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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
Merchants Bancorp, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
- --------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
3) Filing Party:
- --------------------------------------------------------------------------------
4) Date Filed:
- --------------------------------------------------------------------------------
PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
MERCHANTS BANCORP, INC.
HILLSBORO, OH 45133
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 25, 2006
The annual meeting of shareholders of Merchants Bancorp, Inc. (the
"Company") will be held at the Wooden Spoon Restaurant, 1480 North High Street,
Hillsboro, Ohio 45133, on Tuesday, April 25, 2006 at 10:00 a.m., for the purpose
of considering and acting upon the following:
1. To elect members of Class III of the Board of Directors as recommended by
the Board of Directors and designated in the attached Proxy Statement;
2. To transact such other business as may properly come before the meeting or
any adjournment thereof.
The Board of Directors has fixed March 22, 2006 as the record date for the
determination of shareholders entitled to notice of and to vote at the annual
meeting. As of the record date there were 2,559,886.50 shares of the Company's
no par value common stock outstanding. The stock transfer books of the Company
will not be closed prior to the meeting.
A copy of the Company's Annual Report, which includes the Company's audited
Balance Sheets as of December 31, 2005 and 2004, the related audited Statements
of Income, Statements of Changes in Shareholders' Equity, and Statements of Cash
Flows for each of the three years ended December 31, 2005, is enclosed.
By order of the Board of Directors,
/S/ James D. Evans
----------------------------------------
James D. Evans
Secretary
YOUR VOTE IS IMPORTANT, EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOU MAY
REVOKE YOUR EXECUTED PROXY AT ANY TIME BEFORE IT IS EXERCISED BY NOTIFYING THE
SECRETARY OF THE COMPANY OF YOUR INTENTION AT OR PRIOR TO THE MEETING. IF YOUR
STOCK IS HELD IN MORE THAN ONE (1) NAME, ALL PARTIES MUST SIGN THE PROXY FORM.
1
Merchants Bancorp, Inc.
PROXY STATEMENT
This Proxy Statement is furnished to the shareholders of Merchants Bancorp,
Inc. (the "Company") in connection with the solicitation of proxies to be used
in voting at the annual meeting of shareholders of the Company to be held on
April 25, 2006 at the Wooden Spoon Restaurant, 1480 North High Street,
Hillsboro, Ohio 45133, commencing at 10:00 a.m. The enclosed proxy is solicited
by the Board of Directors and Officers (hereinafter sometimes referred to as
"Management") of the Company. Merchants Bancorp, Inc. is the sole shareholder of
Merchants National Bank, Hillsboro, Ohio (the "Bank"). As a holder of Company
common stock, you have the right to attend the annual meeting of shareholders
and vote your shares as you wish. This Proxy Statement and the enclosed form of
proxy is first sent or delivered to the Company's shareholders on or about March
30, 2006, and the Company is bearing all costs in connection with this
solicitation.
ELECTION OF DIRECTORS AND VOTING PROCEDURES
Shareholders of record on March 22, 2006 are entitled to vote on the
election of the Class III Directors. The shares represented by the accompanying
proxy will be voted as directed if the proxy is properly signed and received by
the Company prior to the annual meeting. Any proxy not designating a vote for,
against or an abstention from any particular proposal will be voted for the
proposal in accordance with Management's recommendations. All shareholders
choosing to give Management their proxies should send their completed proxy form
to the Company in the stamped, self-addressed envelope that is enclosed with
this Proxy Statement. Shareholders have the power to revoke their proxy at any
time prior to the vote by (a) attending the meeting or any adjournment thereof
and advising the Secretary of the Board of Directors of the Company (the
"Secretary") of your intent to vote the shares; (b) by delivering notice in
writing to the Secretary of the revocation of your proxy; or (c) by executing
and delivering a subsequently executed proxy. Unless you revoke your proxy in
one of the manners described above, the proxy holders have the authority to vote
the shares for which the proxy is given at the meeting as scheduled and at any
adjournment thereof.
The Company's Articles of Incorporation currently authorize 4,500,000
Common Shares, all of which are without par value. As of March 22, 2006,
2,559,886.50 of these Common Shares were issued and outstanding. Each Share of
Common Stock of the Company entitles the holder thereof to one (1) vote on all
matters, except with respect to the election of directors, and a majority of the
votes cast at a meeting of the shareholders will decide every question or matter
submitted to the shareholders, unless as otherwise expressly required by Ohio
law or by the Company's Articles of Incorporation. With respect to the election
of directors, shareholders are entitled to vote their shares cumulatively,
provided that notice of this intention is given by any shareholder of the
Company to the President, the Secretary or any Vice President of the Company not
less than 48 hours before the time fixed for holding a meeting of the
shareholders for the purpose of electing directors. In the event that a
complying notice is provided to the Company, the Secretary shall announce the
availability of cumulative voting upon the convening of the meeting of the
shareholders. If cumulative voting is permitted, each shareholder voting
cumulatively may cast the number of shares he owns times the number of Directors
to be elected in favor of one nominee or allocate such votes among all of the
nominees as he or she determines. The discretionary authority to vote any and
all shares cumulatively on behalf of shareholders submitting proxies in
connection with the Annual Meeting is provided under the Form of Proxy attached
hereto.
