LAMAR CAPITAL CORP, 424B1, 1998-12-18

LAMAR CAPITAL CORP
424B1, 1998-12-18
STATE COMMERCIAL BANKS

Previous: WARBURG PINCUS EUROPEAN FUND INC, 497, 1998-12-18

Next: RADIO UNICA CORP, 424B3, 1998-12-18

<PAGE>

PROSPECTUS
FILED PURSUANT TO
RULE 424(b) (1)
FILE NO: 333-61355
1,363,636 SHARES

[LOGO OF LAMAR CAPITAL APPEARS HERE]

COMMON STOCK

-----------

All of the 1,363,636 shares of Common Stock, $0.50 par value (the "Common
Stock") of Lamar Capital Corporation, a Mississippi corporation (the
"Company"), offered hereby are being sold by the Company. The Company is a bank
holding company headquartered in Purvis, Lamar County, Mississippi and is the
parent of Lamar Bank (the "Bank").

The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol LCCO. Prior to this Offering, there has been no public market
for the Common Stock. The initial public offering price was determined by
negotiations between the Company and representatives of the Underwriters. For
the factors considered in determining the initial public offering price, see
"Underwriting."

-----------

SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF
MATERIAL RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

-----------

THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) THE COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $10.00 $.70 $9.30
- --------------------------------------------------------------------------------
Total(3)............................. $13,636,360 $954,545 $12,681,815
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Calculated before deducting expenses of the Offering payable by the Company
estimated at $363,000.
(3) The Company has granted an option to the Underwriters, exercisable within
30 days of the date of this Prospectus, to purchase up to 204,545
additional shares of Common Stock on the terms set out above, less the
Underwriting Discounts and Commissions shown above, solely to cover over-
allotments, if any. If the over-allotment option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, and Proceeds
to the Company will be $15,681,810, $1,097,727 and $14,584,083,
respectively. See "Underwriting."

-----------

The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if received and accepted by the Underwriters, and subject to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the certificates for the shares of Common Stock will
be made against payment therefor in Memphis, Tennessee on or about December 22,
1998.

-----------

MORGAN KEEGAN & COMPANY, INC.
STERNE, AGEE & LEACH, INC.

The date of this Prospectus is December 16, 1998.
<PAGE>

[Map of the State of Mississippi and portions of surrounding states with pin
points of cities in Mississippi where Company subsidiaries are located]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE MARKET PRICE OF
THE COMMON STOCK, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

The Company intends to furnish its shareholders with annual reports
containing audited financial statements.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is not intended to be complete and is qualified in its
entirety by the more detailed information and the consolidated financial
statements and the related notes appearing elsewhere in this Prospectus. Share
information included in this Prospectus (other than the consolidated financial
statements beginning on page F-1) has been restated to reflect a twenty-for-one
stock split effected in May of 1998, and a three-for-one split of the common
stock effected in August of 1998. Unless otherwise indicated, all information
in this Prospectus assumes that the Underwriters' over-allotment option is not
exercised. In addition, unless otherwise indicated, all references to "the
Company" in this Prospectus refer to Lamar Capital Corporation and its
consolidated subsidiaries, including the Bank.

THE COMPANY

Lamar Capital Corporation (the "Company") is a one-bank holding company
headquartered in Purvis, Mississippi, with total consolidated assets of $315.7
million, total deposits of $277.6 million and stockholders' equity of $18.7
million at September 30, 1998. The Company, through its subsidiaries, offers a
broad line of banking and financial products and services with the personalized
focus of a community banking organization. The Company ranks 13th in size out
of 59 bank holding companies headquartered in Mississippi, based on total
deposits as of June 30, 1997. As of June 30, 1997, the Bank had a 74.26%
deposit market share in Lamar County, its primary market area. Most of the
Company's growth has occurred in the last decade as management responded to
opportunities presented by the growth of the Lamar County and Hattiesburg,
Mississippi market areas. Total assets, which were $25 million in 1980,
exceeded $100 million by June of 1991, grew to $200 million by September of
1996, and passed the $300 million mark in May of 1998.

The Company derives a substantial amount of its revenue and income from the
operation of its wholly-owned subsidiary, Lamar Bank, a Mississippi state bank
founded in 1904 and domiciled in Purvis, Mississippi (the "Bank"). In 1997, the
Bank contributed 90.2% of the total net income of the Company. The Bank has
seven full-service banking locations and seven automated teller machines
("ATMs"), all located in the southeastern part of Mississippi: the main office
and a branch office in Purvis, two branches in Hattiesburg, one in Sumrall, one
in Petal and one in Prentiss. In June of 1998, the Bank acquired property which
will be used to open a new branch in Hattiesburg, Mississippi on Hardy Street,
a major thoroughfare, near the main campus of the University of Southern
Mississippi. This branch is expected to open in the second half of 1999.

In 1992, the Company expanded its product lines by organizing a finance
company, Southern Financial Services, Inc. ("SFSI"), as a subsidiary of the
Bank. In 1997, SFSI contributed 8.5% of the net income of the Company. SFSI
provides consumer loans to customers who may not be eligible to obtain
financing from the Bank. Expansion into this area of consumer loans opened up a
new market of customers for the Company and allowed the Company to offer an
additional service to its customers, thereby adding a new and profitable
segment to its market base. SFSI has locations in Purvis, Monticello,
Hattiesburg, Petal, Prentiss, Gulfport, and Poplarville, Mississippi. As of
September 30, 1998, SFSI had total loans of $5.5 million.

To expand the Company's ability to provide mortgage loans to a broader
customer base, in November of 1996, the Company organized The Mortgage Shop,
Inc. ("MSI") as a subsidiary corporation. In 1997, MSI contributed 1.3% of the
net income of the Company. MSI, located in Hattiesburg, Mississippi, began
operations in January of 1997 and is engaged in the origination of B and C
grade mortgage loans which are sold in the secondary market. Since beginning
operations, MSI has originated $4.6 million in mortgage loans through
September 30, 1998.

In 1996, the Bank further expanded the types of services offered by entering
into an arrangement with a licensed broker-dealer firm to provide stock and
other securities trading services for customers of the Bank and other
investors. With this arrangement, the Company is furthering its strategy of
offering a broad range of banking and financial services with the personalized
focus of a community banking organization.

3
<PAGE>

The Company is community oriented and focuses on financial products
consisting primarily of consumer, commercial and real estate loans and deposit
services to individuals and small and medium-sized businesses. The Company,
through its subsidiaries, offers a broad line of financial products and
services while successfully retaining the local appeal and level of service of
a community bank. The Company believes that its community style of banking is
important to its success. This style allows for flexible, responsive decision
making at each banking center in the Company's network and focuses on long-
standing customer relationships and personalized service. Management believes
that its community oriented approach and commitment to customer service afford
the Company a distinct competitive advantage in its markets.

Management of the Company believes that consolidation in the banking industry
in Mississippi has disrupted customer relationships as the larger regional
financial institutions increasingly focus on large corporate clients, and
standardized loan and deposit products. Generally, these products and services
are offered through less personalized delivery systems. Consolidation has also
dislocated experienced and talented personnel as duplicate functions are
eliminated. As a result, consolidation provides the Company with the
opportunity to attract and maintain targeted customers and personnel.

Hattiesburg is the educational, retail and medical center for more than a
quarter of a million people throughout the southeast portion of Mississippi.
The Hattiesburg area has received widespread attention as an increasing number
of retirees are moving to the area. Hattiesburg's retirement program was
featured in the November 22, 1996 issue of the "Kiplinger Washington Letter"
and in the June 18, 1997 broadcast of the NBC Nightly News. The May 24, 1997
edition of The New York Times featured Hattiesburg as a place to retire touting
the high quality of life, cultural opportunities, and state-of-the-art medical
facilities. Hattiesburg was one of five cities listed as "Best Cities for
Retirement" as well as one of five cities listed as "Best Small Metro Areas" in
the 1997 Places Rated Almanac by David Savegeau and Richard Boyer and was named
one of the "20 Top Retirement Towns in North America" by MoneyExtra, a
publication of Money Magazine. With two locations in Hattiesburg, the Bank
ranked fifth in the city based on deposits as of June 30, 1997. The Bank is
focusing on expanding its current 6.0% market share in Hattiesburg, where it
competes with eight commercial banks, including several regional banks, and
other financial institutions. At September 30, 1998, approximately 26% of the
Bank's loans and 26% of the Bank's deposits were attributable to its
Hattiesburg branches.

The Company's overall business strategy is to: (i) continue to service
individuals and small and medium-sized businesses by providing personal,
responsive, quality service through its community banking network;
(ii) continue to coordinate its loan and deposit growth by gaining customers
from banks that have recently merged with larger multi-state banks or that are
in the process of doing so and thereby enrich its earning asset mix; and (iii)
continue to expand its business, particularly in the Hattiesburg area, through
internal growth and the opening of new branch offices and by selective
acquisitions in product lines or markets considered strategically attractive by
management. In implementing its strategy, management emphasizes the following:

. RELATIONSHIP BANKING. The Company's business strategy emphasizes
personal relationships and customer loyalty. The Company strives to know
its customers' families, businesses and financial needs. The Company
believes a key to establishing and maintaining long-term relationships
with its banking customers is to offer competitively priced products
tailored to meet customers' needs with personalized service and
professional delivery. The Company meets community needs by making its
facilities available for community events and by sponsoring a variety of
civic activities.

. CUSTOMER SERVICE AND CONVENIENCE. Through extended lobby and drive-up
hours, seven ATMs and experienced personnel, customers of the Bank can
obtain full banking services at any banking center. The Company strives
to develop customer loyalty by promoting a "hands-on" approach and
offering quick decision-making in its delivery of banking products and
services to existing and potential customers. Executive officers spend
time each month in banking centers assessing the needs of both customers
and the personnel serving those customers. To further enhance customer
service and convenience, the Bank plans to offer Internet banking in
1999.

4
<PAGE>

. DEDICATED BANKING PERSONNEL. The Company instills within its work force
a sales-oriented culture to promote customer service and market
penetration. The Company seeks to enhance employee performance through
training and Company-wide annual evaluations. To further promote
customer service and enhance performance, the Company provides
performance-based compensation, rewarding employees who achieve or
exceed corporate objectives.

. REAL ESTATE LENDING. The Bank originates real estate loans which consist
of residential first and second mortgage loans, residential construction
loans and home equity lines of credit and term loans secured by first
and second mortgages on the residences of borrowers for home
improvements, education and other personal expenditures. The Bank makes
real estate and mortgage loans with a variety of terms, including fixed
and floating rates. Generally, the Bank retains real estate loans with
maturities under ten years and sells mortgage loans with longer
maturities. MSI originates B and C grade mortgage loans which are sold
in the secondary market. The Bank originated and retained $45.6 million
of real estate loans during 1997 and $49.1 million of real estate loans
during the nine months ended September 30, 1998. The Bank originated and
sold $10.6 million of mortgage loans during 1997 and $8.9 million of
mortgage loans during the nine months ended September 30, 1998. MSI
originated and sold $2.4 million of mortgage loans during 1997 and $2.2
million of mortgage loans during the nine months ended September 30,
1998.

. CONSUMER LOANS. The Bank and SFSI offer consumer installment loans to
business owners and other individuals for personal, family and household
purposes. The Bank originated $47.1 million in consumer loans in 1997
and $47.2 million for the nine months ended September 30, 1998. SFSI
originated $10.0 million in consumer loans in 1997 and $6.8 million for
the nine months ended September 30, 1998.

. COMMERCIAL LOANS. The Bank's commercial loan portfolio is dispersed
among various business lines such as commercial construction, trucking,
timber, utilities, auto and recreational vehicles, farm supplies, and
heavy equipment. Such loans are primarily for the financing of accounts
receivable, property, plant and equipment and inventory. The Bank also
offers Small Business Administration guaranteed loans ("SBA loans"). The
Bank originated $46.5 million in commercial loans in 1997 and $70.5
million for the nine months ended September 30, 1998.

The Company is a Mississippi corporation with its principal executive offices
located at 401 Shelby Speights Drive, Purvis, Mississippi 39475, and its
telephone number is (601) 794-6047.

THE OFFERING

<TABLE>
<C> <S>
Common Stock offered by the Company........ 1,363,636 shares
Common Stock outstanding prior to the
Offering.................................. 2,767,071 shares
Common Stock to be outstanding after the
Offering.................................. 4,130,707 shares(1)
Proposed Nasdaq National Market symbol..... LCCO
Use of Proceeds............................ The proceeds of the Offering are
expected to be used to establish
two de novo branches in
Hattiesburg, Mississippi, for the
repayment of a Company loan,
possible selective acquisitions
and the contribution of
additional capital to the Bank to
support loan growth. See "Use of
Proceeds."
</TABLE>
- --------
(1) Excludes 200,000 shares of Common Stock reserved for issuance of options to
employees under the Company's Stock Incentive Plan, and 204,545 shares
issuable upon exercise of the Underwriters' over-allotment option.

RISK FACTORS

A number of factors should be considered by potential investors before
purchasing shares of the Common Stock in the Offering. See "Risk Factors,"
beginning on page 7.

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

The following table sets forth certain financial information for the Company
on a consolidated historical basis. Such information should be read in
conjunction with, and is qualified in its entirety by, the consolidated
financial statements and notes appearing elsewhere in this Prospectus. The
selected financial information of the Company as of and for the years ended
December 31, 1997, 1996 and 1995, has been derived from the consolidated
financial statements of the Company audited by Ernst & Young LLP, independent
auditors, whose report with respect thereto is included elsewhere in this
Prospectus. The selected financial information of the Company as of and for the
years ended December 31, 1994 and 1993, has been derived from the consolidated
financial statements of the Company audited by McArthur, Thames, Slay and Dews,
PLLC, independent auditors. The selected financial and operating information
for the nine months ended September 30, 1998 and 1997 has been derived from the
unaudited consolidated financial statements of the Company included elsewhere
in this Prospectus. The unaudited consolidated financial statements include all
adjustments (consisting of normal recurring adjustments) which management of
the Company considers necessary for a fair presentation of the consolidated
financial position and the results of operations for these periods. Operating
results for the nine months ended September 30, 1998, are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1998. Factors affecting the comparability of certain indicated
periods are discussed below under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------ ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income......... $ 17,563 $ 14,187 $ 19,442 $ 16,190 $ 13,903 $ 11,357 $ 10,008
Interest expense........ 10,213 7,744 10,536 8,429 7,100 5,307 4,592
Net interest income..... 7,350 6,443 8,906 7,761 6,803 6,050 5,416
Provision for loan
losses................. 559 503 725 557 517 638 580
Non-interest income..... 2,537 2,023 2,689 2,325 1,751 1,590 1,519
Non-interest expense.... 6,181 5,518 7,677 6,890 6,146 5,491 4,697
Income before taxes..... 3,147 2,445 3,193 2,639 1,891 1,511 1,658
Net income.............. 2,360 1,787 2,339 2,028 1,474 1,189 1,293
BALANCE SHEET DATA:
Total assets............ $315,694 $236,596 $247,022 $207,330 $169,636 $151,895 $139,666
Total securities........ 90,239 58,025 58,921 41,562 33,037 32,864 36,540
Total loans, net........ 188,876 154,833 159,552 140,318 119,556 103,268 85,795
Allowance for loan
losses................. 3,517 3,060 3,101 2,837 2,529 2,427 2,140
Total deposits.......... 277,618 205,894 211,498 185,404 156,631 139,209 129,194
Other borrowed funds.... 17,720 14,000 17,620 7,000 -- -- --
Total stockholders'
equity................. 18,678 15,288 16,160 13,473 11,765 10,123 9,971
PER SHARE DATA:
Net income per share--
basic and diluted...... $ 0.86 $ 0.67 $ 0.87 $ 0.75 $ 0.54 $ 0.43 $ 0.46
Book value.............. 6.75 5.82 5.88 4.97 4.34 3.62 3.57
Cash dividends per
share.................. 0.0860 0.0476 0.1002 0.0923 0.0923 0.0895 0.0895
PERFORMANCE RATIOS:
Return on average
assets................. 1.09% 1.06% 1.02% 1.06% 0.90% 0.80% 0.98%
Return on average
equity................. 18.24 16.65 15.69 15.88 13.56 11.66 13.59
Net interest margin..... 3.65 4.12 4.20 4.41 4.50 4.92 4.89
Efficiency ratio........ 63 65 66 68 72 72 68
ASSET QUALITY RATIOS:
Allowance for loan
losses to nonperforming
loans.................. 424% 617% 777% 360% 295% 366% 571%
Allowance for loan
losses to total loans.. 1.79 1.90 1.87 1.93 2.01 2.25 2.39
Nonperforming assets to
total loans............ 0.70 0.62 0.49 1.06 0.93 0.76 0.69
Net loan charge-offs to
average loans.......... 0.08 0.19 0.30 0.19 0.38 0.36 0.17
CAPITAL RATIOS:
Leverage ratio.......... 6.24% 6.72% 6.87% 7.11% 7.19% 7.14% 7.15%
Average stockholders'
equity to average total
assets................. 5.96 6.35 6.49 6.69 6.63 6.82 7.20
Tier 1 risk-based
capital ratio.......... 9.02 9.73 9.84 9.67 10.21 10.50 11.31
Total risk-based capital
ratio.................. 10.27 10.98 11.09 10.92 11.47 9.31 12.57
Dividend payout ratio... 10 7 12 12 17 21 18
</TABLE>

6
<PAGE>

RISK FACTORS

An investment in the common stock offered hereby involves certain risks. A
prospective investor should carefully review the following risk factors as
well as the other information contained in this Prospectus before deciding to
make an investment in shares of common stock. Information contained in this
Prospectus contains "forward-looking statements" which can be identified by
the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "could," "should," "intend," "estimated," "projected," "contemplated"
or "anticipates" or the negative thereof or other variations or comparable
terminology. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. These statements, by their terms,
involve substantial risks and uncertainties, certain of which are beyond the
Company's control. The following factors could cause actual experience to vary
materially from the future results covered in such forward-looking statements.
Other factors, such as the general state of the economy, could also cause
actual experience to vary materially from the matters covered in such forward-
looking statements.

THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.

RISK OF LOSS FROM ADVERSE CHANGES IN LOCAL ECONOMIC CONDITIONS

The Company's success is dependent to a significant extent upon economic
conditions in Mississippi, particularly the Lamar County and Hattiesburg
market areas. The banking industry in Mississippi is affected by general
economic conditions such as inflation, recession, unemployment and other
factors beyond the Company's control. Economic recession over a prolonged
period or other economic problems in the Company's market areas could have a
material adverse impact on the quality of the loan portfolio and the demand
for the Company's products and services. Therefore, there can be no assurance
that future adverse changes in the Company's market areas would not have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.

POSSIBLE ADVERSE EFFECTS OF CHANGES IN THE INTEREST RATE ENVIRONMENT

The Company's earnings depend to a great extent on "rate differentials,"
which are the differences between interest income that the Company earns on
loans and investments and the interest expense paid on deposits and other
borrowings. These rates are highly sensitive to many factors which are beyond
the Company's control, including general economic conditions and the policies
of various government and regulatory authorities. Changes in interest rate
policy by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board") affect the Company's interest income, interest expense and
investment portfolio. Also, governmental policies such as the creation of a
tax deduction for individual retirement accounts can increase savings and
affect the cost of funds. A rapid increase or decrease in interest rates could
have an adverse effect on the net interest margin and results of operations of
the Company. The nature, timing and effect of any future changes in federal
monetary and fiscal policies on the Company and its results of operations are
not predictable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Asset/Liability Management and Market
Risk."

RISK OF LOAN LOSSES FROM A DECLINE IN CREDIT QUALITY

A significant source of risk for the Company arises from the possibility
that losses will be sustained because borrowers, guarantors and related
parties fail to perform in accordance with the terms of their loans. The
Company has adopted underwriting and credit monitoring procedures and credit
policies, including the establishment and review of the allowance for credit
losses, that management believes are appropriate to minimize this risk by
assessing the likelihood of nonperformance, tracking loan performance and
diversifying

7
<PAGE>

the Company's credit portfolio. Such policies and procedures, however, may not
prevent unexpected losses that could materially adversely affect the results
of operations of the Company. See "The Company--Lines of Business."

RISKS INHERENT IN CONSUMER AND COMMERCIAL LENDING

A substantial portion of the Company's loan portfolio consists of consumer
loans. Consumer lending presents certain unique risks. Consumer loan
repayments depend upon a borrower's financial stability and are more likely to
be adversely affected by job loss, divorce, illness and other personal
hardships. In addition, collateral such as automobiles and other personal
property securing consumer loans depreciates rapidly and sometimes is an
inadequate repayment source if a borrower defaults.

As the Company grows, it expects to increase its commercial lending
activities. Commercial lending entails greater risks than traditional, single
family residential lending. Commercial loans typically involve larger loan
balances concentrated in fewer borrowers. The analysis of commercial loans,
which requires expertise in evaluating a commercial enterprise and its
collateral, is generally more complex than the analysis required for single
family residential lending. Like consumer loans, commercial loans are subject
to adverse conditions in the economy, as well as the market for the specific
goods and services sold by the commercial borrower. Loans secured by
commercial real estate can also be affected by trends in the local real estate
market.

STRONG COMPETITORS

The banking business is highly competitive, and the profitability of the
Company depends principally upon its ability to compete in the market areas
where its banking operations are located. The Company competes with other
commercial banks, savings banks, savings and loan associations, credit unions,
mortgage companies, finance companies, mutual funds, insurance companies,
brokerage and investment banking firms, asset-based non-bank lenders and
certain other non-financial entities, including retail stores which may
maintain their own credit programs and certain governmental organizations
which may offer more favorable financing than the Company. Many of these
competitors have greater financial and other resources than the Company, and
certain larger competitors are recent entrants into the Company's markets.
Although the Company has been able to compete effectively in the past, no
assurances may be given that the Company will continue to be able to compete
effectively in the future. Various legislative acts in recent years have led
to increased competition among financial institutions. There can be no
assurance that the United States Congress or the Mississippi legislature will
not enact legislation that may further increase competitive pressures on the
Company. Competition from both financial and nonfinancial institutions is
expected to continue. See "The Company--Competition."

POTENTIAL ADVERSE EFFECT OF LOSS OF KEY PERSONNEL

The Company is dependent on its management team including Robert W.
Roseberry, Chairman and Chief Executive Officer; Kenneth M. Lott, President
and Chief Operating Officer; Jane P. Roberts, Vice Chairman and Secretary; W.
H. Macko, Senior Vice President; and Donna T. Rutland, Chief Financial Officer
and Treasurer. Each of these persons is considered to be important to the
success of the Company, and the unexpected loss of any of these persons could
have an adverse effect on the Company. Although the Company has key man
insurance on Mr. Roseberry, Mr. Lott and Ms. Roberts, the Company has not
entered into employment agreements with these employees. See "Management."

POSSIBLE ADVERSE IMPACT OF CHANGES IN REGULATION AND LEGISLATION

Bank holding companies and banks operate in a highly regulated environment
and are subject to extensive supervision and examination by several federal
and state regulatory agencies. The Company is subject to the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and to regulation and
supervision by the Federal Reserve Board. The Bank, as a Mississippi state
banking corporation, is subject to regulation and supervision by the
Mississippi Department of Banking and Consumer Finance and, as a result of the
insurance

8
<PAGE>

of its deposits, by the Federal Deposit Insurance Corporation ("FDIC"). These
regulations are intended primarily for the protection of depositors and
customers, rather than for the benefit of investors. The Company and the Bank
are subject to changes in federal and state laws, as well as changes in
regulations and governmental policies, income tax laws and accounting
principles. The effects of any potential changes cannot be predicted but could
adversely affect the business and operations of the Company and the Bank in
the future. See "Supervision and Regulation."

SFSI, a subsidiary of the Bank, is a licensed small loan company subject to
the Small Loan Regulatory Law and Small Loan Privilege Tax Law of the State of
Mississippi and to regulation and supervision by the Mississippi Department of
Banking and Consumer Finance. With limited exceptions, both series of statutes
regulate any non-financial institution lender engaged in the business of
handling loans for a borrower or lending money, either directly or indirectly,
to be paid back in monthly or other regular installments. These statutes
govern the requirements for making and payment of loans as well as disclosures
to be made to consumers.

Through an arrangement with a licensed broker-dealer, the Bank provides
securities trading services for its customers and other investors. Such
activities are subject to regulation and supervision by the FDIC and the Bank
is subject to the Inter-Agency Statement on Retail Sales of Nondeposit
Investment Products ("Inter-Agency Statement"). The Inter-Agency Statement
mandates disclosures to purchasers of non-deposit investment products that
such products are not insured by the FDIC, are not deposits in or guaranteed
by the Bank and may be subject to investment risks including loss of
principal. The Inter-Agency Statement also governs disclosure, advertising,
training, sales practices and compliance.

Although the Bank is exempt from licensing requirements as a broker-dealer,
it is indirectly responsible for transactions carried out by a broker-dealer,
especially by dual employees. The Bank has adopted policies and procedures to
ensure such activities are conducted in compliance with applicable laws and
regulations and the Inter-Agency Statement.

The Federal Reserve Board has adopted a policy that requires a bank holding
company such as the Company to serve as a source of financial strength to its
banking subsidiaries. The Federal Reserve Board has required bank holding
companies to contribute cash to their troubled bank subsidiaries based upon
this "source of strength" policy, which could have the effect of decreasing
funds available for distributions to shareholders. In addition, a bank holding
company in certain circumstances could be required to guarantee the capital
plan of an undercapitalized banking subsidiary. See "Supervision and
Regulation."

RESTRICTIONS ON ABILITY TO PAY DIVIDENDS

While historically the Company has paid regular cash dividends, there is no
assurance that the Company will pay dividends on the Common Stock in the
future. The declaration and payment of dividends on the Common Stock will
depend upon the earnings and financial condition of the Company, its liquidity
and capital requirements, the general economic and regulatory climate, the
Company's ability to service any equity or debt obligations senior to the
Common Stock and other factors deemed relevant by the Company's Board of
Directors. It is the policy of the Federal Reserve Board that bank holding
companies should pay cash dividends on Common Stock only out of income
available over the past year and only if prospective earnings retention is
consistent with the organization's expected future needs and financial
condition. The policy provides that bank holding companies should not maintain
a level of cash dividends that undermines the bank holding company's ability
to serve as a source of strength to its banking subsidiaries.

The Company's principal source of funds to pay dividends will be cash
dividends that the Company receives from the Bank. The payment of dividends by
the Bank to the Company is subject to certain restrictions imposed by federal
and state banking laws, regulations and authorities. Dividends by the Bank
must be approved by the Mississippi Department of Banking and Consumer
Finance. See "Supervision and Regulation--The Bank."

The federal banking statutes prohibit federally insured banks from making
any capital distributions (including a dividend payment) if, after making the
distribution, the institution would be "undercapitalized" as

9
<PAGE>

defined by statute. In addition, the relevant federal regulatory agencies also
have authority to prohibit an insured bank from engaging in an unsafe or
unsound practice, as determined by the agency, in conducting an activity. The
payment of dividends could be deemed to constitute such an unsafe or unsound
practice, depending on the financial condition of the Bank. Regulatory
authorities could impose stricter limitations on the ability of the Bank to
pay dividends to the Company if such limits were deemed appropriate to
preserve certain capital adequacy requirements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Capital" and
"Supervision and Regulation."

ABILITY OF EXECUTIVE OFFICERS AND DIRECTORS TO INFLUENCE CORPORATE ACTION

After the consummation of the Offering, the executive officers and directors
of the Company, collectively, will beneficially own approximately 30.4% of the
outstanding shares of Common Stock, and approximately 29.0% of such shares of
the Common Stock if the Underwriters' over-allotment option is fully
exercised. These percentages may increase to the extent directors and
executive officers of the Company purchase additional shares of the Company's
Common Stock. Accordingly, these executive officers and directors,
collectively, will have the power to block certain business combinations and
will be able to influence, to a significant extent, the outcome of all matters
required to be submitted to the Company's shareholders for approval, including
decisions relating to the election of directors of the Company, the
determination of day-to-day corporate and management policies of the Company
and other significant corporate transactions. See "Management," "Principal
Shareholders and Stock Ownership of Management" and "Description of Capital
Stock."

