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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) January 15, 1999
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NBC Capital Corporation
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(Exact Name of Registrant as Specified in Charter)
Mississippi 0-12885 64-0694755
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
NBC Plaza, Starkville, Mississippi 39759
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (601) 343-1341
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Not applicable
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(Former Name or Former Address, if Changed Since Last Report)
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to a Definitive Agreement and Plan of Reorganization and Merger
dated as of July 24, 1998, as amended (hereinafter, the "Merger Agreement"),
First National Corporation of West Point ("FNC") was merged with and into the
Registrant, NBC Capital Corporation ("NBC"), effective immediately following the
close of business on December 31, 1998 (the "Merger"). The Merger Agreement was
approved by the shareholders of FNC at a special meeting held on December 8,
1998. On December 16, 1998, the Board of Governors of the Federal Reserve System
approved the Merger under Sections 3(a)(5) and 4(c)(8) of the Bank Holding Act
of 1956, as amended. The Merger has been accounted for on the pooling-of-
interests basis.
At September 30, 1998, NBC and FNC reported total consolidated assets of
$654 million and $117 million, respectively.
At December 31, 1998, FNC had three wholly-owned subsidiaries: First
National Bank of West Point ("FNBWP"), a company providing retail and commercial
banking services; National Bank of the South ("NBS"), a company providing retail
and commercial banking services; and First National Finance Corporation
("FNFC"), a company engaging in lending activities, principally the origination
of small consumer loans. At December 31, 1998, NBC had two banking
subsidiaries: National Bank of Commerce of Mississippi ("NBCM") and National
Bank of Commerce (Tuscaloosa, Alabama) ("NBCA"). Both of these subsidiaries
provide retail and commercial banking services.
Immediately after consummation of the Merger, NBS was merged into NBCA and
FNBWP was merged into NBCM. Immediately following these mergers, NBCA was
merged into NBCM, with NBCM being the surviving bank and conducting the banking
operations previously conducted by the two national bank subsidiaries of NBC and
the two national bank subsidiaries of FNC. Upon consummation of the Merger, FNFC
became a wholly-owned subsidiary of NBC. It is anticipated that the operations
of FNFC, which has become a subsidiary of NBC, will continue in substantially
the same manner as conducted immediately prior to the Merger.
NBC is not aware of any material relationships among FNC or its
subsidiaries and NBC or any of NBC's officials, any director or officer of NBC
or any associate of any such director or officer. Upon consummation of the
Merger, two members of the Board of Directors of FNC were elected to the Board
of Directors of NBC.
Upon consummation of the Merger, FNC Shareholders received shares of NBC
Common Stock for each share of FNC Common Stock formerly held by them. For each
share of FNC Common Stock held, the FNC shareholder received a number of shares
of NBC Common Stock with a market value of approximately $293.37, as determined
by the average market price of the NBC Common Stock. The average market price of
NBC Common Stock was the average closing sales price of a share of NBC Common
Stock for the thirty (30) trading days preceding the fifth (5th) trading day
prior to December 31, 1998.
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The shares of NBC Common Stock issued pursuant to the Merger Agreement were
registered by means of a registration statement on Form S-4 (Registration No.
333-65545) filed by NBC with the Securities and Exchange Commission on October
9, 1998, and as amended by Form S-4A filed with the Securities and Exchange
Commission on November 4, 1998 (collectively, the "Registration Statement").
The Registration Statement was declared effective on November 5, 1998. The
Registration Statement, which includes the form of prospectus/proxy statement
used in connection with the special shareholders' meeting held on December 8,
1998, is incorporated herein by reference pursuant to Rule 12b-23 under the
Securities Exchange Act of 1934.
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Item 7. Financial Statements
The financial statements required to be filed with this Form 8-K will be
filed no later than March 10, 1999.
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(c) Exhibits. The exhibits filed herewith are listed on the Exhibit Index on
the following page.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NBC CAPITAL CORPORATION
/s/ Richard T. Haston
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By: Richard T. Haston
Treasurer and Assistant
Secretary
January 13, 1999
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EXHIBIT INDEX
2.1 Definitive Agreement and Plan of Reorganization and Merger by and between
NBC Capital Corporation and First National Corporation of West Point
dated as of July 24, 1998, filed herewith.
2.2 First Amendment to Definitive Agreement by and between NBC Capital
Corporation and First National Corporation of West Point, dated September
21, 1998, filed herewith.
23.1 Consent of T. E. Lott & Company (to be filed by amendment).
23.2 Consent of T. E. Lott & Company (to be filed by amendment).
99.1 Definitive Proxy Statement of First National Corporation of West Point
dated November 9, 1998 (without appendices), filed herewith.
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EXHIBIT 2.1
APPENDIX A
DEFINITIVE AGREEMENT
AND
PLAN OF REORGANIZATION AND MERGER
================================================================================
BY AND BETWEEN
NBC CAPITAL CORPORATION
AND
FIRST NATIONAL CORPORATION OF WEST POINT
DATED AS OF JULY 24, 1998
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TABLE OF CONTENTS
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PAGE
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PARTIES.............................................................. 1
RECITALS............................................................. 1
ARTICLE I THE MERGER: EFFECTIVE TIME......................... 2
1.1 The Merger.......................................... 2
1.2 Effective Time...................................... 2
1.3 Basic Terms......................................... 2
1.4 Exchange Procedure.................................. 2
1.5 Rights of Former First National Shareholder......... 3
1.6 Pooling of Interest................................. 4
1.7 Merger Agreement.................................... 4
1.8 Acquisition Corporation............................. 5
1.9 Subsequent Actions.................................. 5
ARTICLE II ARTICLES OF INCORPORATION AND BY-LAWS OF THE
SURVIVING CORPORATION............................... 5
2.1 Articles of Incorporation........................... 5
2.2 By-Laws............................................. 5
ARTICLE III OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION. 6
3.1 Directors........................................... 6
3.2 Officers............................................ 6
ARTICLE IV DISSENTING SHAREHOLDERS............................. 6
ARTICLE V REPRESENTATION AND WARRANTIES OF FIRST NATIONAL..... 7
5.1 Organization, Corporate Power and Qualification..... 7
5.2 Disclosures, Schedules and Statements............... 7
5.3 Legal Proceedings................................... 8
5.4 Capitalization...................................... 8
5.5 Authority; No Violation............................. 8
5.6 Consent and Approvals............................... 9
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ARTICLE VI REPRESENTATIONS AND WARRANTIES OF NBC............... 9
6.1 Corporate Organization.............................. 9
6.2 Authority; No Violation............................. 10
6.3 Consents and Approvals.............................. 10
6.4 Legal Proceedings................................... 11
6.5 SEC Documents....................................... 11
ARTICLE VII COVENANTS OF THE PARTIES............................ 12
7.1 Exclusive Dealings.................................. 12
7.2 Conduct of Business................................. 12
7.3 Current Information................................. 13
7.4 Access to Properties and Records; Confidentiality... 13
7.5 Interim Financial Statements........................ 14
7.6 Approval of Shareholders............................ 15
7.7 Unusual Events...................................... 15
7.8 First National Employees............................ 15
7.9 Employee Benefit Plans.............................. 15
7.10 Directors........................................... 16
7.11 Registration Statement and Regulatory Filings....... 16
ARTICLE VIII CLOSING CONDITIONS..................................... 17
8.1 Conditions to Each Parties Obligations Under
this Agreement...................................... 17
8.2 Conditions Precedent to the Obligations of NBC...... 18
8.3 Conditions Precedent to the Obligations of
First National Under this Agreement................. 19
ARTICLE IX CLOSING............................................. 20
9.1 Time and Place...................................... 20
9.2 Deliveries at Closing............................... 20
ARTICLE X TERMINATION, AMENDMENT AND WAIVER................... 21
10.1 Termination......................................... 21
10.2 Effect of Termination............................... 21
10.3 Amendments and Waivers.............................. 21
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ARTICLE XI MISCELLANEOUS....................................... 22
11.1 Expenses............................................ 22
11.2 Indemnification..................................... 22
11.3 Non-Compete Restrictions............................ 23
11.4 Breach/Specific Performance......................... 23
11.5 Disclosure and Press Releases....................... 24
11.6 Parties in Interest................................. 24
11.7 Survival of Representations......................... 24
11.8 Reproduction of Documents........................... 25
11.9 Exhibits............................................ 25
11.10 Waiver.............................................. 25
11.11 Counterparts........................................ 25
11.12 Notices............................................. 25
11.13 Section Headings.................................... 26
11.14 Governing Law....................................... 26
22.15 Entire Agreement.................................... 26
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DEFINITIVE AGREEMENT
AND
PLAN OF REORGANIZATION AND MERGER
BY AND BETWEEN
NBC CAPITAL CORPORATION
AND
FIRST NATIONAL CORPORATION OF WEST POINT
Agreement and Plan of Merger (hereinafter called the "Merger Agreement"),
dated as of July , 1998, by and between NBC CAPITAL CORPORATION ("NBC"), a
Mississippi corporation, and FIRST NATIONAL CORPORATION OF WEST POINT ("FIRST
NATIONAL"), a Mississippi corporation, (NBC and First National sometimes being
hereinafter collectively referred to as the "Constituent Corporations").
RECITALS
WHEREAS, the respective Boards of Directors of NBC and First National deem
the merger of First National with and into NBC as provided herein (the "Merger")
advisable and in the best interest of their respective corporations and
shareholders; and
WHEREAS, the respective Boards of Directors of NBC and First National, by
resolutions duly adopted, have approved this Merger Agreement and the Merger and
have directed that it be submitted for required shareholder approval; and
WHEREAS, the parties hereto desire and intend that the Merger qualify for
federal income tax purposes as a tax-free reorganization under (S)368(a) of the
Internal Revenue Code of 1986, as amended, (the "Tax Code") and the regulations
thereunder; and
WHEREAS, NBC and First National respectively desire to have certain
representations, warranties and covenants made with respect to the
Reorganization and Merger.
NOW, THEREFORE, in order to prescribe (a) the terms and conditions of the
Merger, (b) the mode of carrying the same into effect, (c) the manner and basis
for converting and exchanging the common shares of First National into the right
to receive common shares of NBC or cash to holders of which who have validly
demanded Dissenter's Rights pursuant to (S)79-4-13.01, et seq., ( herein "(S)79-
4-13.01") of the Mississippi Business Corporation Act, as amended (the "MBCA"),
and shall not have voted in favor of the Merger, and (d) such other details and
provisions as are deemed necessary or desirable and in consideration of the
premises, and the mutual covenants and
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agreements herein contained, the parties hereto hereby agree, subject to the
terms and conditions hereinafter set forth, as follows:
ARTICLE I
THE MERGER: EFFECTIVE TIME
1.1 THE MERGER. Subject to the terms and conditions of this Merger
Agreement, at the Effective Time (as defined in Section 1.2 hereof), First
National shall be merged with and into NBC and the separate corporate existence
of First National shall thereupon cease. NBC shall be the Surviving Corporation
in the Merger (sometimes hereinafter referred to as the "Surviving Corporation")
and shall continue to be governed by the laws of the State of Mississippi, and
the separate corporate existence of NBC with all its rights, privileges,
immunities and franchises shall continue unaffected by the Merger. The Merger
shall have the effects specified by the MBCA.
1.2 EFFECTIVE TIME. The Effective Time of the Merger (the "Effective
Time") shall be the time and date on which the Articles of Merger meeting the
requirements of the MBCA are filed with the Secretary of State of the State of
Mississippi with respect to the Merger.
