
RISK BASED CAPITAL RATIOS:
TIER1 13.30% 14.22% 13.85% 10.47% 11.36% 11.75%
TOTAL 14.24% 15.16% 14.74% 11.39% 12.30% 12.71%
COMMON DIVIDEND PAYOUT RATIO 32.14% 35.41% 37.69% 50.17% 40.53% 0.00%
AVERAGE ASSETS (CAPITAL CALCULATION) $276,540 $299,388 $317,623 $355,989 $ 364,855 $ 359,522
RISK BASED ASSETS $201,949 $208,890 $236,056 $263,433 $ 266,931 $ 267,387
TIER 1 CAPITAL $ 26,854 $ 29,705 $ 32,682 $ 27,571 $ 30,311 $ 31,418
QUALIFYING TRUST PREFERRED SECURITIES IN TIER 1 CAPITAL $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
TIER 2 CAPITAL $ 1,911 $ 1,960 $ 2,109 $ 2,433 $ 2,518 $ 2,558
OTHER TIER 2 CAPITAL COMPONENTS (EXCLUDING LLR) $ 0 $ 0 $ 4 $ 1 $ 0 $ 0
LIQUIDITY AND RATE SENSITIVITY
MARKET VALUE LESS BOOK VALUE OF INVESTMENT SECURITIES $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
MARKET VALUE/BOOK VALUE OF INVESTMENT SECURITIES 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
TOTAL LOANS & LEASES TO ASSETS 79.67% 73.26% 77.67% 81.60% 80.81% 81.27%
TOTAL LOANS AND LEASES TO DEPOSITS 95.11% 86.29% 95.09% 107.74% 103.69% 104.12%
VOLATILE LIABILITIES $ 45,300 $ 44,355 $ 49,764 $ 78,805 $ 80,872 $ 80,492
CASH, FEDERAL FUNDS & INVESTMENT SECURITIES $ 50,011 $ 68,395 $ 62,215 $ 55,479 $ 60,703 $ 58,469
TABLE 1.6
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY QUARTER
BALANCE SHEET
2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1
-------- -------- -------- -------- -------- --------
ASSETS
CASH AND DUE FROM BANKS - NONINTEREST BEARING $ 13,159 $ 8,091 $ 11,715 $ 11,052 $ 12,486 $ 11,152
CASH AND DUE FROM BANKS - INTEREST BEARING $ 610 $ 108 $ 393 $ 147 $ 13 $ 324
INVESTMENT SECURITIES $ 33,085 $ 32,501 $ 32,465 $ 34,517 $ 31,979 $ 35,418
FEDERAL FUNDS SOLD & REPURCHASE AGREEMENTS $ 8,625 $ 18,625 $ 5,675 $ 8,475 $ 16,225 $ 11,575
REAL ESTATE LOANS (INCLUDING COMMERCIAL RE) $221,827 $224,568 $228,165 $231,767 $231,585 $231,438
COMMERCIAL RE $ 51,461 $ 52,000 $ 51,496 $ 51,528 $ 52,997 $ 54,078
COMMERCIAL & INDUSTRIAL LOANS $ 25,165 $ 26,481 $ 25,990 $ 26,434 $ 26,350 $ 26,884
INSTALLMENT LOANS $ 27,827 $ 26,775 $ 26,651 $ 26,136 $ 25,085 $ 24,273
AGRICULTURAL LOANS $ 11,057 $ 9,584 $ 11,022 $ 12,606 $ 9,005 $ 9,461
ALL OTHER LOANS $ 2,781 $ 2,180 $ 2,756 $ 2,726 $ 2,585 $ 2,549
LESS: UNEARNED INCOME $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- -------- --------
TOTAL LOANS (NET OF UNEARNED INCOME) $288,657 $289,588 $294,584 $299,669 $294,610 $294,605
LESS: LOAN LOSS RESERVE $ 2,432 $ 2,500 $ 2,492 $ 2,517 $ 2,518 $ 2,558
-------- -------- -------- -------- -------- --------
NET LOANS $286,225 $287,088 $292,092 $297,152 $292,092 $292,047
PREMISES AND FIXED ASSETS $ 3,844 $ 3,728 $ 3,607 $ 3,707 $ 3,624 $ 3,524
OTHER REAL ESTATE OWNED $ 358 $ 268 $ 1,227 $ 1,095 $ 1,040 $ 1,064
TOTAL INTANGIBLE ASSETS (INCLUDING MSRs) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
MORTGAGE SERVICING RIGHTS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
OTHER ASSETS $ 7,823 $ 6,943 $ 7,052 $ 7,741 $ 7,115 $ 7,384
-------- -------- -------- -------- -------- --------
TOTAL ASSETS $353,729 $357,352 $354,226 $363,886 $364,574 $362,488
======== ======== ======== ======== ======== ========
LIABILITIES
DEMAND DEPOSITS $ 31,693 $ 29,181 $ 31,412 $ 29,846 $ 34,834 $ 30,440
NOW AND OTHER $ 64,645 $ 69,106 $ 67,497 $ 65,620 $ 63,486 $ 64,875
-------- -------- -------- -------- -------- --------
TOTAL TRANSACTION ACCOUNTS $ 96,338 $ 98,287 $ 98,909 $ 95,466 $ 98,320 $ 95,315
MMDA & OTHER SAVINGS DEPOSITS $ 43,810 $ 47,703 $ 47,181 $ 46,738 $ 46,393 $ 47,200
TIME DEPOSITS < $100,000 $ 97,969 $ 99,636 $ 98,861 $106,646 $105,110 $105,355
TIME DEPOSITS > $100,000 $ 29,799 $ 30,196 $ 30,421 $ 34,264 $ 34,294 $ 35,083
-------- -------- -------- -------- -------- --------
TOTAL DEPOSITS $267,916 $275,822 $275,372 $283,114 $284,117 $282,953
FED. FUNDS PURCHASED & REPURCHASE AGREEMENTS $ 5,300 $ 6,046 $ 6,077 $ 6,978 $ 6,658 $ 6,460
OTHER BORROWED MONEY $ 43,706 $ 42,705 $ 41,163 $ 40,195 $ 39,920 $ 38,949
SUBORDINATED NOTES AND DEBENTURES $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
OTHER LIABILITIES (1) $ 8,580 $ 3,272 $ 2,407 $ 2,840 $ 3,100 $ 2,409
-------- -------- -------- -------- -------- --------
TOTAL LIABILITIES $325,502 $327,845 $325,019 $333,127 $333,795 $330,771
MINORITY INTEREST (1) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
STOCKHOLDERS' EQUITY
PREFERRED STOCK $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
COMMON STOCK - PAR VALUE $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000
COMMON STOCK - SURPLUS $ 2,000 $ 2,000 $ 2,000 $ 8,000 $ 8,000 $ 8,000
UNDIVIDED PROFITS AND RESERVES $ 30,571 $ 31,728 $ 31,953 $ 27,142 $ 27,311 $ 28,418
ACCUMULATED OTHER COMPREHENSIVE INCOME $ 656 $ 779 $ 254 $ 617 $ 468 $ 299
OTHER EQUITY CAPITAL COMPONENTS ($ 7,000) ($ 7,000) ($ 7,000) ($ 7,000) ($ 7,000) ($ 7,000)
-------- -------- -------- -------- -------- --------
TOTAL EQUITY $ 28,227 $ 29,507 $ 29,207 $ 30,759 $ 30,779 $ 31,717
-------- -------- -------- -------- -------- --------
TOTAL LIAB. AND STOCKHOLDERS' EQUITY $353,729 $357,352 $354,226 $363,886 $364,574 $362,488
======== ======== ======== ======== ======== ========
(1) Beginning in 2004Q1, trust preferred securities are included in Other
Liabilities.
TABLE 1.7
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY QUARTER
2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1
-------- -------- -------- -------- -------- --------
INCOME STATEMENT
INTEREST AND FEE INCOME ON LOANS & LEASES $ 4,146 $ 4,619 $ 4,606 $ 4,682 $ 4,488 $ 4,656
BALANCES DUE FROM DEPOSITORY INSTITUTIONS $ 1 $ 1 $ 1 $ 2 $ 5 $ 1
INTEREST/DIVIDEND INCOME ON SECURITIES $ 367 $ 361 $ 350 $ 395 $ 401 $ 388
TRADING ACCOUNTS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
INTEREST INCOME ON FEDERAL FUNDS SOLD $ 37 $ 30 $ 36 $ 31 $ 69 $ 72
OTHER INTEREST INCOME $ 65 $ 23 $ 57 $ 25 $ 87 $ 29
-------- -------- -------- -------- -------- --------
TOTAL INTEREST INCOME $ 4,616 $ 5,034 $ 5,050 $ 5,135 $ 5,050 $ 5,146
INTEREST ON DEPOSITS $ 1,200 $ 1,163 $ 1,190 $ 1,302 $ 1,397 $ 1,362
INTEREST EXPENSE ON FEDERAL FUNDS PURCHASED $ 34 $ 39 $ 38 $ 42 $ 41 $ 38
INTEREST EXPENSE ON BORROWED FUNDS $ 452 $ 447 $ 433 $ 428 $ 418 $ 411
INTEREST EXPENSE ON SUBORDINATED DEBT $ 0 $ 0 $ 34 $ 0 $ 0 $ 0
OTHER INTEREST EXPENSE $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- -------- --------
TOTAL INTEREST EXPENSE $ 1,686 $ 1,649 $ 1,695 $ 1,772 $ 1,856 $ 1,811
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME $ 2,930 $ 3,385 $ 3,355 $ 3,363 $ 3,194 $ 3,335
LOAN LOSS PROVISION $ 455 $ 153 $ 181 $ 160 $ 182 $ 180
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION $ 2,475 $ 3,232 $ 3,174 $ 3,203 $ 3,012 $ 3,155
INCOME FROM FIDUCIARY ACTIVITIES $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
SERVICE CHARGES ON DEPOSIT ACCOUNTS $ 297 $ 287 $ 303 $ 307 $ 277 $ 275
OTHER OPERATING INCOME $ 84 $ 169 $ 181 $ 168 $ 178 $ 253
-------- -------- -------- -------- -------- --------
TOTAL NONINTEREST INCOME $ 381 $ 456 $ 484 $ 475 $ 455 $ 528
SALARIES AND EMPLOYEE BENEFITS $ 417 $ 1,018 $ 1,030 $ 980 $ 952 $ 1,136
OCCUPANCY EXPENSES $ 260 $ 248 $ 244 $ 222 $ 231 $ 228
INTANGIBLE AMORT. & OTHER OPERATING EXPENSES $ 678 $ 731 $ 729 $ 790 $ 767 $ 738
INTANGIBLE AMORTIZATION EXPENSE $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- -------- --------
TOTAL NONINTEREST EXPENSE $ 1,355 $ 1,997 $ 2,003 $ 1,992 $ 1,950 $ 2,102
-------- -------- -------- -------- -------- --------
SUBTOTAL $ 1,501 $ 1,691 $ 1,655 $ 1,686 $ 1,517 $ 1,581
SECURITY TRANSACTIONS (GROSS) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- -------- --------
INCOME BEFORE TAXES $ 1,501 $ 1,691 $ 1,655 $ 1,686 $ 1,517 $ 1,581
APPLICABLE TAXES $ 423 $ 533 $ 524 $ 498 $ 387 $ 474
-------- -------- -------- -------- -------- --------
NET INCOME BEFORE EXTRAORDINARY ITEMS $ 1,078 $ 1,158 $ 1,131 $ 1,188 $ 1,130 $ 1,107
EXTRAORDINARY ITEMS AND MINORITY INTERESTS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- -------- --------
NET INCOME $ 1,078 $ 1,158 $ 1,131 $ 1,188 $ 1,130 $ 1,107
======== ======== ======== ======== ======== ========
MEMO ITEMS:
TAX-EXEMPT INCOME $ 267 $ 265 $ 264 $ 261 $ 255 $ 249
NET INTEREST INCOME - TAXABLE EQUIVALENT $ 3,023 $ 3,478 $ 3,447 $ 3,454 $ 3,283 $ 3,422
Note: Net Interest Income (TE) based on 35% tax rate.