In accordance with the Company's Code of Regulations, the Board of
Directors, which currently consists of nine (9) membership positions, is
staggered into three separate classes, designated as Class I,
2
Class II and Class III. Each class consists of approximately one-third of the
total number of directors as fixed from time-to-time by the Directors or the
shareholders. Directors serve staggered three-year terms, so that directors of
one class are elected at each annual meeting of shareholders. Consequently, the
term of office of one class expires each year. Shareholders will elect the Class
III Directors at the forthcoming Annual Meeting, whose term will then expire in
the year 2009. The nominees for election to Class III are Messrs. Donald Fender,
Jr., Richard S. Carr and James D. Evans. Proxies in the form solicited hereby
which are returned to the Company will be voted in favor of the three (3)
nominees specified above unless otherwise instructed by the shareholder, and
such proxies cannot be voted for a greater number of persons than the number of
nominees named herein. Abstentions and shares not voted by brokers and other
entities holding shares on behalf of beneficial owners will not be counted and
will have no effect on the outcome of the election. The nominees receiving the
three (3) highest totals of votes cast in the election will be elected as
Directors.
The following table set forth information with respect to nominees for
election to Class III of the Board of Directors at the forthcoming Annual
Meeting, each of whom, with the exception of James D. Evans, is a nominee for
re-election. Also included below is information regarding incumbent Directors in
Classes I and II of the Board of Directors who are not nominees for re-election
at the Annual Meeting.
NAME AND AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
------------ -------------------- --------------
CLASS III DIRECTORS (TERM EXPIRES 2009)
Donald Fender, Jr., 67 Realtor 1972
Richard S. Carr, 59 Farmer and Vice President of Five 2002
Points Implement, a farm equipment
company
James D. Evans, 56 Executive Vice President and Secretary First-time
of the Company and the Bank Nominee
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
EACH OF THE NOMINEES TO CLASS III OF THE BOARD OF DIRECTORS
CLASS II DIRECTORS (TERM EXPIRES 2008)
William Butler, 69 President, Union Stock Yards 1983
Christopher L. Walker, 37 Owner/President, Walker Real Estate 2006*
Consultants, LLC
Jack Walker, 77 Retired - Insurance Consultant 1974
CLASS I DIRECTORS (TERM EXPIRES 2007)
Paul W. Pence, Jr., 54 President and CEO of the Company and 1981
the Bank
James R. Vanzant, 58 Highland County Health Commissioner 1992
Veterinarian (part-time practice)
Robert Hammond, 62 Attorney, Sole Practitioner 1994
* Mr. Walker was appointed to the Board of Directors on February 28, 2006 to
fill a vacancy left by the passing of Charles Davis. Mr. Walker has also
been appointed to serve on the Audit Committee of the Board.
3
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's sole business activity is the operation of its subsidiary
banking operation, Merchants National Bank, sometimes hereinafter referred to
individually as the "Bank" or collectively with the Company as the "Company."
The Boards of Directors of the Bank and the Company are comprised of the same
persons at the present time. The Board of Directors of the Company conducts its
business through regular and special meetings. During the fiscal year ended
December 31, 2005, the Board of Directors of the Company held a total of 24
regular meetings. Each director of the Company attended at least 75 percent of
the total meetings of the Board and committees on which such Board member served
during this period. Neither the Board nor any committee thereof has implemented
a formal policy regarding director attendance at the Annual Meeting, although
such attendance is expected. Typically, the Board holds its annual organization
meeting directly following the Annual Meeting, which results in most directors
being able to the attend the Annual Meeting. In 2005, all Directors attended the
Annual Meeting.