PROVISIONS DISCOURAGING TRANSACTIONS THAT MIGHT BENEFIT SHAREHOLDERS

Certain corporate governance and statutory provisions may inhibit changes in
control of the Company that may be viewed as favorable by the holders of a
majority of the Company's Common Stock and may have the effect of maintaining
incumbent management. The Company's Articles of Incorporation and Bylaws
contain certain provisions which may have the effect of preventing,
discouraging or delaying any change of control of the Company which may (or
may not) be in the best interest of a majority of the stockholders.
Shareholders also have Common Stock purchase rights for each outstanding share
of Common Stock which have certain anti-takeover effects. See "Description of
Capital Stock."

Individuals, alone or acting in concert with others, seeking to acquire 25%
or more of any class of voting securities of the Company must comply with the
Change in Bank Control Act, which requires the prior approval of the Federal
Reserve Board for any such acquisition. Entities seeking to acquire control of
the Company, or bank holding companies seeking to acquire 5% or more of any
class of voting securities of the Company, must obtain the prior approval of
the Federal Reserve Board under the BHCA. Acquisitions of control are also
subject to prior notice and prior approval requirements under the Mississippi
banking statutes. Accordingly, prospective investors need to be aware of and
to comply with these requirements, if applicable, in connection with any
purchase of shares of the Common Stock in the Offering. See "Supervision and
Regulation."

POTENTIAL ABSENCE OF ACTIVE, LIQUID, MARKET FOR COMMON STOCK

Prior to the Offering, there has been no public market for the shares of
Common Stock. The Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol LCCO. The Underwriters have advised the
Company that they intend to make a market in the Common Stock as long as the
volume of trading activity in the Common Stock and certain other market making
conditions justify doing so. Nonetheless, there can be no assurance that an
active public market will develop or be sustained after the Offering or that
if such a market develops, investors in the Common Stock will be able to
resell their shares at or above the initial public offering price. Making a
market involves maintaining bid and asked quotations for the Common Stock and
being available as principal to effect transactions in reasonable quantities
at those quoted prices, subject to various securities laws and other
regulatory requirements. A public trading market having the desired
characteristics of depth, liquidity and orderliness depends upon the presence
in the marketplace of willing

10
<PAGE>

buyers and sellers of the Common Stock at any given time, which presence is
dependent upon the individual decisions of investors over which neither the
Company nor any market maker has any control.

UNPREDICTABILITY AND POSSIBLE VOLATILITY OF STOCK PRICE

The initial public offering price of the shares of Common Stock was
determined by negotiations between the Company and representatives of the
Underwriters and does not necessarily bear any relationship to the Company's
past operating results, financial condition or other established criteria of
value and may not be indicative of the market price of the Common Stock after
the Offering. Among the factors considered in these negotiations were
prevailing market and general economic conditions, the market capitalizations,
trading histories and stages of development of other comparable publicly
traded companies, book value of the Company's Common Stock, the results of
operations and the current financial position of the Company, estimates of
business potential and the present state of the Company's development, and the
level of demand for Common Stock. Additionally, consideration has been given
to the general status of the securities market, the market conditions for new
issues of securities and the demand for securities of comparable companies at
the time the Offering was made. See "Underwriting" for information relating to
the method of determining the initial public offering price. The stock market
has from time to time experienced price and volume volatility. These market
fluctuations may be unrelated to the operating performance of particular
companies whose shares are traded and may adversely affect the market price of
the Common Stock. There can be no assurance that the market price of the
Common Stock will not decline below the initial public offering price.

POTENTIAL ADVERSE EFFECT OF FUTURE SALES OF PRESENTLY OUTSTANDING SHARES

All of the shares of Common Stock sold in the Offering will generally be
freely tradable under the Securities Act of 1933 (the "Securities Act"). The
Company will have 4,130,707 shares of Common Stock outstanding after the
Offering. The Company, its executive officers and directors and certain
shareholders (who collectively will own approximately 43.1% of the outstanding
shares of Common Stock after the consummation of the Offering) have agreed
with the Underwriters not to offer, sell, contract to sell or otherwise
dispose of any of their shares of Common Stock for a period of 180 days after
the date of this Prospectus without the permission of the Underwriters.
Currently 839,880 outstanding shares of Common Stock held by existing
shareholders are not subject to such agreement, and are freely tradable in
accordance with Rule 144(k) under the Securities Act. The remaining 147,891
shares of currently outstanding Common Stock which were acquired in the past
two years pursuant to exemptions from registration under the Securities Act
are "restricted" within the meaning of Rule 144 and not currently eligible for
resale under Rule 144. These shares may be resold only pursuant to an
effective registration under the Securities Act or pursuant to an available
exemption (such as provided by Rule 144 following a one year holding period
for previously unregistered shares) from the registration requirements of the
Securities Act. No prediction can be made about the effect, if any, that
future sales of Common Stock or the availability of Common Stock for future
sale will have on the market price of the Common Stock prevailing from time to
time. Sales of a substantial number of such shares in the future, or the
perception that such sales could occur, could adversely affect the market
price of the Common Stock. See "Management," "Principal Shareholders and Stock
Ownership of Management," and "Shares Eligible for Future Sale."

POTENTIAL IMPACT OF FAILURE TO BE YEAR 2000 COMPLIANT

The Company continues to implement plans to address the Year 2000 issue. The
issue arises from the fact that many existing computer programs use only two
digits to identify a year in the computer's date field. These programs were
designed without having considered the impact of the upcoming change in the
century. If not corrected, computer applications could fail or create
inaccurate results by or at the year 2000. The Company could be negatively
impacted not only by problems with its own computer systems, but by problems
experienced by customers and by governmental and private entities with which
the Company does business. Certain employees are crucial to the Company's Year
2000 compliance program. The loss of these employees could have a material
adverse effect on the implementation of the Company's Year 2000 plan. If the
Company's subsidiaries, or governmental or private entities with which the
Company conducts business, fail to correct the Year 2000

11
<PAGE>

problem, the Company's operations as a whole could be materially and adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation--Year 2000."

UNCERTAINTY AS TO SPECIFIC ALLOCATION OF PROCEEDS

The Company intends to use substantially all of the net proceeds of the
Offering for the establishment of two de novo branches in Hattiesburg,
Mississippi, for the repayment of a Company loan, for possible selective
acquisitions and the contribution of additional capital to the Bank to support
loan growth. Accordingly, the Company will have broad discretion as to the
application of such proceeds. See "Use of Proceeds."

12
<PAGE>

THE COMPANY

BACKGROUND

Since the establishment of the Bank (then called Lamar County Bank) in 1904
in Purvis, Mississippi, the Bank has grown to seven banking facilities in
three southeastern Mississippi counties and $315.7 million in assets at
September 30, 1998. Most of this growth has occurred in the last decade as
management responded to opportunities presented by the growth of the Lamar
County and Hattiesburg, Mississippi market areas. Total assets, which were $25
million in 1980, exceeded $100 million by June of 1991, grew to $200 million
by September of 1996, and passed the $300 million mark in May of 1998.

In 1935, the Bank expanded outside of Purvis by acquiring the Sumrall Bank,
located in the extreme north end of Lamar County. In 1980, the Bank moved into
its current main office facilities. In response to the rapid growth of
northeast Lamar County, the Bank built a branch on Highway 98 West in
Hattiesburg in 1989, marking the Bank's initial entry into the Hattiesburg
market area. In 1991, the Bank expanded for the first time into another county
by purchasing the Prentiss branch of a failed savings and loan association
from the Resolution Trust Corporation. In 1994, the Bank opened a second
Hattiesburg branch in the newly constructed Turtle Creek Mall. This opening
was followed by the Bank's first entry into Forrest County, Mississippi with
the opening of the Petal branch in 1996. In June of 1998, the Bank acquired
property which will be used to open a new branch in Hattiesburg, Mississippi
on Hardy Street, a major thoroughfare, near the main campus of the University
of Southern Mississippi. This branch is expected to open in the second half of
1999.

During the 1990's, the Company also expanded its financial products and its
customer base. In 1992, the Bank established a consumer finance subsidiary,
Southern Financial Services, Inc. ("SFSI"), which makes consumer loans to
persons who may not be eligible for financing from the Bank. SFSI, which had
$5.5 million in loans outstanding at September 30, 1998, has offices in
Purvis, Hattiesburg, Petal, Prentiss, Monticello, Poplarville and Gulfport,
Mississippi. In 1997, the Company founded The Mortgage Shop, Inc. ("MSI"),
located in Hattiesburg, Mississippi. MSI originates B and C grade mortgage
loans which are sold in the secondary market. Most recently the Bank further
expanded the range of services offered by entering an arrangement with Robert
Thomas Securities, Inc. to provide stock and other securities trading services
for customers of the Bank and other investors. These services are provided in
Hattiesburg and by appointment at other locations. With the addition of these
services, the Company is executing its strategy of offering a broad range of
banking and financial services with the personalized focus of a community
banking organization.

The Company was formed in 1986 to serve as a holding company for the Bank.
The Company conducts its business activities through the Bank and the other
subsidiaries described above.

The Company continues to look for additional expansion opportunities, either
by establishing de novo banking offices or by acquiring existing institutions
in the financial services industry. The Company intends to consider various
strategic acquisitions of banks or banking assets in those areas that
management believes would complement and increase the Company's existing
business, or expand in market areas or product lines that management considers
attractive.

LINES OF BUSINESS

Historically, the Company has extended credit and provided general banking
services through its banking center network to individuals and small and
medium-sized businesses. During the past several years the Company has sought
new lines of business to diversify its asset mix and further enhance its
profitability. While each new line of business reflects the Company's efforts
to enrich its asset mix, each of these lines of business is an outgrowth of
the community banking and lending services that the Company has performed over
the years. In keeping with the Company's operating philosophy, each of these
businesses has been carefully developed and is subject to various quality
controls. The Company's principal lines of business are:

. REAL ESTATE LENDING. The Bank's real estate loans consist of residential
first and second mortgage loans, residential construction loans and home
equity lines of credit and term loans secured by first and second
mortgages on the residences of borrowers for home improvements,
education and other personal expenditures. The Bank makes mortgage loans
with a variety of terms, including fixed and

13
<PAGE>

floating rates. These loans are made consistent with the Bank's
appraisal policy and real estate lending policy which prescribe maximum
loan-to-value ratios and maturities. Management expects that these loan-
to-value ratios are sufficient to compensate for fluctuations in the
real estate market and to minimize the risk of loss that could result
from a downturn in that market. Generally, the Bank retains real estate
loans with maturities under ten years and sells mortgage loans with
longer maturities. MSI originates B and C grade mortgage loans which are
sold in the secondary market. The Bank originated and retained $45.6
million of real estate loans during 1997 and $49.1 million of real
estate loans during the nine months ended September 30, 1998. The Bank
originated and sold $10.6 million of mortgage loans during 1997 and $8.9
million of mortgage loans during the nine months ended September 30,
1998. MSI originated and sold $2.4 million of mortgage loans during 1997
and $2.2 million of mortgage loans during the nine months ended
September 30, 1998.

. CONSUMER LENDING. The Bank and SFSI offer consumer installment loans to
business owners and other individuals for personal, family and household
purposes. The Bank originated $47.1 million in consumer loans in 1997
and $47.2 million for the nine months ended September 30, 1998. SFSI
originated $10.0 million in consumer loans in 1997 and $6.8 million for
the nine months ended September 30, 1998. Consumer loan repayments
depend upon a borrower's financial stability and are more likely to be
adversely affected by job loss, divorce, illness and other personal
hardships. In addition, collateral such as automobiles and other
personal property securing consumer loans depreciates rapidly and
sometimes is an inadequate repayment source if a borrower defaults. In
evaluating these loans, the Bank requires its lending officers to review
the borrower's level and stability of income, past credit history and
the impact of these factors on the borrower's ability to repay the loan
in a timely manner. In addition, the Bank requires that its banking
officers maintain an appropriate margin between the loan amount and
collateral value.

. COMMERCIAL LENDING. The Bank's commercial loan portfolio is dispersed
among various business lines such as commercial construction, trucking,
timber, utilities, auto and recreational vehicles, farm supplies and
heavy equipment. Such loans are primarily for the financing of accounts
receivable, property, plant, equipment and inventory. The Bank also
offers SBA loans. The Bank originated $46.5 million in commercial loans
in 1997 and $70.5 million for the nine months ended September 30, 1998.
Commercial lending entails greater risks than traditional, single family
residential lending. Commercial loans typically involve larger loan
balances concentrated in fewer borrowers. The analysis of commercial
loans, which requires expertise in evaluating a commercial enterprise
and its collateral, is generally more complex than the analysis required
for single family residential lending. Like consumer loans, commercial
loans are subject to adverse conditions in the economy, as well as the
market for the specific goods and services sold by the commercial
borrower. Loans secured by commercial real estate can also be affected
by trends in the local real estate market. In making these loans, the
Bank manages its credit risk by actively monitoring such measures as
advance rate, cash flow, collateral value and other appropriate credit
factors.

. DEPOSITS AND OTHER BORROWINGS. Deposits are a key component of the
Company's banking business, serving as a source of funding for lending
as well as for increasing customer account relationships. The Company
offers competitively priced deposit products, including checking,
savings and time deposit accounts, seeking to increase core deposits and
market share. Borrowings, principally from the Federal Home Loan Bank
("FHLB"), and lines of credit with other banks, provide other sources of
liquidity.

. BROKERAGE SERVICES. The Bank provides brokerage services through a joint
arrangement with Robert Thomas Securities, Inc., a subsidiary of Raymond
James & Associates, Inc. These services are provided in Hattiesburg and
by appointment at other locations. The Company developed brokerage
services to (1) help retain existing customers who were seeking
alternative investments, (2) attract additional, sophisticated customers
from its market areas, and (3) to enhance the Company's franchise by
offering a broader scope of financial services.

. INVESTMENTS. The Company's investment securities, together with cash and
cash equivalents, provide an important source of liquidity. The Company
uses its investments as collateral for borrowings and to

14
<PAGE>

secure public fund deposits. The investment portfolio is managed by an
internal committee chaired by the President in accordance with policies
approved by the Company's Board of Directors.

The Company's operating revenues are derived primarily from interest earned
from its loan and investment securities portfolios and fee income from loan and
deposit products. The Company is not dependent upon a single customer, or a few
customers, the loss of any one or more of which would have a material adverse
effect on the statement of condition or results of operations.

MARKET AREAS

The Bank operates principally in the Hattiesburg Metropolitan Statistical
Area (the "Hattiesburg MSA") which includes Lamar and Forrest counties in
Mississippi. The following discussion of communities in which the Bank operates
contains deposit, population and household income information available from
Sheshunoff, The Branches of Mississippi 1998. Deposit data is as of June 30,
1997. Population figures, unemployment rates and incomes are estimated as of
the date indicated based on information from the Rand McNally Commercial Atlas
and Marketing Guide and from the Mississippi Employment Security Commission's
Labor Market Information Department.

The Company has a total of seven banking offices serving five Mississippi
communities and plans to open two additional branch offices in Hattiesburg. Its
primary market area is Lamar County, including the Hattiesburg MSA, and its
secondary market area includes the city of Prentiss in Jefferson Davis County,
Mississippi and the city of Petal located in Forrest County, Mississippi
adjacent to Hattiesburg on its east side.

Lamar County. The Bank ranks first in the county by amount of deposits and
has a market share of 74.26% of deposits in Lamar County. Lamar County has five
financial institutions (four banks and one credit union) with a total of $214
million in deposits. Lamar County's population as of April of 1998 was 34,843
individuals living in 12,759 households and having an average household income
of $39,480 and an unemployment rate of 2.7%.

Hattiesburg. The Bank's largest community served is the Hattiesburg MSA, the
third largest metropolitan area in Mississippi with an estimated population of
107,832. For the twelve months ended June 30, 1997, total deposits of banks,
thrifts, and credit unions in Hattiesburg increased by 7.12%, from $830 million
to $889 million. The Bank with two locations in Hattiesburg, ranks fifth in the
city by amount of deposits. The Bank is focusing on expanding its current 6.0%
market share in Hattiesburg, where it competes with several regional banks and
other financial institutions.

In 1995, the Ryder Relocation Report recognized Hattiesburg as the sixth most
popular destination for Americans relocating to small cities (defined as those
under 100,000). Hattiesburg's central location places it within a two hour
drive of Jackson, Mobile, New Orleans and the Mississippi Gulf Coast. Atlanta,
Birmingham and Memphis are within a day's drive.

Forrest County. The Bank has a market share of 1.56% of deposits in Forrest
County. Forrest County has 16 financial institutions (9 banks and 7 credit
unions) with a total of $935.8 million in deposits. Forrest County's population
as of April of 1998 was 73,054 individuals living in 27,282 households. Forrest
County, in which

15
<PAGE>

Hattiesburg is located, has an estimated average household income of
approximately $39,654, ranking 25th out of 82 counties in the State of
Mississippi. The unemployment rate for the county as of April of 1998 is 3.4%.

Jefferson Davis County. The Bank competes with one other financial
institution operating in the County. The Bank's market share is 28.95% of the
county's total deposits of $98.2 million. Jefferson Davis County's population
as of April 1998 was 13,966 individuals living in 4,744 households and having
an average household income of $34,985 and an unemployment rate of 15.6% as of
April of 1998.

COMPETITION

The Company competes with several local and regional commercial banks,
thrifts, credit unions and mortgage companies for deposits, loans and other
banking related financial services. There is intense competition in the Bank's
markets from other financial institutions as well as other "non-bank"
companies which engage in similar activities. Some of the Company's
competitors are not subject to the degree of regulatory review and
restrictions which apply to the Bank. In addition, the Company must compete
with much larger financial institutions which have greater financial resources
than the Company and aggressively compete for market share in the
Lamar/Forrest County market. These competitors attempt to gain market share
through their financial products mix, pricing strategies and banking center
locations. Legislative developments related to interstate branching and
banking in general, by providing large banking institutions easier access to a
broader marketplace, are creating more competitive pressure on smaller
financial institutions. The Company also competes with insurance companies,
savings banks, consumer finance companies, investment banking firms, brokerage
houses, mutual fund managers, investment advisors and credit unions. Retail
establishments compete for loans by offering credit cards and retail
installment contracts for the purchase of goods and merchandise. It is
anticipated that competition from both bank and non-bank entities will
continue to grow. The Bank, which as of June 30, 1997 had the third largest
combined deposit market share in the three counties in which it operates, has
been able to compete effectively with other financial institutions by
emphasizing customer service and local office decision-making; by establishing
long-term customer relationships and building customer loyalty; and by
providing products and services designed to address the specific needs of its
customers.

EMPLOYEE RELATIONS

As of September 30, 1998, the Bank had 124 employees of whom 108 were full-
time and 16 part-time. MSI has four full-time employees and SFSI has 22
employees of whom 20 were full-time and two part-time. In addition to a bonus
program, the Bank currently maintains an employee benefit program providing,
among other benefits, a self-insured medical plan, a profit sharing and 401(k)
retirement plan, employee stock ownership plan and life and disability
insurance. In August of 1998, the Company adopted a stock incentive plan under
which it plans to grant stock options for selected employees. These employee
benefits, as a whole, are considered by management to be generally competitive
with employee benefits provided by other employers in Mississippi. The Company
believes the future success of its subsidiaries will depend, in part, on its
ability to continue to attract and retain skilled retail, technical, and
managerial personnel in order to maintain its quality delivery of financial
and banking services. None of the Company's employees are subject to a
collective bargaining agreement, and the Company has never experienced a work
stoppage.

16
<PAGE>

FACILITIES

The Company's executive offices and principal support and operational
functions are located at 401 Shelby Speights Drive, Purvis, Mississippi 39475.
All of the offices of the subsidiaries of the Company are located in
Mississippi.
<TABLE>
<CAPTION>
DEPOSITS
SQUARE OWNED (O)/ LOANS AS OF AS OF
BANK OFFICES FOOTAGE LEASED (L) SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
- ------------ ------- ---------- ------------------ ------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
PURVIS
Main Office
401 Shelby Speights
Drive, Purvis........... 19,600 O $58,312 $90,049
#4 Highway 589, Purvis.. 11,203 O 6,478 9,256
SUMRALL
1193 Highway 42 East,
Sumrall................. 5,000 O 28,779 37,193
HATTIESBURG
6052 Highway 98 West,
Hattiesburg*............ 16,308 O 49,030 66,450
Turtle Creek Mall Branch
Office
1000 Turtle Creek Drive,
Space 125, Hattiesburg.. 667 L 0 5,245
PETAL
535 Highway 42, Petal... 16,810 O 33,650 26,838
PRENTISS
965 South Columbia
Avenue, Prentiss........ 4,822 O 10,596 42,587
- --------
*Includes Mortgage & Investment Center located at 6042 Highway 98 West,
Hattiesburg.

<CAPTION>
SQUARE OWNED (O)/ LOANS AS OF
OFFICES OF SFSI FOOTAGE LEASED (L) SEPTEMBER 30, 1998
- --------------- ------- ---------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
HATTIESBURG
706 Broadway Drive,
Hattiesburg............. 3,780 L $ 909
PETAL
300 New Richton Road,
Petal................... 1,440 L 161
PRENTISS
951 South Columbia
Avenue, Prentiss........ 1,440 L 590
PURVIS
70 Shelby Speights
Drive, Purvis........... 2,160 O 1,636
MONTICELLO
863 Highway 84 West,
Monticello.............. 1,100 O 783
POPLARVILLE
1235 South Main Street,
Poplarville............. 1,500 O 774
GULFPORT
1010 Pass Road,
Gulfport................ 1,100 L 695
<CAPTION>
SQUARE OWNED (O)/
THE MORTGAGE SHOP, INC. FOOTAGE LEASED (L)
- ----------------------- ------- ----------
<S> <C> <C> <C> <C>
HATTIESBURG
114 North 40th Avenue,
Suite H, Hattiesburg.... 950 L
</TABLE>

<PAGE>

The agreements for the leased facilities have unexpired terms ranging from
December 31, 1998 to the year 2003, including renewal options. The Bank also
acquired property in June of 1998 which will be used to open a new branch in
Hattiesburg, Mississippi on Hardy Street, a major thoroughfare, near the main
campus of the University of Southern Mississippi. This branch is expected to
open in the second half of 1999.

LEGAL PROCEEDINGS

SFSI is a defendant in a case filed on June 11, 1998, in the Circuit Court
of Forrest County, Mississippi. The complaint alleges that the plaintiff was
not given any choice with respect to the purchase of credit life and credit
disability insurance and that SFSI improperly forced placed property insurance
on the collateral for the plaintiff's loan with SFSI. The plaintiff asks for
actual damages of $50,000 and punitive damages of $500,000. While the ultimate
outcome of the lawsuit cannot be predicted with certainty, management believes
the case is without merit, denies all liability and believes that the ultimate
resolution of this matter will not have a material adverse effect on the
Company's financial condition.

In addition, in the ordinary course of operations, the Company's
subsidiaries are parties to various legal proceedings. In the opinion of
management, there is no proceeding pending, or to the knowledge of management
threatened, in which an adverse decision would have a material adverse effect
on the Company's financial condition.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,363,636 shares of
Common Stock are estimated to be approximately $12.3 million (or $14.2 million
if the underwriters' over-allotment option is exercised in full), after
deducting the estimated underwriting discounts and offering expenses payable
by the Company.The net proceeds of the Offering will be used to retire certain
indebtedness of the Company, and for additional growth capital which will,
among other things, enable the Company to expand its operations in the
Hattiesburg, Mississippi market. Approximately $3.6 million of the net
proceeds will be used to retire indebtedness of the Company. This
indebtedness, which was incurred in December of 1996, consists of a variable
interest rate loan from a commercial bank, with a remaining aggregate
principal balance of $3.6 million at September 30, 1998. This indebtedness
bears interest at the rate of New York Prime less 75 basis points and the
principal is payable in annual installments of $400,000 with the final payment
due on December 31, 2006. After giving effect to the sale of the shares of
Common Stock offered hereby and assuming $3.6 million of the net proceeds will
be used to retire the above described indebtedness of the Company, the
Company's pro forma basic and diluted earnings per share would have been $.61
for the nine months ended September 30, 1998 and $.63 for the year ended
December 31, 1997.

The Company expects to use approximately $3.0 million of the proceeds to
establish two de novo branches in strategic locations within the City of
Hattiesburg. This estimate includes the cost of buildings, equipment, vault
cash and other startup expenditures. This estimate may not reflect actual
costs. The Bank acquired property in June of 1998 for one of these branches.

The remaining proceeds, approximately $5.7 million, will be used for the
possible acquisition of other financial institutions or branches and the
contribution of additional capital to the Bank to support loan growth. The
Company currently does not have any commitments or agreements or letters of
intent for any business acquisitions. Pending application of the net proceeds
of the Offering, the Company plans to invest them in short-term, investment-
grade securities, certificates of deposit or guaranteed obligations of the
United States government.

18
<PAGE>

DILUTION

As of September 30, 1998, the net tangible book value of the Company was
$6.72 per share. "Net tangible book value per share" is the tangible net worth
(total tangible assets less total liabilities) of the Company divided by the
number of shares of Common Stock outstanding. After giving effect to the sale
of the shares of Common Stock offered hereby (after deducting underwriting
discounts and estimated offering expenses to be paid by the Company), the pro
forma net tangible book value of the Company at September 30, 1998 would have
been $7.50 per share. This represents an immediate increase in the net
tangible book value of $.78 per share to existing shareholders and an
immediate dilution of $2.50 per share to the new investors purchasing the
shares in this Offering. The following table illustrates this per share
dilution to new investors:

<TABLE>
<S> <C> <C>
Initial public offering price per share........................... $10.00
Net tangible book value per share at September 30, 1998......... $6.72
Increase in net tangible book value per share attributable to
new investors.................................................. .78
-----
Pro forma net tangible book value per share after Offering........ 7.50
------
Dilution in net tangible book value per share to new investors.... $ 2.50
======
</TABLE>

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company at September 30, 1998, and as adjusted to give effect to the
consummation of the issuance of 1,363,636 shares of Common Stock by the
Company in the Offering.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
(UNAUDITED)
----------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
LONG-TERM DEBT:
Other borrowed funds................................... $17,720 $14,120
======= =======
STOCKHOLDERS' EQUITY:
Common stock, $0.50 par value, 50,000,000 shares
authorized; 2,767,071 shares outstanding and 4,130,707
shares, as adjusted(1)................................ $ 1,384 $ 2,065
Paid-in capital........................................ 4,367 16,005
Retained earnings...................................... 12,405 12,405
Net unrealized appreciation on securities available for
sale, net of income taxes............................. 522 522
------- -------
Total stockholders' equity........................... $18,678 $30,997
======= =======
</TABLE>
- --------
(1) Assumes that 1,363,636 shares of Common Stock are sold by the Company at
$10.00 per share and that the net proceeds, after deducting the estimated
underwriting discount and offering expenses payable by the Company,
received by the Company from the Offering are approximately $12,319,000,
of which $3,600,000 are used for the payment of other borrowed funds. If
the Underwriters' over-allotment option is exercised in full, 204,545
shares of Common Stock would be sold by the Company resulting in net
proceeds to the Company from the Offering of $14,221,000.

19
<PAGE>

DIVIDEND POLICY

Holders of Common Stock are entitled to receive dividends when, as and if
declared by the Company's Board of Directors out of funds legally available
therefor. During 1998, 1997 and 1996, the Company declared and paid cash
dividends per share on its Common Stock as follows:

<TABLE>
<CAPTION>
FOR THREE MONTH PERIOD ENDED DATE PAID DIVIDENDS PER SHARE
---------------------------- --------------- -------------------
<S> <C> <C>
September 30, 1998....................... October 9, 1998 $.0300
<CAPTION>
FOR SIX MONTH PERIOD ENDED
--------------------------
<S> <C> <C>
June 30, 1998............................ July 1, 1998 .0567
December 31, 1997........................ January 2, 1998 .0547
June 30, 1997............................ July 1, 1997 .0462
December 31, 1996........................ January 2, 1997 .0462
June 30, 1996............................ July 1, 1996 .0461
</TABLE>

The Company began the regular payment of quarterly cash dividends on the
Common Stock in the third quarter of 1998. However, continued payment of
dividends is subject to the discretion of the Company's Board of Directors. In
determining whether to make dividend payments and in establishing the amount
of any dividends to be paid, the Board will consider the Company's earnings,
capital requirements and financial condition, prospects for future earnings,
federal economic and regulatory policies, general business conditions and
other relevant factors, certain of which are beyond the control of the
Company. See "Supervision and Regulation" and "Description of Capital Stock."