TABLE 1.8
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY QUARTER
2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1
-------- -------- -------- -------- -------- --------
OTHER FINANCIAL INFORMATION
COMMON DIVIDENDS $ 942 $ 0 $ 907 $ 0 $ 960 $ 0
PREFERRED DIVIDENDS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
EFFECTIVE TAX RATE 28.18% 31.52% 31.66% 29.54% 25.51% 29.98%
FULL-TIME EQUIVALENT EMPLOYEES 90 90 92 92 92 92
LOAN LOSS RESERVE RECONCILIATION
Beginning of Period Reserve $ 2,374 $ 2,432 $ 2,500 $ 2,492 $ 2,517 $ 2,518
-------- -------- -------- -------- -------- --------
ADD: PROVISION FOR LOAN LOSSES $ 455 $ 153 $ 181 $ 160 $ 182 $ 180
LESS: LOSSES CHARGED TO RESERVE $ 402 $ 92 $ 203 $ 141 $ 218 $ 166
ADD: RECOVERIES $ 5 $ 7 $ 14 $ 6 $ 37 $ 26
ADJUSTMENTS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- -------- --------
NET LOAN LOSSES $ 397 $ 85 $ 189 $ 135 $ 181 $ 140
END OF PERIOD RESERVE $ 2,432 $ 2,500 $ 2,492 $ 2,517 $ 2,518 $ 2,558
MARKET VALUE OF SECURITIES PORTFOLIO $ 33,085 $ 32,501 $ 32,465 $ 34,517 $ 31,979 $ 35,418
NONPERFORMING LOANS
90+ DAYS PAST DUE AND ACCRUING INTEREST $ 1,444 $ 2,064 $ 843 $ 720 $ 452 $ 847
NONACCRUAL LOANS $ 1,462 $ 1,585 $ 735 $ 535 $ 728 $ 747
-------- -------- -------- -------- -------- --------
TOTAL NONPERFORMING LOANS $ 2,906 $ 3,649 $ 1,578 $ 1,255 $ 1,180 $ 1,594
OTHER REAL ESTATE OWNED $ 358 $ 268 $ 1,227 $ 1,095 $ 1,040 $ 1,064
-------- -------- -------- -------- -------- --------
TOTAL NONPERFORMING ASSETS $ 3,264 $ 3,917 $ 2,805 $ 2,350 $ 2,220 $ 2,658
EARNINGS AND PROFITABILITY
PERCENT OF AVERAGE ASSETS
NET INTEREST INCOME (TE) 3.40% 3.96% 3.87% 3.85% 3.60% 3.81%
TAX EQUIVALENT ADJUSTMENT 0.11% 0.11% 0.10% 0.10% 0.10% 0.10%
NET INTEREST INCOME 3.29% 3.85% 3.77% 3.75% 3.50% 3.71%
PROVISION: LOAN/LEASE LOSSES 0.51% 0.17% 0.20% 0.18% 0.20% 0.20%
NET INTEREST INCOME AFTER PROVISION 2.78% 3.68% 3.56% 3.57% 3.30% 3.51%
NONINTEREST INCOME 0.43% 0.52% 0.54% 0.53% 0.50% 0.59%
OVERHEAD EXPENSE 1.52% 2.27% 2.25% 2.22% 2.14% 2.34%
SUBTOTAL 1.69% 1.92% 1.86% 1.88% 1.66% 1.76%
SECURITIES GAINS (LOSSES) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
INCOME BEFORE TAXES 1.69% 1.92% 1.86% 1.88% 1.66% 1.76%
APPLICABLE INCOME TAXES 0.48% 0.61% 0.59% 0.55% 0.42% 0.53%
SUBTOTAL 1.21% 1.32% 1.27% 1.32% 1.24% 1.23%
MINORITY INTEREST 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
NET INCOME - ROAA 1.21% 1.32% 1.27% 1.32% 1.24% 1.23%
RETURN ON AVERAGE EQUITY 15.28% 16.29% 15.23% 15.94% 14.57% 14.17%
MARGIN ANALYSIS
AVERAGE EARNING ASSETS TO AVERAGE ASSETS 94.11% 94.51% 93.94% 94.28% 93.87% 94.61%
AVERAGE INT-BEARING DEPOSITS TO AVERAGE ASSETS 68.67% 68.83% 69.26% 68.87% 69.79%
INTEREST INCOME TO AVERAGE EARNING ASSETS 5.51% 6.06% 6.03% 6.07% 5.90% 6.05%
INTEREST EXPENSE TO AVERAGE EARNING ASSETS 2.01% 1.99% 2.03% 2.09% 2.17% 2.13%
NET INTEREST INCOME TO AVG. EARNING ASSETS 3.50% 4.07% 4.01% 3.98% 3.73% 3.92%
NET INTEREST INCOME (FTE) TO AVG. EARNING ASSETS 3.61% 4.19% 4.12% 4.08% 3.83% 4.02%
AVERAGE ASSETS $355,989 $351,607 $356,395 $358,933 $364,855 $359,522
AVERAGE EARNING ASSETS $335,011 $332,288 $334,804 $338,410 $342,506 $340,127
AVERAGE EQUITY $ 28,213 $ 28,443 $ 29,701 $ 29,820 $ 31,029 $ 31,248
TABLE 1.9
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY QUARTER
2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1
-------- -------- -------- -------- -------- --------
PERCENT OF AVERAGE ASSETS
INCOME COMPOSITION
INCOME FROM FIDUCIARY ACTIVITIES 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
SERVICE CHARGES ON DEPOSIT ACCOUNTS 0.33% 0.33% 0.34% 0.34% 0.30% 0.31%
OTHER OPERATING INCOME 0.09% 0.19% 0.20% 0.19% 0.20% 0.28%
EXPENSE COMPOSITION
PERSONNEL EXPENSE 0.47% 1.16% 1.16% 1.09% 1.04% 1.26%
OCCUPANCY EXPENSE 0.29% 0.28% 0.27% 0.25% 0.25% 0.25%
AMORTIZATION & OTHER OPERATING EXPENSE 0.76% 0.83% 0.82% 0.88% 0.84% 0.82%
-------- -------- -------- -------- -------- --------
TOTAL OVERHEAD EXPENSE 1.52% 2.27% 2.25% 2.22% 2.14% 2.34%
NET OVERHEAD 1.09% 1.75% 1.70% 1.69% 1.64% 1.75%
EFFICIENCY RATIO 40.92% 51.99% 52.18% 51.90% 53.44% 54.41%
PERSONNEL EXPENSE
TOTAL ASSETS PER EMPLOYEE $ 3,930 $ 3,971 $ 3,850 $ 3,955 $ 3,963 $ 3,940
PERSONNEL EXPENSE PER EMPLOYEE (ANNUALIZED) $ 19 $ 45 $ 45 $ 43 $ 41 $ 49
INCOME STATEMENT GROWTH RATES (ANNUALIZED)
NET INTEREST INCOME 15.53% -0.89% 0.24% -5.03% 4.41%
NET INTEREST INCOME - TAXABLE EQUIVALENT 15.03% -0.87% 0.20% -4.95% 4.23%
LOAN LOSS PROVISION EXPENSE -66.37% 18.30% -11.60% 13.75% -1.10%
NONINTEREST INCOME 19.69% 6.14% -1.86% -4.21% 16.04%
OVERHEAD EXPENSE 47.38% 0.30% -0.55% -2.11% 7.79%
PRE-TAX INCOME 12.66% -2.13% 1.87% -10.02% 4.22%
NET INCOME 7.42% -2.33% 5.04% -4.88% -2.04%
ASSETS, PERCENT OF ASSETS
REAL ESTATE LOANS 62.71% 62.84% 64.41% 63.69% 63.52% 63.85%
COMMERCIAL & INDUSTRIAL LOANS 7.11% 7.41% 7.34% 7.26% 7.23% 7.42%
INSTALLMENT LOANS 7.87% 7.49% 7.52% 7.18% 6.88% 6.70%
AGRICULTURAL LOANS 3.13% 2.68% 3.11% 3.46% 2.47% 2.61%
ALL OTHER LOANS 0.79% 0.61% 0.78% 0.75% 0.71% 0.70%
TOTAL LOANS (NET OF UNEARNED INCOME) 81.60% 81.04% 83.16% 82.35% 80.81% 81.27%
LESS: LOSS RESERVE 0.69% 0.70% 0.70% 0.69% 0.69% 0.71%
NET LOANS AND LEASES 80.92% 80.34% 82.46% 81.66% 80.12% 80.57%
INTEREST BEARING BANK BALANCES 0.17% 0.03% 0.11% 0.04% 0.00% 0.09%
FEDERAL FUNDS SOLD & RESALES 2.44% 5.21% 1.60% 2.33% 4.45% 3.19%
INVESTMENT SECURITIES 9.35% 9.09% 9.17% 9.49% 8.77% 9.77%
TOTAL EARNING ASSETS 93.57% 95.37% 94.04% 94.21% 94.03% 94.33%
NONINTEREST CASH & DUE FROM BANKS 3.72% 2.26% 3.31% 3.04% 3.42% 3.08%
PREMISES, FIXED ASSETS, CAPITAL LEASES 1.09% 1.04% 1.02% 1.02% 0.99% 0.97%
OTHER REAL ESTATE OWNED 0.10% 0.07% 0.35% 0.30% 0.29% 0.29%
OTHER ASSETS 2.21% 1.94% 1.99% 2.13% 1.95% 2.04%
TABLE 1.10
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY QUARTER
2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1
-------- -------- -------- -------- -------- --------
LIABILITIES, PERCENT OF ASSETS
DEMAND DEPOSITS 8.96% 8.17% 8.87% 8.20% 9.55% 8.40%
NOW & SUPER NOW DEPOSITS 18.28% 19.34% 19.05% 18.03% 17.41% 17.90%
OTHER TRANSACTION ACCOUNTS 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
MMDA & OTHER SAVINGS DEPOSITS 12.39% 13.35% 13.32% 12.84% 12.73% 13.02%
TIME DEPOSITS < $100,000 27.70% 27.88% 27.91% 29.31% 28.83% 29.06%
TIME DEPOSITS > $100,000 8.42% 8.45% 8.59% 9.42% 9.41% 9.68%
FEDERAL FUNDS PURCHASED & REPURCHASE AGREEMENT 1.50% 1.69% 1.72% 1.92% 1.83% 1.78%
BORROWINGS 12.36% 11.95% 11.62% 11.05% 10.95% 10.74%
SUBORDINATED NOTES AND DEBENTURES 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
OTHER LIABILITIES 2.43% 0.92% 0.68% 0.78% 0.85% 0.66%
TOTAL LIABILITIES 92.02% 91.74% 91.75% 91.55% 91.56% 91.25%
MINORITY INTEREST 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
ALL COMMON & PREFERRED CAPITAL 7.98% 8.26% 8.25% 8.45% 8.44% 8.75%
TOTAL LIABILITIES AND CAPITAL 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
BALANCE SHEET GROWTH RATES (ANNUALIZED)
TOTAL LOANS & LEASES 0.32% 1.73% 1.73% -1.69% 0.00%
TOTAL ASSETS 1.02% -0.87% 2.73% 0.19% -0.57%
TOTAL DEPOSITS 2.95% -0.16% 2.81% 0.35% -0.41%
ASSET QUALITY
AVERAGE TOTAL LOANS $286,030 $285,962 $288,883 $293,963 $294,082 $292,372
NET LOAN LOSS TO AVERAGE TOTAL LOANS AND LEASES 0.56% 0.12% 0.26% 0.18% 0.25% 0.19%
PROVISION FOR LOAN LOSS TO AVERAGE TOTAL LOANS AND LEASES 0.64% 0.21% 0.25% 0.22% 0.25% 0.25%
LOSS RESERVE TO NET LOANS AND LEASES 0.85% 0.87% 0.85% 0.85% 0.86% 0.88%
NONPERFORMING LOANS TO TOTAL LOANS AND LEASES:
90+ DAYS PAST DUE 0.50% 0.71% 0.29% 0.24% 0.15% 0.29%
NONACCRUAL 0.51% 0.55% 0.25% 0.18% 0.25% 0.25%
TOTAL NONPERFORMING LOANS 1.01% 1.26% 0.54% 0.42% 0.40% 0.54%
LLR/NONPERFORMING LOANS 83.69% 68.51% 157.92% 200.56% 213.39% 160.48%
OREO AS A % OF TOTAL ASSETS 0.10% 0.07% 0.35% 0.30% 0.29% 0.29%
NONPERFORMING ASSETS AS A % OF TOTAL ASSETS 0.92% 1.10% 0.79% 0.65% 0.61% 0.73%
CAPITAL ADEQUACY
CORE LEVERAGE RATIO (TANGIBLE) 7.74% 8.17% 8.12% 8.40% 8.31% 8.74%
RISK BASED CAPITAL RATIOS:
TIER 1 10.47% 10.94% 10.72% 11.12% 11.36% 11.75%
TOTAL 11.39% 11.90% 11.64% 12.05% 12.30% 12.71%
COMMON DIVIDEND PAYOUT RATIO 87.38% 0.00% 80.19% 0.00% 84.96% 0.00%
AVERAGE ASSETS (CAPITAL CALCULATION) $355,989 $351,607 $356,395 $358,933 $364,855 $359,522
RISK BASED ASSETS $263,433 $262,589 $269,870 $271,118 $266,931 $267,387
TIER 1 CAPITAL $ 27,571 $ 28,728 $ 28,933 $ 30,142 $ 30,311 $ 31,418
QUALIFYING TRUST PREFERRED SECURITIES IN TIER 1 CAPITAL $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
TIER 2 CAPITAL $ 2,433 $ 2,510 $ 2,492 $ 2,519 $ 2,518 $ 2,558
OTHER TIER 2 CAPITAL COMPONENTS (EXCLUDING LLR) $ 1 $ 10 $ 0 $ 2 $ 0 $ 0
LIQUIDITY AND RATE SENSITIVITY
MARKET VALUE LESS BOOK VALUE OF INVESTMENT SECURITIES $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
MARKET VALUE/BOOK VALUE OF INVESTMENT SECURITIES 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
TOTAL LOANS & LEASES TO ASSETS 81.60% 81.04% 83.16% 82.35% 80.81% 81.27%
TOTAL LOANS AND LEASES TO DEPOSITS 107.74% 104.99% 106.98% 105.85% 103.69% 104.12%
VOLATILE LIABILITIES $ 78,805 $ 78,947 $ 77,661 $ 81,437 $ 80,872 $ 80,492
CASH, FEDERAL FUNDS & INVESTMENT SECURITIES $ 55,479 $ 59,325 $ 50,248 $ 54,191 $ 60,703 $ 58,469
TABLE 1.11
MERCHANTS BANCORP, INCORPORATED
SUMMARY HISTORICAL ANALYSIS ($000)
2000Y 2001Y 2002Y 2003Y 2004Y YTD 03/05
----------- ----------- ----------- ----------- ----------- -----------
PERIOD END FINANCIAL DATA:
TOTAL ASSETS $ 279,183 $ 305,401 $ 319,654 $ 353,729 $ 364,574 $ 362,488
AVERAGE ASSETS $ 263,919 $ 287,505 $ 307,147 $ 341,962 $ 357,948 $ 359,522
ASSET GROWTH 13.0% 9.4% 4.7% 10.7% 3.1% -0.6%
TOTAL LOANS $ 222,432 $ 223,727 $ 248,277 $ 288,657 $ 294,610 $ 294,605
TOTAL DEPOSITS $ 233,860 $ 259,288 $ 261,092 $ 267,916 $ 284,117 $ 282,953
LOAN/DEPOSIT RATIO 95.1% 86.3% 95.1% 107.7% 103.7% 104.1%
LOAN LOSS RESERVE $ 1,911 $ 1,960 $ 2,105 $ 2,432 $ 2,518 $ 2,558
LOAN LOSS RESERVE/TOTAL LOANS 0.86% 0.88% 0.85% 0.84% 0.85% 0.87%
INTANGIBLE ASSETS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
TRUST PREFERRED SECURITIES $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
TOTAL SHAREHOLDERS' EQUITY $ 27,110 $ 30,233 $ 33,508 $ 28,227 $ 30,779 $ 31,717
AVERAGE TOTAL EQUITY $ 25,399 $ 28,839 $ 31,775 $ 32,215 $ 29,748 $ 31,248
STATED NET INCOME $ 4,200 $ 4,405 $ 4,776 $ 3,791 $ 4,607 $ 1,107
NONPERFORMING ASSETS $ 1,029 $ 2,074 $ 1,846 $ 3,264 $ 2,220 $ 2,658
NONPERFORMING ASSETS/TOTAL ASSETS 0.37% 0.68% 0.58% 0.92% 0.61% 0.73%
RATIOS:
RETURN ON AVERAGE ASSETS 1.59% 1.53% 1.55% 1.11% 1.29% 1.23%
RETURN ON AVERAGE EQUITY 16.54% 15.27% 15.03% 11.77% 15.49% 14.17%
TOTAL EQUITY TO ASSETS 9.71% 9.90% 10.48% 7.98% 8.44% 8.75%
TANGIBLE EQUITY TO TANGIBLE ASSETS 9.71% 9.90% 10.48% 7.98% 8.44% 8.75%
DIVIDEND PAYOUT RATIO 32.1% 35.4% 37.7% 50.2% 40.5% 0.0%
PER SHARE SUMMARY:
EARNINGS PER SHARE $ 1.40 $ 1.47 $ 1.59 $ 1.28 $ 1.64 $ 0.42
DIVIDENDS PER SHARE $ 0.45 $ 0.52 $ 0.60 $ 0.65 $ 0.70 $ 0.00
BOOK VALUE PER SHARE $ 9.04 $ 10.08 $ 11.17 $ 9.58 $ 11.54 $ 11.89
TANGIBLE BOOK VALUE PER SHARE $ 9.04 $ 10.08 $ 11.17 $ 9.58 $ 11.54 $ 11.89
OTHER DATA:
COMMON SHARES OUTSTANDING 3,000,000 3,000,000 3,000,000 2,945,000 2,666,650 2,666,650
AVERAGE SHARES OUTSTANDING (1) 3,000,000 3,000,000 3,000,000 2,972,500 2,805,825 2,666,650
COMMON DIVIDENDS PAID $ 1,350 $ 1,560 $ 1,800 $ 1,902 $ 1,867 $ 0
Note: Data from FRY 9-C filings and 10-K and 10-Q filings.