The Board of Directors of the Company operates through standing Nominating
and Governance, Audit and Compensation Committees. The Nominating and Governance
Committee met 3 times in 2005. This Committee considers and proposes director
nominees to the full Board of Directors for election at the Annual Meeting;
selects candidates to fill Board vacancies as they may occur; makes
recommendations to the Board regarding Board committee memberships; and performs
any other functions or duties deemed appropriate. The Nominating and Governance
Committee is chaired by Mr. Hammond and otherwise includes Messrs. Fender and
Carr. The Committee operates under a written charter, a copy of which was
provided to shareholders as an appendix to the proxy materials delivered in
connection with our 2004 annual meeting. This charter is not available for
on-line viewing on any website of the Company or otherwise. Each member of the
Committee is independent in accordance with Rule 4200(A)(15) of the National
Association of Securities Dealers listing standards. While the Nominating and
Governance Committee will consider nominating persons recommended by
shareholders, it has not actively solicited recommendations from the Company's
shareholders for nominees nor established any procedures for this purpose. The
Committee has determined that based upon the Company's size and the
accessibility of the directors and executive management to the shareholders, no
such policy or procedures are presently required. However, shareholders may also
nominate persons for election to the Board of Directors by following the
procedures contained in the Company's Code of Regulations. These procedures are
discussed more thoroughly in this proxy statement under the section captioned
"Shareholder Proposals for Next Year's Annual Meeting of Shareholders." The
identification and evaluation of all candidates for nominee to the Board of
Director are undertaken on an ad hoc basis within the context of the
Corporation's strategic initiatives at the time a vacancy occurs on the Board.
In evaluating candidates, the Committee considers a variety of factors,
including the candidate's integrity, independence, qualifications, skills,
experience (including experiences in finance and banking), familiarity with
accounting rules and practices, and compatibility with existing members of the
Board. Other than the foregoing, there are no stated minimum criteria for
nominees, although the Committee may consider such other factors as it may deem
at the time to be in the best interest of the Company and its shareholders,
which factors may change from time to time.
The Audit Committee has been established by and amongst the Board of
Directors for the purpose of overseeing the accounting and financial reporting
process of the issuer and audits of the financial statements of the issuer. This
Committee, which met 9 times during 2005, is currently comprised of the
following seven (7) directors: Donald Fender, Jr.; Richard S. Carr; James R.
Vanzant; Robert Hammond; William Butler; Jack Walker; and Christopher L. Walker,
each of whom is independent in accordance with Rule 4200(A)(15) of the National
Association of Securities Dealers listing standards. Christopher Walker was
appointed to the Audit Committee to fill a vacancy left by the passing of
Charles Davis in 2005. This Committee also operates under a written charter, a
copy of which
4
was provided to shareholders as an appendix to the proxy materials delivered in
connection with our 2004 annual meeting. Pursuant to its charter, the Committee
is vested with the exclusive authority to approve and retain the independent
auditor with respect to all audit and permissible non-audit services provided
thereby. In fulfilling its oversight duties, this Committee reviews with the
auditors the plan and scope of the audit and audit fees; reviews the guidelines
established for the dissemination of financial information; meets periodically
with the independent and internal auditors, the Board and management to monitor
the adequacy of reporting, internal controls and compliance with Company
policies; reviews consolidated financial statements; and performs any other
functions or duties deemed appropriate by the Board.
The Compensation Committee, which met 1 time during 2005, is comprised of
the following three (3) nonemployee, independent directors: Donald Fender, Jr.;
James R. Vanzant; and William Butler. An overview of the functions performed by
the Compensation Committee is provided below as part of the Report of the
Compensation Committee.
AUDIT COMMITTEE REPORT
Management is responsible for the Company's internal controls and the
financial reporting process. The independent accountants are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and to issue
a report thereon. The Committee's responsibility is to monitor and oversee the
processes.
In this context, the Committee has met and held discussions with management
and the independent accountants. Management represented to the Committee that
the Company's consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the Committee has reviewed and
discussed the consolidated financial statements with management and the
independent accountants. The Committee discussed with the independent
accountants matters required to be discussed by SAS 61 (communication with Audit
Committees).
The Committee has also received the written disclosures and the letter from
the independent accountants required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees), and the Committee
discussed with the independent accountants that firm's independence. The
Committee has considered whether the provision of non-audit services by the
independent accountants to the Company and its subsidiaries is compatible with
maintaining the independence of the independent accountants.
Based upon the Committee's discussion with management and the independent
accountants and the Committee's review of the representations of management and
the report of the independent accountants to the Committee, the Committee
recommended that the Board of Directors include the audited consolidated
financial statements in the Company's Annual Report to shareholders for the year
ended December 31, 2005. As a result of completing its going-private transaction
on February 1, 2006, the Company did not file an Annual Report on Form 10-K for
the year ended December 31, 2005 with the Securities and Exchange Commission.