The primary source of funds for dividends paid by the Company to its
shareholders is the dividend income received from the Bank. There are certain
restrictions on the payment of such dividends imposed by federal and state
banking laws, regulations and authorities. Under Mississippi law, the payment
of dividends by the Bank must be approved by the Mississippi Department of
Banking and Consumer Finance. The FDIC also has the authority to regulate the
payment of dividends and to prohibit a regulated depository institution from
engaging in what in such agency's opinion constitutes an unsafe or unsound
practice for conducting business. Depending upon the financial condition of
the depository institution, payment of dividends could be deemed to constitute
such an unsafe or unsound practice. In addition, a depository institution may
not pay a dividend or otherwise make a capital distribution if the payment
thereof would cause such institution to fail to satisfy its capital
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Capital" and "Supervision and Regulation--The
Bank."

Although management believes that the Bank will be able to generate
sufficient earnings to pay dividends to the Company in amounts sufficient to
continue the Company's current dividend policy with respect to the Common
Stock, there can be no assurance that the Bank will be able to generate such
earnings or to pay such dividends in the future.

20
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth certain financial information for the Company
on a consolidated historical basis. Such information should be read in
conjunction with, and is qualified in its entirety by, the consolidated
financial statements and notes appearing elsewhere in this Prospectus. The
selected financial information of the Company as of and for the years ended
December 31, 1997, 1996 and 1995, has been derived from the consolidated
financial statements of the Company audited by Ernst & Young LLP, independent
auditors, whose report with respect thereto is included elsewhere in this
Prospectus. The selected financial information of the Company as of and for
the years ended December 31, 1994 and 1993, has been derived from the
consolidated financial statements of the Company audited by McArthur, Thames,
Slay and Dews, PLLC, independent auditors. The selected financial and
operating information for the nine months ended September 30, 1998 and 1997
has been derived from the unaudited consolidated financial statements of the
Company included elsewhere in this Prospectus. The unaudited consolidated
financial statements include all adjustments (consisting of normal recurring
adjustments) which management of the Company considers necessary for a fair
presentation of the consolidated financial position and the results of
operations for these periods. Operating results for the nine months ended
September 30, 1998, are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1998. Factors affecting the
comparability of certain indicated periods are discussed below under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of the Company's balance sheets and
statements of income. This section should be read in conjunction with the
Company's Consolidated Financial Statements and accompanying Notes and other
detailed information appearing elsewhere in this Prospectus.

This discussion includes various forward-looking statements with respect to
credit quality (including delinquency trends and the allowance for loan
losses), corporate objectives and other financial and business matters. When
used in this discussion the words "anticipate," "project," "expect,"
"believe," and similar expressions are intended to identify forward-looking
statements. The Company cautions that these forward-looking statements are
subject to numerous assumptions, risks and uncertainties, all of which may
change over time. Actual results could differ materially from forward-looking
statements.

In addition to factors disclosed by the Company elsewhere in this
Prospectus, including those discussed under the heading "Risk Factors," the
following factors, among others, could cause actual results to differ
materially from such forward-looking statements: exposure to local economic
conditions, interest rate risk, credit quality, risks inherent in consumer and
commercial lending, competition, the extent and timing of legislative and
regulatory actions and reforms and the Year 2000 issue.

OVERVIEW

Since 1995, the Company's net income, earning assets and deposits have
increased substantially. Net income grew 32.1% from $1.8 million in the first
nine months of 1997 to $2.4 million in the first nine months of 1998. Net
income increased 37.6% from $1.5 million in 1995 to $2.0 million in 1996 and
increased 15.3% to $2.3 million in 1997. Total loans rose 58.0% from $119.6
million at December 31, 1995 to $188.9 million at September 30, 1998. Total
securities increased 173.1% from $33.0 million at December 31, 1995 to $90.2
million at September 30, 1998. Total deposits increased 77.2% from $156.6
million at December 31, 1995 to $277.6 million at September 30, 1998.

The growth in net income has been caused primarily by higher income
resulting from increased volume in earning assets. Loans have increased
because of greater market penetration and strong loan demand in the Company's
market area due to economic growth. Securities have risen because of
additional funds available for investment resulting from increased deposits
and other borrowed funds. Deposits increased because of the Company's
strategies to attract new deposits and strong economic growth in the region.
The rise in net income has been partially offset by a decline in the net
interest margin from 4.50% for 1995 to 3.65% for the nine months ended
September 30, 1998.

The Company expects continued growth to result from the Company's plan to
increase its presence in the Hattiesburg market area through additional
banking centers and from competitive advantages arising out of the acquisition
of local banks by regional banks.

22
<PAGE>

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

RESULTS OF OPERATIONS

NET INTEREST INCOME

The principal source of the Company's revenue is net interest income. Net
interest income is the difference between interest income on interest-earning
assets, principally loans and investment securities, and the interest expense
on interest-bearing deposits and borrowings used to fund those assets. Net
interest income is impacted by both changes in the amount and composition of
interest-earning assets and interest-bearing liabilities and the level of
interest rates. The change in net interest income is typically measured by net
interest spread and net interest margin. Net interest spread is the difference
between the average yield on interest-earning assets and the average cost of
interest-bearing liabilities. Net interest margin is determined by dividing
net interest income by average interest-earning assets.

Net interest income increased 14.8% in 1997 as compared to 1996, following a
14.1% increase in 1996 as compared to 1995. The increase in 1997 is
attributable to an increase in the Company's average interest-earning assets
of 20.7%, principally in the loan and investment securities portfolios.
Interest-bearing liabilities and average cost of interest-bearing liabilities
also increased limiting the growth of net interest income. The increase in
1996 was due to growth in the average interest-earning assets of 16.3%,
principally in the consumer and commercial loan portfolios. See "--Loan
Portfolio."

During 1997, average interest-bearing liabilities increased $34.7 million to
$193.4 million, an increase of 21.8% over 1996. This was primarily from
increases in other borrowed funds, time deposits and transaction accounts. In
1996, average interest-bearing liabilities increased 16.7% to $158.7 million.
This increase of $22.8 million was primarily in time deposits and transaction
accounts.

The Company's net interest margin was 4.20% in 1997, 4.41% in 1996 and 4.50%
in 1995. The reduction in net interest margin in 1997 from 1996 resulted from
a decrease in yield on interest-earning assets of 0.05% while the Company's
cost of interest-bearing liabilities increased 0.14%. The net reduction in net
interest margin in 1996 as compared to 1995 resulted from an increase in yield
on interest-earning assets of 0.01% offset by an increase in cost of interest-
bearing liabilities of 0.09%.

The net interest margin may be negatively impacted by the interest rate
environment and changes in the earning asset mix and deposit funding fix.
Approximately $10.0 million of the Company's other borrowings from the FHLB
are adjustable rate advances and are subject to changes in market interest
rates. Increased rates may negatively impact the Company's borrowing and
deposit funding costs.

23
<PAGE>

Table 1 provides detailed information as to average balances, interest
income/expense, and rates by major balance sheet category for years ended
December 31, 1997 through 1995.

TABLE 1--AVERAGE BALANCE SHEETS AND RATES FOR DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- --------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- ------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
EARNING ASSETS:
U.S. Treasury securities
and obligations of U.S.
agencies............... $ 22,110 $1,493 6.75% $ 9,875 $ 583 5.90% $ 8,548 $ 560 6.55%
Obligations of state and
political
subdivisions (1)....... 24,139 1,844 7.64 23,751 1,850 7.79 20,941 1,667 7.96
Mortgage-backed
securities............. 5,985 399 6.66 5,885 361 6.13 6,320 426 6.74
Federal Home Loan Bank
stock.................. 818 52 6.36 511 31 6.07 361 24 6.65
Federal funds sold...... 5,478 297 5.42 3,836 204 5.32 4,578 274 5.99
Total loan and fees..... 153,656 15,984 10.40 131,956 13,790 10.45 110,389 11,519 10.43
-------- ------ -------- ------ -------- ------
TOTAL EARNING ASSETS
(1).................... 212,186 20,069 9.46 175,814 16,819 9.57 151,137 14,470 9.57
Less: Allowance for loan
losses................. (3,020) (2,767) (2,494)
NON-EARNING ASSETS
Cash and due from
banks.................. 7,915 7,732 6,810
Premises and equipment,
net.................... 6,476 5,399 4,429
Other assets............ 6,043 4,687 4,073
-------- -------- --------
TOTAL ASSETS............ $229,600 $190,865 $163,955
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
INTEREST BEARING
LIABILITIES:
Transaction accounts.... $ 53,344 2,387 4.47 $ 44,394 1,944 4.38 $ 35,384 1,414 4.00
Savings accounts........ 8,881 243 2.74 8,763 249 2.84 8,447 250 2.96
Time deposits........... 120,269 7,169 5.96 104,129 6,165 5.92 91,809 5,419 5.90
Other borrowed funds.... 10,866 737 6.78 1,418 71 5.01 311 17 5.47
-------- ------ -------- ------ -------- ------
TOTAL INTEREST BEARING
LIABILITIES............ 193,360 10,536 5.45 158,704 8,429 5.31 135,951 7,100 5.22
------ ----- ------ ----- ------ -----
NON-INTEREST BEARING
LIABILITIES:
Non-interest bearing
deposits............... 19,524 17,721 16,015
Other liabilities....... 1,813 1,669 1,116
Stockholders' equity.... 14,903 12,771 10,873
-------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $229,600 $190,865 $163,955
======== ======== ========
Net interest income
(1).................... $9,533 $8,390 $7,370
====== ====== ======
Net interest spread
(1).................... 4.01% 4.26% 4.35%
===== ===== =====
Net interest margin
(1).................... 4.49% 4.77% 4.88%
===== ===== =====
</TABLE>
- --------
Note: Calculations include non-accruing loans in the average loan amounts
outstanding.

(1) The interest earned on non-taxable securities is reflected on a tax
equivalent basis assuming a federal income tax rate of 34% for all
periods presented.

24
<PAGE>

Table 2 presents the extent to which changes in interest rates and changes
in the volume of interest-earning assets and interest-bearing liabilities
affected the Company's interest income and interest expense during the years
indicated. Information is provided in each category with respect to: (1)
changes attributable to changes in volume; (2) changes attributable to changes
in rate; and (3) net change.

TABLE 2--VOLUME/RATE VARIANCE ANALYSIS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
COMPARED TO COMPARED TO
YEAR ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31, 1995
--------------------------------- --------------------------------
INCREASE/(DECREASE) INCREASE/(DECREASE)
DUE TO DUE TO
--------------------------------- --------------------------------
TOTAL NET TOTAL NET
CHANGE VOLUME RATE CHANGE VOLUME RATE
------------ ---------- -------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME(1):
U.S. Treasury securities
and obligations of U.S.
agencies............... $ 910 $ 826 $ 84 $ 23 $ 78 $ (55)
Obligations of state and
political
subdivisions........... (6) 30 (36) 183 219 (36)
Mortgage-backed
securities............. 38 7 31 (65) (27) (38)
Federal Home Loan Bank
stock.................. 21 20 1 7 10 (3)
Federal funds sold...... 93 89 4 (70) (40) (30)
Total loans and fees.... 2,194 2,257 (63) 2,271 2,254 17
---------- ---------- -------- --------- --------- --------
TOTAL INCREASE
(DECREASE) IN INTEREST
INCOME................. 3,250 3,229 21 2,349 2,494 (145)
INTEREST EXPENSE:
Interest bearing
liabilities:
Transaction accounts.... 443 401 42 530 395 135
Saving accounts......... (6) 3 (9) (1) 9 (10)
Time deposits........... 1,004 962 42 746 729 17
Other borrowed funds.... 666 641 25 54 55 (1)
---------- ---------- -------- --------- --------- --------
TOTAL INCREASE IN
INTEREST EXPENSE....... 2,107 2,007 100 1,329 1,188 141
---------- ---------- -------- --------- --------- --------
INCREASE (DECREASE) IN
NET INTEREST INCOME.... $ 1,143 $ 1,222 $ (79) $ 1,020 $ 1,306 $ (286)
========== ========== ======== ========= ========= ========
</TABLE>
- --------
(1) Interest income for loans on non-accrual status has been excluded from
interest income.

25
<PAGE>

NON-INTEREST INCOME

Table 3 illustrates the Company's primary sources of non-interest income.
Non-interest income increased 15.7% to $2.7 million in 1997 from $2.3 million
in 1996. The non-interest income for 1996 increased $574,000 or 32.8% from
$1.8 million in 1995.

TABLE 3--ANALYSIS OF NON-INTEREST INCOME

<TABLE>
<CAPTION>
PERCENT
INCREASE
YEAR ENDED DECEMBER 31, (DECREASE)
----------------------- ---------------
1997 1996 1995 1997/96 1996/95
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts.... $ 1,670 $ 1,519 $ 1,075 9.9% 41.3%
Mortgage loan fees..................... 362 260 226 39.2 15.0
Commissions on credit life insurance... 391 320 269 22.2 19.0
Other operating income................. 266 226 181 17.7 24.9
------- ------- -------
Total.................................. $ 2,689 $ 2,325 $ 1,751 15.7 32.8
======= ======= =======
</TABLE>

Service charges on deposit accounts increased in 1997 as compared to 1996
and in 1996 as compared to 1995 from increased quantity of transaction
accounts. In addition, in 1995 the Company increased the fee structure for
service charges on deposit accounts.

Mortgage loan fees from 1995 to 1997 has been positively influenced by
increases in secondary market residential loan originations due to
historically low mortgage rates.

Increases in commissions on credit life insurance in 1997 as compared to
1996 and in 1996 as compared to 1995 were due to increased loan originations.

NON-INTEREST EXPENSE

As shown in Table 4, total non-interest expense increased by 11.4% to $7.7
million in 1997, as compared to $6.9 million in 1996. The non-interest expense
in 1996 increased $744,000 or 12.1% over the $6.1 million in 1995.

Non-interest expense levels are often measured using an efficiency ratio
(non-interest expense divided by the sum of net interest income and non-
interest income). The efficiency ratio measures the level of expense required
to generate one dollar of revenue. Improvement in the ratio is measured by a
reduction in the percentage reported. The Company's efficiency ratios for
1997, 1996 and 1995 were 66.2%, 68.3% and 71.8%, respectively.

TABLE 4--ANALYSIS OF NON-INTEREST EXPENSE

<TABLE>
<CAPTION>
PERCENT
INCREASE
YEAR ENDED DECEMBER 31, (DECREASE)
----------------------- ---------------
1997 1996 1995 1997/96 1996/95
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits......... $ 4,173 $ 3,595 $ 3,068 16.1% 17.2%
Occupancy expense...................... 610 504 439 21.0 14.8
Furniture and equipment expense........ 878 787 780 11.6 0.9
Other operating expenses............... 2,016 2,004 1,859 0.6 7.8
------- ------- -------
Total.................................. $ 7,677 $ 6,890 $ 6,146 11.4 12.1
======= ======= =======
</TABLE>

26
<PAGE>

Salary and employee benefits expense increased $578,000 or 16.1% in 1997 as
compared to 1996. The increase reflects the cost of staffing MSI, which began
operations in January of 1997, and additional staffing for the Purvis banking
branch in December of 1996. Salary and employee benefit expense increased
$527,000 or 17.2% in 1996 as compared to 1995. The increase in 1996 is due in
part to the cost of staffing the Petal banking branch, which opened in May of
1996. In addition, these increases also reflect annual cost of living and
merit increases for all employees.

Occupancy expenses rose $106,000 or 21.0% in 1997 as compared to 1996 and
$65,000 or 14.8% in 1996 as compared to 1995. These increases were primarily
due to additional depreciation and building maintenance expenses attributable
to the Purvis and Petal banking branches.

Furniture and equipment expense increased $91,000 or 11.6% for 1997 from
$787,000 in 1996. The increases were primarily due to depreciation and
equipment maintenance expenses related to additional furniture and equipment
for the Purvis and Petal banking branches.

Marketing and development expenses increased 26.2% in 1997 as compared to
1996, following a 19.2% increase in 1996 as compared to 1995. The increases
primarily resulted from increased advertising and promotional expenditures
incurred to increase the number of loan and deposit customers. Marketing
expenses can fluctuate from year to year based upon the timing and scope of
various marketing initiatives.

Insurance expenses decreased 40.8% in 1997 as compared to 1996 and 31.6% in
1996 as compared to 1995. FDIC deposit insurance expense decreased principally
as a result of the federally mandated one-time assessment on the Bank's
deposits insured in the FDIC's Savings Association Insurance Fund (SAIF). The
1996 federal legislation which mandated the one-time assessment provided for a
future ongoing reduction in the FDIC's insurance rate premiums on SAIF
insurance deposits. The Company benefited from a reduction of the FDIC's
overall insurance rate premium charges that was partially offset by the one-
time charge.

INCOME TAX EXPENSE

The Company's effective income tax rate increased from 22.1% in 1995 to
23.2% in 1996 to 26.7% in 1997. The increase in the effective income tax rate
is primarily attributable to a decrease in non-taxable income as a percentage
of pretax income.

FINANCIAL CONDITION

LOAN PORTFOLIO

The Company continued to experience loan growth throughout its markets in
1997 and 1996. Total loans increased 13.2% to $166.1 million at December 31,
1997, compared to $146.8 million at December 31, 1996. The increase in loans
in 1996 was $21.2 million or 16.9% as compared to 1995.

The Company's real estate loan portfolio increased 11.9% to $88.6 million at
December 31, 1997 from $79.2 million at December 31, 1996. In 1996, the real
estate portfolio increased $7.4 million or 10.3% from December 31, 1995. The
Company's increased real estate loan demand has been principally for
residential mortgages in the Bank's market areas. Residential loans increased
$7.3 million from December 31, 1996 to December 31, 1997 and $6.9 million from
December 31, 1995 to December 31, 1996. As a result of this increased loan
demand, the Company has hired additional lending personnel. In addition,
emphasis has also been placed on acquiring the deposit relationships from
these loan customers.

The Company's commercial loans increased by 16.2% to $25.6 million at
December 31, 1997 from $22.0 million at December 31, 1996. The increase in
commercial loans was $4.9 million or 28.7% at December 31, 1996 as compared to
December 31, 1995. The increases in commercial loans have been principally due
to increased economic activities in the Company's market areas.

27
<PAGE>

The Company's consumer loans increased to $52.0 million, including $5.4
million from SFSI, at December 31, 1997 from $45.6 million, including $5.2
million from SFSI at December 31, 1996. The increase in consumer loans was
$8.9 million or 24.2% from 1995 to 1996. These increases are attributable to
increased customer demands and the Company's marketing efforts to increase the
number of consumer loan customers. Substantially all of the consumer loan
portfolio consists of secured loans, the majority of which are collateralized
by automobiles and personal property.

TABLE 5--LOANS BY TYPE

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real estate:
Residential........................ $ 55,406 $ 48,062 $ 41,151 $ 36,005 $29,382
Mortgage loans held for sale....... 421 361 1,245 574 1,086
Construction....................... 4,226 4,680 4,479 6,428 2,706
Commercial......................... 28,591 26,125 24,946 22,291 21,244
Consumer............................ 51,965 45,555 36,678 33,668 27,626
Commercial.......................... 25,556 21,992 17,082 9,132 7,489
-------- -------- -------- -------- -------
Total Loans......................... $166,165 $146,775 $125,581 $108,098 $89,533
======== ======== ======== ======== =======
</TABLE>

The table below illustrates the Company's fixed rate maturities and
repricing frequency for the loan portfolio:

TABLE 6--SELECTED LOAN DISTRIBUTION

<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------
ONE OVER ONE OVER
YEAR THROUGH FIVE
TOTAL OR LESS FIVE YEARS YEARS
-------- ------- ---------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed rate maturities....................... $158,328 $84,271 $68,307 $5,750
Variable rate repricing frequency........... 7,837 4,486 2,026 1,325
-------- ------- ------- ------
Total....................................... $166,165 $88,757 $70,333 $7,075
======== ======= ======= ======
</TABLE>

At December 31, 1997, 95.3% of the Company's loans had fixed rate
maturities. Of the fixed rate portfolio, 30.1% of those loans have maturities
of one year or less when originated or renewed. Such maturities allow the
Company to reprice its portfolio frequently.

ALLOWANCE AND PROVISION FOR LOAN LOSSES

The allowance for loan losses is regularly evaluated by management and
approved by the Board of Directors and is maintained at a level believed to be
adequate to absorb future loan losses in the Company's portfolio. The
provision for loan losses is determined in part using an internal watch list
developed by a review of essentially all loans by management. Loans are
assigned a rating based on credit quality as determined by the borrower's
payment history, the financial strength of the borrower or guarantor as
measured by the balance sheet, earnings and cash flow quality, collateral
values and the liquidity and quality of the collateral and assets of the
borrower. Loans with a deterioration of credit quality are placed on the watch
list. The provision for loan losses pertaining to the rated loans is
determined by the amount of loans on the watch list and an allocation for
loans that are not on the watch list based on the Company's historical charge
off percentage. In addition, management considers the potential adverse impact
of the economic trends in the Company's trade area on certain borrowers that
are in cyclical businesses and the loan growth resulting from new loan
customers. Management believes that the allowance for loan losses at December
31, 1997 was adequate. Although management believes it uses the best
information available to make allowance provisions, future adjustments which
could be material may be necessary if management's assumptions differ from the
loan portfolio's actual future performance.

28
<PAGE>

The allowance for loan losses increased $264,000 to $3.1 million from
December 31, 1996 to December 31, 1997. The increase is primarily attributable
to an increase in the volume of loans. The Company's allowance for loan losses
to total loan ratio decreased from 2.01% at December 1995 to 1.93% at December
31, 1996 to 1.87% at December 31, 1997.

Net charge-offs were $461,000 during 1997 compared to $249,000 and $415,000
for 1996 and 1995, respectively. Of these net charge-offs, for the same years,
$151,000, $88,000 and $245,000, respectively, pertained to SFSI. The Company's
consumer loan portfolio accounted for 59.2%, 16.5% and 84.1% of net loan
charge-offs for the years ended December 31, 1997, 1996 and 1995,
respectively.

TABLE 7--SUMMARY OF LOAN LOSS EXPERIENCE

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at beginning
of year............................... $2,837 $2,529 $2,427 $2,140 $1,700
Charge-offs:
Real Estate.......................... -- (50) (28) -- (52)
Consumer............................. (400) (270) (516) (120) (187)
Commercial........................... (238) (168) (88) (370) (118)
------ ------ ------ ------ ------
Total.............................. (638) (488) (632) (490) (357)
Recoveries:
Real Estate.......................... 10 -- 4 14 114
Consumer............................. 127 229 167 34 21
Commercial........................... 40 10 46 91 82
------ ------ ------ ------ ------
Total.............................. 177 239 217 139 217
------ ------ ------ ------ ------
Net loan charge-offs................... (461) (249) (415) (351) (140)
Provision for loan losses.............. 725 557 517 638 580
------ ------ ------ ------ ------
Allowance for loan losses at end of
year.................................. $3,101 $2,837 $2,529 $2,427 $2,140
====== ====== ====== ====== ======
Ratios:
Allowance for loan losses to total
loans............................... 1.87% 1.93% 2.01% 2.25% 2.39%
Net loan charge-offs to average loans
outstanding for the year............ 0.30 0.19 0.38 0.36 0.17
Allowance for loan losses to non-
performing loans.................... 777 360 295 366 571
</TABLE>

The following table is management's allocation of the allowance for loan
losses by loan type. Allowance allocation is based on management's assessment
of economic conditions, past loss experience, loan volume, loan quality, past
due history and other factors. Since these factors are subject to change, the
allocation is not necessarily predictive of future portfolio performance.

TABLE 8--MANAGEMENT'S ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ ------------------ ------------------ ------------------ ------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
ALLOCATED TO TOTAL ALLOCATED TO TOTAL ALLOCATED TO TOTAL ALLOCATED TO TOTAL ALLOCATED TO TOTAL
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate............. $ 936 53.3% $ 881 54.0% $ 817 57.2% $ 754 60.4% $ 583 60.8%
Consumer................ 1,355 31.3 1,293 31.0 1,268 29.2 925 31.2 739 30.8
Commercial.............. 546 15.4 357 15.0 160 13.6 122 8.4 201 8.4
Unallocated............. 264 -- 306 -- 284 -- 626 -- 617 --
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total................... $3,101 100.0% $2,837 100.0% $2,529 100.0% $2,427 100.0% $2,140 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>

29
<PAGE>

ASSET QUALITY

Loans (including any impaired loans under SFAS 114 and 118) are placed on
non-accrual status when they become past due 90 days or more as to principal
or interest, unless they are adequately secured and in the process of
collection. When loans are placed on non-accrual status, all unpaid accrued
interest is reversed. These loans remain on non-accrual status until the
borrower demonstrates the ability to remain current or the loan is deemed
uncollectible and is charged off. SFSI consumer loans are charged off when
they reach 120 days past due.

Table 9 provides information related to non-performing assets and loans 90
days or more past due. Accruing loans contractually 90 days or more past due
decreased slightly from $387,000 at December 31, 1996, to $252,000 at December
31, 1997. Should the underlying collateral be determined to be insufficient to
satisfy the obligation, the loan is classified and the Company's allowance is
increased accordingly. Historically, the Company's security in residential
loans has been adequate and has acted to limit the Company's exposure to loss.
Loans on non-accrual status decreased from $400,000 to $147,000 from December
31, 1996 to December 31, 1997.

TABLE 9--NON-PERFORMING ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996 1995 1994 1993
---- ------ ------ ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans on non-accrual status(1)(2)........... $147 $ 400 $ 645 $313 $ 3
Loans past due 90 days or more.............. 252 387 211 351 372
---- ------ ------ ---- ----
Total non-performing loans.................. 399 787 856 664 375
Other real estate owned..................... 411 767 309 157 244
---- ------ ------ ---- ----
Total non-performing assets................. $810 $1,554 $1,165 $821 $619
==== ====== ====== ==== ====
Percentage of non-performing loans to total
loans...................................... 0.24% 0.54% 0.68% 0.61% 0.42%
Percentage of non-performing assets to total
loans...................................... 0.49 1.06 0.93 0.76 0.69
</TABLE>
- --------
(1) There were no impaired loans for the years indicated.
(2) The interest income that would have been earned and received on non-
accrual loans was not material.

INVESTMENT SECURITIES

The investment securities portfolio consists of U.S. Treasury securities,
obligations of U.S. government agencies, obligations of states and political
subdivisions and mortgage-backed securities (MBS). MBS consist of 15 year and
30 year fixed and 7 year balloon mortgage securities, underwritten and
guaranteed by FNMA, FHLMC and GNMA, government-sponsored agencies.

Securities, including those classified as held to maturity and available for
sale, increased from $33.0 million at December 31, 1995 to $41.6 million at
December 31, 1996, to $58.9 million at December 31, 1997.

30
<PAGE>

TABLE 10--DEBT SECURITIES AVAILABLE FOR SALE

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------
AVERAGE WEIGHTED
CARRYING ESTIMATED MATURITY AVERAGE
VALUE FAIR VALUE IN YEARS YIELD
-------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U. S. Treasury securities and obliga-
tions of U.S. government agencies:
Over one through five years.......... $ 2,755 $ 2,755 2.6 6.39%
Over five through ten years.......... 16,906 16,906 8.10 7.22
Over ten years....................... 4,035 4,035 14.8 7.50
------- -------
Total.............................. 23,696 23,696 7.17
Obligations of states and political
subdivision:
Within one year...................... 437 437 0.5 9.20(1)
Over one through five years.......... 2,452 2,452 3.5 6.98(1)
Over five through ten years.......... 5,036 5,036 7.8 7.70(1)
Over ten years....................... 1,833 1,833 12.3 8.23(1)
------- -------
Total.............................. 9,758 9,758 7.68(1)
Mortgage-backed securities............. 3,356 3,356 7.51
------- -------
Total debt securities available for
sale.................................. $36,810 $36,810
======= =======
</TABLE>

TABLE 11--DEBT SECURITIES HELD TO MATURITY

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------
AVERAGE WEIGHTED
CARRYING ESTIMATED MATURITY AVERAGE
VALUE FAIR VALUE IN YEARS YIELD
-------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U. S. Treasury securities and obliga-
tions of U.S. government agencies:
Over one through five years.......... $ 4,413 $ 4,393 2.8 5.87%
Over five through ten years.......... 498 501 5.7 5.81
------- -------
Total.............................. 4,911 4,894 5.86
Obligations of states and political
subdivisions:
Within one year...................... 1,675 1,685 0.5 8.67(1)
Over one through five years.......... 5,968 5,987 3.1 7.11(1)
Over five through ten years.......... 4,713 4,721 7.4 7.44(1)
Over ten years....................... 2,557 2,581 12.7 8.27(1)
------- -------
Total.............................. 14,913 14,974 7.55(1)
Mortgage-backed securities............. 2,287 2,335 7.52
------- -------
Total debt securities held to maturi-
ty.................................... $22,111 $22,203
======= =======
</TABLE>
- --------
(1) The weighted average yield on non-taxable securities is reflected on a
tax equivalent basis assuming a federal income tax rate of 34% for all
periods presented.