(1) Average shares outstanding based on simple average shares outstanding.
TABLE 1.12
MERCHANTS BANCORP, INCORPORATED
PARENT-ONLY HISTORICAL PERFORMANCE SUMMARY ($000)
2000Y 2001Y 2002Y 2003Y 2004Y YTD 03/05
--------- --------- ---------- --------- --------- -----------
BALANCE SHEET
TOTAL CASH & BALANCES DUE $ 500 $ 949 $ 288 $ 970 $ 95 $ 111
TOTAL SECURITIES $ 4,545 $ 4,516 $ 3,996 $ 2,631 $ 0 $ 0
NET LOANS & LEASES $ 739 $ 652 $ 10,166 $ 9,987 $ 1,082 $ 1,069
INVESTMENTS IN SUBS $ 21,501 $ 24,398 $ 19,449 $ 20,688 $ 30,217 $ 31,143
PREMISES & FIXED ASSETS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
OTHER ASSETS $ 57 $ 55 $ 53 $ 444 $ 16 $ 29
--------- --------- ---------- --------- --------- -----------
TOTAL ASSETS $ 27,342 $ 30,570 $ 33,952 $ 34,720 $ 31,410 $ 32,352
========= ========= ========== ========= ========= ===========
TOTAL DEPOSITS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
FED FUNDS & REPOS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
OTHER BORROWINGS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
OTHER LIABILITIES $ 232 $ 337 $ 444 $ 6,493 $ 631 $ 635
--------- --------- ---------- --------- --------- -----------
TOTAL LIABILITIES $ 232 $ 337 $ 444 $ 6,493 $ 631 $ 635
COMMON STOCK $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000
SURPLUS $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 8,000 $ 8,000
RETAINED EARNINGS $ 22,861 $ 25,706 $ 28,682 $ 30,571 $ 27,311 $ 28,418
OTHER COMPREHENSIVE INCOME $ 249 $ 527 $ 826 $ 656 $ 468 $ 299
OTHER EQUITY CAPITAL COMPONENTS $ 0 $ 0 $ 0 -$ 7,000 -$ 7,000 -$ 7,000
--------- --------- ---------- --------- --------- -----------
TOTAL EQUITY $ 27,110 $ 30,233 $ 33,508 $ 28,227 $ 30,779 $ 31,717
TOTAL LIABILITIES & EQUITY $ 27,342 $ 30,570 $ 33,952 $ 34,720 $ 31,410 $ 32,352
========= ========= ========== ========= ========= ===========
2000Y 2001Y 2002Y 2003Y 2004Y YTD 03/05
--------- --------- ---------- --------- --------- -----------
INCOME STATEMENT
INCOME FROM BANK SUBS
DIVIDEND INCOME $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
INTEREST INCOME $ 0 $ 0 $ 0 $ 400 $ 34 $ 0
MGMT & SERVICE FEES $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
OTHER INCOME $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
--------- --------- ---------- --------- --------- -----------
TOTAL INCOME $ 0 $ 0 $ 0 $ 400 $ 34 $ 0
SECURITIES GAINS $ 1 $ 0 $ 0 $ 0 $ 0 $ 0
ALL OTHER OPERATING INCOME $ 304 $ 314 $ 265 $ 305 $ 102 $ 20
TOTAL OPERATING INCOME $ 305 $ 314 $ 265 $ 705 $ 136 $ 20
SALARY EXPENSE $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
INTEREST EXPENSE $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ALL OTHER EXPENSES $ 6 $ 28 $ 19 $ 13 $ 52 $ 5
--------- --------- ---------- --------- --------- -----------
TOTAL OPERATING EXPENSE $ 6 $ 28 $ 19 $ 13 $ 52 $ 5
INCOME BEFORE TAX & UNDISTR INCOME $ 299 $ 286 $ 246 $ 692 $ 84 $ 15
INCOME TAXES $ 91 $ 89 $ 78 $ 206 $ 24 $ 3
EXTRAORDINARY ITEMS - NET $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
--------- --------- ---------- --------- --------- -----------
INCOME BEFORE UNDISTR INCOME $ 208 $ 197 $ 168 $ 486 $ 60 $ 12
EQUITY IN UNDISTR INCOME
BANKS $ 3,993 $ 4,208 $ 4,608 $ 3,305 $ 4,547 $ 1,095
NET INCOME $ 4,201 $ 4,405 $ 4,776 $ 3,791 $ 4,607 $ 1,107
========= ========= ========== ========= ========= ===========
TOTAL DIVIDENDS $ 0 $ 0 $ 0 $ 0 $ 960 $ 0
TABLE 2.1
MERCHANTS BANCORP, INCORPORATED
DISCOUNTED CASH FLOW VALUE - PROJECTED PERFORMANCE ($000)
ACTUAL LTM PROJECTED 12-MONTH PERIOD ENDING:
BALANCE SHEET GROWTH: 31-MAR-05 31-MAR-06 31-MAR-07 31-MAR-08 31-MAR-09 31-MAR-10
----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS $ 362,488 $ 380,612 $ 399,643 $ 419,625 $ 440,606 $ 462,637
ASSET GROWTH 2.3% 5.0% 5.0% 5.0% 5.0% 5.0%
AVERAGE ASSETS $ 359,926 $ 371,550 $ 390,128 $ 409,634 $ 430,116 $ 451,622
INCOME STATEMENT PROJECTIONS:
NET INTEREST INCOME $ 13,247 $ 13,749 $ 14,515 $ 15,322 $ 16,174 $ 17,073
NONINTEREST INCOME $ 1,942 $ 2,042 $ 2,144 $ 2,251 $ 2,364 $ 2,482
NONINTEREST EXPENSE $ 8,047 $ 8,460 $ 8,883 $ 9,327 $ 9,794 $ 10,283
SALARIES $ 4,098 $ 4,459 $ 4,682 $ 4,916 $ 5,161 $ 5,419
OCCUPANCY $ 925 $ 936 $ 983 $ 1,032 $ 1,084 $ 1,138
OTHER EXPENSES $ 3,024 $ 3,065 $ 3,219 $ 3,379 $ 3,548 $ 3,726
PROVISION $ 703 $ 725 $ 750 $ 775 $ 800 $ 825
SECURITIES GAINS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
PRE-TAX INCOME $ 6,439 $ 6,606 $ 7,025 $ 7,471 $ 7,944 $ 8,447
APPLICABLE TAXES (1) $ 1,883 $ 1,927 $ 2,049 $ 2,180 $ 2,318 $ 2,464
EXTRAORDINARY ITEMS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
NET INCOME $ 4,556 $ 4,679 $ 4,976 $ 5,292 $ 5,627 $ 5,983
% CHANGE 2.7% 6.4% 6.3% 6.3% 6.3%
INCOME STATEMENT RATIOS:
NET INTEREST INCOME 3.68% 3.70% 3.72% 3.74% 3.76% 3.78%
NET INTEREST INCOME (TE) 3.78% 3.80% 3.82% 3.84% 3.86% 3.88%
NONINTEREST INCOME 0.54% 0.55% 0.55% 0.55% 0.55% 0.55%
NONINTEREST EXPENSE 2.24% 2.28% 2.28% 2.28% 2.28% 2.28%
SALARIES 1.14% 1.20% 1.20% 1.20% 1.20% 1.20%
OCCUPANCY 0.26% 0.25% 0.25% 0.25% 0.25% 0.25%
OTHER EXPENSES 0.84% 0.83% 0.83% 0.83% 0.83% 0.83%
PROVISION 0.20% 0.20% 0.19% 0.19% 0.19% 0.18%
SECURITIES GAINS 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
PRE-TAX INCOME 1.79% 1.78% 1.80% 1.82% 1.85% 1.87%
APPLICABLE TAXES (1) 0.52% 0.52% 0.53% 0.53% 0.54% 0.55%
EXTRAORDINARY ITEMS 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
NET INCOME 1.27% 1.26% 1.28% 1.29% 1.31% 1.32%
FOOTNOTE:
-------------
(1) BASED ON EFFECTIVE TAX RATE OF: 29.17%
AND TAX EXEMPT INCOME OF: $ 1,029 $ 1,062 $ 1,115 $ 1,171 $ 1,230 $ 1,291
Note: Net Interest Income (TE) based on 35% marginal tax rate.
TABLE 2.2
MERCHANTS BANCORP, INCORPORATED
DISCOUNTED CASH FLOW VALUE - INPUT AND RESULTS ($000)
INPUT VARIABLES
DATE OF VALUATION 31-Mar-05
SHARES OUTSTANDING 2,666,650
TOTAL ASSETS $ 362,488
TOTAL EQUITY CAPITAL EXCLUDING FASB 115 $ 31,418
REQUIRED EQUITY TO ASSETS RATIO 7.50%
CURRENT RATIO: 8.67%
AFTER-TAX RETURN ON EXCESS CAPITAL 2.500%
DISCOUNT RATE 12.000%
RESULTS OF INPUT VARIABLES
REQUIRED EQUITY CAPITAL $ 26,844
EXCESS CAPITAL $ 4,574
EARNINGS ON EXCESS CAPITAL $ 114
PROJECTED PERIOD 1 NET INCOME $ 4,679
ADJUSTED PERIOD 1 NET INCOME $ 4,564
ADJUSTED TOTAL ASSETS $357,914
ADJUSTMENTS TO NET INCOME BASED ON EXCESS CAPITAL
EXCESS CAPITAL PROJECTED ADJUSTMENTS TO ADJUSTED
PERIOD (CASH FLOW) NET INCOME NET INCOME NET INCOME
------ -------------- ---------- -------------- ----------
ACTUAL $4,574
1 $3,222 $4,679 $ 114 $ 4,564
2 $3,452 $4,976 $ 114 $ 4,862
3 $3,697 $5,292 $ 114 $ 5,177
4 $3,959 $5,627 $ 114 $ 5,512
5 $4,237 $5,983 $ 114 $ 5,868
DISCOUNTED CASH FLOW VALUE RESULTS
PERIOD FIVE ADJUSTED NET INCOME $ 5,868
CAPITALIZATION RATE 9.00%
RESIDUAL VALUE $65,204
RESIDUAL VALUE AS A % OF BOOK VALUE 190.32%
PRESENT VALUE OF RESIDUAL VALUE $36,999
PRESENT VALUE OF CASH FLOW $18,416
-------
AGGREGATE PRESENT VALUE $55,415
-------
PER SHARE VALUE $ 20.78
AS A % OF EQUITY 175%
AS A MULTIPLE OF PERIOD 1 EARNINGS 11.8
TABLE 2.3
MERCHANTS BANCORP, INCORPORATED
DISCOUNTED CASH FLOW VALUE - OTHER ADJUSTMENTS
PRE-ADJUSTMENT VALUE 31-MAR-05
-------------------- ---------
Indication of Value $ 20.78
ADJUSTMENTS
Effect of Stock Options on a Per Share Basis $ 0.00
DCF VALUE RESULTS AFTER ADJUSTMENTS
INDICATION OF VALUE $ 20.78
% OF BOOK VALUE 175%
% OF TANGIBLE BOOK VALUE 175%
MULTIPLE OF LTM EPS (1) 12.2
(1) LTM EPS based on net income of $4.6 million and average shares of 2,666,650.