THIS REPORT IS SUBMITTED BY THE AUDIT COMMITTEE MEMBERS:
DONALD FENDER, JR.; RICHARD S. CARR; JAMES R. VANZANT; ROBERT HAMMOND;
WILLIAM BUTLER; JACK WALKER; AND CHRISTOPHER L. WALKER
5
INDEPENDENT PUBLIC ACCOUNTANT
The Board of Directors has selected the firm of Deloitte & Touche LLP to
continue to serve as its independent public accountant for the current fiscal
year. Representatives of Deloitte & Touche LLP do not currently intend to be
present in person at the annual meeting of shareholders, but may otherwise be
available by telephone, if necessary. If present, however, they will have the
opportunity to make a statement if they desire to do so and will also be
available to respond to any appropriate questions. Deloitte & Touche LLP billed
the aggregate fees shown below for audit, audit related, tax, and all other
services rendered to the Company and its subsidiary for each of the last two
fiscal years. Audit fees for both years include fees billed in connection with
the audit of the Company's annual financial statements, as well as fees billed
for the review of the unaudited financial statements contained in the Company's
periodic reports on Form 10-Q filed with the Securities and Exchange Commission.
Fees listed under "Audit-Related Fees" for 2004 relate primarily to assurances
provided to the Company in connection with the audit. "All Other Fees" in 2005
represent audit work relating to Sarbanes Oxley compliance and work conducted in
connection with the completion of the going-private transaction. "All Other
Fees" for 2004 represent audit work relating to Sarbanes Oxley compliance. Tax
fees for 2004 and 2005 include fees billed in connection with general tax
preparation assistance.
2005 2004
-------- --------
AUDIT FEES $119,000 $129,900
AUDIT-RELATED FEES $ -- $ 6,100
TAX FEES $ 19,365 $ 15,800
ALL OTHER FEES $ 15,285 $ 10,150
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
To the Company's knowledge, except as noted below, no person or entity owns
beneficially, directly or indirectly, 5 percent or more of the Company's common
stock as of March 30, 2006.
Amount and Nature of % of
Name and Address of Beneficial Owner Beneficial Ownership Class
- ------------------------------------ -------------------- ------
Paul W. Pence, Jr. 148,695 Shares(1) 5.81%
100 North High Street
Hillsboro, Ohio 45133
Donald E. Fender, Jr. 407,000 Shares(2) 15.90%
221 North High Street
Hillsboro, Ohio 45133-1179
- ----------
(1) Includes 142,150 shares held in a trust for which Mr. Pence serves as
trustee, and 6,545 shares held individually by Mr. Pence.
(2) Includes 377,000 shares held in a trust for which Mr. Fender serves as
trustee, and 30,000 shares held jointly by Mr. Fender with his spouse.
6
MANAGEMENT
The following table sets forth, as of March 30, 2006, information as to the
beneficial ownership of the Company's Common Stock by each Director and Named
Executive Officer and All Directors and Executive Officers as a group.
SHARES OF COMPANY COMMON PERCENTAGE OF
NAME STOCK OWNED BENEFICIALLY BENEFICIAL OWNERSHIP
- ---- ------------------------ --------------------
William Butler (1) 42,800 1.67%
Jack Walker (2) 22,000 0.86%
Paul W. Pence, Jr. (3) 148,695 5.81%
James R. Vanzant 1,500 0.06%
Robert Hammond (4) 3,000 0.12%
Donald Fender, Jr. (5) 407,000 15.90%
James D. Evans (6) 12,304 0.48%
Richard S. Carr (7) 8,400 0.33%
Christopher L. Walker (8) 6,000 0.23%
ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP (9 PERSONS): 651,699 25.46%
(1) Includes 20,600 shares held in a trust for which Mr. Butler serves as
trustee, and 22,200 shares held in a trust for which Mr. Butler's spouse
serves as trustee.
(2) Includes 11,000 shares held in a trust for which Mr. Walker serves as
trustee, and 11,000 shares held in a trust for which Mr. Walker's spouse
serves as trustee.
(3) Includes 142,150 shares held in a trust for which Mr. Pence serves as
trustee, and 6,545 shares held individually by Mr. Pence.
(4) Includes 1,500 shares held individually by Mr. Hammond and 1,500 shares
held jointly by Mr. Hammond with his spouse
(5) Includes 377,000 shares held in a trust for which Mr. Fender serves as
trustee, and 30,000 shares held jointly by Mr. Fender with his spouse.
(6) Includes 12,304 shares held jointly by Mr. Evans with his spouse.
(7) Includes 2,700 shares held individually by Mr. Carr, 2,700 shares held
individually by Mr. Carr's spouse, and 3,000 shares held jointly by Mr.
Carr with his spouse.
(8) Includes 4,500 shares held in trusts for which Mr. Walker's spouse serves
as trustee, and 1,500 shares held in a trust for which Mr. Walker serves as
trustee.
EXECUTIVE COMPENSATION AND RELATED ITEMS
The following tables set forth information with respect to the Executive
Officers of the Company.