1.3 BASIC TERMS. The transaction shall be structured as a fixed value
exchange wherein, except as otherwise provided by law, all outstanding common
shares of First National at the Effective Time, hereby represented by First
National to be 110,781 shares, shall be converted into common shares of NBC
("NBC Converted Shares"). The exact number of NBC Converted Shares delivered to
First National shareholders shall be equal to $32,500,000 (the "Fixed Price")
divided by the average of the closing sales price of a share of NBC common stock
for the thirty (30) trading days preceding the fifth (5th) trading day
immediately prior to the Effective Time. The exact exchange ratio (i.e., the
number of common shares of NBC into which an outstanding common share of First
National should be converted in the Merger) will be determined by dividing the
number of NBC Converted Shares by the number of outstanding common shares of
First National (110,781) at the Effective Time. NBC will certify to First
National at least three (3) business days prior to the Effective Time the
closing sale price for NBC stock during the applicable thirty (30) day trading
period and shall make sufficient records available to First National to verify
said sales and prices. Payment will be in cash in lieu of the issuance of
fractional shares based upon the conversion rate as herein established and
determined at the Effective Time.
1.4 EXCHANGE PROCEDURES. Promptly after the Effective Time, NBC shall
cause the exchange agent selected by NBC (the "Exchange Agent") to mail to the
former shareholders of First
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National appropriate transmittal materials (which shall specify that delivery
shall be effected, and risk of loss in title to the certificates theretofore
representing shares of First National stock shall pass, only upon proper
delivery of such certificates to the Exchange Agent). First National shall have
the right to review the transmittal materials. After the Effective Time, each
holder of common shares of First National (other than shares to be cancelled
pursuant to Article IV of this Agreement to which Dissenter's Rights have been
perfected as provided in such Article IV) issued and outstanding at the
Effective Time shall surrender the certificate or certificates representing such
shares to the Exchange Agent and shall promptly upon surrender thereof receive
in exchange therefore the NBC Converted Shares provided in Section 1.3 of this
Merger Agreement together with all undelivered dividends or other distributions
in respect of such shares (without interest) pursuant to Section 1.5 of this
Merger Agreement. NBC shall not be obligated to deliver the NBC Converted Shares
to which any former holder of First National stock is entitled as a result of
the Merger until such holder surrenders his certificate or certificates
representing the shares of First National for exchange or otherwise complies
with the proper procedures for lost certificates. The certificate or
certificates of First National so surrendered shall be duly endorsed as the
Exchange Agent may require. Neither NBC nor First National shall be liable to
the holder of any First National common shares for any amounts paid or properly
delivered in good faith to a public official pursuant to any applicable
abandoned property law.
1.5 RIGHTS OF FORMER FIRST NATIONAL SHAREHOLDERS. At the Effective Time,
the Stock Transfer Books of First National shall be closed as to the holders of
First National common shares immediately prior to the Effective Time and no
transfer of First National common shares by any such holder shall thereafter be
made or recognized. Until surrendered for exchange in accordance with the
provisions of Section 1.4 of this Merger Agreement, each certificate theretofore
representing shares of First National common shares (other than shares to be
cancelled pursuant to Article IV of this Agreement) shall from and after the
Effective Time represent for all purposes only the right to receive the NBC
Converted Shares and payment for fractional shares (if any) provided in this
Merger Agreement, subject, however, to NBC's obligation, as the surviving
corporation, to pay any dividends or make any other distributions with a record
date prior to the Effective Time which have been declared or made by First
National in respect to such shares of First National's common stock, and in
accordance with the terms of this Merger Agreement, and which remain unpaid at
the
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Effective Time. To the extent permitted by law, former shareholders of
record of First National shall be entitled to vote after the Effective Time at
any meeting of NBC shareholders the number of whole common shares of NBC into
which their common shares of First National are converted, regardless of whether
such holders have exchanged their certificates representing First National
common shares for certificates representing NBC common shares in accordance with
the provisions of this Merger Agreement. Whenever a dividend or other
distribution is declared by NBC on the NBC common shares, the record date for
which is at or after the Effective Time, the declaration shall include dividends
or other distributions on all shares issuable pursuant to this Merger Agreement,
but, no dividend or other distribution payable to the holders of record of NBC
common shares as of any time subsequent to the Effective Time shall be delivered
to the holder of any certificate representing shares of First National common
shares issued and outstanding at the Effective Time until such holder surrenders
such certificate for exchange as provided in Section 1.4 of this Merger
Agreement. However, upon surrender of such First National common shares
certificate, both the NBC common shares certificate (together with all such
undelivered dividends or other distributions (without interest) and any
undelivered cash payments to be made for fractional share interest (without
interest)) shall be delivered and paid with respect to each share represented by
such certificate. In the event any First National common shares certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
the fact by the person claiming such certificate to be lost, stolen or destroyed
and, if required by NBC, the posting by such person of a bond in such amount as
NBC may reasonably direct as indemnity against any claim that may be made
against it with respect to such certificate, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed certificate the shares of NBC common
shares and cash in lieu of fractional shares delivered in respect thereof
pursuant to this Merger Agreement.
1.6 POOLING OF INTEREST. The combination of such stock delivered to First
National shareholders and cash paid to satisfy Dissenting Shareholders and
fractional shareholders, treasury stock, and other requirements, shall be in
accordance with the requirements necessary for this transaction to be treated as
a pooling of interest transaction for accounting purposes, applying generally
accepted accounting principles ("GAAP").
1.7 MERGER AGREEMENT. The parties shall diligently pursue, and as
expeditiously as possible, execute Articles of Merger (which shall not vary in
any material respect from the
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provisions of this Merger Agreement) and shall use this Merger Agreement and any
amendments as provided for herein as the required Plan of Merger and satisfy the
filing requirements with the Secretary of State of the State of Mississippi and
the MBCA, and other applicable laws and regulations.
1.8 ACQUISITION CORPORATION. At the option of NBC, said transaction shall
be concluded through an acquisition corporation, incorporated as a wholly owned
subsidiary of NBC, for the purposes of acquiring First National stock under the
terms and conditions of this Merger Agreement and under such circumstances to
qualify for Federal Income Tax purposes as a tax-free reorganization under
(S)368(a) of the Tax Code, and the regulations thereunder. In the event NBC
exercises its option to conclude the transaction by this vehicle, it shall give
First National written notice of its desire within fourteen (14) days of the
date of this Merger Agreement and such necessary agreements or amendments hereto
shall promptly be negotiated. In such case, both parties agree to diligently
pursue, and cooperate with each other, to conclude the transaction in such
manner.
1.9 SUBSEQUENT ACTIONS. If, at any time after the Effective Time, NBC
shall consider or be advised that any deeds, bills of sale, assignments,
assurances, or any other actions or things are necessary or desirable to vest,
perfect, or confirm of record, or otherwise in NBC, its rights, title or
interest in, to or under any of the rights, properties or assets of First
National, or any of its subsidiaries as a result of, or in connection with, the
Merger or otherwise to carry out this Merger Agreement, the Officers and
Directors of NBC shall be authorized to execute and deliver, in the name and on
behalf of NBC and First National, or otherwise, all such deeds, bills of sale,
assignments and assurances, and to take and do, in the name and on behalf of NBC
and First National, or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm, any and all right, title and
interest in, to and under such rights, properties or assets in NBC to carry out
this Merger Agreement.
ARTICLE II
ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION
2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of NBC, as
in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation, until duly amended in accordance
with the terms thereof and the MBCA.
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2.2 BY-LAWS. The By-Laws of NBC, as in effect immediately prior to the
Effective Time, shall be the By-Laws of the Surviving Corporation until duly
amended in accordance with the terms thereof and the MBCA.
ARTICLE III
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
3.1 DIRECTORS. The Directors of NBC, immediately prior to the Effective
Time shall be, from and after the Effective Time, the Directors of the Surviving
Corporation until their respective successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with Surviving Corporation's Articles of Incorporation and By-Laws.
3.2 OFFICERS. The Officers of NBC, immediately prior to the Effective
Time shall be, from and after the Effective Time, the Officers of the Surviving
Corporation until their respective successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation and By-
Laws.
ARTICLE IV
DISSENTING SHAREHOLDERS
(A) Each First National common share issued and outstanding immediately
prior to the Effective Time, other than First National common shares the holders
of which have validly demanded Dissenter's Right pursuant to (S)79-4-13.01, and
shall not have effectively withdrawn or lost such right to dissent ("First
National Dissenting Shares"), shall be exchanged for NBC Converted Shares as
provided in this Merger Agreement.
(B) Each issued and outstanding First National Dissenting Share shall not
automatically be converted into or represent a right to receive the NBC common
shares and payment for any fractional shares hereunder, but the holder thereof
shall be entitled only to such rights as are granted by (S)79-4-13.01 of the
MBCA. First National shall give NBC prompt written notice upon receipt by First
National of any written demands for Dissenter's Rights, withdrawal of demands
for Dissenter's Rights, and any other instrument served pursuant to (S)79-4-
13.01 (any shareholder duly making such demand being hereinafter called a
"Dissenting Shareholder"). First National shall not, except with the prior
written consent of NBC, voluntarily make any payment with respect to, or settle
or offer to settle, any such demands. Each Dissenting Shareholder who becomes
entitled, pursuant to provisions of (S)79-4-13.01, to payment for his or her
First National Dissenting Shares, shall receive
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payment of the estimated fair value of each common share of First National from
NBC and such First National shares shall be cancelled; and
(C) If any holder of First National common shares who demands Dissenter's
Rights under (S)79-4-13.01 shall effectively withdraw or lose (through failure
to perfect or otherwise as required by law) his or her Dissenter's Right, each
such First National common share shall be converted to common shares of NBC at
the conversion rate set out in Section 1.3 hereof.
ARTICLE V
REPRESENTATION AND WARRANTIES OF FIRST NATIONAL
First National hereby makes the following representations and warranties to
NBC. Such representations and warranties shall not survive the closing of the
transactions contemplated by this Merger Agreement.
5.1 ORGANIZATION, CORPORATE POWER AND QUALIFICATION. First National and
its subsidiaries are validly existing and in good standing with all applicable
authorities and are duly qualified to do business in each jurisdiction in which
such corporation conducts business. First National has the requisite power and
authority to enter into and carry out the transactions contemplated by this
Merger Agreement, subject to obtaining approval by its shareholders as provided
herein.
5.2 DISCLOSURES, SCHEDULES AND STATEMENTS. At the request of NBC, First
National has previously delivered to NBC copies of the consolidated balance
sheet of First National as of December 31, 1997, and each year for the previous
two (2) fiscal years, 1995 and 1996, and the related consolidated statements of
income, changes in shareholders equity, and changes in financial position, for
the periods then ended, in each case accompanied by the audit report of T. E.
Lott & Company, independent certified public accountants. The December 31,
1995, 1996 and 1997, consolidated balance sheets of First National and related
statements of income, changes in shareholder equity and changes in financial
position, including the related notes, where applicable, fairly represent the
consolidated financial position of First National and its subsidiaries as of the
date thereof, and fairly present the results of the consolidated operations and
changes in shareholder equity and the consolidated financial position of First
National and its subsidiaries for the respective fiscal periods or as of the
respective dates therein set forth. Each of the financial statements above
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is true and correct in all material respects, and has been prepared in
accordance with GAAP applied on a basis consistent with other periods, except as
otherwise noted.
5.3 LEGAL PROCEEDINGS. Except as set forth in Schedule 5.3, to our actual
current knowledge, neither First National, nor any of its subsidiaries, is a
party to any, and there are no pending or threatened material, legal,
administrative or arbitration, claims or actions, or governmental investigations
of any nature, or other proceedings, affecting or relating to First National or
any of its subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Merger Agreement.