TABLE 3.1
MERCHANTS BANCORP, INCORPORATED
NET ASSET VALUE - SUMMARY
31-MAR-05
---------
STATED BOOK VALUE ($000) $31,717
PREMIUM ADJUSTMENT
ADJUSTMENTS (DISCOUNT) SOURCE
---------- -----------
Securities (Held-to-Maturity) $ 0 FRY-9C
Loans and Leases (Yield Basis Adjustment) $ 657 Table 3.2
Credit Quality Adjustment $ 0 See Note (1)
Premises and Fixed Assets $ 0
Other Real Estate Owned ($ 106) Table 3.3
Intangible Assets (Excluding MSRs) $ 0 FRY-9C
Other Assets (FASB 115 Deferred Tax Asset) $ 0
Time Deposits ($ 437) Table 3.4
Borrowings ($ 561) Table 3.5
Other Liabilities (FASB 115 Deferred Tax Liability) $ 0
TOTAL BALANCE SHEET ADJUSTMENTS ($ 447)
ADDITIONAL ADJUSTMENTS
Core Deposit Value $ 5,933 Table 3.6
Other Adjustments $ 0
TOTAL ADDITIONAL ADJUSTMENTS $ 5,933
TOTAL ADJUSTMENTS $ 5,486
NET ASSET VALUE $ 37,203
PER SHARE $ 13.95
NET ASSET VALUE/STATED BOOK VALUE 117%
(1) Loan loss reserve assumed to be adequately funded. No adjustment made.
TABLE 3.2
MERCHANTS BANCORP, INCORPORATED
NET ASSET VALUE - LOAN PORTFOLIO VALUATION SUMMARY ($000)
PREMIUM
STATED BOOK VALUE MARKET VALUE (DISCOUNT)
----------------- ------------ ----------
TOTALS $294,605 $295,262 $657
TOTAL LOANS
-----------
STATED BOOK VALUE $294,605
ESTIMATED AVERAGE REPRICING PERIOD (YEARS) 2.41
ESTIMATED AVERAGE MATURITY PERIOD (YEARS) 4.82
BANK YIELD ON TOTAL LOANS (1) 6.39%
MARKET YIELD ON TOTAL LOANS (2) 6.20%
DISCOUNT RATE 12.00%
PROJECTED MONTHLY CASH FLOW @ BANK YIELD (3) $ 5,930
PROJECTED MONTLY CASH FLOW @ MARKET YIELD (3) $ 5,904
ACTUAL VS. MARKET CASH FLOW PER MONTH $ 26
PRESENT VALUE OF POSITIVE (NEGATIVE) CASH FLOW $ 657
MARKET VALUE OF TERM LOAN CATEGORY $295,262
ACTUAL VS. MARKET PRESENT VALUE OF ACTUAL
CASH FLOW PER YEAR VS. MARKET CASH FLOW
YEAR DURING REPRICING PERIOD DURING REPRICING PERIOD
---- ----------------------- -----------------------
1 $315 $297
2 $315 $264
3 $129 $ 97
4 $ 0 $ 0
5 $ 0 $ 0
6 $ 0 $ 0
7 $ 0 $ 0
(1) BASED ON 03/31/05 CALL REPORT DATA AND INTERNAL REPORTS.
(2) BASED ON NATIONAL AVERAGES FROM BANXQUOTE.COM.
(3) ORDINARY ANNUITY CALCULATION UTILIZING THE AVERAGE MATURITY PERIOD.
TABLE 3.3
MERCHANTS BANCORP, INCORPORATED
NET ASSET VALUE - DISCOUNT TO OTHER REAL ESTATE ($000)
BANK MANAGEMENT'S ESTIMATE OF LOSS
AGGREGATE MANAGEMENT'S
TYPE OF ASSET DOLLAR AMOUNT ESTIMATE OF LOSS
----------------- ------------- ----------------
OTHER REAL ESTATE $1,064 $0
------ --
TOTALS $1,064 $0
------ --
AUSTIN ASSOCIATES' ADDITIONAL DISCOUNTS
AGGREGATE DISCOUNT DISCOUNT
TYPE OF ASSET DOLLAR AMOUNT (PERCENT) (DOLLARS)
----------------- ------------- --------- ---------
OTHER REAL ESTATE $1,064 10.00% $106
------ ----- ----
TOTALS $1,064 $106
------ ----
TOTAL DISCOUNT $ 106
======
TABLE 3.4
MERCHANTS BANCORP, INCORPORATED
NET ASSET VALUE - CERTIFICATES OF DEPOSIT VALUATION SUMMARY ($000)
PREMIUM
DEPOSIT TYPE STATED BOOK VALUE MARKET VALUE (DISCOUNT)
--------------- ----------------- ------------ ----------
JUMBO C.D.S $ 35,083 $ 35,187 ($ 104)
ALL OTHER C.D.S $105,355 $105,688 ($ 333)
-------- -------- ---------
TOTALS $140,438 $140,875 ($ 437)
NOTE: THE MARKET VALUE FOR DEPOSIT LIABILITIES WILL BE LESS THAN BOOK VALUE WHEN
THE MARKET INTEREST RATE EXCEEDS THE BANK INTEREST RATE.
JUMBO C.D.S ALL OTHER C.D.S
----------- ---------------
STATED BOOK VALUE $ 35,083 $ 105,355
ESTIMATED AVERAGE MATURITY (YEARS) 1.18 1.15
BANK RATE (1) 3.02% 2.89%
MARKET RATE (1) 2.75% 2.60%
DISCOUNT RATE 12.00% 12.00%
PROJECTED ANNUAL INTEREST - BANK RATES (2) $ 1,060 $ 3,049
PROJECTED ANNUAL INTEREST - MARKET RATES (2) $ 965 $ 2,739
ACTUAL VS. MARKET INTEREST PAID ($ 95) ($ 310)
PRESENT VALUE OF POSITIVE (NEGATIVE) CASH FLOW ($ 104) ($ 333)
MARKET VALUE OF CD CATEGORY $ 35,187 $ 105,688
ACTUAL VS. MARKET ANNUAL INTEREST PAID PRESENT VALUE OF ACTUAL VS. MARKET INTEREST PAID
-------------------------------------- ------------------------------------------------
YEAR JUMBO C.D.S ALL OTHER C.D.S JUMBO C.D.S ALL OTHER C.D.S
---- ----------- --------------- ----------- ---------------
1 ($ 95) ($ 310) ($ 90) ($ 293)
2 ($ 17) ($ 48) ($ 14) ($ 40)
3 $ 0 $ 0 $ 0 $ 0
4 $ 0 $ 0 $ 0 $ 0
5 $ 0 $ 0 $ 0 $ 0
(1) BANK RATES CALCULATED FROM INTERNAL REPORTS AND 03/31/05 CALL REPORT;
MARKET RATES ARE ESTIMATED BASED ON NATIONAL AVERAGES FROM BANXQUOTE.COM.
(2) ASSUMES SIMPLE INTEREST PAID ANNUALLY.
TABLE 3.5
MERCHANTS BANCORP, INCORPORATED
NET ASSET VALUE - DETAIL ON BORROWINGS ($000)
PREMIUM
BORROWING TYPE STATED BOOK VALUE MARKET VALUE (DISCOUNT)
-------------- ----------------- ------------ ----------
OVERNIGHT $ 0 $ 0 $ 0
FHLB - TERM $38,949 $39,510 ($ 561)
------- ------- -------
TOTALS $38,949 $39,510 ($ 561)
NOTE: THE MARKET VALUE FOR BORROWINGS WILL BE LESS THAN BOOK VALUE WHEN THE
MARKET INTEREST RATE EXCEEDS THE BANK INTEREST RATE.
OVERNIGHT FHLB - TERM
--------- -----------
STATED BOOK VALUE $ 0 $ 38,949
ESTIMATED AVERAGE MATURITY (YEARS) 0.00 3.79
BANK RATE (1) 0.00% 4.22%
MARKET RATE (1) 0.00% 3.75%
DISCOUNT RATE 12.00% 12.00%
PROJECTED ANNUAL INTEREST - BANK RATES (2) $ 0 $ 1,644
PROJECTED ANNUAL INTEREST - MARKET RATES (2) $ 0 $ 1,461
ACTUAL VS. MARKET INTEREST PAID $ 0 ($ 183)
PRESENT VALUE OF POSITIVE (NEGATIVE) CASH FLOW $ 0 ($ 561)
MARKET VALUE OF CD CATEGORY $ 0 $ 39,510
ACTUAL VS. MARKET ANNUAL INTEREST PAID PRESENT VALUE OF ACTUAL VS. MARKET INTEREST PAID
-------------------------------------- ------------------------------------------------
YEAR OVERNIGHT FHLB - TERM OVERNIGHT FHLB - TERM
---- --------- ----------- --------- -----------
1 $ 0 ($ 183) $ 0 ($ 173)
2 $ 0 ($ 183) $ 0 ($ 154)
3 $ 0 ($ 183) $ 0 ($ 137)
4 $ 0 ($ 146) $ 0 ($ 97)
5 $ 0 $ 0 $ 0 $ 0
(1) BANK RATES CALCULATED FROM 03/31/05 CALL REPORT;
MARKET RATES ARE BASED ON FHLB RATES AS OF MARCH 31, 2005 FOR EQUIVALENT TERM OF
BORROWINGS.
(2) ASSUMES SIMPLE INTEREST PAID ANNUALLY.
TABLE 3.6
MERCHANTS BANCORP, INCORPORATED
NET ASSET VALUE - CORE DEPOSIT VALUE ($000)
MONEY
DEMAND N.O.W. MARKET SAVINGS
DEPOSITS DEPOSITS DEPOSITS DEPOSITS
-------- -------- -------- --------
TOTAL BALANCE $30,440 $64,875 $19,751 $27,449
INVESTABLE BALANCE (1) 83.19% 86.72% 99.43% 99.33%
INVESTED $25,323 $56,260 $19,638 $27,265
ASSUMED YIELD (2) 6.05% 6.05% 6.05% 6.05%
INCOME $ 1,533 $ 3,405 $ 1,188 $ 1,650
SERVICE CHARGE INCOME (2) $ 1,162 $ 0 $ 0 $ 0
TOTAL INCOME $ 2,695 $ 3,405 $ 1,188 $ 1,650
OPERATING EXPENSE (1) 4.670% 2.600% 0.680% 1.980%
INTEREST EXPENSE (2) 0.000% 1.180% 1.500% 1.250%
TOTAL EXPENSE 4.670% 3.780% 2.180% 3.230%
EXPENSES $ 1,422 $ 2,452 $ 431 $ 887
BEFORE TAX INCOME $ 1,273 $ 952 $ 758 $ 763
TAX RATE 40% 40% 40% 40%
AFTER TAX INCOME $ 764 $ 571 $ 455 $ 458
------- ------- ------- -------
AGGREGATE INCOME $ 2,248
=======
DEPLETION SCHEDULE
BALANCE AVERAGE ESTIMATED P.V.I.F. PRESENT
PERIOD BEG. OF PERIOD BALANCE INCOME 12.00% VALUE
------ --------------- -------- --------- -------- --------
1 $142,515 $129,559 $ 2,044 0.9434 $ 1,928
2 $116,603 $104,943 $ 1,655 0.8396 $ 1,390
3 $ 93,283 $ 82,918 $ 1,308 0.7473 $ 977
4 $ 72,553 $ 63,484 $ 1,001 0.6651 $ 666
5 $ 54,415 $ 46,641 $ 736 0.5919 $ 435
6 $ 38,868 $ 32,390 $ 511 0.5268 $ 269
7 $ 25,912 $ 20,729 $ 327 0.4688 $ 153
8 $ 15,547 $ 11,660 $ 184 0.4173 $ 77
9 $ 7,774 $ 5,182 $ 82 0.3714 $ 30
10 $ 2,591 $ 1,296 $ 20 0.3305 $ 7
11 $ 0 $ 0 $ 0 0.2942 $ 0
ESTIMATED VALUE OF CORE DEPOSIT ACCOUNTS $ 5,933
ESTIMATED VALUE AS PERCENT OF CORE DEPOSITS 4.16%
(1) CALCULATION BASED ON THE FEDERAL RESERVE'S FUNCTIONAL COST AND PROFIT
ANALYSIS.
(2) BASED ON 03/31/05 CALL REPORT DATA AND INTERNAL REPORTS.
TABLE 3.7
MERCHANTS BANCORP, INCORPORATED
NET ASSET VALUE - OTHER ADJUSTMENTS
31-MAR-05
---------
PRE-ADJUSTMENT VALUE
Indication of Value $ 13.95
ADJUSTMENTS
Effect of Stock Options on a Per Share Basis $ 0.00
NET ASSET VALUE RESULTS AFTER ADJUSTMENTS
INDICATION OF VALUE $ 13.95
% OF BOOK VALUE 117%
% OF TANGIBLE BOOK VALUE 117%
MULTIPLE OF LTM EPS (1) 8.2
(1) LTM EPS based on net income of $4.6 million and average shares of
2,666,650.
TABLE 4.1
NATIONAL BANK SUMMARY STATISTICS
MINORITY SHARE PRICING AS OF 03/31/05*
TANGIBLE LTM LTM AVERAGE AVERAGE
# TOTAL EQUITY/ CORE CORE PRICE/ PRICE/ PRICE/LTM 1-YEAR 3-MONTH
BY ASSETS INCLUDED ASSETS ASSETS ROAA ROAE BOOK TG BOOK CORE EPS CHANGE CHANGE
----------------------- -------- ----------- -------- ----- ------ ------- ------- --------- ------ -------
> 5.0 Billion 84 $13,524,277 6.60% 1.30% 14.79% 229% 311% 16.1 2.20% -8.68%
1-5 Billion 152 $ 1,752,913 7.25% 1.15% 12.94% 207% 256% 17.2 1.48% -7.57%
500 Million - 1 Billion 162 $ 660,987 8.22% 1.03% 11.68% 200% 219% 17.5 5.90% -1.28%
300 - 500 MILLION 148 $ 385,813 8.20% 0.93% 11.16% 190% 199% 18.4 6.26% 0.00%
100 - 300 Million 287 $ 182,089 9.13% 0.83% 9.21% 175% 178% 20.5 10.55% 0.00%
< 100 Million 86 $ 66,442 12.58% 0.36% 4.16% 156% 159% 24.5 6.25% 0.00%
BY LTM CORE ROAE
> 15% 139 $ 1,453,122 7.28% 1.40% 17.20% 260% 295% 16.2 6.25% -6.72%
10 - 15% 347 $ 512,638 7.91% 1.06% 12.21% 197% 226% 16.8 6.88% -2.25%
5 - 10% 241 $ 298,395 8.90% 0.75% 7.91% 164% 180% 21.7 3.12% 0.00%
< 5% 101 $ 135,724 9.42% 0.17% 1.88% 148% 158% 41.2 4.67% 0.00%
BY REGION
Mid Atlantic 231 $ 338,590 8.71% 0.98% 10.49% 189% 214% 17.4 0.41% -1.28%
MIDWEST 197 $ 611,685 8.39% 0.94% 10.65% 177% 199% 16.8 3.35% -1.74%
New England 50 $ 368,808 7.81% 0.96% 11.34% 199% 227% 17.7 2.46% -1.91%
Southeast 228 $ 374,061 8.00% 0.89% 10.24% 185% 205% 18.9 7.65% 0.00%
Southwest 35 $ 1,069,941 7.18% 0.96% 12.37% 183% 239% 17.8 6.52% -2.87%
West 184 $ 273,624 8.42% 1.08% 12.09% 227% 249% 19.1 18.87% -0.96%
[BAR CHART]
[BAR CHART]
COMPANY'S PERFORMANCE
2000 - 2004 AVERAGE 14.82%
LTM 03/31/05 14.96%
Note: Company's performance based on stated net income.
