Exhibit 99.5
CONFIDENTIAL ANALYSIS
MERCHANTS BANCORP, INC.
FEBRUARY 23, 2005
"GOING-PRIVATE" ANALYSIS
(AUSTIN ASSOCIATES, LLC LOGO)
CONFIDENTIAL ANALYSIS
MERCHANTS BANCORP, INC.
"GOING-PRIVATE" ANALYSIS
TABLE OF CONTENTS
Shareholder Analysis Tab 1
Minority Share Valuation Comparables Tab 2
Pro Forma Capital and Performance Results Tab 3
Historical Performance Data Tab 4
Merchants Bancorp - "Going-Private" Analysis Austin Associates, LLC
I. INTRODUCTION & OVERVIEW OF TRANSACTION
Austin Associates, LLC ("Austin") has been retained by Merchants Bancorp, Inc.
("Bancorp") to analyze a possible going-private transaction ("GPT"). The most
common reasons for pursuing a GPT include:
- Cost Savings - particularly in light of Sarbanes-Oxley, going-private
eliminates certain accounting and legal costs, filing of quarterly and
annual reports with the SEC, EDGARization, mailing, management time and
other internal costs in connection with certification of financial
statements;
- No Corporate Purpose - many companies conclude that there is no real
corporate benefit to filing with the SEC in that shareholders can receive
sufficient quarterly and annual information through enhanced annual reports
and proxy statements;
- Being Out of the Public Eye - less focus on quarterly performance and more
emphasis on long-term performance allowing management to concentrate on
operations of the company;
- Defensive - private companies are better able to manage the shareholder
base (including the type and number of shareholders) thereby preserving the
company's independence;
- Leverage Capital - to the extent capital is used to manage the shareholder
base, the transaction can assist in improving EPS and ROE levels; funding
for the repurchase can be through existing capital or other sources such as
the trust preferred market; and,
- Sub-S Option - with expanding flexibility on Sub-S requirements, staying
private preserves the option of electing Sub-S at a later date (recent
legislation has increased the number of shareholders to 100, allows some
IRAs to be shareholders and revises the way generations of shareholders are
counted).
In general, to complete a GPT, a company reduces its registered shareholders to
less than 300 and then files to deregister from the SEC. Bancorp would not be
required to report again to the SEC until such time that the number of
shareholders of record exceeds 500. To complete a GPT, a company will typically
follow three courses of action: (a) perform a voluntary tender offer to reduce
the number of shareholders; (b) perform a reverse-stock split transaction and
cash out all shareholders owning less than "X" shares that end up with
fractional shares; and/or (c) perform a subsidiary merger and pay cash to all
shareholders owning less than "X" shares. The most common and effective method
used is: (c) subsidiary merger. Bancorp should consult legal counsel for a more
complete understanding of the information described in this paragraph.
Merchants Bancorp - "Going-Private" Analysis Austin Associates, LLC
In evaluating a GPT, we recommend the following process:
Step 1: STRATEGIC PLAN - as part of a strategic plan, evaluate the pros and cons
of being a reporting company.
Step 2: SHAREHOLDER ANALYSIS - analyze the shareholder base to determine how
many shareholders would be required to eliminate in order to achieve
less than 300 shareholders or some lower threshold.
Step 3: VALUATION AND CAPITAL ANALYSIS - determine the value to be paid for
repurchased shares and the amount of capital required to go-private;
monitor capital adequacy on a pro forma basis; and identify available
outside funding sources, if necessary.
Step 4: FINANCIAL BENEFIT ANALYSIS - determine the financial benefit to the
company including estimated cost savings of being a private company, the
impact on EPS and ROE, and other shareholder return metrics.
Step 5: LEGAL AND STRUCTURAL ANALYSIS - review all relevant legal and structural
considerations to complete the GPT.
For purposes of this report, we assume Step 1 has been completed and will
address Steps 2-4. Legal counsel should be retained to address Step 5.
II. SHAREHOLDER ANALYSIS (STEP 2)
Tab 1 provides a shareholder analysis of Bancorp as of December 31, 2004. The
top portion of Table 1.1 stratifies the shareholder base based on seven
different levels of holdings. As with most community bank holding companies, a
relatively small number of shareholders own a relatively high percentage of the
outstanding shares. For Bancorp, 75% of the shares are held by only 84
shareholders (less than 10% of the total number of shareholders - those holding
more than 5,000 shares). Ninety-six percent of the shares are held by 280
shareholders (33% of the total number of shareholders - those holding more than
1,000 shares).
The bottom portion of Table 1.1 shows the pro forma impact to the shareholder
base assuming five different cut-off points for the repurchase. For example, at
the low end of the range (to get below 300 shareholders), Bancorp would
eliminate 577 shareholders owning less than 1,000 shares. This would result with
Bancorp having 280 shareholders and repurchasing approximately 117,000 shares or
4.4% of the outstanding shares.
At the high end of the selected range, Bancorp would eliminate 671 shareholders
owning less than 2,000 shares. Bancorp would end up with 186 shareholders and
repurchase approximately 255,000 shares or 9.6% of the outstanding shares.
Merchants Bancorp - "Going-Private" Analysis Austin Associates, LLC
III. VALUATION AND CAPITAL ANALYSIS (STEP 3)
Tab 2 provides information relating to a potential valuation range of Bancorp
stock. This information is intended to provide an estimate of value and is not
intended to represent a formal valuation or opinion as to the fairness of this
range of values. The exercise of performing a valuation and issuing a fairness
opinion will be done at a later date assuming the board pursues a GPT.
Table 2.1 summarizes the range of values of Bancorp stock based on market
comparable data in the Midwest and Nation as detailed in Tables 2.2 and 2.3,
respectively. Based on selected multiples, Bancorp's stock value is estimated at
between $20.20 and $24.60 per share. We also understand that most stock
transfers in 2004 occurred at between $20 and $21 per share. Given that in most
GPTs, companies pay slight premiums for shares repurchased, we will analyze the
transaction at between $22 and $24 per share.
Table 3.1 provides an analysis of the capital impact at a range of shares
repurchased and repurchase prices. At the low end of the range, Bancorp would
repurchase all shareholders with less than 1,000 shares at $22.00 per share.
Total shares repurchased would equal 117,155 resulting in a total repurchase of
$2.6 million. Bancorp's consolidated leverage and total risk-based ratio would
equal 7.66% and 11.36%, respectively using 12/31/04 information. Both ratios are
well above levels required to remain well-capitalized.
At the high end of the range, Bancorp would repurchase all shareholders with
less than 2,000 shares at $24.00 per share. Total shares repurchased would equal
255,401 resulting in a total repurchase of $6.1 million. Bancorp's consolidated
leverage and total risk-based ratio would equal 6.74% and 10.05%, respectively,
using 12/31/04 information.
In summary, we believe that Bancorp could complete a GPT without raising
additional capital. However, at the high-end of the repurchase scenario ($6.1
million), Bancorp's capital ratios would approach thresholds that may require
the issuance of trust preferred.
Merchants Bancorp - "Going-Private" Analysis Austin Associates, LLC
IV. FINANCIAL BENEFIT ANALYSIS (STEP 4)
Tables 3.2 and 3.3 provide additional financial information relating to a
potential GPT. Table 3.2 presents various financial measurements on a pro forma
basis using 2005 budget estimates of Bancorp. Among the findings:
- Bancorp's capital ratios will remain at well-capitalized levels
through 2005
- ROE will be enhanced by between 101-291 basis points
- EPS will be enhanced by between 5 and 10 percent
- Book value dilution (by repurchasing shares above book value) will be
recovered within 5-7 years
- Estimated IRR at between 11-13 percent
These results assume $4.7 million of consolidated net income of Bancorp in 2005,
before the GPT; assume $200,000 of pre-tax cost savings from not reporting to
the SEC; and, assume $100,000 of costs to complete the GPT.