5.4 CAPITALIZATION. The authorized capital stock of First National
consist of 180,000 common shares of First National. At the close of business on
July 1, 1998, there were 110,781 common shares of First National issued and
outstanding and 18,819 common shares held in First National's treasury. Except
as set forth in Schedule 5.4 hereto, all issued and outstanding shares of First
National common shares have been duly authorized and validly issued and are
fully paid, non-assessable and free of preemptive rights with no personal
liability attached to the ownership thereof. First National has not issued any
additional shares of First National common shares since July 1, 1998, and does
not have and is not bound by any outstanding subscription, options, warrants,
cause, commitments or agreements of any character calling for the purchase or
issuance of any shares of First National common shares or any security
representing the right to purchase or otherwise receive any First National
common shares.
5.5 AUTHORITY; NO VIOLATION. (A) First National has full corporate power
and authority to execute and deliver this Merger Agreement and, subject to
obtaining the approval of its shareholders as provided herein, to consummate the
transactions contemplated hereby. The execution and delivery of this Merger
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly approved by the Board of Directors of First National and it has
directed that this Merger Agreement and the transaction contemplated hereby be
submitted to the First National shareholders for approval at a Special Meeting
of such shareholders to be duly convened, and, except for the approval of such
Merger Agreement by its shareholders, no other corporate proceedings on the part
of First National is necessary to consummate the transaction so contemplated.
This Merger Agreement has been fully and validly executed and delivered by First
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National and constitutes a valid and binding obligation of First National,
enforceable in accordance with its terms, subject to shareholder approval.
(B) Neither the execution and delivery of this Merger Agreement by First
National nor the consummation by First National of the transaction contemplated
hereby, nor compliance by First National with any of the provisions hereof, will
(i) violate any provision of the Certificate of Incorporation or By-Laws of
First National or (ii) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to First National or any
of its subsidiaries or any of their respective properties or assets, or (iii)
violate, conflict with, result in a breach of any provisions of, constitute a
default (or an event which, with or without due notice or lapse of time, or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or other encumbrance upon any of the respective
properties or assets of First National or any of its subsidiaries under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
First National, or any of its subsidiaries is a party, or by which they or any
of their respective properties or assets may be bound or affected, excepting
those which either individually or in the aggregate will not have a material
adverse effect on the business, operations, properties, assets or financial
condition of First National, or any of its subsidiaries.
5.6 CONSENT AND APPROVALS. Except as set forth in Schedule 5.6 hereto, no
permit, consent, approval or authorization of, or declaration, filing or
registration with, any public body or authority, or to the knowledge of First
National of any third party is necessary in connection with (a) the execution
and delivery by First National of this Merger Agreement, (b) the consummation of
the Merger and other transactions contemplated hereby, (c) the direct or
indirect ownership by NBC of all of the properties and assets of First National
or (d) the conduct by NBC of the business of First National as conducted by
First National on the date hereof.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NBC
NBC represents and warrants to First National as follows. Such
representations and warranties shall not survive the closing of the transaction
contemplated by this Merger Agreement.
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6.1 CORPORATE ORGANIZATION. NBC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Mississippi. NBC
has the corporate power and authority and NBC has received appropriate
authorizations from the Federal Reserve Board, Office of the Controller of the
Currency ("OCC") and all other appropriate regulatory authorities to own or
lease all of its properties and assets and to carry on its businesses as they
are now being conducted.
6.2 AUTHORITY; NO VIOLATION. (A) NBC has full corporate power and
authority to execute and deliver this Merger Agreement and to consummate the
transactions contemplated hereby. The Board of Directors of NBC, or a majority
thereof, has duly and validly approved and adopted this Merger Agreement and the
transaction contemplated hereby, and has authorized the execution and the
delivery of this Merger Agreement. This Merger Agreement has been duly and
validly executed and delivered by NBC and constitutes a valid and binding
obligation of NBC, enforceable in accordance with its terms.
(B) Neither the execution and delivery of this Merger Agreement by NBC nor
the consummation by NBC of the transaction contemplated hereby, nor compliance
by NBC with any of the provisions hereof, will (i) violate any provision of the
Certificate of Incorporation or By-Laws of NBC or (ii) violate any statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to NBC or any of its subsidiaries or any of their respective
properties or assets, or (iii) violate, conflict with, result in a breach of any
provisions of, constitute a default (or an event which, with or without due
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon any of
the respective properties or assets of NBC or any of its subsidiaries under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which NBC, or any of its subsidiaries is a party, or by which they or any of
their respective properties or assets may be bound or affected, excepting those
which either individually or in the aggregate will not have a material adverse
effect on the business, operations, properties, assets or financial condition of
NBC, or any of its subsidiaries.
6.3 CONSENTS AND APPROVALS. Consents, approvals filings, or registrations
with the following governmental entities or with the following third parties are
necessary in connection with
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the execution and delivery by NBC of this Merger Agreement and the consummation
of the Merger contemplated hereby:
(A) the filing by NBC of the Federal Reserve Application with the Board of
Governors of the Federal Reserve under the Bank Holding Company Act and the
approval of such application,
(B) the filing with the Securities and Exchange Commission ("SEC") of the
Proxy Statement/Prospectus in definitive form relating to the meeting of First
National shareholders to be held in connection with this Merger Agreement and
the transaction contemplated hereby,
(C) the filing of the Articles of with the Secretary of State of the State
of Mississippi under the MBCA,
(D) such filings and approvals as are required to be made or obtained under
the Securities or "Blue Sky" laws of various states in connection with the
issuance of shares of NBC common shares pursuant to this Merger Agreement, and
(E) such other filings, approvals, or consents as may be required by
applicable federal and state law or regulations promulgated thereunder.
6.4 LEGAL PROCEEDINGS. Neither NBC nor any of its subsidiaries, is a
party to any and there are no pending or, to the best of NBC's knowledge,
threatened material legal, administrative, arbitration or other proceedings,
claims, actions or governmental investigations of any nature challenging the
validity or propriety of the transaction contemplated in this Merger Agreement,
and, to the best of NBC's knowledge, there is no reasonable basis for any such
proceeding, claim, action or governmental investigation. Neither NBC, nor any
of its subsidiaries is a party to any order, judgment or decree which will, or
might reasonably be expected to, materially adversely affect their business,
operations, properties, assets or financial condition or their ability to
acquire any property or conduct business in any area in which they presently do
business.
6.5 SEC DOCUMENTS. NBC will make available to First National a true and
complete copy of each report, schedule, registration statement, and definitive
proxy statement filed by NBC with the SEC (other than reports filed pursuant to
Section 13(d) or 13(g) of the Securities Exchange Act of 1934 (the "Exchange
Act")) since December 31, 1994 (as such documents have since the time of their
filing been amended, the "NBC SEC Documents"), which are all the documents
(other than preliminary material and reports required pursuant to Section 13(d)
or 13(g) of the Exchange Act) that NBC was required to file with the SEC since
such date. As of their respective dates of filings
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with the SEC, the NBC SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended, (the "Securities Act"),
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such NBC SEC Documents, and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of NBC included in the NBC SEC Documents complied as to form, as to
their respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited statements, as
permitted by 10-Q of the SEC) and fairly present in material respects the
consolidated financial position of NBC and its consolidated subsidiaries as of
the dates thereof and the consolidated results of operations, changes in
stockholder equity and cash flow of such companies for the periods then ended.
All material agreements, contracts and other documents required to be filed as
exhibits to any of the NBC SEC Documents have been so filed.
ARTICLE VII
COVENANTS OF THE PARTIES
7.1 EXCLUSIVE DEALINGS. First National, and its officers, directors, and
employees, shall not and shall cause the company not to, directly or indirectly
through any representative or otherwise, solicit or entertain offers from,
negotiate with or in any manner encourage, discuss, accept, or consider any
proposal of any other person or entity relating to the acquisition of First
National, its assets or business, in whole or in part, whether through purchase,
merger, consolidation, or any other business combination, so long as this Merger
Agreement is in full force and effect and not terminated pursuant to the terms
hereof. In the event of any unsolicited proposal or offer, First National shall
affirmatively undertake to enforce and support the terms of this Merger
Agreement.
7.2 CONDUCT OF BUSINESS. During the period from the date of this Merger
Agreement to the Effective Time, First National, and its subsidiaries, will
conduct their businesses and engage in transactions only in the ordinary course
and consistent with prudent banking practices. First National and its
subsidiaries will operate their businesses in substantially the same manner as
before
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this Agreement, and will maintain and keep its property in good repair and
properly insured. First National will not, without the express consent of NBC,
which said consent shall not be unreasonably withheld,
(A) Pay any dividends prior to the Effective Time other than the regular
semi-annual dividends, and in no event exceeding one hundred five percent (105%)
of the dividend paid on the previous corresponding semi-annual payment date.
First National shall have the right to declare such necessary dividend, or
dividends, either regular or special, prior to the Effective Time to effect the
foregoing.
(B) Lend an amount exceeding $150,000.00 to an individual or entity or lend
an amount, which when aggregated with other loans to the same individual or
entity or related interest, would exceed $300,000.00.
(C) Hire new, additional or replacement employees.
(D) Grant promotions to current employees.
(E) Make, incur, or agree to incur, any single capital expenditure which
alone exceeds $10,000.00 or enter into any lease agreement with rental payments
exceeding $10,000.00.
(F) Other than previously agreed upon contracts (Retention ), pay, or agree
to pay, any bonus to any employee, officer, or director;
(G) Grant any raise or salary increase to any employee, officer, or
director;
(H) Enter into any contracts, contract renewals or extensions;
(I) Purchase, lease or sell any assets outside the normal course of
business;
(J) Purchase or sell investment securities;
(K) Will not issue any additional common stock or cause to be declared any
stock dividend or stock split; and
(L) Will not establish any additional Employee Benefit Plan.
7.3 CURRENT INFORMATION. During the period from the date of this Merger
Agreement to the Effective Time, First National will cause one or more of its
designated representatives to confer on a regular and frequent basis with
representatives of NBC and to report the general status of its ongoing
operations. First National will promptly notify NBC of any material change in
the normal course of its business or in the operation of its properties and of
any governmental complaints, investigations or hearings (or communications
indicating that the same may be
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contemplated), or the institution or the threat of litigation involving such
party, and will keep the other party or parties fully informed of such events.
7.4 ACCESS TO PROPERTIES AND RECORDS; CONFIDENTIALITY. (A) For purposes
of allowing NBC and their counsel to prepare regulatory submissions, First
National shall permit NBC reasonable access to the property of First National
and its subsidiaries, and shall disclose and make available to NBC, and its
agents, all books, papers and records relating to their assets, stock ownership,
properties, operations, obligations and liabilities of First National and its
subsidiaries, including, but not limited to: their books of account (including
their general ledgers); tax records; minute books of directors' and
shareholders' meetings; charter documents; By-Laws; material contracts and
agreements; filings with any regulatory authority; litigation files;
compensatory plans affecting their employees; and any other materials pertaining
to business in activities, projects or programs in which NBC may have a
reasonable interest in light of the proposed Merger. None of the parties hereto
shall be required to provide access to or to disclose information where such
access or disclosure would violate or prejudice the rights of any customer or
other person, would jeopardize the attorney-client privilege of the institution
in possession or control of such information, or would contravene any law, rule,
regulation, order, judgment, decree or binding agreement. The parties will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(B) All information furnished by one party to another pursuant hereto
shall be treated as the sole property of the party furnishing the information
until consummation of the Merger contemplated hereby and, if such Merger shall
not occur, the party receiving the information shall return to the party
furnishing such information all documents or other materials containing,
reflecting or referring to such information, and shall use its best efforts to
keep confidential all of such information, and shall not directly or indirectly
use such information for any competitive or other commercial purpose. The
obligation to keep such information confidential shall continue for two years
from the date the proposed is abandoned and shall not apply to (a) any
information which (i) the party receiving the information can establish by
convincing evidence was already in its possession prior to the disclosure
thereof by the party furnishing the information; (ii) was then generally known
to the public or set forth in public records; (iii) became known to the public
through no fault of the party receiving the information; or (iv) was disclosed
to the party receiving the information by a
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third party not bound by an obligation of confidentiality or (b) disclosed in
accordance with an order of a Court of competent jurisdiction.
