Table of Contents
Registration No. 333-
Ohio (State or other jurisdiction of incorporation or organization) | 6022 (Primary Standard Industrial Classification Code Number) | 34-1585111 (IRS Employer Identification No.) |
(440) 632-1666
(Address, including ZIP code, and telephone number, including area code, of registrant’s principal executive offices)
Executive Vice President and Chief Operating Officer
Middlefield Banc Corp.
15985 East High Street, P.O. Box 35
Middlefield, Ohio 44062-9263
(440) 632-1666
(Name, address, including ZIP code, and telephone number, including area code, of agent for service)
Mr. Francis X. Grady | Mr. John C. Vorys | |
Grady & Associates | Vorys, Sater, Seymour and Pease LLP | |
20950 Center Ridge Road,Suite 100 | 52 East Gay Street | |
Rocky River,Ohio 44116-4307 | Columbus,Ohio 43215 | |
(440)356-7255 | (614)464-6400 |
Title of each class of | Proposed maximum | Proposed maximum | ||||||||||||
securities to be registered | Amount to be registered | offering price per share | aggregate offering price(1) | Amount of registration fee (1) | ||||||||||
common stock, no par value | 100,000 | N/A | $1,553,301.00 | $166.20 | ||||||||||
(1) | Calculated in accordance with Rule 457(f)(2) and (f)(3) based upon the December 31, 2006 $7.12 book value per share of the 732,689 shares of Emerald Bank common stock issued and outstanding on that date, which will be exchanged for a combination of cash and shares of Middlefield Banc Corp. common stock in the merger transaction, less the $3,663,445 estimated cash to be paid by Middlefield Banc Corp. in the merger transaction. |
Table of Contents
The information in this prospectus/proxy statement is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus/proxy statement is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
MIDDLEFIELD BANC CORP. | EMERALD BANK | |
PROSPECTUS | PROXY STATEMENT | |
for the issuance of up to [88,000] shares of Middlefield Banc Corp. common stock | for the Annual Meeting of Shareholders to be held on , 2007 at : , Eastern Standard Time |
Emerald Bank
6215 Perimeter Drive
Dublin, Ohio 43017
Table of Contents
15985 East High Street
P.O. Box 35
Middlefield, Ohio 44062
Attention: Mr. Donald L. Stacy
(440)632-1666
Table of Contents
6215 Perimeter Drive
Dublin, Ohio 43017
(614) 793-4631
to be held on , 2007
President and Chief Executive Officer
, 2007
Table of Contents
page | ||||
1 | ||||
4 | ||||
9 | ||||
12 | ||||
13 | ||||
15 | ||||
15 | ||||
16 | ||||
16 | ||||
16 | ||||
17 | ||||
18 | ||||
18 | ||||
18 | ||||
20 | ||||
27 | ||||
27 | ||||
28 | ||||
28 | ||||
30 | ||||
30 | ||||
30 | ||||
30 | ||||
31 | ||||
31 | ||||
32 | ||||
33 | ||||
34 | ||||
35 | ||||
36 | ||||
38 | ||||
38 | ||||
39 | ||||
39 | ||||
39 | ||||
39 | ||||
39 | ||||
39 | ||||
39 | ||||
40 | ||||
40 | ||||
40 | ||||
41 | ||||
41 |
i
Table of Contents
page | ||||||||
41 | ||||||||
42 | ||||||||
43 | ||||||||
43 | ||||||||
43 | ||||||||
44 | ||||||||
45 | ||||||||
45 | ||||||||
47 | ||||||||
47 | ||||||||
47 | ||||||||
48 | ||||||||
48 | ||||||||
57 | ||||||||
61 | ||||||||
62 | ||||||||
62 | ||||||||
64 | ||||||||
76 | ||||||||
89 | ||||||||
90 | ||||||||
90 | ||||||||
90 | ||||||||
90 | ||||||||
90 | ||||||||
90 | ||||||||
91 | ||||||||
Financial Statements of Middlefield Banc Corp | F-1 | |||||||
Appendix A Agreement and Plan of Merger, as amended | A-1 | |||||||
Appendix B Fairness Opinion of Ryan Beck & Co., Inc | B-1 | |||||||
Appendix C Dissenters’ Rights under Ohio Revised Code section 1701.85 | C-1 | |||||||
EX-5 | ||||||||
EX-23.1 | ||||||||
EX-23.2 | ||||||||
EX-99.1 | ||||||||
EX-99.2 |
ii
Table of Contents
1
Table of Contents
2
Table of Contents
3
Table of Contents
15985 East High Street
P.O. Box 35
Middlefield, Ohio 44062
(440) 632-1666
6215 Perimeter Drive
Dublin, Ohio 43017
(614) 793-4631
4
Table of Contents
- | a shareholder who makes the all-cash election will receive cash in an amount equal to the aggregate merger consideration divided by the number of shares outstanding when the merger occurs, | ||
- | a shareholder who makes the all-stock election will receive Middlefield shares based upon the exchange ratio, | ||
- | a shareholder who elects a combination of cash and Middlefield shares will receive (x) cash in an amount equal to the whole number of Emerald Bank shares the shareholder elects to exchange for cash multiplied by the per share cash consideration and (y) a number of Middlefield shares equal to the whole number of Emerald Bank shares the shareholder elects to exchange for Middlefield shares multiplied by the exchange ratio, and | ||
- | a shareholder who does not make an election between cash and stock and a shareholder who does not make a valid election will have made or will be deemed to have made a “non-election.” To ensure that one half of Emerald Bank’s shares are exchanged for cash and the other half for Middlefield shares, Emerald Bank shareholders who make or who are deemed to have made a non-election will receive all cash, all Middlefield shares, or a combination of cash and Middlefield shares as determined by Middlefield. |
5
Table of Contents
- | information about the businesses, earnings, operations, financial condition, prospects, capital levels, and asset quality of Emerald Bank and Middlefield, both individually and as a combined company, | ||
- | perceived risks and uncertainties associated with Emerald Bank’s execution of its strategic growth plans as an independent banking organization, including the need to access additional capital and enhance its product and service offerings to support future growth, | ||
- | the belief that the market value of Middlefield common stock is attractive, offering favorable prospects for future appreciation as a result of the proposed merger and other strategic initiatives being implemented by Middlefield, | ||
- | the fact that, in contrast to Middlefield stock, Emerald Bank common stock is privately held and a public market for the stock therefore does not exist, and | ||
- | the probability that the merger will be approved by the relevant bank regulatory authorities. |
- | management’s view that the acquisition of Emerald Bank provides an attractive opportunity to expand into the prosperous and growing communities north of Columbus, Ohio, | ||
- | Emerald Bank’s community banking focus, its commitment to superior customer service, and its compatibility with Middlefield and The Middlefield Banking Company, | ||
- | the probability that regulators will approve the merger without onerous conditions or delay. |
6
Table of Contents
7
Table of Contents
8
Table of Contents
9
Table of Contents
10
Table of Contents
11
Table of Contents
- | the strength of the United States economy in general and the strength of the local economies in which we conduct our operations; general economic conditions, either nationally or regionally, may be less favorable than we expect, resulting in a deterioration in the credit quality of our loan assets, among other things | ||
- | the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest-rate policies of the Federal Reserve Board | ||
- | inflation, interest rate, market, and monetary fluctuations | ||
- | the development and acceptance of new products and services of Middlefield and subsidiaries and the perceived overall value of these products and services by users, including the features, pricing, and quality compared to competitors’ products and services | ||
- | the willingness of users to substitute our products and services for those of competitors |
12
Table of Contents
- | the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities, and insurance) | ||
- | changes in consumer spending and saving habits |
As of and for the | As of and for the | |||||||
nine months ended | year ended | |||||||
September 30, 2006 | December 31, 2005 | |||||||
Earnings per share: Basic | ||||||||
Middlefield historical | $ | 1.93 | $ | 2.64 | ||||
Emerald Bank historical | (0.59 | ) | (1.07 | ) | ||||
Pro formacombined | 1.53 | 1.96 | ||||||
Equivalentpro formafor one share of Emerald Bank common stock (1) | 0.38 | 0.48 | ||||||
Earnings per share: Diluted | ||||||||
Middlefield historical | $ | 1.90 | $ | 2.60 | ||||
Emerald Bank historical | (0.59 | ) | (1.07 | ) | ||||
Pro formacombined | 1.51 | 1.93 | ||||||
Equivalentpro formafor one share of Emerald Bank common stock (1) | 0.37 | 0.48 | ||||||
Cash dividends declared per share | ||||||||
Middlefield historical | $ | 0.68 | $ | 0.87 | ||||
Emerald Bank historical | 0.00 | 0.00 | ||||||
Pro formacombined (2) | 0.64 | 0.75 | ||||||
Equivalentpro formafor one share of Emerald Bank common stock (1) (2) | 0.16 | 0.19 | ||||||
Book value per share | ||||||||
Middlefield historical | $ | 20.74 | $ | 19.25 | ||||
Emerald Bank historical | 7.44 | 8.00 | ||||||
Pro formacombined | 21.95 | 20.56 | ||||||
Equivalentpro formafor one share of Emerald Bank common stock (1) | 5.42 | 5.08 |
(1) | The Emerald Bank equivalentpro formainformation shows the effect of the merger from the perspective of an owner of Emerald Bank common stock. We calculated the Emerald Bank equivalent by using an assumed exchange ratio of 0.2471 shares of Middlefield common stock for each share of Emerald Bank common stock – the exchange that would apply if the average closing price of Middlefield stock during the averaging period is $42.00 per share – and assuming that 50% of the outstanding common stock of Emerald Bank is converted into |
13
Table of Contents
Middlefield stock. The actual exchange ratio will depend on the average closing price of Middlefield stock over the 20-trading day period before the merger occurs. The applicable formulas and other assumptions used to calculate the relevant exchange ratios are described under the heading “The Merger Agreement – Conversion of Emerald Bank shares” beginning on page ___ of this prospectus/proxy statement. We give you no assurance about what the market price of Middlefield common stock will be when the merger occurs or what the average closing price of Middlefield common stock will be when the exchange ratio is determined at completion of the merger. | ||
(2) | Assumes no changes in Middlefield’s cash dividends per share. Middlefield’s ability to pay dividends in the future is limited by restrictions imposed by Federal and state regulatory authorities. Please refer to Note 18 “Regulatory Restrictions” of Notes to Consolidated Financial Statements for a discussion of those restrictions. |
Cash dividends | ||||||||||||
High | Low | per share | ||||||||||
Year ended December 31, 2004 | ||||||||||||
first quarter | $ | 28.11 | $ | 26.35 | $ | 0.181 | ||||||
second quarter | 28.94 | 27.43 | 0.181 | |||||||||
third quarter | 31.10 | 28.51 | 0.190 | |||||||||
fourth quarter | 33.33 | 30.91 | 0.200 | |||||||||
Year ended December 31, 2005 | ||||||||||||
first quarter | $ | 37.65 | $ | 34.47 | $ | 0.200 | ||||||
second quarter | 40.82 | 34.47 | 0.200 | |||||||||
third quarter | 37.19 | 35.60 | 0.213 | |||||||||
fourth quarter | 39.05 | 35.83 | 0.224 | |||||||||
Year ended December 31, 2006 | ||||||||||||
first quarter | $ | 40.00 | $ | 37.64 | $ | 0.224 | ||||||
second quarter | 40.48 | 39.05 | 0.224 | |||||||||
third quarter | 40.95 | 39.05 | 0.229 | |||||||||
fourth quarter | 42.25 | 39.76 | 0.240 |
Number of securities | ||||||||||||
Number of | remaining available | |||||||||||
securities to be | for future issuance | |||||||||||
issued upon | Weighted-average | under equity | ||||||||||
exercise of | exercise price of | compensation plans | ||||||||||
outstanding | outstanding | (excluding | ||||||||||
options | options | outstanding options) | ||||||||||
Middlefield equity compensation plans approved by security holders | 73,607 | $ | 27.54 | 72,900 | ||||||||
Middlefield equity compensation plans not approved by security holders | 0 | $ | 0.00 | 0 | ||||||||
Total | 73,607 | 72,900 |
14
Table of Contents
Number of | Number of securities | |||||||||||
securities to be | remaining available for | |||||||||||
issued upon | average exercise | future issuance under | ||||||||||
exercise of | price of | equity compensation | ||||||||||
outstanding | outstanding | plans (excluding | ||||||||||
options | options | outstanding options) * | ||||||||||
Emerald Bank equity compensation plans approved by security holders | 39,075 | $ | 10.00 | 0 | ||||||||
Emerald Bank equity compensation plans not approved by security holders | 0 | $ | 0.00 | 0 | ||||||||
Total | 39,075 | 0 |
* | The merger agreement provides that no more options to acquire common stock will be granted by Emerald Bank |
1) | a proposal to adopt the Agreement and Plan of Merger, as amended, by and among Emerald Bank, Middlefield Banc Corp., and EB Interim Bank and to approve the merger of Emerald Bank into EB Interim Bank, | ||
2) | A proposal to elect one director for the term ending at the annual meeting in 2008, | ||
3) | A proposal to elect three directors for the term ending at the annual meeting in 2009, | ||
4) | A proposal to ratify the selection of Crowe Chizek and Company, LLC as independent auditor of Emerald Bank for the year ending December 31, 2007, | ||
5) | if adjournment is necessary for solicitation of additional proxies by the board of directors, a proposal to adjourn the meeting if there are insufficient votes when the meeting is held to adopt the Agreement and Plan of Merger, as amended, and approve the merger, and | ||
6) | any other business properly presented at the meeting or any adjournment or postponement. Emerald Bank’s board of directors knows of no other business to be presented at the meeting. |
15
Table of Contents
16
Table of Contents
- | filing a written notice of revocation with the Secretary of Emerald Bank at 6215 Perimeter Drive, Dublin, Ohio 43107, | ||
- | executing and returning another proxy card with a later date, or | ||
- | attending the meeting and giving notice of revocation in person. However, your attendance at the meeting will not constitute revocation of your proxy. |
1) | you must be a holder of record of Emerald Bank shares on the , 2007 record date for the meeting | ||
2) | you must not vote in favor of adoption of the merger agreement and approval of the merger. If you vote by proxy but you wish to exercise dissenters’ rights, you should mark the box “Against” or the box “Abstain” on the form of proxy | ||
3) | no later than ten days after the meeting of Emerald Bank shareholders you must deliver to Emerald Bank a written demand for payment of the fair cash value of the Emerald Bank shares for which you seek relief as a dissenter. Your written demand should be sent to Emerald Bank, 6215 Perimeter Drive, Dublin, Ohio 43017, Attention: Mr. Glenn E. Aidt. Voting against adoption of the merger agreement and approval of the merger will not satisfy this requirement for a written demand | ||
4) | your written demand for payment must state (x) your name and address, (y) the number of shares of Emerald Bank common stock you hold, and (z) the amount you consider to be the fair cash value of your shares |
17
Table of Contents
1) | if the merger does not occur | ||
2) | if your shares are voted in favor of adoption of the merger agreement and approval of the merger at the annual meeting of Emerald Bank shareholders | ||
3) | if you fail to deliver to Emerald Bank a written demand for payment of the fair cash value of your share within ten days after the meeting of Emerald Bank shareholders | ||
4) | if you and Emerald Bank do not reach agreement about the fair cash value of your dissenting shares, and you fail to file a complaint with the Franklin County, Ohio Court of Common Pleas for a determination of the fair cash value of your dissenting shares |
18
Table of Contents
19
Table of Contents
• | The merger agreement and related documents; | ||
• | Middlefield’s annual reports on Form 10-K, including audited financial statements, for the years ended December 31, 2005, 2004 and 2003; | ||
• | Middlefield’s quarterly reports on Form 10-Q for the quarters ended September 30, 2006, June 30, 2006 and March 31, 2006; | ||
• | Emerald Bank’s annual reports, including audited financial statements, for the years ended December 31, 2005 and 2004; | ||
• | Emerald Bank’s quarterly call reports for the periods ended September 30, 2006, June 30, 2006 and March 31, 2006; | ||
• | Certain other public and non-public information, primarily financial in nature, related to the respective businesses, earnings, assets and prospects of Emerald Bank and Middlefield provided to Ryan Beck by management of the respective companies or obtained by Ryan Beck from other sources; | ||
• | The publicly available financial data of commercial banking organizations which Ryan Beck deemed generally comparable to Emerald Bank and Middlefield; | ||
• | The historical stock prices and trading volumes of Middlefield’s common stock; and | ||
• | The terms of acquisitions of banking organizations which Ryan Beck deemed generally comparable in whole or in part to Emerald Bank. |
• | Conducted or reviewed such other studies, analyses, inquiries and examinations as it deemed appropriate; |
20
Table of Contents
• | Analyzed the impact of the merger on Middlefield; | ||
• | Considered the future prospects of Emerald Bank in the event it remained independent; and | ||
• | Participated in meetings and telephone conferences with certain members of Emerald Bank’s and Middlefield’s senior management to discuss Emerald Bank’s and Middlefield’s past and current business operations, regulatory standing, financial condition, strategic plan and future prospects, including any potential operating efficiencies and synergies that may arise from the Merger. |
21
Table of Contents
Capitalization | Emerald Bank | (1) | Peer Average | (1) | Peer Median | (1) | ||||||||||||||||||
Total Assets (000s) | $ | 37,935 | $ | 89,115 | �� | $ | 74,490 | |||||||||||||||||
Total Deposits (000s) | 28,752 | 64,357 | 56,174 | |||||||||||||||||||||
Total Shareholders’ Equity (000s) | 5,452 | 7,274 | 7,138 | |||||||||||||||||||||
Total Equity / Assets | 14.37 | % | 6.02 | % | 9.03 | % | ||||||||||||||||||
Tangible Equity / Tangible Assets | 14.37 | 6.01 | 9.03 | |||||||||||||||||||||
Tier 1 Capital / Risk-Adjusted Assets | 23.08 | 11.75 | 11.01 | |||||||||||||||||||||
Total Capital / Risk-Adjusted Assets | 24.08 | 13.36 | 11.98 | |||||||||||||||||||||
Total Borrowings / Total Assets | 8.57 | 15.87 | 16.28 | |||||||||||||||||||||
Asset Quality | ||||||||||||||||||||||||
Non-Performing Loans / Loans | 1.28 | 2.45 | 0.32 | |||||||||||||||||||||
Loan Loss Reserves / NPAs | 68.56 | 195.58 | 179.82 | |||||||||||||||||||||
Loan Loss Reserves / Loans | 0.88 | 1.15 | 1.17 | |||||||||||||||||||||
Non-Performing Assets / Assets | 0.93 | 2.58 | 0.27 | |||||||||||||||||||||
Non-Performing Assets + 90 Days Past Due / Assets | 0.93 | 2.61 | 0.31 | |||||||||||||||||||||
Non-Performing Assets / Equity | 4.72 | 6.28 | 1.87 | |||||||||||||||||||||
Loan & Deposit Composition | ||||||||||||||||||||||||
Total Loans / Toal Assets | 72.87 | 76.54 | 79.88 | |||||||||||||||||||||
Total Loans / Deposits | 96.14 | 103.98 | 103.59 | |||||||||||||||||||||
1-4 Family Loans / Total Loans | 59.13 | 48.18 | 46.79 | |||||||||||||||||||||
5+ Family Loans / Total Loans | 7.04 | 2.60 | 1.11 | |||||||||||||||||||||
Construction & Development Loans / Total Loans | 10.37 | 8.54 | 4.58 | |||||||||||||||||||||
Other Real Estate Loans / Total Loans | 18.42 | 17.25 | 17.63 | |||||||||||||||||||||
Real Estate Loans / Total Loans | 94.96 | 76.57 | 77.39 | |||||||||||||||||||||
Consumer Loans / Total Loans | 2.19 | 10.88 | 5.44 | |||||||||||||||||||||
Commercial Loans / Total Loans | 2.02 | 11.94 | 11.21 | |||||||||||||||||||||
Non-Interest Bearing Deposits / Total Deposits | 1.14 | 9.79 | 7.49 | |||||||||||||||||||||
Transaction Accounts / Total Deposits | 52.82 | 42.83 | 42.83 | |||||||||||||||||||||
Total CD’s / Total Deposits | 47.18 | 57.17 | 57.17 | |||||||||||||||||||||
Time Deposits > $100,000 / Total Deposits | 19.30 | 20.44 | 20.44 | |||||||||||||||||||||
Performance | ||||||||||||||||||||||||
Return on Average Assets | (2.37 | ) | (1.06 | ) | (0.56 | ) | ||||||||||||||||||
Return on Average Equity | (10.55 | ) | (23.28 | ) | (4.62 | ) | ||||||||||||||||||
Net Interest Margin | 2.69 | 2.86 | 2.74 | |||||||||||||||||||||
Yield / Cost Spread | 1.72 | 2.47 | 2.17 | |||||||||||||||||||||
Yield on Interest Earning Assets | 6.04 | 6.38 | 6.47 | |||||||||||||||||||||
Cost of Interest Bearing Liabilities | 4.32 | 3.73 | 3.53 | |||||||||||||||||||||
Non Interest Income / Average Assets | 0.12 | 0.70 | 0.79 | |||||||||||||||||||||
Non Interest Expense / average Assets | 4.65 | 4.21 | 3.74 | |||||||||||||||||||||
Salary Expense / Total Revenue | 82.99 | 61.83 | 49.62 | |||||||||||||||||||||
Occupancy & Equipment Expense / Average Assets | 0.86 | 0.64 | 0.55 | |||||||||||||||||||||
Efficiency Ratio | 172.09 | 118.58 | 118.51 | |||||||||||||||||||||
Growth Rates | ||||||||||||||||||||||||
Asset Growth | 109.24 | 9.19 | 5.50 | |||||||||||||||||||||
Loan Growth Rate | 83.17 | 22.22 | 15.80 | |||||||||||||||||||||
Deposit Growth Rate | 164.82 | 16.48 | 10.21 | |||||||||||||||||||||
EPS Growth Rate | NM | NM | NM | |||||||||||||||||||||
Market Statistics | ||||||||||||||||||||||||
Stock Price at November 10, 2006 | NM | |||||||||||||||||||||||
Price / LTM EPS | NA | x | NM | x | NM | x | ||||||||||||||||||
Price / Book Value | NA | % | 115.30 | % | 93.86 | % | ||||||||||||||||||
Price / Tangible Book Value | NA | 115.31 | 93.86 | |||||||||||||||||||||
Market Capitalization ($M) | NA | $ | 10.52 | $ | 6.59 | |||||||||||||||||||
Dividend Yield | NA | % | 0.44 | % | 0.00 | % |
(1) | As of or for the most recent twelve-month period available for the peer group. Emerald Bank data as of September 30, 2006. |
22
Table of Contents
Middlefield | ||||||||||||||||||||||||
Capitalization | Banc Corp. | (1) | Peer Average | (1) | Peer Median | (1) | ||||||||||||||||||
Total Assets (000s) | $ | 325,675 | $ | 375,989 | $ | 395,306 | ||||||||||||||||||
Total Deposits (000s) | 264,706 | 302,656 | 307,069 | |||||||||||||||||||||
Total Shareholders’ Equity (000s) | 29,567 | 35,201 | 33,676 | |||||||||||||||||||||
Total Equity / Assets | 9.08 | % | 9.44 | % | 9.21 | % | ||||||||||||||||||
Tangible Equity / Tangible Assets | 9.08 | 8.87 | 8.70 | |||||||||||||||||||||
Tier 1 Capital / Risk-Adjusted Assets | 12.84 | 13.72 | 15.23 | |||||||||||||||||||||
Total Capital / Risk-Adjusted Assets | 14.09 | 15.07 | 16.36 | |||||||||||||||||||||
Total Borrowings / Total Assets | 9.21 | 8.64 | 9.04 | |||||||||||||||||||||
Asset Quality | ||||||||||||||||||||||||
Non-Performing Loans / Loans | 0.69 | 0.39 | 0.27 | |||||||||||||||||||||
Loan Loss Reserves / NPAs | 179.99 | 358.42 | 271.29 | |||||||||||||||||||||
Loan Loss Reserves / Loans | 1.25 | 1.31 | 1.24 | |||||||||||||||||||||
Non-Performing Assets / Assets | 0.52 | 0.35 | 0.21 | |||||||||||||||||||||
Non-Performing Assets + 90 Days Past Due / Assets | 0.54 | 0.36 | 0.27 | |||||||||||||||||||||
Loan & Deposit Composition | ||||||||||||||||||||||||
Total Loans / Toal Assets | 75.18 | 71.06 | 74.79 | |||||||||||||||||||||
Total Loans / Deposits | 92.50 | 88.20 | 92.15 | |||||||||||||||||||||
1-4 Family Loans / Total Loans | 65.17 | 28.44 | 25.67 | |||||||||||||||||||||
5+ Family Loans / Total Loans | 0.00 | 1.56 | 1.30 | |||||||||||||||||||||
Construction & Development Loans / Total Loans | 1.48 | 20.62 | 19.16 | |||||||||||||||||||||
Other Real Estate Loans / Total Loans | 3.68 | 29.87 | 29.43 | |||||||||||||||||||||
Real Estate Loans / Total Loans | 70.33 | 80.48 | 81.53 | |||||||||||||||||||||
Consumer Loans / Total Loans | 2.27 | 3.41 | 3.33 | |||||||||||||||||||||
Commercial Loans / Total Loans | 27.11 | 14.75 | 13.96 | |||||||||||||||||||||
Non-Interest Bearing Deposits / Total Deposits | 15.68 | 16.20 | 15.53 | |||||||||||||||||||||
Transaction Accounts / Total Deposits | 47.73 | 54.75 | 56.23 |
23
Table of Contents
Middlefield | ||||||||||||||||||||||||
Capitalization | Banc Corp. | (1) | Peer Average | (1) | Peer Median | (1) | ||||||||||||||||||
Total CD’s / Total Deposits | 52.27 | 45.25 | 43.77 | |||||||||||||||||||||
Time Deposits > $100,000 / Total Deposits | 11.61 | 17.86 | 14.24 | |||||||||||||||||||||
Performance | ||||||||||||||||||||||||
Return on Average Assets | 1.22 | 1.18 | 1.12 | |||||||||||||||||||||
Return on Average Equity | 13.71 | 12.78 | 11.83 | |||||||||||||||||||||
Net Interest Margin | 3.75 | 4.31 | 4.25 | |||||||||||||||||||||
Non Interest Income / Average Assets | 0.75 | 0.99 | 0.86 | |||||||||||||||||||||
Non Interest Expense / average Assets | 2.44 | 3.10 | 3.06 | |||||||||||||||||||||
Efficiency Ratio | 57.62 | 60.84 | 63.08 | |||||||||||||||||||||
Growth Rates | ||||||||||||||||||||||||
Asset Growth | 6.67 | 14.92 | 9.81 | |||||||||||||||||||||
Loan Growth Rate | 8.41 | 17.25 | 14.73 | |||||||||||||||||||||
Deposit Growth Rate | 6.66 | 14.36 | 9.59 | |||||||||||||||||||||
Revenue Growth Rate | 5.44 | 18.85 | 15.58 | |||||||||||||||||||||
EPS Growth Rate | 10.24 | 22.58 | 17.84 | |||||||||||||||||||||
Market Statistics | ||||||||||||||||||||||||
Stock Price at November 10, 2006 | $ | 42.50 | ||||||||||||||||||||||
Price / LTM EPS | 15.18 | x | 16.48 | x | 15.51 | x | ||||||||||||||||||
Price / 2006E EPS | NA | 17.48 | 15.84 | |||||||||||||||||||||
Price / 2007E EPS | NA | 16.07 | 15.08 | |||||||||||||||||||||
Price / Book Value | 194.51 | % | 193.66 | % | 183.09 | % | ||||||||||||||||||
Price / Tangible Book Value | 194.51 | 205.13 | 189.03 | |||||||||||||||||||||
Market Capitalization ($M) | $ | 57.52 | $ | 66.84 | $ | 66.50 | ||||||||||||||||||
Dividend Yield | 2.26 | % | 1.61 | % | 1.86 | % |
(1) | As of or for the most recent twelve-month period available for the peer group. Middlefield data as of September 30, 2006. |
24
Table of Contents
Peer Group | Peer Group | |||||||||||
Emerald Bank | Average | Median | ||||||||||
Total Assets (000s) | $ | 37,935 | $ | 98,390 | $ | 91,044 | ||||||
Tangible Equity / Tangible Assets | 14.37 | % | 9.00 | % | 8.99 | % | ||||||
YTD Return on Average Assets | -2.08 | % | -1.00 | % | -1.09 | % | ||||||
YTD Return on Average Equity | -10.14 | % | -13.26 | % | -11.62 | % | ||||||
Non-Performing Assets / Assets | 0.93 | % | 2.49 | % | 2.12 | % | ||||||
Efficiency Ratio | 166.05 | % | 111.64 | % | 99.14 | % |
Price / Book | Price / Tangible | Price / LTM | Core Deposit | |||||||||||||
Value | Book Value | Earnings | Premium | |||||||||||||
Peer Group Median | 134.36 | % | 134.36 | % | NM | 4.09 | % |
Price / Book | Price / Tangible | Price / LTM | Core Deposit | |||||||||||||||||||||
Value | Book Value | Earnings | Premium | Average | Median | |||||||||||||||||||
Imputed Value | $ | 10.00 | $ | 10.00 | NM | $ | 8.72 | $ | 9.57 | $ | 9.36 |
Price / Book | Price / Tangible | Price / LTM | Core Deposit | |||||||||||||
Value | Book Value | Earnings | Premium | |||||||||||||
Peer Group Median | 145.91 | % | 145.91 | % | NM | 4.24 | % |
Price / Book | Price / Tangible | Price / LTM | Core Deposit | |||||||||||||||||||||
Value | Book Value | Earnings | Premium | Average | Median | |||||||||||||||||||
Imputed Value | $ | 10.86 | $ | 10.86 | NM | $ | 8.77 | $ | 10.16 | $ | 9.81 |
Price to stated book value | 134.39 | % | ||
Price to tangible book value | 134.39 | % | ||
Multiple of last-twelve-months earnings per share | NM | |||
Tangible book premium over core deposits | 8.08 | % |
25
Table of Contents
Discount Rates | ||||||||||||||||
13% | 14% | 15% | ||||||||||||||
Terminal Year | 13x | $ | 9.86 | $ | 9.56 | $ | 9.27 | |||||||||
Multiple of | 14x | $ | 10.28 | $ | 9.97 | $ | 9.67 | |||||||||
Earnings | 15x | $ | 10.69 | $ | 10.37 | $ | 10.06 | |||||||||
26
Table of Contents
27
Table of Contents
28
Table of Contents
29
Table of Contents
30
Table of Contents
31
Table of Contents
Cash Election | Stock Election | |||||||||||||||
20 trading-day | Per share stock | Market value | ||||||||||||||
average closing price | Per share cash | consideration | based upon the | |||||||||||||
for Middlefield stock | consideration | OR | exchange ratio | exchange ratio | ||||||||||||
$35.00 | $ | 10.00 | 0.2857 | $ | 10.00 | |||||||||||
$36.00 | $ | 10.00 | 0.2778 | $ | 10.00 | |||||||||||
$37.00 | $ | 10.00 | 0.2703 | $ | 10.00 | |||||||||||
$38.00 | $ | 10.00 | 0.2632 | $ | 10.00 | |||||||||||
$39.00 | $ | 10.00 | 0.2564 | $ | 10.00 | |||||||||||
$40.00 | $ | 10.00 | 0.2500 | $ | 10.00 | |||||||||||
$41.00 | $ | 10.00 | 0.2439 | $ | 10.00 | |||||||||||
$42.00 | $ | 10.00 | 0.2381 | $ | 10.00 | |||||||||||
$43.00 | $ | 10.00 | 0.2326 | $ | 10.00 | |||||||||||
$44.00 | $ | 10.00 | 0.2273 | $ | 10.00 | |||||||||||
$45.00 | $ | 10.00 | 0.2222 | $ | 10.00 |
32
Table of Contents
33
Table of Contents
Conditions for the benefit of Emerald Bank | Conditions for the benefit of Middlefield | |||||||
Emerald Bank is not required to complete the merger unless | Middlefield is not required to complete the merger unless | |||||||
1) | the representations and warranties of Middlefield contained in the merger agreement were true and correct in all material respects when the agreement was entered into on November 15, 2006 and remain true when the merger occurs | 1 | ) | the representations and warranties of Emerald Bank contained in the merger agreement were true and correct in all material respects when the agreement was entered into on November 15, 2006 and remain true when the merger occurs | ||||
2) | each of Middlefield and EB Interim Bank performs in all material respects all of the covenants and obligations under the merger agreement required to be performed by them before the merger occurs | 2 | ) | Emerald Bank performs in all material respects all of the covenants and obligations under the merger agreement required to be performed by it before the merger occurs | ||||
3) | there shall not have occurred any circumstance or event having a material adverse effect on Middlefield’s financial position, results of operations, or business or Middlefield’s ability to complete the merger between the November 15, 2006 date of the merger agreement and the date the merger occurs | 3 | ) | there shall not have occurred any circumstance or event having a material adverse effect on Emerald Bank’s financial position, results of operations, or business or Emerald Bank’s ability to complete the merger between the November 15, 2006 date of the merger agreement and the date the merger occurs | ||||
4) | Middlefield shall have suffered no damage, destruction, or loss materially affecting its business or properties that is not covered by insurance | 4 | ) | Emerald Bank shall have suffered no damage, destruction, or loss materially affecting its business or properties that is not covered by insurance | ||||
5) | there shall be no litigation or governmental proceeding instituted or threatened that would challenge, prevent, or delay the merger | 5 | ) | there shall be no litigation or governmental proceeding instituted or threatened that would challenge, prevent, or delay the merger or that would impair Middlefield’s ability to exercise full rights of ownership of Emerald Bank |
34
Table of Contents
Conditions for the benefit of Emerald Bank | Conditions for the benefit of Middlefield | |||||||
6) | Middlefield obtains all necessary regulatory approvals and consents | 6 | ) | there shall be no proposed or effective Federal or state law, rule, regulatory order, or regulatory policy that would prevent or delay the merger, interfere with operation of Emerald Bank’s business, adversely affect Middlefield’s ability to realize the benefits of the merger, or impose a materially adverse condition, limitation, or requirement on Middlefield | ||||
7 | ) | Emerald Bank’s independent certified public accountants provide to Middlefield a letter of tax advice stating that any amounts paid to Emerald Bank’s board and management as a result of the merger – such as the retention payments to Messrs. Aidt and Hufford and Ms. Howard under section 6.11(c) of the merger agreement – should be deductible, rather than being subject to denial of the ordinary compensation deduction under the “excess parachute payment” provisions of section 280G of the Internal Revenue Code of 1986 | ||||||
8 | ) | Emerald Bank delivers to Middlefield affiliate agreements executed by each of Emerald Bank’s directors and executive officers. A form of the affiliate agreement is included as Exhibit 5.05 to the merger agreement attached as Appendix A to this prospectus/proxy statement | ||||||
9 | ) | Emerald Bank delivers to Middlefield a list of all Emerald Bank shareholders on the date the merger occurs |
Similar representations and warranties. In Article Three of the merger agreement Emerald Bank has made representations and warranties to Middlefield, and in Article Four Middlefield has made representations and warranties to Emerald Bank, relating to: | corporate organization, qualification and good standing corporate power and authority to execute, deliver, and perform the merger agreement, and (x) in Emerald Bank’s case the shareholder vote necessary to approve the merger (the affirmative vote of the holders of a majority of the Emerald Bank shares outstanding) (y) in Middlefield’s case that approval by its shareholders is not necessary enforceability of the merger agreement absence of conflicts on the part of the merger agreement or the merger itself with organizational documents, laws and material agreements identification of regulatory approvals that must be obtained by the party to the agreement (specifically none in Emerald Bank’s case, but in Middlefield’s case approval of the Federal Reserve Board, FDIC, and the Ohio Division of Financial Institutions) the number of shares of common stock outstanding, the legality of their issuance, and the number acquirable by exercise of stock options accuracy of the company’s audited year-end financial statements as well as the interim financial statements for the nine months ended September 30, 2006, and in Middlefield’s case only the accuracy of reports filed with the Securities and Exchange Commission absence of changes in the company’s business or occurrence of material adverse events affecting the company’s business, prospects, assets, liabilities, or properties since September 30, 2006 accuracy of the company’s books and records absence of material legal proceedings existence of permits and licenses necessary to conduct business accuracy of the information provided for use in the Form S-4 Registration Statement of which this prospectus/proxy statement forms a part identification of all brokers and finders involved in the merger ownership by each company of the other company’s shares compliance with Ohio law governing business combinations payment of all taxes owing | ||||||
35
Table of Contents
Emerald Bank’sunique representations and warranties. Emerald Bank’s representations and warranties in Article Three also include representations and warranties about: | ownership and condition of its properties, as well as the legal sufficiency of documentation relating to Emerald Bank’s loan assets absence of loans 90 days or more delinquent or that are classified as substandard, doubtful, or loss identification of its investments and the absence of subsidiaries identification of material contracts and commitments and the absence of defaults on Emerald Bank’s part existence of adequate insurance identification of employee benefit plans and their compliance with applicable tax and other laws compliance with environmental laws compliance with laws governing employment practices and employment discrimination inapplicability of provisions of the Internal Revenue Code of 1986 governing payments made to directors and executive officers in change-in-control transactions, specifically sections 280G and 4999 of the Internal Revenue Code absence of formal or informal bank regulatory enforcement actions | ||||||