31
<PAGE>

TABLE 11A--ANALYSIS OF DEBT SECURITIES

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury securities and obligations of U.S. gov-
ernment agencies..................................... $23,696 $ 5,118 $ 4,342
Obligations of states and political subdivision....... 9,758 10,740 11,494
Mortgage-backed securities............................ 3,356 2,802 817
------- ------- -------
Total debt securities available for sale.............. $36,810 $18,660 $16,653
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury securities and obligations of U.S. gov-
ernment agencies..................................... $ 4,911 $ 5,658 $ 2,284
Obligations of states and political subdivision....... 14,913 13,697 12,175
Mortgage-backed securities............................ 2,287 3,547 1,925
------- ------- -------
Total debt securities held to maturity................ $22,111 $22,902 $16,384
======= ======= =======
</TABLE>

DEPOSITS

Total deposits increased from $185.4 million at December 31, 1996 to $211.5
million at December 31, 1997. Of that increase, time deposits increased by
$16.8 million from 1996 to 1997. Management continues to seek retail and
commercial deposits through its marketing initiatives for transaction and
savings accounts and competitive rates for time deposits. As of December 31,
1997, public funds deposits totaled $25.1 million or 11.9% of total deposits.
These deposits are considered to be a stable source of funds and are targeted
in the Company's deposit marketing initiatives.

TABLE 12--DEPOSITS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Demand (NOW, SuperNOW and Money Market)...................... $ 50,765 $ 46,610
Savings...................................................... 8,877 8,384
Individual retirement accounts............................... 11,058 9,654
Time deposits, $100,000 and over............................. 35,635 29,329
Other time deposits.......................................... 81,112 70,657
-------- --------
Total interest bearing deposits.............................. 187,447 164,634
Total non-interest bearing deposits.......................... 24,051 20,770
-------- --------
Total........................................................ $211,498 $185,404
======== ========
</TABLE>

TABLE 13--MATURITY OF TIME DEPOSITS $100,000 AND OVER

<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Three months or less............................................. $ 8,058
Over three months through six months............................. 4,962
Over six months through twelve months............................ 6,340
Over twelve months............................................... 16,275
-------
Total............................................................ $35,635
=======
</TABLE>

32
<PAGE>

OTHER BORROWED FUNDS

Other borrowed funds from the FHLB, Bank of America and BancOne, formerly
First National Bank of Commerce, increased from $7.0 million at December 31,
1996, to $17.6 million at December 31, 1997. The $10.0 million borrowed from
the FHLB was used to purchase debt securities resulting in a favorable
interest rate spread. A $5.0 million revolving line of credit ($4.0 million
outstanding at December 31, 1997) was obtained from Bank of America during
1997 to finance part of the consumer loan portfolio of SFSI. Prior to
obtaining this line of credit, SFSI's funding was provided by the Bank. The
$4.0 million ($3.6 million at December 31, 1997) from BancOne was used to
capitalize MSI and to provide additional equity capital to the Bank.
Additional borrowings above current levels will be evaluated by management,
with consideration given to the growth of the Bank's loan portfolio, liquidity
needs, cost of retail deposits, market conditions, and other factors.

LIQUIDITY

The Company maintains sufficient liquidity to fund loan demand, deposit
withdrawals and debt repayments. Liquidity is managed by retaining sufficient
liquid assets in the form of cash and cash equivalents and core deposits to
meet such demand. Funding and cash flows can also be realized from the
investment securities portfolio and pay downs from the loan portfolio. The
Bank also provides access to the retail deposit market. In addition, the
Company has funds available under a line of credit, federal funds lines and
additional FHLB borrowings to address liquidity needs.

The Company's objectives include preserving an adequate liquidity position.
Asset/liability management is designed to ensure safety and soundness,
maintain liquidity and regulatory capital standards, and achieve an acceptable
net interest margin. The Company continues to experience strong loan demand
and management continues to monitor interest rate and liquidity risks while
implementing appropriate funding and balance sheet strategies.

Net cash provided by operating activities and deposits from customers have
historically been primary sources of liquidity for the Company. Net cash
provided by operating activities totaled $3.6 million, $4.0 million and $2.3
million in 1997, 1996 and 1995, respectively, and $1.1 million for the nine
months ended September 30, 1998. The net cash provided by increases in
deposits was $26.1 million, $28.8 million and $17.4 million in 1997, 1996 and
1995, respectively, and $66.1 million for the nine months ended September 30,
1998. Net cash used in investing activities has been primarily for funding the
net increase in loans of $19.9 million, $22.8 million and $16.5 million in
1997, 1996 and 1995, respectively, and in securities of $16.9 million,
$8.8 million and $.9 million in 1997, 1996 and 1995, respectively. The net
cash used in investing activities has been primarily for funding the net
increase in loans and securities of $28.5 million and $30.9 million,
respectively in the nine months ended September 30, 1998. The Company also had
net bank borrowings of $6.6 million in 1997 and $7.0 million in 1996. There
were no net bank borrowings in 1995 and the nine months ended September 30,
1998.

CAPITAL

Regulatory agencies measure capital adequacy within a framework that makes
capital requirements, in part, dependent on the individual risk profiles of
financial institutions. The Company improved its capital position during 1997
due to the increased retained earnings achieved during the year. The Company's
capital to average assets ratio was 7.04% at December 31, 1997 as compared to
7.06% at December 31, 1996. At December 31, 1997, the Company exceeded the
Federal Reserve Board's regulatory definition of a "well capitalized"
institution. See Note 10 to the Consolidated Financial Statements.

ASSET/LIABILITY MANAGEMENT AND MARKET RISK

Asset/liability management control is designed to ensure safety and
soundness, maintain liquidity and regulatory capital standards, and achieve
acceptable net interest income. Management considers interest rate risk to be
the Company's most significant market risk. Interest rate risk is the exposure
to adverse changes in the net interest income as a result of market
fluctuations in interest rates.

Management regularly monitors interest rate risk in relation to prospective
market and business conditions. The Company's Board of Directors sets policy
guidelines establishing maximum limits on the Company's interest rate risk
exposure. Management monitors and adjusts exposure to interest rate
fluctuations as influenced by the Company's loan, investment and deposit
portfolios.

33
<PAGE>

The Company uses an earnings simulation model to analyze net interest income
sensitivity. Potential changes in market interest rates and their subsequent
effect on interest income are then evaluated. The model projects the effect of
instantaneous movements in interest rates of 200 basis points. Assumptions
based on the historical behavior of the Company's deposit rates and balances
in relation to changes in interest rates are also incorporated into the model.
These assumptions are inherently uncertain, and as a result, the model cannot
precisely measure net interest income or precisely predict the impact of
fluctuations in market interest rates on net interest income. Actual results
will differ from the model's simulated results due to timing, magnitude and
frequency of interest rate changes, as well as changes in market conditions
and the application of various management strategies.

Interest rate risk management focuses on maintaining acceptable net interest
income within policy limits approved by the Board of Directors. The Company's
Board of Directors monitors and manages interest rate risk to maintain an
acceptable level of change to net interest income resulting from market
interest rate changes. The Company's interest rate risk policy, as approved by
the Board of Directors, is stated in terms of the change in net interest
income given a 200 basis point immediate and sustained increase or decrease in
market interest rates. The current limits approved by the Board of Directors
are plus or minus 10% of net interest income for a 200 basis point movement.

In 1996, the Company's Board of Directors determined that interest rates
were likely to decline and that this decline could cause net interest income
to fall outside of the 10% range established in the asset/liability policy
because the yield on loans would be adversely affected more than on other
earning assets or the cost of interest bearing liabilities. As a result, in
August of 1996 and January of 1997, the Company purchased interest rate
"floors" in a notional amount of $20 million, which effectively converted
approximately 12% of the Company's loans at December 31, 1997 to a minimum
fixed rate basis. A premium of $258,500 was paid for the floors and is being
amortized over the three-year term. The index used is the three-month LIBOR
rate with a 6% floor rate. The three-month LIBOR rate was 5.25% at September
30, 1998. Through September 30, 1998, the Bank has amortized $169,445 of the
premium and received $124,645, which has been recognized as adjustments to net
interest income.

The following table illustrates the Company's estimated annualized earnings
sensitivity profile as of December 31, 1997:

TABLE 14--INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
DECREASE INCREASE
IN RATES-- IN RATES--
200 BASIS POINTS BASE 200 BASIS POINTS
---------------- ------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
PROJECTED INTEREST INCOME:
Loans................................. $18,864 $19,684 $26,814
Investment securities................. 4,422 4,666 4,982
Federal funds sold.................... 433 680 927
------- ------- -------
TOTAL INTEREST INCOME................. 23,719 25,030 26,723
PROJECTED INTEREST EXPENSE:
Deposits.............................. 11,635 12,658 13,718
Other borrowed funds.................. 957 1,211 1,465
------- ------- -------
TOTAL INTEREST EXPENSE................ 12,592 13,869 15,183
------- ------- -------
NET INTEREST INCOME................... $11,127 $11,161 $11,540
======= ======= =======
Change from base...................... $ (34) $ 379
% Change from base.................... (0.30)% 3.40%
</TABLE>

Given an immediate, sustained 200 basis point increase to the yield curve
used in the simulation model, it is estimated net interest income would
increase 3.40%. A 200 basis point immediate, sustained decrease to the yield
curve would decrease net interest income by an estimated 0.30%. These
potential changes in net interest income are within the policy guidelines
established by the Company's Board of Directors.

These interest rate sensitivity profiles of the Company at any point in time
will be affected by a number of factors. These factors include the mix of
interest sensitive assets and liabilities and may not be a precise measurement
of the effect of changing interest rates on the Company in the future.

34
<PAGE>

YEAR 2000

The Company continues to implement plans to address the Year 2000 issue. The
issue arises from the fact that many existing computer programs were written
to store only two digits of date-related information in order to more
efficiently handle and store data. Thus, the programs were unable to properly
distinguish between the year 1900 and the year 2000. The Company is in the
process of assessing and converting or replacing various programs, hardware
and instrumentation systems to make them Year 2000 compliant. The Company's
Year 2000 project is comprised of two components--business applications and
equipment.

In assessing the Year 2000 problem, the Company is examining its own
software and equipment, potential problems with borrowers, and potential
problems with government entities and others providing services to the
Company. In addition to computer equipment, the Company is assessing possible
problems with micro-processors embedded within operating equipment, such as
telecommunication equipment, vaults, security and alarm systems, and automated
teller machines. As to borrowers, the Company began assessing the impact of
the failure of a borrower's systems or a borrower's failure to comply with
debt covenant terms regarding Year 2000 issues on the credit quality of the
borrower's loan during 1998 by communicating with its significant existing and
new loan customers and assessing whether the customers need to include
potential remediation and/or replacement of systems as part of their Year 2000
program and when they will have that completed.

The Company's President is Chairman of its Year 2000 committee. The
Committee has developed an action plan to devote appropriate personnel
resources to achieve Year 2000 compliance in a timely manner. Such personnel
are working with the Company's Board of Directors and other members of
management in completing the plan. The Company is also subject to oversight by
the FDIC, the Federal Reserve Board and the Mississippi Department of Banking
and Finance with respect to Year 2000 compliance.

The Company has completed the Year 2000 awareness and assessment phases of
the plan and has entered into the remediation phase. Management expects the
implementation phase of the Year 2000 plan to be completed by December 31,
1998. Testing and any required corrective actions will be completed in the
fourth quarter of 1998 and in 1999. The Company had expended approximately
$62,500 through September 30, 1998 and projects the additional cost of
remediation will be from $62,500 to $87,500, of which $25,000 to $50,000 will
be incurred in 1999. To date, independent analysis of the Company's Year 2000
exposure has not been obtained. Approximately $60,000 to $70,000 is projected
to be capitalized because certain systems and equipment are being replaced and
these costs are associated with purchasing the new systems. Corrective actions
to make the Company's core operating systems Year 2000 compliant will be made
by the Company's software providers under existing licensing agreements with
the Company at no additional expense. These expenses could vary from current
estimates if the scope of the Company's Year 2000 remediation exceeds
management's projections.

The Year 2000 issue principally involves the installation of selected
software releases which are Year 2000 compliant. Certain of these
installations would have been scheduled for completion by the Year 2000 in the
normal course of business. The Year 2000 compliance of the Company's software
suppliers will be essential for the Company's successful implementation of its
Year 2000 objectives.

The Company is examining the Year 2000 issue's impact on services such as
payroll and investment securities operations that are provided by third
parties. Other vendors either have or will be contacted by Company personnel
by December 31, 1998 in order to evaluate their response capabilities and
readiness for Year 2000. Presently, the Company has no reason to believe that
its software providers, service providers and vendors will not be able to
adequately address the Year 2000 issue. To the extent the software providers',
service providers' and vendors' responses are not satisfactory, the Company
will consider new business relationships with alternate providers or vendors
as necessary and to the extent alternatives are available.

The Company is in the process of developing a contingency plan for Year 2000
issues, and intends to have such a plan established by March 31, 1999. The
planning effort includes critical Company areas such as operations, personnel,
network and business systems as well as systems external to the Company. The
plan will address various alternatives and will include assessing a variety of
scenarios that could emerge in the year 2000 and require the Company to react.
Management is also aware that the Year 2000 problem could also present
liquidity challenges as the year 2000 approaches. Assessing liquidity needs is
an integral part of the Company's Year 2000 plan, although it is too early to
determine whether additional liquidity may be needed.

35
<PAGE>

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

RESULTS OF OPERATIONS

For the nine months ended September 30, 1998, net interest income increased
$907,000 over the $6.4 million earned during the first nine months of 1997.
During the first nine months of 1998, average interest-earning assets were
$268.8 million, an increase of $60.5 million over the first nine months of
1997. This increase was primarily due to increases in the average loans of
$26.8 million and in the average investment securities portfolio of $26.1
million. The yield on average interest-earning assets decreased from 9.08%
during the first nine months of 1997 to 8.71% during the first nine months of
1998, principally as a result of lower yields on investment securities during
the nine months ended September 30, 1998 as compared to the same period in
1997. Total average interest-bearing liabilities increased from $189.8 million
in the first nine months of 1997 to $245.3 million in the first nine months of
1998. This increase was due to increases in average transaction accounts of
$19.4 million, average time deposits of $28.1 million and average other
borrowings of $7.7 million. The cost of average interest-bearing liabilities
increased from 5.44% during the first nine months of 1997 to 5.55% in the
first nine months of 1998 resulting from higher costs of time deposits and
other borrowings for each of the nine months ended September 30, 1998 as
compared to the same period in 1997.

The Company's net interest margin was 3.65% during the first three quarters
of 1998 as compared to 4.12% for the first three quarters of 1997. The
reduction in net interest margin resulted from an increase in the rate on
average interest-bearing liabilities of 0.11% and a reduction in the yield on
average earning assets of 0.37%. The reduction in net interest margin was
partially offset by a net increase in average earning assets over average
interest-bearing liabilities of $5.0 million.

Table 15 provides detailed information as to average balance, interest
income/expense, and rates by major balance sheet category for the nine months
ended September 30, 1998 and 1997.

TABLE 15--AVERAGE BALANCE SHEETS AND RATES FOR SEPTEMBER 30, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- -------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
EARNING ASSETS:
U.S. Treasury securities
and obligations of U.S.
agencies............... $ 31,987 $ 1,595 6.65% $ 20,419 $1,020 6.66%
Obligations of state and
political subdivisions
(1).................... 31,510 1,761 7.45 24,039 1,379 7.65
Mortgage-backed
securities............. 13,524 545 5.37 6,501 336 6.89
Federal Home Loan Bank
stock.................. 837 26 4.14 775 22 3.78
Federal funds sold...... 13,107 531 5.40 5,564 225 5.39
Total loan and fees..... 177,884 13,703 10.27 151,064 11,674 10.30
-------- ------- -------- ------
TOTAL EARNING ASSETS
(1).................... 268,849 18,161 9.01 208,362 14,656 9.38
-------- ------- -------- ------
Less: Allowance for loan
losses................. (3,603) (3,005)
NON-EARNING ASSETS:
Cash and due from
banks.................. 10,725 7,797
Premises and equipment,
net.................... 7,628 6,347
Other assets............ 6,025 5,963
-------- --------
TOTAL ASSETS............ $289,624 $225,464
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
INTEREST BEARING
LIABILITIES:
Transaction accounts.... $ 72,296 2,596 4.79 $ 52,924 1,810 4.56
Savings accounts........ 9,177 181 2.63 8,846 184 2.77
Time deposits........... 146,113 6,514 5.94 118,006 5,248 5.93
Other borrowed funds.... 17,670 921 6.95 9,989 502 6.70
-------- ------- -------- ------
TOTAL INTEREST BEARING
LIABILITIES............ 245,256 10,212 5.55 189,765 7,744 5.44
------- ----- ------ -----
NON-INTEREST BEARING
LIABILITIES:
Non-interest bearing
deposits............... 25,072 19,461
Other liabilities....... 2,047 1,929
Stockholders' equity.... 17,249 14,309
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $289,624 $225,464
======== ========
Net interest income
(1).................... $ 7,949 $6,912
======= ======
Net interest spread
(1).................... 3.46% 3.94%
===== =====
Net interest margin
(1).................... 3.94% 4.42%
===== =====
</TABLE>
- --------
Note: Calculations include non-accruing loans in the average loan amounts
outstanding.

(1) The interest earned on non-taxable securities is reflected on a tax
equivalent basis assuming a federal income tax rate of 34% for all
periods presented.

36
<PAGE>

The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume; (ii) changes
attributable to changes in rate; and (iii) the net change.

TABLE 16--VOLUME/RATE VARIANCE ANALYSIS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998 COMPARED TO
NINE MONTHS ENDED
SEPTEMBER 30, 1997
----------------------------------
INCREASE/(DECREASE)
DUE TO
----------------------------------
TOTAL NET
CHANGE VOLUME RATE
------------ ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
INTEREST INCOME(1):
U.S. Treasury securities and obligations
of U.S. agencies......................... $ 575 $ 578 $ (3)
Obligations of state and political
subdivisions............................. 252 275 (23)
Mortgage-backed securities................ 209 363 (154)
Federal Home Loan Bank stock.............. 4 2 2
Federal funds sold........................ 306 305 1
Total loans and fees...................... 2,029 2,066 (37)
---------- ---------- ---------
TOTAL INCREASE (DECREASE) IN INTEREST
INCOME................................... 3,375 3,589 (214)
INTEREST EXPENSE:
Interest bearing liabilities:
Transaction accounts...................... 786 696 90
Saving accounts........................... (3) 7 (10)
Time deposits............................. 1,266 1,253 13
Other borrowed funds...................... 419 400 19
---------- ---------- ---------
TOTAL INCREASE IN INTEREST EXPENSE........ 2,468 2,356 112
---------- ---------- ---------
INCREASE (DECREASE) IN NET INTEREST
INCOME................................... $ 907 $ 1,233 $(326)
========== ========== =========
</TABLE>
- --------

(1) Interest income for loans on non-accrual status has been excluded from
interest income.

NON-INTEREST INCOME

Non-interest income was $2.5 million during the first nine months of 1998,
up from $2.0 million during the first nine months of 1997. This increase was
principally due to the gain on sale of securities available for sale of
$220,000 in February of 1998, which is reflected in other operating income.
Other increases in non-interest income were from increases in mortgage loan
fees from increased originations, other service charges and fees from
increased volumes in the Company's brokerage services and increased
commissions on credit life insurance resulting from increased loan volume.
Table 17 illustrates the Company's primary sources of non-interest income at
September 30, 1998 and 1997 and the changes from one period to another.

TABLE 17--ANALYSIS OF NON-INTEREST INCOME

<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, PERCENT
------------------- INCREASE
1998 1997 (DECREASE)
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service charges on deposit accounts.............. $ 1,329 $ 1,228 8.2%
Mortgage loan fees............................... 377 320 17.8
Commissions on credit life insurance............. 326 284 14.8
Other operating income........................... 505 191 164.4
--------- ---------
Total............................................ $ 2,537 $ 2,023 25.4
========= =========
</TABLE>

37
<PAGE>

NON-INTEREST EXPENSE

Total non-interest expense increased from $5.5 million in the first nine
months of 1997 to $6.2 million for the first nine months of 1998. The increase
for the nine months ended September 30, 1998 was primarily attributable to
$501,000 increase in salaries and employee benefits. The Company's staffing
levels increased by 9 full-time equivalent employees (FTEs) to 147 FTEs at
September 30, 1998 as compared with 138 FTEs at September 30, 1997. The
increase is related primarily to staffing increases at the Petal banking
branch, SFSI Petal office, MSI and the brokerage services department. The
Company's efficiency ratio was 62.5% in the first nine months of 1998 compared
to 65.2% for the comparable period in 1997.

TABLE 18--ANALYSIS OF NON-INTEREST EXPENSE

<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, PERCENT
--------------------- INCREASE
1998 1997 (DECREASE)
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits................. $ 3,450 $ 2,949 17.0%
Occupancy expense.............................. 482 462 4.3
Furniture and equipment expense................ 671 647 3.7
Other operating expenses....................... 1,578 1,460 8.1
---------- ----------
Total.......................................... $ 6,181 $ 5,518 12.0
========== ==========
</TABLE>

INCOME TAX EXPENSE

The Company's effective income tax rate decreased from 26.9% for the nine
months ended September 30, 1997 to 25.0% for the nine months ended September
30, 1998. The decrease in the effective income tax rate is primarily
attributable to an increase in non-taxable income as a percentage of pretax
income.

38
<PAGE>

FINANCIAL CONDITION

LOAN PORTFOLIO

The Company continued to experience loan growth throughout its markets in
1998. Total loans increased 18.0% to $196.1 million at September 30, 1998,
compared to $166.2 million at December 31, 1997. This increase in loans was
attributable to a $12.2 million or 47.9% increase in commercial loans, a $12.4
million or 14.1% increase in real estate loans and a $5.3 million or 10.2%
increase in consumer loans. The overall rise in loan volume was the result of
a continuing favorable interest rate environment and increased loan demand
from existing customers, particularly from commercial loan customers.

Management anticipates that continued favorable economic conditions in the
Company's market area will continue to drive demand for small and medium-sized
business loans. In addition the Company expects that consumer loan demand will
also remain strong.

TABLE 19--LOANS BY TYPE

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Real estate:
Residential............................... $ 60,925 $ 55,406
Mortgage loans held for sale.............. 1,986 421
Construction.............................. 7,867 4,226
Commercial................................ 30,278 28,591
Consumer................................... 57,285 51,965
Commercial................................. 37,797 25,556
-------- --------
Total Loans................................ $196,138 $166,165
======== ========
</TABLE>

The table below illustrates the Company's fixed rate maturities and
repricing frequency for the loan portfolio:

TABLE 20--SELECTED LOAN DISTRIBUTION

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-----------------------------------
ONE OVER ONE OVER
YEAR THROUGH FIVE
TOTAL OR LESS FIVE YEARS YEARS
-------- ------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed rate maturities...................... $180,111 $84,961 $72,941 $22,209
Variable rate repricing frequency.......... 16,027 9,378 3,327 3,322
-------- ------- ------- -------
Total...................................... $196,138 $94,339 $76,268 $25,531
======== ======= ======= =======
</TABLE>

At September 30, 1998, 91.8% of the loan portfolio was classified as having
fixed rate maturities. Of the fixed rate portfolio, approximately half of
these loans had maturities of one year or less at September 30, 1998. Such
maturities allow the Company to reprice its portfolio frequently.

ALLOWANCE AND PROVISION FOR LOAN LOSSES

The allowance for loan losses is regularly evaluated by management and
approved by the Board of Directors and maintained at a level believed to be
adequate to absorb future loan losses in the Company's portfolio. The
provision for loan losses is determined in part using an internal watch list
developed by a review of essentially all loans by management. Loans are
assigned a rating based on credit quality as determined by the borrower's
payment history, the financial strength of the borrower or guarantor as
measured by the balance sheet, earnings

39
<PAGE>

and cash flow quality, collateral values and the liquidity and quality of the
collateral and assets of the borrower. Loans with a deterioration of credit
quality are placed on the watch list. The provision for loan losses pertaining
to the rated loans is determined by the amount of loans on the watch list and
an allocation for loans that are not on the watch list based on the Company's
historical charge off percentage. In addition, management considers the
potential adverse impact of the economic trends in the Company's trade area on
certain borrowers that are in cyclical businesses and the loan growth
resulting from new loan customers. Management believes that the allowance for
loan losses at September 30, 1998 was adequate. Although management believes
it uses the best information available to make allowance provisions, future
adjustments which could be material may be necessary if management's
assumptions differ from the loan portfolio's actual future performance.

The allowance for loan losses increased $416,000 to $3.5 million from
December 31, 1997 to September 30, 1998. The increase is primarily
attributable to an increase in the volume of loans. The Company's allowance
for loan losses to total loans ratio decreased from 1.91% at December 31, 1997
to 1.83% at September 30, 1998.

Net charge-offs were only $143,000 during the nine months ended September
30, 1998, compared to $280,000 for the same period for 1997. Of these net
charge-offs for the same periods, $101,000 and $107,000, respectively,
pertained to SFSI. The Company's consumer loan portfolio accounted for the
majority of net charge-offs for the nine months ended September 30, 1998 and
1997.

TABLE 21--SUMMARY OF LOAN LOSS EXPERIENCE

<TABLE>
<CAPTION>
AS OF
AND FOR THE
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Allowance for loan losses at beginning of period........ $ 3,101 $ 2,837
Charge-offs:
Real Estate........................................... -- --
Consumer.............................................. (264) (281)
Commercial............................................ (50) (124)
--------- ---------
Total............................................... (314) (405)
Recoveries:
Real Estate........................................... 24 12
Consumer.............................................. 115 93
Commercial............................................ 32 20
--------- ---------
Total............................................... 171 125
--------- ---------
Net loan charge-offs.................................... (143) (280)
Provision for loan losses............................... 559 503
--------- ---------
Allowance for loan losses at end of period.............. $ 3,517 $ 3,060
========= =========
RATIOS:
Allowance for loan losses to total loans................ 1.83% 1.91%
Net loan charge-offs to average loans outstanding for
the period............................................. 0.08 0.19
Allowance for loan losses to non-performing loans....... 424 617
</TABLE>

40
<PAGE>

TABLE 22--MANAGEMENT'S ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ ------------------
PERCENT PERCENT
OF LOANS OF LOANS
ALLOCATED TO TOTAL ALLOCATED TO TOTAL
ALLOWANCE LOANS ALLOWANCE LOANS
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real Estate............................... $1,039 51.5% $ 936 53.3%
Consumer.................................. 1,496 29.2 1,355 31.3
Commercial................................ 660 19.3 546 15.4
Unallocated............................... 322 -- 264 --
------ ----- ------ -----
Total..................................... $3,517 100.0% $3,101 100.0%
====== ===== ====== =====
</TABLE>

ASSET QUALITY

Table 23 provides information related to non-performing assets and loans 90
days or more past due. Accruing loans contractually past due 90 days or more
were $227,000 at September 30, 1998 and $252,000 at December 31, 1997. Loans
on non-accrual status were $602,000 and $147,000 at September 30, 1998 and
December 31, 1997, respectively. At September 30, 1998, non-performing loans
to total loans was 0.43%, up from 0.24% at December 31, 1997. Should the
underlying collateral be determined to be insufficient to satisfy the
obligation, the loan is classified and the Company's allowance is increased
accordingly. Historically, the Company's security in residential loans has
been adequate and has limited the Company's exposure to loss.

TABLE 23--NON-PERFORMING ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Loans on non-accrual
status (1)(2).......... $ 602 $147
Loans past due 90 days
or more................ 227 252
------ ----
Total non-performing
loans.................. 829 399
Other real estate
owned.................. 544 411
------ ----
Total non-performing as-
sets................... $1,373 $810
====== ====
Percentage of non-per-
forming loans to total
loans.................. 0.43% 0.24%
Percentage of non-per-
forming assets to total
loans.................. 0.71 0.49
</TABLE>
- --------

(1) There were no impaired loans during the period and year indicated.
(2) The interest income that would have been earned and received on non-
accrual loans was not material.