POSITIONS HELD WITH THE COMPANY AND PRESENT
NAME AND AGE BANK POSITION HELD SINCE
- ------------ ------------------------------------- -------------------
Paul W. Pence, Jr. President and Chief Executive Officer 1981
54
James D. Evans Executive Vice President 1987
56
Each individual has held the position noted during the past five years. The
term of each executive officer is subject to annual renewal by resolution of the
Board of Directors of the Company. The following remuneration table sets forth
all direct remuneration paid by the Bank during the last three
7
fiscal years to the Company's President and Chief Executive Officer and
Executive Vice President. No other officers' total compensation exceeded
$100,000 during the last three years.
SUMMARY COMPENSATION TABLE(3)
ANNUAL COMPENSATION
------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ---- -------- ------- ------------
Paul W. Pence, Jr. 2005 $166,841 $83,003 $ 9,530(1)
President and Chief 2004 $158,897 $92,160 $11,803
Executive Officer 2003 $151,330 $ 9,594 $12,314
James D. Evans 2005 $138,030 $68,670 $ 4,358(2)
Executive V.P. 2004 $131,458 $60,996 $ 3,763
2003 $125,198 $ 7,938 $ 3,756
- ----------
(1) This amount includes premiums for term-life insurance in the amount of
$314, health insurance premiums for Mr. Pence and his immediate family in
the amount of $6,624, long-term disability insurance premiums in the amount
of $857, and Company contributions to its 401(k) plan on behalf of Mr.
Pence in the amount of $1,735.
(2) This amount includes premiums for term-life insurance in the amount of
$314, long-term disability insurance premiums in the amount of $1,243, and
Company contributions to its 401(k) plan on behalf of Mr. Evans in the
amount of $2,800.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
There are no employment or change in control contracts between the Company
and any of its named executive officers.
DEFINED BENEFIT PLAN DISCLOSURE
The Company has a defined benefit plan available for participation by all
employees of the Company. Each employee of the Bank who is at least 21 years of
age and has completed one year of "eligibility service" is entitled to
participate in the Plan, and all contributions become fully vested following
five years of service. Pursuant to the Plan, the Bank contributes to a separate
trust account on behalf of employees of the Bank an amount determined by an
independent actuary necessary to provide the benefits set forth in the Plan.
Benefits from the Plan become available to the employee upon retirement, or in
the event of death or disability. If employment is terminated prior to normal
retirement, the employee receives all "vested" contributions based upon an
established vesting schedule.
8
YEARS OF CREDITED SERVICE
AVERAGE ANNUAL ---------------------------------------------------
SALARY 10 15 20 25 30 35
- -------------- ------ ------ ------ ------ ------ ------
$ 10,000 900 1,350 1,800 2,250 2,700 3,150
$ 25,000 2,250 3,375 4,500 5,625 6,750 7,875
$ 50,000 5,186 7,779 10,372 12,965 15,558 18,151
$ 75,000 9,061 13,592 18,122 22,653 27,183 31,714
$100,000 12,936 19,404 25,872 32,340 38,808 45,276
$125,000 16,811 25,217 33,622 42,028 50,433 58,839
$150,000 20,686 31,029 41,372 51,715 62,058 72,401
$175,000 24,561 36,842 49,122 61,403 73,683 85,964
$200,000 28,436 42,654 56,872 71,090 85,308 99,526
$250,000 28,436 42,654 56,872 71,090 85,308 99,526
Compensation covered under the Plan includes the average of the taxable
wage bases in effect under Section 230 of the Social Security Act for each year
in the 35-year period ending with the year in which the Plan member attains his
social security retirement age. In determining a Plan member's covered
compensation for any Plan year, the taxable wage base for the current Plan year
and any subsequent Plan year shall be assumed to be the same as the taxable wage
base in effect as of the beginning of the Plan year for which the determination
is made.
Benefits for unmarried individuals are calculated on a straight-annuity
amount, and benefits for married individuals are in the form of a qualified
joint and survivor annuity of equivalent actuarial value to the pension
otherwise payable, providing for a reduced pension payable to the plan member
during his life, and after his death providing that one-half of that reduced
pension will continue to be paid during the life of, and to, the spouse to whom
he was married. Optional structures for benefit calculations are available to
Plan members pursuant to the Plan, subject to certain restrictions. Benefits are
not subject to reduction for social security or other offset amounts.
Credited service under the plan for Paul W. Pence, Jr. at the end of 2005
was 25 years, and credited service under the plan for James D. Evans at the end
of 2005 was 19 years.
COMPENSATION OF DIRECTORS
Directors are paid an annual retainer of $9,000, $400 per Regular Meeting
of the Board of Directors (held twice per month), $300 for each Special Meeting
of the Board of Directors, if any, and $300 for each Committee Meeting attended.
Directors of the Company are permitted, at their election, to defer some or
all of their retainer and meeting fee compensation pursuant to the Merchants
National Bank Directors' Deferred Compensation Plan. This plan provides an
avenue for members of the Board of Directors to accumulate additional retirement
income by making elective contributions into an unfunded, nonqualified deferred
compensation plan.