Affirmative covenants on Emerald Bank’s part. In section 5.01(a) of the merger agreement Emerald Bank has agreed that — from November 15, 2006 until the merger occurs — Emerald Bank will: | conduct its business in the ordinary course use commercially reasonable efforts to preserve its business organization intact use commercially reasonable efforts to preserve its relationships with customers, suppliers, officers and employees maintain its books and records in compliance with applicable laws use commercially reasonable efforts to maintain the safety and soundness and compliance ratings assigned by bank examiners use commercially reasonable efforts to maintain a performance rating of satisfactory under the Community Reinvestment Act of 1977 take no action that would cause a breach or default under contracts to which Emerald Bank is a party | ||||||
36
Table of Contents
Negative covenants on Emerald Bank’s part. And in section 5.01(b) Emerald Bank has agreed not to do any of the following without Middlefield’s advance written consent: | issue any shares or any options to acquire Emerald Bank shares declare or pay a dividend or make a distribution on common shares, or redeem, purchase or otherwise acquire any shares effect a stock split, recapitalization, combination, exchange of shares, readjustment or other reclassification amend its Articles of Incorporation or Constitution purchase, sell, assign or transfer any material patent, trademark, trade name, copyright, license, franchise, design, or other intangible assets or property acquire or dispose of any real or personal property or fixed asset constituting a capital investment exceeding $10,000 individually or $25,000 in the aggregate, except for an acquisition or disposition in the ordinary course of business of other real estate owned mortgage, pledge, or grant a lien or other encumbrance or charge on any assets or properties, tangible or intangible, except for liens for taxes not yet delinquent, assets pledged as collateral to secure borrowings from the FHLB of Cincinnati, or other liens, encumbrances, or charges that would not have a material adverse effect on Emerald Bank’s financial position waive any rights of material value or cancel any material debts or claims incur any obligation or liability requiring payments by Emerald Bank exceeding $10,000, whether individually or in the aggregate, or pay any material liability or obligation other than liabilities and obligations incurred in the ordinary course of business and borrowings from the FHLB of Cincinnati cause any material adverse change in the amount or general composition of Emerald Bank’s deposit liabilities or loan portfolio enter into or amend any employment contract with any of its officers, hire any new employees except to replace employees whose employment terminates, increase the compensation payable to any officer or director, adopt or amend any employee benefit plans, make awards or distributions under any employee benefit plans not consistent with the terms of the employee benefit plan, past practice or custom or as required by law acquire shares or other equity interest in a corporation, partnership, trust, joint venture, or other entity make an investment of more than $25,000 outside of the ordinary course of business or make a capital expenditure of more than $25,000 fail to maintain Emerald Bank’s reserve for loan losses after December 1, 2006 at the greater of $242,000 or 1% of the total gross loans outstanding (unless required by generally accepted accounting principles) fail to accrue, pay, discharge and satisfy all debts, liabilities, obligations and expenses incurred in the regular and ordinary course of business as the debts, liabilities, obligations and expenses become due open, close, move or in any material respect expand, diminish, renovate, alter, or change an office or branch pay or commit to pay a management or consulting fee or other similar type of fee | ||||||
37
Table of Contents
38
Table of Contents
Comparison of Rights of Middlefield and Emerald Bank Shareholders
39
Table of Contents
- | the name and address of each proposed nominee, | ||
- | the principal occupation of the nominee, | ||
- | the name and residence address of the shareholder making the nomination, and | ||
- | the number of shares beneficially owned by the shareholder. |
40
Table of Contents
41
Table of Contents
- | a description in reasonable detail of the business being proposed by the shareholder and the reasons for conducting that business at the meeting, | ||
- | the name and address of the shareholder making the proposal (and of the beneficial owner, if any, on whose behalf the proposal is made), | ||
- | the number of Middlefield shares owned beneficially and of record by the shareholder (and by the beneficial owner, if any, on whose behalf the proposal is made), and | ||
- | any material interest of the shareholder (and the beneficial owner, if any, on whose behalf the proposal is made) in the business being proposed. |
- | a merger or consolidation involving Middlefield, | ||
- | a sale, lease, mortgage, pledge, transfer or other disposition of all or substantially all of Middlefield’s assets, | ||
- | a reclassification of securities (including a reverse stock split) or recapitalization of Middlefield, | ||
- | issuance or transfer by Middlefield of 5% or more of the Middlefield’s outstanding shares to a corporation, person or other entity, or | ||
- | adoption of a plan for liquidation or dissolution of Middlefield. |
42
Table of Contents
- | an amendment of the articles of incorporation, - - a proposal to fix or change the number of directors by action of the shareholders, | ||
- | an agreement of merger or consolidation providing for the merger or consolidation of Emerald Bank with another corporation, | ||
- | a proposed combination or majority share acquisition involving the issuance of Emerald Bank shares and requiring shareholder approval, or | ||
- | a proposal to sell, lease, or exchange all or substantially all of Emerald Bank’s property and assets. |
43
Table of Contents
- | by a majority vote of a quorum of disinterested directors, | ||
- | if a quorum is not obtainable or if a majority of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel, | ||
- | by the shareholders, or | ||
- | by the Court of Common Pleas of Franklin County, Ohio or the court, if any, in which the action is brought. |
44
Table of Contents
- | Middlefield’s board of directors may issue additional authorized shares of Middlefield’s common stock to deter future attempts to gain control of Middlefield, | ||
- | the classification of Middlefield’s board into three classes serving staggered terms of three years each is intended to provide for board continuity and to make it more difficult and time consuming for a shareholder group to fully use its voting power to gain control of the board without the consent of Middlefield’s incumbent board of directors, | ||
- | Middlefield’s articles of incorporation do not allow for cumulative voting. Multiplying a shareholder’s voting power in the election of directors and allowing the shareholder to distribute votes among candidates as the shareholder chooses, cumulative voting can be used by minority shareholders to gain representation on a board, | ||
- | Middlefield’s regulations provide that shareholders may elect directors at annual meetings only, | ||
- | the regulations also impose procedural requirements shareholders must adhere to for the purpose of proposing business for shareholders’ consideration and vote at a meeting or nominating director candidates, | ||
- | Middlefield’s regulations cannot be amended unless two thirds of Middlefield’s shares are voted in favor of amendment, but a mere majority may approve an amendment that is first approved by Middlefield’s board of directors, | ||
- | special voting requirements apply under Article Sixth of Middlefield’s articles of incorporation to business combinations involving holders of 10% or more of Middlefield’s shares. |
45
Table of Contents
- | one-fifth or more but less than one-third of the voting power, | ||
- | one-third or more but less than a majority of the voting power, or | ||
- | a mere majority or more of the voting power. |
- | a majority of the voting power of the corporation represented in person or by proxy at the meeting, and | ||
- | a majority of the voting power of shareholders other than - |
- | the acquiring shareholder, | ||
- | officers of the corporation elected or appointed by the directors of the corporation, | ||
- | employees of the corporation who are also directors of the corporation, and | ||
- | persons who acquire specified amounts of shares after the first public disclosure of the proposed control share acquisition. |
- | mergers and similar transactions, | ||
- | the purchase, lease, sale, or other transaction involving corporate assets with a fair market value exceeding thresholds specified in the statute, | ||
- | the issuance or transfer of shares or any rights to acquire shares having a fair market value at least equal to 5% of the aggregate fair market value of the corporation’s outstanding shares, | ||
- | a voluntary dissolution, | ||
- | a transaction increasing the 10% owner’s proportionate ownership of the corporation, and | ||
- | other transactions providing to the 10% owner a benefit that is not shared proportionately by all shareholders. |
46
Table of Contents
- | that his sole purpose in making the proposal was to succeed in acquiring control of the corporation and there were reasonable grounds to believe that he would acquire control of the corporation, or | ||
- | that his purpose was not to increase any profit or decrease any loss in the stock. |
For the Seven | ||||||||||||
Months Ended | ||||||||||||
As of and for the year ended December 31, | December 31, | |||||||||||
2006 | 2005 | 2004 * | ||||||||||
In thousands (000’s), except for per share data and ratios | ||||||||||||
Balance Sheet Data ($): | ||||||||||||
Total assets | $ | 41,175 | $ | 21,398 | $ | 9,313 | ||||||
Loans, net of unearned income | 34,073 | 18,606 | 2,525 | |||||||||
Allowance for credit losses | 341 | 183 | 25 | |||||||||
Deposits | 32,837 | 12,052 | 2,625 | |||||||||
Debt and FHLB advances | 3,250 | 3,250 | 0 | |||||||||
Total shareholders’ equity | 5,213 | 5,861 | 6,644 | |||||||||
Income Statement Data ($): | ||||||||||||
Interest income | 1,811 | 660 | 125 | |||||||||
Interest expense | 1,119 | 273 | 10 | |||||||||
Net interest income | 692 | 387 | 115 |
47
Table of Contents
For the Seven | ||||||||||||
Months Ended | ||||||||||||
As of and for the year ended December 31, | December 31, | |||||||||||
2006 | 2005 | 2004 * | ||||||||||
In thousands (000’s), except for per share data and ratios | ||||||||||||
Provision for credit losses | 173 | 157 | 25 | |||||||||
Net interest income after provision for credit losses | 519 | 230 | 90 | |||||||||
Non-interest income | 87 | 51 | 0 | |||||||||
Non-interest expense | 1,282 | 1,063 | 773 | |||||||||
Income (loss) before income taxes | (676 | ) | (782 | ) | (683 | ) | ||||||
Income taxes | 0 | 0 | 0 | |||||||||
Net income (loss) | (676 | ) | (782 | ) | (683 | ) | ||||||
Per Share Data: | ||||||||||||
Basic net income | $ | (0.92 | ) | $ | (1.07 | ) | $ | (0.93 | ) | |||
Cash dividends declared | 0.00 | 0.00 | 0.00 | |||||||||
Book value at period end | 7.12 | 8.00 | 9.07 | |||||||||
Weighted average number of shares outstanding – Basic | 732,689 | 732,689 | 732,689 | |||||||||
Significant Financial Ratios: | ||||||||||||
Return on average assets | -2.20 | % | -5.26 | % | -14.02 | % | ||||||
Return on average shareholders’ equity | -12.05 | % | -12.50 | % | -17.62 | % | ||||||
Net interest margin | 2.25 | % | 2.61 | % | 2.36 | % | ||||||
Total loans to total deposits | 104.00 | % | 154.00 | % | 96.41 | % | ||||||
Allowance for credit losses to period ending loans | 1.00 | % | 0.98 | % | 1.00 | % | ||||||
Allowance for credit losses to total non-performing loans | 227.00 | % | 2033.00 | % | N/A | |||||||
Net charge-offs to period ending loans | 0.04 | % | 0.00 | % | 0.00 | % | ||||||
Tier 1 Leverage Capital | 12.50 | % | 27.39 | % | 71.34 | % |
* | The bank’s operations began on June 1, 2004. Operating results displayed represent only seven months of operations. Return on average assets, return on average shareholders’ equity, and net interest margin for the period ended December 31, 2004 have been annualized for comparative purposes. The remainder of the data for the period have not been annualized. |
48
Table of Contents
49
Table of Contents
At December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
At September 30, 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||||||||
Type of loan: | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 66,841 | 27.30 | % | $ | 65,252 | 27.88 | % | $ | 52,148 | 24.18 | % | $ | 42,063 | 21.81 | % | $ | 32,916 | 18.82 | % | $ | 28,313 | 18.53 | % | ||||||||||||||||||||||||
Real estate construction | 3,687 | 1.51 | % | 2,725 | 1.16 | % | 3,144 | 1.46 | % | 3,434 | 1.78 | % | 3,207 | 1.83 | % | 3,200 | 2.09 | % | ||||||||||||||||||||||||||||||
Mortgage: | ||||||||||||||||||||||||||||||||||||||||||||||||
Residential | 159,933 | 65.32 | % | 151,866 | 64.88 | % | 147,425 | 68.36 | % | 134,007 | 69.48 | % | 123,844 | 70.79 | % | 113,049 | 73.97 | % | ||||||||||||||||||||||||||||||
Commercial | 8,759 | 3.58 | % | 8,208 | 3.51 | % | 7,027 | 3.26 | % | 7,866 | 4.08 | % | 9,521 | 5.44 | % | 3,388 | 2.22 | % | ||||||||||||||||||||||||||||||
Consumer installment | 5,632 | 2.30 | % | 6,004 | 2.57 | % | 5,909 | 2.74 | % | 5,510 | 2.85 | % | 5,455 | 3.12 | % | 4,878 | 3.19 | % | ||||||||||||||||||||||||||||||
Total loans | 244,852 | 100.00 | % | 234,055 | 100 | % | 215,653 | 100 | % | 192,880 | 100 | % | 174,943 | 100 | % | 152,828 | 100 | % | ||||||||||||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses | 3,049 | 2,841 | 2,623 | 2,521 | 2,300 | 2,062 | ||||||||||||||||||||||||||||||||||||||||||
Net loans | $ | 241,803 | $ | 231,214 | $ | 213,030 | $ | 190,359 | $ | 172,643 | $ | 150,766 | ||||||||||||||||||||||||||||||||||||
Net loans as a percent of total assets | 74.25 | % | 74.29 | % | 73.15 | % | 72.55 | % | 76.31 | % | 76.20 | % | ||||||||||||||||||||||||||||||||||||
50
Table of Contents
Loan portfolio maturity at December 31, 2005 | ||||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||
and | Real estate | Mortgage | Consumer | |||||||||||||||||||||
(dollars in thousands) | industrial | construction | Residential | Commercial | installment | Total | ||||||||||||||||||
Amount due: | ||||||||||||||||||||||||
In one year or less * | $ | 16,581 | $ | 1,299 | $ | 46,564 | $ | 1,325 | $ | 2,181 | $ | 67,950 | ||||||||||||
After one year through five years | 32,363 | 534 | 77,950 | 2,583 | 3,288 | 116,718 | ||||||||||||||||||
After five years | 16,308 | 892 | 27,352 | 4,300 | 535 | 49,387 | ||||||||||||||||||
Total amount due | $ | 65,252 | $ | 2,725 | $ | 151,866 | $ | 8,208 | $ | 6,004 | $ | 234,055 | ||||||||||||
* | Loans due on demand and overdrafts are included in the amount due in one year or less. The Middlefield Banking Company has no loans without a stated schedule of repayment or a stated maturity. |
(dollars in thousands) | Fixed rates | Adjustable rates | Total | |||||||||
Commercial and industrial | $ | 23,104 | $ | 25,567 | $ | 48,671 | ||||||
Real estate construction | 595 | 831 | 1,426 | |||||||||
Mortgage: | ||||||||||||
Residential | 26,707 | 78,595 | 105,302 | |||||||||
Commercial | 5,446 | 1,437 | 6,883 | |||||||||
Consumer installment | 3,823 | 0 | 3,823 | |||||||||
Total | $ | 59,675 | $ | 106,430 | $ | 166,105 | ||||||
- | accounts receivable, inventory and | - | short-term notes | |||||
- | working capital loans | - | selected guaranteed or subsidized loan programs for small businesses | |||||
- | renewable operating lines of credit | - | loans to professionals | |||||
- | loans to finance capital equipment | - | commercial real estate loans | |||||
- | term business loans |
51
Table of Contents
52
Table of Contents
Classified assets at December 31, | ||||||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||||||||||||||||
Percent | Percent | Percent | Percent | Percent | ||||||||||||||||||||||||||||||||||||
of total | of total | of total | of total | of total | ||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Amount | loans | Amount | loans | Amount | loans | Amount | loans | Amount | loans | ||||||||||||||||||||||||||||||
Classified loans: | ||||||||||||||||||||||||||||||||||||||||
Special mention | $ | 6,567 | 2.81 | % | $ | 4,094 | 1.90 | % | $ | 2,876 | 1.49 | % | $ | 4,713 | 2.69 | % | $ | 4,254 | 2.78 | % | ||||||||||||||||||||
Substandard | 2,020 | 0.86 | % | 3,097 | 1.44 | % | 1,920 | 1.00 | % | 1,285 | 0.74 | % | 2,067 | 1.35 | % | |||||||||||||||||||||||||
Doubtful | 0 | 0.00 | % | 163 | 0.08 | % | 199 | 0.10 | % | 280 | 0.16 | % | 290 | 0.19 | % | |||||||||||||||||||||||||
Loss | 0 | 0.00 | % | 0 | 0.00 | % | 0 | 0.00 | % | 0 | 0.00 | % | 0 | 0.00 | % | |||||||||||||||||||||||||
Total | $ | 8,587 | 3.67 | % | $ | 7,354 | 3.42 | % | $ | 4,995 | 2.59 | % | $ | 6,278 | 3.59 | % | $ | 6,611 | 4.32 | % | ||||||||||||||||||||
53
Table of Contents
Classified assets at September 30, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
Percent | Percent | |||||||||||||||
of total | of total | |||||||||||||||
(dollars in thousands) | Amount | loans | Amount | loans | ||||||||||||
Classified loans: | ||||||||||||||||
Special mention | $ | 7,075 | 2.89 | % | $ | 5,711 | 2.53 | % | ||||||||
Substandard | 2,052 | 0.84 | % | 2,248 | 1.00 | % | ||||||||||
Doubtful | 0 | 0.00 | % | 0 | 0.00 | % | ||||||||||
Loss | 0 | 0.00 | % | 0 | 0.00 | % | ||||||||||
Total | $ | 9,127 | 3.73 | % | $ | 7,959 | 3.41 | % | ||||||||
Investment portfolio amortized cost and estimated value | ||||||||||||||||
at September 30, 2006 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | unrealized | unrealized | Estimated | |||||||||||||
(dollars in thousands) | cost | gains | losses | market value | ||||||||||||
Available for Sale: | ||||||||||||||||
U.S. Government agency securities | $ | 7,255 | $ | 3 | $ | (118 | ) | $ | 7,140 | |||||||
Obligations of states and political subdivisions: | ||||||||||||||||
Taxable | 749 | 0 | (22 | ) | 727 | |||||||||||
Tax-exempt | 29,217 | 232 | (190 | ) | 29,259 | |||||||||||
Corporate securities | 0 | 0 | 0 | 0 | ||||||||||||
Mortgage-backed securities | 17,805 | 0 | (557 | ) | 17,248 | |||||||||||
Equity securities | 694 | 1 | (44 | ) | 651 | |||||||||||
Total | $ | 55,720 | $ | 236 | $ | (931 | ) | $ | 55,025 | |||||||
Held to Maturity: | ||||||||||||||||
U.S. Government agency securities | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Obligations of states and political subdivisions: | ||||||||||||||||
Taxable | 0 | 0 | 0 | 0 | ||||||||||||
Tax-exempt | 216 | 10 | 0 | 226 | ||||||||||||
Corporate securities | 0 | 0 | 0 | 0 | ||||||||||||
Mortgage-backed securities | 0 | 0 | 0 | 0 | ||||||||||||
Total | $ | 216 | $ | 10 | $ | 0 | $ | 226 | ||||||||
Total Investment Securities | $ | 55,936 | $ | 246 | $ | (931 | ) | $ | 55,251 | |||||||
54
Table of Contents
Investment portfolio amortized cost and estimated value at December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||||||||||
�� | Gross | Gross | Gross | Gross | Gross | Gross | Estimated | |||||||||||||||||||||||||||||||||||||||||
Amortized | unrealized | unrealized | Estimated | Amortized | unrealized | unrealized | Estimated market | Amortized | unrealized | unrealized | market | |||||||||||||||||||||||||||||||||||||
(dollars in thousands) | cost | gains | losses | market value | cost | gains | losses | value | cost | gains | losses | value | ||||||||||||||||||||||||||||||||||||
Available for Sale: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Government agency securities | $ | 7,261 | $ | 10 | $ | (112 | ) | $ | 7,159 | $ | 5,273 | $ | 71 | $ | (18 | ) | $ | 5,326 | $ | 6,062 | $ | 133 | $ | (18 | ) | $ | 6,177 | |||||||||||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | 748 | 0 | (23 | ) | 725 | 748 | 0 | (11 | ) | 737 | 210 | 6 | 0 | 216 | ||||||||||||||||||||||||||||||||||
Tax-exempt | 28,231 | 98 | (331 | ) | 27,998 | 21,239 | 303 | (66 | ) | 21,477 | 14,564 | 325 | (48 | ) | 14,841 | |||||||||||||||||||||||||||||||||
Corporate securities | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 350 | 9 | 0 | 359 | ||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | 22,229 | 16 | (640 | ) | 21,605 | 29,625 | 81 | (403 | ) | 29,302 | 28,591 | 112 | (329 | ) | 28,374 | |||||||||||||||||||||||||||||||||
Equity securities | 444 | 1 | (45 | ) | 400 | 399 | 0 | 0 | 399 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Total | $ | 58,913 | $ | 125 | $ | (1,151 | ) | $ | 57,887 | $ | 57,284 | $ | 455 | $ | (498 | ) | $ | 57,241 | $ | 49,777 | $ | 585 | $ | (395 | ) | $ | 49,967 | |||||||||||||||||||||
Held to Maturity: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Government agency securities | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Tax-exempt | 221 | 12 | 0 | 233 | 221 | 22 | 0 | 244 | 945 | 18 | 0 | 963 | ||||||||||||||||||||||||||||||||||||
Corporate securities | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 914 | 38 | 0 | 952 | ||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Total | $ | 221 | $ | 12 | $ | 0 | $ | 233 | $ | 221 | $ | 22 | $ | 0 | $ | 244 | $ | 1,859 | $ | 56 | $ | 0 | $ | 1,915 | ||||||||||||||||||||||||
Total Investment Securities | $ | 59,134 | $ | 137 | $ | (1,151 | ) | $ | 58,120 | $ | 57,505 | $ | 477 | $ | (498 | ) | $ | 57,485 | $ | 51,636 | $ | 641 | $ | (395 | ) | $ | 51,882 | |||||||||||||||||||||
55
Table of Contents
September 30, 2006 | ||||||||||||||||||||||||||||||||||||||||||||
More than one to five | More than five to ten | Total investment securities and | ||||||||||||||||||||||||||||||||||||||||||
One year or less | years | years | More than ten years | mortgage-backed securities | ||||||||||||||||||||||||||||||||||||||||
Amortized | Average | Amortized | Average | Amortized | Average | Amortized | Average | Amortized | Average | Market | ||||||||||||||||||||||||||||||||||
cost | yield | cost | yield | cost | yield | cost | yield | cost | yield | value | ||||||||||||||||||||||||||||||||||
U.S. Government agency | $ | 0 | 0.00 | % | $ | 2,767 | 5.20 | % | $ | 4,487 | 4.60 | % | $ | 0 | 0.00 | % | $ | 7,254 | 4.83 | % | $ | 7,141 | ||||||||||||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||||||||||||||||||||||||||||
Taxable | 0 | 0.00 | % | 749 | 3.83 | % | 0 | 0.00 | % | 0 | 0.00 | % | 749 | 3.83 | % | 727 | ||||||||||||||||||||||||||||
Tax-exempt | 6,871 | 3.48 | % | 7,747 | 3.76 | % | 5,526 | 3.96 | % | 9,073 | 4.35 | % | 29,217 | 3.92 | % | 29,260 | ||||||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | % | 163 | 4.92 | % | 1,266 | 4.28 | % | 16,538 | 4.57 | % | 17,967 | 4.55 | % | 17,395 | ||||||||||||||||||||||||||||
Total | $ | 6,871 | 3.48 | % | $ | 11,426 | 4.19 | % | $ | 11,279 | 4.40 | % | $ | 25,611 | 4.61 | % | $ | 55,187 | 4.48 | % | $ | 54,523 | ||||||||||||||||||||||
Maturity of time deposits of $100,000 | ||||||||
or more at September 30, 2006 | ||||||||
Time remaining to maturity | Amount | Percent of total | ||||||
Within three months | $ | 3,970,602 | 12.73 | % | ||||
Beyond three but within six months | 4,776,924 | 15.32 | % | |||||
Beyond six but within twelve months | 10,853,608 | 34.81 | % | |||||
Beyond one year | 11,580,064 | 37.14 | % | |||||
Total | $ | 31,181,198 | 100.00 | % | ||||
2005 | 2004 | 2003 | ||||||||||
Balance at year end | $ | 6,710,914 | $ | 1,871,763 | $ | 444,819 | ||||||
Average balance outstanding | 1,844,018 | 298,500 | 726,874 | |||||||||
Maximum month-end balance | 6,710,914 | 2,057,054 | 2,327,544 | |||||||||
Weighted average rate at year end | 4.38 | % | 3.80 | % | 0.23 | % | ||||||
Weighted average rate during the year | 5.63 | % | 0.73 | % | 0.56 | % |
56
Table of Contents
- | directly or indirectly acquiring ownership or control of any voting shares of another bank or bank holding company, if after the acquisition the acquiring company would own or control more than 5% of the shares of the other bank or bank holding company (unless the acquiring company already owns or controls a majority of the shares), | ||
- | acquiring all or substantially all of the assets of another bank, or | ||
- | merging or consolidating with another bank holding company. |
57
Table of Contents
- | financial in nature or incidental to that financial activity, or | ||
- | complementary to a financial activity and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. |
- | acting as principal, agent, or broker for insurance, | ||
- | underwriting, dealing in, or making a market in securities, and | ||
- | providing financial and investment advice. |
58
Table of Contents
- | the allowance for loan losses, up to a maximum of 1.25% of risk-weighted assets, - - any qualifying perpetual preferred stock exceeding the amount includable in Tier 1 capital, | ||
- | mandatory convertible securities, and | ||
- | subordinated debt and intermediate term preferred stock, up to 50% of Tier 1 capital. |
59
Table of Contents
Minimum | Minimum | |||||||||||
At | necessary to | necessary to | ||||||||||
September | be well | be adequately | ||||||||||
30, 2006 | capitalized | capitalized | ||||||||||
total risk-based capital | 14.67 | % | 10.00 | % | 8.00 | % | ||||||
tier 1 risk-based capital | 13.43 | % | 6.00 | % | 4.00 | % | ||||||
leverage ratio | 9.42 | % | 5.00 | % | 3.00 | % |
- | limit the extent to which a bank or its subsidiaries may lend to or engage in various other kinds of transactions with any one affiliate to an amount equal to 10% of the institution’s capital and surplus, limiting the aggregate of covered transactions with all affiliates to 20% of capital and surplus, | |
- | impose restrictions on investments by a subsidiary bank in the stock or securities of its holding company, | |
- | impose restrictions on the use of a holding company’s stock as collateral for loans by the subsidiary bank, and | |
- | require that affiliate transactions be on terms substantially the same, or at least as favorable to the institution or subsidiary, as those provided to a non-affiliate. |
60
Table of Contents
Main office: | Mantua Branch | |
15985 East High Street | 10519 South Main Street | |
Middlefield, Geauga County, Ohio | Mantua, Portage County, Ohio | |
(owned) | (three-year lease renewed in November | |
2004, with option to renew for six | ||
additional consecutive three-year terms) | ||
West Branch | Chardon Branch | |
15545 West High Street | 348 Center Street | |
Middlefield, Geauga County, Ohio | Chardon, Geauga County, Ohio | |
(owned) | (owned) | |
Garrettsville Branch | Orwell Branch | |
8058 State Street | 30 South Maple Avenue |
61
Table of Contents
Garrettsville, Portage County, Ohio | Orwell, Ashtabula County, Ohio | |
(owned) | (owned) |
11110 Kinsman Road
Newbury, Geauga County, Ohio
(opened December 26, 2006)
(10-year lease with option to renew for four
additional five-year terms)
As of and for the nine | ||||||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||||||
September 30, | As of and for the year ended December 31, | |||||||||||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
Income Statement Data | ||||||||||||||||||||||||||||
Interest income | $ | 14,327,027 | $ | 12,817,987 | $ | 17,378,504 | $ | 15,732,536 | $ | 14,647,163 | $ | 14,119,963 | $ | 13,706,569 | ||||||||||||||
Interest expense | 6,129,689 | 4,840,076 | 6,654,614 | 5,768,898 | 5,724,907 | 6,148,086 | 6,747,922 | |||||||||||||||||||||
Net interest income | 8,197,338 | 7,977,911 | 10,723,890 | 9,963,638 | 8,922,256 | 7,971,877 | 6,958,647 | |||||||||||||||||||||
Provision for loan losses | 240,000 | 195,000 | 302,000 | 174,000 | 315,000 | 300,000 | 170,000 | |||||||||||||||||||||
Net interest income after provision for loan losses | 7,957,338 | 7,782,911 | 10,421,890 | 9,789,638 | 8,607,256 | 7,671,877 | 6,788,647 | |||||||||||||||||||||
Noninterest income, including securities gains (losses) | 1,788,583 | 1,566,894 | 2,119,237 | 1,779,231 | 1,428,144 | 1,143,217 | 1,194,193 | |||||||||||||||||||||
Noninterest expense | 5,976,168 | 5,741,520 | 7,424,640 | 6,965,706 | 6,105,450 | 5,206,339 | 4,741,374 | |||||||||||||||||||||
Income before income taxes | 3,769,753 | 3,608,285 | 5,116,487 | 4,603,163 | 3,929,950 | 3,608,755 | 3,241,466 | |||||||||||||||||||||
Income taxes | 1,033,587 | 1,001,000 | 1,415,156 | 1,330,000 | 1,131,330 | 1,107,806 | 970,859 | |||||||||||||||||||||
Net income | $ | 2,736,166 | $ | 2,607,285 | $ | 3,701,331 | $ | 3,273,163 | $ | 2,798,620 | $ | 2,500,949 | $ | 2,270,607 | ||||||||||||||
Balance Sheet Data | ||||||||||||||||||||||||||||
Loans, net | 241,802,547 | 223,113,217 | 231,213,699 | 213,029,852 | 190,358,883 | 172,642,646 | 150,766,103 | |||||||||||||||||||||
Total deposits | 264,705,898 | 248,166,687 | 249,449,640 | 239,885,451 | 219,839,910 | 187,384,494 | 167,382,728 | |||||||||||||||||||||
FHLB advances | 28,690,292 | 27,242,436 | 26,578,211 | 23,683,324 | 17,665,661 | 15,690,053 | 9,301,334 | |||||||||||||||||||||
Total stockholders’ equity | 29,567,232 | 26,685,796 | 27,289,365 | 24,822,024 | 23,504,314 | 21,746,408 | 19,786,807 | |||||||||||||||||||||
Total assets | 325,674,611 | 305,321,644 | 311,214,191 | 291,213,986 | 262,369,448 | 226,245,533 | 197,857,964 | |||||||||||||||||||||
Per Common Share Data(1) | ||||||||||||||||||||||||||||
Basic net income | $ | 1.93 | $ | 1.86 | $ | 2.64 | $ | 2.28 | $ | 1.98 | $ | 1.77 | $ | 1.61 |
62
Table of Contents
As of and for the nine | ||||||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||||||
September 30, | As of and for the year ended December 31, | |||||||||||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
Diluted net income | 1.90 | 1.83 | 2.60 | 2.27 | 1.96 | 1.75 | 1.59 | |||||||||||||||||||||
Book value | 20.74 | 18.83 | 19.25 | 17.67 | 16.49 | 15.35 | 13.93 | |||||||||||||||||||||
Weighted Average Number of Shares | ||||||||||||||||||||||||||||
Basic | 1,421,768 | 1,410,629 | 1,407,598 | 1,428,908 | 1,417,316 | 1,406,789 | 1,410,459 | |||||||||||||||||||||
Diluted | 1,444,915 | 1,432,093 | 1,428,765 | 1,441,845 | 1,421,197 | 1,409,097 | 1,411,921 | |||||||||||||||||||||
Selected Ratios | ||||||||||||||||||||||||||||
Return on average equity | 12.98 | % | 13.81 | % | 14.43 | % | 13.36 | % | 12.39 | % | 12.08 | % | 11.89 | % | ||||||||||||||
Return on average assets | 1.16 | % | 1.16 | % | 1.23 | % | 1.17 | % | 1.13 | % | 1.17 | % | 1.22 | % | ||||||||||||||
Dividend payout ratio | 34.98 | % | 33.17 | % | 32.10 | % | 32.72 | % | 34.37 | % | 34.30 | % | 34.00 | % | ||||||||||||||
Efficiency ratio (2) | 58.99 | % | 60.15 | % | 54.17 | % | 57.83 | % | 56.42 | % | 55.24 | % | 60.13 | % | ||||||||||||||
Asset Quality Ratios | ||||||||||||||||||||||||||||
Reserve for loan losses to ending total loans | 1.25 | % | 1.21 | % | 1.21 | % | 1.22 | % | 1.31 | % | 1.31 | % | 1.35 | % | ||||||||||||||
Net loan charge-offs to average loans | 0.01 | % | 0.03 | % | 0.04 | % | 0.04 | % | 0.05 | % | 0.04 | % | 0.10 | % | ||||||||||||||
Capital Ratios | ||||||||||||||||||||||||||||
Tier 1 leverage ratio (3) | 9.42 | % | 8.75 | % | 9.10 | % | 8.52 | % | 8.89 | % | 9.39 | % | 10.03 | % | ||||||||||||||
Tier 1 risk-based capital ratio(3) | 13.43 | % | 12.89 | % | 13.16 | % | 13.01 | % | 14.48 | % | 15.29 | % | 16.48 | % | ||||||||||||||
Total risk-based capital ratio (3) | 14.67 | % | 14.15 | % | 14.41 | % | 14.26 | % | 15.74 | % | 16.54 | % | 17.73 | % |
(1) | Per share amounts are adjusted for 5% stock dividends paid in each year in the period from 2002 through 2006 | |
(2) | Efficiency ratio is noninterest expense divided by the sum of net interest income plus noninterest income minus nonrecurring items. | |
(3) | Computed in accordance with Federal Reserve Board and FDIC guidelines. |
Three Months Ended | ||||||||||||
March 31, | September 30, | |||||||||||
2006 | June 30, 2006 | 2006 | ||||||||||
Total interest income | $ | 4,560,636 | $ | 4,790,313 | $ | 4,976,078 | ||||||
Total interest expense | 1,874,659 | 2,037,549 | 2,217,481 | |||||||||
Net interest income | 2,685,977 | 2,752,764 | 2,758,597 | |||||||||
Provision for loan losses | 75,000 | 75,000 | 90,000 | |||||||||
Net interest income after provision for loan losses | 2,610,977 | 2,677,764 | 2,668,597 | |||||||||
Total noninterest income | 550,326 | 594,655 | 643,602 | |||||||||
Total noninterest expense | 2,035,731 | 1,898,032 | 2,042,405 | |||||||||
Income before income taxes | 1,125,572 | 1,374,387 | 1,269,794 | |||||||||
Income taxes | 308,000 | 386,587 | 339,000 | |||||||||
Net income | $ | 817,572 | $ | 987,800 | $ | 930,794 | ||||||
Per share data* | ||||||||||||
Net income, basic | $ | 0.58 | $ | 0.70 | $ | 0.65 | ||||||
Net income, diluted | 0.57 | 0.69 | 0.64 | |||||||||
Average shares outstanding | ||||||||||||
Basic | 1,419,305 | 1,418,496 | 1,424,003 | |||||||||
Diluted | 1,441,845 | 1,441,861 | 1,447,454 |
* | Per share amounts are adjusted for a 5% stock dividend paid on December 15, 2006 |
63
Table of Contents
Three Months Ended | ||||||||||||||||
March 31, | September 30, | December 31, | ||||||||||||||
2005 | June 30, 2005 | 2005 | 2005 | |||||||||||||
Total interest income | $ | 4,115,912 | $ | 4,274,683 | $ | 4,427,392 | $ | 4,560,517 | ||||||||
Total interest expense | 1,547,711 | 1,628,943 | 1,663,422 | 1,814,538 | ||||||||||||
Net interest income | 2,568,201 | 2,645,740 | 2,763,970 | 2,745,979 | ||||||||||||
Provision for loan losses | 60,000 | 60,000 | 75,000 | 107,000 | ||||||||||||
Net interest income after provision for loan losses | 2,508,201 | 2,585,740 | 2,688,970 | 2,638,979 | ||||||||||||
Total noninterest income | 481,104 | 526,515 | 559,275 | 552,343 | ||||||||||||
Total noninterest expense | 2,013,215 | 1,846,301 | 1,882,004 | 1,683,119 | ||||||||||||
Income before income taxes | 976,090 | 1,265,954 | 1,366,241 | 1,508,203 | ||||||||||||
Income taxes | 262,000 | 349,000 | 390,000 | 414,156 | ||||||||||||
Net income | $ | 714,090 | $ | 916,954 | $ | 976,241 | $ | 1,094,047 | ||||||||
Per share data* | ||||||||||||||||
Net income, basic | $ | 0.51 | $ | 0.66 | $ | 0.70 | $ | 0.78 | ||||||||
Net income, diluted | 0.50 | 0.65 | 0.69 | 0.76 | ||||||||||||
Average shares outstanding | ||||||||||||||||
Basic | 1,396,290 | 1,401,902 | 1,405,230 | 1,409,210 | ||||||||||||
Diluted | 1,403,805 | 1,424,660 | 1,427,987 | 1,430,625 |
* | Per share amounts are adjusted for stock dividends |
Three Months Ended | ||||||||||||||||
March 31, | September 30, | December 31, | ||||||||||||||
2004 | June 30, 2004 | 2004 | 2004 | |||||||||||||
Total interest income | $ | 3,798,928 | $ | 3,889,197 | $ | 3,978,576 | $ | 4,065,835 | ||||||||
Total interest expense | 1,383,071 | 1,411,961 | 1,456,471 | 1,517,395 | ||||||||||||
Net interest income | 2,415,857 | 2,477,236 | 2,522,105 | 2,548,440 | ||||||||||||
Provision for loan losses | 30,000 | 30,000 | 51,000 | 63,000 | ||||||||||||
Net interest income after provision for loan losses | 2,385,857 | 2,447,236 | 2,471,105 | 2,485,440 | ||||||||||||
Total noninterest income | 396,719 | 485,889 | 484,244 | 412,379 | ||||||||||||
Total noninterest expense | 1,781,318 | 1,682,607 | 1,803,558 | 1,698,223 | ||||||||||||
Income before income taxes | 1,001,258 | 1,250,518 | 1,151,791 | 1,199,596 | ||||||||||||
Income taxes | 316,000 | 342,000 | 330,000 | 342,000 | ||||||||||||
Net income | $ | 685,258 | $ | 908,518 | $ | 821,791 | $ | 857,596 | ||||||||
Per share data* | ||||||||||||||||
Net income, basic | $ | 0.49 | $ | 0.64 | $ | 0.57 | $ | 0.60 | ||||||||
Net income, diluted | 0.49 | 0.64 | 0.57 | 0.59 | ||||||||||||
Average shares outstanding | ||||||||||||||||
Basic | 1,352,863 | 1,424,657 | 1,432,201 | 1,430,579 | ||||||||||||
Diluted | 1,360,377 | 1,433,676 | 1,441,220 | 1,446,181 |
* | Per share amounts are adjusted for stock dividends |
64
Table of Contents
65
Table of Contents
For the year ended December 31, | ||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||
(dollars in thousands) | balance | Interest | yield/cost | balance | Interest | yield/cost | balance | Interest | yield/cost | |||||||||||||||||||||||||||