Table 3.3 presents various financial measurements on a pro forma basis using
2006 earnings for Bancorp. The year 2006 was forecasted to show the impact of
fully-realized cost savings from going-private. Among the findings:
- Bancorp's capital ratios will remain at well-capitalized levels
through 2006
- ROE will be enhanced by between 129-299 basis points
- EPS will be enhanced by between 8 and 13 percent
- Book value dilution (by repurchasing shares above book value) will be
recovered within 3-5 years
- Estimated IRR at between 14-19 percent
These results assume $5.0 million of consolidated net income of Bancorp in 2006,
before the GPT; and, assume $300,000 of pre-tax cost savings from not reporting
to the SEC.
In summary, Bancorp will realize reasonable and in some scenarios, significant
financial benefits from going-private that will accrue to remaining
shareholders. Over 10 years it is estimated that Bancorp will save an estimated
$2.0 million in after-tax costs from the SEC which represents almost 6.5% of
Bancorp's current equity capital.
Merchants Bancorp - "Going-Private" Analysis Austin Associates, LLC
V. CONCLUSIONS
In conclusion, the analysis indicates that Bancorp has the financial capacity to
fund a GPT without any additional capital. Bancorp would still have access to
the trust preferred market to fund future growth or acquisition opportunities.
In addition, the pro forma financial results indicate reasonable financial
benefits would accrue to remaining shareholders, even at the high-end of the
repurchase range scenarios. In reaching a conclusion, the Board should carefully
review these results with the company's overall strategic plan. Finally, the
Board should consult legal counsel prior to reaching a decision on a GPT.
Merchants Bancorp - "Going-Private" Analysis Austin Associates, LLC
TABLE 2.1
MERCHANTS BANCORP, INC.
GUIDELINE TRANSACTIONS - KEY HIGHLIGHTS
MINORITY SHARE PRICING
--------------------------------------------------------------------------------
MINORITY SHARE DATA
SELECTED
PEER GROUPS
-------------------------- COMPANY'S (1)
MIDWEST (2) NATIONAL (3) LTM
MEDIAN MEDIAN PERFORMANCE
----------- ------------ --------------
PERFORMANCE
Total Assets $336,147 $367,712 $364,574
Tg Equity/Assets Ratio 8.38% 8.51% 8.44%
LTM Core EPS Growth 5.5% 11.3% 28.1%
LTM Core ROAA 1.11% 1.20% 1.29%
LTM Core ROAE 12.80% 14.22% 15.49%
LTM Efficiency Ratio 59.81% 59.61% 52.36%
Nonperforming Assets/Assets Ratio 0.59% 0.41% 0.61%
RANGE OF SELECTED MULTIPLES
---------------------------
STOCK PRICE MULTIPLES
Price/Tangible Book 175% 215% 175% 200%
Price/Earnings 14.8 16.7 13.0 15.0
VALUATION RESULTS
PRICE/ TG. BOOK PRICE/LTM CORE
APPROACH EPS (1) APPROACH
----------------- ---------------------
Company Per Share Data $11.54 $ 1.64
Selected Multiple Range 175% 200% 13.0 15.0
INDICATION OF VALUE $20.20 $23.08 $21.32 $24.60
(1) Financial performance based on stated net income of $4.6 million in 2004.
(2) Refer to Table 2.2
(3) Refer to Table 2.3
TABLE 2.2
SELECTIVE PUBLICLY TRADED BANKS IN THE MIDWEST
WITH ASSETS BETWEEN $250 MILLION - $500 MILLION
--------------------------------------------------------------------------------
ADDITIONAL CRITERIA:
LTM CORE ROAA > 0.75% - 2.00%, LTM CORE ROAE > 10.0%, AND TG EQUITY/ASSETS
7.0% - 10.0%
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 $457,000 9.63% 2.8% 1.36% 13.99% 57.46% NA
2 PSB Holdings Inc. Wausau WI $454,974 7.49% -18.7% 0.87% 11.36% 59.47% 0.62%
3 Farmers Bancorp Frankfort IN $450,929 8.20% NA 0.86% 11.17% 61.43% 1.22%
4 Mid-Wisconsin Financial Medford WI $391,686 8.82% 6.1% 1.16% 12.99% 56.94% 0.47%
5 Heartland Banccorp Gahanna OH $366,733 8.31% 7.5% 1.14% 13.78% 66.47% 0.93%
6 Citizens National Corp Paintsville KY $337,692 7.35% NA 1.03% 12.64% 66.03% 0.24%
7 Pavilion Bancorp Inc. Adrian MI $334,601 8.40% -16.2% 0.88% 10.35% 74.72% 0.55%
8 Southern Missouri Bancorp Poplar Bluff MO $326,756 7.50% 5.5% 0.94% 10.95% 55.43% NA
9 F.S. Bancorp LaGrange IN $325,637 9.37% NA 1.27% 13.72% 57.17% 0.12%
10 Southern Michigan Bancorp Coldwater MI $313,012 8.36% 27.2% 1.08% 12.96% 71.61% NA
11 Middlefield Banc Corp. Middlefield OH $291,214 8.82% 17.4% 1.19% 13.62% 58.83% NA
12 Futura Banc Corp. Urbana OH $279,827 9.94% -9.7% 1.18% 11.91% 60.14% 1.63%
AVERAGE $360,838 8.52% 2.4% 1.08% 12.45% 62.14% 0.72%
MEDIAN $336,147 8.38% 5.5% 1.11% 12.80% 59.81% 0.59%
25TH PERCENTILE $322,481 8.03% -9.7% 0.93% 11.31% 57.39% 0.41%
75TH PERCENTILE $406,497 8.96% 7.5% 1.18% 13.65% 66.14% 1.00%
MERCHANTS BANCORP (1) $364,574 8.44% 28.1% 1.29% 15.49% 52.36% 0.61%
STOCK PERFORMANCE
---------------------------------------------------------------
1-YEAR PRICE/ 1-YEAR
02/09/05 PRICE PRICE/ PRICE/ LTM AVERAGE MONTHLY
CLOSING CHANGE BOOK TG BOOK CORE EPS MONTHLY VOLUME
COMPANY NAME CITY ST PRICE (%) (%) (%) (X) VOLUME TO SHARES
----------------------------- --------------- -- -------- ------ ------ ------- -------- ------- ---------
1 FNBH Bancorp Inc. Howell MI $30.00 11.5% 207% 207% 15.7 5,830 0.18%
2 PSB Holdings Inc. Wausau WI $32.05 -8.4% 164% 164% 14.8 14,806 0.86%
3 Farmers Bancorp Frankfort IN $52.50 2.1% 148% 148% NA 11,594 1.11%
4 Mid-Wisconsin Financial Medford WI $35.50 20.3% 171% 174% 13.7 6,490 0.39%
5 Heartland Banccorp Gahanna OH $42.00 7.4% 197% 200% 16.7 7,766 0.54%
6 Citizens National Corp Paintsville KY $55.00 10.6% 103% 118% NA -- 0.00%
7 Pavilion Bancorp Inc. Adrian MI $59.00 12.4% 177% 177% 17.6 7,656 0.91%
8 Southern Missouri Bancorp Poplar Bluff MO $17.25 14.9% 142% 157% 13.8 17,600 0.79%
9 F.S. Bancorp LaGrange IN $52.50 8.3% 193% 193% NA 198 0.02%
10 Southern Michigan Bancorp Coldwater MI $26.75 21.6% 183% 187% 14.3 15,070 0.82%
11 Middlefield Banc Corp. Middlefield OH $38.50 28.3% 200% 200% 15.0 -- 0.00%
12 Futura Banc Corp. Urbana OH $20.50 -12.2% 164% 165% 14.6 1,012 0.05%
AVERAGE 9.7% 171% 174% 15.1 7,335 0.47%
MEDIAN 11.0% 174% 175% 14.8 7,073 0.46%
25TH PERCENTILE 6.1% 160% 162% 14.3 809 0.04%
75TH PERCENTILE 16.3% 194% 195% 15.7 12,397 0.83%
MERCHANTS BANCORP (1)
(1) Financial performance based on stated net income of $4.6 million in 2004.