(C) So long as this Agreement is in force and not terminated according to
the terms herein, the Confidentiality between NBC and First National, dated
March 23, 1998, shall remain in full force and effect in addition to the terms
set out in this Section 7.4.
7.5 INTERIM FINANCIAL STATEMENTS. As soon as reasonably available, but in
no event more than 45 days after the end of each fiscal quarter ending after the
date of this Merger Agreement, each party will deliver to the other a copy of
its quarterly financial statements for such fiscal quarter.
7.6 APPROVAL OF SHAREHOLDERS. First National will (i) take all steps
necessary to duly call, give notice of, convene and hold a special meeting of
its shareholders as soon as practicable for the purpose of approving and
adopting this Merger Agreement and the transactions contemplated hereby and for
such other purposes as may be necessary or desirable, (ii) recommend to its
shareholders the approval of this Merger Agreement and the transactions
contemplated hereby and such other matters as may be submitted to its
shareholders in connection with this Merger Agreement and (iii) cooperate and
consult with NBC with respect to each of the foregoing matters. First National
will use its best efforts to obtain the necessary approvals of its shareholders
of this Merger Agreement and the transactions contemplated hereby.
7.7 UNUSUAL EVENTS. Until the closing date, First National and NBC shall
supplement or amend all relevant schedules with respect to any matter arising or
discovered which, if existing or known at the date of this Merger Agreement,
would have required to be set forth or described in such schedules; provided,
however, that such action by First National or NBC shall not be deemed to
prevent or cure any misrepresentations, breach of warranty, or breach of
covenant, unless agreed to in writing by these parties.
7.8 FIRST NATIONAL EMPLOYEES. All First National employment, salary,
salary retention, and severance agreements, disclosed to NBC, validly existing
prior to June 26, 1998, will be honored by NBC. First National's Mississippi
employees whose jobs may be discontinued within two (2) years of the closing
will be offered employment opportunities in NBC offices within thirty (30) miles
of West Point, Mississippi, on a preferential basis, as and when such jobs
become available.
7.9 EMPLOYEE BENEFIT PLANS. NBC will, subject to compliance with all
applicable, legal and regulatory requirements, provide coverage for all First
National employees under all NBC
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Employee Benefit Plans for which they are eligible, as soon as practicable after
the Effective Time. All prior years of service of First National employees will
be counted for vesting and eligibility purposes on all applicable NBC Employee
Benefit Plans to the extent permitted by applicable law (but not for accrual of
pension benefits or contribution to plans). The First National 401(k) Plan may
be merged with the NBC Salary Reduction and Thrift (401k Plan). NBC shall pay
all the necessary expenses related to the termination or merger of the First
National 401(k) Plan.
7.10 DIRECTORS. NBC shall make available two (2) directorships on its
Board of Directors which shall be filled by current First National Directors
nominated and elected in accordance with NBC By-Laws and Articles of
Incorporation.
7.11 REGISTRATION STATEMENT AND REGULATORY FILINGS. (A) NBC shall file
with the SEC as soon as reasonably practical after execution of this Merger
Agreement, a Registration Statement on an appropriate form under the Securities
Act covering NBC common stock to be issued pursuant to this Merger Agreement and
shall use its reasonable best efforts to cause the same to become effective and
thereafter, until the Effective Time or termination of this Merger Agreement, to
keep the same effective and, if necessary, amend and supplement the same. Such
Registration Statement and any amendments and supplements thereto are referred
to herein as the "Registration Statement". The Registration Statement shall
include a Proxy Statement/Prospectus thereto reasonably acceptable to NBC and
First National, prepared by NBC and First National for use in connection with
the meeting of the shareholders of First National referred to in Section 7.6 of
this Merger Agreement, all in accordance with the rules and regulations of the
SEC. NBC shall, as soon as reasonably practical after the execution of this
Merger Agreement, make all filings, if any, required to obtain all Blue Sky
permits, authorizations, consents or approvals required for the issuance of NBC
Converted Shares. In advance of filing the Registration Statement, NBC shall
provide First National and its counsel with a copy of the Registration Statement
and provide an opportunity to comment thereon, and thereafter shall promptly
advise First National and its counsel of any material communication received by
NBC or its counsel from the SEC with respect to the Registration Statement.
None of the information furnished by NBC or First National for inclusion in the
Registration Statement, the Proxy Statement/Prospectus or any other document
filed with the SEC or any State Securities Commission, at the respective times
at which such document are filed with the SEC or State Securities Commission,
or, in the case of the Registration Statement, when it
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becomes effective, or in the case of the Proxy Statement/Prospectus, when mailed
or at the time of the First National shareholders meeting, shall be false or
misleading with respect to any material fact or shall omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances in which they are made, not misleading.
(B) NBC will use its best commercially reasonable efforts to obtain the
regulatory approvals referred to in Article VI hereof and First National will
cooperate fully in the process of obtaining all such approvals. As soon as
reasonably practical after the date of this Merger Agreement, NBC will make all
appropriate initial filings necessary to obtain the regulatory approvals
referred to in Article VI hereof. The obligation to take all reasonable actions
shall not be construed as including an obligation to accept any terms of or
conditions to a consent, authorization, order, or approval of, or any exemption
by, any party that are not acceptable to NBC, in its sole discretion, or to
change the business practices of NBC or any NBC subsidiary. NBC shall provide
First National with copies of all applications filed and all approvals when
received.
ARTICLE VIII
CLOSING CONDITIONS
8.1 CONDITIONS TO EACH PARTIES OBLIGATIONS UNDER THIS MERGER AGREEMENT.
The respective obligations of each party under this Merger Agreement shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(A) This Merger Agreement and the transaction contemplated hereby shall
have been approved and adopted by the affirmative vote of the holders of the
outstanding shares of First National, voted at the Special Meeting of the
shareholders of First National pursuant to Section 7.6 hereof, in accordance
with the requirements of the Articles of Incorporation and By-Laws of First
National.
(B) None of the parties hereto shall be subject to any order, decree, or
injunction of a Court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger.
(C) NBC and First National shall have received an opinion of special tax
counsel, who shall be T. E. Lott & Company, substantially to the effect that the
transaction will be treated, and will qualify, as a tax-free reorganization
within the meaning of (S)368 of the Code; that NBC and First National will each
be a "party to the reorganization" within the meaning of (S)368(b); that no gain
or loss will be recognized by First National on account of the and conversion of
the First National stock
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into NBC stock; and that the combination of such stock delivered to First
National shareholders and cash paid to satisfy dissenting shareholders,
fractional shareholders, and other requirements, shall be in accordance with the
requirements necessary for this transaction to be treated and qualify as a
Pooling of Interest Transaction for accounting purposes applying GAAP.
8.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF NBC. The obligations of
NBC under this Merger Agreement shall be further subject to the satisfaction, at
or prior to the Effective Time of the following conditions, any one or more of
which may be waived by NBC.
(A) Each of the obligations of First National required to be performed by
it at or prior to the closing pursuant to the terms of this Merger Agreement
shall have been duly performed and complied with and the representations and
warranties of First National contained in this Merger Agreement shall be true
and correct in all material respects as of the date of this Merger Agreement and
as of the Effective Time as though made at and as of the Effective Time (except
as otherwise contemplated by this Merger Agreement) and NBC shall have received
a Certificate to that effect signed by the President and Secretary of First
National.
(B) All action required to be taken by, or on the part of, First National
and it shareholders to authorize the execution, delivery, and performance of
this Merger Agreement by First National and the consummation of the transaction
contemplated hereby shall have been duly and validly taken by the Board of
Directors of First National and its shareholders and NBC shall have received
certified copies of the resolutions evidencing such authorization.
(C) Any and all permits, consents, waivers, clearances, approvals, and
authorizations (including those referred to in Schedule 5.6 hereto) of all third
parties and governmental bodies shall have been obtained by First National which
are necessary in connection with the consummation of the Merger and the
transaction contemplated hereby and which by the terms herein are to be obtained
by First National.
(D) NBC shall have received an opinion from Mitchell, McNutt, Threadgill,
Smith & Sams, P.A., counsel to First National, dated as of the Effective Time,
and in form and substance satisfactory to NBC and its counsel. In rendering its
opinion, such counsel may rely, as to matters of fact, upon such certificates of
the officers of First National or governmental officials as such counsel deems
appropriate.
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(E) This Merger Agreement and the transaction contemplated hereby shall
have been approved by all applicable federal and state authorities in a form
acceptable to NBC.
(F) NBC shall have received from an independent investment banker or other
qualified professional source, selected by NBC, a fairness opinion to the effect
that the contemplated is fair, from a financial point of view, to the
shareholders of NBC.
(G) The net worth of First National at the time of closing shall be no
less than $11,000,000 as determined under GAAP.
(H) The loan and lease loss reserves of First National at the Effective
Time shall be an amount not less than $3,050,000 reduced by any charge-offs made
by First National in the ordinary course of business on or after May 31, 1998,
up to the Effective Time and any other charge-offs required by NBC or its
accountants prior to the Effective Time.
First National will furnish NBC such certificates of their officers or
others and such other documents sufficient to evidence fulfillment of the
conditions set forth in this Section 8.2 as NBC may reasonably request.
8.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FIRST NATIONAL UNDER THIS
MERGER AGREEMENT. The obligations of First National under this Merger Agreement
shall be further subject to the satisfaction, at or prior to the Effective Time,
of the following conditions, any one or more of which may be waived by First
National:
(A) Each of the obligations of NBC required to be performed by it at or
prior to the closing, pursuant to the terms of this Merger Agreement shall have
been duly performed and complied with and the representations and warranties of
NBC contained in this Merger Agreement shall be true and correct in all material
respects as of the date of this Merger Agreement and as of the Effective Time as
though made at and as of the Effective Time (except as otherwise contemplated by
this Merger Agreement) and First National shall have received a certificate to
that effect signed by the Chief Executive Officer and Chief Financial Officer of
NBC.
(B) All action required to be taken by, or on the part of, NBC to
authorize the execution, delivery, and performance of this Merger Agreement of
NBC and consummation of the transaction contemplated hereby shall have been duly
and validly taken by the Board of Directors of NBC and First National shall have
received certified copies of the resolutions evidencing such authorization.
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(C) Any and all permits, consents, waivers, clearances, approvals and
authorizations, including those referred to in Schedule 5.6 hereto, of all third
parties and governmental bodies shall have been obtained by NBC which are
necessary in connection with the consummation of the and the transaction
contemplated hereby and which by the terms herein are to be obtained by NBC.
(D) First National shall have completed a due diligence review of NBC, and
its subsidiaries, to its sole satisfaction, and prior to the closing, nothing
shall have come to the attention of First National with respect to the
operations, assets, financial condition or business of NBC, or any of its
subsidiaries, which has or may have a material adverse effect on the operations,
assets, financial conditions or business of NBC as determined in the sole
discretion of First National.
(E) NBC shall have received an opinion from Gholson, Hicks & Nichols,
P.A., counsel to NBC, dated as of the Effective Time, and in form and substance
satisfactory to First National and its counsel. In rendering its opinion, such
counsel may rely, as to matters of fact, upon such certificates of the officers
of NBC or governmental officials as such counsel deems appropriate.
(F) First National shall have received from Alex Sheshunoff & Company a
fairness opinion, in a form and substance satisfactory to First National and its
counsel, to the effect that the contemplated is fair, from a financial point of
view, to the shareholders of First National.