Interest-earning Assets | ||||||||||||||||||||||||||||||||||||
Loans receivable | $ | 222,926 | $ | 15,041 | 6.75 | % | $ | 204,191 | $ | 13,618 | 6.67 | % | $ | 183,683 | $ | 12,847 | 6.99 | % | ||||||||||||||||||
Investment securities | 59,370 | 2,218 | 4.49 | % | 54,413 | 2,004 | 4.25 | % | 45,011 | 1,683 | 4.30 | % | ||||||||||||||||||||||||
Interest-bearing deposits with other banks | 2,698 | 120 | 4.45 | % | 5,723 | 111 | 1.94 | % | 6,883 | 117 | 1.70 | % | ||||||||||||||||||||||||
Total interest-earning assets | 284,994 | 17,379 | 6.21 | % | 264,327 | 15,733 | 6.07 | % | 235,577 | 14,647 | 6.32 | % | ||||||||||||||||||||||||
Noninterest-earning assets | 16,926 | 15,030 | 12,327 | |||||||||||||||||||||||||||||||||
Total assets | $ | 301,920 | $ | 279,357 | 247,904 | |||||||||||||||||||||||||||||||
Interest-bearing Liabilities | ||||||||||||||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 9,371 | 75 | 0.80 | % | $ | 8,759 | 56 | 0.64 | % | 8,623 | 61 | 0.71 | % | ||||||||||||||||||||||
Money market deposits | 15,016 | 297 | 1.98 | % | 15,145 | 277 | 1.83 | % | 13,355 | 259 | 1.94 | % | ||||||||||||||||||||||||
Savings deposits | 69,680 | 1,047 | 1.50 | % | 73,067 | 1,030 | 1.41 | % | 57,413 | 828 | 1.44 | % | ||||||||||||||||||||||||
Certificates of deposit | 115,969 | 4,101 | 3.54 | % | 103,022 | 3,543 | 3.44 | % | 98,512 | 3,758 | 3.81 | % | ||||||||||||||||||||||||
Borrowings | 26,577 | 1,135 | 4.27 | % | 20,630 | 863 | 4.18 | % | 19,635 | 819 | 4.17 | % | ||||||||||||||||||||||||
Total interest-bearing liabilities | 236,613 | 6,655 | 2.81 | % | 220,623 | 5,769 | 2.61 | % | 197,538 | 5,725 | 2.90 | % | ||||||||||||||||||||||||
Other liabilities | 39,682 | 34,236 | 27,773 | |||||||||||||||||||||||||||||||||
Stockholders’ equity | 25,625 | 24,498 | 22,594 | |||||||||||||||||||||||||||||||||
66
Table of Contents
For the year ended December 31, | ||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||
(dollars in thousands) | balance | Interest | yield/cost | balance | Interest | yield/cost | balance | Interest | yield/cost | |||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 301,920 | $ | 279,357 | $ | 247,905 | ||||||||||||||||||||||||||||||
Net interest income | $ | 10,724 | $ | 9,964 | $ | 8,922 | ||||||||||||||||||||||||||||||
Interest rate spread(1) | 3.39 | % | 3.46 | % | 3.42 | % | ||||||||||||||||||||||||||||||
Net yield on interest-earning assets(2) | 3.92 | % | 3.89 | % | 3.89 | % | ||||||||||||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 120.45 | % | 119.81 | % | 119.26 | % |
(1) | Interest rate spread is the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. | |
(2) | Net yield on interest-earning assets is net interest income as a percentage of average interest-earning assets. |
For the nine months ended September 30, | ||||||||||||||||||||||||
2006 | 2005 | |||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||
(dollars in thousands) | balance | Interest | yield/cost(1) | balance | Interest | yield/cost(1) | ||||||||||||||||||
Interest-earning Assets | ||||||||||||||||||||||||
Loans receivable | $ | 238,285 | $ | 12,598 | 7.07 | % | $ | 220,824 | $ | 11,065 | 6.70 | % | ||||||||||||
Investment securities | 57,086 | 1,617 | 4.69 | % | 59,293 | 1,663 | 4.47 | % | ||||||||||||||||
Interest-bearing deposits with other banks | 3,207 | 112 | 4.67 | % | 2,955 | 90 | 4.07 | % | ||||||||||||||||
Total interest-earning assets | 298,578 | 14,327 | 6.59 | % | 283,072 | 12,818 | 6.21 | % | ||||||||||||||||
Noninterest-earning assets | 16,028 | 16,871 | ||||||||||||||||||||||
Total assets | $ | 314,606 | $ | 299,943 | ||||||||||||||||||||
Interest-bearing Liabilities | ||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 10,982 | 100 | 1.22 | % | $ | 9,370 | 54 | 0.77 | % | ||||||||||||||
Money market deposits | 13,261 | 257 | 2.59 | % | 15,508 | 217 | 1.87 | % | ||||||||||||||||
Savings deposits | 59,147 | 696 | 1.57 | % | 71,170 | 779 | 1.46 | % | ||||||||||||||||
Certificates of deposit | 131,997 | 4,032 | 4.08 | % | 113,745 | 2,991 | 3.52 | % | ||||||||||||||||
Borrowings | 30,873 | 1,044 | 4.52 | % | 25,708 | 799 | 4.16 | % | ||||||||||||||||
Total interest-bearing liabilities | 246,260 | 6,129 | 3.33 | % | 235,501 | 4,840 | 2.75 | % | ||||||||||||||||
Noninterest-bearing liabilities | ||||||||||||||||||||||||
Other liabilities | 40,154 | 39,261 | ||||||||||||||||||||||
Stockholders’ equity | 28,192 | 25,181 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 314,606 | $ | 299,943 | ||||||||||||||||||||
Net interest income | $ | 8,198 | $ | 7,978 | ||||||||||||||||||||
Interest rate spread(2) | 3.26 | % | 3.46 | % | ||||||||||||||||||||
Net yield on interest-earning assets(3) | 3.84 | % | 3.92 | % | ||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 121.25 | % | 120.20 | % |
(1) | Average yields are computed using annualized interest income and expense |
67
Table of Contents
(2) | Interest rate spread is the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. | |
(3) | Net yield on interest-earning assets is net interest income as a percentage of average interest-earning assets. |
Year ended December 31, 2005 vs. 2004 | Year ended December 31, 2004 vs. 2003 | |||||||||||||||||||||||
increase (decrease) due to ... | increase (decrease) due to ... | |||||||||||||||||||||||
(in thousands) | Volume | Rate | Total | Volume | Rate | Total | ||||||||||||||||||
Interest Income | ||||||||||||||||||||||||
Loans receivable | $ | 1,249 | $ | 174 | $ | 1,423 | $ | 1,434 | $ | (663 | ) | $ | 771 | |||||||||||
Investment securities | 211 | 3 | 214 | 404 | (83 | ) | 321 | |||||||||||||||||
Other interest-earning assets | (59 | ) | 68 | 9 | (20 | ) | 14 | (6 | ) | |||||||||||||||
Total interest-earning assets | 1,401 | 245 | 1,646 | 1,818 | (732 | ) | 1,086 | |||||||||||||||||
Interest Expense | ||||||||||||||||||||||||
Interest-bearing demand | 4 | 15 | 19 | 11 | (16 | ) | (5 | ) | ||||||||||||||||
Money market | (2 | ) | 22 | 20 | 79 | (61 | ) | 18 | ||||||||||||||||
Savings | (48 | ) | 65 | 17 | 563 | (361 | ) | 202 | ||||||||||||||||
Certificates | 445 | 113 | 558 | 487 | (702 | ) | (215 | ) | ||||||||||||||||
Other interest-bearing liabilities | 249 | 23 | 272 | 212 | (168 | ) | 44 | |||||||||||||||||
Total interest-bearing liabilities | 648 | 238 | 886 | 1,352 | (1,308 | ) | 44 | |||||||||||||||||
Change in net interest income | $ | 753 | $ | 7 | $ | 760 | $ | 466 | $ | 576 | $ | 1,042 | ||||||||||||
Nine months ended September 30, 2006 vs. 2005 | ||||||||||||
increase (decrease) due to ... | ||||||||||||
(in thousands) | Volume | Rate | Total | |||||||||
Interest Income | ||||||||||||
Loans receivable | $ | 64 | $ | 1,469 | $ | 1,533 | ||||||
Investment securities | (5 | ) | (41 | ) | (46 | ) | ||||||
Other interest-earning assets | 2 | 20 | 22 | |||||||||
Total interest-earning assets | 61 | 1,448 | 1,509 | |||||||||
Interest Expense | ||||||||||||
Interest-bearing demand | 7 | 39 | 46 | |||||||||
Money market | (16 | ) | 56 | 40 | ||||||||
Savings | (13 | ) | (70 | ) | (83 | ) | ||||||
Certificates | 104 | 937 | 1,041 | |||||||||
Other interest-bearing liabilities | 19 | 226 | 245 | |||||||||
Total interest-bearing liabilities | 100 | 1,189 | 1,289 | |||||||||
Change in net interest income | $ | (39 | ) | $ | 259 | $ | 220 | |||||
68
Table of Contents
69
Table of Contents
70
Table of Contents
Nine-month period ended | ||||||||||||||||||||||||||||
September 30, | Year ended December 31, | |||||||||||||||||||||||||||
(dollars in thousands) | 2006 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||||||
Allowance balance at beginning of period | $ | 2,841 | $ | 2,623 | $ | 2,623 | $ | 2,521 | $ | 2,300 | $ | 2,062 | $ | 2,037 | ||||||||||||||
Loans charged off: | ||||||||||||||||||||||||||||
Commercial and industrial | (103 | ) | (74 | ) | (103 | ) | (61 | ) | (75 | ) | (67 | ) | (74 | ) | ||||||||||||||
Real estate – construction | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Real estate – mortgage: | ||||||||||||||||||||||||||||
Residential | (15 | ) | (14 | ) | (15 | ) | 0 | (32 | ) | 0 | (29 | ) | ||||||||||||||||
Commercial | 0 | 0 | 0 | 0 | 0 | 0 | (92 | ) | ||||||||||||||||||||
Consumer installment | (61 | ) | (34 | ) | (61 | ) | (57 | ) | (37 | ) | (52 | ) | (71 | ) | ||||||||||||||
Total loans charged off | (179 | ) | (122 | ) | (179 | ) | (118 | ) | (144 | ) | (119 | ) | (266 | ) | ||||||||||||||
Recoveries of loans previously charged off: | ||||||||||||||||||||||||||||
Commercial and industrial | 64 | 36 | 64 | 27 | 28 | 24 | 4 | |||||||||||||||||||||
Real estate – construction | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Real estate – mortgage: | ||||||||||||||||||||||||||||
Residential | 17 | 0 | 17 | 3 | 0 | 0 | 0 | |||||||||||||||||||||
Commercial | 0 | 0 | 0 | 0 | 0 | 0 | 95 | |||||||||||||||||||||
Consumer installment | 14 | 4 | 14 | 16 | 22 | 33 | 22 | |||||||||||||||||||||
Total recoveries | 95 | 40 | 95 | 46 | 50 | 57 | 121 | |||||||||||||||||||||
71
Table of Contents
Nine-month period ended | ||||||||||||||||||||||||||||
September 30, | Year ended December 31, | |||||||||||||||||||||||||||
(dollars in thousands) | 2006 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||||||
Net loans recovered (charged off) | (84 | ) | (82 | ) | (84 | ) | (72 | ) | (94 | ) | (62 | ) | (145 | ) | ||||||||||||||
Provision for loan losses | 302 | 195 | 302 | 174 | 315 | 300 | 170 | |||||||||||||||||||||
Allowance balance at end of period | $ | 3,059 | $ | 2,736 | $ | 2,841 | $ | 2,623 | $ | 2,521 | $ | 2,300 | $ | 2,062 | ||||||||||||||
Loans outstanding: | ||||||||||||||||||||||||||||
Average | $ | 238,285 | $ | 220,106 | $ | 222,926 | $ | 204,191 | $ | 183,683 | $ | 163,828 | $ | 143,560 | ||||||||||||||
End of period | 244,860 | 225,161 | 234,055 | 215,653 | 192,880 | 174,943 | 152,828 | |||||||||||||||||||||
Ratio of allowance for loan losses to loans outstanding at end of period | 1.25 | % | 1.22 | % | 1.21 | % | 1.22 | % | 1.31 | % | 1.31 | % | 1.35 | % | ||||||||||||||
Net recoveries (charge offs) to average loans | (0.04 | )% | (0.04 | )% | (0.04 | )% | (0.04 | )% | (0.05 | )% | (0.04 | )% | (0.10 | )% |
Allocation of the allowance for loan losses at December 31, | ||||||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||||||||||||||||
Percent of | Percent of | Percent of | Percent of | Percent of | ||||||||||||||||||||||||||||||||||||
loans in | loans in | loans in | loans in | loans in | ||||||||||||||||||||||||||||||||||||
each | each | each | each | each | ||||||||||||||||||||||||||||||||||||
category to | category to | category to | category to | category to | ||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Amount | total loans | Amount | total loans | Amount | total loans | Amount | total loans | Amount | total loans | ||||||||||||||||||||||||||||||
Type of loan: | ||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 1,151 | 27.6 | % | $ | 1,139 | 24.1 | % | $ | 568 | 21.8 | % | $ | 611 | 18.8 | % | $ | 722 | 18.5 | % | ||||||||||||||||||||
Real estate – construction | 50 | 1.2 | % | 31 | 1.8 | % | 32 | 1.8 | % | 38 | 1.8 | % | 37 | 2.1 | % | |||||||||||||||||||||||||
Real estate – mortgage: | ||||||||||||||||||||||||||||||||||||||||
Residential | 965 | 64.9 | % | 1,019 | 68.4 | % | 844 | 69.5 | % | 888 | 70.8 | % | 781 | 74.0 | % | |||||||||||||||||||||||||
Commercial | 297 | 3.5 | % | 145 | 3.2 | % | 228 | 4.1 | % | 230 | 5.4 | % | 161 | 2.2 | % | |||||||||||||||||||||||||
Consumer installment | 128 | 2.8 | % | 123 | 2.7 | % | 120 | 2.9 | % | 124 | 3.1 | % | 111 | 3.2 | % | |||||||||||||||||||||||||
Unallocated | 250 | 166 | 435 | 409 | 250 | |||||||||||||||||||||||||||||||||||
Total | $ | 2,841 | 100 | % | $ | 2,623 | 100 | % | $ | 2,227 | 100.00 | % | $ | 2,300 | 100 | % | $ | 2,062 | 100 | % | ||||||||||||||||||||
Allocation of the allowance for loan losses at September 30, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
Percent of loans in | Percent of loans in | |||||||||||||||
each category to | each category to | |||||||||||||||
total | total | |||||||||||||||
(dollars in thousands) | Amount | loans | Amount | loans | ||||||||||||
Type of loan: | ||||||||||||||||
Commercial and industrial | $ | 1,071 | 27.3 | % | $ | 1,027 | 27.4 | % | ||||||||
Real estate – construction | 37 | 1.5 | % | 25 | 1.1 | % | ||||||||||
Real estate – mortgage: | ||||||||||||||||
Residential | 1,109 | 65.3 | % | 980 | 65.4 | % | ||||||||||
Commercial | 274 | 3.6 | % | 265 | 3.4 | % | ||||||||||
Consumer installment | 120 | 2.3 | % | 146 | 2.8 | % | ||||||||||
Unallocated | 438 | 288 | ||||||||||||||
Total | $ | 3,050 | 100 | % | $ | 2,731 | 100 | % | ||||||||
72
Table of Contents
At December 31, | ||||||||||||||||||||||||
At September 30, | ||||||||||||||||||||||||
(dollars in thousands) | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||
Loans accounted for on a nonaccrual basis: | ||||||||||||||||||||||||
Commercial and industrial | $ | 940 | $ | 859 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Real estate – construction | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Real estate – mortgage: | ||||||||||||||||||||||||
Residential | 748 | 607 | 279 | 372 | 357 | 48 | ||||||||||||||||||
Commercial | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Consumer installment | 6 | 21 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Total nonaccrual loans | 1,694 | 1,487 | 279 | 372 | 357 | 48 | ||||||||||||||||||
Accruing loans contractually past due 90 days or more: | ||||||||||||||||||||||||
Commercial and industrial | 15 | 248 | 239 | 4 | 30 | 9 | ||||||||||||||||||
Real estate – construction | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Real estate – mortgage: | ||||||||||||||||||||||||
Residential | 18 | 70 | 722 | 114 | 144 | 216 | ||||||||||||||||||
Commercial | 0 | 0 | 209 | 0 | 0 | 0 | ||||||||||||||||||
Consumer installment | 14 | 9 | 25 | 19 | 7 | 20 | ||||||||||||||||||
Total accruing loans contractually past due 90 days or more | 47 | 327 | 1,195 | 137 | 181 | 245 | ||||||||||||||||||
Total nonperforming loans | 1,741 | 1,814 | 1,474 | 509 | 538 | 293 | ||||||||||||||||||
Real estate owned | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Other nonperforming assets | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Total nonperforming assets | $ | 1,741 | $ | 1,814 | $ | 1,474 | $ | 509 | $ | 538 | $ | 293 | ||||||||||||
Total nonperforming loans to total loans | 0.71 | % | 0.78 | % | 0.68 | % | 0.26 | % | 0.31 | % | 0.19 | % | ||||||||||||
Total nonperforming loans to total assets | 0.53 | % | 0.58 | % | 0.51 | % | 0.19 | % | 0.24 | % | 0.15 | % | ||||||||||||
Total nonperforming assets to total assets | 0.53 | % | 0.58 | % | 0.51 | % | 0.19 | % | 0.24 | % | 0.15 | % |
73
Table of Contents
Increase + 200 | Decrease – 200 | |||||||
basis points | basis points | |||||||
Net interest income – increase (decrease) | 8.2 | % | (9.1 | )% | ||||
Portfolio equity – increase (decrease) | (3.1 | )% | 1.5 | % |
74
Table of Contents
Contractual obligations at December 31, 2005 | ||||||||||||||||||||
Less than 1 | After 5 | |||||||||||||||||||
(in thousands) | Total | year | 1 – 3 years | 4 – 5 years | years | |||||||||||||||
Short-term borrowings | $ | 6,711 | $ | 6,711 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
Federal Home Loan Bank advances | 26,578 | 4,092 | 15,642 | 4,565 | 2,279 | |||||||||||||||
Total | $ | 33,289 | $ | 10,803 | $ | 15,642 | $ | 4,565 | $ | 22,279 | ||||||||||
Commitments to extend credit at December 31, 2005 | ||||||||||||||||||||
Less than 1 | After 5 | |||||||||||||||||||
(in thousands) | Total | year | 1 – 3 years | 4 – 5 years | years | |||||||||||||||
Standby letters of credit | $ | 125 | $ | 125 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
Other commitments to extend credit(1) | 45,678 | 45,678 | 0 | 0 | 0 | |||||||||||||||
Total | $ | 45,803 | $ | 45,803 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
(1) | amounts committed to customers |
75
Table of Contents
director | term expires at the | |||||||||||||
age | since | annual meeting in | principal occupation in the last five years | |||||||||||
Thomas G. Caldwell | 49 | 1997 | 2007 | Mr. Caldwell is President and Chief Executive Officer of Middlefield and the bank. Mr. Caldwell served as Vice President of Middlefield until October 2000, when he became its President and CEO | ||||||||||
Richard T. Coyne | 71 | 1997 | 2009 | In 2006 Mr. Coyne retired as the General Manager of Jaco Products, a production plastics component manufacturer located in Middlefield, Ohio, and as Vice President of Capital Plastics, a coin and currency manufacturer located in Massillon, Ohio | ||||||||||
Frances H. Frank | 59 | 1995 | 2008 | Mrs. Frank is the Secretary and Treasurer of The Frank Agency, Inc., a general insurance agency located in Middlefield, Ohio | ||||||||||
Thomas C. Halstead | 75 | 1988 | 2008 | Mr. Halstead is co-owner of Settlers Farm, a retail shopping area located in Middlefield, Ohio. He previously was owner of Settlers Collections, a retail gift outlet | ||||||||||
James R. Heslop II | 53 | 2001 | 2009 | Executive Vice President and Chief Operating Officer of the bank since 1996, Mr. Heslop became Executive Vice President and Chief Operating Officer of Middlefield on October 30, 2000. He has also served as Corporate Secretary of Middlefield and the bank since May 2006. Mr. Heslop became became a director of the bank in July 1999 and a director of Middlefield on November 19, 2001. From July 1993 until joining the bank in April 1996, Mr. Heslop was a director, President, and Chief Executive Officer of First County Bank in Chardon, Ohio, an institution with total assets exceeding $40 million. First County Bank is an affiliate of FNB Corporation of Hermitage, Pennsylvania | ||||||||||
Donald D. Hunter | 78 | 1977 | 2007 | Mr. Hunter serves as Chairman of the Board of each of Middlefield and the bank. He is a retired retail merchant | ||||||||||
James J. McCaskey | 43 | 2004 | 2008 | Mr. McCaskey is the President of McCaskey Landscape & Design, LLC, a design-build landscape development company. Previously, he was the Vice President of Sales for the Pattie Group, also a design-build landscape development company, with which he had been employed for seventeen years | ||||||||||
Carolyn J. Turk | 50 | 2004 | 2007 | Ms. Turk is the Corporate Controller of Molded Fiber Glass Company and a licensed CPA | ||||||||||
Donald E. Villers | 73 | 1987 | 2009 | Mr. Villers is retired, having previously served as a superintendent with Copperweld Steel, from which he retired after 31 years of service |
76
Table of Contents
age | principal occupation in the last five years | |||||
Jay P. Giles | 57 | Mr. Giles is Senior Vice President – Senior Lender. He joined the bank in September 1998, having previously served as Vice President and Senior Commercial Lender at Huntington National Bank in Burton, Ohio, since 1985 | ||||
Teresa M. Hetrick | 43 | Ms. Hetrick is Senior Vice President – Operations/Administration. Ms. Hetrick served as Vice President and Secretary of First County Bank in Chardon, Ohio, before joining the bank in December 1996 | ||||
Jack L. Lester | 61 | Mr. Lester is Vice President – Compliance and Security Officer. He joined the bank in August 1990 as a loan officer and has served in his current position since 1991 | ||||
Donald L. Stacy | 53 | Mr. Stacy joined the bank in August 1999 and serves as its Senior Vice President and Chief Financial Officer. On October 30, 2000, he was appointed as the Treasurer and Chief Financial Officer of Middlefield. He previously served for 20 years with Security Dollar Bank and Security Financial Corp. in Niles, Ohio, where he was Senior Vice President and Treasurer | ||||
Alfred F. Thompson Jr. | 47 | Mr. Thompson is the bank’s Vice President – Loan Administration. Mr. Thompson has been with the bank since March 1996. He was promoted from loan officer to Assistant Vice President in 1997, and promoted again to his current position in 1998. Before joining the bank, Mr. Thompson served as Loan Officer in the Small Business Group of National City Bank, Northeast |
- | is not employed by Middlefield now and was not employed by Middlefield during the last three years, | ||
- | is not a family member of an individual who is or was during the last three years employed by Middlefield as an executive officer. The term family member includes a person’s spouse, parents, children, and siblings, whether by blood, marriage, or adoption, or anyone else residing in such person’s home, | ||
- | has not accepted – and his or her family members have not accepted – any payments from Middlefield exceeding $60,000 during any period of 12 consecutive months within the 3 years preceding the determination of independence (other than compensation for board or board committee service, compensation paid to a family member who is a non-executive employee of Middlefield, benefits under a tax-qualified retirement plan, or non-discretionary compensation), | ||
- | is not – and his or her family members are not – a partner in or a controlling shareholder or an executive officer of any organization to which Middlefield made or from which Middlefield received payments for property or services in the last three years exceeding 5% of the recipient’s consolidated gross revenues for that year or $200,000, whichever is greater (other than payments arising solely from investments in Middlefield securities or payments under non-discretionary charitable contribution matching programs), | ||
- | is not – and his or her family members are not – a current partner or employee of Middlefield’s outside auditor (S.R. Snodgrass, A.C.) or a former partner or employee of Middlefield’s outside auditor who worked on Middlefield’s audit during the last three years, and | ||
- | is not – and his or her family members are not – employed as an executive officer of another entity on whose compensation committee any of Middlefield’s executive officers served during the past three years. |
- | link executive compensation rewards to increases in shareholder value, as measured by positive long-term operating results and a continued strengthening of Middlefield’s financial condition, | ||
- | provide financial incentives for executive officers to ensure that Middlefield achieves its long-term operating results and strategic objectives, |
77
Table of Contents
- | correlate as closely as possible executive officers’ receipt of compensation with attainment of specific performance objectives, | ||
- | maintain a competitive mix of total executive compensation benefits, with particular emphasis on awards related to increases in long-term shareholder value, and | ||
- | facilitate stock ownership through the granting of stock options. |
78
Table of Contents
79
Table of Contents
80
Table of Contents
change in pension | ||||||||||||||||||||||||||||||||||||
value and | ||||||||||||||||||||||||||||||||||||
non-equity | nonqualified | |||||||||||||||||||||||||||||||||||
stock | option | incentive | deferred | all other | ||||||||||||||||||||||||||||||||
name and principal | salary(1) | bonus | awards | awards(2) | compensation(3) | compensation | compensation | |||||||||||||||||||||||||||||
position | year | ($) | ($) | (2)($) | ($) | ($) | earnings ($) | (4)($) | total ($) | |||||||||||||||||||||||||||
Thomas G. Caldwell President and Chief Executive Officer | 2006 | 226,300 | 0 | 0 | 0 | 41,200 | 0 | 10,300 | $ | 277,800 | ||||||||||||||||||||||||||
James R. Heslop II Executive Vice President and Chief Operating Officer | 2006 | 173,903 | 0 | 0 | 0 | 23,250 | 0 | 7,750 | $ | 204,903 | ||||||||||||||||||||||||||
Jay P. Giles Senior Vice President - - Senior Commercial Lender | 2006 | 105,520 | 0 | 0 | 0 | 10,552 | 0 | 0 | $ | 116,072 | ||||||||||||||||||||||||||
Donald L. Stacy Chief Financial Officer and Treasurer | 2006 | 110,630 | 0 | 0 | 0 | 11,063 | 0 | 5,532 | $ | 127,225 |
81
Table of Contents
all other | grant | |||||||||||||||||||||||||||||||||||||||||||
stock | date | |||||||||||||||||||||||||||||||||||||||||||
awards: | all other | fair | ||||||||||||||||||||||||||||||||||||||||||
number | option | exercise | value | |||||||||||||||||||||||||||||||||||||||||
of | awards: | or base | of stock | |||||||||||||||||||||||||||||||||||||||||
shares | number of | price of | and | |||||||||||||||||||||||||||||||||||||||||
estimated future payouts under non- | estimated future payouts under equity | or stock | securities | option | option | |||||||||||||||||||||||||||||||||||||||
equity incentive plan awards | incentive plan awards(1) | or units | underlying | awards | awards | |||||||||||||||||||||||||||||||||||||||
name | grant date | threshold ($) | target ($) | maximum ($) | threshold (#) | target (#) | maximum (#) | (#) | options (#) | ($/sh) | ($) | |||||||||||||||||||||||||||||||||
Thomas | 12/11/2006 | 500 | 500 | 500 | $ | 42.25 | $ | 3,557 | ||||||||||||||||||||||||||||||||||||
G. Caldwell | 12/12/2006 | (2) | $ | 21,600 | $ | 43,200 | $ | 64,800 | ||||||||||||||||||||||||||||||||||||
12/28/2006 | (3) | $ | 42,110 | $ | 126,330 | |||||||||||||||||||||||||||||||||||||||
James R. | 12/11/2006 | 500 | 500 | 500 | $ | 42.25 | $ | 3,557 | ||||||||||||||||||||||||||||||||||||
Heslop II | 12/11/2006 | (2) | $ | 17,500 | $ | 26,250 | $ | 35,000 | ||||||||||||||||||||||||||||||||||||
12/28/2006 | (3) | $ | 23,469 | $ | 70,406 | |||||||||||||||||||||||||||||||||||||||
Jay P. | 12/11/2006 | 500 | 500 | 500 | $ | 42.25 | $ | 3,557 | ||||||||||||||||||||||||||||||||||||
Giles | 12/11/2006 | (2) | $ | 8,138 | $ | 10,850 | $ | 13,563 | ||||||||||||||||||||||||||||||||||||
Donald | 12/11/2006 | 500 | 500 | 500 | $ | 42.25 | $ | 3,557 | ||||||||||||||||||||||||||||||||||||
L. Stacy | 12/11/2006 | (2) | $ | 8,813 | $ | 11,750 | $ | 14,688 | ||||||||||||||||||||||||||||||||||||
12/28/2006 | (3) | $ | 15,757 | $ | 47,273 |
82
Table of Contents
option awards(1) | stock awards(1) | |||||||||||||||||||||||||||||||||||
equity | ||||||||||||||||||||||||||||||||||||
incentive | �� | equity | ||||||||||||||||||||||||||||||||||
equity | plan | incentive plan | ||||||||||||||||||||||||||||||||||
incentive | awards: | awards: | ||||||||||||||||||||||||||||||||||
plan | number of | market or | ||||||||||||||||||||||||||||||||||
awards: | market | unearned | payout value | |||||||||||||||||||||||||||||||||
number of | number of | number of | number of | value of | shares, | of unearned | ||||||||||||||||||||||||||||||
securities | securities | securities | shares or | shares or | units or | shares, units | ||||||||||||||||||||||||||||||
underlying | underlying | underlying | units of | units of | other | or other | ||||||||||||||||||||||||||||||
unexercised | unexercised | unexercised | option | option | stock that | stock that | rights that | rights that | ||||||||||||||||||||||||||||
options (#) | option (#) | unearned | exercise | expiration | have not | have not | have not | have not | ||||||||||||||||||||||||||||
exercisable | unexercisable | options (#) | price ($) | date | vested (#) | vested ($) | vested (#) | vested (#) | ||||||||||||||||||||||||||||
Thomas G. Caldwell | 1,274 | $ | 24.29 | 11/23/2009 | ||||||||||||||||||||||||||||||||
3,188 | $ | 18.80 | 12/11/2010 | |||||||||||||||||||||||||||||||||
1,821 | $ | 23.45 | 12/9/2012 | |||||||||||||||||||||||||||||||||
3,645 | $ | 25.50 | 12/8/2013 | n/a | ||||||||||||||||||||||||||||||||
2,205 | $ | 31.97 | 12/13/2014 | |||||||||||||||||||||||||||||||||
1,575 | $ | 38.57 | 12/6/2015 | |||||||||||||||||||||||||||||||||
�� | 500 | $ | 42.25 | 12/11/2016 | ||||||||||||||||||||||||||||||||
James R. Heslop II | 636 | $ | 24.29 | 11/23/2009 | ||||||||||||||||||||||||||||||||
2,858 | $ | 18.80 | 12/11/2010 | |||||||||||||||||||||||||||||||||
1,821 | $ | 23.45 | 12/9/2012 | |||||||||||||||||||||||||||||||||
3,645 | $ | 25.50 | 12/8/2013 | n/a | ||||||||||||||||||||||||||||||||
2,205 | $ | 31.97 | 12/13/2014 | |||||||||||||||||||||||||||||||||
1,575 | $ | 38.57 | 12/6/2015 | |||||||||||||||||||||||||||||||||
500 | $ | 42.25 | 12/11/2016 | |||||||||||||||||||||||||||||||||
Jay P. Giles | 636 | $ | 18.80 | 12/11/2010 | ||||||||||||||||||||||||||||||||
1,214 | $ | 23.45 | 12/9/2012 | |||||||||||||||||||||||||||||||||
2,430 | $ | 25.50 | 12/8/2013 | n/a | ||||||||||||||||||||||||||||||||
1,102 | $ | 31.97 | 12/13/2014 | |||||||||||||||||||||||||||||||||
525 | $ | 38.57 | 12/6/2015 | |||||||||||||||||||||||||||||||||
500 | $ | 42.25 | 12/11/2016 | |||||||||||||||||||||||||||||||||
Donald L. Stacy | 636 | $ | 18.80 | 12/11/2010 | ||||||||||||||||||||||||||||||||
1,214 | $ | 23.45 | 12/9/2012 | |||||||||||||||||||||||||||||||||
2,430 | $ | 25.50 | 12/8/2013 | n/a | ||||||||||||||||||||||||||||||||
1,653 | $ | 31.97 | 12/13/2014 | |||||||||||||||||||||||||||||||||
1,050 | $ | 38.57 | 12/6/2015 | |||||||||||||||||||||||||||||||||
500 | $ | 42.25 | 12/11/2016 |
(1) | adjusted for stock dividends |
83
Table of Contents
aggregate | ||||||||||||||||||||
withdrawals / | ||||||||||||||||||||
executive | registrant contributions | aggregate earnings | distributions in | aggregate balance at | ||||||||||||||||
name | contributions in 2006 | in 2006 * | in 2006 | 2006 | December 31, 2006 | |||||||||||||||
Thomas G. Caldwell | n/a | $ | 10,300 | $ | 0 | $ | 0 | $ | 10,300 | |||||||||||
James R. Heslop II | n/a | $ | 7,750 | $ | 0 | $ | 0 | $ | 7,750 | |||||||||||
Jay P. Giles | n/a | n/a | n/a | n/a | n/a | |||||||||||||||
Donald L. Stacy | n/a | $ | 5,532 | $ | 0 | $ | 0 | $ | 5,532 |
* | these amounts are also included in the “all other compensation” column of the Summary Compensation Table for 2006 |
performance goal #1 | annual contribution exceeding 2.5% of base | |
bank net income | annual salary | |
minimum 2.5% of base annual salary | ||
101% of net income goal | additional 1.0% of base annual salary | |
102% of net income goal | additional 1.0% of base annual salary | |
103% of net income goal | additional 1.0% of base annual salary | |
104% of net income goal | additional 1.0% of base annual salary | |
105% of net income goal | additional 1.0% of base annual salary, up to a maximum of 7.5% of base annual salary |
performance goal #2 | ||
overall bank peer rank | ||
Ohio-headquartered commercial | ||
banks | annual contribution exceeding 2.5% of base | |
as reported by Ryan Beck & Co. * | annual salary | |
minimum of 2.5% of base annual salary | ||
top 40% | additional 1.0% of base annual salary | |
top 30% | additional 1.0% of base annual salary | |
top 20% | additional 1.0% of base annual salary | |
top 10% | additional 1.0% of base annual salary | |
#1 rank | additional 1.0% of base annual salary, up to a maximum of 7.5% of base annual salary |
84
Table of Contents
estimated present value of | ||||||||||||||||
continued life, health, and | spread value of options | change-in-control | ||||||||||||||
lump-sum cash | disability benefits, continuing | that become vested and | benefit under the | |||||||||||||
payment under the | for 24 months after employment | exercisable on an | Executive Deferred | |||||||||||||
severance | termination under the terms of | accelerated basis because | Compensation | |||||||||||||
agreement | the severance agreement | of the change in control | Agreements | |||||||||||||
Thomas G. Caldwell (1) | $ | 618,932 | $ | 38,044 | $ | 0 | $ | 10,300 | ||||||||
James R. Heslop II (1) | $ | 447,135 | $ | 38,044 | $ | 0 | $ | 7,750 | ||||||||
Jay P. Giles (2) | $ | 233,034 | $ | 38,044 | $ | 0 | n/a | |||||||||
Donald L. Stacy (2) | $ | 242,529 | $ | 38,044 | $ | 0 | $ | 5,532 |
85
Table of Contents
change in pension | ||||||||||||||||||||||||||||
value and | ||||||||||||||||||||||||||||
nonqualified | ||||||||||||||||||||||||||||
fees earned | non-equity | deferred | all other | |||||||||||||||||||||||||
or paid in | stock awards | option | incentive plan | compensation | compensation | |||||||||||||||||||||||
name | cash ($) | ($)(1) | awards ($)(1) | compensation ($) | earnings ($)(2) | ($) | total ($) | |||||||||||||||||||||
Richard T. Coyne | 20,950 | 0 | 0 | n/a | 7,950 | 0 | $ | 28,900 | ||||||||||||||||||||
Frances H. Frank | 22,200 | 0 | 0 | n/a | 6,000 | 0 | $ | 28,200 | ||||||||||||||||||||
Thomas C. Halstead | 18,950 | 0 | 0 | n/a | 8,400 | 0 | $ | 27,350 | ||||||||||||||||||||
Donald D. Hunter | 23,650 | 0 | 0 | n/a | 10,800 | 0 | $ | 34,450 | ||||||||||||||||||||
James J. McCaskey | 20,050 | 0 | 0 | n/a | 0 | 0 | $ | 20,050 | ||||||||||||||||||||
Carolyn J. Turk | 20,100 | 0 | 0 | n/a | 0 | 0 | $ | 20,100 | ||||||||||||||||||||
Donald E. Villers | 21,250 | 0 | 0 | n/a | 7,200 | 0 | $ | 28,450 |
number of shares acquirable | exercise price per | |||||||||||
by unexercised stock option | share (adjusted for | |||||||||||
(adjusted for stock dividends | stock dividends | |||||||||||
option grant date | and stock split) | and stock split) | ||||||||||
Frances H. Frank | 06/14/1999 | 1,274 | $ | 24.88 | ||||||||
12/11/2000 | 495 | $ | 18.80 | |||||||||
12/9/2002 | 242 | $ | 23.45 | |||||||||
Thomas C. Halstead | 06/14/1999 | 1,274 | $ | 24.88 | ||||||||
12/9/2002 | 242 | $ | 23.45 | |||||||||
Donald D. Hunter | 06/14/1999 | 1,274 | $ | 24.88 | ||||||||
12/11/2000 | 495 | $ | 18.80 | |||||||||
12/9/2002 | 242 | $ | 23.45 | |||||||||
James J. McCaskey | 05/12/2004 | 1,274 | $ | 28.72 | ||||||||
Donald E. Villers | 06/14/1999 | 1,012 | $ | 24.88 |
86
Table of Contents
- | a merger in which Middlefield’s shareholders end up with less than 50% of the resulting company’s voting stock, or | ||
- | a beneficial ownership report is required to be filed under sections 13(d) or 14(d) of the Securities Exchange Act of 1934 by a person (or group of persons acting in concert) to report ownership of 15% or more of Middlefield’s voting securities, or | ||
- | during any period of two consecutive years, individuals who constitute Middlefield’s Board of Directors at the beginning of the two-year period cease for any reason to constitute a majority of the Board. Directors elected during the two-year period are treated as if they were directors at the beginning of the period if they were nominated by at least two-thirds of the directors in office at the beginning of the period, or | ||
- | Middlefield sells substantially all of its assets to a third party, including sale of The Middlefield Banking Company. |
87
Table of Contents
Shares acquirable | ||||||||||||
Shares | within 60 days by | |||||||||||
beneficially | exercise of stock | Percent of | ||||||||||
Directors and named executive officers | owned | options (1) | stock | |||||||||
Thomas G. Caldwell | 11,221 | (2) | 13,708 | 1.7 | % | |||||||
Richard T. Coyne | 4,444 | (3) | 0 | (11) | ||||||||
Frances H. Frank | 8,882 | (4) | 2,011 | (11) | ||||||||
Jay P. Giles | 944 | 5,907 | (11) | |||||||||
Thomas C. Halstead | 10,989 | (5) | 1,516 | (11) | ||||||||
James R. Heslop II | 2,220 | (6) | 12,740 | 1.0 | % | |||||||
Donald D. Hunter | 8,335 | (7) | 2,011 | (11) | ||||||||
James J. McCaskey | 693 | (8) | 1,274 | (11) | ||||||||
Donald L. Stacy | 997 | (9) | 6,983 | (11) | ||||||||
Carolyn J. Turk | 2,024 | 0 | (11) | |||||||||
Donald E. Villers | 10,434 | (10) | 1,012 | (11) | ||||||||
Other executive officers (3 people) | 506 | 20,948 | 1.5 | % | ||||||||
All directors and executive officers as a group (14 people) | 61,689 | 68,110 | 8.7 | % | ||||||||
88
Table of Contents
- | The name and address of each proposed nominee; | ||
- | The principal occupation of each proposed nominee; | ||
- | The total number of shares of the capital stock of the Bank that will be voted for each proposed nominee; | ||
- | The name and residence address of the notifying shareholder; and | ||
- | The number of shares of capital stock beneficially owned by the notifying shareholder. |
Term to Expire At | ||||||
Name | Annual Meeting In | |||||
Proposal Two: | ||||||
Nominee for the term ending at the annual meeting in 2008 | Clayton W. Rose, III | 2008 | ||||
Proposal Three: | George J. Kontogiannis | 2009 | ||||
Nominees for the term ending at the annual meeting in 2009 | Kenneth E. Jones | 2009 | ||||