TABLE 2.3
SELECTIVE PUBLICLY TRADED BANKS IN THE NATION
WITH ASSETS BETWEEN $250 MILLION - $500 MILLION
--------------------------------------------------------------------------------
ADDITIONAL CRITERIA:
LTM CORE ROAA > 1.10% - 2.00%, LTM CORE ROAE 12.0% - 20.0%, AND TG EQUITY/ASSETS
7.0% - 10.0%
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 1st Constitution Bancorp Cranbury NJ $335,830 7.89% 19.7% 1.21% 15.47% 59.93% 0.33%
2 Bank of Commerce Holdings Redding CA $438,545 8.28% 15.6% 1.22% 15.37% 54.83% 0.54%
3 Central Virginia Bankshares Powhatan VA $379,276 8.18% 11.3% 1.13% 14.12% 60.85% 0.26%
4 Community First Bancorp Walhalla SC $290,118 8.71% 15.6% 1.16% 14.31% 47.57% 0.54%
5 Community Valley Bancorp Chico CA $449,675 7.89% 4.2% 1.34% 17.21% 62.04% 0.02%
6 Delmar Bancorp Delmar MD $251,678 8.17% NA 1.17% 13.49% 60.89% 0.62%
7 Desert Community Bank Victorville CA $471,226 8.83% 24.9% 1.12% 12.31% 64.71% NA
8 Dimeco Inc. Honesdale PA $325,721 8.95% -0.9% 1.24% 13.50% 52.85% NA
9 Eagle Financial Services Berryville VA $397,583 7.78% 10.5% 1.18% 14.85% 63.34% 0.05%
10 F.S. Bancorp LaGrange IN $325,637 9.37% NA 1.27% 13.72% 57.17% 0.12%
11 Fauquier Bankshares Inc. Warrenton VA $429,075 7.15% 18.8% 1.22% 16.92% 65.55% NA
12 First South Bancorp Inc. Spartanburg SC $287,050 9.13% 59.5% 1.12% 14.82% 53.86% 0.35%
13 Four Oaks Fincorp Inc. Four Oaks NC $398,500 9.30% 58.0% 1.17% 12.37% 58.28% NA
14 Georgia-Carolina Bancshares Augusta GA $305,088 7.99% -33.2% 1.25% 15.67% 70.52% 0.58%
15 Heartland Banccorp Gahanna OH $366,733 8.31% 7.5% 1.14% 13.78% 66.47% 0.93%
16 Honat Bancorp Honesdale PA $339,164 9.45% NA 1.34% 14.83% 52.94% 0.99%
17 Idaho Independent Bank Coeur D'Alene ID $387,005 9.84% -6.1% 1.22% 12.71% 64.99% 0.21%
18 Merrill Merchants Bncshs Bangor ME $368,690 8.23% 11.1% 1.33% 15.71% 59.29% NA
19 Middlefield Banc Corp. Middlefield OH $291,214 8.82% 17.4% 1.19% 13.62% 58.83% NA
20 Mid-Wisconsin Financial Medford WI $391,686 8.82% 6.1% 1.16% 12.99% 56.94% 0.47%
AVERAGE $361,475 8.55% 14.1% 1.21% 14.39% 59.59% 0.43%
MEDIAN $367,712 8.51% 11.3% 1.20% 14.22% 59.61% 0.41%
25TH PERCENTILE $320,500 8.13% 6.1% 1.16% 13.50% 56.41% 0.22%
75TH PERCENTILE $397,812 9.00% 18.8% 1.24% 15.40% 63.68% 0.57%
MERCHANTS BANCORP (1) $364,574 8.44% 28.1% 1.29% 15.49% 52.36% 0.61%
STOCK PERFORMANCE
----------------------------------------------------------------
1-YEAR PRICE/ 1-YEAR
02/09/05 PRICE PRICE/ PRICE/ LTM AVERAGE MONTHLY
CLOSING CHANGE BOOK TG BOOK CORE EPS MONTHLY VOLUME
COMPANY NAME CITY ST PRICE (%) (%) (%) (X) VOLUME TO SHARES
------------------------------ --------------- --- -------- ------ ------ -------- -------- ------- ---------
1 1st Constitution Bancorp Cranbury NJ $ 40.68 31.1% 251% 251% 18.1 69,762 4.22%
2 Bank of Commerce Holdings Redding CA $ 10.61 21.3% 256% 258% 18.6 62,150 0.73%
3 Central Virginia Bankshares Powhatan VA $ 29.00 1.2% 209% 210% 15.9 19,470 0.86%
4 Community First Bancorp Walhalla SC $ 18.50 19.7% 194% 194% 15.4 352 0.01%
5 Community Valley Bancorp Chico CA $ 28.75 11.9% 303% 303% 19.4 12,364 0.34%
6 Delmar Bancorp Delmar MD $ 23.50 26.7% 206% 214% NA 4,488 0.24%
7 Desert Community Bank Victorville CA $ 27.10 21.9% 187% 187% 15.9 107,162 3.64%
8 Dimeco Inc. Honesdale PA $ 38.25 -8.9% 200% 200% 15.8 14,454 0.93%
9 Eagle Financial Services Berryville VA $ 44.84 -9.9% 217% 218% 15.6 17,006 1.13%
10 F.S. Bancorp LaGrange IN $ 52.50 8.3% 193% 193% NA 198 0.02%
11 Fauquier Bankshares Inc. Warrenton VA $ 24.79 1.6% 264% 264% 17.5 27,874 0.82%
12 First South Bancorp Inc. Spartanburg SC $ 33.00 46.7% 212% 212% 17.8 3,014 0.18%
13 Four Oaks Fincorp Inc. Four Oaks NC $ 23.50 33.5% 217% 217% 18.4 7,810 0.23%
14 Georgia-Carolina Bancshares Augusta GA $ 20.15 -10.4% 219% 219% 16.7 40,238 1.52%
15 Heartland Banccorp Gahanna OH $ 42.00 7.4% 197% 200% 16.7 7,766 0.54%
16 Honat Bancorp Honesdale PA $325.00 41.3% 267% 267% NA 1,100 0.42%
17 Idaho Independent Bank Coeur D'Alene ID $ 32.05 -0.6% 215% 215% 19.1 25,168 0.98%
18 Merrill Merchants Bncshs Bangor ME $ 24.70 1.4% 263% 267% 17.5 67,298 2.01%
19 Middlefield Banc Corp. Middlefield OH $ 38.50 28.3% 200% 200% 15.0 -- 0.00%
20 Mid-Wisconsin Financial Medford WI $ 35.50 20.3% 171% 174% 13.7 6,490 0.39%
AVERAGE 14.6% 222% 223% 16.9 24,708 0.96%
MEDIAN 15.8% 213% 215% 16.7 13,409 0.63%
25TH PERCENTILE 1.3% 199% 200% 15.8 4,120 0.24%
75TH PERCENTILE 27.1% 252% 253% 18.1 30,965 1.02%
MERCHANTS BANCORP (1)
(1) Financial performance based on stated net income of $4.6 million in 2004.