ARTICLE IX
CLOSING
9.1 TIME AND PLACE. Subject to the provisions of Articles VIII (Closing
Conditions) and X (Termination, Amendment and Waiver) hereof, the closing of the
transaction contemplated hereby shall take place at the offices of NBC, 301 East
Main Street, Starkville, Mississippi 39759, at 9:00 a.m. local time, on the
first business day after the date on which all the conditions contained in this
Merger Agreement, to the extent not waived, are satisfied; or at such other
place, or such other time, or such other date as NBC and First National may
mutually agree upon for the closing to take place, or December 31, 1998,
whichever date is earliest. If all conditions precedent to closing with the
exception of normal regulatory approval have been met, NBC may extend the
closing date for a period not to exceed ninety (90) days. In all other events,
an extension of the closing date shall require the mutual consent of NBC and
First National. All references in this Merger Agreement to closing shall refer
to said date including extensions as herein provided.
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9.2 DELIVERIES AT CLOSING. Subject to the provisions of Articles VIII
(Closing Conditions) and X (Termination, Amendment and Waiver) hereof, at the
closing there shall be delivered to NBC and First National the opinions,
certificates, and other documents and instruments required to be delivered under
the provisions hereof.
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ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 TERMINATION. This Merger Agreement may be terminated at any time
prior to the Effective Time, under the following conditions:
(A) The mutual consent of NBC and First National;
(B) By either party upon denial of shareholder or regulatory approval as
provided for herein;
(C) By NBC upon failure of the Merger to qualify the acquisition to be
accounted for as a Pooling of Interest in accordance with GAAP as determined by
special tax counsel;
(D) By First National upon the failure of the Merger to qualify the
acquisition to be accounted for as a tax-free reorganization and exchange that
does not recognize a gain or loss on the First National stock exchanged for NBC
stock in accordance with the Tax Code as determined by special tax counsel;
(E) By either party, if at the time of such determination there shall be a
material adverse change in the consolidated financial condition of the other
party from that set forth in the Company's financial statements for the period
ending December 31, 1997;
(F) By either party if the Merger shall not have been completed by
December 31, 1998, or the extended closing, as set out in Section 9.1, and the
parties have not by mutual agreement further extended the time for closing the
Merger and the transaction contemplated herein;
(G) By the non-breaching party in the event of a material breach in the
provisions of this Merger Agreement, and said breach has not been cured within
twenty (20) days of written notice by the non-breaching party to the other party
setting out in specific detail the nature of the claimed material breach.
10.2 EFFECT OF TERMINATION. In the event of termination of this Merger
Agreement by either NBC or First National, as provided herein, this Merger
Agreement shall forthwith become void and except as provided in Section 11.1
hereof there shall be no further liability on the part of NBC and First
National, or their respective officers or directors, other than liability for
any default hereunder occurring prior to such termination, to the extent
permitted by applicable law.
10.3 AMENDMENTS AND WAIVERS. Subject to applicable law, at any time prior
to the consummation of the Merger, whether before or after approval by the
shareholders of First National, by action taken by the respective Board of
Directors, the parties may (a) amend this Merger
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Agreement, (b) extend the life of the performance of any of the obligations or
other acts of the other parties hereto, (c) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, or (d) waive compliance with any of the agreements and
conditions contained in Articles VII (Covenants of the Parties) and VIII
(Closing Conditions) other than the requirements of Section 8.1(a). Provided,
however, after approval hereto by the shareholders of First National, there may
not be, without further approval of such shareholders, any amendment, extension
or waiver of this Merger Agreement which changes the amount or form of the
consideration to be delivered to First National and its shareholders. This
Merger Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto. Any agreement on the part of the party
hereto to an extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party, but such waiver or failure
to insist or on strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel, with respect to, any
subsequent or other failure.
ARTICLE XI
MISCELLANEOUS
11.1 EXPENSES. NBC shall pay all reasonable expenses subsequent to the
Effective Time of the Merger, including reasonable counsel fees for present
counsel to First National, in consultation with NBC, in connection with this
Merger Agreement and the transactions hereunder. All expenses, including, but
not limited to, investment advisor fees, brokers fees, commissions, finder's
fees, and counsel fees incurred in connection with the and up to the Effective
Time shall be paid by the party incurring such cost and expenses.
11.2 INDEMNIFICATION. After the Effective Time, NBC shall indemnify,
defend and hold harmless the directors, officers, employees, and agents of First
National or any of First National's subsidiaries (each a "First National
Indemnified Party") against all liabilities, including reasonable attorney fees,
expenses, judgments, fines and amounts paid in settlement, arising out of
actions or omissions occurring at or prior to the Effective Time, including the
Merger and transactions contemplated by this Merger Agreement, to the full
extent permitted under Mississippi law and by First National's Articles of
Incorporation and By-Laws, as in effect on the date hereof, including provisions
relating to advances of expenses incurred in the defense of any litigation. The
First
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National Indemnified Party may retain counsel reasonably satisfactory to him
after consultation with NBC; provided, however, that:
(1) NBC shall have the right to assume the defense thereof and upon such
assumption, NBC shall not be liable to any First National Indemnified Party for
any legal expenses of other counsel or any other expenses subsequently incurred
by any First National Indemnified Party in connection with the defense thereof,
except that if NBC elects not to assume such defense or counsel for the First
National Indemnified Party reasonably advises that there are issues which raise
conflicts of interest between NBC and the First National Indemnified Party, the
First National Indemnified Party may retain counsel reasonably satisfactory to
him after consultation with NBC, and NBC shall pay the reasonable fees and
expenses of such counsel for the First National Indemnified Party;
(2) A First National Indemnified Party shall consult and obtain the
approval of NBC prior to affecting any settlement, which said approval shall not
be unreasonably withheld by NBC; and
(3) NBC shall have no obligation hereunder to any Indemnified Party when
and if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that indemnification
of such First National Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.
Prior to the Effective Time, NBC and First National will cooperate in
obtaining extensions of directors' and officers' liability coverage maintained
by First National for the time period determined by NBC and permissible under
policy provisions or, at its option, NBC may substitute coverage therefor. NBC
shall be responsible for the payment of premiums for officers' and directors'
liability insurance extensions or substitutions as provided for herein.
11.3 NON-COMPETE RESTRICTIONS. First National agrees to exercise its best
efforts to assist NBC in procuring from Pete T. Hodo, III, and Mark G. Hazard
the execution of a Non-Compete Agreement, the terms of which shall restrict and
preclude them from engaging in competitive business ventures or activities for a
period of two (2) years from the Effective Time in a geographic radius of sixty
(60) miles of West Point, Mississippi. As to Pete T. Hodo, III, such shall
also preclude him from engaging in competitive business ventures or activities
for the same time period within the corporate limits of the City of Tuscaloosa,
Alabama. In connection therewith, NBC agrees to provide reasonable compensation
for such Non-Compete Agreements.
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11.4 BREACH/SPECIFIC PERFORMANCE. (A) In the event either party breaches
any of the terms and conditions of this Merger Agreement, and the other party is
required to employ legal counsel, or institute legal action, in order to enforce
its rights under the terms and conditions of this Merger Agreement, the
successful party shall be entitled to recover from the party breaching this
Merger Agreement all expenses, attorney fees, consultation fees, expert witness
fees, court costs, and all other expenses incidental to said breach.
(B) In the event either party fails or refuses to carry out the terms and
conditions of this Merger Agreement in any respect, or to complete the Merger
contemplated by this Merger Agreement, the other party shall have the right, in
addition to the recovery of all damages, incidental or consequential, as a
result of said breach, or failure to complete the and the terms and conditions
of this Merger Agreement, the right of specific performance in any Court of
competent jurisdiction.
11.5 DISCLOSURE AND PRESS RELEASES. Upon the execution of this Merger
Agreement, the proposed merger shall be announced by these parties in a public
statement mutually prepared and agreed upon. Public comment regarding the
proposed transaction shall be made by the Chief Executive Officers of NBC and
First National or their respective designees. The specific terms of this Merger
Agreement shall not be disclosed except as and to the extent required by law.
Appropriate disclosures shall be made by each party to its shareholders in
materials properly distributed prior to shareholder meetings to consider this
Merger, all in accordance with regulatory and legal requirements. Each party
hereto shall undertake such reasonable steps as may be required to ensure that
the employees and agents comply with this provision.
11.6 PARTIES IN INTEREST. This Merger Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that neither this Merger Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other parties, which said
consent may be withheld for any reason. Nothing in this Merger Agreement is
intended to confer, expressly or by implication, upon any other person any
rights or remedies under or by reason of this Merger Agreement.
11.7 SURVIVAL OF REPRESENTATIONS. All statements, representations,
warranties and agreements made by the parties hereto shall not survive the
closing, and, except as contemplated in the next sentence, no party hereto shall
have any obligations or liabilities after the closing.
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Notwithstanding any other provision of this Merger Agreement, the agreements
herein with respect to Exchange Procedures, Section 1.4, Rights of Former First
National shareholders, Section 1.5, Dissenting Shareholders, Article IV,
confidentiality contained in Section 7.4, Subsequent Actions as to further
assurances contained in Section 1.9, Expenses, Section 11.1, and Indemnification
contained in Section 11.2, shall survive the termination of this Merger
Agreement.
11.8 REPRODUCTION OF DOCUMENTS. This Merger Agreement and all documents
relating thereto, including without limitation, consents, waivers and
modifications which may hereafter be executed, the Exhibits and documents
delivered at the closing, and financial statements, certificates and other
information previously or hereafter furnished to either party may be reproduced
by either party by any photographic, photostatic, microfilm, microcard,
miniature photographic or other similar process and either party may destroy any
original documents so reproduced. Each party agrees and stipulates that any
such reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by Purchase in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
11.9 EXHIBITS. All Exhibits, Appendices, schedules and documents referred
to in or attached to this Merger Agreement are integral parts of this Merger
Agreement as if fully set forth herein and all statements appearing therein
shall be deemed to be representations. All items disclosed hereunder shall be
deemed disclosed only in connection with the specific representation to which
they are explicitly referenced.
11.10 WAIVER. No delay or omission on the part of any party hereto in
exercising any right hereunder shall operate as a waiver of such right or any
other right under this Merger Agreement.
11.11 COUNTERPARTS. This Merger Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall comprise one and the same instrument.
11.12 NOTICES. All notices, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered in
person or by certified mail, registered mail (postage prepaid) or by reputable
overnight service (charges prepaid).
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To NBC: Lewis F. Mallory, Jr.
National Bank of Commerce
P. O. Box 1187
Starkville, MS 39760
Copied To:
Hunter M. Gholson, Esq.
Gholson, Hicks & Nichols, P.A.
P. O. Box 1111
Columbus, MS 39703
To First
National: Robert Calvert, Chairman of the Board
First National Bank of West Point
P. O. Box 1078
West Point, MS 39773
Copied To:
David L. Sanders, Esq.
Mitchell, McNutt, Threadgill,
Smith & Sams, P.A.
P. O. Box 1366
Columbus, MS 39703-1366
or such other address as either party may designate by notice to the other.
11.13 SECTION HEADINGS. The Section headings are for reference only and
shall not limit or control the meaning of any provision of this Merger
Agreement.
11.14 GOVERNING LAW. This Merger Agreement shall be governed by the laws
of the State of Mississippi, without giving effect to the principles of
conflicts of laws thereof.
11.15 ENTIRE AGREEMENT. This Merger Agreement, with any schedules or
exhibits hereto, constitutes the entire agreement between the parties with
respect to the subject matter hereof, and is executed on behalf of and at the
direction of the Boards of Directors of the respective parties. It is intended
that this Merger Agreement constitute a binding agreement between the parties
notwithstanding that there may be other matters unresolved and subject to
negotiation at the time of execution of this Merger Agreement. This Merger
Agreement may not be modified except with the express consent of NBC and First
National.