Tom W. Davis | 2009 |
89
Table of Contents
90
Table of Contents
Public Reference Room
100 F Street, N.E.
Room 1580
Washington, D.C. 20549
91
Table of Contents
Middlefield Banc Corp.
February 10, 2006,
except for Note 23,
as to which the date is
December 15, 2006
F - 1
Table of Contents
CONSOLIDATED BALANCE SHEET
September 30, | December 31, | |||||||||||
2006 | 2005 | 2004 | ||||||||||
(unaudited) | ||||||||||||
ASSETS | ||||||||||||
Cash and due from banks | $ | 5,217,424 | $ | 5,294,641 | $ | 5,311,776 | ||||||
Federal funds sold | 5,440,000 | — | — | |||||||||
Interest-bearing deposits in other institutions | 538,369 | 526,523 | 614,506 | |||||||||
Cash and cash equivalents | 11,195,793 | 5,821,164 | 5,926,282 | |||||||||
Investment securities available for sale | 55,025,592 | 57,887,130 | 57,240,965 | |||||||||
Investment securities held to maturity (estimated market value of $225,604, $232,967 and $243,810 ) | 215,836 | 221,453 | 221,412 | |||||||||
Loans | 244,851,623 | 234,054,797 | 215,653,283 | |||||||||
Less allowance for loan losses | 3,049,076 | 2,841,098 | 2,623,431 | |||||||||
Net loans | 241,802,547 | 231,213,699 | 213,029,852 | |||||||||
Premises and equipment | 6,570,303 | 6,624,776 | 6,617,594 | |||||||||
Bank-owned life insurance | 6,810,585 | 5,632,982 | 5,424,304 | |||||||||
Accrued interest and other assets | 4,053,955 | 3,812,987 | 2,753,577 | |||||||||
TOTAL ASSETS | $ | 325,674,611 | $ | 311,214,191 | $ | 291,213,986 | ||||||
LIABILITIES | ||||||||||||
Deposits: | ||||||||||||
Non-interest-bearing demand | $ | 40,490,319 | $ | 39,782,375 | $ | 36,331,809 | ||||||
Interest-bearing demand | 12,612,933 | 9,362,399 | 8,817,873 | |||||||||
Money market | 14,908,162 | 13,078,829 | 15,666,730 | |||||||||
Savings | 57,241,678 | 66,495,057 | 78,935,512 | |||||||||
Time | 139,452,806 | 120,730,980 | 100,133,527 | |||||||||
Total deposits | 264,705,898 | 249,449,640 | 239,885,451 | |||||||||
Short-term borrowings | 1,309,558 | 6,710,914 | 1,871,763 | |||||||||
Other borrowings | 28,690,292 | 26,578,211 | 23,683,324 | |||||||||
Accrued interest and other liabilities | 1,401,631 | 1,186,061 | 951,424 | |||||||||
TOTAL LIABILITIES | 296,107,379 | 283,924,826 | 266,391,962 | |||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||
Common stock, no par value; 10,000,000 shares authorized, 1,520,879, 1,506,736 and 1,423,262 shares issued | 16,503,343 | 15,976,335 | 12,815,927 | |||||||||
Retained earnings | 16,738,454 | 14,959,891 | 15,004,552 | |||||||||
Accumulated other comprehensive loss | (466,258 | ) | (677,088 | ) | (28,682 | ) | ||||||
Treasury stock, at cost; 95,080 in 2006 and 89,333 shares in 2005 and 2004 | (3,208,307 | ) | (2,969,773 | ) | (2,969,773 | ) | ||||||
TOTAL STOCKHOLDERS’ EQUITY | 29,567,232 | 27,289,365 | 24,822,023 | |||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 325,674,611 | $ | 311,214,191 | $ | 291,213,986 | ||||||
F - 2
Table of Contents
CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
INTEREST AND DIVIDEND INCOME | ||||||||||||||||||||
Interest and fees on loans | $ | 12,598,616 | $ | 11,065,258 | $ | 15,040,518 | $ | 13,617,560 | $ | 12,846,525 | ||||||||||
Interest-bearing deposits in other institutions | 11,939 | 10,461 | 15,500 | 5,641 | 17,188 | |||||||||||||||
Federal funds sold | 38,328 | 31,057 | 35,173 | 50,608 | 48,947 | |||||||||||||||
Investment securities: | ||||||||||||||||||||
Taxable | 871,259 | 1,041,027 | 1,353,035 | 1,400,063 | 1,196,221 | |||||||||||||||
Tax-exempt | 745,368 | 621,423 | 864,745 | 604,399 | 486,485 | |||||||||||||||
Other dividend income | 61,517 | 48,761 | 69,533 | 54,265 | 51,797 | |||||||||||||||
Total interest and dividend income | 14,327,027 | 12,817,987 | 17,378,504 | 15,732,536 | 14,647,163 | |||||||||||||||
INTEREST EXPENSE | ||||||||||||||||||||
Deposits | 5,085,705 | 4,041,713 | 5,520,206 | 4,905,899 | 4,905,826 | |||||||||||||||
Short-term borrowings | 145,213 | 60,140 | 103,836 | 2,180 | 4,048 | |||||||||||||||
Other borrowings | 898,771 | 738,223 | 1,030,572 | 860,819 | 815,033 | |||||||||||||||
Total interest expense | 6,129,689 | 4,840,076 | 6,654,614 | 5,768,898 | 5,724,907 | |||||||||||||||
NET INTEREST INCOME | 8,197,338 | 7,977,911 | 10,723,890 | 9,963,638 | 8,922,256 | |||||||||||||||
Provision for loan losses | 240,000 | 195,000 | 302,000 | 174,000 | 315,000 | |||||||||||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 7,957,338 | 7,782,911 | 10,421,890 | 9,789,638 | 8,607,256 | |||||||||||||||
NONINTEREST INCOME | ||||||||||||||||||||
Service charges on deposit accounts | 1,310,979 | 1,167,988 | 1,579,121 | 1,402,027 | 1,033,928 | |||||||||||||||
Investment securities gains (losses), net | (5,868 | ) | — | — | (98,375 | ) | 542 | |||||||||||||
Earnings on bank-owned life insurance | 177,603 | 155,684 | 208,677 | 221,919 | 202,385 | |||||||||||||||
Other income | 305,869 | 243,222 | 331,439 | 253,660 | 191,289 | |||||||||||||||
Total noninterest income | 1,788,583 | 1,566,894 | 2,119,237 | 1,779,231 | 1,428,144 | |||||||||||||||
NONINTEREST EXPENSE | ||||||||||||||||||||
Salaries and employee benefits | 2,840,361 | 2,758,504 | 3,568,603 | 3,442,262 | 3,085,451 | |||||||||||||||
Occupancy | 385,037 | 374,994 | 495,982 | 494,759 | 403,591 | |||||||||||||||
Equipment | 301,066 | 327,133 | 432,635 | 356,346 | 333,163 | |||||||||||||||
Data processing costs | 484,270 | 443,775 | 625,856 | 538,349 | 470,393 | |||||||||||||||
Professional fees | 264,393 | 256,469 | 293,138 | 252,731 | 218,838 | |||||||||||||||
Ohio state franchise tax | 270,000 | 270,000 | 284,950 | 285,050 | 265,050 | |||||||||||||||
Advertising | 249,092 | 227,277 | 302,679 | 253,858 | 168,849 | |||||||||||||||
Postage and freight | 130,499 | 145,032 | 189,970 | 178,717 | 161,632 | |||||||||||||||
Other expense | 1,051,450 | 938,336 | 1,230,826 | 1,163,634 | 998,483 | |||||||||||||||
Total noninterest expense | 5,976,168 | 5,741,520 | 7,424,639 | 6,965,706 | 6,105,450 | |||||||||||||||
Income before income taxes | 3,769,753 | 3,608,285 | 5,116,488 | 4,603,163 | 3,929,950 | |||||||||||||||
Income taxes | 1,033,587 | 1,001,000 | 1,415,156 | 1,330,000 | 1,131,330 | |||||||||||||||
NET INCOME | $ | 2,736,166 | $ | 2,607,285 | $ | 3,701,332 | $ | 3,273,163 | $ | 2,798,620 | ||||||||||
EARNINGS PER SHARE | ||||||||||||||||||||
Basic | $ | 1.93 | $ | 1.86 | $ | 2.64 | $ | 2.30 | $ | 1.99 | ||||||||||
Diluted | 1.90 | 1.83 | 2.60 | 2.28 | 1.98 |
F - 3
Table of Contents
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Accumulated | ||||||||||||||||||||||||||||
Other | Total | |||||||||||||||||||||||||||
Common Stock | Retained | Comprehensive | Treasury | Stockholders’ | Comprehensive | |||||||||||||||||||||||
Shares | Amount | Earnings | Income (Loss) | Stock | Equity | Income | ||||||||||||||||||||||
Balance, December 31, 2002 | 1,209,123 | $ | 7,883,155 | $ | 15,051,110 | $ | 475,428 | $ | (1,663,285 | ) | $ | 21,746,408 | ||||||||||||||||
Net income | 2,798,620 | 2,798,620 | $ | 2,798,620 | ||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Unrealized loss on available-for-sale securities, net of reclassification adjustment, net of tax benefit of $180,421 | (350,229 | ) | (350,229 | ) | (350,229 | ) | ||||||||||||||||||||||
Comprehensive income | $ | 2,448,391 | ||||||||||||||||||||||||||
Exercise of stock options | 847 | 19,916 | 19,916 | |||||||||||||||||||||||||
Common stock issued | 5,612 | 170,513 | 170,513 | |||||||||||||||||||||||||
Purchase of treasury stock | (81,624 | ) | (81,624 | ) | ||||||||||||||||||||||||
Five percent stock dividend (including cash paid for fractional shares) | 57,972 | 1,797,165 | (1,801,961 | ) | (4,796 | ) | ||||||||||||||||||||||
Dividend reinvestment plan | 5,574 | 167,407 | 167,407 | |||||||||||||||||||||||||
Cash dividends ($.71 per share) | (961,901 | ) | (961,901 | ) | ||||||||||||||||||||||||
Balance, December 31, 2003 | 1,279,128 | 10,038,156 | 15,085,868 | 125,199 | (1,744,909 | ) | 3,504,314 | |||||||||||||||||||||
Net income | 3,273,163 | 3,273,163 | $ | 3,273,163 | ||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Unrealized loss on available-for-sale securities, net of reclassification adjustment, net of tax benefit of $79,272 | (153,881 | ) | (153,881 | ) | (153,881 | ) | ||||||||||||||||||||||
Comprehensive income | $ | 3,119,282 | ||||||||||||||||||||||||||
Exercise of stock options | 521 | 14,198 | 14,198 | |||||||||||||||||||||||||
Sale of treasury stock | 8,154 | 277,171 | 277,171 | |||||||||||||||||||||||||
Purchase of treasury stock | (1,224,864 | ) | (1,224,864 | ) | ||||||||||||||||||||||||
Five percent stock dividend (including cash paid for fractional shares) | 61,387 | 2,271,282 | (2,283,646 | ) | (12,364 | ) | ||||||||||||||||||||||
Dividend reinvestment plan | 6,298 | 215,120 | 215,120 | |||||||||||||||||||||||||
Cash dividends ($.79 per share) | (1,070,833 | ) | (1,070,833 | ) | ||||||||||||||||||||||||
Balance, December 31, 2004 | 1,355,488 | 12,815,927 | 15,004,552 | (28,682 | ) | (2,969,773 | ) | 24,822,023 | ||||||||||||||||||||
Net income | 3,701,332 | 3,701,332 | $ | 3,701,332 | ||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Unrealized loss on available-for-sale securities, net of tax benefit of $334,027 | (648,406 | ) | (648,406 | ) | (648,406 | ) | ||||||||||||||||||||||
Comprehensive income | $ | 3,052,926 | ||||||||||||||||||||||||||
Exercise of stock options | 2,583 | 71,386 | 71,386 | |||||||||||||||||||||||||
Common stock issued | 7,158 | 285,669 | 285,669 | |||||||||||||||||||||||||
Five percent stock dividend (including cash paid for fractional shares) | 63,549 | 2,557,847 | (2,572,949 | ) | (15,102 | ) | ||||||||||||||||||||||
Dividend reinvestment plan | 6,209 | 245,506 | 245,506 | |||||||||||||||||||||||||
Cash dividends ($.87 per share) | (1,173,044 | ) | (1,173,044 | ) | ||||||||||||||||||||||||
Balance, December 31, 2005 | 1,434,987 | 15,976,335 | 14,959,891 | (677,088 | ) | (2,969,773 | ) | 27,289,364 | ||||||||||||||||||||
Net income (unaudited) | 2,736,166 | 2,736,166 | $ | 2,736,166 | ||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Unrealized loss on available-for-sale securities, net of tax benefit of $108,620 | 210,830 | 210,830 | 210,830 | |||||||||||||||||||||||||
Comprehensive income | $ | 2,946,996 | ||||||||||||||||||||||||||
Exercise of stock options | 2,289 | 58,198 | 58,198 | |||||||||||||||||||||||||
Common stock issued | 5,664 | 236,320 | 236,320 | |||||||||||||||||||||||||
Purchase of treasury stock | (238,534 | ) | (238,534 | ) | ||||||||||||||||||||||||
Dividend reinvestment plan | 5,606 | 232,490 | 232,490 | |||||||||||||||||||||||||
Cash dividends ($.68 per share) | (957,603 | ) | (957,603 | ) | ||||||||||||||||||||||||
Balance, September 30, 2006 (unaudited) | 1,448,546 | $ | 16,503,343 | $ | 16,738,454 | $ | (466,258 | ) | (3,208,307 | ) | $ | 29,567,231 | ||||||||||||||||
Nine Months Ended September 30, | Twelve Months Ended December 30, | |||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
Components of comprehensive (gain) loss: | ||||||||||||||||||||
Change in net unrealized (gain) loss on investments available for sale | $ | 206,957 | $ | (305,033 | ) | $ | (648,406 | ) | $ | (218,808 | ) | $ | (349,871 | ) | ||||||
Realized (gains) losses included in net income, net of (tax expense) benefit of $1,995, $0, $0, $33,448, and ($184) | 3,873 | — | — | 64,927 | (358 | ) | ||||||||||||||
Total | $ | 210,830 | $ | (305,033 | ) | $ | (648,406 | ) | $ | (153,881 | ) | $ | (350,229 | ) | ||||||
F - 4
Table of Contents
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||||||
Net income | $ | 2,736,166 | $ | 2,607,285 | $ | 3,701,332 | $ | 3,273,163 | $ | 2,798,620 | ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
Provision for loan losses | 240,000 | 195,000 | 302,000 | 174,000 | 315,000 | |||||||||||||||
Depreciation and amortization | 326,531 | 334,769 | 448,386 | 403,916 | 377,547 | |||||||||||||||
Amortization of premium and discount on investment securities | 178,373 | 213,550 | 289,111 | 260,198 | 259,890 | |||||||||||||||
Amortization of net deferred loan fees | (55,586 | ) | (100,379 | ) | (139,722 | ) | (134,758 | ) | (117,524 | ) | ||||||||||
Investment securities gains (losses), net | 5,868 | — | — | 98,375 | (542 | ) | ||||||||||||||
Earnings on bank-owned life insurance | (177,603 | ) | (155,684 | ) | (208,677 | ) | (221,919 | ) | (202,385 | ) | ||||||||||
Deferred income taxes | — | (157,108 | ) | (85,339 | ) | (33,704 | ) | (69,934 | ) | |||||||||||
Increase in accrued interest receivable | (280,934 | ) | (338,076 | ) | (217,022 | ) | (75,303 | ) | (11,796 | ) | ||||||||||
Increase (decrease) in accrued interest payable | 179,333 | 82,135 | 155,449 | (25,617 | ) | (77,862 | ) | |||||||||||||
Other, net | 18,194 | (305,729 | ) | 245,988 | 299,533 | 184,433 | ||||||||||||||
Net cash provided by operating activities | 3,170,342 | 2,375,763 | 4,491,506 | 4,017,884 | 3,455,447 | |||||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||||||
Decrease (increase) in interest-bearing deposits in other institutions, net | — | 90,183 | 87,983 | (75,359 | ) | 32,822 | ||||||||||||||
Investment securities available for sale: | ||||||||||||||||||||
Proceeds from repayments and maturities | 3,951,106 | 6,925,090 | 11,361,937 | 14,857,656 | 16,167,324 | |||||||||||||||
Purchases | 664,838 | (10,313,758 | ) | (13,279,687 | ) | (27,638,162 | ) | (32,985,572 | ) | |||||||||||
Proceeds from sales | (1,619,234 | ) | — | — | 4,912,619 | 1,991,917 | ||||||||||||||
Investment securities held to maturity: | ||||||||||||||||||||
Proceeds from repayments and maturities | 5,643 | — | — | 1,639,200 | 4,370,070 | |||||||||||||||
Increase in loans, net | (10,773,262 | ) | (10,177,986 | ) | (18,346,125 | ) | (22,710,211 | ) | (17,913,713 | ) | ||||||||||
Purchase of Federal Home Loan Bank stock | (50,600 | ) | (46,200 | ) | (63,300 | ) | (53,300 | ) | (52,000 | ) | ||||||||||
Purchase of bank-owned life insurance | (1,000,000 | ) | — | — | — | (5,000,000 | ) | |||||||||||||
Purchase of premises and equipment | (272,058 | ) | (307,498 | ) | (455,568 | ) | (213,580 | ) | (704,746 | ) | ||||||||||
Net cash used for investing activities | (9,093,567 | ) | (13,830,169 | ) | (20,694,760 | ) | (29,281,137 | ) | (34,093,898 | ) | ||||||||||
FINANCING ACTIVITIES | ||||||||||||||||||||
Net increase in deposits | 15,256,258 | 8,281,236 | 9,564,189 | 20,045,541 | 32,455,416 | |||||||||||||||
Increase (decrease) in short-term borrowings, net | (5,401,356 | ) | 324,979 | 4,839,151 | 1,426,944 | (340,959 | ) | |||||||||||||
Proceeds from other borrowings | 6,000,000 | 13,000,000 | 13,000,000 | 9,000,000 | 5,000,000 | |||||||||||||||
Repayment of other borrowings | (3,887,919 | ) | (9,440,888 | ) | (10,105,113 | ) | (2,982,337 | ) | (3,024,392 | ) | ||||||||||
Purchase of treasury stock | (238,534 | ) | — | — | (1,224,864 | ) | (81,624 | ) | ||||||||||||
Exercise of stock options | — | — | 71,386 | 14,198 | 19,916 | |||||||||||||||
Common stock issued | 294,518 | 212,848 | 285,669 | 277,171 | 170,513 | |||||||||||||||
Proceeds from dividend reinvestment plan | 232,490 | 206,385 | 245,506 | 215,120 | 167,407 | |||||||||||||||
Cash dividends | (957,603 | ) | (857,713 | ) | (1,188,146 | ) | (1,083,197 | ) | (966,697 | ) | ||||||||||
Net cash provided by financing activities | 11,297,854 | 11,726,847 | 16,712,642 | 25,688,576 | 33,399,580 | |||||||||||||||
Increase in cash and cash equivalents | 5,374,629 | 272,441 | 509,388 | 425,323 | 2,761,129 | |||||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 5,821,164 | 5,311,776 | 5,311,776 | 4,886,453 | 2,125,324 | |||||||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 11,195,793 | $ | 5,584,217 | $ | 5,821,164 | $ | 5,311,776 | $ | 4,886,453 | ||||||||||
SUPPLEMENTAL INFORMATION | ||||||||||||||||||||
Cash paid during the year for: | ||||||||||||||||||||
Interest on deposits and borrowings | $ | 5,941,806 | $ | 4,922,211 | $ | 6,499,165 | $ | 5,794,515 | $ | 5,802,769 | ||||||||||
Income taxes | 1,025,000 | 1,075,000 | 1,540,000 | 1,280,000 | 1,295,000 |
F - 5
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
A summary of the significant accounting and reporting policies applied in the presentation of the accompanying financial statements follows: | ||
Nature of Operations and Basis of Presentation | ||
Middlefield Banc Corp. (the “Company”) is an Ohio corporation organized to become the holding company of The Middlefield Banking Company (the “Bank”). The Bank is a state-chartered bank located in Ohio. The Company and its subsidiary derive substantially all of their income from banking and bank-related services, which includes interest earnings on residential real estate, commercial mortgage, commercial and consumer financings as well as interest earnings on investment securities and deposit services to its customers through five locations. The Company is supervised by the Board of Governors of the Federal Reserve System, while the Bank is subject to regulation and supervision by the Federal Deposit Insurance Corporation and the Ohio Division of Financial Institutions. | ||
The consolidated financial statements of the Company include its wholly owned subsidiary, the Bank. Significant intercompany items have been eliminated in preparing the consolidated financial statements. | ||
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ significantly from those estimates. | ||
Investment Securities | ||
Investment securities are classified at the time of purchase, based on management’s intention and ability, as securities held to maturity or securities available for sale. Debt securities acquired with the intent and ability to hold to maturity are stated at cost adjusted for amortization of premium and accretion of discount, which are computed using a level yield method and recognized as adjustments of interest income. Certain other debt securities have been classified as available for sale to serve principally as a source of liquidity. Unrealized holding gains and losses for available-for-sale securities are reported as a separate component of stockholders’ equity, net of tax, until realized. Realized security gains and losses are computed using the specific identification method. Interest and dividends on investment securities are recognized as income when earned. | ||
Common stock of the Federal Home Loan Bank (“FHLB”) represents ownership in an institution that is wholly owned by other financial institutions. This equity security is accounted for at cost and classified with other assets. | ||
Loans | ||
Loans are reported at their principal amount net of the allowance for loan losses. Interest income is recognized as income when earned on the accrual method. The accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of interest is doubtful. Interest received on nonaccrual loans is recorded as income against principal according to management’s judgment as to the collectibility of such principal. |
F - 6
Table of Contents
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) | |
Loans (Continued) | ||
Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related loan’s yield. Management is amortizing these amounts over the contractual life of the related loans. | ||
Allowance for Loan Losses | ||
The allowance for loan losses represents the amount which management estimates is adequate to provide for probable loan losses inherent in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses which is charged to operations. The provision is based on management’s periodic evaluation of the adequacy of the allowance for loan losses, which encompasses the overall risk characteristics of the various portfolio segments, past experience with losses, the impact of economic conditions on borrowers, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to significant change in the near term. | ||
A loan is considered impaired when it is probable the borrower will not repay the loan according to the original contractual terms of the loan agreement. Management has determined that first mortgage loans on one-to-four family properties and all consumer loans represent large groups of smaller-balance homogeneous loans that are to be collectively evaluated. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. A loan is not impaired during a period of delay in payment if the Company expects to collect all amounts due, including interest accrued, at the contractual interest rate for the period of delay. All loans identified as impaired are evaluated independently by management. The Company estimates credit losses on impaired loans based on the present value of expected cash flows or the fair value of the underlying collateral if the loan repayment is expected to come from the sale or operation of such collateral. Impaired loans, or portions thereof, are charged off when it is determined a realized loss has occurred. Until such time, an allowance for loan losses is maintained for estimated losses. Cash receipts on impaired loans are applied first to accrued interest receivable unless otherwise required by the loan terms, except when an impaired loan is also a nonaccrual loan, in which case the portion of the payment related to interest is recognized as income. | ||
Mortgage loans secured by one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis, taking into consideration all circumstances concerning the loan, the creditworthiness and payment history of the borrower, the length of the payment delay, and the amount of shortfall in relation to the principal and interest owed. | ||
Premises and Equipment | ||
Premises and equipment are stated at cost net of accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the assets, which range from 3 to 20 years for furniture, fixtures, and equipment and 3 to 40 years for buildings and leasehold improvements. Expenditures for maintenance and repairs are charged against income as incurred. Costs of major additions and improvements are capitalized. | ||
Bank-Owned Life Insurance (BOLI) | ||
The Company purchased life insurance policies on certain key employees. BOLI is recorded at its cash surrender value or the amount that can be realized. |
F - 7
Table of Contents
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) | |
Income Taxes | ||
The Company and the Bank file a consolidated federal income tax return. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. | ||
Earnings Per Share | ||
The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share are calculated utilizing net income as reported in the numerator and average shares outstanding in the denominator. The computation of diluted earnings per share differs in that the dilutive effects of any stock options, warrants, and convertible securities are adjusted in the denominator. | ||
Stock Options | ||
The Company maintains a stock option plan for key officers, employees, and nonemployee directors. Had compensation expense for the stock option plans been recognized in accordance with the fair value accounting provisions of FAS No. 123,Accounting for Stock-Based Compensation,net income applicable to common stock and basic and diluted net income per common share for the year ended December 31 would have been as follows: |
Nine Months Ended September 30, | Years Ended December 31, | |||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||
Net income as reported: | $ | 2,736,166 | $ | 2,607,285 | $ | 3,701,331 | $ | 3,273,163 | $ | 2,798,620 | ||||||||||
Less pro forma expense related to option | — | 35,099 | 60,259 | 57,308 | 52,459 | |||||||||||||||
Pro forma net income | $ | 2,736,166 | $ | 2,572,186 | $ | 3,641,072 | $ | 3,215,855 | $ | 2,746,161 | ||||||||||
Basic net income per common share: | ||||||||||||||||||||
As reported | $ | 1.93 | $ | 1.86 | $ | 2.64 | $ | 2.30 | $ | 1.99 | ||||||||||
Pro forma | 1.93 | 1.84 | 2.59 | 2.26 | 1.94 | |||||||||||||||
Diluted net income per common share: | ||||||||||||||||||||
As reported | $ | 1.90 | $ | 1.83 | $ | 2.60 | $ | 2.28 | $ | 1.98 | ||||||||||
Pro forma | 1.90 | 1.81 | 2.55 | 2.24 | 1.94 |
For purposes of computing pro forma results, the Company estimated the fair values of stock options using the Black-Scholes option-pricing model. The model requires the use of subjective assumptions that can materially affect fair value estimates. Therefore, the pro forma results are estimates of results of operations as if compensation expense had been recognized for the stock option plans. The fair value of each stock option granted was estimated using the following weighted-average assumptions: |
Expected | ||||||||||||||||
Grant | Dividend | Risk-Free | Expected | Expected | ||||||||||||
Year | Yield | Interest Rate | Volatility | Life (in years) | ||||||||||||
2002 | 2.72 | % | 4.19 | % | 27.04 | % | 9.94 | |||||||||
2003 | 2.72 | 4.25 | 14.00 | 9.94 | ||||||||||||
2004 | 2.39 | 4.00 | 8.79 | 9.94 | ||||||||||||
2005 | 2.35 | 4.49 | 18.05 | 9.94 |
F - 8
Table of Contents
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) | |
Cash Flow Information | ||
The Company has defined cash and cash equivalents as those amounts included in the Consolidated Balance Sheet captions and “Cash and due from banks.” | ||
Advertising Costs | ||
Advertising costs are expensed as the costs are incurred. Advertising expenses amounted to $227,277 and $249,092 for the nine months ended September 30, 2006 and 2005, and $302,679, $253,858, and $168,849, for the years ended December 31, 2005, 2004, and 2003, respectively. | ||
Recent Accounting Pronouncements | ||
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payment(FAS No. 123R). FAS No. 123R revised FAS No. 123,Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees, and its related implementation guidance. FAS No. 123R will require compensation costs related to share-based payment transactions to be recognized in the financial statement (with limited exceptions). The amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period during which an employee provides service in exchange for the award. | ||
In April 2005, the Securities and Exchange Commission adopted a new rule that amends the compliance dates for FAS No. 123R. The statement requires that compensation cost relating to share-based payment transactions be recognized in financial statements and that this cost be measured based on the fair value of the equity or liability instruments issued. FAS No. 123R covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. The Bank will adopt FAS No. 123R on January 1, 2006. Unless options are granted management does not anticipate any compensation expense as a result of the adoption of this statement. | ||
In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB No. 107”),Share-Based Payment, providing guidance on option valuation methods, the accounting for income tax effects of share-based payment arrangements upon adoption of FAS No. 123R, and the disclosures in MD&A subsequent to the adoption. The Bank will provide SAB No. 107 required disclosures upon adoption of FAS No. 123R on January 1, 2006, as applicable. | ||
In December 2004, the FASB issued FAS No. 153,Exchanges of Nonmonetary Assets – An Amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29,Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that opinion, however, included certain exceptions to that principle. FAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of FAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early application is permitted, and companies must apply the standard prospectively. The adoption of this standard is not expected to have a material effect on the Bank’s results of operations or financial position. |
F - 9
Table of Contents
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) | |
Recent Accounting Pronouncements (Continued) | ||
In June 2005, the FASB issued FAS No. 154,Accounting Changes and Errors Corrections, a replacement of APB Opinion No. 20 and FAS No. 3. The statement applies to all voluntary changes in accounting principle and changes the requirements for accounting for and reporting of a change in accounting principle. FAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impractical. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. FAS No. 154 improves the financial reporting because its requirements enhance the consistency of financial reporting between periods. The provisions of FAS No. 154 are effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of this standard is not expected to have a material effect on the Bank’s results of operations or financial position. | ||
In February 2006, the FASB issued FAS No. 155,Accounting for Certain Hybrid Instruments, an amendment of FASB Statements No. 133 and 140. FAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. This statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of this standard is not expected to have a material effect on the Bank’s results of operations or financial position. | ||
In March 2006, the FASB issued FAS No. 156,Accounting for Servicing of Financial Assets. This Statement, which is an amendment to FAS No. 140, will simplify the accounting for servicing assets and liabilities, such as those common with mortgage securitization activities. Specifically, FAS No. 156 addresses the recognition and measurement of separately recognized servicing assets and liabilities and provides an approach to simplify efforts to obtain hedge-like (offset) accounting. FAS No. 156 also clarifies when an obligation to service financial assets should be separately recognized as a servicing asset or a servicing liability, requires that a separately recognized servicing asset or servicing liability be initially measured at fair value, if practicable, and permits an entity with a separately recognized servicing asset or servicing liability to choose either of the amortization or fair value methods for subsequent measurement. The provisions of FAS No. 156 are effective as of the beginning of the first fiscal year that begins after September 15, 2006. The Bank is currently evaluating the impact the adoption of the standard will have on the Bank’s results of operations. | ||
2. | EARNINGS PER SHARE | |
There are no convertible securities that would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income will be used as the numerator. The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation. |
September 30, | December 31, | |||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||
Weighted-average common shares outstanding | 1,513,802 | 1,499,962 | 1,496,931 | 1,484,496 | 1,472,149 | |||||||||||||||
Average treasury stock shares | (92,034 | ) | (89,333 | ) | (89,333 | ) | (55,588 | ) | (54,833 | ) | ||||||||||
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share | 1,421,768 | 1,410,629 | 1,407,598 | 1,428,908 | 1,417,316 | |||||||||||||||
Additional common stock equivalents (stock options) used to calculate diluted earnings per share | 23,147 | 21,464 | 21,167 | 12,937 | 3,881 | |||||||||||||||
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share | 1,444,915 | 1,432,093 | 1,428,765 | 1,441,845 | 1,421,197 | |||||||||||||||
There were no options to purchase shares of common stock that were anti-dilutive. |
F - 10
Table of Contents
3. | STOCK DIVIDEND | |
The Board of Directors approved a 5 percent stock dividend to stockholders of record as of December 1, 2005, payable December 14, 2005. As a result of the dividend, 63,549 additional shares of the Company’s common stock were issued, common stock was increased by $2,557,847, and retained earnings decreased by $2,572,949. | ||
The Board of Directors approved a 5 percent stock dividend to stockholders of record as of December 1, 2004, payable December 15, 2004. As a result of the dividend, 61,387 additional shares of the Company’s common stock were issued, common stock was increased by $2,271,282, and retained earnings decreased by $2,283,646. | ||
The Board of Directors approved a 5 percent stock dividend to stockholders of record as of December 3, 2003, payable December 12, 2003. As a result of the dividend, 57,972 additional shares of the Company’s common stock were issued, common stock was increased by $1,797,165, and retained earnings decreased by $1,801,961. | ||
Fractional shares paid were paid in cash. All average shares outstanding and all per share amounts included in the financial statements are based on the increased number of shares after giving retroactive effects to the stock dividend. | ||
4. | INVESTMENT SECURITIES AVAILABLE FOR SALE | |
The amortized cost and estimated market values of securities available for sale are as follows: |
September 30, 2006 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
U.S. government agency securities | $ | 7,255,333 | $ | 2,978 | $ | (117,917 | ) | $ | 7,140,394 | |||||||
Obligations of states and political subdivisions: | ||||||||||||||||
Taxable | 748,777 | — | (22,035 | ) | 726,742 | |||||||||||
Tax-exempt | 29,216,975 | 232,334 | (189,569 | ) | 29,259,740 | |||||||||||
Mortgage-backed securities | 17,804,506 | 216 | (556,521 | ) | 17,248,201 | |||||||||||
Total debt securities | 55,025,591 | 235,528 | (886,042 | ) | 54,375,077 | |||||||||||
Equity securities | 694,283 | — | (43,768 | ) | 650,515 | |||||||||||
Total | $ | 55,719,874 | $ | 235,528 | $ | (929,810 | ) | $ | 55,025,592 | |||||||
December 31, 2005 | ||||||||||||||||
�� | Gross | Gross | Estimated | |||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
U.S. government agency securities | $ | 7,260,666 | $ | 10,229 | $ | (111,690 | ) | $ | 7,159,205 | |||||||
Obligations of states and political subdivisions: | ||||||||||||||||
Taxable | 748,530 | — | (23,178 | ) | 725,352 | |||||||||||
Tax-exempt | 28,231,048 | 97,897 | (330,847 | ) | 27,998,098 | |||||||||||
Mortgage-backed securities | 22,228,515 | 15,432 | (639,968 | ) | 21,603,979 | |||||||||||
Total debt securities | 58,468,759 | 123,558 | (1,105,683 | ) | 57,486,634 | |||||||||||
Equity securities | 444,264 | 1,050 | (44,818 | ) | 400,496 | |||||||||||
Total | $ | 58,913,023 | $ | 124,608 | $ | (1,150,501 | ) | $ | 57,887,130 | |||||||
F - 11
Table of Contents
4. | INVESTMENT SECURITIES AVAILABLE FOR SALE (Continued) |
December 31, 2004 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
U.S. government agency securities | $ | 5,273,091 | $ | 70,704 | $ | (17,637 | ) | $ | 5,326,158 | |||||||
Obligations of states and political subdivisions: | ||||||||||||||||
Taxable | 748,196 | — | (11,129 | ) | 737,067 | |||||||||||
Tax-exempt | 21,239,335 | 303,433 | (65,776 | ) | 21,476,992 | |||||||||||
Mortgage-backed securities | 29,625,481 | 80,530 | (403,583 | ) | 29,302,428 | |||||||||||
Total debt securities | 56,886,103 | 454,667 | (498,125 | ) | 56,842,645 | |||||||||||
Equity securities | 398,320 | — | — | 398,320 | ||||||||||||
Total | $ | 57,284,423 | $ | 454,667 | $ | (498,125 | ) | $ | 57,240,965 | |||||||
The amortized cost and estimated market value of debt securities at September 30, 2006 and December 31, 2005, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. |
Estimated | ||||||||