9
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION AND CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
During the last fiscal year, the following individuals served as members of
the Compensation Committee: Donald Fender, Jr., William Butler and James R.
Vanzant. Some of the Directors who served on the Compensation Committee, and the
companies with which they are associated, were customers of and have had banking
transactions with the Bank in the ordinary course of the Bank's business in the
past and up to the present time. All loans and commitments for loans included in
such transactions were made on substantially the same terms including interest
rates and collateral as were prevailing at the time for comparable transactions
with other persons. In the opinion of the Board of Directors of the Bank, these
loans and commitments for loans do not involve more than a normal risk of
collectibility or present other unfavorable features. Additionally, other
directors, officers and principal shareholders of the Company and/or the Bank
and the companies with which they are associated were customers of and have had
similar banking transactions with the Bank in the ordinary course of the Bank's
business. All such loans and commitments for loans included in such transactions
were made on substantially the same terms, including interest rates and
collateral, as were prevailing at the time for comparable transactions with
other persons. In the opinion of the Board of Directors of the Bank, these loans
and commitments for loans do not involve more than a normal risk of
collectibility or present other unfavorable features. The Company and the Bank
expect to engage in similar banking transactions with directors, officers and
principal shareholders in the future, as well.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Company, with respect to all employees,
has the responsibility of implementing the compensation policies and practices
as established by the Board of Directors. At the direction of the Board of
Directors, the Compensation Committee has prepared the following report
regarding executive compensation.
Compensation Philosophy - The employee compensation program of the Company
has been designed to:
- - Support a policy that rewards all employees for positive corporate
performance;
- - Motivate all employees to advance the strategic business goals of the
Company; and
- - Provide competitive compensation opportunities that allow the Company to
compete for and retain talented employees who are critical to the Company's
long-term success.
The Compensation Committee annually evaluates the performance and considers
compensation adjustments for all employees. The President and Executive Vice
President present recommended hourly and salaried employees compensation
adjustments to the committee.
The executive officers review with the committee the performance for the
prior year of key officers of the company. At this time, individual improvement
and development needs and job targets for the coming year for the key officers
are discussed with the committee.
A critical function of the Compensation Committee is to conduct reviews,
assemble compensation survey data and make a recommendation to the full Board of
Directors regarding executive compensation. The Compensation Committee then
presents to the Board of Directors a report on recommended adjustments in the
level of compensation and benefits for executive officers and for all employees.
Final disposition of these recommendations of the committee rests solely with
the
10
Company's Board of Directors. The primary compensation for the named executive
officers is comprised of three principal components: (1) salary; (2)
distributions pursuant to the Company's Profit Sharing Bonus Plan; and (3)
compensation deferrals under the Company's Executive Investment Plan.
Salary. It is the Compensation Committee's policy that a competitive base
salary is essential in order to retain quality executive personnel. The salary
for each named executive officer is determined annually based upon the
Committee's consideration of two primary factors: competitive compensation
levels; and individual performance. As a method for determining competitive
salary levels, the Committee reviews various reports of peer data and
compensation surveys sponsored by trade and consulting groups within the
financial services industry. The reports and surveys utilized by the Committee
generally break down overall compensation data into subcategories based upon the
relative asset size of the various respondent institutions. The Committee
primarily utilizes the compensation data within its respective asset category.
For purposes of salary determinations made for the previous year, the reports
and surveys included the following: the 2005 Compensation & Benefits Survey
compiled by the Ohio Bankers League and the Illinois Bankers Association; the
Crowe, Chizek and Company LLP 2005 Financial Institution Compensation Survey
compiled on behalf of the Community Bankers Association of Ohio; and the Delves
Group BAI 2005 Key Executive Total Compensation Survey (East-North Central
Region data). Based upon an analysis of the report data, the Committee
determines an appropriate competitive salary range for each named executive
officer. The exact placement of each named executive officer within the
pre-established range is determined by a final subjective evaluation by the
Committee of the performance of the executive during the prior year. Following
this review and determination process, the Committee submits its salary
recommendations to the full Board of Directors, which retains authority to
review and approve all compensation recommendations made by the Committee.
Profit Sharing Bonus Plan. It is the Compensation Committee's policy that a
significant portion of employee compensation should be payable annually in the
form of a bonus based principally upon the overall financial performance of the
Company.
The Company adopted its Profit Sharing Bonus Plan in May, 1988. This plan
is based on a formula using the company's return on equity to establish a "bonus
pool" which is distributed among all eligible full and part time employees. To
be eligible to participate, an employee must be employed on December 31st of the
plan year. To determine a participant's bonus payment under the plan, each
participant receives one "share" for every $100 of his or her gross earnings for
the calendar year. At the end of the year, the number of shares accumulated by
each employee are added together to compute the total number of shares
participating in the plan for that calendar year. The bonus pool is then
distributed to participants on a per share basis.