41
<PAGE>

INVESTMENT SECURITIES

The investment securities portfolio consists of U.S. Treasury securities,
obligations of U.S. government agencies, obligations of states and political
subdivisions and mortgage-backed securities (MBS). MBS consist of 15 year and
30 year fixed, 30 year adjustable rate and 7 year balloon mortgage securities,
underwritten and guaranteed by FNMA, FHLMC and GNMA, government-sponsored
agencies.

Securities, including those classified as held to maturity and available for
sale, increased from $58.9 million at December 31, 1997 to $90.2 million at
September 30, 1998.

TABLE 24--DEBT SECURITIES AVAILABLE FOR SALE

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------------------
AVERAGE WEIGHTED
CARRYING ESTIMATED MATURITY AVERAGE
VALUE FAIR VALUE IN YEARS YIELD
-------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U. S. Treasury and U.S. government
agencies:
Over five through ten years.......... $19,586 $19,586 9.1 6.67%
Over ten years....................... 9,901 9,901 14.6 7.04
------- -------
Total.............................. 29,487 29,487 6.79
Obligations of states and political
subdivision:
Within one year...................... 200 200 0.7 6.21(1)
Over one through five years.......... 3,522 3,522 3.7 7.29(1)
Over five through ten years.......... 4,404 4,404 7.2 7.67(1)
Over ten years....................... 2,711 2,711 12.6 8.36(1)
------- -------
Total.............................. 10,837 10,837 7.68(1)
Mortgage-backed securities............. 14,804 14,804 6.15
------- -------
Total debt securities available for
sale.................................. $55,128 $55,128
======= =======
</TABLE>

TABLE 25--DEBT SECURITIES HELD TO MATURITY

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------------------
AVERAGE WEIGHTED
CARRYING ESTIMATED MATURITY AVERAGE
VALUE FAIR VALUE IN YEARS YIELD
-------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U. S. Treasury and U. S. government
agencies:
Within one year...................... $ 499 $ 500 0.5 5.23%
Over one through five years.......... 7,083 7,207 2.10 5.63
------- -------
Total.............................. 7,582 7,707 5.60
Obligations of states and political
subdivision:
Within one year...................... 1,497 1,503 0.7 6.62(1)
Over one through five years.......... 7,193 7,295 3.7 7.15(1)
Over five through ten years.......... 6,528 6,696 8.7 7.30(1)
Over ten years....................... 10,717 10,878 13.9 7.39(1)
------- -------
Total.............................. 25,935 26,372 7.23(1)
Mortgage-backed securities............. 1,594 1,632 6.75
------- -------
Total debt securities held to maturi-
ty.................................... $35,111 $35,711
======= =======
</TABLE>
- --------
(1) The weighted average yields on non-taxable securities is reflected on a
tax equivalent basis assuming a federal income tax rate of 34% for all
periods presented.

42
<PAGE>

DEPOSITS

Total deposits increased $66.1 million or 31.3% from $211.5 million at
December 31, 1997, to $277.6 million at September 30, 1998. Interest-bearing
demand deposits increased 59.0% to $80.7 million from December 31, 1997 to
September 30, 1998 and time deposits increased $27.7 million or 23.8% to
$144.5 million for the same period. Public funds comprised $27.8 million of
the increase. Public funds constituted 19.7% of deposits at September 30,
1998. Management continues to seek retail and commercial deposits, as well as
public funds, through new products and marketing initiatives.

TABLE 26--DEPOSITS

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Demand (NOW, SuperNOW and Money Market)... $ 80,693 $ 50,765
Savings................................... 9,351 8,877
Individual retirement accounts............ 13,267 11,058
Time deposits, $100,000 and over.......... 53,023 35,635
Other time deposits....................... 91,459 81,112
-------- --------
Total interest bearing deposits........... 247,793 187,447
Total non-interest bearing deposits....... 29,825 24,051
-------- --------
Total..................................... $277,618 $211,498
======== ========
</TABLE>

TABLE 27--MATURITY OF TIME DEPOSITS $100,000 AND OVER

<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1998
------------------
(IN THOUSANDS)
<S> <C>
Three months or less......................................... $12,322
Over three months through six months......................... 10,023
Over six months through twelve months........................ 7,598
Over twelve months........................................... 23,080
-------
Total........................................................ $53,023
=======
</TABLE>

OTHER BORROWED FUNDS

Other borrowed funds from the FHLB, Bank of America and BancOne, formerly
First National Bank of Commerce, increased from $17.6 million at December 31,
1997, to $17.7 million at September 30, 1998. Additional borrowings above
current levels will be evaluated by management, with consideration given to
the growth of the Company's loan portfolio, liquidity needs, cost of retail
deposits, market conditions and other factors.

LIQUIDITY

The Company maintains sufficient liquidity to fund loan demand, deposit
withdrawals and debt repayments. Liquidity is managed by retaining sufficient
liquid assets in the form of cash and cash equivalents and core deposits to
meet such demand. Funding and cash flows can also be realized from the
investment securities portfolio and pay downs from the loan portfolio. The
Bank also provides access to the retail deposit market. In addition, the
Company has funds available under a line of credit, federal funds lines, and
additional FHLB borrowings to address liquidity needs.

43
<PAGE>

continues to monitor interest rate and liquidity risks while implementing
appropriate funding and balance sheet strategies.

CAPITAL

Regulatory agencies measure capital adequacy within a framework that makes
capital requirements, in part, dependent on the individual risk profiles of
financial institutions. The Company's capital to average assets ratio was
6.45% at September 30, 1998. At September 30, 1998, the Company exceeded the
Federal Reserve Board's regulatory definition of a "well capitalized"
institution.

ASSET/LIABILITY MANAGEMENT AND MARKET RISK

The following table illustrates the Company's estimated annualized earnings
sensitivity profile as of September 30, 1998:

TABLE 28--INTEREST RATE SENSITIVITY

<TABLE>
<CAPTION>
DECREASE INCREASE
IN RATES-- IN RATES--
200 200
BASIS POINTS BASE BASIS POINTS
------------ ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
PROJECTED INTEREST INCOME:
Loans......................................... $18,872 $20,036 $21,400
Investment securities......................... 5,105 5,371 5,595
Federal funds sold............................ 197 346 498
------- ------- -------
TOTAL INTEREST INCOME......................... 24,174 25,753 27,493
PROJECTED INTEREST EXPENSE:
Deposits...................................... 12,686 13,979 15,316
Other borrowed funds.......................... 983 1,187 1,392
------- ------- -------
TOTAL INTEREST EXPENSE........................ 13,669 15,166 16,708
------- ------- -------
NET INTEREST INCOME........................... $10,505 $10,587 $10,785
======= ======= =======
Change from base.............................. $ (82) $ 198
% Change from base............................ (.77)% 1.87%
</TABLE>

The interest rate sensitivity profile of the Company at any point in time
will be affected by a number of factors. These factors include the mix of
interest sensitive assets and liabilities as well as their relative pricing
schedules. The table above may not be a precise measurement of the effect of
changing interest rates on the Company in the future.

44
<PAGE>

PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of November 30, 1998 held by each
director and each executive officer named in the Summary Compensation Table,
by all directors and executive officers as a group, and by each person who is
known by the Company to own beneficially more than five percent (5%) of each
such class (who is not an executive officer or director of the Company), and
as adjusted to reflect the sale of 1,363,636 shares of Common Stock by the
Company in the Offering. Except as otherwise indicated, no person named in the
table shares voting or investment power with respect to his or her
beneficially owned shares, and the address of each shareholder is the same as
the address of the Company.

<TABLE>
<CAPTION>
PERCENT(1)
-----------------
PRIOR TO AFTER
NAME OF BENEFICIAL OWNER NUMBER OFFERING OFFERING
- ------------------------ --------- -------- --------
<S> <C> <C> <C>
Executive Officers and Directors
Robert W. Roseberry(2)............................ 422,040 15.3% 10.2%
Jane P. Roberts(3)................................ 88,500 3.2 2.1
Kenneth M. Lott(4)................................ 43,140 1.6 1.0
O. B. Black, Jr.(5)............................... 236,820 8.6 5.7
William H. Jordan................................. 185,340 6.7 4.5
James R. Pylant(6)................................ 163,440 5.9 4.0
Monty C. Roseberry................................ 100,140 3.6 2.4
All Executive Officers and Directors as a Group (9
persons)......................................... 1,255,140 45.4 30.4
Other 5% Shareholders
Donna R. Byrd(7).................................. 236,100 8.5 5.7
James E. Roseberry(8)............................. 288,060 10.4 7.0
</TABLE>
- --------
(1) The percentages prior to the Offering are calculated based on 2,767,071
shares issued and outstanding on the date hereof. Percentages after the
closing of the Offering are based on 4,130,707 shares to be issued and
outstanding upon consummation of the Offering.
(2) Includes 3,600 shares held by spouse with respect to which Mr. Roseberry
shares voting and investment power.
(3) Includes 69,120 shares held by spouse with respect to which Ms. Roberts
shares voting and investment power.
(4) Includes 2,340 shares held by spouse with respect to which Mr. Lott shares
voting and investment power.
(5) Includes 76,500 shares held by spouse as trustee of a trust with respect
to which Mr. Black shares voting and investment power and 98,400 shares
held by a family trust with respect to which Mr. Black's adult daughter is
the trustee and Mr. Black shares voting and investment power.
(6) Includes 42,900 shares held by spouse with respect to which Mr. Pylant
shares voting and investment power.
(7) Ms. Byrd is not a director or executive officer of the Company. Her
address is 1072 Talowah Road, Purvis, Mississippi 39475.
(8) Mr. Roseberry is not an executive officer or director of the Company. His
address is 122 Dean Rhyne Road, Purvis, Mississippi 39475.

45
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information concerning the executive
officers and directors of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
Robert W. Roseberry......... 48 Chairman and Chief Executive Officer, Director
Jane P. Roberts............. 62 Vice Chairman and Secretary, Director
Kenneth M. Lott............. 43 President and Chief Operating Officer, Director
W. H. Macko................. 48 Senior Vice President
Donna T. Rutland............ 32 Chief Financial Officer and Treasurer
O. B. Black, Jr............. 74 Director
William H. Jordan........... 77 Director
James R. Pylant............. 59 Director
Monty C. Roseberry.......... 58 Director
</TABLE>

Robert W. Roseberry began his career with the Bank in 1971 and has served in
numerous positions. In 1986, he became Chief Executive Officer of the Bank and
the Company. He has served as a director of the Bank since 1971 and as a
director of the Company since its formation in 1986. Robert W. Roseberry and
Monty C. Roseberry are half-brothers.

Jane P. Roberts has worked with the Bank for 35 years. She assumed her
current position of Vice Chairman in 1998. She has served as Secretary since
1986 and was the Secretary/Treasurer from 1986 to July of 1998. She has served
as a director of the Bank since 1981 and as a director of the Company since
its formation in 1986. Ms. Roberts and James R. Pylant are first cousins.

Kenneth M. Lott began his banking career at First Mississippi National Bank
in Hattiesburg in 1976. In 1988, he joined the Bank as Senior Vice President.
He assumed his present position of President and Chief Operating Officer of
the Company in July of 1998. He has served as a director of the Company since
1992.

W. H. Macko has 22 years of banking experience, including loan collections,
commercial and consumer lending, branch administration and loan operations. He
joined the Bank in 1989 as Vice President and Branch Manager and assumed his
present position of Senior Vice President of the Company in July of 1998.

Donna T. Rutland, C.P.A., worked as a staff accountant with the accounting
firm of McArthur, Thames, Slay and Dews, PLLC from 1988 to 1993. In 1993, she
joined the Bank as Internal Auditor. In 1995, Ms. Rutland became Vice
President and Controller of the Bank. In July of 1998, she assumed her present
position as Chief Financial Officer and Treasurer of the Company.

O. B. Black, Jr. has served as a director of the Company since its formation
in 1986. He was President of the Bank from 1975 to 1986 and retired as Vice
Chairman of the Bank in 1988.

William H. Jordan served as the Lamar County Engineer from 1966 to 1986. He
retired from the Mississippi National Guard in 1976 as a full Colonel. He has
served as a director of the Company since 1991.

James R. Pylant has served as a director of the Company since its formation
in 1986. He currently serves as President of Lamar County Development Corp.,
which is a manufacturing company. Mr. Pylant and Jane P. Roberts are first
cousins.

Monty C. Roseberry has served as a director of the Company since its
formation in 1986. Prior to retiring in 1995, Mr. Roseberry worked as a lab
technician for Amerada Hess Corporation. Mr. Roseberry and Robert W. Roseberry
are half-brothers.

46
<PAGE>

None of the Company's directors hold any directorships in companies with a
class of securities registered pursuant to Section 12 of the Securities
Exchange Act or subject to the requirements of Section 15(d) of such Act or
any company registered as an investment company under the Investment Company
Act of 1940, as amended.

The directors of the Company were elected at the most recent annual meeting
of shareholders held on January 29, 1998 to a one year term. The executive
officers of the Company are selected by the Board of Directors and hold office
at the discretion of the Board of Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has established an audit committee consisting of O.
B. Black, Jr., W. H. Jordan, James R. Pylant, and Monty C. Roseberry. The
audit committee recommends the appointment of auditors and oversees the
accounting and audit functions of the Company.

The Board of Directors has established a compensation committee which has
the responsibility, among other things, of establishing the salary of the
executive officers of the Company and examining periodically the compensation
structure of the Company. The members of the compensation committee are O.B.
Black, Jr., William H. Jordan and Robert W. Roseberry.

DIRECTOR COMPENSATION

Directors receive a fee of $700 for each meeting of the Board of Directors
of the Company and the Bank and for each committee meeting attended.
Historically, the Company has paid the directors an annual bonus in December
of each year. In 1997, the bonus was $4,200 per person.

EXECUTIVE COMPENSATION

Shown below is information concerning the compensation for services in all
capacities to the Company for the years ended 1997, 1996 and 1995 of the CEO
and the Company's most highly compensated officers other than the CEO:

Summary Compensation Table

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------- ------------
SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSA-
NAME & PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) COMPENSATION($) OPTIONS(#) TION ($)(2)
- ------------------------- ---- ------------- --------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Roseberry..... 1997 141,530 23,200 0 0 13,308
Chairman of the Board & 1996 132,375 22,050 0 0 11,516
Chief Executive Officer 1995 123,300 21,000 0 0 15,947
Jane P. Roberts......... 1997 128,050 20,100 0 0 11,838
Vice Chairman and 1996 121,350 19,845 0 0 10,255
Secretary 1995 112,800 18,900 0 0 14,085
Kenneth M. Lott......... 1997 98,100 12,950 0 0 8,317
President and Chief 1996 92,229 12,102 0 0 7,112
Operating Officer 1995 79,569 13,772 0 0 8,306
</TABLE>
- --------
(1) Includes directors' fees.
(2) Includes profit sharing, ESOP and 401(k) plan contributions.

47
<PAGE>

EXECUTIVE SALARY CONTINUATION AGREEMENTS

The Company has entered into Executive Salary Continuation Agreements with
Mr. Roseberry, Ms. Roberts and Mr. Lott to provide incentives to these
officers to continue their employment with the Company on a long-term basis.
The agreements provide for the continuation of annual salary payments upon
retirement at age 65 or later for a period of 180 months (15 years) in the
amounts of $50,500, $44,900 and $57,200 in the case of Mr. Roseberry, Ms.
Roberts and Mr. Lott, respectively. The agreements also provide for continued
salary payments if the executive dies, becomes disabled or if the executive's
employment is terminated by the Company.

STOCK INCENTIVE PLAN

The Company has reserved 200,000 shares of Common Stock under the Company's
Stock Incentive Plan, which was adopted in August of 1998. Under this Plan,
the Board of Directors of the Company may grant options to employees of the
Company and its subsidiaries for up to ten year terms and at an option
exercise price equal to the fair market value of the stock on the date of the
grant. No options have been granted under this plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to August of 1998, the Company did not have a compensation committee.
Robert W. Roseberry, Jane P. Roberts and Kenneth M. Lott participated in
deliberations of the Company's Board of Directors concerning executive officer
compensation set forth in the Summary Compensation Table. The Board appointed
O. B. Black, Jr., William H. Jordan and Robert W. Roseberry to the
Compensation Committee in August of 1998.

48
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In April of 1998, the Company purchased 12,000 shares of Common Stock at
book value for $72,170 from Jack Pylant, brother of director James R. Pylant.
Mr. Pylant repurchased these shares at book value for $75,360 in July of 1998.

In May of 1997, the Company's Board of Directors authorized the repurchase
of 33,120 shares of Common Stock at book value from Robert W. Roseberry for
approximately $175,000, 26,460 shares from James E. Roseberry, brother of
Robert W. Roseberry, for approximately $140,000 and the repurchase of 22,860
shares of stock from Donna Byrd, sister of Robert W. Roseberry, for
approximately $121,000. The purpose of these repurchases was to provide funds
for these individuals to pay estate taxes owed arising out of their
inheritance of such shares and other property.

Robert W. Roseberry, a director and executive officer, is the owner of
Roseberry Insurance Company, Inc., a credit life insurance agency which
provides credit life insurance coverage solely to customers of the Bank. These
services resulted in commissions to Roseberry Insurance Company, Inc. of
$14,225 in 1997.

The Bank from time to time makes loans to directors and executive officers,
and to personnel of directors and executive officers. All such loans are made
in the ordinary course of business, and on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and do not involve more than
normal risk of collectability or present other unfavorable features.

SUPERVISION AND REGULATION

The supervision and regulation of bank holding companies and their
subsidiaries is intended primarily for the protection of depositors, the
deposit insurance funds of the FDIC and the banking system as a whole, and not
for the protection of the bank holding company shareholders or creditors. The
banking agencies have broad enforcement power over bank holding companies and
banks including the power to impose substantial fines and other penalties for
violations of laws and regulations.

The following description summarizes some of the laws to which the Company
and the Bank are subject. References herein to applicable statutes and
regulations are brief summaries thereof, do not purport to be complete, and
are qualified in their entirety by reference to such statutes and regulations.

THE COMPANY

The Company is a bank holding company registered under the BHCA, and it is
subject to supervision, regulation and examination by the Federal Reserve
Board. The BHCA and other federal laws subject bank holding companies to
particular restrictions on the types of activities in which they may engage,
and to a range of supervisory requirements and activities, including
regulatory enforcement actions for violations of laws and regulations.

Regulatory Restrictions on Dividends; Source of Strength. It is the policy
of the Federal Reserve Board that bank holding companies should pay cash
dividends on common stock only out of income available over the past year and
only if prospective earnings retention is consistent with the organization's
expected future needs and financial condition. The policy provides that bank
holding companies should not maintain a level of cash dividends that
undermines the bank holding company's ability to serve as a source of strength
to its banking subsidiaries.

Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial strength to each of its banking subsidiaries and
to commit resources to their support. Such support may be required at times
when, absent this Federal Reserve Board policy, a holding company may not be
inclined to provide it. As discussed below, a bank holding company in certain
circumstances could be required to guarantee the capital plan of an
undercapitalized banking subsidiary.

49
<PAGE>

In the event of a bank holding company's bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is
required to cure immediately any deficit under any commitment by the debtor
holding company to any of the federal banking agencies to maintain the capital
of an insured depository institution, and any claim for breach of such
obligation will generally have priority over most other unsecured claims.

Activities "Closely Related" to Banking. The BHCA prohibits a bank holding
company, with certain limited exceptions, from acquiring direct or indirect
ownership or control of any voting shares of any company which is not a bank
or from engaging in any activities other than those of banking, managing or
controlling banks and certain other subsidiaries, or furnishing services to or
performing services for its subsidiaries. One principal exception to these
prohibitions allows the acquisition of interests in companies whose activities
are found by the Federal Reserve Board, by order or regulation, to be so
closely related to banking or managing or controlling banks, as to be a proper
incident to banking. Some of the activities that have been determined by
regulation to be closely related to banking are making or servicing loans,
performing certain data processing services, acting as an investment or
financial advisor to certain investment trusts and investment companies, and
providing securities brokerage services. Other activities approved by the
Federal Reserve Board include consumer financial counseling, tax planning and
tax preparation, futures and options advisory services, check guaranty
services, collection agency and credit bureau services, and personal property
appraisals. In approving acquisitions by bank holding companies of companies
engaged in banking-related activities, the Federal Reserve Board considers a
number of factors, and weighs the expected benefits to the public (such as
greater convenience and increased competition or gains in efficiency) against
the risks of possible adverse effects (such as undue concentration of
resources, decreased or unfair competition or conflicts of interest). The
Federal Reserve Board is also empowered to differentiate between activities
commenced de novo and activities commenced through acquisition of a going
concern. Despite prior approval, the Federal Reserve may order a holding
company or its subsidiaries to terminate any activity, or terminate its
ownership or control of any subsidiary, when it has reasonable cause to
believe that continuation of such activity constitutes a serious risk to the
financial safety, soundness or stability of any bank subsidiary of the bank
holding company.

Securities Activities. The Federal Reserve Board has approved applications
by bank holding companies to engage, through nonbank subsidiaries, in certain
securities-related activities (underwriting of municipal revenue bonds,
commercial paper, consumer receivable-related securities and one-to-four
family mortgage-backed securities), provided that the affiliates would not be
"principally engaged" in such activities for purposes of Section 20 of the
Glass-Steagall Act. In limited situations, holding companies may be able to
use such subsidiaries to underwrite and deal in corporate debt and equity
securities.

Safe and Sound Banking Practices. Bank holding companies are not permitted
to engage in unsafe and unsound banking practices. The Federal Reserve Board's
Regulation Y, for example, generally requires a holding company to give the
Federal Reserve Board prior notice of any redemption or repurchase of its own
equity securities, if the consideration to be paid, together with the
consideration paid for any repurchases or redemptions in the preceding year,
is equal to 10% or more of the company's consolidated net worth. The Federal
Reserve Board may oppose the transaction if it believes that the transaction
would constitute an unsafe or unsound practice or would violate any law or
regulation.

The Federal Reserve Board has broad authority to prohibit activities of bank
holding companies and their nonbanking subsidiaries which represent unsafe and
unsound banking practices or which constitute violations of laws or
regulations, and can assess civil money penalties for certain activities
conducted on a knowing and reckless basis, if those activities caused a
substantial loss to a depository institution. The penalties can be as high as
$1,000,000 for each day the activity continues.

Anti-tying Restrictions. With certain limited exceptions, bank holding
companies and their affiliates are prohibited from tying the provision of
certain services, such as extensions of credit, to other services offered by a
holding company or its affiliates.

50
<PAGE>

Capital Adequacy Requirements. The Federal Reserve Board has adopted a
system using risk-based capital guidelines to evaluate the capital adequacy of
bank holding companies. Under the guidelines, specific categories of assets
are assigned different risk weights, based generally on the perceived credit
risk of the asset. These risk weights are multiplied by corresponding asset
balances to determine a "risk-weighted" asset base. The guidelines require a
minimum total risk-based capital ratio of 8.0% (of which at least 4.0% is
required to consist of Tier 1 capital elements). Total capital is the sum of
Tier 1 and Tier 2 capital. As of September 30, 1998, the Company's ratio of
Tier 1 capital to total risk-weighted assets was 9.02% and its ratio of total
capital to total risk-weighted assets was 10.27%. See Note 10 to the
Consolidated Financial Statements.

In addition to the risk-based capital guidelines, the Federal Reserve Board
uses a leverage ratio as an additional tool to evaluate the capital adequacy
of bank holding companies. The leverage ratio is a company's Tier 1 capital
divided by its average total consolidated assets (less goodwill and certain
other intangible assets). Certain highly-rated bank holding companies may
maintain a minimum leverage ratio of 3.0%, but other bank holding companies
may be required to maintain a leverage ratio of up to 200 basis points above
the regulatory minimum. As of September 30, 1998, the Company's leverage ratio
was 6.24%.

The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to
operate with capital positions well above the minimum ratios. The federal bank
regulatory agencies may set capital requirements for a particular banking
organization that are higher than the minimum ratios when circumstances
warrant. Federal Reserve Board guidelines also provide that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets.

Imposition of Liability for Undercapitalized Subsidiaries. Bank regulators
are required to take "prompt corrective action" to resolve problems associated
with insured depository institutions whose capital declines below certain
levels. In the event an institution becomes "undercapitalized," it must submit
a capital restoration plan. The capital restoration plan will not be accepted
by the regulators unless each company having control of the undercapitalized
institution guarantees the subsidiary's compliance with the capital
restoration plan up to a certain specified amount. Any such guarantee from a
depository institution's holding company is entitled to a priority of payment
in bankruptcy.

The aggregate liability of the holding company of an undercapitalized bank
is limited to the lesser of 5% of the institution's assets at the time it
became undercapitalized or the amount necessary to cause the institution to be
"adequately capitalized." The bank regulators have greater power in situations
where an institution becomes "significantly" or "critically" undercapitalized
or fails to submit a capital restoration plan. For example, a bank holding
company controlling such an institution can be required to obtain prior
Federal Reserve Board approval of proposed dividends, or might be required to
consent to a consolidation or to divest the troubled institution or other
affiliates.

Acquisitions by Bank Holding Companies. The BHCA requires every bank holding
company to obtain the prior approval of the Federal Reserve Board before it
may acquire all or substantially all of the assets of any bank, or ownership
or control of any voting shares of any bank, if after such acquisition it
would own or control, directly or indirectly, more than 5% of the voting
shares of such bank. In approving bank acquisitions by bank holding companies,
the Federal Reserve Board is required to consider the financial and managerial
resources and future prospects of the bank holding company and the banks
concerned, the convenience and needs of the communities to be served, and
various competitive factors.

Control Acquisitions. The Change in Bank Control Act prohibits a person or
group of persons from acquiring "control" of a bank holding company unless the
Federal Reserve Board has been notified and has not objected to the
transaction. Under a rebuttable presumption established by the Federal Reserve
Board, the acquisition of 10% or more of a class of voting stock of a bank
holding company with a class of securities

51
<PAGE>

registered under Section 12 of the Exchange Act, such as proposed by the
Company, would, under the circumstances set forth in the presumption,
constitute acquisition of control of the Company.

In addition, any company is required to obtain the approval of the Federal
Reserve Board under the BHCA before acquiring 25% (5% in the case of an
acquiror that is a bank holding company) or more of the outstanding Common
Stock of the Company, or otherwise obtaining control or a "controlling
influence" over the Company.

THE BANK

The Bank is a Mississippi chartered banking corporation, the deposits of
which are insured by the Bank Insurance Fund ("BIF") and by the Savings
Association Insurance Fund ("SAIF") of the FDIC. The SAIF insurance funds
resulted from the acquisition of thrift deposits in Purvis and Prentiss. The
Bank is not a member of the Federal Reserve System; the Bank is subject to
supervision and regulation by the FDIC and the Mississippi Department of
Banking and Consumer Finance. Such supervision and regulation subjects the
Bank to special restrictions, requirements, potential enforcement actions and
periodic examination by the FDIC and the Mississippi Department of Banking and
Consumer Finance. Because the Federal Reserve Board regulates the bank holding
company parent of the Bank, the Federal Reserve Board also has supervisory
authority which directly affects the Bank.

Equivalence to National Bank Powers. To the extent that the Mississippi laws
and regulations may have allowed state-chartered banks to engage in a broader
range of activities than national banks, the Federal Deposit Insurance Act has
been amended to limit this authority. Under that Act, no state bank or
subsidiary thereof may engage as principal in any activity not permitted for
national banks, unless the institution complies with applicable capital
requirements and the FDIC determines that the activity poses no significant
risk to the insurance fund. In general, statutory restrictions on the
activities of banks are aimed at protecting the safety and soundness of
depository institutions. However, the provisions of Miss. Code Ann. (S)81-5-
1(10) provide state-chartered banks the right to engage in activities approved
for national banks by the Comptroller of the Currency to provide parity
between state chartered and nationally chartered banks.

Branching. Mississippi law permits a Mississippi chartered bank, with prior
regulatory approval, to establish a branch office in any county in
Mississippi. In addition, a Mississippi chartered bank is permitted to combine
with any other bank or thrift regardless of its location, provided the
Mississippi institution has been in operation for at least five years. The
Mississippi banking statutes also permit a Mississippi bank, with prior
regulatory approval, to engage in an interstate merger transaction, and
thereby establish a branch office outside of Mississippi. In any case, the
transaction must also be approved by the FDIC, which considers a number of
factors, including financial history, capital adequacy, earnings prospects,
character of management, needs of the community and consistency with corporate
powers.