Amortized | Market | |||||||
September 30, 2006 | Cost | Value | ||||||
Due in one year or less | $ | 6,870,550 | $ | 6,861,225 | ||||
Due after one year through five years | 12,423,470 | 12,283,212 | ||||||
Due after five years through ten years | 10,120,438 | 10,038,003 | ||||||
Due after ten years | 25,611,134 | 25,192,637 | ||||||
Total | $ | 55,025,592 | $ | 54,375,077 | ||||
Estimated | ||||||||
Amortized | Market | |||||||
December 31, 2005 | Cost | Value | ||||||
Due in one year or less | $ | 6,529,300 | $ | 6,495,757 | ||||
Due after one year through five years | 11,192,145 | 11,095,900 | ||||||
Due after five years through ten years | 11,233,086 | 11,069,894 | ||||||
Due after ten years | 29,514,228 | 28,825,083 | ||||||
Total | $ | 58,468,759 | $ | 57,486,634 | ||||
Investment securities with an approximate carrying value of $23,863,758 and $22,867,265 at September 30, 2006 and December 31, 2005, respectively, were pledged to secure deposits and other purposes as required by law. |
F - 12
Table of Contents
4. | INVESTMENT SECURITIES AVAILABLE FOR SALE (Continued) | |
The following is a summary of proceeds received, gross gains, and gross losses realized on the sale of investment securities available for sale for the nine months ending September 30, 2006 and 2005 along with years ending December 31, 2005, 2004, and 2003. |
Nine Months Ended September 30, | Years Ended December 31, | |||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||
Proceeds from sales | $ | 1,619,234 | $ | — | $ | — | $ | 4,912,619 | $ | 1,991,917 | ||||||||||
Gross gains | — | — | — | — | 6,350 | |||||||||||||||
Gross losses | 5,868 | — | — | 98,375 | 5,808 |
5. | INVESTMENT SECURITIES HELD TO MATURITY | |
The amortized cost and estimated market values of investment securities held to maturity are as follows: |
September 30, 2006 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||
Tax-exempt | $ | 215,836 | $ | 9,768 | $ | — | $ | 225,604 | ||||||||
December 31, 2005 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||
Tax-exempt | $ | 221,453 | $ | 11,514 | $ | — | $ | 232,967 | ||||||||
December 31, 2004 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||
Tax-exempt | $ | 221,412 | $ | 22,398 | $ | — | $ | 243,810 | ||||||||
F - 13
Table of Contents
5. | INVESTMENT SECURITIES HELD TO MATURITY (Continued) | |
The amortized cost and estimated market value of debt securities at September 30, 2006, and December 31, 2005, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. |
Estimated | ||||||||
Amortized | Market | |||||||
September 30, 2006 | Cost | Value | ||||||
Due in one year or less | $ | 89,983 | $ | 90,118 | ||||
Due after one year through five years | 25,853 | 27,019 | ||||||
Due after five years through ten years | 100,000 | 108,467 | ||||||
Due after ten years | — | — | ||||||
Total | $ | 215,836 | $ | 225,604 | ||||
Estimated | ||||||||
Amortized | Market | |||||||
December 31, 2005 | Cost | Value | ||||||
Due in one year or less | $ | 89,956 | $ | 90,857 | ||||
Due after one year through five years | 31,497 | 33,368 | ||||||
Due after five years through ten years | 100,000 | 108,742 | ||||||
Due after ten years | — | — | ||||||
Total | $ | 221,453 | $ | 232,967 | ||||
Investment securities held to maturity with carrying values of approximately $89,983 and $89,957 and estimated market values of approximately $90,118 and $90,857 at September 30, 2006 and December 31, 2005, respectively, were pledged to secure public deposits and other purposes required by law. | ||
6. | UNREALIZED LOSSES ON SECURITIES | |
The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position: |
September 30, 2006 | ||||||||||||||||||||||||
Less than Twelve Months | Twelve Months or Greater | Total | ||||||||||||||||||||||
Estimated | Gross | Estimated | Gross | Estimated | Gross | |||||||||||||||||||
Market | Unrealized | Market | Unrealized | Market | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
U.S. government agency securities | $ | 495,782 | $ | (2,104 | ) | $ | 5,989,127 | $ | (115,813 | ) | $ | 6,484,909 | $ | (117,917 | ) | |||||||||
Obligations of states and political subdivisions | 938,182 | (8,749 | ) | 16,477,162 | (202,855 | ) | 17,415,344 | (211,604 | ) | |||||||||||||||
Mortgage-backed securities | 500,054 | (10,241 | ) | 16,694,384 | (546,280 | ) | 17,194,438 | (556,521 | ) | |||||||||||||||
Equity securities | 650,515 | (43,768 | ) | 650,515 | (43,768 | ) | ||||||||||||||||||
Total | $ | 1,934,018 | $ | (21,094 | ) | $ | 39,811,188 | $ | (908,716 | ) | $ | 41,745,206 | $ | (929,810 | ) | |||||||||
F - 14
Table of Contents
December 31, 2005 | ||||||||||||||||||||||||
Less than Twelve Months | Twelve Months or Greater | Total | ||||||||||||||||||||||
Estimated | Gross | Estimated | Gross | Estimated | Gross | |||||||||||||||||||
Market | Unrealized | Market | Unrealized | Market | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
U.S. government agency securities | $ | 3,576,063 | $ | (43,743 | ) | $ | 2,421,251 | $ | (67,947 | ) | $ | 5,997,314 | $ | (111,690 | ) | |||||||||
Obligations of states and political subdivisions | 16,016,108 | (236,088 | ) | 4,576,188 | (117,937 | ) | 20,592,296 | (354,025 | ) | |||||||||||||||
Mortgage-backed securities | 6,205,491 | (119,155 | ) | 14,511,847 | (520,813 | ) | 20,717,338 | (639,968 | ) | |||||||||||||||
Equity securities | 353,495 | (44,818 | ) | — | — | 353,495 | (44,818 | ) | ||||||||||||||||
Total | $ | 26,151,157 | $ | (443,804 | ) | $ | 21,509,286 | $ | (706,697 | ) | $ | 47,660,443 | $ | (1,150,501 | ) | |||||||||
December 31, 2004 | ||||||||||||||||||||||||
Less than Twelve Months | Twelve Months or Greater | Total | ||||||||||||||||||||||
Estimated | Gross | Estimated | Gross | Estimated | Gross | |||||||||||||||||||
Market | Unrealized | Market | Unrealized | Market | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
U.S. government agency securities | $ | 1,488,594 | $ | (7,817 | ) | $ | 981,563 | $ | (9,820 | ) | $ | 2,470,157 | $ | (17,637 | ) | |||||||||
Obligations of states and political subdivisions | 5,227,264 | (33,724 | ) | 1,673,533 | (43,181 | ) | 6,900,797 | (76,905 | ) | |||||||||||||||
Mortgage-backed securities | 7,922,125 | (76,319 | ) | 11,860,073 | (327,264 | ) | 19,782,198 | (403,583 | ) | |||||||||||||||
Total | $ | 14,637,983 | $ | (117,860 | ) | $ | 14,515,169 | $ | (380,265 | ) | $ | 29,153,152 | $ | (498,125 | ) | |||||||||
September 30, | December 31, | |||||||||||
2006 | 2005 | 2004 | ||||||||||
Commercial and industrial | $ | 66,840,574 | $ | 65,161,490 | $ | 52,148,055 | ||||||
Real estate — construction | 3,686,542 | 2,724,958 | 3,143,706 | |||||||||
Real estate — mortgage: | ||||||||||||
Residential | 159,933,266 | 151,981,388 | 147,425,466 | |||||||||
Commercial | 8,758,725 | 8,208,572 | 7,026,582 | |||||||||
Consumer installment | 5,632,516 | 5,978,389 | 5,909,474 | |||||||||
244,851,623 | 234,054,797 | 215,653,283 | ||||||||||
Less allowance for loan losses | 3,049,076 | 2,841,098 | 2,623,431 | |||||||||
Net loans | $ | 241,802,547 | $ | 231,213,699 | $ | 213,029,852 | ||||||
F - 15
Table of Contents
September 30, | December 31, 2006 | |||||||||||
2006 | 2005 | 2004 | ||||||||||
90 days or more past due and accruing interest | $ | 47,199 | $ | 326,633 | $ | 1,191,242 | ||||||
Nonaccrual loans | 1,693,569 | 1,487,446 | 279,319 | |||||||||
Total nonperforming loans | $ | 1,740,767 | $ | 1,814,079 | $ | 1,470,561 | ||||||
Nine Months Ended September 30, | Years Ended December 31, | |||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||
Balance, Beginning Period | $ | 2,841,098 | $ | 2,623,431 | 2,623,431 | $ | 2,521,270 | $ | 2,300,485 | |||||||||||
Add: | ||||||||||||||||||||
Provisions charged to operations | 240,000 | 195,000 | 302,000 | 174,000 | 315,000 | |||||||||||||||
Recoveries | 21,151 | 39,913 | 95,077 | 46,643 | 49,942 | |||||||||||||||
Less loans charged off | 53,173 | 121,885 | 179,410 | 118,482 | 144,157 | |||||||||||||||
Balance, End of Period | $ | 3,049,076 | $ | 2,736,459 | 2,841,098 | $ | 2,623,431 | $ | 2,521,270 | |||||||||||
September 30, | December 31, | |||||||||||
2006 | 2005 | 2004 | ||||||||||
Land and land improvements | $ | 1,295,938 | $ | 1,295,938 | $ | 1,295,938 | ||||||
Building and leasehold improvements | 7,184,347 | 6,999,015 | 6,859,242 | |||||||||
Furniture, fixtures, and equipment | 3,228,746 | 3,142,025 | 2,826,230 | |||||||||
11,709,031 | 11,436,978 | 10,981,410 | ||||||||||
Less accumulated depreciation and amortization | 5,138,728 | 4,812,202 | 4,363,816 | |||||||||
Total | $ | 6,570,303 | $ | 6,624,776 | $ | 6,617,594 | ||||||
F - 16
Table of Contents
September 30, | December 31, | |||||||||||
2006 | 2005 | 2004 | ||||||||||
FHLB stock | $ | 1,485,800 | $ | 1,414,300 | $ | 1,351,000 | ||||||
Accrued interest on investment securities | 577,506 | 347,580 | 274,740 | |||||||||
Accrued interest on loans | 726,575 | 675,268 | 531,086 | |||||||||
Deferred tax asset, net | 571,577 | 680,191 | 450,449 | |||||||||
Other | 692,497 | 695,649 | 146,302 | |||||||||
Total | $ | 4,053,955 | $ | 3,812,988 | $ | 2,753,577 | ||||||
September 31, | December 30, | |||||||
2006 | 2005 | |||||||
Within three months | $ | 3,970,602 | $ | 3,860,127 | ||||
Beyond three but within six months | 4,776,924 | 3,442,934 | ||||||
Beyond six but within twelve months | 10,853,608 | 6,231,038 | ||||||
Beyond one year | 11,580,064 | 13,864,667 | ||||||
Total | $ | 31,181,198 | $ | 27,398,766 | ||||
September 30, | December 31, | |||||||||||
2006 | 2005 | 2004 | ||||||||||
Balance at year-end | $ | 1,309,558 | $ | 6,710,914 | $ | 1,871,763 | ||||||
Average balance outstanding | 1,299,264 | 1,844,018 | 298,500 | |||||||||
Maximum month-end balance | 8,245,406 | 6,710,914 | 2,057,054 | |||||||||
Weighted-average rate at year-end | 4.64 | 4.38 | % | 3.80 | % | |||||||
Weighted-average rate during the year | 3.72 | 5.63 | 0.73 |
F - 17
Table of Contents
Weighted- | Stated interest | |||||||||||||||||||||||
Maturity range | average | rate range | September 30, | |||||||||||||||||||||
Description | from | to | interest rate | from | to | 2006 | ||||||||||||||||||
Fixed rate | 08/09/06 | 09/13/07 | 4.33 | % | 3.37 | % | 5.38 | % | $ | 7,000,000 | ||||||||||||||
Fixed rate amortizing | 07/01/07 | 06/01/25 | 4.19 | 2.70 | 6.40 | 13,690,292 | ||||||||||||||||||
Convertible | 09/04/08 | 07/28/10 | 5.64 | 4.53 | 6.45 | 8,000,000 | ||||||||||||||||||
$ | 28,690,292 | |||||||||||||||||||||||
Weighted- | Stated interest | |||||||||||||||||||||||||||
Maturity range | average | rate range | December 31, | |||||||||||||||||||||||||
Description | from | to | interest rate | from | to | 2005 | 2004 | |||||||||||||||||||||
Fixed rate | 08/09/06 | 09/13/07 | 3.47 | % | 3.37 | % | 3.87 | % | $ | 2,510,000 | $ | 3,035,000 | ||||||||||||||||
Fixed rate amortizing | 07/01/07 | 06/01/25 | 3.83 | 2.70 | 6.40 | 16,068,211 | 12,648,324 | |||||||||||||||||||||
Convertible | 09/04/08 | 07/28/10 | 5.43 | 4.53 | 6.45 | 8,000,000 | 8,000,000 | |||||||||||||||||||||
$ | 26,578,211 | $ | 23,683,324 | |||||||||||||||||||||||||
September 30, | December 31, | |||||||||||||||
2006 | 2005 | |||||||||||||||
Year Ending | Weighted- | Weighted- | ||||||||||||||
December 31, | Amount | average Rate | Amount | average Rate | ||||||||||||
2006 | $ | — | % | $ | 4,091,765 | 3.78 | % | |||||||||
2007 | 6,408,826 | 3.86 | 7,671,543 | 3.85 | ||||||||||||
2008 | 8,000,000 | 5.27 | 7,970,667 | 4.74 | ||||||||||||
2009 | 3,691,282 | 5.38 | 1,472,896 | 3.69 | ||||||||||||
2010 | 2,000,000 | 6.45 | 3,092,373 | 5.48 | ||||||||||||
Beyond 2010 | 8,590,185 | 3.72 | 2,278,967 | 3.76 | ||||||||||||
$ | 28,690,293 | 4.59 | % | $ | 26,578,211 | 4.28 | % | |||||||||
F - 18
Table of Contents
13. | OTHER BORROWINGS (Continued |
September 30, | December 31, | |||||||||||
2006 | 2005 | 2004 | ||||||||||
Accrued interest payable | $ | 722,229 | $ | 537,916 | $ | 382,467 | ||||||
Other | 679,402 | 648,145 | 568,957 | |||||||||
Total | $ | 1,401,631 | $ | 1,186,061 | $ | 951,424 | ||||||
Months Ended September 30, | Years Ended December 31, | |||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||
Current payable | $ | 1,399,217 | $ | 1,125,673 | 1,500,495 | $ | 1,363,704 | $ | 1,201,264 | |||||||||||
Deferred | (365,630 | ) | (124,673 | ) | (85,339 | ) | (33,704 | ) | (69,934 | ) | ||||||||||
Total provision | $ | 1,033,587 | $ | 1,001,000 | 1,415,156 | $ | 1,330,000 | $ | 1,131,330 | |||||||||||
September 30, | December 31, | |||||||||||
2006 | 2005 | 2004 | ||||||||||
Deferred tax assets: | ||||||||||||
Allowance for loan losses | $ | 967,753 | $ | 897,040 | $ | 823,034 | ||||||
Net unrealized loss on securities | 240,194 | 348,804 | 14,776 | |||||||||
Supplemental retirement plan | 81,242 | 68,716 | 50,764 | |||||||||
Gross deferred tax assets | 1,289,189 | 1,314,560 | 888,574 | |||||||||
Deferred tax liabilities: | ||||||||||||
Deferred origination fees, net | 97,089 | 136,037 | 118,061 | |||||||||
Premises and equipment | 7,213 | 145,392 | 181,273 | |||||||||
Other | 162,353 | 163,315 | 138,791 | |||||||||
Gross deferred tax liabilities | 266,655 | 444,744 | 438,125 | |||||||||
Net deferred tax assets | $ | 1,022,534 | $ | 869,816 | $ | 450,449 | ||||||
F - 19
Table of Contents
Nine Months Ended September 30, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
% of | % of | |||||||||||||||
Pretax | Pretax | |||||||||||||||
Amount | Income | Amount | Income | |||||||||||||
Provision at statutory rate | $ | 1,281,716 | 34.0 | % | $ | 1,226,817 | 34.0 | % | ||||||||
Tax-free income | (315,544 | ) | (8.4 | ) | (264,200 | ) | (7.3 | ) | ||||||||
Nondeductible interest expense | 38,420 | 1.0 | 27,168 | 0.8 | ||||||||||||
Other | 28,995 | 0.8 | 11,215 | 0.2 | ||||||||||||
Actual tax expense and effective rate | $ | 1,033,587 | 27.4 | % | $ | 1,001,000 | 27.7 | % | ||||||||
Years Ended December 31, | ||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
Pretax | Pretax | Pretax | ||||||||||||||||||||||
Amount | Income | Amount | Income | Amount | Income | |||||||||||||||||||
Provision at statutory rate | $ | 1,739,606 | 34.0 | % | $ | 1,565,076 | 34.0 | % | $ | 1,336,030 | 34.0 | % | ||||||||||||
Tax-free income | (295,146 | ) | (5.8 | ) | (208,593 | ) | (6.1 | ) | (236,760 | ) | (6.1 | ) | ||||||||||||
Nondeductible interest expense | 38,639 | 0.8 | 26,485 | 0.6 | 22,789 | 0.6 | ||||||||||||||||||
Other | (67,923 | ) | (1.4 | ) | (52,968 | ) | 0.4 | 9,271 | 0.3 | |||||||||||||||
Actual tax expense and effective rate | $ | 1,415,176 | 27.6 | % | $ | 1,330,000 | 28.9 | % | $ | 1,131,330 | 28.8 | % | ||||||||||||
F - 20
Table of Contents
16. | EMPLOYEE BENEFITS (Continued) | |
Supplemental Retirement Plan | ||
The Bank maintains a Directors Retirement Plan to provide postretirement payments over a ten-year period to members of the Board of Directors who have completed five or more years of service. The Plan requires payment of 25 percent of the final average annual board fees paid to a director in the three years preceding the director’s retirement. | ||
The following table illustrates the components of the net periodic pension cost for the Directors retirement plans for the years ended: |
Directors’ Retirement Plan | ||||||||||||||||||||
Nine Months Ended | ||||||||||||||||||||
September 30, | Years Ended | |||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||
Components of net periodic pension cost | ||||||||||||||||||||
Service cost | $ | 8,814 | $ | 9,567 | 12,756 | $ | 25,684 | $ | 36,089 | |||||||||||
Interest cost | 4,836 | 7,461 | 9,948 | 8,380 | 7,804 | |||||||||||||||
Net periodic pension cost | $ | 13,650 | $ | 17,028 | 22,704 | $ | 34,064 | $ | 43,893 | |||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
average | average | average | ||||||||||||||||||||||
September 30, | Exercise | December 31, | Exercise | December 31, | Exercise | |||||||||||||||||||
2006 | Price | 2005 | Price | 2004 | Price | |||||||||||||||||||
Outstanding, January 1 | 78,020 | 26.79 | 72,078 | $ | 25.17 | 57,118 | $ | 23.45 | ||||||||||||||||
Granted | — | — | 9,240 | 38.57 | 15,561 | 31.44 | ||||||||||||||||||
Exercised | (2,403 | ) | 24.21 | (2,865 | ) | 25.07 | (601 | ) | 23.53 | |||||||||||||||
Forfeited | — | — | (432 | ) | 20.40 | — | — | |||||||||||||||||
Outstanding, December 31 | 75,617 | 26.87 | 78,020 | $ | 26.79 | 72,078 | $ | 25.17 | ||||||||||||||||
Exercisable at year-end | 75,617 | 26.87 | 78,020 | 26.79 | 56,517 | 23.44 | ||||||||||||||||||
F - 21
Table of Contents
16. | EMPLOYEE BENEFITS (Continued) | |
Stock Option and Restricted Stock Plan (Continued) | ||
The following table summarizes the characteristics of stock options at September 30, 2006: |
Outstanding | Exercisable | |||||||||||||||||||||||
Contractual | Average | Average | ||||||||||||||||||||||
Exercise | Average | Exercise | Exercise | |||||||||||||||||||||
Grant Date | Price | Shares | Life | Price | Shares | Price | ||||||||||||||||||
June 14, 1999 | $ | 24.87 | 5,957 | 2.45 | $ | 24.87 | 5,957 | $ | 24.87 | |||||||||||||||
November 23, 1999 | 24.29 | 3,053 | 2.90 | 24.29 | 3,053 | 24.29 | ||||||||||||||||||
December 11, 2000 | 18.80 | 11,435 | 3.95 | 18.80 | 11,435 | 18.80 | ||||||||||||||||||
December 9, 2002 | 23.45 | 10,503 | 5.94 | 23.45 | 10,503 | 23.45 | ||||||||||||||||||
December 8, 2003 | 25.50 | 21,145 | 6.94 | 25.50 | 21,145 | 25.50 | ||||||||||||||||||
May 12, 2004 | 28.72 | 1,274 | 7.33 | 28.72 | 1,274 | 28.72 | ||||||||||||||||||
December 13, 2004 | 31.97 | 13,010 | 7.95 | 31.97 | 13,010 | 31.97 | ||||||||||||||||||
December 14, 2005 | 38.57 | 9,240 | 8.95 | 38.57 | 9,240 | 38.57 | ||||||||||||||||||
75,617 | 75,617 | |||||||||||||||||||||||
Outstanding | Exercisable | |||||||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||||||
Exercise | Average | Exercise | Exercise | |||||||||||||||||||||
Grant Date | Price | Shares | Life | Price | Shares | Price | ||||||||||||||||||
June 14, 1999 | $ | 24.87 | 6,594 | 3.45 | $ | 24.87 | 6,594 | $ | 24.87 | |||||||||||||||
November 23, 1999 | 24.29 | 3,053 | 3.90 | 24.29 | 3,053 | 24.29 | ||||||||||||||||||
December 11, 2000 | 18.80 | 11,930 | 4.95 | 18.80 | 11,930 | 18.80 | ||||||||||||||||||
December 9, 2002 | 23.45 | 11,160 | 6.94 | 23.45 | 11,160 | 23.45 | ||||||||||||||||||
December 8, 2003 | 25.50 | 21,145 | 7.94 | 25.50 | 21,145 | 25.50 | ||||||||||||||||||
May 12, 2004 | 28.72 | 1,888 | 8.33 | 28.72 | 1,888 | 28.72 | ||||||||||||||||||
December 13, 2004 | 31.97 | 13,010 | 8.95 | 31.97 | 13,010 | 31.97 | ||||||||||||||||||
December 14, 2005 | 38.57 | 9,240 | 9.95 | 38.57 | 9,240 | 38.57 | ||||||||||||||||||
78,020 | 78,020 | |||||||||||||||||||||||
F - 22
Table of Contents
17. | COMMITMENTS | |
In the normal course of business, there are various outstanding commitments and certain contingent liabilities which are not reflected in the accompanying consolidated financial statements. These commitments and contingent liabilities represent financial instruments with off-balance sheet risk. The contract or notional amounts of those instruments reflect the extent of involvement in particular types of financial instruments which were composed of the following: |
September 30, | December 31, | |||||||||||
2006 | 2005 | 2004 | ||||||||||
Commitments to extend credit | $ | 38,361,056 | $ | 45,678,316 | $ | 33,925,423 | ||||||
Standby letters of credit | 116,423 | 125,000 | 222,675 | |||||||||
Total | $ | 38,477,479 | $ | 45,803,316 | $ | 34,148,098 | ||||||
These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheet. The Company’s exposure to credit loss, in the event of nonperformance by the other parties to the financial instruments, is represented by the contractual amounts as disclosed. The Company minimizes its exposure to credit loss under these commitments by subjecting them to credit approval and review procedures and collateral requirements as deemed necessary. Commitments generally have fixed expiration dates within one year of their origination. | ||
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Performance letters of credit represent conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance-related contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized over the coverage period. For secured letters of credit, the collateral is typically Bank deposit instruments or customer business assets. | ||
18. | REGULATORY RESTRICTIONS | |
Loans | ||
Federal law prevents the Company from borrowing from the Bank unless the loans are secured by specific obligations. Further, such secured loans are limited in amount of 10 percent of the Bank’s common stock and capital surplus. | ||
Dividends | ||
The Bank is subject to a dividend restriction that generally limits the amount of dividends that can be paid by an Ohio state-chartered bank. Under the Ohio Banking Code, cash dividends may not exceed net profits as defined for that year combined with retained net profits for the two preceding years less any required transfers to surplus. Under this formula, the amount available for payment of dividends for 2006 approximates $4,136,000 plus 2006 profits retained up to the date of the dividend declaration. |
F - 23
Table of Contents
19. | REGULATORY CAPITAL | |
Federal regulations require the Company and the Bank to maintain minimum amounts of capital. Specifically, each is required to maintain certain minimum dollar amounts and ratios of Total and Tier I capital to risk-weighted assets and of Tier I capital to average total assets. | ||
In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) established five capital categories ranging from “well capitalized” to “critically undercapitalized.” Should any institution fail to meet the requirements to be considered “adequately capitalized,” it would become subject to a series of increasingly restrictive regulatory actions. | ||
As of September 30, 2006, December 31, 2005 and 2004, the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be classified as a well capitalized financial institution, Total risk-based, Tier 1 risk-based, and Tier 1 Leverage capital ratios must be at least 10 percent, 6 percent, and 5 percent, respectively. | ||
The Company’s actual capital ratios are presented in the following table that shows the Company met all regulatory capital requirements. The capital position of the Bank does not differ significantly from the Company’s. |
December 31, | ||||||||||||||||||||||||
September 30, 2006 | 2005 | 2004 | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
Total Capital (to Risk-weighted Assets) | ||||||||||||||||||||||||
Actual | $ | 32,814,490 | 14.73 | $ | 30,616,453 | 14.41 | % | $ | 27,231,794 | 14.28 | % | |||||||||||||
For Capital Adequacy Purposes | 17,823,240 | 8.00 | 16,997,337 | 8.00 | 15,251,438 | 8.00 | ||||||||||||||||||
To Be Well Capitalized | 22,282,800 | 10.00 | 21,246,671 | 10.00 | 19,064,298 | 10.00 | ||||||||||||||||||
Tier I Capital (to Risk-weighted Assets) | ||||||||||||||||||||||||
Actual | $ | 30,033,490 | 13.48 | $ | 27,966,453 | 13.16 | % | $ | 24,850,706 | 13.04 | % | |||||||||||||
For Capital Adequacy Purposes | 8,913,120 | 4.00 | 8,500,442 | 4.00 | 7,625,719 | 4.00 | ||||||||||||||||||
To Be Well Capitalized | 13,369,680 | 6.00 | 12,750,662 | 6.00 | 11,438,579 | 6.00 | ||||||||||||||||||
Tier I Capital (to Average Assets) | ||||||||||||||||||||||||
Actual | $ | 30,033,490 | 9.41 | $ | 27,966,453 | 9.10 | % | $ | 24,850,706 | 8.51 | % | |||||||||||||
For Capital Adequacy Purposes | 12,761,000 | 4.00 | 12,273,560 | 4.00 | 11,678,293 | 4.00 | ||||||||||||||||||
To Be Well Capitalized | 15,951,250 | 5.00 | 15,341,950 | 5.00 | 14,597,866 | 5.00 |
F - 24
Table of Contents
20. | FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS | |
The estimated fair value of the Company’s financial instruments are as follows: |
December 31, | ||||||||||||||||||||||||
September 30, 2006 | 2005 | 2004 | ||||||||||||||||||||||
Carrying | Fair | Carrying | Fair | Carrying | Fair | |||||||||||||||||||
Value | Value | Value | Value | Value | Value | |||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||
Cash and due from banks | $ | 5,217,424 | $ | 5,217,424 | $ | 5,294,641 | $ | 5,294,641 | $ | 5,311,776 | $ | 5,311,776 | ||||||||||||
Interest-bearing deposits in other institutions | 5,978,369 | 5,978,369 | 526,523 | 526,523 | 614,506 | 614,506 | ||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||
Available for sale | 55,025,592 | 55,025,592 | 57,887,130 | 57,887,130 | 57,240,965 | 57,240,965 | ||||||||||||||||||
Held to maturity | 215,836 | 225,604 | 221,453 | 232,967 | 221,412 | 243,810 | ||||||||||||||||||
Net loans | 241,802,547 | 238,386,000 | 231,213,699 | 233,988,263 | 213,029,852 | 219,485,000 | ||||||||||||||||||
Bank-owned life insurance | 6,810,585 | 6,810,585 | 5,632,982 | 5,632,982 | 5,424,304 | 5,424,304 | ||||||||||||||||||
Federal Home Loan Bank stock | 1,485,800 | 1,485,800 | 1,414,300 | 1,414,300 | 1,351,000 | 1,351,000 | ||||||||||||||||||
Accrued interest receivable | 1,304,081 | 1,304,081 | 1,022,848 | 1,022,848 | 805,826 | 805,826 | ||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Deposits | $ | 264,705,898 | $ | 242,975,000 | $ | 249,449,640 | $ | 241,567,031 | $ | 239,885,451 | $ | 241,129,000 | ||||||||||||
Short-term borrowings | 1,309,558 | 1,309,558 | 6,710,914 | 6,710,914 | 1,871,763 | 1,871,763 | ||||||||||||||||||
Other borrowings | 28,690,292 | 28,720,000 | 26,578,211 | 26,102,461 | 23,683,324 | 22,160,000 | ||||||||||||||||||
Accrued interest payable | 722,229 | 722,229 | 537,916 | 537,916 | 382,467 | 382,467 |
F - 25
Table of Contents
20. | FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (Continued) | |
Cash and Due From Banks, Interest-Bearing Deposits in Other Institutions, Federal Home Loan Bank Stock, Accrued Interest Receivable, Accrued Interest Payable, and Short-Term Borrowings | ||
The fair value is equal to the current carrying value. | ||
Bank-Owned Life Insurance | ||
The fair value is equal to the cash surrender value of the life insurance policies. | ||
Investment Securities | ||
The fair value of investment securities available for sale and held to maturity is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. | ||
Loans, Deposits, and Other Borrowings | ||
The fair value of loans, certificates of deposit, and other borrowings is estimated by discounting the future cash flows using a simulation model which estimates future cash flows and constructs discount rates that consider reinvestment opportunities, operating expenses, noninterest income, credit quality, and prepayment risk. Demand, savings, and money market deposit accounts are valued at the amount payable on demand as of year-end. | ||
Commitments to Extend Credit | ||
These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments and letters of credit are presented in Note 17. |
F - 26
Table of Contents
21. | PARENT COMPANY |
September 30, | December 31, | |||||||||||
2006 | 2005 | 2004 | ||||||||||
(unaudited) | ||||||||||||
ASSETS | ||||||||||||
Cash and due from banks | $ | 246,764 | $ | 349,385 | $ | 229,399 | ||||||
Interest-bearing deposits in other institutions | 538,368 | 526,522 | 614,506 | |||||||||
Investment securities available for sale | 650,515 | 400,495 | 398,319 | |||||||||
Other assets | 14,883 | 14,882 | — | |||||||||
Investment in subsidiary bank | 28,099,773 | 25,998,081 | 24,779,799 | |||||||||
TOTAL ASSETS | $ | 29,550,303 | $ | 27,289,365 | $ | 26,022,023 | ||||||
LIABILITIES | ||||||||||||
Other borrowings | $ | — | $ | — | $ | 1,200,000 | ||||||
STOCKHOLDERS’ EQUITY | 29,550,303 | 27,289,365 | 24,822,023 | |||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 29,550,303 | $ | 27,289,365 | $ | 26,022,023 | ||||||
Nine Months Ended | ||||||||||||||||||||
September 30, | Year Ended December 31, | |||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
INCOME | ||||||||||||||||||||
Dividends from subsidiary bank | $ | 1,049,382 | $ | 935,425 | $ | 1,999,052 | $ | 1,092,122 | $ | 1,044,637 | ||||||||||
Interest income | 11,846 | 9,818 | 12,017 | 5,369 | 5,179 | |||||||||||||||
Total income | 1,061,228 | 945,243 | 2,011,069 | 1,097,491 | 1,049,816 | |||||||||||||||
EXPENSES | ||||||||||||||||||||
Interest expense | 2,523 | 42,377 | 54,107 | — | — | |||||||||||||||
Other | 150,372 | 142,458 | 163,275 | 168,524 | 99,473 | |||||||||||||||
Total expense | 152,895 | 184,835 | 217,382 | 168,524 | 99,473 | |||||||||||||||
Income before income tax benefit | 908,333 | 760,408 | 1,793,687 | 928,967 | 950,343 | |||||||||||||||
Income tax benefit | (34,000 | ) | (59,000 | ) | (69,844 | ) | (46,000 | ) | (32,056 | ) | ||||||||||
Income before equity in undistributed net income of subsidiary | 942,333 | 819,408 | 1,863,531 | 974,967 | 982,399 | |||||||||||||||
Equity in undistributed net income of subsidiary | 1,793,833 | 1,787,877 | 1,837,801 | 2,298,196 | 1,816,221 | |||||||||||||||
NET INCOME | $ | 2,736,166 | $ | 2,607,285 | $ | 3,701,332 | $ | 3,273,163 | $ | 2,798,620 | ||||||||||
F - 27
Table of Contents
21. | PARENT COMPANY (Continued) |
Nine Months Ended | ||||||||||||||||||||
September 30, | Year Ended December 31, | |||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||||||
Net income | $ | 2,736,166 | $ | 2,607,285 | $ | 3,701,332 | $ | 3,273,163 | $ | 2,798,620 | ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
Equity in undistributed net income of subsidiary | (1,793,833 | ) | (1,787,877 | ) | (1,837,801 | ) | (2,298,196 | ) | (1,816,221 | ) | ||||||||||
Other | — | — | — | — | — | |||||||||||||||
Net cash provided by operating activities | 942,333 | 819,408 | 1,863,531 | 974,967 | 982,399 | |||||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||||||
Decrease (increase) in interest-bearing deposits in other institutions | (11,846 | ) | 90,183 | 87,984 | (75,359 | ) | (255,178 | ) | ||||||||||||
Purchase of investment securities | (363,978 | ) | 123,061 | (45,944 | ) | (398,320 | ) | — | ||||||||||||
Net cash provided by (used for) investing activities | (375,824 | ) | 213,244 | 42,040 | (473,679 | ) | (255,178 | ) | ||||||||||||
FINANCING ACTIVITIES | ||||||||||||||||||||
Net increase (decrease) in short term borrowing | (650,000 | ) | (1,200,000 | ) | 1,200,000 | — | ||||||||||||||
Purchase of treasury stock | (238,535 | ) | — | — | (1,224,864 | ) | (81,624 | ) | ||||||||||||
Exercise of stock options | 58,198 | 21,186 | 71,386 | 14,198 | 19,916 | |||||||||||||||
Common stock issued | 236,320 | 209,602 | 285,669 | 277,171 | 170,513 | |||||||||||||||
Proceeds from dividend reinvestment plan | 232,490 | 178,981 | 245,506 | 215,120 | 167,407 | |||||||||||||||
Cash dividends | (957,603 | ) | (857,713 | ) | (1,188,146 | ) | (1,083,197 | ) | (966,697 | ) | ||||||||||
Net cash used for financing activities | (669,130 | ) | (1,097,944 | ) | (1,785,585 | ) | (601,572 | ) | (690,485 | ) | ||||||||||
Increase (decrease) in cash | (102,621 | ) | (65,292 | ) | 119,986 | (100,284 | ) | 36,736 | ||||||||||||
CASH AT BEGINNING OF YEAR | 349,385 | 229,399 | 229,399 | 329,683 | 292,947 | |||||||||||||||
CASH AT END OF YEAR | $ | 246,764 | $ | 164,107 | $ | 349,385 | $ | 229,399 | $ | 329,683 | ||||||||||
F - 28
Table of Contents
22. | SELECTED QUARTERLY FINANCIAL DATA (Unaudited) |
Three Months Ended | ||||||||||||
March 31, | June 30, | September 30, | ||||||||||
2006 | 2006 | 2006 | ||||||||||
Total interest income | $ | 4,560,636 | $ | 4,790,313 | $ | 4,976,078 | ||||||
Total interest expense | 1,874,659 | 2,037,549 | 2,217,481 | |||||||||
Net interest income | 2,685,977 | 2,752,764 | 2,758,597 | |||||||||
Provision for loan losses | 75,000 | 75,000 | 90,000 | |||||||||
Net interest income after provision for loan losses | 2,610,977 | 2,677,764 | 2,668,597 | |||||||||
Total noninterest income | 550,326 | 594,655 | 643,602 | |||||||||
Total noninterest expense | �� | 2,035,731 | 1,898,032 | 2,042,405 | ||||||||
Income before income taxes | 1,125,572 | 1,374,387 | 1,269,794 | |||||||||
Income taxes | 308,000 | 386,587 | 339,000 | |||||||||
Net income | $ | 817,572 | $ | 987,800 | $ | 930,794 | ||||||
Per share data: | ||||||||||||
Net income | ||||||||||||
Basic | $ | 0.58 | $ | 0.70 | $ | 0.65 | ||||||
Diluted | 0.57 | 0.69 | 0.64 | |||||||||
Average shares outstanding | ||||||||||||
Basic | 1,419,305 | 1,418,496 | 1,424,003 | |||||||||
Diluted | 1,441,845 | 1,441,861 | 1,447,454 |
Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2005 | 2005 | 2005 | 2005 | |||||||||||||
Total interest income | $ | 4,115,912 | $ | 4,274,683 | $ | 4,427,392 | $ | 4,560,517 | ||||||||
Total interest expense | 1,547,711 | 1,628,943 | 1,663,422 | 1,814,538 | ||||||||||||
Net interest income | 2,568,201 | 2,645,740 | 2,763,970 | 2,745,979 | ||||||||||||
Provision for loan losses | 60,000 | 60,000 | 75,000 | 107,000 | ||||||||||||
Net interest income after provision for loan losses | 2,508,201 | 2,585,740 | 2,688,970 | 2,638,979 | ||||||||||||
Total noninterest income | 481,104 | 526,515 | 559,275 | 552,343 | ||||||||||||
Total noninterest expense | 2,013,215 | 1,846,301 | 1,882,004 | 1,683,119 | ||||||||||||
Income before income taxes | 976,090 | 1,265,954 | 1,366,241 | 1,508,203 | ||||||||||||
Income taxes | 262,000 | 349,000 | 390,000 | 414,156 | ||||||||||||
Net income | $ | 714,090 | $ | 916,954 | $ | 976,241 | $ | 1,094,047 | ||||||||
Per share data: | ||||||||||||||||
Net income | ||||||||||||||||
Basic | $ | 0.51 | $ | 0.66 | $ | 0.70 | $ | 0.78 | ||||||||
Diluted | 0.50 | 0.65 | 0.69 | 0.76 | ||||||||||||
Average shares outstanding | ||||||||||||||||
Basic | 1,396,290 | 1,401,902 | 1,405,230 | 1,409,210 | ||||||||||||
Diluted | 1,403,805 | 1,424,660 | 1,427,987 | 1,430,625 |
F - 29
Table of Contents
22. | SELECTED QUARTERLY FINANCIAL DATA (Unaudited) (Continued) |
Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2004 | 2004 | 2004 | 2004 | |||||||||||||
Total interest income | $ | 3,798,928 | $ | 3,889,197 | $ | 3,978,576 | $ | 4,065,835 | ||||||||
Total interest expense | 1,383,071 | 1,411,961 | 1,456,471 | 1,517,395 | ||||||||||||
Net interest income | 2,415,857 | 2,477,236 | 2,522,105 | 2,548,440 | ||||||||||||
Provision for loan losses | 30,000 | 30,000 | 51,000 | 63,000 | ||||||||||||
Net interest income after provision for loan losses | 2,385,857 | 2,447,236 | 2,471,105 | 2,485,440 | ||||||||||||
Total noninterest income | 396,719 | 485,889 | 484,244 | 412,379 | ||||||||||||
Total noninterest expense | 1,781,318 | 1,682,607 | 1,803,558 | 1,698,223 | ||||||||||||
Income before income taxes | 1,001,258 | 1,250,518 | 1,151,791 | 1,199,596 | ||||||||||||
Income taxes | 316,000 | 342,000 | 330,000 | 342,000 | ||||||||||||
Net income | $ | 685,258 | $ | 908,518 | $ | 821,791 | $ | 857,596 | ||||||||
Per share data: | ||||||||||||||||
Net income | ||||||||||||||||
Basic | $ | 0.49 | $ | 0.64 | $ | 0.57 | $ | 0.60 | ||||||||
Diluted | 0.49 | 0.64 | 0.57 | 0.59 | ||||||||||||
Average shares outstanding | ||||||||||||||||
Basic | 1,352,863 | 1,424,657 | 1,432,201 | 1,430,579 | ||||||||||||
Diluted | 1,360,377 | 1,433,676 | 1,441,220 | 1,446,181 |
23. | SUBSEQUENT EVENTS |
Stock Dividend | ||