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IN WITNESS WHEREOF, the Boards of Directors of NBC and First National,
respectively, have each executed this Merger Agreement and directed the
authorized signature and seal of each respective corporation to be set hereunto
by its Chairman of the Board and attested to by a duly authorized officer, and
the Boards of Directors of NBC and First National have caused this Merger
Agreement to be executed by their duly authorized officers, all as of the day
and year first above written.
NBC CAPITAL CORPORATION
(S E A L)
BY: ______________________
ATTEST: CHAIRMAN OF THE BOARD
_______________
SECRETARY
FIRST NATIONAL CORPORATION OF WEST POINT
(S E A L)
BY: ______________________
ATTEST: CHAIRMAN OF THE BOARD
_______________
PRESIDENT
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EXHIBIT 2.2
FIRST AMENDMENT TO
DEFINITIVE AGREEMENT
AND
PLAN OF REORGANIZATION AND MERGER
BY AND BETWEEN
NBC CAPITAL CORPORATION
AND
FIRST NATIONAL CORPORATION OF WEST POINT
First Amendment to Definitive Agreement and Plan of Reorganization and
Merger dated July 24, 1998 (the "Merger Agreement"), dated this _____day of
September, 1998, by and between NBC CAPITAL CORPORATION ("NBC"), and FIRST
NATIONAL CORPORATION OF WEST POINT ("FNC").
RECITALS
WHEREAS, NBC and FNC executed the Definitive Agreement and Plan of
Reorganization and Merger on July 24, 1998; and
WHEREAS, the parties desire to amend and supplement the Merger Agreement;
and
WHEREAS, the respective Boards of Directors of NBC and FNC, by resolutions
duly adopted, have approved this amendment.
NOW, THEREFORE, pursuant to Section 10.3 of Article X of the Merger
Agreement and in order to prescribe the amendments to the Merger Agreement, the
parties hereto set forth the following amendments:
AMENDMENT I.
The following shall be added as a new Section 1.10 of Article I:
1.10 THE BANK MERGERS. Following the merger of FNC into NBC, First
National Bank of West Point shall be merged into National Bank of Commerce of
Mississippi, and National Bank of the South shall be merged into National Bank
of Commerce. Thereafter and subsequent to the foregoing mergers, National Bank
of Commerce shall be merged into National Bank of Commerce of Mississippi. In
the event there is any impediment to the merger of National Bank of Commerce
into National Bank of Commerce of Mississippi, it shall be deferred until that
merger may be fully consummated, but any such delay in the merger of National
Bank of Commerce into National Bank of Commerce of Mississippi shall neither
prevent nor impede the mergers of National Bank of the South into National Bank
of Commerce, the merger of First National Bank of West Point into National Bank
of Commerce of Mississippi or the Holding
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Company Merger.
AMENDMENT II.
Section 6.3 (a) shall be deleted and the following substituted therefor:
6.3 (a) the filing by NBC of the Interagency Bank Merger Application Act
Application and the approval of such application.
In all other respects, the Definitive Agreement and Plan of Reorganization
and Merger dated July 24, 1998 is ratified and confirmed.
IN WITNESS WHEREOF, the Boards of Directors of NBC and First National,
respectively, have each executed this Amendment and directed the authorized
signature and seal of each respective corporation to be set hereunto by its
Chairman of the Board and attested by a duly authorized officer, and the Boards
of Directors of NBC and First National have caused this Amendment to be executed
by their duly authorized officers, all as of the day and year first above
written.
NBC CAPITAL CORPORATION
By
--------------------------------------
Lewis F. Mallory, Jr.
- ---------- Chairman of the Board
ATTEST:
- -----------------------------
Hunter M. Gholson, Secretary
FIRST NATIONAL CORPORATION
OF WEST POINT
By
----------------------------
ATTEST: Robert L. Calvert, III
Chairman of the Board
- -----------------------------
Peter T. Hodo, III
President
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EXHIBIT 99.1
PROXY STATEMENT
FIRST NATIONAL CORPORATION OF WEST POINT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 8, 1998
PROSPECTUS
NBC CAPITAL CORPORATION
1,000,000 SHARES OF COMMON STOCK
($1.00 PAR VALUE)
We are furnishing you this Proxy Statement-Prospectus because you are a
holder of FNC Common Stock. The Board of Directors of FNC is soliciting proxies
for use at the Special Meeting and at any adjournments or postponements of the
Special Meeting. The Special Meeting will be held at 10:00 A.M., local time, on
December 8, 1998, at the main office of First National Bank of West Point, 107
Commerce Street, West Point, Mississippi.
At the Special Meeting, holders of record of FNC Common Stock as of the
close of business on the Record Date will vote upon a proposal to approve the
Merger Agreement. If the Merger is consummated, each outstanding share of FNC
Common Stock (with a few exceptions, discussed below) will be converted into
shares of NBC Common Stock. Shares of FNC Common Stock as to which dissenters'
rights have been exercised and perfected will not be converted into NBC Common
Stock. If the Merger is consummated, holders of FNC Common Stock will receive
for each share of FNC Common Stock a number of shares of NBC Common Stock that
has a market value of approximately $293.37, as determined by the Average Market
Price of NBC Common Stock. Fractional shares will not be issued. Anyone
entitled to a fraction of a share of NBC Common Stock will instead receive cash
for that portion of a share. The Merger Agreement is included in its entirety
as Appendix A to this Proxy Statement-Prospectus. It is also described in more
detail under the heading "Proposed Merger."
This Proxy Statement-Prospectus is also a prospectus of NBC for the shares
of NBC Common Stock to be issued if the Merger is consummated.
The outstanding shares of NBC Common Stock are traded sporadically in the
over-the-counter market. The reported last sale price of NBC Common Stock was
$38.00 per share on November 2, 1998.
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This Proxy Statement-Prospectus and the accompanying proxy card are first
being mailed to shareholders of FNC on or about November 9, 1998.
No one is authorized to give any information or to make any representations
other than those contained in this Proxy Statement-Prospectus. If any other
information or representations are given or made, you may not rely upon them as
having been made by NBC or FNC.
THE MERGER AND THE OFFERING OF NBC COMMON STOCK DISCUSSED IN THIS PROXY
STATEMENT-PROSPECTUS ARE SUBJECT TO CERTAIN RISKS. SEE "INVESTMENT
CONSIDERATIONS" AT PAGE P-16, BELOW.
THE SHARES OF NBC COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
INTRODUCTION..........................................................
AVAILABLE INFORMATION.................................................
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................
CERTAIN DEFINITIONS...................................................
SUMMARY...............................................................
The Proposed Merger..............................................
Management and Operations After the Merger.......................
Recommendation of the Board of Directors.........................
Basis for the Terms of the Merger................................
Advice and Opinion of Alex Sheshunoff & Company..................
Quorum and Vote Required.........................................
Conditions; Abandonment; Amendments..............................
Interests of Certain Persons in the Merger.......................
Employee Benefits................................................
Material Tax Consequences........................................
Dissenters' Rights...............................................
Differences in Shareholders' Rights..............................
Accounting Treatment.............................................
CERTAIN INVESTMENT CONSIDERATIONS.....................................
THE PARTIES TO THE MERGER.............................................
NBC..............................................................
NBC Selected Financial Information...............................
FNC..............................................................
FNC Selected Financial Information...............................
Pro Forma Combined Selected Financial Information (Unaudited)....
Comparative Per Share Information (Unaudited)....................
MEETING INFORMATION...................................................
Solicitation and Revocation of Proxies...........................
Quorum and Vote Required.........................................
Recommendation...................................................
PROPOSED MERGER.......................................................
General..........................................................
Background of and Reasons for the Merger.........................
Terms of the Merger..............................................
Opinion of Alex Sheshunoff & Company.............................
Closing Date and Effective Date of the Merger....................
Employee Benefits................................................
Surrender and Exchange of Stock Certificates.....................
Expenses.........................................................
Representations and Warranties...................................
Conditions to the Merger; Waiver.................................
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Regulatory and Other Approvals...................................
Business Pending the Merger......................................
Termination......................................................
Management and Operations after the Merger.......................
Certain Differences in the Rights of Shareholders................
Interests of Certain Persons in the Merger.......................
Material Tax Consequences........................................
Resale of NBC Common Stock.......................................
Rights of Dissenting Shareholders................................
Accounting Treatment.............................................
CERTAIN REGULATORY CONSIDERATIONS.....................................
General..........................................................
Payment of Dividends.............................................
Restrictions on Extensions of Credit.............................
PRO FORMA FINANCIAL INFORMATION.......................................
CERTAIN INFORMATION CONCERNING NBC....................................
CERTAIN INFORMATION CONCERNING FNC....................................
Description of Principal Business................................
Supervision and Regulation.......................................
Competition......................................................
Seasonality of Business and Customers............................
Employees........................................................
Properties.......................................................
Legal Proceedings................................................
Stock Prices and Dividends.......................................
Security Ownership of Principal Shareholders and Management......
FNC CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
AS OF JUNE 30, 1998 AND 1997 (Unaudited) ........................
FNC CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AS OF
AND FOR DECEMBER 31, 1997 AND DECEMBER 31, 1996 (Audited)........
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF FNC FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1997 AND DECEMBER 31, 1996.......................................
RELATIONSHIP WITH INDEPENDENT AUDITORS................................
VALIDITY OF SHARES....................................................
EXPERTS...............................................................
APPENDICES
APPENDIX A - DEFINITIVE AGREEMENT AND PLAN OF
REORGANIZATION AND MERGER...................................
APPENDIX B - FAIRNESS OPINION OF ALEX SHESHUNOFF & COMPANY
APPENDIX C - PROVISIONS OF MISSISSIPPI LAW RELATING TO
DISSENTERS' RIGHTS
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APPENDIX D - TAX OPINION OF T. E. LOTT & COMPANY
5
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INTRODUCTION
This Proxy Statement-Prospectus describes a proposed merger between FNC and
NBC and the Special Meeting at which shareholders of FNC will vote upon the
Merger Agreement pursuant to which, if approved, the Merger will be consummated.
It also contains information about the parties to the Merger and other
information of interest to FNC's shareholders.
Upon consummation of the Merger, FNC will be merged into NBC, and NBC will
be the corporation surviving the Merger. In that case, shareholders of FNC who
do not exercise and perfect their dissenters' rights under Mississippi law will
receive for each share of FNC Common Stock a number of shares of NBC Common
Stock that has a market value of approximately $293.37, as determined by the
Average Market Price of NBC Common Stock. No fractional shares of NBC Common
Stock will be issued. Shareholders of FNC entitled to receive a fraction of a
share will be paid cash instead of that fractional share. See "Proposed
Merger - Terms of the Merger."
Shareholders of FNC will be asked to approve the Merger Agreement at the
Special Meeting which will be held on December 8, 1998. The proxy statement
relating to the Special Meeting is included in this Proxy Statement-Prospectus.
The terms of the Merger Agreement and the Merger are described in this
Proxy Statement-Prospectus (see "Proposed Merger"). Also, a copy of the Merger
Agreement is attached as Appendix A.
AVAILABLE INFORMATION
NBC is a public company and is required to file certain reports, proxy
statements and other information with the SEC. You may review and copy these
reports, proxy statements and other information at the following places:
* the public reference facilities of the SEC at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549;
* the SEC's Regional Office at 7 World Trade Center, Suite 1300, New York,
New York 10007; or
* the SEC's Regional Office at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511.
The SEC also maintains a web site on the Internet that contains reports,
proxy statements and other information about public companies, including NBC.
The address of that site is http://www.sec.gov.
NBC has filed a registration statement on Form S-4 with the SEC that
registers the NBC Common Stock included in this Prospectus. This Proxy
Statement-Prospectus does not contain all
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<PAGE>
of the information in the Registration Statement. Please refer to the
Registration Statement for further information about NBC and the NBC Common
Stock to be exchanged in the Merger. Statements contained in this Proxy
Statement-Prospectus concerning the provisions of certain documents included in
the Registration Statement are not necessarily complete. A complete copy of each
document is filed as an exhibit to the Registration Statement. You may obtain
copies of all or any part of the Registration Statement, including exhibits
thereto, upon payment of the prescribed fees, at the offices of the SEC listed
above.