As a general matter, resolutions adopted by the full Board of Directors
effectively allow the named executive officers to participate in the Profit
Sharing Bonus Plan at higher levels than provided for general participants.
Additional compensation provided to the named executive officers pursuant to
these resolutions comes from outside of the general bonus pool, and these
functional modifications in no way affect amounts received by general
participants under the plan. Pursuant to these resolutions, Paul W. Pence, Jr.
and James D. Evans effectively participate in the Plan at 2.5 times the amount
calculated for each under the general formula of the Plan.
Executive Investment Plan. Effective January 1, 1997, the Company
implemented an Executive Investment Plan (the "EIP"). The EIP is structured as a
nonqualified deferred compensation plan, pursuant to which executive officers
and other key employees who occupy senior managerial and professional positions
with the Company are periodically granted options to purchase certain investment
securities purchased and held by the Company. As a condition to the grant of an
option, a participant may
11
be required to enter into a covenant not to compete with the Company or into an
agreement to remain in the employ of the Company for at least six months.
This plan is structured to defer recognition of taxable income by the
employee until the option is exercised. Pursuant to the EIP, options can be
exercised during a period ranging from six months after the date of grant, to,
in some cases, five years after the optionee's termination of employment.
However, individual grants made pursuant to the EIP may provide that the options
vest in periodic increments. Investment securities initially available for
purchase pursuant to the options consist of publicly traded mutual funds of
varying investment risk. However, once a specific grant becomes 60% vested,
participants are then permitted to redirect the investment from the
pre-established mutual funds into individual equity securities of their
choosing. Options granted under the EIP provide for an initial exercise price of
25% of the fair market value of the investment securities on the date of grant
and are periodically adjusted to maintain the exercise price at 25% of the
current fair market value. The fair market value of options vested during a
particular year over the periodically recalculated exercise price equals the
value of the compensation deferred for that year. No acquisitions of fund shares
subject to option under the EIP were approved for purchase during 2005.
Discussion of CEO Compensation - The Compensation Committee recommended, and the
Board approved, an increase of 5% in base compensation for the Company's Chief
Executive Officer for 2005, which resulted in a base salary for Mr. Pence of
$166,841. This increase reflected consideration of competitive data reported in
the compensation surveys discussed above and the Committee's subjective
assessment of the CEO and recognition of the Company's performance during 2004.
With respect to competitive compensation data reviewed by the Committee, it was
determined that the CEO's base salary for 2005 would fall around the median
level of total base salary reported by respondent institutions within the
relevant peer groups. All compensation granted to the CEO pursuant to the
Company's Profit Sharing Bonus Plan for fiscal year 2005, in the amount of
$83,003, was calculated in accordance with the formula provided under the plan
and the relevant resolutions of the Company's Board of Directors.
THIS REPORT ON COMPENSATION IS SUBMITTED BY THE COMPENSATION COMMITTEE MEMBERS:
DONALD FENDER, JR., CHAIRMAN, WILLIAM BUTLER AND JAMES R. VANZANT
12
PERFORMANCE GRAPH - FIVE-YEAR SHAREHOLDER RETURN COMPARISON
The following graph provides a comparative presentation of the Company's
cumulative five-year shareholder returns on an indexed basis with the NASDAQ
Bank Index and the Russell 2000. Specifically, the graph compares the value of
$100 invested at the close of business on December 31, 2000, in the Company's
stock, the NASDAQ Bank Index and the Russell 2000.
12/31/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005
---------- ---------- ---------- ---------- ---------- ----------
Merchants Bancorp, Inc. $100.0 $101.3 $ 90.2 $ 84.9 $ 83.7 $ 99.3
NASDAQ Bank** $100.0 $112.5 $120.4 $159.6 $181.1 $177.5
Russell 2000** $100.0 $102.5 $ 81.5 $120.0 $142.0 $148.5
(PERFORMANCE GRAPH)
* Total return assumes the reinvestment of dividends
** Source: Bloomberg
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership of Company stock, and certain changes in ownership, with the
Securities and Exchange Commission. Officers, directors and greater than ten
percent shareholders are required by regulation of the SEC to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the Company
or written representations that no Form 5s, (Annual Statement of Beneficial
Ownership of Securities) were required,
13
the Company believes that during 2005 all Section 16(a) filing requirements
applicable to its officers, Directors and ten percent beneficial owners were
satisfied.