The Board of Directors approved a 5 percent stock dividend to stockholders of record as of December 1, 2006, payable December 15, 2006. As a result of the dividend, 67,283 additional shares of the Company’s common stock were issued, common stock was increased by $2,842,749, and retained earnings decreased by $2,859,600. | ||
Merger Agreement | ||
On November 15, 2006, Middlefield Banc Corp. entered into an Agreement and Plan of Merger for the acquisition of Emerald Bank, an Ohio-chartered savings bank headquartered in Dublin, Ohio. Middlefield Banc Corp. organized an interim bank subsidiary under Ohio commercial bank law to carry out the merger with Emerald Bank. At the effective time of the merger, Emerald Bank will merge into the new interim subsidiary, which will be the surviving corporation and which will, thereafter, operate under the name Emerald Bank as a wholly owned commercial bank subsidiary of Middlefield Banc Corp. Subject to possible adjustment if Emerald Bank’s stockholders’ equity is not at least $5.3 million at the end of the month immediately before the month in which the merger occurs, the total purchase price for Emerald Bank is expected to be $7,326,890. One half of the merger consideration is payable in cash and the other half in shares of Middlefield Banc Corp. common stock. The merger is subject to bank regulatory approval and to approval of Emerald Bank stockholders. |
F - 30
Table of Contents
THE MERGER
(a) | The closing of the transactions contemplated by this AGREEMENT (hereinafter referred to as the “CLOSING”) shall take place at a time and on a date mutually determined by MBCN and EMERALD within thirty (30) days after the satisfaction or waiver of the last of the conditions set forth in ARTICLE SEVEN of this AGREEMENT to be satisfied or waived. |
(b) | On the day of the CLOSING, MBCN and EMERALD shall cause a Certificate of Merger in respect of the MERGER, substantially in the form attached hereto as Exhibit 1.03, to be executed and filed with the Superintendent of the Ohio Division of Financial Institutions (hereinafter referred to as the “DIVISION”) in accordance with the applicable provisions of the Ohio General Corporation Law and the Ohio statutes applicable to mergers of financial institutions. The MERGER shall become effective at 11:59 P.M. on the date of the filing of the Certificate of Merger by the DIVISION with the Ohio Secretary of State pursuant to ORC 1115.11(F) (herein referred to as the “EFFECTIVE TIME”). |
Table of Contents
CONVERSION AND CANCELLATION OF
SHARES IN THE MERGER
(a) | Except for EMERALD common shares held by EMERALD as treasury stock, held directly or indirectly by MBCN (other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted, if any), or for which dissenters’ rights are properly exercised and perfected under the applicable provision of the ORC, each EMERALD common share outstanding immediately before the EFFECTIVE TIME shall at the EFFECTIVE TIME become and be converted into the right to receive in accordance with this ARTICLE TWO the following, subject to the terms and upon the conditions of this AGREEMENT: |
(i) | Cash in an amount equal to the quotient of the PURCHASE PRICE (as such amount is determined and adjusted in accordance with Section 2.02 of this AGREEMENT), divided by the number of EMERALD common shares outstanding at the EFFECTIVE TIME (hereinafter referred to as the “CASH CONSIDERATION”); | ||
(ii) | The number of MBCN common shares equal to the quotient (hereinafter referred to as the “EXCHANGE RATIO”) of the CASH CONSIDERATION, divided by the average of the closing prices reported in the Pink Sheets for MBCN common shares over the period of the twenty (20) most recent trading days on which trades in MBCN common shares actually occur before the third business day prior to the EFFECTIVE TIME (hereinafter referred to as the “MBCN AVERAGE STOCK PRICE”), subject to possible anti-dilution adjustment under section 2.07 of this AGREEMENT (hereinafter referred to as the “STOCK CONSIDERATION”); or | ||
(iii) | A combination of the CASH CONSIDERATION and the STOCK CONSIDERATION. |
(b) | Each EMERALD common share that is held by EMERALD as treasury stock immediately before the EFFECTIVE TIME or that is held directly or indirectly by MBCN immediately before the EFFECTIVE TIME (other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted) shall be canceled and retired as a result of the MERGER and shall cease to exist and no exchange or payment shall be made therefor. |
(c) | Issued and outstanding shares of MERGERCO shall remain issued and outstanding after the EFFECTIVE TIME and shall be and constitute the issued and outstanding shares of the SURVIVING CORPORATION. The issued and outstanding shares of MBCN before the EFFECTIVE TIME shall remain issued and outstanding after the EFFECTIVE TIME. |
(a) | Subject to adjustment under this Section 2.02, the “PURCHASE PRICE” shall equal the sum of (i) $7,326,890, plus (ii) the aggregate amounts received by EMERALD upon the exercise before the EFFECTIVE TIME of any OUTSTANDING OPTIONS. |
(b) | Unless waived by MBCN under Section 8.06 of this AGREEMENT, if, as of the last day of the month immediately before the month in which the CLOSING occurs (hereinafter referred to as the “COMPUTATION DATE”), the EMERALD SHAREHOLDERS’ EQUITY (hereinafter defined) is less than $5,300,000 , the PURCHASE PRICE shall be reduced dollar-for-dollar by the difference between $5,300,000, less the EMERALD SHAREHOLDERS’ EQUITY |
A-2
Table of Contents
(c) | For purposes of this AGREEMENT, EMERALD SHAREHOLDERS’ EQUITY shall be determined based upon EMERALD’s balance sheet as of the COMPUTATION DATE. The balance sheet shall be prepared in accordance with generally accepted accounting principles as applicable to interim financial statements and consistently applied, provided, however, that the following items shall be added to the value of the assets set forth on such balance sheet: |
(i) | Legal fees incurred by EMERALD in connection with the MERGER in an amount up to $180,000; | ||
(ii) | Investment banking fees payable to RYAN BECK in an amount up to $175,000; | ||
(iii) | Accounting fees in an amount up to $23,000 for the retention of accounting personnel or services by EMERALD; | ||
(iv) | Retention payments of $145,000 contemplated by Section 6.11(c); | ||
(v) | Increases in EMERALD’s allowance for loan losses relating solely to new loan production after the date of this AGREEMENT in the amount of 1% of the difference between the aggregate dollar amount of new loans made between the date of this AGREEMENT and the EFFECTIVE TIME, less the aggregate amount of loans paid off in full or paid down between such dates; | ||
(vi) | Costs and expenses incurred by EMERALD at the direction of MBCN; and | ||
(vii) | Any compensation charge resulting from the acceleration of vesting of the OUTSTANDING OPTIONS pursuant to Section 6.15 of this AGREEMENT. |
(a) | An election form and letter of transmittal in such form as EMERALD and MBCN shall mutually agree (hereinafter referred to as the “ELECTION FORM”) shall be mailed to each holder of EMERALD common shares, along with the PROXY STATEMENT/PROSPECTUS (as defined in Section 6.02 of this AGREEMENT) and related proxy materials for the special shareholders’ meeting at which the MERGER will be submitted to a vote of EMERALD’s shareholders. The shareholders of EMERALD entitled to receive the ELECTION FORM shall be those shareholders of record as of the record date fixed for the special shareholders’ meeting at which the MERGER will be submitted to a vote of EMERALD’s shareholders. EMERALD and MBCN shall also establish a deadline for receipt of such ELECTION FORMS (hereinafter referred to as the “ELECTION DEADLINE”), which deadline shall be the close of business on the date of the special shareholders’ meeting at which the MERGER will be submitted to a vote of EMERALD’s shareholders, unless MBCN elects to establish a later ELECTION DEADLINE not later than the close of business on the last day that EMERALD shareholders are permitted to give notice of their exercise of statutory dissenters’ rights. MBCN shall also use commercially reasonable efforts to provide the ELECTION FORM to shareholders of record who become record shareholders after the record date and before the ELECTION DEADLINE. |
(b) | Each ELECTION FORM shall entitle the holder of EMERALD common shares (i) to elect to receive the CASH CONSIDERATION for all of such holder’s shares (hereinafter referred to as a “CASH ELECTION”), (ii) to elect to receive the STOCK CONSIDERATION for all of such holder’s shares (hereinafter referred to as a “STOCK ELECTION”), (iii) to elect to receive the CASH CONSIDERATION with respect to some of such holder’s shares and the STOCK CONSIDERATION with respect to such holder’s remaining shares (hereinafter referred to as a “MIXED ELECTION”), or (iv) to indicate that such holder has no preference concerning the receipt of the CASH CONSIDERATION or the STOCK CONSIDERATION (hereinafter referred to as a “NON-ELECTION”). |
A-3
Table of Contents
(c) | An election shall be considered to have been validly made by a holder of EMERALD common shares only if, on or before 5:00 p.m., local time, on the ELECTION DEADLINE, MBCN or the EXCHANGE AGENT (as defined below), as applicable, shall have received an ELECTION FORM properly completed and executed by such holder, accompanied by either (i) one or more certificates (a “CERTIFICATE”) representing the EMERALD common shares as to which such election is being made, duly endorsed in blank or otherwise in form acceptable for transfer on the books of EMERALD, or containing an appropriate guaranty of delivery in the form customarily used in transactions of this nature from a member of a national securities exchange or a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company in the United States, or (ii) with respect to a CERTIFICATE that has been lost, stolen, or destroyed, the affidavit and, if required, bond required under Section 2.06(g) of this AGREEMENT. Subject to the terms of this AGREEMENT and the ELECTION FORM, MBCN shall have reasonable discretion to determine whether any election, revocation, or change has been properly or timely made and to disregard immaterial defects in any ELECTION FORM. Any good faith decisions of MBCN regarding such matters shall be binding and conclusive. |
(d) | A holder of EMERALD common shares that is a bank, trust company, security broker-dealer or other recognized nominee, may submit one or more ELECTION FORMS for the persons for whom it holds shares as nominee provided that such bank, trust company, security broker-dealer or nominee certifies to the satisfaction of EMERALD and MBCN the names of the persons for whom it is so holding shares (hereinafter referred to as the “BENEFICIAL OWNERS”). In such case, each BENEFICIAL OWNER for whom an ELECTION FORM is submitted shall be treated as a separate owner for purposes of the election procedure and allocation of shares set forth in this ARTICLE TWO. |
(e) | Any holder of EMERALD common shares may at any time before the ELECTION DEADLINE withdraw such holder’s election and either (i) submit a new ELECTION FORM in accordance with the procedures in this Section 2.04 or (ii) withdraw the CERTIFICATE or CERTIFICATES for EMERALD common shares deposited therewith by providing written notice that is received by MBCN or the EXCHANGE AGENT, as applicable, by 5:00 p.m., local time, on the business day prior to the ELECTION DEADLINE. ELECTIONS may be similarly revoked if this AGREEMENT is terminated. |
(a) | Notwithstanding any other contrary provision contained in this AGREEMENT, 50% of the total number of EMERALD common shares outstanding at the EFFECTIVE TIME (hereinafter referred to as the “STOCK CONVERSION NUMBER”) shall be converted into the STOCK CONSIDERATION and the remaining outstanding EMERALD common shares shall be converted into the CASH CONSIDERATION (hereinafter referred to as the “CASH CONVERSION NUMBER”). |
(b) | Within five (5) business days after the EFFECTIVE TIME, MBCN shall allocate among the holders of EMERALD common shares the right to receive the CASH CONSIDERATION and the STOCK CONSIDERATION and to distribute such consideration. In making such allocation, MBCN shall first convert the NON-ELECTION SHARES into STOCK ELECTION SHARES and/or CASH ELECTION SHARES (with such conversion made on a pro rata basis among the holders of NON-ELECTION SHARES based upon the number of each such holder’s total NON-ELECTION SHARES) in order to satisfy, to the greatest extent possible, the mix of CASH CONSIDERATION and STOCK CONSIDERATION required by Section 2.05(a). If, following the conversion of all NON-ELECTION SHARES, the number of STOCK ELECTION SHARES does not equal the STOCK CONVERSION NUMBER, then the STOCK ELECTION SHARES and CASH ELECTION SHARES shall be reallocated as follows: |
(i) | If the number of STOCK ELECTION SHARES is less than the STOCK CONVERSION NUMBER, then MBCN shall eliminate from the CASH ELECTION SHARES (excluding the DISSENTING SHARES), on a pro rata basis in relation to the total number of CASH ELECTION SHARES, and shall add to the STOCK |
A-4
Table of Contents
ELECTION SHARES, such number of EMERALD common shares as may be necessary so that the number of STOCK ELECTION SHARES equals the STOCK CONVERSION NUMBER; or |
(ii) | If the number of STOCK ELECTION SHARES is greater than the STOCK CONVERSION NUMBER, then MBCN shall eliminate from the STOCK ELECTION SHARES, on a pro rata basis in relation to the total number of STOCK ELECTION SHARES, and shall add to the CASH ELECTION SHARES, such number of EMERALD common shares as may be necessary so that the number of STOCK ELECTION SHARES equals the STOCK CONVERSION NUMBER. |
(a) | Distributions by MBCN of the MERGER CONSIDERATION shall be made in accordance with Sections 2.04 and 2.05 of this AGREEMENT. At and after the EFFECTIVE TIME, each CERTIFICATE shall represent the right to receive the MERGER CONSIDERATION in accordance with the terms of this AGREEMENT only, or in the case of shares for which dissenters’ rights are properly exercised and perfected, such rights as the dissenter may have under the applicable provisions of the Ohio General Corporation Law governing dissenters’ rights. |
(b) | At or before the EFFECTIVE TIME, MBCN shall reserve a sufficient number of MBCN common shares to be issued as part of the MERGER CONSIDERATION and shall deposit with The Middlefield Banking Company (hereinafter referred to as “MBC”) an estimated amount of cash to be issued as part of the MERGER CONSIDERATION. |
(c) | MBCN shall cause a certificate representing that number of whole MBCN common shares that each holder of EMERALD common shares has the right to receive under Sections 2.04 and 2.05 of this AGREEMENT, if any, and a check in the amount of any cash that such holder has the right to receive under Sections 2.04 and 2.05, if any, including any cash in lieu of fractional shares, or dividends or distributions the shareholder is entitled to receive, to be delivered to the shareholder upon delivery (if not previously delivered) to MBCN of the CERTIFICATES (or bond or other indemnity satisfactory to MBCN if any of such certificates are lost, stolen or destroyed) owned by the shareholder. No interest will be paid on any MERGER CONSIDERATION. |
(d) | No dividends or other distributions on MBCN common shares with a record date occurring after the EFFECTIVE TIME shall be paid to the holder of any unsurrendered CERTIFICATE until the holder thereof surrenders such CERTIFICATE in accordance with this Section 2.06 or provides an affidavit and, if required, a bond in accordance with subparagraph (g) of this Section 2.06. After becoming entitled in accordance with this Section 2.06, the record holder also shall be entitled to receive any such dividends or other distributions, without interest, that had become payable for MBCN common shares the holder had the right to receive upon surrender of the CERTIFICATE. |
(e) | The stock transfer books of EMERALD shall be closed immediately upon the EFFECTIVE TIME. From and after the EFFECTIVE TIME there shall be no transfers on the stock transfer records of EMERALD of any EMERALD common shares. If, after the EFFECTIVE TIME, CERTIFICATES are presented to MBCN, they shall be canceled and exchanged for the MERGER CONSIDERATION deliverable under this AGREEMENT in accordance with the procedures set forth in this Section 2.06. |
(f) | If any dispute arises concerning the ownership of the EMERALD common shares represented by any CERTIFICATE, MBCN shall be entitled to deposit any MERGER CONSIDERATION payable with respect to such EMERALD common shares in escrow with an independent third party. MBCN shall thereafter have no liability for any claims relating thereto. |
(g) | If any CERTIFICATES are lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the CERTIFICATE to be lost, stolen, or destroyed and, if required by MBCN, the posting by the person of a bond or other indemnity satisfactory to MBCN in such amount as MBCN may reasonably direct as indemnity against any claim that may be made against it for the CERTIFICATE, MBCN shall issue in exchange for the lost, stolen, or destroyed CERTIFICATE the MERGER CONSIDERATION under Section 2.04. |
A-5
Table of Contents
(h) | Notwithstanding the foregoing, neither the EXCHANGE AGENT (as defined in Section 2.08) nor any party hereto shall be liable to any former holder of EMERALD common shares for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. |
(a) | Each OUTSTANDING OPTION shall be converted to an MBCN OPTION based upon the EXCHANGE RATIO; | ||
(b) | The exercise price of the MBCN OPTION into which each OUTSTANDING OPTION is converted shall equal the quotient of the exercise price of the OUTSTANDING OPTION, divided by the EXCHANGE RATIO, rounded up if necessary to the nearest one-hundredth of a dollar; and | ||
(c) | The number of MBCN common shares subject to the MBCN OPTION of such holder shall equal the product of the number of EMERALD common shares subject to the OUTSTANDING OPTION, multiplied by the EXCHANGE RATIO, rounded down if necessary to the nearest whole share. |
REPRESENTATIONS AND WARRANTIES OF EMERALD
(a) | On or before the date hereof, EMERALD delivered to MBCN a schedule (hereinafter referred to as the “EMERALD DISCLOSURE SCHEDULE”) setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more representations or warranties contained in this ARTICLE THREE or to one or more of its covenants contained in ARTICLE FIVE, regardless of whether the provision explicitly refers to disclosure schedule exceptions; provided, however, that the mere inclusion of an item in the EMERALD DISCLOSURE SCHEDULE as an exception to a representation or warranty shall not be deemed an admission by EMERALD that the item is a material exception or fact, event, or circumstance or that the item is reasonably likely to result in a MATERIAL ADVERSE EFFECT (as defined below). |
A-6
Table of Contents
(b) | For the purpose of this AGREEMENT, a “MATERIAL ADVERSE EFFECT” in respect of EMERALD means any effect that (i) is material and adverse to the financial position, results of operations or business of EMERALD, or (ii) would materially impair the ability of EMERALD to perform its obligations under this AGREEMENT or otherwise materially threaten or materially impede the consummation of the MERGER and the other transactions contemplated by this AGREEMENT; provided, however, that a MATERIAL ADVERSE EFFECT in respect of EMERALD shall not be deemed to include the impact of (I) changes in banking and similar laws of general applicability to banks, savings banks, or their holding companies or interpretations thereof by courts or governmental authorities, (II) changes in generally accepted accounting principles or regulatory accounting requirements applicable to banks, savings banks, or their holding companies generally, (III) any modifications or changes to valuation policies and practices in connection with the MERGER or restructuring charges taken in connection with the MERGER, in each case in accordance with generally accepted accounting principles, (IV) effects of any action taken with the advance written consent of MBCN, (V) changes in the general level of interest rates (including the impact on EMERALD’s securities portfolio) or conditions or circumstances relating to or that affect the United States economy, financial, or securities markets or the banking industry, generally, (VI) reasonable and customary expenses incurred in connection with the MERGER and all expenses related to retention arrangements as provided in Section 6.11(c) of this AGREEMENT and any benefit or retirement plan disclosed on the EMERALD DISCLOSURE SCHEDULE, (VII) the impact of the announcement of this AGREEMENT and the transactions contemplated hereby, and compliance with this AGREEMENT on the business, financial condition or results of operations of EMERALD, (VIII) the occurrence of any military or terrorist attack within the United States or any of its possessions or offices; and (IX) the continuation of losses incurred by EMERALD in the operation of its business. |
(c) | For the purpose of this AGREEMENT, and in relation to EMERALD, “knowledge” means the actual knowledge of any officer or director of EMERALD and any other person having supervisory or management responsibilities with respect to material aspects of the operation of the business of EMERALD. |
(d) | On the basis of this Section 3.01, EMERALD represents and warrants to MBCN that each of the statements in the following Sections of this ARTICLE THREE is true and accurate in all material respects. |
(a) | Subject to the approval of this AGREEMENT and the transactions contemplated hereby, including the MERGER, by the EMERALD shareholders, by the DIVISION, by the FDIC and by the Board of Governors of the Federal Reserve System (hereinafter referred to as the “FRB”), (i) EMERALD has all of the requisite corporate power and authority to enter into this AGREEMENT and to perform all of its obligations hereunder; (ii) the execution and delivery of this AGREEMENT and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action by EMERALD; and (iii) this AGREEMENT is the valid and binding agreement of EMERALD, enforceable against EMERALD in accordance with its terms, (I) subject to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws of general applicability affecting the enforcement of creditors’ rights generally and the effect of rules of law governing specific performance, injunctive relief and other equitable remedies on the enforceability of such documents and (II) except to the extent such enforceability may be limited by laws relating to safety and soundness of insured depository institutions as set forth in 12 U.S.C. § 1818(b) or by the appointment of a conservator by the FDIC. This AGREEMENT has been duly executed and delivered by EMERALD. EMERALD has no knowledge of any reason approval of this AGREEMENT and the transactions contemplated hereby will not be approved by the Division, the FDIC, and the FRB in a timely manner and without the imposition of a condition, restriction, or requirement of the type described in section 7.01(b). |
A-7
Table of Contents
(b) | The Articles of Incorporation and Constitution of EMERALD require the adoption of this AGREEMENT and the approval of the transactions contemplated hereby, including the MERGER, by the affirmative vote of the holders of a majority of the outstanding shares of EMERALD. Neither the Articles of Incorporation nor the Constitution of EMERALD, nor any law or regulation, require any other vote of the holders of EMERALD shares in respect of this AGREEMENT or the transactions contemplated hereby. |
(a) | The statements of financial condition as of December 31, 2005 and 2004, of EMERALD and the related statements of income, shareholders’ equity and cash flows for each of the years then ended, examined and reported upon by Crowe, Chizek and Company, certified public accountants, complete copies of which have previously been made available to MBCN (hereinafter referred to as the “EMERALD AUDITED FINANCIALS”), have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and fairly present the consolidated financial position of EMERALD at such dates and the consolidated results of its operations and cash flows for such periods. |
(b) | The unaudited balance sheet as of September 30, 2006, of EMERALD and the related unaudited income statement for the nine months then ended, complete copies of which have previously been made available to MBCN (hereinafter referred to as the “EMERALD INTERIM FINANCIALS”), fairly present the financial position of EMERALD at such date and the results of its operations for such period and have been prepared in accordance with generally accepted |
A-8
Table of Contents
(a) | Authorized the creation or issuance of, issued, sold or disposed of, or created any obligation to issue, sell or dispose of, any shares, notes, bonds or other securities (including, without limitation, the grant of any options under the 2003 PLAN), or any obligation convertible into or exchangeable for, any of its common shares; | ||
(b) | Declared, set aside, paid or made any dividend or other distributions on its common shares or directly or indirectly redeemed, purchased or acquired any shares or entered into any agreement in respect of the foregoing; | ||
(c) | Effected any stock split, recapitalization, combination, exchange of shares, readjustment or other reclassification; | ||
(d) | Amended its Articles of Incorporation or Constitution; | ||
(e) | Purchased, sold, assigned or transferred any material patent, trademark, trade name, copyright, license, franchise, design or other intangible asset or property; | ||
(f) | Except for the acquisition or disposition in the ordinary course of business of other real estate owned, acquired or disposed of any real or personal property or fixed assets constituting a capital investment in excess of $10,000 individually or $25,000 in the aggregate; | ||
(g) | Mortgaged, pledged or granted or suffered to exist any lien or other encumbrance or charge on any assets or properties, tangible or intangible, except for liens for taxes not yet due and payable and such other liens, encumbrances or charges which do not materially adversely affect its financial position; | ||
(h) | Waived any rights of material value or cancelled any material debts or claims; | ||
(i) | Except for borrowings from the Federal Home Loan Bank of Cincinnati (hereinafter referred to as the “FHLB of Cincinnati”), incurred any obligation or liability (absolute or contingent) requiring payments by EMERALD exceeding $10,000, whether individually or in the aggregate, including, without limitation, any tax liability, or paid any material liability or obligation (absolute or contingent) other than liabilities and obligations incurred in the ordinary course of business; | ||
(j) | Except for salary increases granted in accordance with past practice, entered into or amended any employment contract with any of its officers, hired any new employees except to replace employees whose employment terminated after the date of this AGREEMENT, increased the compensation payable to any officer or director or any relative of any such officer or director, or become obligated to increase any such compensation, adopted or amended in any material respect any employee benefit plans, severance plan or collective bargaining agreement or made any awards or distributions under any employee benefit plans not consistent with past practice or custom; | ||
(k) | Incurred any damage, destruction or similar loss, not covered by insurance, materially affecting its businesses or properties; | ||
(l) | Acquired any shares or other equity interest in any corporation, partnership, trust, joint venture or other entity; | ||
(m) | Made any (i) investment (except investments made in the ordinary course of business) or (ii) capital expenditure or commitment for any addition to property, plant or equipment, in either case (clauses i and ii) of more than $25,000; |
A-9
Table of Contents
(n) | Failed to accrue, pay, discharge and satisfy all debts, liabilities, obligations and expenses incurred in the regular and ordinary course of business as such debts, liabilities, obligations, and expenses have become due; | ||
(o) | Opened, closed, moved or, in any material respect, expanded, diminished, renovated, altered, or changed any of its offices or branches; | ||
(p) | Paid or committed to pay any management or consulting or other similar type of fees; | ||
(q) | Failed to maintain EMERALD’s reserve for loan losses at the greater of $242,000 or 1% of the total gross loans outstanding, except to the extent inconsistent with generally accepted accounting principles; | ||
(r) | Caused any MATERIAL ADVERSE EFFECT on the amount or general composition of EMERALD’s deposit liabilities or loan portfolio; | ||
(s) | Agreed, whether in writing or otherwise, to take any action described in this Section 3.10. |
(a) | A description of all personal property and fixed assets owned by EMERALD is set forth in Section 3.11(a) of the EMERALD DISCLOSURE SCHEDULE (hereinafter referred to as the “PERSONAL PROPERTY”). All PERSONAL PROPERTY has been maintained in good working order, ordinary wear and tear excepted. EMERALD owns and has good title to all of the PERSONAL PROPERTY, free and clear of any mortgage, lien, pledge, charge, claim, conditional sales or other agreement, lease, right or encumbrance, except (i) as set forth in Section 3.11(a) of the EMERALD DISCLOSURE SCHEDULE, (ii) to the extent stated or reserved against in the EMERALD AUDITED FINANCIALS, and (iii) such other exceptions which are not material in character or amount and do not materially detract from the value of or interfere with the use of the properties or assets subject thereto or affected thereby. |
(b) | The documentation (hereinafter referred to as “LOAN DOCUMENTATION”) governing or relating to the loan and credit-related assets (hereinafter referred to as the “LOAN ASSETS”) included within the loan portfolio of EMERALD is legally sufficient in all material respects for the purposes intended thereby and creates enforceable rights in favor of EMERALD in accordance with the terms of such LOAN DOCUMENTATION, subject to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws of general applicability affecting the enforcement of creditors’ rights generally, and the effect of rules of law governing specific performance, injunctive relief and other equitable remedies on the enforceability of such documents. The LOAN DOCUMENTATION is in compliance with, and each of the loans included within the loan portfolio of EMERALD has been processed, closed and administered in conformance with, all applicable federal consumer protection statutes and regulations, including the Truth in Lending Act, the Equal Credit Opportunity Act and the Real Estate Settlement Procedures Act. Except as set forth in Section 3.11(b) of the EMERALD DISCLOSURE SCHEDULE, to the knowledge of EMERALD, no debtor under any of the LOAN DOCUMENTATION has asserted any claim or defense with respect to the subject matter thereof. |
(c) | A description of each parcel of real property owned by EMERALD is set forth in Section 3.11(c) of the EMERALD DISCLOSURE SCHEDULE (hereinafter referred to individually as a “PARCEL” and collectively as the “REAL PROPERTIES”). EMERALD is the owner of each PARCEL in fee simple and has good and marketable title to each such PARCEL, free and clear of any liens, claims, charges, encumbrances or security interests of any kind, except (i) as set forth in Section 3.11(c) of the EMERALD DISCLOSURE SCHEDULE, (ii) liens for real estate taxes and assessments not yet delinquent and (iii) utility, access and other easements, rights of way, restrictions and imperfections of title which do not impair the REAL PROPERTIES for the use and business being conducted thereon. |
(d) | Except as set forth in Section 3.11(d) of the EMERALD DISCLOSURE SCHEDULE, no party leasing any of the REAL PROPERTIES from EMERALD is in material default with respect to any of its obligations (including payment obligations) under the governing lease. EMERALD has not received notification from any governmental entity within the two year period immediately preceding the date hereof of contemplated improvements to the REAL PROPERTIES or surrounding area or community by public authority, the costs of which are to be assessed as special taxes against the REAL PROPERTIES in the future. |
(e) | A description of all real property leased by EMERALD is set forth in Section 3.11(e) of the EMERALD DISCLOSURE SCHEDULE (hereinafter referred to as the “LEASED REAL PROPERTY”). True and correct copies of all leases in respect of the LEASED REAL PROPERTY (hereinafter referred to as the “REAL PROPERTY LEASES”) and all attachments, amendments and addendums thereto have been made available to MBCN. Except as |
A-10
Table of Contents
(f) | A description of all personal property leased by EMERALD is set forth in Section 3.11(f) of the EMERALD DISCLOSURE SCHEDULE (hereinafter referred to as the “LEASED PERSONAL PROPERTY”). True and correct copies of the leases in respect of the LEASED PERSONAL PROPERTY (hereinafter referred to as the “PERSONAL PROPERTY LEASES”) and all attachments, amendments and addendums thereto have been made available to MBCN. Except as set forth in Section 3.11(f) of the EMERALD DISCLOSURE SCHEDULE, the PERSONAL PROPERTY LEASES create, in accordance with their terms, valid, binding and assignable leasehold interests of EMERALD in all of the LEASED PERSONAL PROPERTY, free and clear of all liens, claims, charges, encumbrances or security interests of any kind. EMERALD has complied in all material respects with all of the provisions under the PERSONAL PROPERTY LEASES required on its part to be complied with and is not in default with respect to any of its obligations (including payment obligations) under any of the PERSONAL PROPERTY LEASES. |
(a) | Section 3.13(a) of the EMERALD DISCLOSURE SCHEDULE contains (i) a true, accurate and complete list of all investments, other than investments in the LOAN ASSETS and REAL PROPERTIES, owned by EMERALD (hereinafter referred to as the “INVESTMENTS”) as of the date hereof, the name of the registered holder thereof, the location of the certificates therefor or other evidence thereof and any stock powers or other authority for transfer granted with respect thereto and (ii) a true, accurate and complete list of the names of each bank or other depository in which EMERALD has an account or safe deposit box, including, without limitation, accounts with the FHLB of Cincinnati, and the names of all persons authorized to draw thereon or to have access thereto. Except as set forth in Section 3.13(a) of the EMERALD DISCLOSURE SCHEDULE, the INVESTMENTS, other than any such investments disposed of in the ordinary course of business prior to the date hereof, are owned by EMERALD, free and clear of all liens, pledges, claims, security interests, encumbrances, charges or restrictions of any kind and may be freely disposed of by EMERALD at any time. Except as set forth in Section 3.13(a) of the EMERALD DISCLOSURE SCHEDULE, EMERALD is not a party to and has no interest in any repurchase agreement, reverse repurchase agreement, collateralized mortgage obligation or any other derivative security. |