All information contained in this Proxy Statement-Prospectus relating to
NBC and its subsidiaries has been supplied by NBC. All information relating to
FNC and its subsidiaries has been supplied by FNC.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement-Prospectus includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although NBC
and FNC believe that the expectations reflected in such forward-looking
statements are reasonable, such forward-looking statements are based on numerous
assumptions (some of which may prove to be incorrect) and are subject to risks
and uncertainties which could cause the actual results to differ materially from
NBC's and FNC's expectations. Forward-looking statements have been and will be
made in written documents and oral presentations of NBC and FNC. Such
statements are based on management's beliefs as well as assumptions made by and
information currently available to management. When used in NBC's and FNC's
documents or oral presentations, the words "anticipate," "estimate," "expect,"
"objective," "projection," "forecast," "goal" and similar expressions are
intended to identify forward-looking statements. In addition to any assumptions
and other factors referred to specifically in connection with such forward-
looking statements, factors that could cause NBC's or FNC's actual results to
differ materially from those contemplated in any forward-looking statements
include, among others, increased competition, regulatory factors, economic
conditions, changing market conditions, availability or cost of capital,
employee workforce factors, cost and other effects of legal and administrative
proceedings, and changes in federal, state or local legislature requirements.
NBC and FNC undertake no obligation to update or revise any forward-looking
statements, whether as a result of changes in actual results, changes in
assumptions or other factors affecting such statements.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by NBC with the SEC are incorporated by
reference in this Proxy Statement-Prospectus:
* its Annual Report on Form 10-K for the year ended December 31, 1997 (the
"1997 Annual Report");
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* its definitive Proxy Statement filed with the SEC on March 20, 1998 (the
"1998 Proxy Statement") relating to its 1998 Annual Meeting of Shareholders
held on April 14, 1998 (except for the information contained therein under
the headings "Executive Compensation -- Salary Committee Report On
Executive Compensation Committee" and "Executive Compensation -- Market
Comparisons," which are expressly excluded from incorporation in this
Registration Statement); and
* its Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998
(the "March 31, 1998 Form 10-Q") and June 30, 1998 (the "June 30, 1998
Form 10-Q").
Copies of the 1997 Annual Report, the 1998 Proxy Statement and the June 30,
1998 Form 10-Q are enclosed with this Proxy Statement-Prospectus.
All documents filed by NBC with the SEC pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Proxy Statement-
Prospectus and prior to the termination of the offering of NBC Common Stock made
hereby will be deemed to be incorporated by reference in this Proxy Statement-
Prospectus from the date they are filed. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement-Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which is also or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
will not be deemed to constitute a part of this Proxy Statement-Prospectus,
except as so modified or superseded.
If you are a beneficial owner of FNC Common Stock and would like a copy of
any of the information incorporated by reference in this Proxy Statement-
Prospectus other than exhibits to such information (unless such exhibits are
specifically incorporated by reference into such information), NBC will provide
it to you without charge. If you would like to receive any of that information,
please call or write to NBC Capital Corporation, P. O. Box 1187, Starkville,
Mississippi 39760, Attention: Mr. Richard T. Haston, Treasurer and Assistant
Secretary, Telephone (601) 324-4258. You should make your request before
December 1, 1998 in order to receive the information prior to the Special
Meeting.
CERTAIN DEFINITIONS
We have used certain defined terms and abbreviations throughout this Proxy
Statement-Prospectus for ease of reference and consistency. These defined terms
and their definitions are included below:
Average Market Price -- the average closing sales price of a share of NBC Common
Stock for the thirty (30) trading days preceding the fifth (5th) trading day
immediately prior to the Effective Date.
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Effective Date -- the date and time at which the Merger becomes effective, as
specified in Section 1.2 of the Merger Agreement.
ESOP -- NBC's Employee Stock Ownership Plan, as amended to date.
Exchange Act -- the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated under it.
Exchange Rate -- the number of shares of NBC Common Stock to be exchanged for
each share of FNC Common Stock in the Merger, as determined in accordance with
Section 1.3 of the Merger Agreement.
Fairness Opinion -- the opinion of Alex Sheshunoff & Company, included as
Appendix B to the Proxy Statement-Prospectus.
Federal Reserve Board -- the Board of Governors of the Federal Reserve System.
First National Bank -- First National Bank of West Point, a wholly-owned
subsidiary of FNC.
FNC -- First National Corporation of West Point, a Mississippi corporation and
the holding company of First National Bank, National Bank of the South, and
First National Finance Company.
FNC Common Stock -- the common stock, par value $5.00 of FNC, which will be
surrendered in exchange for NBC Common Stock if the Merger is consummated.
FNFC -- First National Finance Company, a wholly-owned subsidiary of FNC.
Internal Revenue Code -- the Internal Revenue Code of 1986, as amended.
MBCA -- the Mississippi Business Corporation Act, Miss. Code Annotated (1972)
Section 79-4-1.01 et seq.
Merger -- the merger of FNC with and into NBC described herein and in the Merger
Agreement.
Merger Agreement -- the Definitive Agreement and Plan of Reorganization and
Merger between NBC and FNC dated as of July 24, 1998, as amended, a copy of
which is attached to this Proxy Statement-Prospectus as Appendix A.
National Bank of Commerce of Mississippi -- National Bank of Commerce of
Mississippi, a wholly-owned subsidiary of NBC.
National Bank of Commerce -- National Bank of Commerce (Tuscaloosa, Alabama), a
majority-owned subsidiary of NBC.
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National Bank of the South -- National Bank of the South, a wholly-owned
subsidiary of FNC.
NBC -- NBC Capital Corporation, a Mississippi corporation and the holding
company of National Bank of Commerce of Mississippi and National Bank of
Commerce.
NBC Common Stock -- the Common Stock, $1.00 par value, of NBC, which will be
issued in exchange for FNC Common Stock in the Merger, if the Merger is
consummated.
OCC -- Office of the Comptroller of the Currency, the federal regulatory agency
for national banks.
Record Date -- November 2, 1998, the date on which a person must be a
shareholder of FNC in order to vote at the Special Meeting.
Registration Statement -- the registration statement filed with the SEC by NBC,
including all amendments and exhibits to it, relating to the NBC Common Stock to
be exchanged in the Merger.
Sheshunoff -- Alex Sheshunoff & Company, the financial advisor to FNC.
SEC -- the Securities and Exchange Commission.
Securities Act -- the Securities Act of 1933, as amended, and the rules and
regulations promulgated under it.
Special Meeting -- the special meeting of shareholders of FNC scheduled to be
held at 10:00 a.m. on December 8, 1998 at First National Bank of West Point, 107
Commerce Street, West Point, Mississippi, at which shareholders of FNC will vote
on the Merger Agreement.
Tax Opinion -- the opinion of T. E. Lott & Company, attached to this Proxy
Statement-Prospectus as Appendix D, relating to certain federal tax consequences
of the Merger.
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SUMMARY
We have prepared this summary to assist shareholders of FNC in their review
of this Proxy Statement-Prospectus. It is necessarily general and abbreviated,
and it is not intended to be a complete explanation of all of the matters
covered in this Proxy Statement-Prospectus. This summary is qualified in its
entirety by reference to the more detailed information contained elsewhere in
this Proxy Statement-Prospectus, the Appendices, the documents enclosed with
this Proxy Statement-Prospectus and the documents incorporated herein by
reference. We urge shareholders of FNC to read all of those documents in their
entirety prior to the Special Meeting.
THE PROPOSED MERGER
The shareholders of FNC will consider and vote upon the Merger Agreement at
the Special Meeting. If the shareholders of FNC approve the Merger Agreement
and the other conditions to completing the Merger are satisfied, the Merger will
be consummated on a date thereafter chosen by the parties. See "Proposed
Merger -- Representations and Warranties" and "Conditions to the Merger; Waiver"
for more information about the conditions to completing the Merger. Shareholders
of FNC (other than those who exercise and perfect dissenters' rights under
Mississippi law) will receive for each share of FNC Common Stock a number of
shares of NBC Common Stock that has a market value of approximately $293.37, as
determined by the Average Market Price of NBC Common Stock.
FNC shareholders who would otherwise receive a fraction of a share of NBC
Common Stock will receive cash instead of that fractional share.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
FNC will cease to exist after the Merger. The business of FNC will be
conducted through NBC after the Merger. Pursuant to Section 7.10 of the Merger
Agreement, it is anticipated that two of the current FNC directors will be
elected as directors of NBC. Immediately after consummation of the Merger,
National Bank of the South will be merged into National Bank of Commerce
(Tuscaloosa, Alabama) and First National Bank will be merged into National Bank
of Commerce of Mississippi. As soon as practicable thereafter, it is anticipated
that National Bank of Commerce (Tuscaloosa, Alabama) also will be merged into
National Bank of Commerce of Mississippi, with National Bank of Commerce of
Mississippi being the surviving bank and conducting the banking operations
previously conducted by the two national bank subsidiaries of NBC and the two
national bank subsidiaries of FNC. Upon completion of the Merger, FNFC will
become a wholly-owned subsidiary of NBC.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF FNC HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS
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<PAGE>
OF FNC'S SHAREHOLDERS. THE FNC BOARD RECOMMENDS THAT YOU VOTE FOR THE MERGER
AGREEMENT. (See "Meeting Information.") The Board of Directors has received a
Fairness Opinion from Alex Sheshunoff & Company that the terms of the Merger are
fair, from a financial point of view, to the shareholders of FNC. See "Proposed
Merger -- Opinion of Alex Sheshunoff & Company." The FNC Board believes that the
Merger will provide significant value to all FNC shareholders.
BASIS FOR THE TERMS OF THE MERGER
The FNC Board considered a number of factors in approving the terms of the
Merger, including:
* the level of Merger consideration provided by the NBC bid in a bidding
process conducted for FNC;
* information concerning the financial condition, results of operations and
prospects of NBC and FNC;
* a professional evaluation by Sheshunoff of the economic fairness of the
price to the FNC shareholders;
* the absence of an active trading market for FNC Common Stock;
* the anticipated tax-free nature of the Merger to FNC's shareholders for
federal income tax purposes;
* the financial terms of other recent business combinations in the banking
industry;
* the historical growth and value of the NBC Common Stock;
* the possible benefit to the market served by FNC by its combination with
NBC; and
* the treatment to be accorded to FNC employees under the terms of the
Merger.
See "Proposed Merger -- Background of and Reasons for the Merger."
ADVICE AND OPINION OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING
Sheshunoff has rendered an opinion to the FNC Board of Directors that the
terms of the Merger are fair, from a financial point of view, to the
shareholders of FNC. The opinion is based on and subject to the procedures,
matters and limitations described in it and other matters that Sheshunoff
considered relevant. The Fairness Opinion is attached to this Proxy Statement -
Prospectus as Appendix B. We urge you to read the entire opinion, which
includes a description of the procedures followed, matters considered, and
limitations on the reviews undertaken by Sheshunoff. See "Proposed Merger --
Opinion of Alex Sheshunoff & Co. Investment Banking."
QUORUM AND VOTE REQUIRED
Those shareholders who own FNC Common Stock at the close of business on
November 2, 1998 will be entitled to vote at the Special Meeting. A majority of
the issued and outstanding shares of FNC Common Stock must be present in person
or by proxy at the Special Meeting in order for
12
<PAGE>
a quorum to be present. If a quorum is not present, the Special Meeting will be
adjourned, and no vote will be taken until and unless a quorum is present.