TABLE 3.1
MERCHANTS BANCORP, INC. 2004 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) $ 22.00 $ 24.00 $ 22.00 $ 24.00 $ 22.00 $ 24.00
% 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 $ 2,577 $ 2,812 $ 3,333 $ 3,636 $ 5,619 $ 6,130
REMAINING SHAREHOLDERS 280 280 251 251 186 186
MULTIPLE OF 2004 EPS 12.4 13.5 12.4 13.5 12.4 13.5
% OF 2004 BOOK VALUE 191% 208% 191% 208% 191% 208%
1,000 SHARES 1,500 SHARES 2,000 SHARES
2004 ------------------- ------------------- -------------------
ESTIMATED PRO FORMA ACTUAL 2004 PRO FORMA PERFORMANCE FROM GOING-PRIVATE
------------------- -------- ---------------------------------------------------------------
Total Assets $364,574 $361,997 $361,762 $361,241 $360,938 $358,955 $358,444
Average Assets $357,948 $355,371 $355,136 $354,615 $354,312 $352,329 $351,818
Average Assets for Capital Purposes $364,855 $362,228 $361,989 $361,458 $361,149 $359,128 $358,607
Equity Capital $ 30,779 $ 28,202 $ 27,967 $ 27,446 $ 27,143 $ 25,160 $ 24,649
Average Equity $ 29,748 $ 27,686 $ 27,452 $ 26,931 $ 26,628 $ 24,645 $ 24,134
Estimated Annual Common Dividends $ 1,867 $ 1,785 $ 1,785 $ 1,761 $ 1,761 $ 1,688 $ 1,688
Dividend Payout Ratio 39.4% 37.4% 37.5% 37.0% 37.1% 35.7% 35.8%
FASB 115 $ 468 $ 468 $ 468 $ 468 $ 468 $ 468 $ 468
Tier 1 Capital $ 30,311 $ 27,734 $ 27,499 $ 26,978 $ 26,675 $ 24,692 $ 24,181
LLR $ 2,518 $ 2,518 $ 2,518 $ 2,518 $ 2,518 $ 2,518 $ 2,518
Tier 2 Capital $ 2,518 $ 2,518 $ 2,518 $ 2,518 $ 2,518 $ 2,518 $ 2,518
Risk-Based Assets $266,931 $266,416 $266,369 $266,264 $266,204 $265,807 $265,705
-------- -------- -------- -------- -------- -------- --------
TIER 1 LEVERAGE RATIO 8.31% 7.66% 7.60% 7.46% 7.39% 6.88% 6.74%
TIER 1 RISK-BASED RATIO 11.36% 10.41% 10.32% 10.13% 10.02% 9.29% 9.10%
TOTAL RISK-BASED RATIO 12.30% 11.36% 11.27% 11.08% 10.97% 10.24% 10.05%
-------- -------- -------- -------- -------- -------- --------
TABLE 3.2
MERCHANTS BANCORP, INC. 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) $ 22.00 $ 24.00 $ 22.00 $ 24.00 $ 22.00 $ 24.00
% 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 $ 2,577 $ 2,812 $ 3,333 $ 3,636 $ 5,619 $ 6,130
REMAINING SHAREHOLDERS 280 280 251 251 186 186
MULTIPLE OF 2004 EPS 13.4 14.6 13.4 14.6 13.4 14.6
% OF 2004 BOOK VALUE 191% 208% 191% 208% 191% 208%
1,000 SHARES 1,500 SHARES 2,000 SHARES
2004 2005 ----------------------- ----------------------- -----------------------
ESTIMATED PRO FORMA ACTUAL PROJECTED 2005 PRO FORMA PERFORMANCE FROM GOING-PRIVATE
-------------------- ---------- ---------- ---------------------------------------------------------------------------
Total Assets $ 364,574 $ 378,000 $ 375,423 $ 375,188 $ 374,667 $ 374,364 $ 372,381 $ 371,870
Average Assets $ 357,948 $ 371,287 $ 368,710 $ 368,475 $ 367,954 $ 367,651 $ 365,668 $ 365,157
Average Assets for Capital
Purposes $ 364,855 $ 378,451 $ 375,824 $ 375,585 $ 375,054 $ 374,745 $ 372,724 $ 372,203
Equity Capital $ 30,779 $ 33,521 $ 30,944 $ 30,709 $ 30,188 $ 29,885 $ 27,902 $ 27,391
Average Equity $ 29,748 $ 32,150 $ 30,258 $ 30,024 $ 29,503 $ 29,200 $ 27,217 $ 26,706
Estimated Annual Common
Dividends $ 1,867 $ 2,000 $ 1,912 $ 1,912 $ 1,886 $ 1,886 $ 1,808 $ 1,808
Dividend Payout Ratio 40.5% 42.2% 40.1% 40.1% 39.7% 39.7% 38.3% 38.4%
FASB 115 $ 468 $ 468 $ 468 $ 468 $ 468 $ 468 $ 468 $ 468
Tier 1 Capital $ 30,311 $ 33,053 $ 30,476 $ 30,241 $ 29,720 $ 29,417 $ 27,434 $ 26,923
LLR $ 2,518 $ 2,675 $ 2,675 $ 2,675 $ 2,675 $ 2,675 $ 2,675 $ 2,675
Tier 2 Capital $ 2,518 $ 2,675 $ 2,675 $ 2,675 $ 2,675 $ 2,675 $ 2,675 $ 2,675
Risk-Based Assets $ 266,931 $ 274,738 $ 274,222 $ 274,175 $ 274,071 $ 274,011 $ 273,614 $ 273,512
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TIER 1 LEVERAGE RATIO 8.31% 8.73% 8.11% 8.05% 7.92% 7.85% 7.36% 7.23%
TIER 1 RISK-BASED RATIO 11.36% 12.03% 11.11% 11.03% 10.84% 10.74% 10.03% 9.84%
TOTAL RISK-BASED RATIO 12.30% 13.00% 12.09% 12.01% 11.82% 11.71% 11.00% 10.82%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Return on Average Assets 1.29% 1.28% 1.29% 1.29% 1.29% 1.29% 1.29% 1.29%
Annual Net Income/Estimated
Net Income (1, 2) $ 4,607 $ 4,742 $ 4,768 $ 4,765 $ 4,757 $ 4,752 $ 4,723 $ 4,715
% Change from Baseline 0.56% 0.48% 0.32% 0.22% -0.41% -0.57%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
RETURN ON AVERAGE EQUITY 15.49% 14.75% 15.76% 15.87% 16.12% 16.28% 17.35% 17.66%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Basis Point Change in ROAE 101 112 137 153 260 291
Annual Earnings Per Share $ 1.64 $ 1.78 $ 1.87 $ 1.87 $ 1.89 $ 1.89 $ 1.96 $ 1.96
---------- ---------- ---------- ---------- ---------- ----------
% CHANGE FROM BASELINE 5.18% 5.10% 6.36% 6.26% 10.14% 9.96%
---------- ---------- ---------- ---------- ---------- ----------
Book Value Per Share $ 11.54 $ 12.57 $ 12.14 $ 12.05 $ 12.00 $ 11.88 $ 11.57 $ 11.36
% Change from Baseline -3.45% -4.18% -4.52% -5.48% -7.95% -9.63%
---------- ---------- ---------- ---------- ---------- ----------
YEARS TO RECOVER BOOK
DILUTION 4.7 5.8 5.0 6.2 5.5 6.8
---------- ---------- ---------- ---------- ---------- ----------
Annual Dividends Per Share $ 0.70 $ 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) 2,805,825 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 13.1% 12.2% 12.5% 11.7% 11.7% 11.0%
---------- ---------- ---------- ---------- ---------- ----------
(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.