(b) | With the exception of equity interests in the FHLB of Cincinnati, EMERALD does not own of record or beneficially the outstanding shares of, or any equity interest in, any corporation or other business entity. |
(a) | Except as set forth in Section 3.15 of the EMERALD DISCLOSURE SCHEDULE, EMERALD has duly and timely filed all material federal, state, county and local income, profits, franchise, excise, sales, customs, property, use, occupation, withholding, social security and other tax and information returns and reports (“TAX RETURNS”) required to have been filed by EMERALD through the date hereof, and all such TAX RETURNS are and will be true, correct and complete in all material respects. EMERALD has paid or accrued all material TAXES (defined below) due or claimed to be due (whether reflected on such TAX RETURNS or otherwise). EMERALD has no liability for any material TAXES of any nature whatsoever and there is no basis for any additional material claims or assessments, |
A-11
Table of Contents
(b) | For purposes of this AGREEMENT, “TAX” or “TAXES” means (i) all federal, state, local or foreign taxes, charges, fees, levies or other assessments, however denominated, including, without limitation, all net income, gross income, gross receipts, gains, premium, sales, use, ad valorem, goods and services, capital, production, transfer, franchise, windfall profits, license, witshholding, payroll, employment, disability, employer health, excise, estimated, severance, stamp, occupation, property, environmental, unemployment or other taxes, custom duties, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority; and (ii) any transferee liability in respect of any items described in clause (i) above. |
(a) | Except as set forth in Section 3.16(a) of the EMERALD DISCLOSURE SCHEDULE, EMERALD is not a party to or bound by any written or oral (i) contract or commitment for capital expenditures in excess of $10,000 for any one project or $20,000 in the aggregate; (ii) contract or commitment made in the ordinary course of business for the purchase of materials or supplies or for the performance of services involving payments to or by EMERALD of an amount exceeding $25,000 in the aggregate or extending for more than six (6) months from the date hereof; (iii) contract or option for the purchase of any property, real or personal; (iv) unsecured letter of credit or indemnity calling for payment, upon the conditions stated therein, of more than $10,000; (v) guarantee agreement; (vi) instrument granting any person authority to transact business on behalf of EMERALD; (vii) contracts or commitments relating to outstanding loans and/or commitments to make loans (including unfunded commitments and lines of credit) to any one person (together with “affiliates” of that person) in excess of the regulatory limitations on loans to one borrower; (viii) employment, management, consulting, deferred compensation, severance or other similar contract with any director, officer or employee of EMERALD; (ix) note, debenture or loan agreement pursuant to which EMERALD has incurred indebtedness, other than deposit liabilities and advances from the FHLB of Cincinnati; (x) loan participation agreement; (xi) loan servicing agreement; (xii) contract or commitment relating to a real estate development project consisting of the development of more than one single family dwelling; (xiii) commitment to make any acquisition, development or construction loan; or (xiv) commitment or agreement to do any of the foregoing. Contracts set forth in Section 3.16 of the EMERALD DISCLOSURE SCHEDULE are hereinafter collectively referred to as the “CONTRACTS.” EMERALD has previously made available to MBCN all of the CONTRACTS. |
(b) | EMERALD is not in material default under any of the contracts or agreements to which it is a party and no claim of such default by any party has been made or is now threatened. There does not exist any event which, with notice or the passing of time or both, would constitute a material default under, or would excuse performance by any party thereto from, any contract or agreement to which EMERALD is a party. |
A-12
Table of Contents
(a) | Section 3.20 of the EMERALD DISCLOSURE SCHEDULE contains a true and complete list of all profit-sharing plans, deferred compensation, consulting, bonus, group insurance plans or agreements and all other incentive, welfare other than “payroll practices” as defined in Department of Labor Regulation Sections 2510.3-1(b) through (i) and in Section 2510.3-1(k) or employee benefit plans or agreements maintained for the benefit of employees or former employees of EMERALD (hereinafter collectively referred to as the “PLANS”). Copies of such PLANS, together with copies of (i) the most recent actuarial and financial reports prepared with respect to any qualified plans, (ii) the most recent annual reports filed with any governmental agency and (iii) all rulings and determination letters and any open requests for rulings or letters that pertain to any qualified plan, have been made available to MBCN. |
(b) | Each PLAN which constitutes an “employee pension benefit plan,” as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (hereinafter referred to as “ERISA”), is and has been administered in material compliance with its governing documents and the applicable provisions of ERISA and any such employee pension benefit plan which is intended to be qualified under the provisions of Section 401(a) of the CODE, is and has been administered in material compliance with the applicable provisions of the CODE. |
(c) | Each PLAN which constitutes an “employee welfare benefit plan,” as defined in Section 3(1) of ERISA, is and has been administered in material compliance with its governing documents and the applicable provisions of ERISA and each PLAN which constitutes a “group health plan,” as defined in Section 5000(b)(1) of the CODE, is and has been administered in material compliance with the continuation of coverage provisions contained in Section 4980B of the CODE. |
(d) | Each PLAN which is not an “employee benefit plan,” as defined in Section 3(3) of ERISA, is and has been administered in material compliance with its governing documents and with any and all state or federal laws applicable to such PLAN. |
(e) | Each PLAN which is a “nonqualified deferred compensation plan,” as defined in Section 409A of the CODE has, with respect to amounts subject to Section 409A of the CODE, been administered in a good faith attempt to comply with Section 409A of the CODE, IRS Notice 2005–1, Proposed Treasury Regulations issued under Section 409A of the CODE and IRS Notice 2006-79, and has not been materially modified after October 3, 2004. |
(f) | EMERALD does not maintain any “employee pension plan” (as defined above) which is subject to the provisions of Title IV of ERISA. |
(g) | EMERALD does not maintain any PLAN which provides post-retirement medical, dental or life insurance benefits to any former employee of EMERALD, nor is EMERALD obligated to provide any such benefit to any current employee upon his or her retirement. |
A-13
Table of Contents
(h) | EMERALD has not participated in, nor incurred any liability under, Section 4201 of ERISA for a complete or partial withdrawal from a multiemployer plan as such term is defined in Section 3(37) of ERISA. |
(i) | Neither EMERALD, nor any PLAN maintained by EMERALD, nor any fiduciary of any such PLAN, has incurred any material liability to the Pension Benefit Guaranty Corporation, the United States Division of Labor or to the Internal Revenue Service (hereinafter referred to as the “IRS”) with respect to a PLAN. |
(j) | No prohibited transaction (which shall mean any transaction prohibited by Section 406 of ERISA and not exempt under Section 408 of ERISA) has occurred with respect to any “employee benefit plan” (as defined above) maintained by EMERALD (i) which would result in the imposition, directly or indirectly, of an excise tax under Section 4975 of the CODE or (ii) the correction of which would have a MATERIAL ADVERSE EFFECT. |
(k) | No employee pension plan (as defined above) is intended to be an employee stock ownership plan, as defined in Section 4975(e)(7) of the CODE. |
(a) | Except as set forth in Section 3.21 of the EMERALD DISCLOSURE SCHEDULE, (i) each of EMERALD, the EMERALD PROPERTY (hereinafter defined) and the COLLATERAL PROPERTY (hereinafter defined), to the knowledge of EMERALD, is, and has been at all times, in full compliance with all applicable ENVIRONMENTAL LAWS (hereinafter defined); (ii) no investigations, inquiries, orders, hearings, actions or other proceedings by or before any court or governmental agency have been issued, are pending or, to the knowledge of EMERALD, threatened against EMERALD or in connection with the EMERALD PROPERTY or the COLLATERAL PROPERTY; (iii) no claims have been made or, to the knowledge of EMERALD, threatened at any time against EMERALD or in connection with the EMERALD PROPERTY or the COLLATERAL PROPERTY relating to actual or alleged violation of any ENVIRONMENTAL LAW or relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any HAZARDOUS SUBSTANCE (hereinafter defined) and, to the knowledge of EMERALD, no past or present actions, activities, conditions, events or incidents, including, without limitation, the release, emission, discharge or disposal of, or exposure to, any HAZARDOUS SUBSTANCE have occurred that could reasonably form the basis of any such claims against EMERALD or in connection with the EMERALD PROPERTY or the COLLATERAL PROPERTY; (iv) to the knowledge of EMERALD, no HAZARDOUS SUBSTANCES have been integrated into any EMERALD PROPERTY or COLLATERAL PROPERTY or any component thereof in violation of ENVIRONMENTAL LAWS, or which will in the future require remediation during renovation or demolition, or in such quantities and manner as may or do pose a threat to human health; (v) to the knowledge of EMERALD, no portion of any EMERALD PROPERTY or COLLATERAL PROPERTY is located within 2000 feet of (I) a release of HAZARDOUS SUBSTANCES which has been reported or is required to be reported under any ENVIRONMENTAL LAW or (II) the location of any site used, in the past or presently, for the disposal of any HAZARDOUS SUBSTANCES; (vi) to the knowledge of EMERALD, neither the EMERALD PROPERTY nor the COLLATERAL PROPERTY has been used for the storage, disposal or treatment of HAZARDOUS SUBSTANCES, has been contaminated by HAZARDOUS SUBSTANCES, or has been used for the storage or use of any underground or aboveground storage tanks; and (vii) all permits, registrations and other authorizations necessary for EMERALD, the EMERALD PROPERTY and the COLLATERAL PROPERTY to operate in full compliance with all ENVIRONMENTAL LAWS are currently in force and are identified in Section 3.21 of the EMERALD DISCLOSURE SCHEDULE. |
(b) | EMERALD has made available to MBCN documentation with respect to all outstanding loans of EMERALD as to which the borrower has submitted to EMERALD, the borrower or another person is required to submit, or which EMERALD otherwise has in its possession, any environmental audits, site assessments, analyses, studies or surveys of environmental conditions on any matter, including, but not limited to, any COLLATERAL PROPERTY. |
(c) | As used in this Section 3.21: |
(i) | “EMERALD PROPERTY” means all real and personal property now or previously owned, leased, occupied or managed by EMERALD or any person or entity whose liability for any matter has or may have been related or assumed by EMERALD either contractually or by operation of law. | ||
(ii) | “COLLATERAL PROPERTY” means all real and personal property in which EMERALD holds a security interest in connection with a loan or loan participation. |
A-14
Table of Contents
(iii) | “ENVIRONMENTAL LAWS” means all federal, state, local and other laws, regulations, rules, standards, ordinances, orders, decrees, and judgments relating to pollution, the environment, occupational health and safety, or the protection of human health, all as may be from time to time amended. | ||
(iv) | “HAZARDOUS SUBSTANCES” means any and all substances or materials which are classified or considered to be hazardous or toxic to human health or the environment under any applicable ENVIRONMENTAL LAWS and shall include, without limitation, any “hazardous substances” as defined in Section 101(14) of CERCLA (42 U.S.C. Section 9601(14)) or regulations promulgated thereunder, any “toxic and hazardous substances” as defined in 29 C.F.R. Part 1910, petroleum and its byproducts, asbestos, polychlorinated biphenyls, nuclear fuel or materials, lead and lead-containing substances, and urea-formaldehyde. |
A-15
Table of Contents
REPRESENTATIONS AND WARRANTIES OF MBCN
(a) | On or before the date of this AGREEMENT, MBCN delivered to EMERALD a schedule (the “MBCN Disclosure Schedule”) setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more representations or warranties contained in this ARTICLE FOUR or to one or more of its covenants contained in ARTICLE SIX, regardless of whether the provision explicitly refers to disclosure schedule exceptions; provided, however, that the mere inclusion of an item in the MBCN DISCLOSURE SCHEDULE as an exception to a representation or warranty shall not be deemed an admission by MBCN that the item is a material exception or fact, event, or circumstance or that the item is reasonably likely to result in a MATERIAL ADVERSE EFFECT (as defined below). |
(b) | For the purpose of this AGREEMENT, a “MATERIAL ADVERSE EFFECT” with respect to MBCN or its subsidiaries means any effect that (a) is material and adverse to the financial position, results of operations, or business of MBCN and its subsidiaries taken as a whole, or (b) would materially impair MBCN’s ability to perform its obligations under this AGREEMENT or otherwise materially threaten or materially impede the consummation of the MERGER and the other transactions contemplated by this AGREEMENT; provided, however, that a MATERIAL ADVERSE EFFECT with respect to MBCN shall not be deemed to include the impact of (I) changes in banking and similar laws of general applicability to banks or their holding companies or interpretations thereof by courts or governmental authorities, (II) changes in generally accepted accounting principles or regulatory accounting requirements applicable to banks or their holding companies generally, (III) any modifications or changes to valuation policies and practices in connection with the MERGER or restructuring charges taken in connection with the MERGER, in each case in accordance with generally accepted accounting principles, (IV) changes in the general level of interest rates (including the impact on the securities portfolio of MBCN or its subsidiaries) or conditions or circumstances that affect the banking industry generally, (V) reasonable and customary expenses incurred in connection with the MERGER, (VI) the impact of the announcement of this AGREEMENT and the transactions contemplated hereby, and compliance with this AGREEMENT on the business, financial condition, or results of operations of MBCN and its subsidiaries, and (VII) the occurrence of any military or terrorist attack within the United States or any of its possessions or offices. |
(c) | For the purpose of this AGREEMENT, and in relation to MBCN, “knowledge” means the actual knowledge of any officer or director of MBCN or any of its subsidiaries and any other person having supervisory or management responsibilities with respect to material aspects of the operation of the business of MBCN or its subsidiaries. |
A-16
Table of Contents
(d) | On the basis of this Section 4.01, MBCN represents and warrants to EMERALD that each of the statements in the following Sections of this ARTICLE FOUR is true and accurate in all material respects. |
A-17
Table of Contents
(a) | The consolidated statements of financial condition as of December 31, 2005 and 2004, of MBCN and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years then ended, examined and reported upon by S.R. Snodgrass, A.C., certified public accountants, complete copies of which have previously been made available to EMERALD (hereinafter referred to as the “MBCN AUDITED FINANCIALS”), have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and fairly present the consolidated financial position of MBCN at such dates and the consolidated results of its operations and cash flows for such periods. The books and records of MBCN have been, and are being, maintained in accordance with generally accepted accounting principles and with any other applicable legal and accounting requirements and reflect only actual transactions. |
(b) | The unaudited balance sheet as of September 30, 2006 of MBCN and the related unaudited income statement for the nine months then ended, complete copies of which have previously been made available to EMERALD (hereinafter referred to as the “MBCN INTERIM FINANCIALS”), fairly present the financial position of MBCN at such date and the results of its operations for such period and have been prepared in accordance with generally accepted accounting principles as applicable to condensed consolidated financial statements (except for the absence of footnotes) and as applied on a consistent basis with the MBCN AUDITED FINANCIALS. All adjustments which are necessary for a fair statement of the MBCN INTERIM FINANCIALS have been made. |
(a) | MBCN and MBC have filed all reports and maintained all records required to be filed or maintained by them under various rules and regulations of the State of Ohio, the DIVISION, the FRB, the FDIC and other regulatory agencies with jurisdiction over MBCN and/or MBC. To the knowledge of MBCN, all such documents and reports complied in all material respects with applicable requirements of law and regulations in effect at the time of the filing of such documents and contained in all material respects the information required to be stated therein. The books and records of MBCN are complete and correct and accurately reflect the basis for the financial condition, results of operations, business, assets and capital of MBCN set forth in the MBCN AUDITED FINANCIALS and MBCN INTERIM FINANCIALS. |
(b) | MBCN has made available to EMERALD copies of the following documents (hereinafter referred to as the “MBCN SEC FILINGS”), each of which has been filed with the SEC: |
(i) | The MBCN Annual Reports on Form 10-K for the fiscal years ended December 31, 2005 and 2004; | ||
(ii) | The MBCN Annual Reports to Shareholders for the fiscal years ended December 31, 2005 and 2004; | ||
(iii) | The MBCN Proxy Statements for use in connection with the 2005 and 2006 Annual Meetings of Shareholders; | ||
(iv) | The MBCN Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2006; and | ||
(v) | All Current Reports on Form 8-K filed by MBCN with the SEC since December 31, 2005. |
A-18
Table of Contents
A-19
Table of Contents
COVENANTS
(a) | EMERALD shall (i) carry on its business substantially in the manner as is presently being conducted and in the ordinary course of business, (ii) use commercially reasonable best efforts to preserve its business organization intact, keep available the services of the present officers and employees and preserve its present relationships with customers and persons having business dealings with it, (iii) maintain all of the properties and assets that it owns or uses in the operation of its business as currently conducted in good operating condition and repair, reasonable wear and tear excepted, (iv) maintain its books, records and accounts in the usual, regular and ordinary manner, on a basis consistent with prior years and in compliance in all material respects with all statutes, laws, rules and regulations applicable to them and to the conduct of its business, (v) use commercially reasonable efforts to maintain its existing rating from its latest safety and soundness and compliance examination, (vi) use commercially reasonable efforts to maintain a CRA rating of satisfactory, and (vii) not knowingly do or fail to do anything that will cause a breach of or default in any contract, agreement, commitment, obligation, understanding, arrangement, lease, or license to which it is a party or by which it is or may be subject or bound if doing so would reasonably be expected to have a MATERIAL ADVERSE EFFECT on the financial condition, results of operations, business, assets, or capital of EMERALD; provided, however, that the continuation of losses incurred in connection with the operation of EMERALD’s business shall not be deemed to be a breach of the covenants set forth in this ARTICLE FIVE. | ||
(b) | Without the prior written consent of MBCN, EMERALD shall not: |
(i) | Authorize the creation or issuance of, issue (other than the issuance of shares upon the exercise of OUTSTANDING OPTIONS), sell or dispose of, or create any obligation to issue, sell or dispose of, any shares, notes, bonds or other securities of which EMERALD is the issuer, or any obligations convertible into or exchangeable for, any of its common shares or permit any additional EMERALD shares to become subject to new grants of stock options or other rights to acquire EMERALD shares; | ||
(ii) | Declare, set aside, pay or make any dividend or other distribution on its common shares, or directly or indirectly redeem, purchase or otherwise acquire any shares or enter into any agreement in respect to the foregoing; | ||
(iii) | Effect any stock split, recapitalization, combination, exchange of shares, readjustment or other reclassification; | ||
(iv) | Amend its Articles of Incorporation or Constitution; | ||
(v) | Purchase, sell, assign or transfer any material patent, trademark, trade name, copyright, license, franchise, design or other intangible assets or property; | ||
(vi) | Except as provided in the EMERALD DISCLOSURE SCHEDULE and for the acquisition or disposition in the ordinary course of business of other real estate owned, acquire or dispose of any real or personal property or fixed asset constituting a capital investment in excess of $10,000 individually or $25,000 in the aggregate; | ||
(vii) | Mortgage, pledge or grant or suffer to exist any lien or other encumbrance or charge on any assets or properties, tangible or intangible, except for liens for taxes not yet delinquent, assets pledged as collateral to secure borrowings from the FHLB of Cincinnati and such other liens, encumbrances or charges which do not materially or adversely affect its financial position; |
A-20
Table of Contents
(viii) | Waive any rights of material value or cancel any material debts or claims; | ||
(ix) | Incur any obligation or liability (absolute or contingent) requiring payments by EMERALD exceeding $10,000, whether individually or in the aggregate, including, without limitation, any tax liability, or pay any material liability or obligation (absolute or contingent), other than liabilities and obligations incurred in the ordinary course of business and borrowings from the FHLB of Cincinnati; | ||
(x) | Cause any MATERIAL ADVERSE EFFECT in the amount or general composition of its deposit liabilities or its loan portfolio; | ||
(xi) | Enter into or amend any employment contract with any of its officers, hire any new employees except to replace employees whose employment terminates after the date of this AGREEMENT, increase the compensation payable to any officer or director or any relative of any such officer or director, or be obligated to increase any such compensation, adopt or amend in any material respect any employee benefit plans, severance plan or collective bargaining agreement or make awards or distributions under any employee benefit plans not consistent with the terms of the employee benefit plan, past practice or custom or as required by law to retain the character of the Plan, including its tax status; | ||
(xii) | Acquire any shares or other equity interest in any corporation, partnership, trust, joint venture or other entity; | ||
(xiii) | Make any (I) investment (except in the ordinary course of business) or (II) capital expenditure or commitment for any addition to property, plant, or equipment, in either case (clauses I and II) of more than $25,000; | ||
(xiv) | Failed to maintain EMERALD’s reserve for loan losses after December 1, 2006 at the greater of $242,000 or 1% of the total gross loans outstanding, except to the extent inconsistent with generally accepted accounting principles; | ||
(xv) | Fail to accrue, pay, discharge and satisfy all debts, liabilities, obligations and expenses, including, but not limited to, trade payables, incurred in the regular and ordinary course of business as such debts, liabilities, obligations and expenses become due; | ||
(xvi) | Open, close, move or, in any material respect, expand, diminish, renovate, alter or change any of its offices or branches; | ||
(xvii) | Pay or commit to pay any management or consulting or other similar type of fees; or | ||
(xiii) | Agree, whether in writing or otherwise, to take any action described in this Section 5.01. |
A-21
Table of Contents
A-22
Table of Contents
FURTHER AGREEMENTS
(a) | EMERALD and its representatives and agents, shall, at all times during normal business hours before the EFFECTIVE TIME, have full and continuing access to the properties, facilities, operations, books and records of MBCN. EMERALD and its representatives and agents may, before the EFFECTIVE TIME, make or cause to be made reasonable investigation of the operations, books, records, and properties of MBCN and its subsidiaries as deemed necessary or advisable to familiarize themselves with such operations, books, records, properties and other matters; provided, however, that such access or investigations shall not interfere unnecessarily with the normal business operations of MBCN or its subsidiaries. Upon request, MBCN will furnish EMERALD or its representatives or agents MBCN’s attorneys’ responses to external auditors’ requests for information, management letters received from external auditors and financial, loan, and operating data and other information reasonably requested by EMERALD that has been or is developed by MBCN, its auditors, accountants, or attorneys (provided disclosure would not result in the waiver by MBCN of any claim of attorney-client privilege). MBCN shall permit EMERALD or its representatives or agents to discuss the information directly with any individual or firm performing auditing or accounting functions for MBCN, and such auditors and accountants will be directed to furnish copies of any reports or financial information as developed to EMERALD or its representatives or agents, as applicable. No investigation by EMERALD shall affect |
A-23
Table of Contents
the representations and warranties made by MBCN in this AGREEMENT. Any confidential information or trade secrets received by EMERALD or its representatives or agents in the course of such examination will be treated confidentially, and any correspondence, memoranda, records, copies, documents and electronic or other media of any kind containing such confidential information or trade secrets or both shall be destroyed by EMERALD, or at MBCN’s request returned to MBCN if this AGREEMENT is terminated as provided in ARTICLE EIGHT. This section 6.04(a) shall not require the disclosure of any information to EMERALD that would be prohibited by law. |
(b) | MBCN and its representatives and agents, shall, at all times during normal business hours before the EFFECTIVE TIME, have full and continuing access to the properties, facilities, operations, books and records of EMERALD. MBCN and its representatives and agents may, before the EFFECTIVE TIME, make or cause to be made reasonable investigation of the operations, books, records, and properties of EMERALD as deemed necessary or advisable to familiarize themselves with such operations, books, records, properties and other matters; provided, however, that such access or investigations shall not interfere unnecessarily with the normal business operations of EMERALD. Upon request, EMERALD will furnish to MBCN or its representatives or agents EMERALD’s attorneys’ responses to external auditors’ requests for information, management letters received from external auditors and financial, loan, and operating data and other information reasonably requested by MBCN that has been or is developed by EMERALD, its auditors, accountants, or attorneys (provided disclosure would not result in the waiver by EMERALD of any claim of attorney-client privilege). EMERALD shall permit MBCN or its representatives or agents to discuss the information directly with any individual or firm performing auditing or accounting functions for EMERALD, and such auditors and accountants will be directed to furnish copies of any reports or financial information as developed to MBCN or its representatives or agents, as applicable. No investigation by MBCN shall affect the representations and warranties made by EMERALD in this AGREEMENT. Any confidential information or trade secrets received by MBCN or its representatives or agents in the course of such examination will be treated confidentially, and any correspondence, memoranda, records, copies, documents and electronic or other media of any kind containing such confidential information or trade secrets or both shall be destroyed by MBCN, or at EMERALD’s request returned to EMERALD if this AGREEMENT is terminated as provided in ARTICLE EIGHT. This section 6.04(b) shall not require the disclosure of any information to MBCN that would be prohibited by law |
(c) | To the extent permissible under applicable regulations of the DIVISION and the FDIC, a representative of MBCN, who shall be no less than a Senior Vice President of MBC or MBCN, shall be permitted to attend meetings of the Board of Directors and committees of EMERALD for observation purposes only, unless the discussion of the members of the EMERALD Board of Directors or committees involves (i) the confidential information of borrowers, depositors, employees or others, (ii) the transactions contemplated by this AGREEMENT or (iii) a subject the members of the Board of Directors or committees should keep confidential in the proper exercise of their fiduciary duties to shareholders. As used in this Section 6.04(c), “confidential information” shall not include any information as to which the identity of the borrower, depositor or employee is withheld by EMERALD. In the event the discussion of the members of the Board of Directors or committees of EMERALD involves (i), (ii) or (iii) of this Section 6.04(c), such representative shall comply with the request of the Board of Directors or the committee to excuse such representative from the meeting during such discussion. |
A-24
Table of Contents
(a) | Subject to the terms and conditions herein provided, EMERALD and MBCN shall use reasonable efforts to take, or cause to be taken, all action, and to do or cause to be done all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this AGREEMENT, including cooperating fully and using best efforts to procure upon reasonable terms and conditions all consents, authorizations, approvals, registrations, and certificates, to complete all filings and applications, and to satisfy all other conditions that are necessary for consummation of the MERGER at the earliest possible reasonable date. |
(b) | EMERALD shall use reasonable efforts to obtain any required third party consents to agreements, contracts, commitments, leases, instruments and documents described in the EMERALD DISCLOSURE SCHEDULE. |
(c) | The materials and information provided by each of EMERALD and MBCN for use in any filing with any state or federal regulatory agency or authority shall not contain any untrue or misleading statement of material fact or omit to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not false or misleading. |
(a) | After the EFFECTIVE TIME, MBCN and EMERALD shall, to the fullest extent permitted by applicable law and the Articles of Incorporation and Constitution of EMERALD, indemnify, defend and hold harmless, and provide advancement of expenses to, each person who is now or becomes prior to the EFFECTIVE TIME, a director or officer of EMERALD (each, solely in his or her capacity as a director or officer, hereinafter referred to as an “INDEMNIFIED PARTY”) against all costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of actions or omissions occurring on or prior to the EFFECTIVE TIME (including, without limitation, matters, acts or omissions occurring in connection with the approval of this AGREEMENT and the consummation of the transactions contemplated hereby), whether asserted or claimed prior to, at or after the EFFECTIVE TIME; provided, however, that any determination required to be made with respect to whether an INDEMNIFIED PARTY’s conduct complies with the standards set forth under applicable law for indemnification shall be made by the court in which the claim, action, suit or proceeding was brought or by independent counsel (which shall not be counsel that provides material services to MBCN) selected by MBCN and reasonably acceptable to such INDEMNIFIED PARTY. |
(b) | If MBCN, the SURVIVING CORPORATION or any of its successors or assigns (i) consolidates with or merges into any other person and is not the continuing or SURVIVING CORPORATION or entity of such consolidation or merger, (ii) transfers or conveys all or substantially all its properties and assets to any person or (iii) transfers, by means of a distribution, sale, assignment or other transaction, all of the shares of the SURVIVING CORPORATION or all or substantially all of its assets, to any person, then, and in each such case, MBCN shall cause proper provision to be made so that the successor and assign of MBCN or the SURVIVING CORPORATION assumes the obligations set forth in this Section and in such event all references to MBCN or the SURVIVING CORPORATION, as applicable, in this Section shall be deemed a reference to such successor and assign. |