Restrictions on Transactions with Affiliates and Insiders. Transactions
between the Bank and its nonbanking affiliates, including the Company, are
subject to Section 23A of the Federal Reserve Act. In general, Section 23A
imposes limits on the amount of such transactions, and also requires certain
levels of collateral for loans to affiliated parties. It also limits the
amount of advances to third parties which are collateralized by the securities
or obligations of the Company or its subsidiaries.

Affiliate transactions are also subject to Section 23B of the Federal
Reserve Act which generally requires that certain transactions between the
Bank and its affiliates be on terms substantially the same, or at least as
favorable to the Bank, as those prevailing at the time for comparable
transactions with or involving other nonaffiliated persons.

The restrictions on loans to directors, executive officers, principal
shareholders and their related interests (collectively referred to herein as
"insiders") contained in the Federal Reserve Act and Regulation O apply to all
insured institutions and their subsidiaries and holding companies. These
restrictions include limits on loans to one borrower and conditions that must
be met before such a loan can be made. There is also an aggregate

52
<PAGE>

limitation on all loans to insiders and their related interests. These loans
cannot exceed the institution's total unimpaired capital and surplus, and the
FDIC may determine that a lesser amount is appropriate. Insiders are subject
to enforcement actions for knowingly accepting loans in violation of
applicable restrictions.

Restrictions on Distribution of Subsidiary Bank Dividends and
Assets. Dividends paid by the Bank have provided a substantial part of the
Company's operating funds and for the foreseeable future it is anticipated
that dividends paid by the Bank to the Company will continue to be the
Company's principal source of operating funds. Under Mississippi law, the
payment of dividends by the Bank must be approved by the Mississippi
Department of Banking and Consumer Finance. Capital adequacy requirements also
serve to limit the amount of dividends that may be paid by the Bank. Under
federal law, the Bank cannot pay a dividend if, after paying the dividend, the
Bank will be "undercapitalized." The FDIC may declare a dividend payment to be
unsafe and unsound even though the Bank would continue to meet its capital
requirements after the dividend.

Because the Company is a legal entity separate and distinct from its
subsidiaries, its right to participate in the distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the subsidiary's creditors. In the event of a
liquidation or other resolution of an insured depository institution, the
claims of depositors and other general or subordinated creditors are entitled
to a priority of payment over the claims of holders of any obligation of the
institution to its shareholders, including any depository institution holding
company (such as the Company) or any shareholder or creditor thereof.

Examinations. The FDIC periodically examines and evaluates insured banks.
Based upon such an evaluation, the FDIC may revalue the assets of the
institution and require that it establish specific reserves to compensate for
the difference between the FDIC-determined value and the book value of such
assets. The Mississippi Department of Banking and Consumer Finance also
conducts examinations of state banks but may accept the results of a federal
examination in lieu of conducting an independent examination.

Audit Reports. Insured institutions with total assets of $500 million or
more must submit annual audit reports prepared by independent auditors to
federal and state regulators. In some instances, the audit report of the
institution's holding company can be used to satisfy this requirement.
Auditors must receive examination reports, supervisory agreements and reports
of enforcement actions. In addition, financial statements prepared in
accordance with generally accepted accounting principles, management's
certifications concerning responsibility for the financial statements,
internal controls and compliance with legal requirements designated by the
FDIC, and an attestation by the auditor regarding the statements of management
relating to the internal controls must be submitted. For institutions with
total assets of more than $3 billion, independent auditors may be required to
review quarterly financial statements. The Federal Deposit Insurance Act
requires that independent audit committees be formed, consisting of outside
directors only. The committees of such institutions must include members with
experience in banking or financial management, must have access to outside
counsel, and must not include representatives of large customers.

Capital Adequacy Requirements. The FDIC has adopted regulations establishing
minimum requirements for the capital adequacy of insured institutions. The
FDIC may establish higher minimum requirements if, for example, a bank has
previously received special attention or has a high susceptibility to interest
rate risk.

The FDIC's risk-based capital guidelines generally require state banks to
have a minimum ratio of Tier 1 capital to total risk-weighted assets of 4% and
a ratio of total capital to total risk-weighted assets of 8%. The capital
categories have the same definitions for the Bank as for the Company. As of
September 30, 1998, the Bank's ratio of Tier 1 capital to total risk-weighted
assets was 10.15% and its ratio of total capital to total risk-weighted assets
was 11.40%.

The FDIC's leverage guidelines require state banks to maintain Tier 1
capital of no less than 5% of average total assets, except in the case of
certain highly rated banks for which the requirement is 3% of average total
assets. As of September 30, 1998, the Bank's ratio of Tier 1 capital to
average total assets (leverage ratio) was 6.63%.

53
<PAGE>

Corrective Measures for Capital Deficiencies. The federal banking regulators
are required to take "prompt corrective action" with respect to capital-
deficient institutions. Agency regulations define, for each capital category,
the levels at which institutions are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." A "well capitalized" bank has a total risk-
based capital ratio of 10% or higher; a Tier 1 risk-based capital ratio of 6%
or higher; a leverage ratio of 5% or higher; and is not subject to any written
agreement, order or directive requiring it to maintain a specific capital
level for any capital measure. An "adequately capitalized" bank has a total
risk-based capital ratio of 8% or higher; a Tier 1 risk-based capital ratio of
4% or higher; a leverage ratio of 4% or higher (3% or higher if the bank was
rated a CAMEL 1 in its most recent examination report and is not experiencing
significant growth); and does not meet the criteria for a well capitalized
bank. A bank is "undercapitalized" if it fails to meet any one of the ratios
required to be adequately capitalized.

In addition to requiring undercapitalized institutions to submit a capital
restoration plan, agency regulations contain broad restrictions on certain
activities of undercapitalized institutions including asset growth,
acquisitions, branch establishment, and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from
paying management fees to control persons if the institution would be
undercapitalized after any such distribution or payment.

As an institution's capital decreases, the FDIC's enforcement powers become
more severe. A significantly undercapitalized institution is subject to
mandated capital raising activities, restrictions on interest rates paid and
transactions with affiliates, removal of management, and other restrictions.
The FDIC has only very limited discretion in dealing with a critically
undercapitalized institution and is virtually required to appoint a receiver
or conservator.

Banks with risk-based capital and leverage ratios below the required
minimums may also be subject to certain administrative actions, including the
termination of deposit insurance upon notice and hearing, or a temporary
suspension of insurance without a hearing in the event the institution has no
tangible capital.

Deposit Insurance Assessments. The Bank must pay assessments to the FDIC for
federal deposit insurance protection. The FDIC has adopted a risk based
assessment system as required by amendments made to the Federal Deposit
Insurance Act. Under this system, FDIC-insured depository institutions pay
insurance premiums at rates based on their risk classification. Institutions
assigned to higher-risk classifications (that is, institutions that pose a
greater risk of loss to their respective deposit insurance funds) pay
assessments at higher rates than institutions that pose a lower risk. An
institution's risk classification is assigned based on its capital levels and
the level of supervisory concern the institution poses to the regulators. In
addition, the FDIC can impose special assessments in certain instances.

After the one-time SAIF assessment in 1996, the assessment rate disparity
between BIF and SAIF members was eliminated. The current range of BIF and SAIF
assessments is between 0% and .27% of deposits. Institutions which qualify for
the 0% assessment category, however, still have to pay the $1,000 minimum
semi-annual assessment required by federal statute.

The FDIC established a process for raising or lowering all rates for insured
institutions semi-annually if conditions warrant a change. Under this new
system, the FDIC has the flexibility to adjust the assessment rate schedule
twice a year without seeking prior public comment, but only within a range of
five cents per $100 above or below the premium schedule adopted. Changes in
the rate schedule outside the five cent range above or below the current
schedule can be made by the FDIC only after a full rulemaking with opportunity
for public comment.

On September 30, 1996, a law was enacted that contained a comprehensive
approach to recapitalizing the SAIF and to assure the payment of the Financing
Corporation's ("FICO") bond obligations that were issued by FICO to help shore
up the ailing Federal Savings and Loan Insurance Corporation in 1987. Under
this new act, banks insured under the BIF are required to pay a portion of the
interest due on the FICO bonds. The BIF rate

54
<PAGE>

must equal one-fifth of the SAIF rate through year-end 1999, or until the
insurance funds are merged, whichever occurs first. Thereafter BIF and SAIF
payers will be assessed pro rata for the FICO bond obligations. With regard to
the assessment for the FICO obligation, the current BIF rate is 0.0122% of
annual deposits and the SAIF rate is 0.0610% of annual deposits.

Enforcement Powers. The FDIC and the other federal banking agencies have
broad enforcement powers, including the power to terminate deposit insurance,
impose substantial fines and other civil and criminal penalties and appoint a
conservator or receiver. Failure to comply with applicable laws, regulations
and supervisory agreements could subject the Company or its banking
subsidiaries, as well as officers, directors and other institution-affiliated
parties of these organizations, to administrative sanctions and potentially
substantial civil money penalties. The appropriate federal banking agency may
appoint the FDIC as conservator or receiver for a banking institution (or the
FDIC may appoint itself, under certain circumstances) if any one or more of a
number of circumstances exist, including, without limitation, the fact that
the banking institution is undercapitalized and has no reasonable prospect of
becoming adequately capitalized; fails to become adequately capitalized when
required to do so; fails to submit a timely and acceptable capital restoration
plan; or materially fails to implement an accepted capital restoration plan.

Brokered Deposit Restrictions. Well capitalized institutions may solicit and
accept, renew or roll over brokered deposits without restriction. Institutions
which are adequately capitalized, but not well capitalized, cannot accept,
renew or roll over brokered deposits except with a waiver from the FDIC, and
are subject to restrictions on the interest rates that can be paid on such
deposits. Undercapitalized institutions may not accept, renew, or roll over
brokered deposits.

Cross-guarantee Provisions. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") contains a "cross-guarantee" provision
which generally makes commonly controlled insured depository institutions
liable to the FDIC for any losses incurred in connection with the failure of a
commonly controlled depository institution.

Community Reinvestment Act. The Community Reinvestment Act of 1977 ("CRA")
and the regulations issued thereunder are intended to encourage banks to help
meet the credit needs of their service area, including low and moderate income
neighborhoods, consistent with the safe and sound operations of the banks.
These regulations also provide for regulatory assessment of a bank's record in
meeting the needs of its service area when considering applications to
establish banking centers, merger applications and applications to acquire the
assets and assume the liabilities of another bank. FIRREA requires federal
banking agencies to make public a rating of a bank's performance under the
CRA. In the case of a bank holding company, the CRA performance record of the
banks involved in the transaction are reviewed in connection with the filing
of an application to acquire ownership or control of shares or assets of a
bank or to merge with any other bank holding company. An unsatisfactory record
can substantially delay or block the transaction.

Consumer Laws and Regulations. In addition to the laws and regulations
discussed herein, the Bank is also subject to certain consumer laws and
regulations that are designed to protect consumers in transactions with banks.
While the list set forth herein is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic
Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit
Opportunity Act, the Real Estate Settlement Procedures Act and the Fair
Housing Act, among others. These laws and regulations mandate certain
disclosure requirements and regulate the manner in which financial
institutions must deal with customers when taking deposits or making loans to
such customers. The Bank must comply with the applicable provisions of these
consumer protection laws and regulations as part of its ongoing customer
relations.

INSTABILITY OF REGULATORY STRUCTURE

Various legislation, including proposals to overhaul the bank regulatory
system, expand the powers of banking institutions and bank holding companies
and limit the investments that a depository institution may make

55
<PAGE>

with insured funds, is from time to time introduced in Congress. Such
legislation may change banking statutes and the operating environment of the
Company and its banking subsidiaries in substantial and unpredictable ways.
The Company cannot determine the ultimate effect that potential legislation,
if enacted, or implementing regulations with respect thereto, would have upon
the financial condition or results of operations of the Company or its
subsidiaries.

EXPANDING ENFORCEMENT AUTHORITY

One of the major additional burdens imposed on the banking industry by
amendments to the Federal Deposit Insurance Act is the increased ability of
banking regulators to monitor the activities of banks and their holding
companies. In addition, the Federal Reserve Board and FDIC are possessed of
extensive authority to police unsafe or unsound practices and violations of
applicable laws and regulations by depository institutions and their holding
companies. For example, the FDIC may terminate the deposit insurance of any
institution which it determines has engaged in an unsafe or unsound practice.
The agencies can also assess civil money penalties, issue cease and desist or
removal orders, seek injunctions, and publicly disclose such actions. The
Federal Deposit Insurance Corporation Improvements Act of 1991 (FDICIA),
FIRREA and other laws have expanded the agencies' authority in recent years,
and the agencies have not yet fully tested the limits of their powers.

EFFECT ON ECONOMIC ENVIRONMENT

The policies of regulatory authorities, including the monetary policy of the
Federal Reserve Board, have a significant effect on the operating results of
bank holding companies and their subsidiaries. Among the means available to
the Federal Reserve Board to affect the money supply are open market
operations in U.S. Government securities, changes in the discount rate on
member bank borrowings, and changes in reserve requirements against member
bank deposits. These means are used in varying combinations to influence
overall growth and distribution of bank loans, investments and deposits, and
their use may affect interest rates charged on loans or paid for deposits.

Federal Reserve Board monetary policies have materially affected the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The nature of future monetary policies and the effect
of such policies on the business and earnings of the Company and its
subsidiaries cannot be predicted.

56
<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock having $.50 par value (the "Common Stock"). Shares of Common
Stock may be issued at such time or times and for such consideration as the
Board of Directors may deem advisable, subject to such limitations as may be
set forth in the laws of Mississippi, the Company's Articles of Incorporation
(as amended) or Bylaws (as amended) or, after the Offering, the rules of the
Nasdaq National Market. As of November 30, 1998, there were 2,767,071 shares
of Common Stock outstanding held by 66 shareholders of record. THE CAPITAL
STOCK OF THE COMPANY DOES NOT REPRESENT OR CONSTITUTE A DEPOSIT ACCOUNT AND IS
NOT INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.

COMMON STOCK

Voting Rights. The holders of the Common Stock are entitled to one (1) vote
for each share of Common Stock standing in their names on the books of the
Company.

Dividends. The holders of Common Stock are entitled to receive such
dividends as may be declared, from time to time, by the Board of Directors out
of funds legally available therefor. Substantially all of the funds available
to the Company for payment of dividends on the Common Stock are derived from
dividends paid by its subsidiaries. The payment of dividends by the Company is
subject to the restrictions of Mississippi law applicable to the declaration
of dividends by a business corporation. Under such provisions, no distribution
may be made if, after giving it effect (1) the Company would not be able to
pay its debts as they become due in the usual course of business; or (2) the
Company's total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the Company were to be dissolved at
the time of the distribution, to satisfy the preferential rights upon
dissolution of stockholders whose preferential rights are superior to those
receiving the distributions.

Additionally, the Federal Reserve Board, in its Policy Statement on Cash
Dividends Not Fully Covered by Earnings, has stated that bank holding
companies should not pay dividends except out of current earnings and unless
the prospective rate of earnings retention by the holding company appears
consistent with its capital needs, asset quality and overall financial
condition.

Although historically regular cash dividends have been paid on the Common
Stock, and the Board of Directors of the Company has indicated its intention
to continue to pay regular cash dividends on the Common Stock, no assurance
can be given that any dividends will be declared or, if declared, what the
amount of the dividends will be or whether such dividends, once declared, will
continue. See "Dividend Policy."

Preemptive Rights. Holders of the Common Stock are not entitled to
preemptive rights with respect to any shares which may be issued. The Common
Stock is not subject to redemption.

Dissolution. If the Company is dissolved, the holders of the Common Stock
will be entitled to receive, pro rata based on the number of shares held, the
remaining assets of the Company after the satisfaction of the Company's
liabilities.

Because the Company is a holding company, its rights and the rights of its
creditors and shareholders to participate in the distribution of assets of a
subsidiary in its liquidation or recapitalization may be subject to prior
claims of such subsidiary's creditors except to the extent that the Company
itself may be a creditor having recognized claims against such subsidiary.

57
<PAGE>

Other Aspects. The Company has applied for listing of the Common Stock on
the Nasdaq National Market. SunTrust Bank, Atlanta will serve as registrar and
transfer agent of the Common Stock following the Offering.

CERTAIN PROVISIONS OF MISSISSIPPI LAW AND THE ARTICLES OF INCORPORATION AND
BYLAWS OF THE COMPANY AFFECTING THE RIGHTS OF SHAREHOLDERS

The rights of shareholders of the Company are governed by the Mississippi
Business Corporation Act ("MBCA") and the Articles of Incorporation and Bylaws
of the Company. The following discussion is a summary of certain material
provisions of the MBCA and the Company's Articles of Incorporation and Bylaws
affecting shareholder rights. Copies of the Articles of Incorporation and
Bylaws are filed as exhibits to the Registration Statement of which this
Prospectus is a part.

Amendment of the Articles of Incorporation and Bylaws. The affirmative vote
of the holders of a majority of votes entitled to be cast at a shareholders
meeting is required to amend any provision of the Company's Articles of
Incorporation unless the amendment would amend the Articles of Incorporation
relating to certain changes in control (as discussed below), in which case 80%
or more of the votes entitled to be cast is required.

Although certain provisions of the Company's Bylaws relating to removal of
the Company's Board of Directors require a vote of 80% of the total voting
power of the outstanding Common Stock, the remaining provisions of the
Company's Bylaws may be amended or repealed by the Board of Directors, if a
quorum is present, by the affirmative vote of a majority of directors present
or by the shareholders if a quorum exists and the votes cast favoring the
action exceed the votes cast opposing the action.

Special Meetings of Shareholders. Under the Company's Bylaws, a special
meeting of the shareholders may be called, for any purpose or purposes, unless
otherwise prescribed by statute, by the Chairman, the President or by a
majority of the Board of Directors, and shall be called by the President at
the request of the holders of not less than one-tenth of all the votes
entitled to be cast on any issue proposed to be considered at the meeting.

Elimination of Certain Liabilities and Indemnification Rights. The Company's
Articles of Incorporation provide that a director shall not be liable to the
Company or its shareholders for money damages for any action taken, or any
failure to take any action, as a director, except liability for: (i) the
amount of financial benefit received by a director to which he is not
entitled; (ii) an international infliction of harm on the Company or its
shareholders; (iii) a violation of Mississippi Code Annotated Section 79-4-
8.33 (1972), as amended; or (iv) an intentional violation of criminal law.

The Company's Articles of Incorporation provide for indemnification of
officers, directors and employees in connection with a proceeding including
reasonable expenses (attorney's fees) to the fullest extent permitted by the
MBCA in effect from time to time and also provide for indemnification against
liability to the Company, liability for improperly receiving a personal
benefit and/or liability for any other reason, provided that such person's
conduct did not constitute gross negligence or willful misconduct as
determined by the Board of Directors or a committee designated by the Board,
by special legal counsel, by the shareholders or by a court.

The Company's Articles of Incorporation also provide for advances to persons
for reasonable expenses if the person furnishes a written undertaking to repay
the advance if these actions are adjudged to be grossly negligent or willful
misconduct and a determination is made that the facts known would not preclude
indemnification.

Election of Directors. The Company's Bylaws provide for cumulative voting in
the election of directors. Under cumulative voting, each shareholder is
entitled to vote the number of votes of the shares owned by him on the record
date multiplied by the number of directors to be elected. Each shareholder may
cast all of his votes for a single nominee or may distribute his votes in any
manner among as many candidates as the shareholder sees fit.

58
<PAGE>

The Company's Articles of Incorporation provide that the number of directors
will be not less than three, nor more than 25 with the exact number or
directors to be fixed in accordance with the Bylaws. The number of directors
is currently set at seven.

Changes in Control. The Company's Articles of Incorporation contain
provisions regarding the vote required to approve certain business
combinations or other significant corporate transactions involving the Company
and a substantial shareholder. Mississippi law generally requires the
affirmative vote of the holders of a majority of the shares entitled to vote
at the meeting to approve a merger, consolidation or dissolution of the
Company or a disposition of all or substantially all of the Company's assets.
Article Eleven of the Company's Articles of Incorporation raises the required
affirmative vote to 80% of the total number of votes entitled to be cast to
approve these and other significant corporate transactions ("business
combinations") if a "Substantial Shareholder" (as defined) is a party to the
transaction or its percentage equity interest in the Company will be increased
by the transaction. Two-thirds of the whole Board of Directors may, in all
such cases, determine not to require such 80% affirmative vote, but only if a
majority of the directors making such determination are "Continuing Directors"
(as defined). Such determination may only be made prior to the time the
Substantial Shareholder in question achieves such status.

A "Substantial Shareholder" generally is defined under Article Eleven as the
"beneficial owner" of more than 10% of the outstanding shares of stock of the
Company entitled to vote in the election of directors ("voting shares").
"Beneficial ownership" generally is defined in accordance with the definition
of beneficial ownership in Rule 13d-3 under the Securities Exchange Act of
1934 and includes all shares as to which the Substantial Shareholder in
question has sole or shared voting or investment power. However, for purposes
of Article Eleven, a Substantial Shareholder is also deemed to own
beneficially shares owned, directly or indirectly, by an "affiliate" or
"associate" of the Substantial Shareholder, as well as (i) shares which it or
any such "affiliate" or "associate" has a right to acquire, (ii) shares
issuable upon the exercise of options or rights, or upon conversion of
convertible securities, held by the Substantial Shareholder and (iii) shares
beneficially owned by any other person with whom the Substantial Shareholder
or any of his "affiliates" or "associates" acts as a partnership, syndicate or
other group pursuant to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of shares of capital stock
of the Company.

A "business combination" subject to Article Eleven includes, but is not
limited to, the following: a merger or consolidation involving the Company or
any of its subsidiaries and a Substantial Shareholder; a sale, lease or other
disposition of a "substantial part" of the assets of the Company or any of its
subsidiaries (i.e., assets constituting in excess of 10% of the book value of
the total consolidated assets of the Company) to a Substantial Shareholder; an
issuance of equity securities of the Company or any of its subsidiaries to a
Substantial Shareholder for consideration aggregating $5,000,000 or more; a
liquidation or dissolution of the Company; and a reclassification or
recapitalization of securities of the Company or any of its subsidiaries or a
reorganization, in any case having the effect, directly or indirectly, of
increasing the percentage interest of a Substantial Shareholder in any class
of equity securities of the Company or such subsidiary.

Article Eleven may not be amended or repealed without the affirmative vote
of 80% or more of the votes entitled to be cast by all holders of voting
shares (which 80% vote must also include the affirmative vote of a majority of
the votes entitled to be cast by all holders of voting shares not beneficially
owned by any Substantial Shareholder).

The supermajority voting provisions embodied in Article Eleven may have the
effect of discouraging any takeover or change in control of the Company. If
the holders of a majority of the Company's outstanding Common Stock desire a
takeover or change in control, and if such takeover or change in control is
opposed by the Company's management, the existing Articles of Incorporation of
the Company possibly could be used to thwart the desires of such majority.

Rights Agreement. On August 3, 1998, the Board declared a dividend
distribution of one Right for each outstanding share of Common Stock of the
Company to stockholders of record at the close of business on

59
<PAGE>

August 25, 1998 (the "Record Date"). Each Right entitles the registered
holder to purchase from the Company one share of Common Stock at a price of
$12.00 per share (the "Purchase Price"), subject to adjustment. The Purchase
Price shall be paid in cash. The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights Agreement") between the Company and
SunTrust Bank, Atlanta, as Rights Agent.

Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate certificates evidencing
the Rights (the "Rights Certificates") will be distributed. Until the earliest
to occur of: (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 20% or
more of the outstanding shares of Common Stock (the "Stock Acquisition Date");
(ii) 10 business days following the commencement of a tender offer or exchange
offer if, upon consummation thereof, such person or group would be the
beneficial owner of 20% or more of such outstanding shares of Common Stock; or
(iii) the close of business on the tenth day after the Board of Directors of
the Company determines that a person, who alone or together with affiliates or
associates has beneficial ownership of at least 10% of the Common Stock then
outstanding, is an Adverse Person (the earliest of such dates being called the
"Distribution Date"), the Rights will be evidenced only by Common Stock
certificates and will be transferred with and only with Common Stock
certificates. The Board of Directors, after reasonable inquiry and
investigation, may determine that a person is an Adverse Person if the Board
finds that: (i) such person intends to cause the Company to repurchase such
person's shares or intends to attempt to pressure the Company to take actions
which will result in that person's short-term financial gain under
circumstances which would not be in the best interest of the Company and the
shareholders; or (ii) ownership of the Common Stock by such person is causing
or is reasonably likely to cause a material adverse impact on the business or
prospects of the Company.

Until the Distribution Date (or earlier redemption or expiration of the
Rights), new Common Stock certificates issued after the Record Date upon
transfer or new issuance of the Common Stock will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date
(or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates for Common Stock outstanding as of the Record
Date will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate. As soon as practicable following
the Distribution Date, Rights Certificates will be mailed to holders of record
of the Common Stock as of the close of business on the Distribution Date and,
thereafter, such separate Rights Certificates alone will evidence the Rights.

The Rights are not exercisable until the Distribution Date and will expire
at the close of business on August 25, 2008, unless earlier redeemed by the
Company as described below.

In the event that: (i) a Person (other than the Company and its affiliates)
becomes the beneficial owner of 20% or more of the then outstanding shares of
Common Stock; or (ii) the Board determines that a person is an Adverse Person,
the Rights Agreement provides that proper provision shall be made so that each
holder of a Right (except for any Acquiring Person or Adverse Person and
certain Affiliates, Associates and transferees of such person) will thereafter
have the right to receive, upon exercise, Common Stock (or in certain
circumstances, cash, other securities or property) having a value equal to two
(2) times the exercise price of the Right. Notwithstanding the above, the
acquisition of beneficial ownership of 20% or more of the Common Stock under
clause (ii) above shall not permit the holder of a Right to purchase Common
Stock at such discounted purchase price if such acquisition of beneficial
ownership is approved in advance by the Board of Directors of the Company.

In the event that, at any time following the Stock Acquisition Date: (i) the
Company engages in a merger or other business combination transaction in which
the Company is not the surviving corporation; (ii) the Company engages in a
merger or other business combination transaction with another person in which
the Company is the surviving corporation, but in which its Common Stock is
changed or exchanged; or (iii) 50% or more of the Company's assets or earning
power is sold or transferred, the Rights Agreement provides that proper
provision shall be made so that each holder of a Right shall thereafter have
the right to receive, upon the exercise thereof

60
<PAGE>

at the then current exercise price of the Right, common stock of the acquiring
company having a value equal to two (2) times the exercise price of the Right.

The Purchase Price payable, and the number of shares of Common Stock
issuable, upon exercise of the Rights are subject to adjustment from time to
time to prevent dilution: (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Common Stock; (ii) upon
the grant to holders of the Common Stock of certain rights or warrants to
subscribe for Common Stock or convertible securities at less than the current
market price of the Common Stock; or (iii) upon the distribution to holders of
the Common Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).

With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares will be issued and, in lieu thereof,
an adjustment in cash will be made based on the market price of the Common
Stock on the last trading date prior to the date of exercise.

The Rights may be redeemed by the Board in whole, but not in part, at a
price of $0.01 per Right (the "Redemption Price") at any time prior to fifteen
(15) days (plus such extensions as the Board, in its discretion, specifies)
after the Stock Acquisition Date. However, the Board of Directors may not
redeem any Rights following a determination that a person is an Adverse
Person. Immediately upon the action of the Board of Directors of the Company,
ordering redemption of the Rights, the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price. The
Company may, at its option, pay the Redemption Price in cash, shares of Common
Stock, or any other forms of consideration deemed appropriate by the Board of
Directors.

Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.

Other than those provisions relating to the Redemption Price, final
expiration date and number of shares of Common Stock (and/or other securities
or property, if applicable) issuable upon exercise of the Rights, any of the
provisions of the Rights Agreement may be amended by the Board of Directors of
the Company prior to the Distribution Date; and, thereafter, the provisions of
the Rights Agreement may be amended by the Board only in order to cure any
ambiguity, to correct or supplement any provision contained in the Rights
Agreement which may be defective or inconsistent with any other provision, to
shorten or lengthen any time period or to make such other changes as do not
adversely affect the interests of holders of Rights (excluding the interests
of any Acquiring Person); provided, however, that no amendment shall be made
after the Distribution Date: (i) to lengthen any time period unless such
lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, or benefits to, holders of Rights; or (ii) to lengthen the
redemption period at a time when the Rights are not then redeemable.