TABLE 3.3
MERCHANTS BANCORP, INC. 2006 PROFORMA
GOING-PRIVATE SCENARIOS ($000)
--------------------------------------------------------------------------------
ELIMINATE SHAREHOLDERS WITH LESS THAN:
---------------------------------------------------------------
1,000 SHARES 1,500 SHARES 2,000 SHARES
------------------- ------------------- -------------------
REPURCHASE PRICE PER SHARE (RANGE) $ 22.00 $ 24.00 $ 22.00 $ 24.00 $ 22.00 $ 24.00
% 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 $ 2,577 $ 2,812 $ 3,333 $ 3,636 $ 5,619 $ 6,130
REMAINING SHAREHOLDERS 280 280 251 251 186 186
MULTIPLE OF 2004 EPS 13.4 14.6 13.4 14.6 13.4 14.6
% OF 2004 BOOK VALUE 191% 208% 191% 208% 191% 208%
1,000 SHARES 1,500 SHARES 2,000 SHARES
2006 ----------------------- ----------------------- -----------------------
ESTIMATED PRO FORMA PROJECTED 2006 PRO FORMA PERFORMANCE FROM GOING-PRIVATE
------------------- ---------- ---------------------------------------------------------------------------
Total Assets $ 400,000 $ 397,423 $ 397,188 $ 396,667 $ 396,364 $ 394,381 $ 393,870
Average Assets $ 389,000 $ 386,423 $ 386,188 $ 385,667 $ 385,364 $ 383,381 $ 382,870
Average Assets for Capital Purposes $ 396,506 $ 393,879 $ 393,640 $ 393,109 $ 392,800 $ 390,779 $ 390,258
Equity Capital $ 36,321 $ 33,744 $ 33,509 $ 32,988 $ 32,685 $ 30,702 $ 30,191
Average Equity $ 34,921 $ 33,044 $ 32,809 $ 32,288 $ 31,985 $ 30,002 $ 29,491
Estimated Annual Common Dividends $ 2,200 $ 2,103 $ 2,103 $ 2,075 $ 2,075 $ 1,989 $ 1,989
Dividend Payout Ratio 44.0% 40.8% 40.8% 40.3% 40.4% 38.9% 39.0%
FASB 115 $ 468 $ 468 $ 468 $ 468 $ 468 $ 468 $ 468
Tier 1 Capital $ 35,853 $ 33,276 $ 33,041 $ 32,520 $ 32,217 $ 30,234 $ 29,723
LLR $ 2,750 $ 2,750 $ 2,750 $ 2,750 $ 2,750 $ 2,750 $ 2,750
Tier 2 Capital $ 2,750 $ 2,750 $ 2,750 $ 2,750 $ 2,750 $ 2,750 $ 2,750
Risk-Based Assets $ 290,728 $ 290,212 $ 290,165 $ 290,061 $ 290,001 $ 289,604 $ 289,502
---------- ---------- ---------- ---------- ---------- ---------- ----------
TIER 1 LEVERAGE RATIO 9.04% 8.45% 8.39% 8.27% 8.20% 7.74% 7.62%
TIER 1 RISK-BASED RATIO 12.33% 11.47% 11.39% 11.21% 11.11% 10.44% 10.27%
TOTAL RISK-BASED RATIO 13.28% 12.41% 12.33% 12.16% 12.06% 11.39% 11.22%
---------- ---------- ---------- ---------- ---------- ---------- ----------
Return on Average Assets 1.29% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33%
Annual Net Income/Estimated Net
Income (1,2) $ 5,000 $ 5,156 $ 5,153 $ 5,145 $ 5,140 $ 5,111 $ 5,103
% Change from Baseline 3.13% 3.06% 2.90% 2.81% 2.21% 2.06%
---------- ---------- ---------- ---------- ---------- ---------- ----------
RETURN ON AVERAGE EQUITY 14.32% 15.60% 15.71% 15.93% 16.07% 17.03% 17.30%
---------- ---------- ---------- ---------- ---------- ---------- ----------
Basis Point Change in ROAE 129 139 162 175 272 299
Annual Earnings Per Share $ 1.88 $ 2.02 $ 2.02 $ 2.05 $ 2.04 $ 2.12 $ 2.12
---------- ---------- ---------- ---------- ---------- ----------
% CHANGE FROM BASELINE 7.87% 7.79% 9.10% 9.00% 13.04% 12.87%
---------- ---------- ---------- ---------- ---------- ----------
Book Value Per Share $ 13.62 $ 13.24 $ 13.14 $ 13.12 $ 13.00 $ 12.73 $ 12.52
% Change from Baseline -2.83% -3.50% -3.71% -4.59% -6.52% -8.07%
---------- ---------- ---------- ---------- ---------- ----------
YEARS TO RECOVER BOOK DILUTION 2.6 3.3 3.0 3.7 3.6 4.6
---------- ---------- ---------- ---------- ---------- ----------
Annual Dividends Per Share $ 0.83 $ 0.83 $ 0.83 $ 0.83 $ 0.83 $ 0.83 $ 0.83
Estimated Shares Outstanding (End) 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 2,549,495 2,549,495 2,515,151 2,515,151 2,411,249 2,411,249
---------- ---------- ---------- ---------- ---------- ----------
ESTIMATED INTERNAL RATE OF RETURN 18.6% 17.2% 16.9% 15.7% 14.5% 13.5%
---------- ---------- ---------- ---------- ---------- ----------
(1) 2006 net income includes estimated net income of $5.0 million; and SEC/SOX
cost savings of $300,000 (pre-tax).
(2) Opportunity Cost on Repurchase estimated at 2.50% pre-tax.
TABLE 4.1
MERCHANTS BANCORP, INCORPORATED
SUMMARY HISTORICAL ANALYSIS ($000)
--------------------------------------------------------------------------------
PERIOD END FINANCIAL DATA: 1999Y 2000Y 2001Y 2002Y 2003Y 2004Y
-------------------------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS $ 247,081 $ 279,183 $ 305,401 $ 319,654 $ 353,729 $ 364,574
ASSET GROWTH 8.3% 13.0% 9.4% 4.7% 10.7% 3.1%
TOTAL LOANS $ 187,089 $ 222,432 $ 223,727 $ 248,277 $ 288,657 $ 294,610
TOTAL DEPOSITS $ 215,835 $ 233,860 $ 259,288 $ 261,092 $ 267,916 $ 284,117
LOAN/DEPOSIT RATIO 86.7% 95.1% 86.3% 95.1% 107.7% 103.7%
LOAN LOSS RESERVE $ 1,905 $ 1,911 $ 1,960 $ 2,105 $ 2,432 $ 2,518
LOAN LOSS RESERVE/TOTAL LOANS 1.02% 0.86% 0.88% 0.85% 0.84% 0.85%
INTANGIBLE ASSETS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
TRUST PREFERRED SECURITIES $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
TOTAL SHAREHOLDERS' EQUITY $ 23,580 $ 27,110 $ 30,233 $ 33,508 $ 28,227 $ 30,779
STATED NET INCOME $ 3,776 $ 4,200 $ 4,405 $ 4,776 $ 3,791 $ 4,607
NONPERFORMING ASSETS $ 762 $ 1,029 $ 2,074 $ 1,846 $ 3,264 $ 2,220
NONPERFORMING ASSETS/TOTAL ASSETS 0.31% 0.37% 0.68% 0.58% 0.92% 0.61%
RATIOS:
RETURN ON AVERAGE ASSETS 1.60% 1.59% 1.53% 1.55% 1.11% 1.29%
RETURN ON AVERAGE EQUITY 16.38% 16.54% 15.27% 15.03% 11.77% 15.49%
TOTAL EQUITY TO ASSETS 9.54% 9.71% 9.90% 10.48% 7.98% 8.44%
DIVIDEND PAYOUT RATIO 33.1% 32.1% 35.4% 37.7% 50.2% 40.5%
PER SHARE SUMMARY:
EARNINGS PER SHARE $ 1.26 $ 1.40 $ 1.47 $ 1.59 $ 1.28 $ 1.64
DIVIDENDS PER SHARE $ 0.42 $ 0.45 $ 0.52 $ 0.60 $ 0.65 $ 0.70
BOOK VALUE PER SHARE $ 7.86 $ 9.04 $ 10.08 $ 11.17 $ 9.58 $ 11.54
TANGIBLE BOOK VALUE PER SHARE $ 7.86 $ 9.04 $ 10.08 $ 11.17 $ 9.58 $ 11.54
OTHER DATA:
COMMON SHARES OUTSTANDING 3,000,000 3,000,000 3,000,000 3,000,000 2,945,000 2,666,650
AVERAGE SHARES OUTSTANDING (2) 3,000,000 3,000,000 3,000,000 3,000,000 2,972,500 2,805,825
COMMON DIVIDENDS PAID $ 1,250 $ 1,350 $ 1,560 $ 1,800 $ 1,902 $ 1,867
(1) Core net income adjusts for gains/(losses) on securities transactions.