*Excludes M&A targets and based on median statistics unless noted.
TABLE 4.2
SELECTIVE PUBLICLY TRADED BANKS IN THE MIDWEST
WITH ASSETS BETWEEN $250 MILLION - $600 MILLION
ADDITIONAL CRITERIA:
LTM CORE ROAE 12.00% - 18.00%
FINANCIAL PERFORMANCE
MRQ MRQ LTM LTM LTM LTM MRQ
TOTAL TG EQUITY/ CORE EPS CORE CORE EFFICIENCY NPAS/
ASSETS TG ASSETS GROWTH ROAA ROAE RATIO ASSETS
COMPANY NAME CITY ST ($000) (%) (%) (%) (%) (%) (%)
-------------------------------- ----------- --------------- --------- ---------- -------- ----- ------ ---------- ------
1 FNBH Bancorp Inc. Howell MI $456,603 10.01% 2.3% 1.36% 14.00% 56.30% 0.56%
2 Mid-Wisconsin Financial Medford WI $410,817 8.67% 10.4% 1.15% 12.96% 58.04% 0.41%
3 First Bankers Trustshares Inc. Quincy IL $407,367 4.74% 7.0% 0.92% 14.34% 61.42% 0.46%
4 Iowa First Bancshares Corp. Muscatine IA $370,304 6.81% 3.3% 0.90% 13.37% 60.23% 0.56%
5 Heartland Banccorp Gahanna OH $366,733 8.31% 7.5% 1.14% 13.78% 66.47% 0.93%
6 Keweenaw Financial Corp Hancock MI $364,506 8.42% NA 1.14% 13.92% 56.23% 0.67%
7 F.S. Bancorp LaGrange IN $325,637 9.37% NA 1.27% 13.72% 57.17% 0.12%
8 Southern Michigan Bancorp Coldwater MI $313,012 8.36% 27.2% 1.08% 12.96% 71.61% NA
9 Middlefield Banc Corp. Middlefield OH $291,214 8.52% 17.4% 1.19% 13.62% 58.83% 0.42%
AVERAGE $367,355 8.13% 10.7% 1.13% 13.63% 60.70% 0.52%
MEDIAN $366,733 8.42% 7.5% 1.14% 13.72% 58.83% 0.51%
25TH PERCENTILE $325,637 8.31% 5.2% 1.08% 13.37% 57.17% 0.42%
75TH PERCENTILE $407,367 8.67% 13.9% 1.19% 13.92% 61.42% 0.59%
MERCHANTS BANCORP, INC. (1) $362,488 8.75% 25.2% 1.27% 14.96% 52.98% 0.73%
(1) Financial performance based on stated net income.
STOCK PERFORMANCE
1-YEAR 1-YEAR
03/31/05 PRICE PRICE/ PRICE/ PRICE/LTM AVERAGE MONTHLY
CLOSING CHANGE BOOK TG BOOK CORE EPS MONTHLY VOLUME
COMPANY NAME EXCHANGE TICKER PRICE (%) (%) (%) (X) VOLUME TO SHARES
-------------------------------- ---------- --------------- -------- ------ ------ ------- --------- ------- ---------
1 FNBH Bancorp Inc. OTC BB FNHM $ 30.10 9.5% 209% 209% 15.8 15,026 0.47%
2 Mid-Wisconsin Financial OTC BB MWFS $ 35.90 21.7% 170% 172% 13.7 2,992 0.18%
3 First Bankers Trustshares Inc. Pink Sheet FBTT $ 22.25 23.6% 200% 244% 14.3 6,666 0.33%
4 Iowa First Bancshares Corp. OTC BB IFST $ 37.70 17.8% 203% 207% 15.5 17,820 1.29%
5 Heartland Banccorp OTC BB HLAN $ 38.50 -0.5% 181% 183% 15.3 1,782 0.12%
6 Keweenaw Financial Corp Pink Sheet KEFI $121.25 NA 139% 140% NA 594 0.17%
7 F.S. Bancorp Pink Sheet FXLG $ 53.00 7.1% 195% 195% NA 1,562 0.14%
8 Southern Michigan Bancorp OTC BB SOMC $ 26.12 8.9% 178% 183% 14.0 3,960 0.22%
9 Middlefield Banc Corp. Pink Sheet MBCN $ 38.00 25.7% 198% 198% 14.9 2,706 0.21%
AVERAGE 14.2% 186% 192% 14.8 5,901 0.35%
MEDIAN 13.6% 195% 195% 14.9 2,992 0.21%
25TH PERCENTILE 8.4% 178% 183% 14.1 1,782 0.17%
75TH PERCENTILE 22.2% 200% 207% 15.4 6,666 0.33%
TABLE 4.3
SELECTIVE PUBLICLY TRADED BANKS IN THE NATION
WITH ASSETS BETWEEN $300 MILLION - $500 MILLION
ADDITIONAL CRITERIA:
LTM CORE ROAE 14.00% - 16.00%
FINANCIAL PERFORMANCE
MRQ MRQ LTM LTM LTM LTM MRQ
TOTAL TG EQUITY/ CORE EPS CORE CORE EFFICIENCY NPAS/
ASSETS TG ASSETS GROWTH ROAA ROAE RATIO ASSETS
COMPANY NAME CITY ST ($000) (%) (%) (%) (%) (%) (%)
--------------------------------- -------------- ----------- -------- ---------- -------- ----- ------ ---------- ------
1 FNBH Bancorp Inc. Howell MI $456,603 10.01% 2.3% 1.36% 14.00% 56.30% 0.56%
2 Bank of Commerce Holdings Redding CA $438,545 7.97% 15.6% 1.22% 15.37% 54.88% 0.54%
3 First Litchfield Financial Litchfield CT $427,140 5.46% 31.9% 0.82% 15.41% 65.67% 0.24%
4 First Bankers Trustshares Inc. Quincy IL $407,367 4.74% 7.0% 0.92% 14.34% 61.42% 0.46%
5 Eagle Financial Services Inc. Berryville VA $397,583 7.78% 10.5% 1.18% 14.85% 63.28% 0.05%
6 Central Virginia Bankshares Powhatan VA $379,276 8.23% 11.3% 1.13% 14.12% 60.85% 0.26%
7 BCB Bancorp Inc Bayonne NJ $378,289 6.88% 47.7% 1.03% 14.25% 53.08% 0.27%
8 Saehan Bancorp Los Angeles CA $368,739 10.17% 40.0% 1.54% 14.12% 60.67% 0.51%
9 Merrill Merchants Bancshares Bangor ME $368,690 8.39% 11.5% 1.34% 15.73% 59.29% 0.15%
10 Union Bankshares Inc. Morrisville VT $359,529 11.79% 6.2% 1.65% 14.08% 59.75% 0.73%
11 East Penn Financial Corp. Emmaus PA $359,414 6.03% 26.3% 0.92% 15.92% 63.61% 0.30%
12 Jeff Davis Bancshares Inc. Jennings LA $358,508 9.98% NA 1.49% 14.29% 59.48% 0.38%
13 Honat Bancorp Honesdale PA $339,164 9.45% NA 1.34% 14.83% 52.94% 0.99%
14 1st Constitution Bancorp Cranbury NJ $335,830 7.98% 19.7% 1.21% 15.47% 59.93% 0.33%
15 Georgia-Carolina Bancshares Augusta GA $305,088 7.99% -33.2% 1.25% 15.67% 70.52% 0.58%
16 Factory Point Bancorp Inc. Manchester Ctr VT $304,484 7.69% 15.0% 1.20% 14.83% 61.23% 0.17%
AVERAGE $374,016 8.16% 15.1% 1.23% 14.83% 60.18% 0.41%
MEDIAN $368,715 7.99% 13.3% 1.22% 14.83% 60.30% 0.36%
25TH PERCENTILE $353,672 7.49% 7.9% 1.11% 14.22% 58.54% 0.26%
75TH PERCENTILE $400,029 9.58% 24.7% 1.35% 15.43% 61.89% 0.55%
MERCHANTS BANCORP, INC. (1) $362,488 8.75% 25.2% 1.27% 14.96% 52.98% 0.73%
(1) Financial performance based on stated net income.
STOCK PERFORMANCE
1-YEAR 1-YEAR
03/31/05 PRICE PRICE/ PRICE/ PRICE/LTM AVERAGE MONTHLY
CLOSING CHANGE BOOK TG BOOK CORE EPS MONTHLY VOLUME
COMPANY NAME EXCHANGE TICKER PRICE (%) (%) (%) (X) VOLUME TO SHARES
--------------------------------- ---------- ------ -------- ------ ------ ------- --------- ------- ---------
1 FNBH Bancorp Inc. OTC BB FNHM $ 30.10 9.5% 209% 209% 15.8 15,026 0.47%
2 Bank of Commerce Holdings NASDAQ BOCH $ 10.25 9.8% 240% 243% 18.0 28,710 0.34%
3 First Litchfield Financial OTC BB FLFL $ 30.00 31.3% 260% 260% 18.2 18,392 0.91%
4 First Bankers Trustshares Inc. Pink Sheet FBTT $ 22.25 23.6% 200% 244% 14.3 6,666 0.33%
5 Eagle Financial Services Inc. OTC BB EFSI $ 44.50 -7.8% 215% 217% 15.5 8,338 0.55%
6 Central Virginia Bankshares NASDAQ CVBK $ 27.80 4.8% 200% 202% 15.3 24,464 1.08%
7 BCB Bancorp Inc OTC BB BCBP $ 19.65 -9.0% 226% 226% 16.6 10,318 0.34%
8 Saehan Bancorp OTC BB SAEB $ 23.74 68.5% 297% 297% 24.2 4,092 0.09%
9 Merrill Merchants Bancshares NASDAQ MERB $ 22.85 -6.2% 251% 254% 16.7 72,226 2.10%
10 Union Bankshares Inc. AMEX UNB $ 22.20 -11.0% 238% 238% 17.4 11,990 0.26%
11 East Penn Financial Corp. NASDAQ EPEN $ 8.87 -4.1% 258% 258% 17.6 41,734 0.66%
12 Jeff Davis Bancshares Inc. Pink Sheet JDVB $ 40.00 NA 167% 175% NA - 0.00%
13 Honat Bancorp OTC BB HONT $ 325.00 41.3% 267% 267% NA 814 0.31%
14 1st Constitution Bancorp NASDAQ FCCY $ 19.89 33.2% 245% 245% 17.7 97,020 2.93%
15 Georgia-Carolina Bancshares OTC BB GECR $ 22.25 5.7% 242% 242% 18.4 13,618 0.51%
16 Factory Point Bancorp Inc. OTC BB FAPB $ 23.00 19.8% 292% 321% 20.4 22,022 0.68%
AVERAGE 13.9% 238% 244% 17.6 23,464 0.72%
MEDIAN 9.5% 241% 243% 17.5 14,322 0.49%
25TH PERCENTILE -5.2% 213% 224% 16.0 7,920 0.32%
75TH PERCENTILE 27.4% 258% 258% 18.1 25,526 0.74%
TABLE 4.4
GUIDELINE TRANSACTIONS
BASED ON MINORITY SHARE LEVEL
SELECTED
PRICE/TANGIBLE BOOK VALUATION MULTIPLE RESULTS
----------------------------------------------------- -------- -------
Merchants Bancorp, Inc. Tangible Book Value (3/31/05) $ 11.89
Guideline Price/Tangible Book 200%
INDICATION OF VALUE--PRICE/TANGIBLE BOOK APPROACH $ 23.79
SELECTED
PRICE/EARNINGS VALUATION MULTIPLE RESULTS
----------------------------------------------------- -------- -------
Merchants Bancorp, Inc. LTM EPS (3/31/05) $ 1.71
Guideline Price/Earnings 15.0
INDICATION OF VALUE--PRICE/EARNINGS APPROACH $ 25.63
TABLE 5.1
NATIONAL BANK SUMMARY STATISTICS
SALE OF CONTROL PRICING AS OF 03/31/04 - 03/31/05*
TOTAL TANGIBLE AVERAGE AVERAGE
ASSETS EQUITY/ YTD YTD PRICE/ PRICE/ PRICE/ PREM/
DEALS BY SELLER'S ASSETS # ($000) ASSETS ROAA ROAE BOOK TG BOOK LTM EPS CORE DEP
------------------------ -- ----------- -------- ----- ----- ------- ------- ------- --------
> 5.0 Billion 7 $23,038,522 6.95% 1.36% 13.74% 266% 372% 18.5 31.1%
1-5 Billion 13 $ 1,425,594 7.28% 1.06% 12.53% 266% 318% 25.9 24.0%
500 Million - 1 Billion 16 $ 633,330 7.27% 0.97% 11.30% 272% 296% 23.2 23.5%
300 - 500 MILLION 14 $ 381,179 8.49% 0.96% 11.33% 276% 286% 24.6 21.5%
100 - 300 Million 68 $ 161,812 7.97% 0.81% 9.95% 240% 241% 24.9 16.8%
< 100 Million 88 $ 48,369 9.25% 0.61% 6.07% 180% 183% 20.6 9.5%
DEALS BY SELLER'S ROAE
> 15% 20 $ 499,017 7.62% 1.42% 19.44% 304% 328% 19.0 23.8%
10% - 15% 70 $ 190,476 7.93% 1.01% 12.02% 251% 266% 21.7 18.6%
5% - 10% 58 $ 119,565 8.55% 0.70% 7.99% 229% 242% 28.8 17.1%
< 5% 57 $ 67,061 9.37% 0.05% 0.42% 160% 163% 36.4 7.4%
DEALS BY REGION
Mid Atlantic 18 $ 379,809 7.86% 0.77% 9.93% 250% 267% 25.7 22.2%
MIDWEST 74 $ 75,732 9.00% 0.68% 6.57% 182% 192% 19.2 8.8%
New England 4 $ 837,480 7.17% 0.99% 12.92% 243% 324% 17.8 18.5%
Southeast 51 $ 125,830 8.06% 0.75% 9.55% 252% 259% 29.1 18.9%
Southwest 33 $ 97,694 7.68% 0.82% 9.02% 238% 258% 24.6 18.5%
West 29 $ 122,769 8.68% 0.92% 11.75% 257% 265% 22.1 19.6%
[BAR CHART]
[BAR CHART]
COMPANY'S PERFORMANCE
2000 - 2004 AVERAGE 14.82%
LTM 03/31/05 14.96%
Note: Company's performance based on stated net income.