(c) | For a period of three (3) years from the EFFECTIVE TIME, MBCN shall provide that portion of directors and officers’ liability insurance that serves to reimburse the present and former officers and directors of EMERALD (determined as of the EFFECTIVE TIME) with respect to claims against such officers and directors arising from facts or events which occurred before the EFFECTIVE TIME, on terms no less favorable than those in effect on the date hereof; provided, however, that (i) MBCN may substitute therefor policies providing at least comparable coverage containing terms and conditions no less favorable than those in effect on the date hereof; (ii) MBCN shall not be required to expend more than 150% of the current amount expended by EMERALD (hereinafter referred to as the “MAXIMUM PREMIUM”) to maintain or procure directors’ and officers’ insurance coverage for a comparable three-year period; (iii) if MBCN is unable to maintain or obtain the insurance pursuant to this Section 6.10(d), MBCN shall use its reasonable efforts to obtain as much comparable insurance as is available for the MAXIMUM PREMIUM; and (iv) officers and directors of |
A-25
Table of Contents
EMERALD may be required to make application and provide customary representations and warranties to the responsible insurance carrier for the purpose of obtaining such insurance. |
(d) | The provisions of this Section 6.10 shall survive consummation of the MERGER and are intended to be for the benefit of, and shall be enforceable by, each INDEMNIFIED PARTY, his or her heirs and his or her representatives. The SURVIVING CORPORATION shall pay (as incurred) all expenses, including reasonable expenses of counsel, that an INDEMNIFIED PARTY may incur in enforcing the indemnity and other obligations provided for in this Section 6.10. |
(a) | After the CLOSING, MBCN shall cause EMERALD to continue the employment of each one of the employees of EMERALD at the EFFECTIVE TIME as long as each such employee was employed by EMERALD on the date of this AGREEMENT or with MBCN’s consent. Employees of EMERALD who are terminated without cause within six months after the EFFECTIVE TIME shall receive an amount equal to the product of three weeks of the terminated employee’s salary multiplied by the number of years the employee has been employed by EMERALD. In addition, employees terminated without cause shall be provided all accrued benefits, including vacation and sick pay, through the date of separation. These amounts will be paid as soon as administratively feasible after the affected employee’s termination date or as soon as possible without generating penalties under Section 409A of the CODE. Nothing in this Section or elsewhere in this AGREEMENT shall be deemed to be a contract of employment or be construed to give such employees any rights other than as employees at will under Ohio law. MBCN or the SURVIVING CORPORATION may reassign employees of EMERALD after the EFFECTIVE TIME from one position to another, change employees’ job responsibilities, compensation, and benefits, and take other actions as employer affecting all employees, groups of employees, or individual employees; provided, however, that none of such actions shall be deemed to constitute termination without cause unless the employee’s service is actually involuntarily terminated by MBCN or the SURVIVING CORPORATION. |
(b) | All employees of EMERALD immediately before the EFFECTIVE TIME shall continue to be covered by the EMERALD employee benefit plans (hereinafter referred to as the “EMPLOYEE BENEFIT PLANS”) after the EFFECTIVE TIME. Notwithstanding the foregoing, MBCN may cause EMERALD to discontinue any of the EMPLOYEE BENEFIT PLANS at any time after the EFFECTIVE TIME; provided, however, that in the event of such discontinuance, MBCN shall provide, or shall cause the SURVIVING CORPORATION to provide, benefits, including, but not limited to, medical and hospitalization benefits, in a manner by which such benefits are at least equivalent to the benefits provided by MBC to its employees. Service to EMERALD by an employee before the EFFECTIVE TIME shall be recognized as service to EMERALD and/or MBCN for eligibility and vesting purposes under MBCN’s sick leave policies, paid vacation policies and any employee benefits plan to the extent permissible under governing law. Any pre-existing condition, limitation or exclusion in the benefit plans of MBCN shall not apply to EMERALD employees or their covered dependents who are covered under the EMERALD PLAN at the EFFECTIVE TIME. |
(c) | EMERALD shall set aside funds in the aggregate amount of $145,000 for distribution of retention bonuses to Glenn Aidt, Mike Hufford and Barbara Howard (hereinafter referred to as the “NAMED EMPLOYEES”); provided, however, that a NAMED EMPLOYEE shall not be paid any retention bonus unless such employee remains an employee of EMERALD through the CLOSING. Not later than 10 days after the CLOSING, the SURVIVING CORPORATION shall pay to the NAMED EMPLOYEES who remain employees of EMERALD through the CLOSING a retention bonus in the following amount: |
NAMED EMPLOYEE | AMOUNT | |||
Glenn Aidt | $ | 70,000 | ||
Mike Hufford | $ | 65,000 | ||
Barbara Howard | $ | 10,000 |
A-26
Table of Contents
CLOSING MATTERS
(a) | This AGREEMENT shall have been validly adopted by the affirmative vote of the holders of at least the number of outstanding EMERALD shares required under Ohio law and the EMERALD Articles of Incorporation and Constitution to adopt such agreements; | ||
(b) | All regulatory approvals required to consummate the transactions contemplated hereby shall have been obtained and shall remain in full force and effect, all statutory waiting periods shall have expired, and no such approvals shall contain any conditions, restrictions, or requirements which MBCN’s Board of Directors reasonably determines in good faith would have a MATERIAL ADVERSE EFFECT on MBCN after the CLOSING; | ||
(c) | All waivers, consents and approval of every person, in addition to those required under subsections (a) and (b) of this Section 7.01, necessary or appropriate for the consummation of the MERGER shall have been obtained; | ||
(d) | EMERALD shall have received the written opinion of RYAN BECK dated as of the date of the PROXY STATEMENT/PROSPECTUS to the effect that the MERGER CONSIDERATION is fair to the shareholders of EMERALD from a financial point of view; | ||
(e) | There shall not be in effect an order or decision of a court of competent jurisdiction which prevents or materially delays the consummation of the MERGER; | ||
(f) | There shall not be in effect any federal or state law, rule or regulation which prevents or materially delays consummation of the MERGER; | ||
(g) | The REGISTRATION STATEMENT shall have become effective and no stop order shall have been issued or threatened, and all state securities and blue sky approvals, authorizations and exemptions required for MBCN to issue the shares to EMERALD shareholders shall have been received by MBCN; and | ||
(h) | MBCN and EMERALD shall have received an opinion of S.R. Snodgrass, A.C. stating that (i) the MERGER constitutes a reorganization within the meaning of section 368 of the CODE and (ii) no gain or loss will be |
A-27
Table of Contents
(a) | The representations and warranties of EMERALD contained in ARTICLE THREE of this AGREEMENT shall be true in all material respects at and as of the date hereof and at and as of the EFFECTIVE TIME as if made at and as of such time, except to the extent that such representations and warranties are made as of a specific date; | ||
(b) | EMERALD shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this AGREEMENT to be performed or complied with by it before or at the EFFECTIVE TIME; | ||
(c) | There shall not have been a MATERIAL ADVERSE EFFECT in respect of EMERALD; | ||
(d) | EMERALD shall not have incurred any damage, destruction or similar loss, not covered by insurance, materially affecting its businesses or properties; | ||
(e) | EMERALD shall have delivered to MBCN a certificate dated the EFFECTIVE TIME and signed by the President and Treasurer of EMERALD to the effect set forth in subsections (a), (b), (c) and (d) of this Section 7.02; | ||
(f) | There shall not be any action or proceeding commenced by or before any court or governmental agency or authority in the United States, or threatened by any governmental agency or authority in the United States, that challenges or seeks to prevent or delay the consummation of the MERGER or seeks to impose material limitations on the ability of MBCN or MERGERCO to exercise full rights of ownership of the assets or business of EMERALD; | ||
(g) | There shall not have been proposed, nor shall there be in effect, any federal or state law, rule, regulation, order or statement of policy that, in the reasonable judgment of MBCN, would: (i) prevent or delay the consummation of the MERGER or interfere with the reasonable operation of the business of EMERALD, (ii) materially adversely affect the ability of MBCN to enjoy the economic or other benefits of the MERGER; or (iii) impose any material adverse condition, limitation or requirement on MBCN in connection with the MERGER; | ||
(h) | MBCN shall have received a letter of tax advice, in a form and substance satisfactory to MBCN, from EMERALD’s independent certified public accountants to the effect that any amounts that are paid by EMERALD before the EFFECTIVE TIME, or required under EMERALD’s PLANS or this AGREEMENT to be paid at or after the EFFECTIVE TIME, to persons who are disqualified individuals in relation to EMERALD or its successor and that otherwise should be allowable as deductions for federal income tax purposes, should not be disallowed as deductions for such purposes under section 280G of the CODE, including, but not limited to, payments referred to under Section 6.11(c) of this AGREEMENT, as well as any other payments made under the EMERALD PLANS because of the transactions contemplated herein. | ||
(i) | EMERALD shall have delivered to MBCN the affiliate agreements required by Section 5.05, in substantially the form set forth in Exhibit 5.05; and | ||
(j) | EMERALD shall have delivered to MBCN a list of EMERALD’s shareholders as of the EFFECTIVE TIME, including their mailing addresses, which list shall be certified by EMERALD’s President and Secretary. |
A-28
Table of Contents
(a) | The representations and warranties of MBCN contained in ARTICLE FOUR of this AGREEMENT shall be true in all material respects at and as of the date hereof and as of the EFFECTIVE TIME as if made at and as of such time, except to the extent that such representations and warranties are made as of a specific date; | ||
(b) | MBCN and MERGERCO shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this AGREEMENT to be performed or complied with by them before or at the EFFECTIVE TIME; | ||
(c) | There shall not have been a MATERIAL ADVERSE EFFECT in respect of MBCN; | ||
(d) | MBCN shall have delivered to EMERALD a certificate dated the EFFECTIVE TIME and signed by the President and Treasurer of MBCN to the effect set forth in subsections (a), (b) and (c) of this Section 7.03; | ||
(e) | MBCN shall have obtained all consents, authorizations or approvals of, or exemptions or waivers by any federal or state governmental body or agency required to be obtained by it in connection with the MERGER or the taking of any action contemplated thereby; | ||
(f) | MBCN shall not have incurred any damage, destruction or similar loss, not covered by insurance, materially affecting its business or properties; and | ||
(g) | There shall not be any action or proceeding commenced by or before any court or governmental agency or authority in the United States, or threatened by any governmental agency or authority in the United States, that challenges or seeks to prevent or delay the consummation of the MERGER. |
TERMINATION
(a) | By mutual consent of the Boards of Directors of EMERALD and MBCN; or | ||
(b) | By the Board of Directors of EMERALD or MBCN if: |
(i) | The MERGER shall not have been consummated on or before May 31, 2007; or | ||
(ii) | Any event occurs which, in the reasonable opinion of either Board, would preclude satisfaction of any of the conditions set forth in paragraphs (b), (e), or (f) of Section 7.01 of this AGREEMENT; or |
(c) | By the Board of Directors of MBCN if any event occurs which, in the reasonable opinion of the Board, would preclude compliance with any of the conditions set forth in Section 7.02 of this AGREEMENT; or | ||
(d) | By the Board of Directors of EMERALD if: |
(i) | Any event occurs which, in the reasonable opinion of the Board, would preclude compliance with any of the conditions set forth in Section 7.03 of this AGREEMENT; or | ||
(ii) | At any time prior to the approval of this AGREEMENT by EMERALD shareholders pursuant to Section 6.03 of this AGREEMENT, the Board of Directors of EMERALD, in accordance and compliance with the terms of this AGREEMENT, determines to pursue an ACQUISITION TRANSACTION. |
A-29
Table of Contents
MISCELLANEOUS
Middlefield Banc Corp
15985 East High Street
P.O. Box 35
Middlefield, Ohio 44062
Grady and Associates
20950 Center Ridge Rd.
Rocky River, OH 44116-4306
Emerald Bank
6215 Perimeter Dr.
Dublin, OH 43017
Vorys, Sater, Seymour and Pease LLP
52 E. Gay Street
P.O. Box 1008
Columbus, OH 43216-1008
A-30
Table of Contents
ATTEST: | MIDDLEFIELD BANC CORP. | |||||||||
/s/ Teresa Hetrick | By | /s/ James R. Heslop II | ||||||||
James R. Heslop, II | ||||||||||
its Executive Vice President/COO | ||||||||||
ATTEST: | EMERALD BANK | |||||||||
/s/ Tom W. Davis | By | /s/ Glenn E. Aidt | ||||||||
Glenn E. Aidt | ||||||||||
its President and CEO |
A-31
Table of Contents
A-32
Table of Contents
Prescribedby J. Kenneth Blackwell | Expedite this Form: (select one) | ||
Ohio Secretary of State | Mail Form to one of the Following: | ||
Central Ohio (614) 466-3910 | o Yes PO Box 1390 | ||
Toll Free: 1-877-SOS-FILE (1-877-767-3453) | Columbus, OH 43216 | ||
*** Requires an Additional fee of $100*** | |||
o No PO Box 1329 | |||
e-mail: busserv@sos.state.os.us
(For Domestic or Foreign, Profit or Non-Profit)
Filing Fee $125.00
I. | SURVIVING ENTITY |
A. | The name of the entity surviving the merger is: EB Interim Bank | ||
B. | Name Change: As a result of this merger, the name of the surviving entity has been changed to the following: Emerald Bank | ||
C. | The surviving entity is a: (Please check the appropriate box and fill in the appropriate blanks) |
þ | Domestic (Ohio) For-Profit Corporation, charter number 1665559 | ||
o | Domestic (Ohio) Non-Profit Corporation, charter number | ||
o | Foreign (Non-Ohio) Corporation incorporated under the laws of the state/country of and licensed to transact business in the State of Ohio under license number | ||
o | Foreign (Non-Ohio) Corporation incorporate under the laws of the state/country of andNOTlicensed to transact business in the State of Ohio, | ||
o | Domestic (Ohio) Limited Liability Company, with registration number | ||
o | Foreign (Non-Ohio) Limited Liability Company organized under the laws of the state/country of ___ and registered to do business in the State of Ohio under registration number | ||
o | Foreign (Non-Ohio) Limited Liability Company organized under the laws of the state/country of ___ and NOT registered to do business in the State of Ohio. | ||
o | Domestic (Ohio) Limited Partnership, with registration number | ||
o | Foreign (Non-Ohio) Limited Partnership organized with the laws of the state/country of and registered to do business in the state of Ohio under registration number | ||
o | Foreign (Non-Ohio) Limited Partnership organized with the laws of the state/country of andNOTregistered to do business in the state of Ohio. | ||
o | Domestic (Ohio) Partnership having limited liability, with the registration number |
A-33
Table of Contents
o | Foreign (Non-Ohio) Partnership having limited liability organized under the laws of the state/country of and registered to do business in the state of Ohio under registration number | ||
o | Foreign (Non-Ohio) Partnership having limited liability organized under the laws of the state/country of andNOTregistered to do business in the state of Ohio. | ||
o | Foreign (Non-Ohio) Non-Profit incorporation under the laws of the state/country of and licensed to transact business in the state of Ohio under license number | ||
o | Foreign (Non-Ohio) Non-Profit incorporation under the laws of the state/country of andnotlicensed to transact business in the state of Ohio. | ||
o | General partnership not registered with the state of Ohio |
II. | MERGING ENTITY The name, charter/license/registration number, type of entity, state/country of incorporation or organization, respectively, of which is the entities merging out of existence are as follows (if this is insufficient space to reflect all merging entities, please attach a separate sheet listing the merging entities) |
Name / charter, license or registration number | State/Country of Organization | Type of Entity | ||||
Emerald Bank / Ohio charter number SB0048 | Ohio | savings bank | ||||
III. | MERGER AGREEMENT ON FILE The name and mailing address of the person or entity from whom/which eligible persons may obtain a copy of the agreement of merger upon written request: |
James R. Heslop II | 15985 East High Street | |||||||
(name) | (street) NOTE: P.O. Box Addressees are NOT acceptable. | |||||||
Middlefield | Ohio | 44062 | ||||||
(city, village or township) | (state) | (zip code) |
IV. | EFFECTIVE DATE OF MERGER This merger is to be effective on: (if a date is specified, the date must be a date on or after the date of filing; the effective date of the merger cannot be earlier that the date of filing, if no date is specified, the date of filing will be the effective date of the merger). |
V. | MERGER AUTHORIZED The laws of the state or country under which each constituent entity exists, permits this merger. This merger was adopted, approved and authorized by each of the constituent entities in compliance with the laws of the state under which it is organized, and the persons signing this certificate on behalf of each of the constituent entities are duly authorized to do so. |
A-34
Table of Contents
VI. | STATUTORY AGENT The name and address of the surviving entity’s statutory agent upon whom any process, notice or demand may be served is: |
(name) | (street) NOTE: P.O. Box Addressees are NOT acceptable. | |||||
, Ohio | ||||||
(city, village, or township) | (zip code) |
VII. | ACCEPTANCE OF AGENT The undersigned, named herein as the statutory agent for the above referenced surviving entity, hereby acknowledges and accepts the appointment of statutory agent for said entity. |
Signature of Agent | ||||
VIII. | STATEMENT OF MERGER Upon filing, or upon such later date as specified herein, the merging entity/entities listed herein shall merge into the listed surviving entity | |
IX. | AMENDMENTS The articles of incorporation, articles of organization, certificate of limited partnership or registration of partnership having limited liability (circle appropriate term) of the surviving domestic entity have been amended. þ Attachments are providedo No Changes | |
X. | QUALIFICATION OR LICENSURE OF FOREIGN SURVIVING ENTITY |
A. | The listed surviving foreign corporation, bank, savings bank, savings and loan, limited liability company, limited partnership, or partnership having limited liability desires to transact business in Ohio as a foreign corporation, bank, savings bank, savings and loan, limited liability company, limited partnership, or partnership having limited liability, and hereby appoints the following as its statutory agent upon whom process, notice or demand against the entity may be served in the state of Ohio. The name and complete address of the statutory agent is: |
(name) | (street) NOTE: P.O. Box Addressees are NOT acceptable. | |||||
, Ohio | ||||||
(city, village, or township) | (zip code) |
B. | The qualifying entity also states as follows: (Complete only if applicable) |
1. | Foreign Notice Under Section 1703.031 (If the qualifying entity is a foreign bank, savings bank, or savings and loan, then the following information must be completed.) |
(a.) | The name of the Foreign Nationally/Federally chartered bank, savings bank, or savings and loan association is: |
A-35
Table of Contents
(b.) | The name (s) of any Trade Name(s) under which the corporation will conduct business: |
(c.) | The location of the main office (non-Ohio) shall be: |
(city, township, or village) | (county) | (state) | (zip code) |
(d.) | The principal office location in the state of Ohio shall be: |
Ohio | ||||||||
(city, township, or village) | (county) | (state) | (zip code) | |||||
(Please note, if there will not be an office in the state of Ohio, please list none.) |
(e.) | The corporation will exercise the following purpose(s) in the state of Ohio: (Please provide a brief summary of the business to be conducted; a general clause is not sufficient) |
2. | Foreign Qualifying Limited Liability Company (If the qualifying entity is a foreign limited liability company, the following information must be completed.) |
(a.) | The name of the limited liability company is its state of organization/registration is | ||
(b.) | The name under which the limited liability company desires to transact business in Ohio is | ||
(c.) | The limited liability company was organized or registered on under the laws of the state/country of | ||
(d.) | The address to which interested persons may direct requests for copies of the articles of organization, operating agreement, bylaws, or other charter document of the company is: |
(city, township, or village) | (state) | (zip code) |
3. | Foreign Qualifying Limited Partnership (If the qualifying entity is a foreign limited partnership, the following information must be completed.) |
A-36
Table of Contents
(a.) | The name of the limited partnership is | ||
(b.) | The limited partnership was formed on | ||
(c.) | The address of the office of the limited partnership in its state/country of organization is: |
(city, township, or village) | (county) | (state) | (zip code) |
(d.) | The limited partnership’s principal office address is: |
(city, township, or village) | (county) | (state) | (zip code) |
(e.) | The names and business or residence addresses of the General partners of the partnership are as follows: |
Name | Address | |||
(If insufficient space to cover this term, please attach a separate sheet listing the general partners and their respective addresses) |
(f.) | The address of the office where a list of the names and business or residence addresses of the limited partners and their respective capital contributions is to be maintained is: |
(city, township, or village) | (county) | (state) | (zip code) | |||||
The limited partnership hereby certifies that it shall maintain said records until the registration of the limited partnership in Ohio is canceled or withdrawn. |
4. | Foreign Qualifying Partnership Having Limited Liability |
(a.) | The name of the partnership shall be: | ||
(b.) | Please complete the following appropriate section (either item b(1) or b(2)): |
(1.) The address of the partnership’s principal office in Ohio is: |
, Ohio | ||||||
(city, township, or village) | (zip code) |
(2.) The address of the partnership’s principal office (Non-Ohio): |
A-37
Table of Contents
(city, township, or village) | (state) | (zip code) |
(c.) | The name and address of a statutory agent for service of process in Ohio is as follows: |
, Ohio | ||||||
(city, village or township) | (zip code) |
(d.) | Please indicate the state or jurisdiction in which the Foreign Limited Partnership has been formed | ||
(e.) | The business which the partnership engages in is: |
Emerald Bank | EB Interim Bank | |
(Exact name of entity) | (Exact name of entity) |
By: | By: | |||||||||
Its: | President and Chief Executive Officer | Its: | President and Chief Executive Officer | |||||||
Date: | Date: | |||||||||
A-38
Table of Contents
A-39
Table of Contents
Beginning Equity — September 30, 2006 | 5,452,000 | |||
Projected Emerald Monthly Net Loss | ||||
October 2006 | (20,000 | ) | ||
November 2006 | (20,000 | ) | ||
December 2006 | (20,000 | ) | ||
January 2007 | (15,000 | ) | ||
February 2007 | (15,000 | ) | ||
March 2007 | (15,000 | ) | ||
April 2007 | (10,000 | ) | ||
May 2007 | (10,000 | ) | ||
June 2007 | (10,000 | ) | ||
Projected Equity — June 30, 2007 | 5,317,000 | |||
Adjustments: | ||||
Adjusting LLR to 1% @ September 30th | (35,000 | ) | ||
Legal Fee | (180,000 | ) | ||
Ryan Beck Fee | (175,000 | ) | ||
Retention Payments | (168,000 | ) | ||
Adjusted Equity | 4,759,000 | |||
Add Backs: | ||||
Legal Fee | 180,000 | |||
Ryan Beck Fee | 175,000 | |||
Retention Payments | 168,000 | |||
Loan Loss Reserve on net new loans | 193,000 | |||
Adjusted Equity | 5,475,090 | |||
9/30/2006 | 6/30/2007 | |||||||||||
Actual | Per Co. Projections | Difference | ||||||||||
Approximate / Estimated Gross Loans | 24,642,000 | 43,951,000 | ||||||||||
Less: Loan Loss Reserve | (246,420 | ) | (439,510 | ) | 193,090 | |||||||
Net Loans | 24,395,580 | 43,511,490 |
A-40
Table of Contents
A-41
Table of Contents
[DATE]
15985 East High Street
P.O. Box 35
Middlefield, Ohio 44062
A-42
Table of Contents
Very truly yours, | ||||||
Print name: | ||||||
Date: | ||||||
Middlefield Banc Corp. | ||||
By: | ||||
Thomas G. Caldwell | ||||
President and Chief Executive Officer |
A-43
Table of Contents
TO AGREEMENT AND PLAN OF MERGER
A-44
Table of Contents
EMERALD BANK | ||||||
ATTEST: | By: | /s/ Glenn E. Aidt | ||||
Glenn E. Aidt | ||||||
/s/ Michael Hufford | President and CEO | |||||
Michael Hufford, Secretary | ||||||
Date: | January 3, 2007 | |||||
MIDDLEFIELD BANC CORP. | ||||||
ATTEST: | By: | /s/ Thomas G. Caldwell | ||||
Thomas G. Caldwell | ||||||
/s/ James R. Heslop II | President and CEO | |||||
James R. Heslop II, Secretary | ||||||
Date: | January 3, 2007 | |||||
EB INTERIM BANK | ||||||
ATTEST: | By: | /s/ Thomas G. Caldwell | ||||
Thomas G. Caldwell | ||||||
/s/ James R. Heslop II | President and CEO | |||||
James R. Heslop II, Secretary | ||||||
Date: | January 3, 2007 |
A-45
Table of Contents
A-46
Table of Contents
15985 East High Street
Middlefield, OH 44062
15985 East High Street
Middlefield, OH 44062
6215 Perimeter Dr.
Dublin, OH 43017
6215 Perimeter Dr.
Dublin, OH 43017
6215 Perimeter Dr.
Dublin, OH 43017
6215 Perimeter Dr.
Dublin, OH 43017
6215 Perimeter Dr.
Dublin, OH 43017
6215 Perimeter Dr.
Dublin, OH 43017
A-47
Table of Contents
Emerald Bank
6215 Perimeter Drive
Dublin, OH 43017
B-1
Table of Contents
November 15, 2006
Page 2
B-2
Table of Contents
November 15, 2006
Page 3
B-3
Table of Contents
C-1
Table of Contents
C-2
Table of Contents
C-3
Table of Contents
INFORMATION NOT REQUIRED IN PROSPECTUS
II-1
Table of Contents
II-2
Table of Contents
INDEMNIFICATION AND INSURANCE
II-3
Table of Contents
exhibit | ||||
number | description | location | ||
2 | Agreement and Plan of Merger among Middlefield Banc Corp., EB Interim Bank, and Emerald Bank, dated as of November 15, 2006, as amended by Amendment No. 1 | included as Appendix A to the prospectus/proxy statement contained in Part I of this Registration Statement on Form S-4 | ||
3.1 | Second Amended and Restated Articles of Incorporation of Middlefield Banc Corp., as amended | Incorporated by reference to Exhibit 3.1 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2005, filed on March 29, 2006 | ||
3.2 | Regulations of Middlefield Ban Corp. | Incorporated by reference to Exhibit 3.2 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001 | ||
4 | Specimen stock certificate | Incorporated by reference to Exhibit 3.2 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001 | ||
5 | Opinion of Grady & Associates, counsel to Middlefield Banc Corp., concerning the legality of the securities being registered | filed herewith | ||
8 | Opinion of O’Neill & O’Neill, Attorneys at Law concerning tax matters | to be filed by amendment | ||
10.1 | 1999 Stock Option Plan of Middlefield Banc Corp. | Incorporated by reference to Exhibit 10.1 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001 | ||
10.2 | Severance Agreement dated July 11, 2006 between Middlefield Banc Corp. and Thomas G. Caldwell | Incorporated by reference to Exhibit 10.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on July 12, 2006 | ||
10.3 | Severance Agreement dated July 11, 2006 between Middlefield Banc Corp. and James R. Heslop II | Incorporated by reference to Exhibit 10.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on July 12, 2006 | ||
10.4 | Severance Agreement dated July 11, 2006 between Middlefield Banc Corp. and Jay P. Giles | Incorporated by reference to Exhibit 10.4 of Middlefield Banc Corp.’s Form 8-K Current Report filed on July 12, 2006 | ||
10.4.1 | Severance Agreement dated July 11, 2006 between Middlefield Banc Corp. and Teresa M. Hetrick | Incorporated by reference to Exhibit 10.4.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on July 12, 2006 | ||
10.4.2 | Severance Agreement dated July 11, 2006 between Middlefield Banc Corp. and Jack L. Lester | Incorporated by reference to Exhibit 10.4.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on July 12, 2006 | ||
10.4.3 | Severance Agreement dated July 11, 2006 between Middlefield Banc Corp. and Donald L. Stacy | Incorporated by reference to Exhibit 10.4.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on July 12, 2006 | ||
10.4.4 | Severance Agreement dated July 11, 2006 between Middlefield Banc Corp. and Alfred F. Thompson Jr. | Incorporated by reference to Exhibit 10.4.4 of Middlefield Banc Corp.’s Form 8-K Current Report filed on July 12, 2006 | ||
10.5 | Federal Home Loan Bank of Cincinnati Agreement for Advances and Security Agreement dated September 14, 2000 | Incorporated by reference to Exhibit 10.4 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001 | ||
10.6 | Director Retirement Agreement with Richard T. Coyne | Incorporated by reference to Exhibit 10.6 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002 |
II-4
Table of Contents
exhibit | ||||
number | description | location | ||
10.7 | Director Retirement Agreement with Frances H. Frank | Incorporated by reference to Exhibit 10.7 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002 | ||
10.8 | Director Retirement Agreement with Thomas C. Halstead | Incorporated by reference to Exhibit 10.8 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002 | ||
10.9 | Director Retirement Agreement with George F. Hasman | Incorporated by reference to Exhibit 10.9 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002 | ||
10.10 | Director Retirement Agreement with Donald D. Hunter | Incorporated by reference to Exhibit 10.10 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002 | ||
10.11 | Director Retirement Agreement with Martin S. Paul | Incorporated by reference to Exhibit 10.11 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002 | ||
10.12 | Director Retirement Agreement with Donald E. Villers | Incorporated by reference to Exhibit 10.12 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002 | ||
10.13 | Executive Survivor Income Agreement (aka DBO agreement [death benefit only]) with Donald L. Stacy | Incorporated by reference to Exhibit 10.14 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004 | ||
10.14 | DBO Agreement with Jay P. Giles | Incorporated by reference to Exhibit 10.15 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004 | ||
10.15 | DBO Agreement with Alfred F. Thompson Jr. | Incorporated by reference to Exhibit 10.16 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004 | ||
10.16 | DBO Agreement with Nancy C. Snow | Incorporated by reference to Exhibit 10.17 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004 | ||
10.17 | DBO Agreement with Theresa M. Hetrick | Incorporated by reference to Exhibit 10.18 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004 | ||
10.18 | DBO Agreement with Jack L. Lester | Incorporated by reference to Exhibit 10.19 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004 | ||
10.19 | DBO Agreement with James R. Heslop II | Incorporated by reference to Exhibit 10.20 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004 | ||
10.20 | DBO Agreement with Thomas G. Caldwell | Incorporated by reference to Exhibit 10.21 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004 | ||
10.21 | Form of Indemnification Agreement with directors of Middlefield Banc Corp. and executive officers of Middlefield Banc Corp. and The Middlefield Banking Company | Incorporated by reference to Exhibit 99.1 of Middlefield Banc Corp.’s registration statement on Form 10, Amendment No. 1, filed on June 14, 2001 |
II-5
Table of Contents
exhibit | ||||
number | description | location | ||
10.22 | Annual Incentive Plan Summary | Incorporated by reference to the summary description of the annual incentive plan included as Exhibit 10.22 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 16, 2005 | ||
10.23 | Executive Deferred Compensation Agreement with Thomas G. Caldwell | Incorporated by reference to Exhibit 10.23 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 4, 2007 | ||
10.24 | Executive Deferred Compensation Agreement with James R. Heslop II | Incorporated by reference to Exhibit 10.24 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 4, 2007 | ||
10.25 | Executive Deferred Compensation Agreement with Donald L. Stacy | Incorporated by reference to Exhibit 10.25 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 4, 2007 | ||
21 | Subsidiaries of Middlefield Banc Corp. | Incorporated by reference to Exhibit 21 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2005, filed on March 29, 2006 | ||
23.1 | Consent of S.R. Snodgrass, A.C. | filed herewith | ||
23.2 | Consent of Ryan Beck & Co., Inc. | filed herewith | ||
23.3 | Consent of O’Neill & O’Neill, Attorneys at Law relating to the opinion concerning tax matters | included in Exhibit 8 | ||
23.4 | Consent of Grady & Associates relating to the opinion concerning the legality of the securities being registered | included in Exhibit 5 | ||
24 | Power of Attorney | included on the Signature page of this Registration Statement on Form S-4 | ||
99.1 | Form of proxy for the meeting of Emerald Bank shareholders | filed herewith | ||
99.2 | Form of Election Form/Letter of Transmittal | filed herewith | ||
II-6
Table of Contents
MIDDLEFIELD BANC CORP. | ||||||
By: | /s/ Thomas G. Caldwell | |||||
Its: | President and Chief Executive Officer |
II-7
Table of Contents
Name | Date | Capacity | ||
President, Chief Executive Officer, and Director | ||||
/s/ Thomas G. Caldwell | January 26, 2007 | (principal executive officer) | ||
Treasurer and Chief Financial Officer | ||||
/s/ Donald L. Stacy | January 26, 2007 | (principal accounting and financial officer) | ||
/s/ Richard T. Coyne | January 26, 2007 | Director | ||
/s/ Frances H. Frank | January 25, 2007 | Director | ||
Director | ||||
/s/ James R. Heslop II | January 26, 2007 | Executive Vice President, Chief Operating Officer, and Director | ||
/s/ Donald D. Hunter | January 26, 2007 | Chairman of the Board and Director | ||
/s/ James J. McCaskey | January 29, 2007 | Director | ||
Director | ||||
/s/ Donald E. Villers | January 26, 2007 | Director | ||
II-8