(2) Average shares outstanding based on simple average
TABLE 4.2
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY YEAR
--------------------------------------------------------------------------------
BALANCE SHEET
1999Y 2000Y 2001Y 2002Y 2003Y 2004Y
-------- -------- -------- -------- -------- --------
ASSETS
CASH AND DUE FROM BANKS - NONINTEREST BEARING $ 10,454 $ 10,301 $ 13,527 $ 13,794 $ 13,159 $ 12,486
CASH AND DUE FROM BANKS - INTEREST BEARING $ 26 $ 25 $ 47 $ 59 $ 610 $ 13
INVESTMENT SECURITIES $ 40,661 $ 39,685 $ 38,221 $ 40,012 $ 33,085 $ 31,979
FEDERAL FUNDS SOLD & REPURCHASE AGREEMENTS $ 3,000 $ 0 $ 16,600 $ 8,350 $ 8,625 $ 16,225
REAL ESTATE LOANS (INCLUDING COMMERCIAL RE) $137,222 $163,637 $163,181 $181,256 $221,827 $231,585
COMMERCIAL RE $ 31,637 $ 36,049 $ 37,909 $ 46,555 $ 51,461 $ 52,997
COMMERCIAL & INDUSTRIAL LOANS $ 19,501 $ 23,665 $ 24,740 $ 25,794 $ 25,165 $ 26,350
INSTALLMENT LOANS $ 20,888 $ 23,811 $ 23,650 $ 25,817 $ 27,827 $ 25,085
AGRICULTURAL LOANS $ 8,818 $ 8,565 $ 9,579 $ 12,556 $ 11,057 $ 9,005
ALL OTHER LOANS $ 599 $ 2,742 $ 2,577 $ 2,854 $ 2,781 $ 2,585
LESS: UNEARNED INCOME $ 61 $ 12 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- -------- --------
TOTAL LOANS (NET OF UNEARNED INCOME) $187,089 $222,432 $223,727 $248,277 $288,657 $294,610
LESS: LOAN LOSS RESERVE $ 1,905 $ 1,911 $ 1,960 $ 2,105 $ 2,432 $ 2,518
-------- -------- -------- -------- -------- --------
NET LOANS $185,184 $220,521 $221,767 $246,172 $286,225 $292,092
PREMISES AND FIXED ASSETS $ 4,204 $ 4,427 $ 4,343 $ 4,347 $ 3,844 $ 3,624
OTHER REAL ESTATE OWNED $ 76 $ 42 $ 42 $ 141 $ 358 $ 1,040
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 $ 3,476 $ 4,182 $ 10,854 $ 6,779 $ 7,823 $ 7,115
-------- -------- -------- -------- -------- --------
TOTAL ASSETS $247,081 $279,183 $305,401 $319,654 $353,729 $364,574
======== ======== ======== ======== ======== ========
LIABILITIES
DEMAND DEPOSITS $ 25,022 $ 26,167 $ 31,220 $ 30,202 $ 31,693 $ 34,834
NOW AND OTHER $ 44,161 $ 46,207 $ 59,012 $ 63,755 $ 64,645 $ 63,486
-------- -------- -------- -------- -------- --------
TOTAL TRANSACTION ACCOUNTS $ 69,183 $ 72,374 $ 90,232 $ 93,957 $ 96,338 $ 98,320
MMDA & OTHER SAVINGS DEPOSITS $ 23,003 $ 23,377 $ 26,969 $ 38,003 $ 43,810 $ 46,393
TIME DEPOSITS < $100,000 $ 94,854 $108,742 $111,469 $101,836 $ 97,969 $105,110
TIME DEPOSITS > $100,000 $ 28,795 $ 29,367 $ 30,618 $ 27,296 $ 29,799 $ 34,294
-------- -------- -------- -------- -------- --------
TOTAL DEPOSITS $215,835 $233,860 $259,288 $261,092 $267,916 $284,117
FED. FUNDS PURCHASED & REPURCHASE AGREEMENTS $ 2,422 $ 8,933 $ 4,744 $ 4,998 $ 5,300 $ 6,658
OTHER BORROWED MONEY $ 4,000 $ 7,000 $ 8,993 $ 17,470 $ 43,706 $ 39,920
SUBORDINATED NOTES AND DEBENTURES $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
OTHER LIABILITIES $ 1,244 $ 2,280 $ 2,143 $ 2,586 $ 8,580 $ 3,100
-------- -------- -------- -------- -------- --------
TOTAL LIABILITIES $223,501 $252,073 $275,168 $286,146 $325,502 $333,795
MINORITY INTEREST $ 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 $ 2,000 $ 8,000
UNDIVIDED PROFITS AND RESERVES $ 20,011 $ 22,861 $ 25,706 $ 28,682 $ 30,571 $ 27,311
ACCUMULATED OTHER COMPREHENSIVE INCOME (1) ($431) $ 249 $ 527 $ 826 $ 656 $ 468
OTHER EQUITY CAPITAL COMPONENTS $ 0 $ 0 $ 0 $ 0 ($7,000) ($7,000)
-------- -------- -------- -------- -------- --------
TOTAL EQUITY $ 23,580 $ 27,110 $ 30,233 $ 33,508 $ 28,227 $ 30,779
-------- -------- -------- -------- -------- --------
TOTAL LIAB. AND STOCKHOLDERS' EQUITY $247,081 $279,183 $305,401 $319,654 $353,729 $364,574
======== ======== ======== ======== ======== ========
(1) Includes net unrealized gains/(losses) on cash flow hedges, foreign
currency translation adjustments, and minimum pension liability
adjustments.
TABLE 4.3
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY YEAR
--------------------------------------------------------------------------------
INCOME STATEMENT 1999Y 2000Y 2001Y 2002Y 2003Y 2004Y
---------------- ------- ------- ------- ------- ------- -------
INTEREST AND FEE INCOME ON LOANS & LEASES $15,486 $18,891 $20,000 $18,478 $18,413 $18,395
BALANCES DUE FROM DEPOSITORY INSTITUTIONS $ 1 $ 1 $ 5 $ 4 $ 3 $ 9
INTEREST/DIVIDEND INCOME ON SECURITIES $ 2,083 $ 2,309 $ 2,089 $ 2,170 $ 1,606 $ 1,507
TRADING ACCOUNTS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
INTEREST INCOME ON FEDERAL FUNDS SOLD $ 537 $ 98 $ 204 $ 92 $ 157 $ 166
OTHER INTEREST INCOME $ 0 $ 0 $ 133 $ 121 $ 131 $ 192
------- ------- ------- ------- ------- -------
TOTAL INTEREST INCOME $18,107 $21,299 $22,431 $20,865 $20,310 $20,269
INTEREST ON DEPOSITS $ 7,524 $ 9,801 $10,130 $ 6,837 $ 5,138 $ 5,052
INTEREST EXPENSE ON FEDERAL FUNDS PURCHASED $ 169 $ 247 $ 218 $ 154 $ 140 $ 160
INTEREST EXPENSE ON BORROWED FUNDS $ 396 $ 347 $ 445 $ 902 $ 1,446 $ 1,726
INTEREST EXPENSE ON SUBORDINATED DEBT $ 0 $ 0 $ 0 $ 0 $ 0 $ 34
OTHER INTEREST EXPENSE $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
------- ------- ------- ------- ------- -------
TOTAL INTEREST EXPENSE $ 8,089 $10,395 $10,793 $ 7,893 $ 6,724 $ 6,972
------- ------- ------- ------- ------- -------
NET INTEREST INCOME $10,018 $10,904 $11,638 $12,972 $13,586 $13,297
LOAN LOSS PROVISION $ 130 $ 177 $ 177 $ 436 $ 2,907 $ 676
------- ------- ------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION $ 9,888 $10,727 $11,461 $12,536 $10,679 $12,621
INCOME FROM FIDUCIARY ACTIVITIES $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
SERVICE CHARGES ON DEPOSIT ACCOUNTS $ 877 $ 983 $ 1,135 $ 1,157 $ 1,179 $ 1,174
OTHER OPERATING INCOME $ 538 $ 586 $ 337 $ 352 $ 328 $ 696
------- ------- ------- ------- ------- -------
TOTAL NONINTEREST INCOME $ 1,415 $ 1,569 $ 1,472 $ 1,509 $ 1,507 $ 1,870
SALARIES AND EMPLOYEE BENEFITS $ 3,081 $ 3,283 $ 3,334 $ 3,505 $ 3,195 $ 3,980
OCCUPANCY EXPENSES $ 768 $ 843 $ 991 $ 1,028 $ 1,114 $ 945
INTANGIBLE AMORT. & OTHER OPERATING EXPENSES $ 1,916 $ 2,007 $ 2,251 $ 2,574 $ 2,604 $ 3,017
INTANGIBLE AMORTIZATION EXPENSE NA NA $ 0 $ 0 $ 0 $ 0
------- ------- ------- ------- ------- -------
TOTAL NONINTEREST EXPENSE $ 5,765 $ 6,133 $ 6,576 $ 7,107 $ 6,913 $ 7,942
------- ------- ------- ------- ------- -------
SUBTOTAL $ 5,538 $ 6,163 $ 6,357 $ 6,938 $ 5,273 $ 6,549
SECURITY TRANSACTIONS (GROSS) $ 3 $ 1 $ 0 $ 0 $ 0 $ 0
------- ------- ------- ------- ------- -------
INCOME BEFORE TAXES $ 5,541 $ 6,164 $ 6,357 $ 6,938 $ 5,273 $ 6,549
APPLICABLE TAXES $ 1,765 $ 1,964 $ 1,952 $ 2,162 $ 1,482 $ 1,942
------- ------- ------- ------- ------- -------
NET INCOME BEFORE EXTRAORDINARY ITEMS $ 3,776 $ 4,200 $ 4,405 $ 4,776 $ 3,791 $ 4,607
EXTRAORDINARY ITEMS AND MINORITY INTERESTS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
------- ------- ------- ------- ------- -------
NET INCOME $ 3,776 $ 4,200 $ 4,405 $ 4,776 $ 3,791 $ 4,607
======= ======= ======= ======= ======= =======
MEMO ITEMS - FROM FRY-9C FILING:
NET INTEREST INCOME - TAXABLE EQUIVALENT $10,217 $11,134 $11,928 $13,239 $14,144 $13,836
Note: Net Interest Income (TE) from FRY 9-C filings.