*Based on median statistics unless noted and excludes terminated deals and
S-Corporation selling companies have been adjusted to C-Corporation status
(including pricing multiples) using 35% tax rate.
TABLE 5.2
SELECTIVE BANK SALE TRANSACTIONS IN THE MIDWEST
ANNOUNCED FROM 01/01/2004 - 03/31/2005
CRITERIA:
Assets between $200 Million - $750 Million
YTD ROAE > 10.00%
Complete Pricing Information Available
Excludes Terminated Deals
SELLER FINANCIAL STATISTICS DEAL STATISTICS
------------------------------------------- ------------------------
TANGIBLE
TOTAL EQUITY/ DEAL STOCK
ASSETS TANGIBLE YTD YTD NPAs/ ANNOUNCE VALUE OR
BUYER SELLER ST ($000) ASSETS ROAA ROAE ASSETS DATE ($MIL) CASH
----------------------------- ------------------------- -- -------- -------- ----- ------ ------ -------- ------ -----
1 Princeton National Bancorp Somonauk FSB Bancorp IL $206,478 11.68% 1.22% 11.89% 0.09% 02/22/05 $ 49.7 Mixed
2 City Holding Co. Classic Bancshares Inc. KY $339,866 8.52% 1.25% 11.79% 0.59% 12/29/04 $ 77.4 Mixed
3 Wintrust Financial Corp. First Northwest Bancorp IL $236,334 5.34% 0.92% 16.81% 0.06% 11/17/04 $ 45.1 Mixed
4 Wintrust Financial Corp. Antioch Holding Co IL $438,197 7.52% 0.92% 10.87% 0.03% 10/15/04 $ 95.0 Cash
5 Sky Financial Group Inc. Prospect Bancshares Inc. OH $202,644 7.21% 1.01% 13.39% 0.17% 09/15/04 $ 46.9 Mixed
6 Marshall Bancorp Inc. BankFirst Corporation Inc SD $704,602 14.08% 2.72% 19.39% 0.00% 07/30/04 $138.0 Cash
7 Wintrust Financial Corp. Northview Financial Corp. IL $338,320 5.00% 0.59% 12.03% 0.52% 05/10/04 $ 47.8 Mixed
8 Metropolitan Bank Group Citizens Bank Illinois NA IL $201,259 7.28% 0.91% 13.55% 1.58% 04/02/04 $ 26.3 Cash
9 TierOne Corp. United Nebraska Financial NE $560,103 8.10% 0.99% 11.10% 0.73% 03/30/04 $ 97.3 Cash
10 Independent Bank Corp. Midwest Guaranty Bncp MI $233,580 7.47% 0.98% 13.01% 0.65% 02/04/04 $ 43.0 Mixed
11 First Busey Corp. First Capital Bankshares IL $217,125 6.33% 0.78% 12.43% 1.02% 01/05/04 $ 41.4 Cash
DEAL VALUATION
-----------------------------
PRICE/ PRICE/ PREM
TANGIBLE LTM TO CORE
BUYER SELLER ST BOOK EARNINGS DEPOSITS
----------------------------- ------------------------- -- -------- -------- --------
1 Princeton National Bancorp Somonauk FSB Bancorp IL 206% 19.8 17.4%
2 City Holding Co. Classic Bancshares Inc. KY 232% 17.9 24.1%
3 Wintrust Financial Corp. First Northwest Bancorp IL 357% 22.6 19.6%
4 Wintrust Financial Corp. Antioch Holding Co IL 289% 18.6 21.5%
5 Sky Financial Group Inc. Prospect Bancshares Inc. OH 303% 30.0 19.3%
6 Marshall Bancorp Inc. BankFirst Corporation Inc SD 139% 6.2 8.8%
7 Wintrust Financial Corp. Northview Financial Corp. IL 284% 24.1 15.2%
8 Metropolitan Bank Group Citizens Bank Illinois NA IL 179% 16.9 7.0%
9 TierOne Corp. United Nebraska Financial NE 216% 17.8 12.7%
10 Independent Bank Corp. Midwest Guaranty Bncp MI 247% 19.7 16.2%
11 First Busey Corp. First Capital Bankshares IL 301% 23.9 34.6%
AVERAGE $334,410 8.05% 1.12% 13.30% 0.49% 250% 19.8 17.9%
25TH PERCENTILE $211,802 6.77% 0.92% 11.84% 0.08% 211% 17.8 13.9%
MEDIAN $236,334 7.47% 0.98% 12.43% 0.52% 247% 19.7 17.4%
75TH PERCENTILE $389,032 8.31% 1.12% 13.47% 0.69% 295% 23.3 20.6%
MERCHANTS BANCORP, INC. (1) $362,488 8.75% 1.27% 14.96% 0.73%
(1) Financial performance based on stated net income.
Note: S-Corporation selling companies have been adjusted to C-Corporation status
(including pricing multiples). Assumes 35% tax rate. Source: All data from SNL
Financial, LLC.
TABLE 5.3
SELECTIVE BANK SALE TRANSACTIONS IN THE NATION
ANNOUNCED FROM 01/01/2004 - 03/31/2005
CRITERIA:
Assets between $250 Million - $600 Million
YTD ROAE > 10.0% and Tg Equity/Assets 6.0% -
10.0%
Complete Pricing Information Available
Excludes Terminated Deals
SELLER FINANCIAL STATISTICS DEAL STATISTICS
----------------------------------------- -----------------------
TANGIBLE
TOTAL EQUITY/ DEAL STOCK
ASSETS TANGIBLE YTD YTD NPAs/ ANNOUNCE VALUE OR
BUYER SELLER ST ($000) ASSETS ROAA ROAE ASSETS DATE ($MIL) CASH
--------------------------- ------------------------- -- -------- -------- ----- ------ ------ -------- ------ -----
1 Pacific Capital Bancorp First Bancshares Inc. CA $279,703 7.31% 0.91% 12.97% 0.00% 02/28/05 $ 60.8 Cash
2 Fulton Financial Corp. SVB Financial Services NJ $474,902 6.00% 0.77% 13.03% 0.26% 01/11/05 $ 89.6 Mixed
3 City Holding Co. Classic Bancshares Inc. KY $339,866 8.52% 1.25% 11.79% 0.59% 12/29/04 $ 77.4 Mixed
4 Seacoast Banking Corp. Century National Bank FL $283,785 6.30% 0.74% 10.90% 0.00% 11/30/04 $ 46.2 Mixed
5 Wintrust Financial Corp. Antioch Holding Co IL $438,197 7.52% 0.92% 10.87% 0.03% 10/15/04 $ 95.0 Cash
6 F.N.B. Corp. NSD Bancorp Inc. PA $532,326 6.89% 0.77% 10.44% 1.60% 10/14/04 $137.8 Stock
7 Placer Sierra Bancshares First Financial Bancorp CA $324,138 6.31% 0.77% 12.12% 0.57% 09/07/04 $ 50.2 Cash
8 Fulton Financial Corp. First Washington FinlCorp NJ $482,612 7.54% 1.24% 15.86% 0.02% 06/14/04 $127.2 Stock
9 Southwest Bancorp. of TX Klein Bancshares Inc. TX $571,022 7.57% 1.34% 16.26% 0.07% 05/19/04 $165.0 Mixed
10 TierOne Corp. United Nebraska Financial NE $560,103 8.10% 0.99% 11.10% 0.73% 03/30/04 $ 97.3 Cash
DEAL VALUATION
----------------------------
PRICE/ PRICE/ PREM
TANGIBLE LTM TO CORE
BUYER BOOK EARNINGS DEPOSITS
--------------------------- -------- -------- --------
1 Pacific Capital Bancorp 298% 25.1 21.5%
2 Fulton Financial Corp. 302% 27.6 15.9%
3 City Holding Co. 232% 17.9 24.1%
4 Seacoast Banking Corp. 258% 30.8 11.4%
5 Wintrust Financial Corp. 289% 18.6 21.5%
6 F.N.B. Corp. 366% 36.9 28.6%
7 Placer Sierra Bancshares 221% 27.0 12.6%
8 Fulton Financial Corp. 318% 27.0 23.4%
9 Southwest Bancorp. of TX 382% 22.6 25.5%
10 TierOne Corp. 216% 17.8 12.7%
AVERAGE $428,665 7.21% 0.97% 12.53% 0.39% 288% 25.1 19.7%
25TH PERCENTILE $328,070 6.46% 0.77% 10.95% 0.02% 238% 19.6 13.5%
MEDIAN $456,550 7.42% 0.92% 11.96% 0.17% 293% 26.1 21.5%
75TH PERCENTILE $519,898 7.56% 1.18% 13.02% 0.59% 314% 27.4 24.0%
MERCHANTS BANCORP, INC. (1) $362,488 8.75% 1.27% 14.96% 0.73%
(1) Financial performance based on stated net income.
Note: S-Corporation selling companies have been adjusted to C-Corporation status
(including pricing multiples). Assumes 35% tax rate.
Source: All data from SNL Financial, LLC.
TABLE 5.4
CONTROL PREMIUMS
ALL BANK DEALS (PUBLICLY TRADED BANKS)
BEFORE ANNOUNCEMENT
------------------------
1 MONTH 3 MONTHS
------- --------
YTD THROUGH 03/31/2005 (8 DEALS)
Average 21.5% 27.9%
Median 26.0% 26.1%
2004 (49 DEALS)
Average 30.6% 32.4%
Median 26.9% 26.6%
2003 (44 DEALS)
Average 46.3% 56.2%
Median 40.5% 48.8%
2002 (29 DEALS)
Average 46.5% 52.7%
Median 37.7% 48.2%
2001 (45 DEALS)
Average 46.0% 53.1%
Median 41.5% 52.3%
2000 (57 DEALS)
Average 41.6% 41.8%
Median 32.9% 42.4%
SELECTED CONTROL PREMIUM 40.0%
IMPLIED MINORITY SHARE DISCOUNT (1) 28.6%
(1) Minority share discount equals (1-(1/1.40)) = 28.6%
Source: SNL Financial
TABLE 5.5
GUIDELINE TRANSACTIONS
BASED ON SALE OF CONTROL WITH MINORITY SHARE DISCOUNT
SELECTED
PRICE/TANGIBLE BOOK VALUATION MULTIPLE RESULTS
-------- -------
Merchants Bancorp, Inc. Tangible Book Value (3/31/05) $ 11.89
Guideline Price/Tangible Book 275%
Price/Tangible Book Sale Value $ 32.70
Minority Share Discount 28.6%
-------
INDICATION OF VALUE--PRICE/TANGIBLE BOOK APPROACH $ 23.36
-------
PRICE/EARNINGS VALUATION
Merchants Bancorp, Inc. LTM EPS (3/31/05) $ 1.71
Guideline Price/Earnings 20.0
Price/Earnings Sale Value $ 34.20
Minority Share Discount 28.6%
-------
INDICATION OF VALUE--PRICE/EARNINGS APPROACH $ 24.43
-------
TABLE 6.1
VALUATION OF
MERCHANTS BANCORP, INCORPORATED
SUMMARY PRESENTATION
INDICATION OF
VALUATION TECHNIQUE : VALUE PER SHARE
--------------------- ---------------
DISCOUNTED CASH FLOW VALUE TECHNIQUE $20.78
NET ASSET VALUE APPROACH $13.95
GUIDELINE TRANSACTIONS -
MINORITY SHARE TRADING
PRICE TO TANGIBLE BOOK VALUE $23.79
PRICE TO EARNINGS MULTIPLE $25.63
GUIDELINE TRANSACTIONS -
CONTROL LEVEL VALUE WITH MINORITY DISCOUNT
PRICE TO TANGIBLE BOOK VALUE $23.36
PRICE TO EARNINGS MULTIPLE $24.41
PREMIUM TO CORE DEPOSITS $21.77
MARKET PRICE $19.00-$24.00
INDICATION OF VALUE (MARKETABLE MINORITY INTEREST) $23.00
MARKETABILITY DISCOUNT 0%
FAIR MARKET VALUE $23.00
PRICE TO BOOK VALUE 193%
PRICE TO LTM EPS 13.5
(1) Includes a 28.6% minority share discount.
(2) Based on price for April transactions.