The Rights Agreement and the provisions in the Company's Articles of
Incorporation described above may have the effect of making it more difficult
for stockholders to replace or add directors, or to otherwise influence
actions taken by directors, which may discourage attempts to acquire control
of the Company which may (or may not) be in the best interest of the majority
of the stockholders.

61
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

All of the shares of Common Stock sold in the Offering will generally be
freely tradeable under the Securities Act of 1933 (the "Securities Act"). The
Company will have 4,130,707 shares of Common Stock outstanding after the
Offering. The Company, its executive officers and directors and certain
shareholders (who collectively will own approximately 1,779,300 shares or
43.1% of the outstanding shares of Common Stock after the consummation of the
Offering) have agreed with the Underwriters not to offer, sell, contract to
sell or otherwise dispose of any of their shares of Common Stock for a period
of 180 days after the date of this Prospectus without the permission of the
Underwriters. Currently 839,880 outstanding shares of Common Stock held by
existing shareholders are not subject to such agreement, and are freely
tradable in accordance with Rule 144(k) under the Securities Act. The
remaining 147,891 shares of currently outstanding Common Stock which were
acquired in the past two years pursuant to exemptions from registration under
the Securities Act are "restricted" within the meaning of Rule 144 and not
currently eligible for resale under Rule 144. These shares may be resold only
pursuant to an effective registration under the Securities Act or pursuant to
an available exemption (such as provided by Rule 144 following a holding
period for previously unregistered shares) from the registration requirements
of the Securities Act.

In general, Rule 144 provides that, subject to its provisions and other
applicable federal and state securities law requirements, any person (or
persons whose shares are aggregated), including any person who may be deemed
an "affiliate" as defined under the Securities Act, who has acquired
securities directly or indirectly from the issuer or an affiliate in a
transaction not involving a public offering ("restricted securities"), and who
has beneficially owned such restricted securities for at least one year is
entitled to sell within any three-month period, a number of such shares that
does not exceed the greater of: (i) the average weekly trading volume of the
same class of securities during the four calendar weeks preceding the filing
of the notice of the sale with the Securities and Exchange Commission ("SEC");
or (ii) 1% of the same class of securities then outstanding, subject to
certain manner-of-sale provisions, notice requirements, and the availability
of current information concerning the Company. A person who is not deemed an
"affiliate" of the Company and who has beneficially owned shares for at least
two years is entitled to sell such shares under Rule 144 without regard to the
volume limitations and current public information, manner of sale and notice
requirements described above. Affiliates, including officers, directors and
principal shareholders of the Company, are subject to the volume limitations
and certain other requirements as to all shares owned by them, regardless of
the length of time such shares have been beneficially owned and irrespective
of whether such shares were acquired from the issuer or otherwise and whether
acquired in a transaction involving a public offering.

62
<PAGE>

UNDERWRITING

Pursuant to the Underwriting Agreement, the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
and subject to the terms and conditions thereof, the underwriters named below
(the "Underwriters"), acting through Morgan Keegan & Company, Inc. and Sterne,
Agee & Leach, Inc., as representatives of the several Underwriters (the
"Representatives") have severally agreed to purchase from the Company the
number of shares of Common Stock set forth below opposite their respective
names.

<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Morgan Keegan & Company, Inc. ................................ 481,346
Sterne, Agee & Leach, Inc. ................................... 206,290
J.C. Bradford & Co............................................ 52,000
SunTrust Equitable Securities Corporation..................... 52,000
J.J.B. Hilliard, W.L. Lyons, Inc.............................. 52,000
Howe Barnes Investments Inc................................... 52,000
Interstate/Johnson Lane Corporation........................... 52,000
Jefferies & Company........................................... 52,000
McDonald Investments Inc., a KeyCorp Company.................. 52,000
Fifth Third/The Ohio Company.................................. 52,000
Raymond James & Associates, Inc............................... 52,000
The Robinson-Humphrey Company, LLC............................ 52,000
Stephens Inc.................................................. 52,000
Stifel, Nicolaus & Company, Incorporated...................... 52,000
Wheat First Securities, Inc................................... 52,000
---------
Total....................................................... 1,363,636
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all such shares of the Common Stock if any of such shares are
purchased. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the over-
allotment option described below) if any are taken.

The Company has been advised by the Underwriters that the Underwriters
propose to offer such shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $.40 per
share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $.10 per share to certain other dealers. After the initial
public offering, the offering price and other selling terms may be changed by
the Underwriters.

Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 204,545 additional shares of Common Stock
at the initial public offering price, less the underwriting discounts and
commissions set forth on the cover page of this Prospectus, solely to cover
over-allotments. To the extent that the Underwriters exercise such option,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares as the
number set forth next to such Underwriter's name in the preceding table bears
to the total number of shares in such table, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters.

The Company, each of its directors and executive officers, and certain other
shareholders of the Company have agreed not to sell or otherwise dispose of
any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representatives. See "Risk
Factors--Potential Adverse Effect of Future Sales of Presently Outstanding
Shares."

63
<PAGE>

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority. The Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act.

Until the distribution of the Common Stock is completed, rules of the SEC
may limit the ability of the Underwriters or members of the selling group to
bid for and purchase the Common Stock. As an exception to these rules, the
Underwriters are permitted to engage in certain transactions that stabilize
the price of the Common Stock. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the Common
Stock.

If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell a greater aggregate number of
shares of Common Stock than is set forth on the cover page of this Prospectus,
the Underwriters may reduce the short position by purchasing shares of Common
Stock in the open market. The Underwriters may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.

The Underwriters may also impose a penalty bid on certain selling group
members. This means that if the Underwriters purchase Common Stock in the open
market to reduce the selling group members' short position or to stabilize the
price of the Common Stock, they may reclaim the amount of the selling
concession from the selling group members who sold those shares of Common
Stock as part of the Offering. In general, purchases of a security for the
purpose of stabilization or to reduce a short position could cause the price
of the security to be higher than it might be in the absence of such
purchases. The imposition of a penalty bid might also have an effect on the
price of a security to the extent that it were to discourage resales of the
security.

Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor the Underwriters make any representation
that the Underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.

Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock was
determined by negotiations between the Company and the Representatives. Among
the factors considered in such negotiations were prevailing market and general
economic conditions, the market capitalizations, trading histories and stages
of development of other publicly traded companies that the Company and the
Representatives believe to be comparable to the Company, the results of
operations of the Company in recent periods, the current financial position of
the Company, estimates of the business potential of the Company and the
present state of the Company's development and the availability for sale in
the market of a significant number of shares of Common Stock. Additionally,
consideration was given to the general status of the securities market, the
market conditions for new issues of securities and the demand for securities
of comparable companies at the time the Offering was made.

At the request of the Company, the Underwriters have reserved up to five
percent of the shares of Common Stock to be offered hereby for sale at the
initial public offering price to certain Company employees, business
associates and related persons. The number of shares of Common Stock available
for sale to the general public will be reduced to the extent such persons
purchase the reserved shares. Any reserved shares that are not purchased will
be offered by the Underwriters to the general public on the same basis as the
other shares offered hereby.

The Common Stock has been approved for listing on the Nasdaq National
Market.

LEGAL MATTERS

The legality of the shares of the Common Stock offered hereby will be passed
upon by Watkins Ludlam Winter & Stennis, P.A., Jackson, Mississippi, counsel
to the Company. Certain legal matters in connection with the Offering will be
passed on for the Underwriters by Powell, Goldstein, Frazer & Murphy LLP,
Atlanta, Georgia.

64
<PAGE>

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in this Prospectus and Registration Statement at
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, as set forth in their report appearing elsewhere herein.
Our consolidated financial statements are included elsewhere herein in
reliance on their report, given on their authority as experts in accounting
and auditing.

McArthur, Thames, Slay and Dews, PLLC were the independent accountants for
the Company until June of 1998. The Company replaced McArthur, Thames, Slay
and Dews, PLLC with Ernst & Young LLP as the Company's independent
accountants. The Company's Board of Directors approved the change in
independent accountants. The audit reports of McArthur, Thames, Slay and Dews,
PLLC on the consolidated financial statements of the Company did not contain
any adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. There have
been no disagreements between the Company and McArthur, Thames, Slay and Dews,
PLLC relating to accounting principles or practices or financial statement
disclosure during the last two fiscal years or the subsequent interim period
through the date of dismissal.

AVAILABLE INFORMATION

The Company has filed with the SEC a Registration Statement on Form S-1
(together with all amendments and supplements, the "Registration Statement")
under the Securities Act, with respect to the Common Stock. This Prospectus
omits certain information contained in the Registration Statement, certain
items of which are contained in exhibits to the Registration Statement as
permitted by the rules and regulations of the SEC. For further information
with respect to the Company and the Common Stock, reference is made to the
Registration Statement, including the exhibits filed as a part thereof, which
may be inspected at the principal office of the SEC without charge at 450
Fifth Street, N.W., Washington, D.C. 20549 and is available on the SEC web
site at http://www.sec.gov.

Upon consummation of this Offering, the Company will be subject to the
informational requirements of the Exchange Act and in accordance therewith
will file reports and other information with the SEC. Copies of such reports
and other information can be obtained, at prescribed rates, from the SEC by
addressing written requests for such copies to the Public Reference Section at
the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. In
addition, such reports and other information can be inspected and copied at
the public reference facilities referred to above and at the regional offices
of the SEC at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The SEC also maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements,
and other information regarding registrants, including the Company.

Copies of the Registration Statement may be obtained from the SEC at its
principal office at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of prescribed fees. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete,
and, where the contract or the document has been filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by
reference to the applicable document filed with the SEC.

Following the Offering, the shares of Common Stock will be traded on the
Nasdaq National Market under the symbol LCCO, and reports, proxy and
information statements, and other information filed by the Company following
the Offering may also be inspected at the offices of the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.

65
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets as of September 30, 1998 (unaudited) and
December 31, 1997 and 1996............................................... F-3
Consolidated Statements of Income and Comprehensive Income for the nine
months ended September 30, 1998 and 1997 (unaudited) and the years ended
December 31, 1997, 1996 and 1995......................................... F-4
Consolidated Statement of Changes in Stockholders' Equity for the nine
months ended September 30, 1998 (unaudited) and the years ended December
31, 1997, 1996 and 1995.................................................. F-5
Consolidated Statements of Cash Flows for the nine months ended September
30, 1998 and 1997 (unaudited) and the years ended December 31, 1997, 1996
and 1995................................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders Lamar Capital Corporation

We have audited the accompanying consolidated balance sheets of Lamar
Capital Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income and comprehensive income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Lamar Capital
Corporation at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.

Ernst & Young LLP

Jackson, Mississippi
August 11, 1998

F-2
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
1998 1997 1996
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks...................... $ 15,097 $ 7,787 $ 8,676
Federal funds sold........................... 5,875 7,950 4,700
-------- -------- --------
Cash and cash equivalents.................... 20,972 15,737 13,376
Securities available for sale (amortized
cost--$54,295 (unaudited) in 1998, $36,365
in 1997 and $18,816 in 1996)................ 55,128 36,810 18,660
Securities held to maturity (fair value--
$35,711 (unaudited) in 1998, $22,203 in 1997
and $22,674 in 1996)........................ 35,111 22,111 22,902
Loans (less allowance for loan losses of
$3,517 (unaudited) in 1998, $3,101 in 1997
and $2,837 in 1996)......................... 188,876 159,552 140,318
Accrued interest receivable.................. 2,857 2,391 1,990
Premises and equipment....................... 8,932 6,638 6,218
Other real estate............................ 544 411 767
Federal Home Loan Bank stock................. 766 963 539
Cash surrender value of life insurance....... 1,281 1,233 1,169
Deferred income taxes........................ 544 689 825
Other assets................................. 683 487 566
-------- -------- --------
Total assets............................. $315,694 $247,022 $207,330
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing......................... $ 29,825 $ 24,051 $ 20,770
Interest bearing............................. 247,793 187,447 164,634
-------- -------- --------
Total deposits........................... 277,618 211,498 185,404
Interest payable............................. 702 812 692
Dividends payable............................ 83 150 125
Other liabilities............................ 893 782 636
Other borrowed funds......................... 17,720 17,620 7,000
-------- -------- --------
Total liabilities........................ 297,016 230,862 193,857
STOCKHOLDERS' EQUITY
Common stock, $.50 par value (unaudited) at
September 30, 1998, $10 par value at
December 31, 1997 and 1996; 50,000,000
shares (unaudited) authorized at September
30, 1998, 100,000 shares authorized at
December 31, 1997 and 1996; 2,767,071 shares
(unaudited) issued and outstanding at
September 30, 1998, 46,569.44 shares issued
and outstanding at December 31, 1997 and
1996........................................ 1,384 466 466
Paid-in capital.............................. 4,367 5,374 5,227
Retained earnings............................ 12,405 10,283 8,219
Unrealized gain (loss) on securities
available for sale, net of income taxes..... 522 279 (98)
Treasury stock, none (unaudited) at September
30, 1998 and 763.44 and 1,417.44 shares at
December 1997 and 1996...................... -- (242) (341)
-------- -------- --------
Total stockholders' equity............... 18,678 16,160 13,473
-------- -------- --------
Total liabilities and stockholders'
equity.................................. $315,694 $247,022 $207,330
======== ======== ========
</TABLE>

See accompanying notes.

F-3
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ -------------------------
1998 1997 1997 1996 1995
-------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income
Loans, including fees.......... $ 13,703 $ 11,674 $15,984 $13,790 $11,519
Federal funds sold............. 531 225 297 204 274
Interest on securities:
Taxable........................ 2,227 1,424 1,956 1,029 1,052
Non-taxable.................... 1,102 864 1,205 1,167 1,058
-------- -------- ------- ------- -------
3,329 2,288 3,161 2,196 2,110
-------- -------- ------- ------- -------
Total interest income.... 17,563 14,187 19,442 16,190 13,903
Interest expense
Deposits....................... 9,292 7,242 9,799 8,358 7,083
Other borrowed funds........... 921 502 737 71 17
-------- -------- ------- ------- -------
Total interest expense... 10,213 7,744 10,536 8,429 7,100
-------- -------- ------- ------- -------
Net interest income............ 7,350 6,443 8,906 7,761 6,803
Provision for loan losses...... 559 503 725 557 517
-------- -------- ------- ------- -------
Net interest income after
provision for loan losses..... 6,791 5,940 8,181 7,204 6,286
Other income
Service charges on deposit
accounts...................... 1,329 1,228 1,670 1,519 1,075
Mortgage loan fees............. 377 320 362 260 226
Commissions on credit life
insurance..................... 326 284 391 320 269
Gain (loss) on sale of
securities available for
sale.......................... 222 (12) (13) 10 3
Other operating income......... 283 203 279 216 178
-------- -------- ------- ------- -------
Total other income....... 2,537 2,023 2,689 2,325 1,751
Other expense
Salaries and employee
benefits...................... 3,450 2,949 4,173 3,595 3,068
Occupancy expense.............. 482 462 610 504 439
Furniture and equipment
expense....................... 671 647 878 787 780
Other operating expense........ 1,578 1,460 2,016 2,004 1,859
-------- -------- ------- ------- -------
Total other expense...... 6,181 5,518 7,677 6,890 6,146
-------- -------- ------- ------- -------
Income before income taxes..... 3,147 2,445 3,193 2,639 1,891
Income tax expense............. 787 658 854 611 417
-------- -------- ------- ------- -------
Net income..................... 2,360 1,787 2,339 2,028 1,474
Other comprehensive income
(loss), net of income taxes
Change in unrealized gain
(loss) on securities available
for sale...................... 243 237 377 (68) 757
Reclassification of realized
amount........................ (139) 8 8 (6) (2)
-------- -------- ------- ------- -------
Net unrealized gain (loss)
recognized in comprehensive
income........................ 104 245 385 (74) 755
-------- -------- ------- ------- -------
Comprehensive income..... $ 2,464 $ 2,032 $ 2,724 $ 1,954 $ 2,229
======== ======== ======= ======= =======
Earnings per share--basic and
dilutive...................... $ .86 $ .67 $ .87 $ .75 $ .54
======== ======== ======= ======= =======
</TABLE>
See accompanying notes.

F-4
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON SECURITIES
AVAILABLE
COMMON STOCK FOR SALE, TREASURY STOCK TOTAL
-------------------- PAID-IN RETAINED NET OF ------------------ STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME TAXES SHARES AMOUNT EQUITY
------------ ------ ------- -------- ------------- ---------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995... 46,569.44 $ 466 $5,227 $ 5,217 $(787) -- $ -- $10,123
Net income for 1995.......... 1,474 1,474
Dividend ($5.54 per share)... (250) (250)
Purchase of treasury stock... 1,409.30 (339) (339)
Change in unrealized gain
(loss), net of income taxes,
on securities available for
sale........................ 757 757
------------ ------ ------ ------- ----- ---------- ----- -------
Balance at December 31,
1995........................ 46,569.44 466 5,227 6,441 (30) 1,409.30 (339) 11,765
Net income for 1996.......... 2,028 2,028
Dividend ($5.54 per share)... (250) (250)
Purchase of treasury stock... 8.14 (2) (2)
Change in unrealized gain
(loss), net of income taxes,
on securities available for
sale........................ (68) (68)
------------ ------ ------ ------- ----- ---------- ----- -------
Balance at December 31,
1996........................ 46,569.44 466 5,227 8,219 (98) 1,417.44 (341) 13,473
Net income for 1997.......... 2,339 2,339
Dividend ($6.05 per share)... (275) (275)
Purchase of treasury stock... 1,374.00 (436) (436)
Sale of treasury stock....... 147 (2,028.00) 535 682
Change in unrealized gain
(loss), net of income taxes,
on securities available for
sale........................ 377 377
------------ ------ ------ ------- ----- ---------- ----- -------
Balance at December 31,
1997........................ 46,569.44 466 5,374 10,283 279 763.44 (242) 16,160
Net income for the nine
months ended September 30,
1998........................ 2,360 2,360
Stock split (60-for-1)....... 2,747,596.96 932 (932) 56,842.96 --
Dividend ($.09 per share).... (238) (238)
Purchase of treasury stock... 200.00 (72) (72)
Sale of treasury stock....... 51 (30,711.00) 174 225
Retirement of treasury
stock....................... (27,095.40) (14) (126) (27,095.40) 140 --
Change in unrealized gain
(loss), net of income taxes,
on securities available for
sale........................ 243 243
------------ ------ ------ ------- ----- ---------- ----- -------
Balance at September 30, 1998
(unaudited)................. 2,767,071 $1,384 $4,367 $12,405 $ 522 -- $ -- $18,678
============ ====== ====== ======= ===== ========== ===== =======
</TABLE>

See accompanying notes.

F-5
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income................... $ 2,360 $ 1,787 $ 2,339 $ 2,028 $ 1,474
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses.... 559 503 725 557 517
Provision for losses on other
real estate................. 11 34 44 18 27
Deferred income tax benefit.. -- -- (89) (108) (70)
Depreciation and amortization
expense..................... 489 459 726 654 604
Amortization of securities
premiums.................... 185 129 167 208 185
Accretion of securities
discounts................... (24) (41) (69) (12) (28)
Increase in cash surrender
value of life insurance..... (48) (48) (64) (61) (40)
Federal Home Loan Bank
dividend.................... (26) (35) (49) (30) (17)
(Gain) loss on sales of
securities.................. (222) 12 13 (10) (3)
(Gain) loss of sales of other
real estate................. (7) (21) (12) (18) 53
Mortgage loan originations... (12,653) (9,511) (13,568) (11,697) (10,133)
Proceeds from sales of
mortgage loans.............. 11,089 9,299 13,508 12,581 9,478
Increase in interest
receivable.................. (466) (295) (401) (387) (87)
Increase (decrease) in
interest payable............ (110) (47) 120 10 393
(Increase) decrease in other
assets...................... (196) (99) 79 81 (134)
Increase in other
liabilities................. 111 133 146 203 33
-------- -------- -------- -------- -------
Net cash provided by operating
activities................... 1,052 2,259 3,615 4,017 2,252
Investing activities
Securities held to maturity:
Proceeds from calls,
maturities, and principal
reductions.................. 3,415 1,891 2,821 3,195 2,215
Purchase of securities....... (15,795) (1,564) (2,115) (9,823) (8,153)
Securities available for
sale:
Proceeds from calls,
maturities, and principal
reductions.................. 7,654 2,490 3,554 2,162 --
Proceeds from sales of
securities.................. 7,930 11,867 19,618 2,182 7,220
Purchases of securities...... (34,073) (30,953) (40,746) (6,536) (401)
(Purchases) sales of Federal
Home Loan Bank stock........ 223 (430) (375) (29) (463)
Net increase in loans........ (28,481) (14,755) (19,899) (22,763) (16,512)
Proceeds from sales of other
real estate................. 25 246 324 102 130
Purchases of premises and
equipment................... (2,783) (545) (1,146) (2,548) (379)
-------- -------- -------- -------- -------
Net cash used in investing
activities.................. (61,885) (31,753) (37,964) (34,058) (16,343)
Financing activities
Net increase in deposits..... 66,120 20,490 26,094 28,773 17,422
Decrease in federal funds
purchased................... -- -- -- -- (1,750)
Net increase in revolving
line of credit.............. 100 -- 4,020 -- --
Borrowings from banks........ -- 10,000 10,000 7,000 --
Payments on notes payable to
banks....................... -- (3,000) (3,400) -- --
Purchases of treasury stock.. (72) (436) (436) (2) (339)
Proceeds from sales of
treasury stock.............. 225 352 682 -- --
Dividends paid............... (305) (250) (250) (250) (250)
-------- -------- -------- -------- -------
Net cash provided by
financing activities........ 66,068 27,156 36,710 35,521 15,083
-------- -------- -------- -------- -------
Net increase (decrease) in
cash and cash equivalents... 5,235 (2,338) 2,361 5,480 992
Cash and cash equivalents at
beginning of period......... 15,737 13,376 13,376 7,896 6,904
-------- -------- -------- -------- -------
Cash and cash equivalents at
end of period............... $ 20,972 $ 11,038 $ 15,737 $ 13,376 $ 7,896
======== ======== ======== ======== =======
</TABLE>

See accompanying notes.

F-6
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of Lamar Capital
Corporation (the "Company") and its wholly-owned subsidiaries, The Mortgage
Shop, Inc. ("MSI") and Lamar Bank (the "Bank") and its wholly-owned
subsidiary, Southern Financial Services, Inc. ("SFSI"). All significant
intercompany balances and transactions have been eliminated in consolidation.

Business

The Company is a one-bank holding company headquartered in Purvis,
Mississippi. The Company operates seven full service banking locations in
retail banking predominantly in Lamar and Forrest counties in southeastern
Mississippi. SFSI operates a finance company in seven locations in
southeastern Mississippi to provide consumer loans to customers who may not be
eligible to obtain financing from the Bank. The Company's consolidated results
of operations are dependent upon net interest income, which is the difference
between the interest income on interest-earning assets and the interest
expense on interest-bearing liabilities. Principal interest-earning assets are
securities and real estate, consumer and commercial loans. Interest-bearing
liabilities consist of interest-bearing deposit accounts and other borrowed
funds.

Other sources of income include fees charged to customers for a variety of
banking services such as deposit account fees and commissions on credit life
insurance. The Company also generates fees in its mortgage banking activities
from the origination and sale of loans and servicing rights of 15 year and 30
year fixed rate loans in the secondary market.

The Company's operating expenses consist primarily of salaries and employee
benefits, occupancy, furniture and equipment expenses, communications costs
and other general and administrative operating expenses. The Company's results
of operations are significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government policies
and actions of regulatory agencies.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents are stated at cost. Federal funds sold have
maturities generally of one day. The Bank is required to maintain average
balances with the Federal Reserve Bank. The required reserve balance at
December 31, 1997 was $3,088. Cash paid for interest during the nine months
ended September 30, 1998 and 1997 and the years ended December 31, 1997, 1996
and 1995 was $10,323 (unaudited) and $7,791 (unaudited), $10,416, $8,419 and
$6,707, respectively.

Securities

Debt securities available for sale are carried at estimated fair value. The
amortized cost of debt securities classified as available for sale is adjusted
for amortization of premiums and accretion of discounts to maturity.
Unrealized gains or losses on these debt securities are included in
stockholders' equity net of income taxes. Debt

F-7
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

securities which the Bank has the ability and the intent to hold until
maturity are stated at cost, adjusted for amortization of premiums and
accretion of discounts. The adjusted cost of the specific debt securities sold
is used to compute gains or losses on the sale of securities. Premiums and
discounts are recognized in interest income using the interest method over the
period to maturity.

Federal Home Loan Bank stock is not considered a marketable equity security
under SFAS No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" and, therefore, is carried at cost.

Mortgage Banking Activities

The Company originates first mortgage loans (traditional 15 year and 30 year
fixed and variable rate loans) for sale, with the servicing rights, in the
secondary market. The Company limits its interest rate risk on such loans
originated by selling individual loans immediately after the customers lock
into their rate. Origination fees and any gains or losses on the sale of the
mortgage loans and servicing rights, which are not material to the
consolidated operations for the periods presented, are included in mortgage
loan fees. Mortgage loans originated and intended for sale in the secondary
market are carried at the lower of aggregate cost or market value, based on
the subsequent sales prices of such loans.

In June of 1996, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which requires an entity to recognize the
financial and servicing assets it controls and the liabilities it has incurred
and to cease to recognize them as financial assets when control has been
surrendered in accordance with the criteria provided in SFAS No. 125.
Subsequently, the FASB issued SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of SFAS No. 125," which deferred until January 1, 1998, the
implementation of certain aspects of the original statement. The Company
adopted the provisions of SFAS No. 125 effective January 1, 1998. The adoption
of SFAS No. 125 did not have a material impact on the consolidated financial
condition or operating results of the Company.

Loans

Loans, other than mortgage loans held for sale, are stated at the principal
amounts outstanding, less unearned income and the reserve for possible loan
losses. Interest on loans and accretion of unearned income are computed by
methods which approximate a level rate of return on recorded principal. Loan
origination fees and certain direct loan origination costs are deferred and
recognized over the average lives of the loans as an adjustment to yield.

Commercial and real estate loans are placed on non-accrual status when they
become past due 90 days or more as to principal or interest unless they are
adequately secured and in the process of collection. All commercial and real
estate nonaccrual loans are considered to be impaired in accordance with
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by
Creditors for Impairment of a Loan." Consumer loans generally are not placed
on nonaccrual status but are reviewed periodically and charged off when deemed
uncollectible or any payment of principal or interest is more than 120 days
delinquent. Interest payments received on nonaccrual loans are applied to
principal if in management's opinion there is doubt as to the collectibility
of the principal; otherwise, these receipts are recorded as interest income. A
loan remains on nonaccrual status until it is current as to principal and
interest and the borrower demonstrates the ability to fulfill the contractual
obligation.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level considered adequate
by management and approved by the Board of Directors to provide for potential
loan losses. Management's determination of the adequacy is

F-8
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

based on an evaluation of the portfolio, past loan loss experience, growth and
composition of the loan portfolio, economic conditions and other relevant
factors; actual losses may vary from the current estimate. The allowance is
increased by provisions for loan losses charged against income. Actual loan
losses are deducted from and subsequent recoveries are added to the allowance.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the modified accelerated cost recovery method for
financial reporting purposes based upon the estimated useful lives of the
assets. Expenditures for major renewals and betterments are capitalized and
those for maintenance and repairs are charged to expense when incurred.

Other Real Estate

Other real estate is stated at the lower of fair value, based on current
market appraisals, or the recorded investment in the related loan.

Long-Lived Assets

Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and Assets to be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The effect of adopting SFAS No.
121 did not have a material impact on the consolidated financial position or
operating results of the Company.

Income Taxes

The Company and its subsidiaries file a consolidated federal and state
income tax return. The Company accounts for income taxes using the liability
method. Temporary differences occur between the financial reporting and tax
bases of assets and liabilities. Deferred tax assets and liabilities are
recorded for these differences based on enacted tax rates and laws that will
be in effect when the differences are expected to reverse.