TABLE 4.4
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY YEAR
--------------------------------------------------------------------------------
1999Y 2000Y 2001Y 2002Y 2003Y 2004Y
-------- -------- -------- -------- -------- --------
OTHER FINANCIAL INFORMATION
COMMON DIVIDENDS $ 1,250 $ 1,350 $ 1,560 $ 1,800 $ 1,902 $ 1,867
PREFERRED DIVIDENDS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
EFFECTIVE TAX RATE 31.85% 31.86% 30.71% 31.16% 28.11% 29.65%
FULL-TIME EQUIVALENT EMPLOYEES 87 85 86 88 90 92
LOAN LOSS RESERVE RECONCILIATION
BEGINNING OF PERIOD RESERVE $ 1,911 $ 1,905 $ 1,911 $ 1,960 $ 2,105 $ 2,432
-------- -------- -------- -------- -------- --------
ADD: PROVISION FOR LOAN LOSSES $ 130 $ 177 $ 177 $ 436 $ 2,907 $ 676
LESS: LOSSES CHARGED TO RESERVE $ 159 $ 203 $ 182 $ 356 $ 2,608 $ 654
ADD: RECOVERIES $ 23 $ 32 $ 54 $ 65 $ 28 $ 64
ADJUSTMENTS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- -------- --------
NET LOAN LOSSES $ 136 $ 171 $ 128 $ 291 $ 2,580 $ 590
END OF PERIOD RESERVE $ 1,905 $ 1,911 $ 1,960 $ 2,105 $ 2,432 $ 2,518
MARKET VALUE OF SECURITIES PORTFOLIO $ 40,661 $ 39,685 $ 38,221 $ 40,012 $ 33,085 $ 31,979
NONPERFORMING LOANS
90+ DAYS PAST DUE AND ACCRUING INTEREST $ 442 $ 668 $ 1,649 $ 1,133 $ 1,444 $ 452
NONACCRUAL LOANS $ 244 $ 319 $ 383 $ 572 $ 1,462 $ 728
-------- -------- -------- -------- -------- --------
TOTAL NONPERFORMING LOANS $ 686 $ 987 $ 2,032 $ 1,705 $ 2,906 $ 1,180
OTHER REAL ESTATE OWNED $ 76 $ 42 $ 42 $ 141 $ 358 $ 1,040
-------- -------- -------- -------- -------- --------
TOTAL NONPERFORMING ASSETS $ 762 $ 1,029 $ 2,074 $ 1,846 $ 3,264 $ 2,220
EARNINGS AND PROFITABILITY
PERCENT OF AVERAGE ASSETS
NET INTEREST INCOME (TE) 4.33% 4.22% 4.15% 4.31% 4.14% 3.87%
TAX EQUIVALENT ADJUSTMENT 0.08% 0.09% 0.10% 0.09% 0.16% 0.15%
NET INTEREST INCOME 4.25% 4.13% 4.05% 4.22% 3.97% 3.71%
PROVISION: LOAN/LEASE LOSSES 0.06% 0.07% 0.06% 0.14% 0.85% 0.19%
NET INTEREST INCOME AFTER PROVISION 4.19% 4.06% 3.99% 4.08% 3.12% 3.53%
NONINTEREST INCOME 0.60% 0.59% 0.51% 0.49% 0.44% 0.52%
OVERHEAD EXPENSE 2.45% 2.32% 2.29% 2.31% 2.02% 2.22%
SUBTOTAL 2.35% 2.34% 2.21% 2.26% 1.54% 1.83%
SECURITIES GAINS (LOSSES) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
INCOME BEFORE TAXES 2.35% 2.34% 2.21% 2.26% 1.54% 1.83%
APPLICABLE INCOME TAXES 0.75% 0.74% 0.68% 0.70% 0.43% 0.54%
SUBTOTAL 1.60% 1.59% 1.53% 1.55% 1.11% 1.29%
EXTRAORDINARY ITEMS/MINORITY INTERESTS 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
NET INCOME - ROAA 1.60% 1.59% 1.53% 1.55% 1.11% 1.29%
RETURN ON AVERAGE EQUITY 16.38% 16.54% 15.27% 15.03% 11.77% 15.49%
MARGIN ANALYSIS
AVERAGE EARNING ASSETS TO AVERAGE ASSETS 93.64% 95.34% 95.54% 94.05% 93.67% 94.15%
AVERAGE INT-BEARING DEPOSITS TO AVERAGE ASSETS 76.19% 75.50% 75.78% 74.71% 68.30% 67.82%
INTEREST INCOME TO AVERAGE EARNING ASSETS 8.20% 8.46% 8.17% 7.22% 6.34% 6.01%
INTEREST EXPENSE TO AVERAGE EARNING ASSETS 3.66% 4.13% 3.93% 2.73% 2.10% 2.07%
NET INTEREST INCOME TO AVG. EARNING ASSETS 4.54% 4.33% 4.24% 4.49% 4.24% 3.95%
NET INTEREST INCOME (FTE) TO AVG. EARNING ASSETS 4.63% 4.42% 4.34% 4.58% 4.42% 4.11%
AVERAGE ASSETS $235,719 $263,919 $287,505 $307,147 $341,962 $357,948
AVERAGE EARNING ASSETS $220,719 $251,624 $274,688 $288,880 $320,309 $337,002
AVERAGE EQUITY $ 23,055 $ 25,399 $ 28,839 $ 31,775 $ 32,215 $ 29,748
TABLE 4.5
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY YEAR
--------------------------------------------------------------------------------
1999Y 2000Y 2001Y 2002Y 2003Y 2004Y
------- ------ ------ ------- ------- -------
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% 0.37% 0.39% 0.38% 0.34% 0.33%
OTHER OPERATING INCOME 0.23% 0.22% 0.12% 0.11% 0.10% 0.19%
EXPENSE COMPOSITION
PERSONNEL EXPENSE 1.31% 1.24% 1.16% 1.14% 0.93% 1.11%
OCCUPANCY EXPENSE 0.33% 0.32% 0.34% 0.33% 0.33% 0.26%
AMORTIZATION & OTHER OPERATING EXPENSE 0.81% 0.76% 0.78% 0.84% 0.76% 0.84%
------- ------ ------ ------- ------- -------
TOTAL OVERHEAD EXPENSE 2.45% 2.32% 2.29% 2.31% 2.02% 2.22%
NET OVERHEAD 1.85% 1.73% 1.78% 1.82% 1.58% 1.70%
EFFICIENCY RATIO 50.42% 49.17% 50.16% 49.08% 45.80% 52.36%
PERSONNEL EXPENSE
TOTAL ASSETS PER EMPLOYEE $ 2,840 $3,285 $3,551 $ 3,632 $ 3,930 $ 3,963
PERSONNEL EXPENSE PER EMPLOYEE (ANNUALIZED) $ 35 $ 39 $ 39 $ 40 $ 36 $ 43
INCOME STATEMENT GROWTH RATES (ANNUALIZED)
NET INTEREST INCOME 9.82% 8.84% 6.73% 11.46% 4.73% -2.13%
NET INTEREST INCOME - TAXABLE EQUIVALENT 9.64% 8.98% 7.13% 10.99% 6.84% -2.18%
LOAN LOSS PROVISION EXPENSE -58.73% 36.15% 0.00% 146.33% 566.74% -76.75%
NONINTEREST INCOME 9.44% 10.88% -6.18% 2.51% -0.13% 24.09%