INPUT VARIABLES:
----------------
SHARES OUTSTANDING 2,666,650 BOOK VALUE PER SHARE $11.89
LTM AVERAGE SHARES OUTSTANDING 2,666,650 TANGIBLE BVPS $11.89
LTM STATED NET INCOME $4,556,000 LTM STATED EPS $ 1.71
TABLE 7.1
MERCHANTS BANCORP, INC. 03/31/05 PROFORMA CAPITAL ANALYSIS
GOING-PRIVATE SCENARIOS ($000)
ELIMINATE SHAREHOLDERS WITH LESS THAN:
--------------------------------------------------------------------
1,000 SHARES 1,500 SHARES 2,000 SHARES
-------------------- -------------------- --------------------
REPURCHASE PRICE PER SHARE (RANGE) $ 23.00 $ 25.00 $ 23.00 $ 25.00 $ 23.00 $ 25.00
% REPURCHASED 4.39% 4.39% 5.68% 5.68% 9.58% 9.58%
# OF SHARES REPURCHASED 117,155 117,155 151,499 151,499 255,401 255,401
TOTAL REPURCHASE $ 2,695 $ 2,929 $ 3,484 $ 3,787 $ 5,874 $ 6,385
REMAINING SHAREHOLDERS 280 280 251 251 186 186
MULTIPLE OF LTM 03/31/2005 EPS 12.9 14.1 12.9 14.1 12.9 14.1
% OF 03/31/2005 BOOK VALUE 193% 210% 193% 210% 193% 210%
3/31/2005 1,000 SHARES 1,500 SHARES 2,000 SHARES
------------------- ------------------- -------------------
ESTIMATED PRO FORMA ACTUAL 03/31/2005 PRO FORMA PERFORMANCE FROM GOING-PRIVATE
----------------------------------- --------- ---------------------------------------------------------------
Total Assets $362,488 $359,793 $359,559 $359,004 $358,701 $356,614 $356,103
Average Assets $359,522 $356,827 $356,593 $356,038 $355,735 $353,648 $353,137
Average Assets for Capital Purposes $359,522 $356,827 $356,593 $356,038 $355,735 $353,648 $353,137
Equity Capital $ 31,717 $ 29,022 $ 28,788 $ 28,233 $ 27,930 $ 25,843 $ 25,332
Average Equity $ 31,248 $ 28,788 $ 28,554 $ 27,998 $ 27,695 $ 25,608 $ 25,097
Estimated Annual Common Dividends $ 1,900 $ 1,817 $ 1,817 $ 1,792 $ 1,792 $ 1,718 $ 1,718
Dividend Payout Ratio 40.1% 38.1% 38.1% 37.7% 37.7% 36.4% 36.5%
FASB 115 $ 299 $ 299 $ 299 $ 299 $ 299 $ 299 $ 299
Tier 1 Capital $ 31,418 $ 28,723 $ 28,489 $ 27,934 $ 27,631 $ 25,544 $ 25,033
LLR $ 2,558 $ 2,558 $ 2,558 $ 2,558 $ 2,558 $ 2,558 $ 2,558
Tier 2 Capital $ 2,558 $ 2,558 $ 2,558 $ 2,558 $ 2,558 $ 2,558 $ 2,558
Risk-Based Assets $267,387 $266,848 $266,801 $266,690 $266,630 $266,212 $266,110
-------- -------- -------- -------- -------- -------- --------
TIER 1 LEVERAGE RATIO 8.74% 8.05% 7.99% 7.85% 7.77% 7.22% 7.09%
TIER 1 RISK-BASED RATIO 11.75% 10.76% 10.68% 10.47% 10.36% 9.60% 9.41%
TOTAL RISK-BASED RATIO 12.71% 11.72% 11.64% 11.43% 11.32% 10.56% 10.37%
-------- -------- -------- -------- -------- -------- --------
TABLE 7.2
MERCHANTS BANCORP, INC. FULL-YEAR 2005 PROFORMA
GOING-PRIVATE SCENARIOS ($000)
ELIMINATE SHAREHOLDERS WITH LESS THAN:
--------------------------------------------------------------------
1,000 SHARES 1,500 SHARES 2,000 SHARES
-------------------- -------------------- --------------------
REPURCHASE PRICE PER SHARE (RANGE) $ 23.00 $ 25.00 $ 23.00 $ 25.00 $ 23.00 $ 25.00
% REPURCHASED 4.39% 4.39% 5.68% 5.68% 9.58% 9.58%
# OF SHARES REPURCHASED 117,155 117,155 151,499 151,499 255,401 255,401
TOTAL REPURCHASE $ 2,695 $ 2,929 $ 3,484 $ 3,787 $ 5,874 $ 6,385
REMAINING SHAREHOLDERS 280 280 251 251 186 186
MULTIPLE OF 2004 EPS 12.9 14.1 12.9 14.1 12.9 14.1
% OF 2004 BOOK VALUE 193% 210% 193% 210% 193% 210%
3/31/2005 2005 1,000 SHARES 1,500 SHARES 2,000 SHARES
---------------------- ---------------------- ----------------------
ESTIMATED PRO FORMA ACTUAL PROJECTED 2005 PRO FORMA PERFORMANCE FROM GOING-PRIVATE
---------------------------------- ---------- ---------- ----------------------------------------------------------------------
Total Assets $ 362,488 $ 378,000 $ 375,305 $ 375,071 $ 374,516 $ 374,213 $ 372,126 $ 371,615
Average Assets $ 359,522 $ 370,244 $ 367,549 $ 367,315 $ 366,760 $ 366,457 $ 364,370 $ 363,859
Average Assets for Capital
Purposes $ 359,522 $ 370,244 $ 367,549 $ 367,315 $ 366,760 $ 366,457 $ 364,370 $ 363,859
Equity Capital $ 31,717 $ 34,459 $ 31,764 $ 31,530 $ 30,975 $ 30,672 $ 28,585 $ 28,074
Average Equity $ 31,248 $ 33,088 $ 31,079 $ 30,845 $ 30,289 $ 29,986 $ 27,899 $ 27,388
Estimated Annual Common Dividends $ 1,900 $ 2,000 $ 1,912 $ 1,912 $ 1,886 $ 1,886 $ 1,808 $ 1,808
Dividend Payout Ratio 40.1% 42.2% 40.1% 40.1% 39.7% 39.7% 38.3% 38.4%
FASB 115 $ 299 $ 299 $ 299 $ 299 $ 299 $ 299 $ 299 $ 299
Tier 1 Capital $ 31,418 $ 34,160 $ 31,465 $ 31,231 $ 30,676 $ 30,373 $ 28,286 $ 27,775
LLR $ 2,558 $ 2,675 $ 2,675 $ 2,675 $ 2,675 $ 2,675 $ 2,675 $ 2,675
Tier 2 Capital $ 2,558 $ 2,675 $ 2,675 $ 2,675 $ 2,675 $ 2,675 $ 2,675 $ 2,675
Risk-Based Assets $ 267,387 $ 274,738 $ 274,199 $ 274,152 $ 274,041 $ 273,980 $ 273,563 $ 273,461
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TIER 1 LEVERAGE RATIO 8.74% 9.23% 8.56% 8.50% 8.36% 8.29% 7.76% 7.63%
TIER 1 RISK-BASED RATIO 11.75% 12.43% 11.48% 11.39% 11.19% 11.09% 10.34% 10.16%
TOTAL RISK-BASED RATIO 12.71% 13.41% 12.45% 12.37% 12.17% 12.06% 11.32% 11.14%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Return on Average Assets 1.32% 1.28% 1.30% 1.30% 1.30% 1.30% 1.30% 1.29%
Annual Net Income/Estimated Net
Income (1,2) $ 4,742 $ 4,742 $ 4,767 $ 4,763 $ 4,755 $ 4,750 $ 4,719 $ 4,711
% CHANGE FROM BASELINE 0.52% 0.44% 0.27% 0.17% -0.49% -0.65%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
RETURN ON AVERAGE EQUITY 15.18% 14.33% 15.34% 15.44% 15.70% 15.84% 16.91% 17.20%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Basis Point Change in ROAE 101 111 137 151 258 287
Annual Earnings Per Share $ 1.78 $ 1.78 $ 1.87 $ 1.87 $ 1.89 $ 1.89 $ 1.96 $ 1.95
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
% CHANGE FROM BASELINE 5.14% 5.06% 6.31% 6.21% 10.05% 9.87%
---------- ---------- ---------- ---------- ---------- ----------
Book Value Per Share $ 11.89 $ 12.92 $ 12.46 $ 12.37 $ 12.32 $ 12.19 $ 11.85 $ 11.64
% Change from Baseline -3.58% -4.29% -4.70% -5.63% -8.26% -9.90%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
YEARS TO RECOVER BOOK DILUTION 5.1 6.2 5.4 6.6 6.0 7.3
---------- ---------- ---------- ---------- ---------- ----------
Annual Dividends Per Share $ 0.71 $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 0.75
Estimated Shares Outstanding (End) 2,666,650 2,666,650 2,549,495 2,549,495 2,515,151 2,515,151 2,411,249 2,411,249
Estimated Average Shares (Diluted) 2,666,650 2,666,650 2,549,495 2,549,495 2,515,151 2,515,151 2,411,249 2,411,249
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
ESTIMATED INTERNAL RATE OF RETURN 12.6% 11.8% 12.1% 11.3% 11.3% 10.6%
---------- ---------- ---------- ---------- ---------- ----------
(1) 2005 net income based on budgeted net income of $4,742,000; SEC/SOX cost
savings of $200,000; and, total costs to go-private of $100,000 (net
pre-tax cost savings of $100,000).
(2) Opportunity Cost on Repurchase estimated at 2.50% pre-tax.
EXHIBIT A
MERCHANTS BANCORP, INC.
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%
AGE STRATIFICATION 14 & Under 15 - 34 35 - 54 55 + Total
---------------------- ---------- ------- ------- ---- ----------
Greenfield 21% 27% 26% 26% 4,891
Hillsboro 20% 26% 24% 31% 6,599
London 22% 26% 26% 26% 8,956
Washington Court House 20% 26% 27% 27% 13,117
Fayette County 20% 25% 29% 25% 28,004
Highland County 22% 26% 28% 24% 42,573
Madison County 20% 28% 32% 21% 40,505
State of Ohio 21% 27% 29% 23% 11,454,693
2000 2004 % CHANGE 2009 % CHANGE
HOUSEHOLDS CENSUS CURRENT 2000-2004 PROJECTED 2004-2009
---------------------- --------- --------- --------- --------- ---------
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%
EXHIBIT A (CON'T)
MERCHANTS BANCORP, INC.
ECONOMIC AND DEMOGRAPHIC DATA
HH INCOME STRATIFICATION $24k & Under $25 - $50k $50k + Total
------------------------ ------------ ---------- ------ ---------
Greenfield 40% 35% 25% 1,963
Hillsboro 46% 29% 25% 2,815
London 32% 31% 37% 3,703
Washington Court House 30% 35% 35% 5,353
Fayette County 26% 34% 41% 10,970
Highland County 31% 33% 35% 16,334
Madison County 21% 30% 49% 13,882
State of Ohio 26% 29% 44% 4,515,087
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%
2000 2004 % CHANGE 2009 % CHANGE
MEDIAN HH INCOME CENSUS CURRENT 2000-2004 PROJECTED 2004-2009
---------------------- ------- ------- --------- --------- ---------
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%
EXHIBIT A (CON'T)
MERCHANTS BANCORP, INC.
ECONOMIC AND DEMOGRAPHIC DATA
2000 2004 % CHANGE 2009 % CHANGE
PER CAPITA INCOME CENSUS CURRENT 2000-2004 PROJECTED 2004-2009
---------------------- ------- ------- --------- --------- ---------
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
EXHIBIT B
MERCHANTS BANCORP, INC.
DEPOSIT TREND ANALYSIS BY BRANCH
[MAP]
DEPOSITS ($000) JUN-99/
DATE -------------------- JUN-04
BRANCH ADDRESS CITY COUNTY ST ESTABLISHED JUN-99 JUN-04 CAGR
----------------------- ---------------- -------- -- ----------- --------- --------- -------
1 128 S North St Washington Ct Hs Fayette OH 06-11-1990 $ 41,401 $ 60,188 7.8%
2 100 N High St Hillsboro Highland OH 12/25/1879 $ 77,789 $ 54,971 -6.7%
3 145 W Beech St Hillsboro Highland OH 08-05-2002 NA $ 48,099 NA
4 1470 N High St Hillsboro Highland OH 08-27-1973 $ 25,916 $ 34,356 5.8%
5 117-119 S Washington St Greenfield Highland OH 01-01-1911 $ 33,249 $ 29,581 -2.3%
6 279 Lafayette St London Madison OH 12-07-1998 $ 10,091 $ 28,456 23.0%
7 104 Jefferson St Greenfield Highland OH 06-19-1967 $ 14,249 $ 19,721 6.7%
8 W Beech St Hillsboro Highland OH 08-08-2004 NA NA NA
--------- --------- ----
TOTAL $ 202,695 $ 275,372 6.3%
--------- --------- ----
EXHIBIT C
MERCHANTS BANCORP, INC.