SHAREHOLDER NOMINATIONS
The Company's Code of Regulations establishes advance notice procedures
which must be followed by persons (other than the board of directors) who wish
to nominate a candidate for election to the board of directors. In order to
nominate a director for election at a meeting of the shareholders, it is
necessary that you notify the Company in writing not fewer than 14, nor more
than 50, days prior to the meeting unless the Company provides shareholders less
than 21 days notice of the meeting. In such instances, notice of the nominations
must be delivered or mailed to the Company not later than the seventh day after
the notice of the meeting was mailed, or public disclosure of such meeting was
provided. In addition, the notice must meet all other requirements contained in
our Code of Regulations. Any shareholder who wishes to take such action should
obtain a copy of the Code of Regulations and may do so by written request
addressed to the Secretary of the Board of Directors at the principal executive
offices of the Company provided above.
The Board of Directors has not yet established a formal process for
shareholders to send communications to the Board. The Board of Directors has
determined that, in light of the general accessibility of the directors in the
community, no formal shareholder communication process is required at this time.
Nonetheless, shareholders are encouraged to send written communications
regarding the operation or governance of the Company to the attention of Paul W.
Pence, Jr., President, Chief Executive Officer and Board member, at the main
office of the Company.
OTHER MATTERS
The Board of Directors of the Company is not aware of any other matters
that may come before the meeting. However, the enclosed Proxy will confer
discretionary authority with respect to matters which are not known to the Board
of Directors at the time of printing hereof and which may properly come before
the meeting. A copy of the Company's 2005 annual report to shareholders is
provided herewith and is otherwise available without charge to shareholders.
Address all requests, in writing, for this document to Mr. Paul W. Pence,
President, Merchants Bancorp, Inc., 100 North High Street, Hillsboro, Ohio
45133. As a result of completing the "going-private" transaction on February 1,
2006, the Company is not required to file an annual report on Form 10-K with the
Securities and Exchange Commission for its fiscal year ended December 31, 2005.
By Order of the Board of Directors of
Merchants Bancorp, Inc.
/S/ James D. Evans
-------------------------------------
James D. Evans, Secretary
14
PROXY FOR ANNUAL MEETING OF
MERCHANTS BANCORP, INC.
HILLSBORO, OHIO
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned shareholder of
Merchants Bancorp, Inc., Hillsboro, Ohio, do hereby nominate, constitute, and
appoint Patrick Hays, Joseph P. West, Jr., or Bing Williamson, or any one of
them (with full power of substitution for me and in my name, place and stead) to
vote, including the right to vote cumulatively, all the common stock of said
Company, standing in my name on its books on March 22, 2006, at the Annual
Meeting of its shareholders to be held at the Wooden Spoon Restaurant, 1480
North High Street, Hillsboro, Ohio 45133, on April 25, 2006 at 10:00 a.m. (local
time), or any adjournments thereof with all the powers the undersigned would
possess if personally present as follows:
1. To elect three (3) members of Class III (term to expire 2009) to the Board
of Directors.
Nominees:
Donald Fender, Jr.
Richard S. Carr
James D. Evans
Withhold Authority to
For All Nominees Vote For all Nominees Withhold Authority to Vote For an Individual Nominee
---------------- --------------------- ----------------------------------------------------
(Except as marked to the contrary) TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, CHECK THE "FOR ALL NOMINEES" BOX AND STRIKE
[ ] [ ] A LINE THROUGH THE NAME(S) OF THE NOMINEE(S) FOR
WHOM AUTHORITY IS BEING WITHHELD.
2. To transact such other business as may properly come before the meeting or
any adjournment thereof.
THIS PROXY CONFERS AUTHORITY TO VOTE "FOR" THE ABOVE NOMINEES UNLESS OTHERWISE
MARKED. IF ANY OTHER BUSINESS IS PRESENTED AT SAID MEETING, THIS PROXY SHALL BE
VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF MANAGEMENT. ALL SHARES
REPRESENTED BY PROPERLY EXECUTED PROXIES WILL BE VOTED AS DIRECTED.
The Board of Directors recommends a vote "FOR" the the directors nominated by
the Board of Directors. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS and may be revoked prior to its exercise by either written notice or
personally at the meeting or by a subsequently dated proxy.
- ------------------------------------- ----------------------------------------
(STOCKHOLDER SIGNATURE) (DATE)
- ------------------------------------- ----------------------------------------
(STOCKHOLDER SIGNATURE) (DATE)
Please Print Name(s) ______________________________________
Please Print Number of Shares _________________________
(WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN, PLEASE
GIVE FULL TITLE. IF MORE THAN ONE TRUSTEE, ALL SHOULD SIGN. ALL JOINT OWNERS
MUST SIGN.)
PLEASE SIGN AND RETURN IMMEDIATELY IN THE ENCLOSED POSTPAID ENVELOPE WHETHER OR
NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.