OVERHEAD EXPENSE 14.77% 6.38% 7.22% 8.07% -2.73% 14.88%
PRE-TAX INCOME 9.14% 11.24% 3.13% 9.14% -24.00% 24.20%
NET INCOME 7.79% 11.23% 4.88% 8.42% -20.62% 21.52%
ASSETS, PERCENT OF ASSETS
REAL ESTATE LOANS 55.54% 58.61% 53.43% 56.70% 62.71% 63.52%
COMMERCIAL & INDUSTRIAL LOANS 7.89% 8.48% 8.10% 8.07% 7.11% 7.23%
INSTALLMENT LOANS 8.45% 8.53% 7.74% 8.08% 7.87% 6.88%
AGRICULTURAL LOANS 3.57% 3.07% 3.14% 3.93% 3.13% 2.47%
ALL OTHER LOANS 0.24% 0.98% 0.84% 0.89% 0.79% 0.71%
TOTAL LOANS (NET OF UNEARNED INCOME) 75.72% 79.67% 73.26% 77.67% 81.60% 80.81%
LESS: LOSS RESERVE 0.77% 0.68% 0.64% 0.66% 0.69% 0.69%
NET LOANS AND LEASES 74.95% 78.99% 72.62% 77.01% 80.92% 80.12%
INTEREST BEARING BANK BALANCES 0.01% 0.01% 0.02% 0.02% 0.17% 0.00%
FEDERAL FUNDS SOLD & RESALES 1.21% 0.00% 5.44% 2.61% 2.44% 4.45%
INVESTMENT SECURITIES 16.46% 14.21% 12.52% 12.52% 9.35% 8.77%
TOTAL EARNING ASSETS 93.40% 93.90% 91.22% 92.82% 93.57% 94.03%
NONINTEREST CASH & DUE FROM BANKS 4.23% 3.69% 4.43% 4.32% 3.72% 3.42%
PREMISES, FIXED ASSETS, CAPITAL LEASES 1.70% 1.59% 1.42% 1.36% 1.09% 0.99%
OTHER REAL ESTATE OWNED 0.03% 0.02% 0.01% 0.04% 0.10% 0.29%
OTHER ASSETS 1.41% 1.50% 3.55% 2.12% 2.21% 1.95%
TABLE 4.6
MERCHANTS BANCORP, INCORPORATED
HISTORICAL PERFORMANCE ($000)
BY YEAR
--------------------------------------------------------------------------------
1999Y 2000Y 2001Y 2002Y 2003Y 2004Y
-------- -------- -------- -------- -------- --------
LIABILITIES, PERCENT OF ASSETS
DEMAND DEPOSITS 10.13% 9.37% 10.22% 9.45% 8.96% 9.55%
NOW & SUPER NOW DEPOSITS 17.87% 16.55% 19.32% 19.95% 18.28% 17.41%
-------- -------- -------- -------- -------- --------
TOTAL TRANSACTION ACCOUNTS 28.00% 25.92% 29.55% 29.39% 27.23% 26.97%
MMDA & OTHER SAVINGS DEPOSITS 9.31% 8.37% 8.83% 11.89% 12.39% 12.73%
TIME DEPOSITS < $100,000 38.39% 38.95% 36.50% 31.86% 27.70% 28.83%
TIME DEPOSITS > $100,000 11.65% 10.52% 10.03% 8.54% 8.42% 9.41%
FEDERAL FUNDS PURCHASED & REPURCHASE AGREEMENT 0.98% 3.20% 1.55% 1.56% 1.50% 1.83%
BORROWINGS 1.62% 2.51% 2.94% 5.47% 12.36% 10.95%
SUBORDINATED NOTES AND DEBENTURES 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
OTHER LIABILITIES 0.50% 0.82% 0.70% 0.81% 2.43% 0.85%
TOTAL LIABILITIES 90.46% 90.29% 90.10% 89.52% 92.02% 91.56%
MINORITY INTEREST 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
ALL COMMON & PREFERRED CAPITAL 9.54% 9.71% 9.90% 10.48% 7.98% 8.44%
TOTAL LIABILITIES AND CAPITAL 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
BALANCE SHEET GROWTH RATES (ANNUALIZED)
TOTAL LOANS & LEASES 10.75% 18.89% 0.58% 10.97% 16.26% 2.06%
TOTAL ASSETS 8.25% 12.99% 9.39% 4.67% 10.66% 3.07%
TOTAL DEPOSITS 12.21% 8.35% 10.87% 0.70% 2.61% 6.05%
ASSET QUALITY
AVERAGE TOTAL LOANS $176,847 $210,314 $225,113 $235,281 $270,685 $290,723
NET LOAN LOSS TO AVERAGE TOTAL LOANS AND LEASES 0.08% 0.08% 0.06% 0.12% 0.95% 0.20%
PROVISION FOR LOAN LOSS TO AVERAGE TOTAL LOANS AND LEASES 0.07% 0.08% 0.08% 0.19% 1.07% 0.23%
LOSS RESERVE TO NET LOANS AND LEASES 1.03% 0.87% 0.88% 0.86% 0.85% 0.86%
NONPERFORMING LOANS TO TOTAL LOANS AND LEASES:
90+ DAYS PAST DUE 0.24% 0.30% 0.74% 0.46% 0.50% 0.15%
NONACCRUAL 0.13% 0.14% 0.17% 0.23% 0.51% 0.25%
TOTAL NONPERFORMING LOANS 0.37% 0.44% 0.91% 0.69% 1.01% 0.40%
LLR/NONPERFORMING LOANS 277.70% 193.62% 96.46% 123.46% 83.69% 213.39%
OREO AS A % OF TOTAL ASSETS 0.03% 0.02% 0.01% 0.04% 0.10% 0.29%
NONPERFORMING ASSETS AS A % OF TOTAL ASSETS 0.31% 0.37% 0.68% 0.58% 0.92% 0.61%
CAPITAL ADEQUACY
CORE LEVERAGE RATIO (TANGIBLE) 9.72% 9.71% 9.92% 10.29% 7.74% 8.31%
RISK BASED CAPITAL RATIOS:
TIER 1 13.99% 13.30% 14.22% 13.85% 10.47% 11.36%
TOTAL 15.10% 14.24% 15.16% 14.74% 11.39% 12.30%
COMMON DIVIDEND PAYOUT RATIO 33.10% 32.14% 35.41% 37.69% 50.17% 40.53%
AVERAGE ASSETS (CAPITAL CALCULATION) $246,955 $276,540 $299,388 $317,623 $355,989 $364,855
RISK BASED ASSETS $171,625 $201,949 $208,890 $236,056 $263,433 $266,931
TIER 1 CAPITAL $ 24,011 $ 26,854 $ 29,705 $ 32,682 $ 27,571 $ 30,311
QUALIFYING TRUST PREFERRED SECURITIES IN TIER 1 CAPITAL $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
TIER 2 CAPITAL $ 1,905 $ 1,911 $ 1,960 $ 2,109 $ 2,433 $ 2,518
OTHER TIER 2 CAPITAL COMPONENTS (EXCLUDING LLR) $ 1,905 $ 0 $ 0 $ 4 $ 1 $ 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 75.72% 79.67% 73.26% 77.67% 81.60% 80.81%
TOTAL LOANS AND LEASES TO DEPOSITS 86.68% 95.11% 86.29% 95.09% 107.74% 103.69%
VOLATILE LIABILITIES $ 35,217 $ 45,300 $ 44,355 $ 49,764 $ 78,805 $ 80,872
CASH, FEDERAL FUNDS & INVESTMENT SECURITIES $ 54,141 $ 50,011 $ 68,395 $ 62,215 $ 55,479 $ 60,703