DEPOSIT TREND ANALYSIS BY CITY
GREENFIELD, OHIO
JUN-99 JUN-04 JUN-03/ JUN-99/ JUN-04
TOTAL DEPOSITS DEPOSITS JUN-04 JUN-04 MARKET
TYPE COMPANY NAME CITY ST BRANCHES ($000) ($000) % CHANGE C.A.G.R. SHARE
------ ----------------------- ---------- -- -------- --------- --------- -------- --------- ------
1 BANK MERCHANTS BANCORP INC. HILLSBORO OH 2 $ 47,498 $ 49,302 3.0% 0.7% 41.8%
2 Thrift Home Building & Loan Co Greenfield OH 1 $ 29,940 $ 39,981 -5.4% 6.0% 33.9%
3 Bank Fifth Third Bancorp Cincinnati OH 1 $ 17,719 $ 17,146 -7.0% -0.7% 14.5%
4 Thrift Leesburg FSB Leesburg OH 1 $ 7,361 $ 11,441 -4.3% 9.2% 9.7%
-- --------- --------- ---- ---- ----
TOTAL 5 $ 102,518 $ 117,870 -2.2% 2.8% 100%
-- --------- --------- ---- ---- ----
HILLSBORO, OHIO
JUN-99 JUN-04 JUN-03/ JUN-99/ JUN-04
TOTAL DEPOSITS DEPOSITS JUN-04 JUN-04 MARKET
TYPE COMPANY NAME CITY ST BRANCHES ($000) ($000) % CHANGE C.A.G.R. SHARE
------ ---------------------------- ----------- -- -------- --------- -------- -------- -------- ------
1 Thrift Natl Consumer Cooperative Bk Washington DC 2 $ 118,962 $333,647 -15.4% 22.9% 55.3%
2 BANK MERCHANTS BANCORP INC. HILLSBORO OH 4 $ 103,705 $137,426 5.2% 5.8% 22.8%
3 Bank Fifth Third Bancorp Cincinnati OH 2 $ 77,206 $ 65,903 -6.6% -3.1% 10.9%
4 Bank U.S. Bancorp Minneapolis MN 2 $ 57,749 $ 34,638 -8.0% -9.7% 5.7%
5 Thrift Liberty Capital Inc. Wilmington OH 1 $ 24,356 $ 23,082 -14.0% -1.1% 3.8%
6 Bank NB&T Financial Group Inc. Wilmington OH 1 $ 7,129 $ 8,898 -15.7% 4.5% 1.5%
-- --------- -------- ----- ---- ----
TOTAL 12 $ 389,107 $603,594 -10.0% 9.2% 100%
-- --------- -------- ----- ---- ----
LONDON, OHIO
JUN-99 JUN-04 JUN-03/ JUN-99/ JUN-04
TOTAL DEPOSITS DEPOSITS JUN-04 JUN-04 MARKET
TYPE COMPANY NAME CITY ST BRANCHES ($000) ($000) % CHANGE C.A.G.R. SHARE
-------- -------------------------- --------- -- -------- -------- -------- -------- -------- ------
1 Bank Huntington Bancshares Inc. Columbus OH 1 $ 65,886 $ 58,212 4.6% -2.4% 27.7%
2 Bank National City Corp. Cleveland OH 1 $ 44,428 $ 52,041 2.0% 3.2% 24.7%
3 Savings Camco Financial Corp. Cambridge OH 1 $ 36,208 $ 43,602 -1.3% 3.8% 20.7%
4 BANK MERCHANTS BANCORP INC. HILLSBORO OH 1 $ 10,091 $ 28,456 12.1% 23.0% 13.5%
5 Bank FirstMerit Corp. Akron OH 1 $ 14,108 $ 28,068 1.2% 14.7% 13.3%
-- -------- -------- ---- ---- ----
TOTAL 5 $170,721 $210,379 3.2% 4.3% 100%
-- -------- -------- ---- ---- ----
WASHINGTON COURT HOUSE, OHIO
JUN-99 JUN-04 JUN-03/ JUN-99/ JUN-04
TOTAL DEPOSITS DEPOSITS JUN-04 JUN-04 MARKET
TYPE COMPANY NAME CITY ST BRANCHES ($000) ($000) % CHANGE C.A.G.R. SHARE
------- -------------------------- ----------- -- -------- -------- -------- -------- -------- ------
1 Bank Huntington Bancshares Inc. Columbus OH 1 $ 70,781 $ 74,013 -1.1% 0.9% 23.6%
2 Savings Camco Financial Corp. Cambridge OH 2 $ 63,584 $ 72,280 4.6% 2.6% 23.1%
3 BANK MERCHANTS BANCORP INC. HILLSBORO OH 1 $ 41,401 $ 60,188 2.9% 7.8% 19.2%
4 Bank Fifth Third Bancorp Cincinnati OH 1 $ 53,749 $ 50,197 4.4% -1.4% 16.0%
5 Bank National City Corp. Cleveland OH 1 $ 38,699 $ 39,456 1.7% 0.4% 12.6%
6 Bank U.S. Bancorp Minneapolis MN 1 $ 12,206 $ 17,197 42.6% 7.1% 5.5%
7 Bank NB&T Financial Group Inc. Wilmington OH 1 $ 0 $ 0 NA NA NA
-- -------- -------- ---- ---- ----
TOTAL 8 $280,420 $313,331 3.5% 2.2% 100%
-- -------- -------- ---- ---- ----
EXHIBIT D
MERCHANTS BANCORP, INC.
DEPOSIT TREND ANALYSIS BY COUNTY
FAYETTE COUNTY, OHIO
JUN-99 JUN-04 JUN-03/ JUN-99/ JUN-04
TOTAL DEPOSITS DEPOSITS JUN-04 JUN-04 MARKET
TYPE COMPANY NAME CITY ST BRANCHES ($000) ($000) % CHANGE C.A.G.R. SHARE
------- -------------------------- ----------- -- -------- -------- -------- -------- -------- ------
1 Bank Huntington Bancshares Inc. Columbus OH 1 $ 70,781 $ 74,013 -1.1% 0.9% 22.8%
2 Savings Camco Financial Corp. Cambridge OH 2 $ 63,584 $ 72,280 4.6% 2.6% 22.2%
3 BANK MERCHANTS BANCORP INC. HILLSBORO OH 1 $ 41,401 $ 60,188 2.9% 7.8% 18.5%
4 Bank Fifth Third Bancorp Cincinnati OH 1 $ 53,749 $ 50,197 4.4% -1.4% 15.4%
5 Bank National City Corp. Cleveland OH 1 $ 38,699 $ 39,456 1.7% 0.4% 12.1%
6 Bank U.S. Bancorp Minneapolis MN 1 $ 12,206 $ 17,197 42.6% 7.1% 5.3%
7 Bank Park National Corp. Newark OH 1 $ 10,918 $ 11,605 -1.3% 1.2% 3.6%
8 Bank NB&T Financial Group Inc. Wilmington OH 1 $ 0 $ 0 NA NA NA
-- -------- -------- ---- ---- ----
TOTAL 9 $291,338 $324,936 3.3% 2.2% 100%
-- -------- -------- ---- ---- ----
HIGHLAND COUNTY, OHIO
JUN-99 JUN-04 JUN-03/ JUN-99/ JUN-04
TOTAL DEPOSITS DEPOSITS JUN-04 JUN-04 MARKET
TYPE COMPANY NAME CITY ST BRANCHES ($000) ($000) % CHANGE C.A.G.R. SHARE
------ ---------------------------- ----------- -- -------- -------- -------- -------- -------- ------
1 Thrift Natl Consumer Cooperative Bk Washington DC 2 $118,962 $333,647 -15.4% 22.9% 41.6%
2 BANK MERCHANTS BANCORP INC. HILLSBORO OH 6 $151,203 $186,728 4.6% 4.3% 23.3%
3 Bank Fifth Third Bancorp Cincinnati OH 5 $125,181 $112,041 -6.2% -2.2% 14.0%
4 Thrift Home Building & Loan Co Greenfield OH 1 $ 29,940 $ 39,981 -5.4% 6.0% 5.0%
5 Thrift Leesburg FSB Leesburg OH 2 $ 22,535 $ 34,883 -5.1% 9.1% 4.3%
6 Bank U.S. Bancorp Minneapolis MN 2 $ 57,749 $ 34,638 -8.0% -9.7% 4.3%
7 Thrift Liberty Capital Inc. Wilmington OH 2 $ 33,010 $ 34,326 -5.0% 0.8% 4.3%
8 Thrift Home Builders Assn. Lynchburg OH 1 $ 19,879 $ 16,945 -4.3% -3.1% 2.1%
9 Bank NB&T Financial Group Inc. Wilmington OH 1 $ 7,129 $ 8,898 -15.7% 4.5% 1.1%
-- -------- -------- ----- ---- ----
TOTAL 22 $565,588 $802,087 -8.2% 7.2% 100%
-- -------- -------- ----- ---- ----
MADISON COUNTY, OHIO
JUN-99 JUN-04 JUN-03/ JUN-99/ JUN-04
TOTAL DEPOSITS DEPOSITS JUN-04 JUN-04 MARKET
TYPE COMPANY NAME CITY ST BRANCHES ($000) ($000) % CHANGE C.A.G.R. SHARE
------- ---------------------------- ----------- -- -------- -------- -------- -------- -------- ------
1 Bank Huntington Bancshares Inc. Columbus OH 2 $ 93,962 $ 96,747 4.0% 0.6% 27.0%
2 Bank National City Corp. Cleveland OH 2 $ 44,428 $ 52,041 2.0% 3.2% 14.5%
3 Bank FirstMerit Corp. Akron OH 3 $ 38,759 $ 50,114 -3.1% 5.3% 14.0%
4 Savings Camco Financial Corp. Cambridge OH 1 $ 36,208 $ 43,602 -1.3% 3.8% 12.2%
5 Bank JPMorgan Chase & Co. New York NY 1 $ 45,059 $ 40,521 -1.0% -2.1% 11.3%
6 BANK MERCHANTS BANCORP INC. HILLSBORO OH 1 $ 10,091 $ 28,456 12.1% 23.0% 7.9%
7 Bank Park National Corp. Newark OH 1 $ 14,324 $ 16,993 -5.8% 3.5% 4.7%
8 Bank Community Frst Finl Bncp Inc New Holland OH 1 $ 7,530 $ 12,607 -1.8% 10.9% 3.5%
9 Bank Futura Banc Corp. Urbana OH 1 $ 9,304 $ 10,850 2.2% 3.1% 3.0%
10 Bank First Community Bank Columbus OH 1 $ 5,476 $ 6,891 0.4% 4.7% 1.9%
-- -------- -------- ---- ---- ----
TOTAL 14 $305,141 $358,822 1.2% 3.3% 100%
-- -------- -------- ---- ---- ----
EXHIBIT E
SUMMARY OF RESTRICTED STOCK STUDIES
YEARS COVERED AVERAGE
STUDY IN STUDY DISCOUNT
----- ------------------------ --------
SEC Overall Average(1) 1966 - 1969 25.8%
SEC Nonreporting OTC Companies(1) 1966 - 1969 32.6%
Gelman(2) 1968 - 1970 33.0%
Trout(3),(4) 1968 - 1972 33.5%
Moroney(5) Not Applicable 35.6%
Maher(6) 1969 - 1973 35.4%
Standard Research Consultants(4),(7) 1978 - 1982 45.0%
Williamette Management Associates(4),(8) 1981 - 1984 31.2%
Silber Study(9) 1981 - 1989 34.0%
FMV Study(10) 1979 - April 1992 23.0%
Emery Study(11) May 1997 - December 2000 50.0%
------------------
Source for 1-10: Guide to Business Valuations, Practitioner's Publishing
Company, March 1994.
(1) From "Discounts Involved in Purchases of Common Stock (1966-1969),
"Institutional Investor Study Report of the Securities and Exchange Commission.
H.R. Doc. No. 64, Part 5, 92d Cong., 1st Sess. 1971, pp. 2444-2456.
(2) From Milton Gelman, "An Economist-Financial Analyst's Approach to Valuing
Stock of a Closely Held Company," Journal of Taxation, June 1972, pp. 353-354.
(3) From Robert R. Trout, "Estimation of the Discount Associated with the
Transfer of Restricted Securities," Taxes, June 1977, pp. 381-385.
(4) Median discounts.
(5) From Robert E. Moroney, "Most Courts Overvalue Closely Held Stocks," Taxes,
March 1973, pp. 144-154. (Although the years covered in this study are likely to
be 1969-1972, no specific years were given in the published account.)
(6) From J. Michael Maher, "Discounts for Lack of Marketability for Closely-Held
Business Interests," Taxes, September 1976, pp. 562-571.
(7) From "Revenue Ruling 77-287 Revisited," SRC Quarterly Reports, Spring 1983,
pp. 1-3.
(8) From Williamette Management Associates study (unpublished).
(9) From William L. Silber, "Discounts on Restricted Stock: The Impact of
Illiquidity on Stock Prices," Financial Analysts Journal, July-August 1991, pp.
60-64.
(10) Lance S. Hall and Timothy C. Polacek, "Strategies for Obtaining the Largest
Discount," Estate Planning, January/February 1994, pp. 38-44. In spite of the
long time period covered, this study analyzed only a little over 100
transactions involving companies that were generally not the smallest
capitalization companies. It supported the findings of the SEC Institutional
Investor Study in finding that the discount for lack of marketability was higher
for smaller capitalization companies.
(11) John D. Emory, Sr., ASA, F.R. Dengel III and John D. Emory, Jr., "Expanded
Study of the Value of Marketability as Illustrated in Initial Public Offerings
of Common Stock, May 1997 through December 2000," Business Valuation Review,
December 2001, pp.4-20.
EXHIBIT F
SUMMARY OF TAX CASES SINCE 1990
APPLYING A MARKETABILITY DISCOUNT
LACK OF LACK OF
CASE # MARKETABILITY CASE # MARKETABILITY
--------- ------------- --------- -------------
90-5 25.0% 99- 5 (2) 35.0%
90-10 20.0% 99- 5 (3) 40.0%
91-1 10.0% 99- 6 15.0%
93-1 15.0% 99-10 25.0%
94-2 30.0% 99-11 30.0%
94-3 20.0% 99-12 30.0%
94-3 15.0% 99-13 35.0%
94-3 10.0% 00-02 20.0%
95-3 30.0% 00-03 30.0%
95-4 30.0% 00-05 30.0%
95-5 (1) 21.0% 00-06 20.0%
95-6 25.0% 00-07 33.0%
96-1 0.0% 00-10 25.0%
96-4 15.0% 00-10 15.0%
96-10 10.0% 01-02 8.0%
97-3 15.0% 01-03 40.0%
98-7 40.0% 01-04 35.0%
98-8 40.0% 01-07 40.0%
98-8 45.0% 02-01 35.0%
99-2 3.0% 02-06 (4) 40.0%
99-3 20.0% 02-06 (5) 45.0%
MEDIAN 25.0%
AVERAGE 25.4%
(1) Midpoint of 20 - 22 percent discount range.
(2) Class A shares discount.
(3) Class B shares discount.
(4) 12/31/92 valuation date.
(5) 12/31/94 valuation date.
Source: Federal Tax Valuation Digest, 2003/2004 Cumulative Edition.