Comprehensive Income

The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income," effective for the nine month period ended September 30, 1998. SFAS
No. 130 requires the presentation of comprehensive income and establishes
standards for reporting its components (revenue, expenses, gains and losses)
in a full set of general purpose financial statements. The periods prior to
September 30, 1998 were restated to meet the current reporting formats.

Recent Accounting Pronouncements

In June of 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards for the
reporting of financial information from operating segments in annual and
interim financial statements. SFAS No. 131 requires that financial information
be reported on the same basis that is reported internally for evaluating
segment performance and allocating resources to segments. Because SFAS No. 131
addresses how supplemental financial information is disclosed in annual and
interim reports, its adoption is not anticipated to have an impact on the
consolidated financial position or operating results of the Company. The
Company is required to adopt the disclosure requirements in its 1998 annual
report, and in interim periods in 1999.

In June of 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on the consolidated financial
position or operations of the Company.

F-9
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Net Income per Common Share

In February of 1997, the FASB issued SFAS No. 128, "Earnings per Share,"
which requires the presentation of both basic and diluted net income per
share. The Company adopted the provisions of SFAS No. 128 effective December
31, 1997. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported earnings per
share. All earnings per share amounts for all periods presented, and where
appropriate, have been restated to conform to the SFAS No. 128 requirements.

Effective May 13, 1998, the Board of Directors adopted and the shareholders
approved an amendment to the Company's Articles of Incorporation to increase
the authorized shares to 2,000,000 shares of Common Stock with a par value of
$.50 per share and completed a 20-for-1 stock split of its Common Stock. On
August 3, 1998, the Board of Directors approved a 3-for-1 stock split of its
Common Stock and an amendment to the Company's Articles of Incorporation to
increase the authorized shares to 50,000,000 shares of Common Stock with a par
value of $.50 per share. The shareholders approved the amendment to increase
the authorized shares on August 25, 1998. Consolidated net income per basic
and diluted common share has been restated for each period presented in the
accompanying consolidated statements of income to reflect the stock splits
described above.

Reclassifications

Certain reclassifications have been made in the accompanying consolidated
financial statements from prior presentations.

Unaudited Financial Information

Financial information as of September 30, 1998 and the nine months ended
September 30, 1997 and 1998 as well as certain other information presented
subsequent to December 31, 1997 is unaudited. In the opinion of management of
the Company, all adjustments necessary for a fair presentation of such
financial information have been included. All such adjustments are of a normal
recurring nature. The consolidated statements of income and comprehensive
income, cash flows and changes in stockholders' equity for the nine months
ended September 30, 1998 are not necessarily indicative of the consolidated
statements of income and comprehensive income, cash flows and changes in
stockholders' equity which may be expected for the year ended December 31,
1998.

2. DEBT SECURITIES

The aggregate carrying amounts and estimated fair value of debt securities
were as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Debt securities available for sale:
U.S. Treasury securities and
obligations of U.S. government
agencies........................... $29,130 $357 $ -- $29,487
Obligations of states and political
subdivisions....................... 10,494 345 (2) 10,837
Mortgage-backed securities.......... 14,671 153 (20) 14,804
------- ---- ----- -------
Total debt securities available for
sale................................ $54,295 $855 $ (22) $55,128
======= ==== ===== =======
Debt securities held to maturity:
U.S. Treasury securities and
obligations of U.S. government
agencies........................... $ 7,582 $125 $ -- $ 7,707
Obligations of states and political
subdivisions....................... 25,935 517 (80) 26,372
Mortgage-backed securities.......... 1,594 38 -- 1,632
------- ---- ----- -------
Total debt securities held to
maturity............................ $35,111 $680 $ (80) $35,711
======= ==== ===== =======
</TABLE>

F-10
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities available for sale:
U.S. Treasury securities and
obligations of U.S. government
agencies........................... $23,387 $314 $ (5) $23,696
Obligations of states and political
subdivisions....................... 9,621 165 (28) 9,758
Mortgage-backed securities.......... 3,357 16 (17) 3,356
------- ---- ----- -------
Total debt securities available for
sale................................ $36,365 $495 $ (50) $36,810
======= ==== ===== =======
Debt securities held to maturity:
U.S. Treasury securities and
obligations of U.S. government
agencies........................... $ 4,911 $ 3 $ (20) $ 4,894
Obligations of states and political
subdivisions....................... 14,913 149 (88) 14,974
Mortgage-backed securities.......... 2,287 49 (1) 2,335
------- ---- ----- -------
Total debt securities held to
maturity............................ $22,111 $201 $(109) $22,203
======= ==== ===== =======
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities available for sale:
U.S. Treasury securities and
obligations of U.S. government
agencies........................... $ 5,179 $ 1 $ (62) $ 5,118
Obligations of states and political
subdivisions....................... 10,806 10 (76) 10,740
Mortgage-backed securities.......... 2,831 16 (45) 2,802
------- ---- ----- -------
Total debt securities available for
sale................................ $18,816 $ 27 $(183) $18,660
======= ==== ===== =======
Debt securities held to maturity:
U.S. Treasury securities and
obligations of U.S. government
agencies........................... $ 5,658 $ 2 $ (75) $ 5,585
Obligations of states and political
subdivisions....................... 13,697 57 (261) 13,493
Mortgage-backed securities.......... 3,547 60 (11) 3,596
------- ---- ----- -------
Total debt securities held to
maturity............................ $22,902 $119 $(347) $22,674
======= ==== ===== =======
</TABLE>

F-11
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

During the nine months ended September 30, 1998 and 1997 and the years ended
December 31, 1997, 1996 and 1995, available-for-sale debt securities with a
fair value at the date of sale of $7,930 (unaudited), $11,867 (unaudited),
$19,618, $2,182 and $7,220, respectively, were sold. The gross realized gains
or losses on such sales totaled $222 (unaudited), $(12) (unaudited), $(13),
$10 and $3, respectively. The amortized cost and estimated fair value of debt
securities as of December 31, 1997, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay certain obligations with or without call
or prepayment penalties.

<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Debt securities available for sale:
Due in one year or less................................ $ 431 $ 437
Due after one year through five years.................. 5,199 5,207
Due after five years through ten years................. 21,578 21,942
Due after ten years.................................... 5,800 15,868
Mortgage-backed securities............................. 3,357 3,356
------- -------
$36,365 $36,810
======= =======
Debt securities held to maturity:
Due in one year or less................................ $ 1,675 $ 1,685
Due after one year through five years.................. 10,381 10,380
Due after five years through ten years................. 5,211 5,222
Due after ten years.................................... 2,557 2,581
Mortgage-backed securities............................. 2,287 2,335
------- -------
$22,111 $22,203
======= =======
</TABLE>

Debt securities having carrying amounts of $70,715 (unaudited), $38,604 and
$35,521 at September 30, 1998, December 31, 1997 and 1996, respectively, were
pledged to secure public deposits and for other purposes required or permitted
by law.

3. LOANS

Loans consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
1998 1997 1996
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Real estate:
Residential.............................. $ 60,925 $ 55,406 $ 48,062
Mortgage loans held for sale............. 1,986 421 361
Construction............................. 7,867 4,226 4,680
Commercial............................... 30,278 28,591 26,125
Consumer................................... 57,285 51,965 45,555
Commercial................................. 37,797 25,556 21,992
-------- -------- --------
196,138 166,165 146,775
Unearned income............................ (3,745) (3,512) (3,620)
Allowance for loan losses.................. (3,517) (3,101) (2,837)
-------- -------- --------
Net loans.................................. $188,876 $159,552 $140,318
======== ======== ========
</TABLE>

F-12
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Loans are made principally to customers in the Company's trade area. The
economy in this trade area is primarily retail, service and medical based. The
Company's loan portfolio is primarily centered in consumer loans and real
estate; therefore, the collection of such loans are dependent on the trade
area economy. The Company's lending policy provides that loans collateralized
by real estate are normally made with loan-to-value ratios of 80% or less.
Commercial loans are typically collateralized by property, equipment,
inventories and/or receivables with loan-to-value ratios from 50% to 80%.
Consumer loans are typically collateralized by automobiles and personal
property.

Transactions in the allowance for loan losses are summarized as follows:

<TABLE>
<CAPTION>
AS OF AND FOR THE NINE AS OF AND FOR THE YEAR ENDED
MONTHS ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------------
1998 1997 1996 1995
---------------------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of
period................. $3,101 $ 2,837 $ 2,529 $ 2,427
Provision for loan
losses................. 559 725 557 517
Loans charged off....... (314) (638) (488) (632)
Recoveries of loans
previously charged
off.................... 171 177 239 217
------ --------- --------- ---------
Balance at end of
period................. $3,517 $ 3,101 $ 2,837 $ 2,529
====== ========= ========= =========
</TABLE>

Non-accrual loans at September 30, 1998, December 31, 1997 and 1996 were
$602 (unaudited), $147 and $400, respectively.

Certain directors, executive officers, principal shareholders, their
immediate family members and entities in which they or their immediate family
members have principal ownership interests, are customers of and have
transactions with the Company in the ordinary course of business. Loans to
these parties are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable third-
party transactions and do not involve more than normal risks of collectibility
or present other unfavorable features.

These related party loan transactions are summarized as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------- -----------------
(UNAUDITED)
<S> <C> <C>
Balance at beginning of period......... $1,436 $1,271
New loans.............................. 1,268 1,078
Repayments............................. (1,077) (913)
------ ------
Balance at end of period............... $1,627 $1,436
====== ======
</TABLE>

4. PREMISES AND EQUIPMENT

Premises and equipment consisted of the following at:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------
1998 1997 1996
------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................... $ 2,103 $ 1,657 $ 1,168
Bank premises................................ 6,298 4,923 4,738
Furniture, fixtures and equipment............ 4,486 3,651 3,328
Computer software............................ 751 674 550
Accumulated depreciation..................... (4,706) (4,267) (3,566)
------- ------- -------
$ 8,932 $ 6,638 $ 6,218
======= ======= =======
</TABLE>

F-13
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. OTHER REAL ESTATE

Other real estate transactions consisted of the following:

<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE YEAR ENDED
NINE MONTHS ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------------
1998 1997 1996 1995
----------------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance......... $ 411 $ 767 $ 309 $ 157
Transfers of loans........ 162 24 560 362
Sales..................... (18) (336) (84) (183)
Provision for losses...... (11) (44) (18) (27)
----- --------- --------- ---------
Ending balance............ $ 544 $ 411 $ 767 $ 309
===== ========= ========= =========
</TABLE>

6. INTEREST BEARING DEPOSITS

Interest bearing deposits consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1998 1997 1996
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Demand (Now, SuperNow and money market).... $ 80,693 $ 50,765 $ 46,610
Savings.................................... 9,351 8,877 8,384
Individual retirement accounts............. 13,267 11,058 9,654
Time deposits, $100,000 and over........... 53,023 35,635 29,329
Other time deposits........................ 91,459 81,112 70,657
-------- -------- --------
$247,793 $187,447 $164,634
======== ======== ========
</TABLE>

Scheduled maturities of time deposits, including individual retirement
accounts, outstanding at December 31, 1997 are as follows:

In the normal course of business, the Company has accepted deposits from
certain directors, executive officers, principal shareholders and other
related parties on substantially the same terms, including interest rates, as
those prevailing at the time of comparable transactions with third-party
customers. Such deposits were $772 (unaudited) at September 30, 1998 and $900
at December 31, 1997 and 1996, respectively.

7. OTHER BORROWED FUNDS

Other borrowed funds include borrowings of $4,120 (unaudited) and $4,020 at
September 30, 1998 and December 31, 1997, respectively, under a $5,000
revolving line of credit with an unrelated bank. Borrowings accrue interest at
a variable rate (9.00% at September 30, 1998 (unaudited) and 9.25% at December
31, 1997) with interest paid monthly. The revolving line of credit expires in
December of 1999. Borrowings under the revolving line of credit are
collateralized by substantially all of the assets of SFSI.

F-14
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Other borrowed funds include $3,600 (unaudited) at September 30, 1998 and
$3,600 and $4,000 at December 31, 1997 and 1996, respectively, to an unrelated
bank. The note bears interest at a variable rate (7.75% at September 30, 1998
(unaudited) and December 31, 1997 and 1996, respectively) with interest paid
quarterly. The note is due on demand; however, management anticipates that the
note will be paid by annual principal payments of $400 through December of
2006. The note is collateralized by the common stock of the Bank (book value
of approximately $18,880 at December 31, 1997).

Notes payable to banks include advances of $10,000 (unaudited) at September
30, 1998 and $10,000 and $3,000 at December 31, 1997 and 1996, respectively,
from Federal Home Loan Bank ("FHLB"). The advances accrue interest at variable
rates (5.57% (unaudited) weighted average rate at September 30, 1998 and 5.66%
and 6.12% weighted average rate at December 31, 1997 and 1996, respectively)
with interest paid monthly. The advances mature in April of 2002. The advances
are collateralized by the Bank's investment in FHLB stock, which totaled $766
(unaudited) at September 30, 1998 and $963 and $539 at December 31, 1997 and
1996, respectively, and by a blanket pledge of the Bank's eligible real estate
loans. The Bank had available collateral to borrow an additional $31,000
(unaudited) from the FHLB at September 30, 1998.

8. INCOME TAXES

Income tax expense (benefit) consisted of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current:
Federal......................................... $ 831 $ 627 $ 430
State........................................... 112 92 57
------- ------- -------
943 719 487
Deferred.......................................... (89) (108) (70)
------- ------- -------
$ 854 $ 611 $ 417
======= ======= =======
</TABLE>

The differences between the Bank's actual income tax expense and amounts
computed at the statutory rates are summarized as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ---------------------------
1998 1997 1997 1996 1995
--------- -------- --------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Amount computed at
statutory rate on income
before income taxes..... $ 1,070 $ 831 $ 1,086 $ 897 $ 643
Increase (decrease) in
income taxes resulting
from:
State income taxes, net
of federal benefit.... 66 51 66 51 32
Income from non-taxable
securities............ (375) (294) (323) (319) (285)
Other.................. 26 70 25 (18) 27
--------- ------- --------- ------- -------
$ 787 $ 658 $ 854 $ 611 $ 417
========= ======= ========= ======= =======
</TABLE>

The Company made income tax payments of $855 (unaudited) and $761
(unaudited) during the nine months ended September 30, 1998 and 1997,
respectively, and $984, $762 and $285 during the years ended December 31,
1997, 1996 and 1995, respectively.

F-15
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ------
<S> <C> <C>
Allowance for loan losses................................... $ 706 $ 638
Other real estate........................................... 60 25
Deferred compensation....................................... 105 80
Net unrealized (gains) losses on securities available for
sale....................................................... (166) 58
Other....................................................... (16) 24
------ ------
Total net deferred tax assets............................... $ 689 $ 825
====== ======
</TABLE>

9. EMPLOYMENT BENEFIT PLANS

The Company has a defined contribution 401(k) plan with a profit sharing
feature which covers substantially all employees. Participants in the 401(k)
plan may contribute up to the maximum allowed by Internal Revenue Service
regulations. The Company matches participants' contributions to the 401(k)
plan up to 3% of each participant's annual salary. The Company may make a
profit sharing contribution as determined by the Company's Board of Directors.
The Company's matching and profit sharing contributions vest 20% annually
beginning with the participant's third year of service. The Company's
contributions to the 401(k) plan were $51 (unaudited) and $42 (unaudited) for
the nine months ended September 30, 1998 and 1997, respectively, and $85, $206
and $183 for the years ended December 31, 1997, 1996 and 1995, respectively.

The Company established an employee stock ownership plan ("ESOP") effective
January 1, 1997 which covers substantially all employees. The Company may make
contributions to the ESOP at the discretion of its Board of Directors and may
be made in cash or common stock. The contributions vest 20% annually beginning
with the participant's third year of service. The Company's contributions to
the ESOP were $150 for the year ended December 31, 1997. On July 30, 1998, the
ESOP purchased 18,711 shares (unaudited) of the Company's Common Stock
included in treasury stock.

In August of 1998, the Company adopted a stock incentive plan under which it
plans to grant stock options for selected employees. As of September 30, 1998,
no stock options had been granted under the plan.

The Company maintains a self-insured medical plan. Under this plan, the
Company self-insures, in part, coverage for substantially all full-time
employees with coverage by insurance carriers for certain stop-loss provisions
for losses greater than $30 for each occurrence up to a maximum benefit of
$1,000. The Company's expenses pertaining to the self-insured medical plan,
including accruals for incurred but not reported claims, were $341 (unaudited)
and $216 (unaudited) for the nine months ended September 30, 1998 and 1997,
respectively, and $323, $233 and $75 for the years ended December 31, 1997,
1996 and 1995, respectively.

The Company has deferred compensation agreements with certain officers for
payments to be made over specified periods beginning when the officers reach
age 65. Amounts accrued for these agreements are based upon deferred
compensation earned, discounted over the estimated remaining service life of
each officer. Deferred compensation expense totaled $53 (unaudited) and $49
(unaudited) for the nine months ended September 30, 1998 and 1997,
respectively, and $66, $62 and $58 for the years ended December 31, 1997, 1996
and 1995, respectively.

10. REGULATORY MATTERS

The Federal Reserve Board has adopted a system using risk-based capital
guidelines to evaluate the capital adequacy of bank holding companies. These
guidelines require a minimum total risk-based capital ratio of 8.0% (of which
at least 4.0% is required to consist of Tier 1 capital elements). The Federal
Reserve Board also utilizes

F-16
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

a leverage ratio (Tier 1 capital divided by average total consolidated assets)
to evaluate the capital adequacy of bank holding companies. The Company's
current regulatory ratios placed it in the "well-capitalized" category.

The Company's actual capital amounts and applicable ratios are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------
1998 1997 1996
------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Capital:
Stockholders' equity....................... $18,678 $16,160 $13,473
Add (less) unrealized gains (losses) on
securities, net of income taxes........... (522) (279) 98
Intangible asset........................... (96) (102) --
------- ------- -------
Tier I capital............................. 18,060 15,779 13,571
Qualifying allowance for loan losses....... 2,502 2,009 1,760
------- ------- -------
Total capital.............................. $20,562 $17,788 $15,331
======= ======= =======
Ratios:
Total capital to risk-weighted assets...... 10.27% 11.09% 10.92%
Tier I capital to risk-weighted assets..... 9.02 9.84 9.67
Tier I capital to total average assets
(leverage ratio).......................... 6.24 6.87 7.11
</TABLE>

State banking regulations require the Mississippi Department of Banking and
Consumer Finance to approve the payment of any dividends.

11. OFF-BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

Loan commitments are made to accommodate the financial needs of the
Company's customers. Standby letters of credit commit the Company to make
payments on behalf of customers when certain specified future events occur.
They primarily are issued to support customers' trade transactions.

Both arrangements have credit risk essentially the same as that involved in
extending loans to customers and are subject to the Company's normal credit
policies. Collateral is obtained based on management's credit assessment of
the customer.

The Company's maximum exposure to credit losses for loan commitments (unused
lines of credit) outstanding at December 31, 1997 and expiring during 1998 was
$11,661.

The Company uses interest rate floor agreements to effectively convert a
portion of its loans to a minimum fixed rate basis, thus reducing the impact
of lower interest rates on the Company's net interest margin because
management believes that lower interest rates would adversely affect the yield
on loans more than on other earning assets or the cost of interest bearing
liabilities. At December 31, 1997 approximately 12.0% of the Company's loans
were effectively subject to the Company's interest rate floor agreements that
expire at various dates through January 16, 2000. The notional amount of $20.0
million for these agreements effectively fixes the Company's minimum variable
interest rate on $20.0 million of loans using a 6% three-month LIBOR rate as
the floor. At September 30, 1998 and December 31, 1997, the three-month LIBOR
rate was 5.25% (unaudited) and 5.81%, respectively. Net receipts and the
amortization of the premium for the agreements are recognized as adjustments
to interest income.

F-17
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company is involved in certain legal actions and claims arising in the
ordinary course of business. Although the ultimate outcome of these other
actions and claims cannot be ascertained at this time, it is the opinion of
management (based on advice of legal counsel) that such litigation and claims
should be resolved without material effect on the Company's consolidated
financial position or operating results.

12. PARENT COMPANY CONDENSED FINANCIAL INFORMATION

Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Assets:
Cash and cash equivalents................................ $ -- $ 184
Investment in subsidiaries............................... 19,069 17,044
Due from subsidiaries.................................... 660 347
Premises and equipment................................... 1,173 1,000
Other.................................................... 19 19
------- -------
Total assets......................................... $20,921 $18,594
======= =======
Liabilities:
Due to subsidiaries...................................... $ 1,010 $ 995
Other liabilities........................................ 151 126
Other borrowed funds..................................... 3,600 4,000
------- -------
Total liabilities.................................... 4,761 5,121
Stockholders' equity:
Common stock............................................. 466 466
Paid-in capital.......................................... 5,374 5,227
Retained earnings........................................ 10,283 8,219
Net unrealized gain (loss) on securities available for
sale, net of income taxes............................... 279 (98)
Treasury stock........................................... (242) (341)
------- -------
Total stockholders' equity............................. 16,160 13,473
------- -------
Total liabilities and stockholders' equity........... $20,921 $18,594
======= =======
</TABLE>

F-18
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
Statements of Income -----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries........................ $ 1,110 $ 475 $ 615
Other.............................................. 23 1 --
------- ------- -------
Total income................................... 1,133 476 615
------- ------- -------
Expenses:
Interest expense................................... 392 1 --
Other.............................................. 60 59 45
------- ------- -------
Total expenses................................. 452 60 45
------- ------- -------
Income before income taxes......................... 681 416 570
Income tax benefit................................. 160 22 17
------- ------- -------
Income before equity in undistributed net income of
subsidiaries...................................... 841 438 587
Equity in undistributed net income of
subsidiaries...................................... 1,498 1,590 887
------- ------- -------
Net income......................................... $ 2,339 $ 2,028 $ 1,474
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
Statements of Cash Flows ---------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Operating activities:
Net income.................................... $ 2,339 $ 2,028 $ 1,474
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed net income of subsidiaries... (1,498) (1,590) (887)
Depreciation expense....................... 9 -- --
(Increase) decrease in due from
subsidiaries.............................. (298) 815 (1)
Increase in other assets................... -- (14) (5)
Increase in other liabilities.............. -- 1 --
-------- -------- -------
Net cash provided by operating activities.. 552 1,240 581
Investment activities:
Capital contribution to subsidiary............ (150) (3,850) --
Purchases of premises and equipment........... (182) (1,000) --
-------- -------- -------
Net cash used in investing activities......... (332) (4,850) --
Financing activities:
Dividends paid................................ (250) (250) (250)
Borrowings from a bank........................ -- 4,000 --
Payments on note payable to a bank............ (400) -- --
Purchases of treasury stock................... (436) (2) (339)
Proceeds from sales of treasury stock......... 682 -- --
-------- -------- -------
Net cash provided by (used in) financing
activities................................... (404) 3,748 (589)
-------- -------- -------
Net increase (decrease) in cash and cash
equivalents.................................. (184) 138 (8)
Cash and cash equivalents at beginning of
year......................................... 184 46 54
-------- -------- -------
Cash and cash equivalents at end of year...... $ -- $ 184 $ 46
======== ======== =======
</TABLE>

F-19
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. FAIR VALUES OF FINANCIAL INSTRUMENTS

Generally accepted accounting principles require disclosure of fair value
information about financial instruments for which it is practicable to
estimate fair value, whether or not the financial instruments are recognized
in the financial statements. When quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. The
derived fair value estimates cannot be substantiated through comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Certain financial instruments and all non-
financial instruments are excluded from these disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company. The use of different market assumptions and
estimation methodologies may have a material effect on the estimated fair
value amounts.

The carrying amount of cash and cash equivalents, non-interest bearing
deposits, other borrowed funds and interest rate floors approximates the
estimated fair value of these financial instruments. The estimated fair value
of securities is based on quoted market prices, dealer quotes and prices
obtained from independent pricing services. The estimated fair value of loans
and interest-bearing deposits is based on present values using applicable
risk-adjusted spreads to the appropriate yield curve to approximate current
interest rates applicable to each category of these financial instruments. The
fair value of the loan commitments to extend credit is based on the difference
between the interest rate at which the Company's committed to make the loans
and the current rates at which similar loans would be made to borrowers with
similar credit ratings and the same maturities. The fair value is not
material.

Variances between the carrying amount and the estimated fair value of loans
reflect both credit risk and interest rate risk. The Company is protected
against changes in credit risk by the allowance for loan losses.

The fair value estimates presented are based on information available to
management as of December 31, 1997 and 1996. Although management is not aware
of any factors that would significantly affect the estimated fair value
amounts, these amounts have not been revalued for purposes of these financial
statements since those dates. Therefore, current estimates of fair value may
differ significantly from the amounts presented.

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Securities available for sale........... $ 36,810 $ 36,810 $ 18,660 $ 18,660
Securities held to maturity............. 22,111 22,203 22,902 22,674
Loans................................... 159,552 158,116 140,318 139,448
Interest bearing deposits............... 187,447 181,355 164,634 164,864
</TABLE>

14. SUBSEQUENT EVENT (UNAUDITED)

On August 13, 1998, the Company filed a registration statement with the
Securities and Exchange Commission covering 1,568,181 shares of Common Stock
to be sold by the Company in an underwritten public offering.

F-20
<PAGE>

LAMAR CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

15. YEAR 2000 COMPLIANCE (UNAUDITED)

The Company has developed a plan to address the Year 2000 issue. The issue
arises from the fact that many existing computer programs were written to
store only two digits of date-related information in order to more efficiently
handle and store data. Thus, the programs were unable to properly distinguish
between the year 1900 and the year 2000. The Company is in the process of
assessing and converting or replacing various programs, hardware and
instrumentation systems to make them Year 2000 compatible. The Company's Year
2000 project is comprised of two components--business applications and
equipment.

In assessing the Year 2000 issue, the Company is examining its own software
and equipment and potential problems with borrowers, government entities and
others providing services to the Company. In addition to computer equipment,
the Company is assessing possible problems with micro-processors embedded
within operating equipment, such as telecommunication equipment, vaults,
security and alarm systems, and automated teller machines. The Company is
assessing the impact of the failure of a borrower's systems or a borrower's
failure to comply with debt covenant terms regarding Year 2000 issues on the
credit quality of the borrower's loan. The Company is also examining the Year
2000 issue's impact on services such as payroll and investment securities
operations that are provided by third parties.

The Company has completed the Year 2000 awareness and assessment phases of
the plan and has entered into the remediation phase. Management expects the
implementation phase of the Year 2000 plan to be completed by December 31,
1998. Testing and any required corrective actions will be completed in the
fourth quarter of 1998 and in 1999. The Company has expended approximately
$62,500 through September 30, 1998 and projects the additional cost of
remediation will be from $62,500 to $87,500, of which $25,000 to $50,000 will
be incurred in 1999. Approximately $60,000 to $70,000 is projected to be
capitalized because certain systems and equipment are being replaced because
of Company needs rather than from Year 2000 issues. Corrective actions to make
the Company's core operating systems Year 2000 compliant will be made by
software providers for those systems under existing licensing agreements with
the Company. The cost could vary from current estimates if the scope of the
Company's Year 2000 remediation exceeds management's projections. The Company
has adopted a contingency plan to address business resumption plans if the
Year 2000 plan is not completed successfully.

Management is aware that the Year 2000 problem could also present liquidity
challenges as January 1, 2000 approaches. Assessing liquidity needs is an
integral part of the Company's Year 2000 contingency plan even though it is
too early to determine whether additional liquidity may be needed.

F-21
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR
FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

---------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Summary Consolidated Financial Data...................................... 6
Risk Factors............................................................. 7
The Company.............................................................. 13
Use of Proceeds.......................................................... 18
Dilution................................................................. 19
Capitalization........................................................... 19
Dividend Policy.......................................................... 20
Selected Consolidated Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Principal Shareholders and Stock Ownership of Management................. 45
Management............................................................... 46
Certain Relationships and Related Transactions........................... 49
Supervision and Regulation............................................... 49
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 62
Underwriting............................................................. 63
Legal Matters............................................................ 64
Experts.................................................................. 65
Available Information.................................................... 65
Index to Consolidated Financial Statements............................... F-1
</TABLE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

1,363,636 SHARES

COMMON STOCK

LAMAR CAPITAL CORPORATION

---------------

PROSPECTUS

---------------

MORGAN KEEGAN & COMPANY, INC.

STERNE, AGEE & LEACH, INC.

DECEMBER 16, 1998

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------