The affirmative vote of a majority of the issued and outstanding shares of
FNC Common Stock is required to approve the Merger. As of the Record Date,
directors and executive officers of FNC owned 22,723 shares (or 20.51%) of the
issued and outstanding FNC Common Stock. These individuals have indicated that
they will vote the stock over which they have voting power in favor of the
Merger Agreement. See "Meeting Information" and "Certain Information Concerning
FNC -- Security Ownership of Principal Shareholders and Management."
CONDITIONS; ABANDONMENT; AMENDMENT
A number of conditions must be met in order for the Merger to be
consummated. These conditions include, among others:
* approval of the Merger Agreement by the required vote of the shareholders
of FNC;
* approval of the Merger by the OCC and the Federal Reserve Board; and
* holders of less than 7.28% of the FNC Common Stock exercise and perfect
dissenters' rights.
The Merger may not be consummated until at least 15 days after approval of
the Merger by the Federal Reserve Board. Once the Federal Reserve Board has
approved the Merger, it must be completed within 90 days. See "Proposed Merger
- -- Representations and Warranties," "Proposed Merger -- Conditions to the
Merger; Waiver" and "Proposed Merger -- Regulatory and Other Approvals."
Nearly all of the conditions to consummation of the Merger may be waived at
any time by the party for whose benefit they were created. (Shareholder and
regulatory approvals may not be waived.) Also, the Merger Agreement may be
amended or supplemented at any time by written agreement of FNC and NBC. Any
material change to the Merger Agreement after the date of the Special Meeting
would require, however, a resolicitation of FNC shareholders for the purpose of
voting on the changed Merger Agreement. In addition, the Merger Agreement may
be terminated, either before or after shareholder approval, under certain
circumstances. See "Proposed Merger --Representations and Warranties,"
"Proposed Merger -- Conditions to the Merger; Waiver" and "Proposed Merger --
Closing Date and Effective Date of the Merger; Termination."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The executive officers and directors of FNC have interests in the Merger
that are in addition to their interests as shareholders of FNC. These interests
include, among others:
* provisions in the Merger Agreement providing that two FNC directors will
become directors of NBC;
* provisions in the Merger Agreement providing for employment agreements for
five FNC officers;
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<PAGE>
* the continuation of certain employee benefits; and
* provisions in the Merger Agreement relating to the indemnification of
officers, directors and employees of FNC for certain liabilities.
See "Proposed Merger -- Employee Benefits" and "Proposed Merger -- Interests of
Certain Persons in the Merger."
EMPLOYEE BENEFITS
NBC has agreed to offer to all former employees of FNC who become employees
of NBC the same employee benefits as those offered by NBC to its employees. NBC
will also give FNC employees full credit for their years of service (for both
eligibility and vesting) with FNC to the extent permitted under the terms of the
applicable plans. See "Proposed Merger -- Employee Benefits."
MATERIAL TAX CONSEQUENCES
The Merger Agreement requires the parties to obtain an opinion regarding
the federal tax consequences of the Merger. The parties have received an
opinion of T. E. Lott & Company to the following effects:
* the Merger, when consummated in accordance with the terms of the Merger
Agreement, will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
* no gain or loss will be recognized by holders of FNC Common Stock upon the
exchange in the Merger of all of their FNC Common Stock solely for shares
of NBC Common Stock (except with respect to any cash received in lieu of a
fractional share interest in NBC Common Stock);
* the aggregate tax basis of the NBC Common Stock received by holders of FNC
Common Stock who exchange all of their FNC Common Stock solely for the NBC
Common Stock in the Merger will be the same as the tax basis of the FNC
Common Stock surrendered in exchange therefor, less the basis of any
fractional share of NBC Common Stock settled by cash payment; and
* the holding period of the NBC Common Stock received by holders of FNC
Common Stock in the Merger will include in each instance the period during
which the FNC Common Stock surrendered in exchange therefor was held as a
capital asset on the date of surrender.
T. E. Lott & Company serves as independent auditors for NBC and FNC. A copy of
the tax opinion is attached to this Proxy Statement-Prospectus as Appendix D.
See "Proposed Merger -- Material Tax Consequences."
Tax laws are complex, and the tax consequences of the Merger may vary
depending upon a holder's individual circumstances or tax status. For these
reasons, we recommend that you consult
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<PAGE>
your tax advisor concerning the federal (and any applicable state, local or
other) tax consequences of the Merger to you.
DISSENTERS' RIGHTS
If you perfect your rights to dissent and the Merger is consummated, you
will be entitled to the rights and remedies of dissenting shareholders provided
in the MBCA. Appendix C includes the relevant provisions of the MBCA regarding
dissenters' rights. However, if dissenters' rights are exercised and perfected
with respect to 7.28% or more of the outstanding shares of FNC Common Stock, NBC
will abandon the Merger. See "Proposed Merger -- Rights of Dissenting
Shareholders."
DIFFERENCES IN SHAREHOLDERS' RIGHTS
Shareholders of FNC who receive shares of NBC Common Stock in the Merger
will become shareholders of NBC. Their rights as shareholders then will be
governed by NBC's Articles of Incorporation and Bylaws. The rights of
shareholders of NBC are different in certain respects from the rights of
shareholders of FNC. See "Proposed Merger -- Certain Differences in Rights of
Shareholders."
ACCOUNTING TREATMENT
The parties intend the Merger to be treated as a pooling-of-interests for
financial accounting purposes. A number of things could prevent the Merger from
qualifying for this accounting treatment. Among those factors are the number of
shareholders of FNC who exercise and perfect dissenters' rights. NBC will
abandon the Merger if it does not appear that the Merger will qualify for
pooling-of-interests accounting treatment. See "Proposed Merger -- Accounting
Treatment."
IMPORTANT NOTICE
IF YOU CANNOT LOCATE YOUR FNC COMMON STOCK CERTIFICATE(S), PLEASE CONTACT
MS. MARY ANN BRIGGS AT FIRST NATIONAL BANK OF WEST POINT, 107 COMMERCE STREET,
WEST POINT, MISSISSIPPI 39773, TELEPHONE NUMBER (601) 494-1411, PRIOR TO THE
SPECIAL MEETING. IF YOU HAVE MISPLACED YOUR STOCK CERTIFICATES OR IF YOU HOLD
CERTIFICATES IN NAMES OTHER THAN YOUR OWN, WE ENCOURAGE YOU TO RESOLVE THOSE
MATTERS BEFORE THE EFFECTIVE DATE OF THE MERGER. THIS WILL HELP TO AVOID DELAYS
IN EXCHANGING YOUR FNC COMMON STOCK.
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<PAGE>
CERTAIN INVESTMENT CONSIDERATIONS
In addition to the other information in this Proxy Statement-Prospectus,
the following factors with respect to NBC should be carefully considered in
connection with the proposed Merger. This discussion is intended to illustrate
certain potential risks associated with an investment in the NBC Common Stock
and does not represent NBC's management's expectation of what necessarily will
occur if the Merger is consummated.
ACQUISITION STRATEGY
NBC has pursued and intends to continue to pursue an acquisition strategy,
the success of which will depend primarily on generating an increasing level of
loans and deposits at acceptable risk levels and terms without proportionate
increases in noninterest expenses. There can be no assurance that NBC will be
successful in implementing this strategy. Any acquisitions will be subject to
regulatory approval, and there can be no assurance that NBC will obtain such
approvals. NBC may not be successful in identifying further acquisition
candidates, integrating acquired institutions or preventing deposit erosion at
acquired institutions. Competition for acquisitions in NBC's market area has
become intensively competitive over the past few years, and NBC may not be able
to acquire other institutions on attractive terms. Furthermore, the success of
the acquisition strategy of NBC will depend on maintaining sufficient regulatory
capital levels and on continued favorable economic conditions in NBC's market
area.
LIMITED MARKET HISTORY; POSSIBLE VOLATILITY OF MARKET PRICE
The NBC Common Stock trades sporadically in the over-the-counter market and
there can be no assurance that a market for the NBC Common Stock will be
sustained in the future. At present, there are two market makers for the NBC
Common Stock; however, such market makers are not obligated to continue to make
a market for NBC Common Stock. The market prices of the NBC Common Stock may be
volatile depending on various factors, including the general economy, stock
market conditions, announcements by NBC or its competitors and fluctuations in
operating results of NBC.
COMPUTATION OF THE EXCHANGE RATE
Upon consummation of the Merger, FNC shareholders will receive for each
share of FNC Common Stock a number of shares of NBC Common Stock having a market
value of approximately $293.37, as determined by the Average Market Price of the
NBC Common Stock. The Average Market Price of the NBC Common Stock is the
simple mathematical average of closing sales prices reported in the
over-the-counter market for the NBC Common Stock for
the thirty (30) trading days preceding the five (5) trading days preceding the
consummation of the Merger. The Average Market Price is simply the agreed upon
formula for determining the number of shares of NBC Common Stock to be issued in
the Merger and is not a representation as to the fair market value of such stock
after the Merger. Further, NBC Common Stock heretofore has traded only
sporadically in the over-the-counter market. Consequently, there can be no
assurance that persons in the future will be able to sell any or all of their
NBC Common Stock at a time of their choosing or at or above the Average Market
Price as determined for the Merger."
16
<PAGE>
THE PARTIES TO THE MERGER
NBC CAPITAL CORPORATION
NBC is a Mississippi corporation registered under the Bank Holding Company
Act of 1956, as amended (the "BHCA"). As of June 30, 1998, NBC had total
consolidated assets of approximately $659 million and shareholders' equity of
approximately $75 million.
NBC has two banking subsidiaries: National Bank of Commerce of Mississippi
and National Bank of Commerce (Tuscaloosa, Alabama). National Bank of Commerce
of Mississippi provides retail and commercial banking services through 23
banking offices located in Mississippi. National Bank of Commerce (Tuscaloosa,
Alabama) provides retail and commercial banking services through four banking
offices in Alabama.
From time to time, NBC investigates and holds discussions and negotiations
in connection with possible mergers or similar transactions with other financial
institutions. On the date of this Proxy Statement-Prospectus, NBC's Merger
Agreement with FNC is the only definitive agreement relating to a merger to
which NBC is a party. NBC expects to pursue other possible acquisition
opportunities and intends to continue to pursue such opportunities in the
future. Any transactions may be entered into before or after the Merger. The
terms of any future transactions cannot be predicted at this time. Also, future
transactions would be subject to regulatory approval and the approval of
shareholders as required by law.
There is no established trading market for the NBC Common Stock. The NBC
Common Stock trades sporadically in the over-the-counter market. Based on
transactions which came to the attention of NBC's management, the NBC Common
Stock traded at between $20.25 and $23.75 per share during 1996, and $23.75 and
$32.00 per share during 1997. The most recent trade that came to the attention
of NBC's management prior to NBC's and FNC's announcement of their proposed
Merger was 320 shares at $37.50 per share on July 24, 1998. The parties do not
know what the Average Market Price of NBC Common Stock will be on the Effective
Date.
The principal executive offices of NBC are located at NBC Plaza,
Starkville, Mississippi 39759, and its telephone number is (601) 323-1341. For
additional information concerning the business and financial condition of NBC,
please refer to NBC's 1997 Annual Report, its 1998 Proxy Statement, and its
June 30, 1998 Form 10-Q, copies of which are included with this Proxy
Statement-Prospectus, as well as its other reports incorporated herein by
reference. See "Incorporation of Certain Documents by Reference."
SELECTED FINANCIAL INFORMATION OF NBC
The following table sets forth certain consolidated financial information
for NBC. This information is based on the consolidated financial statements and
related notes of NBC contained
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<PAGE>
in its 1997 Annual Report and its June 30, 1998 Form 10-Q, copies of which are
included with this Proxy Statement-Prospectus.
NBC CAPITAL CORPORATION
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31 June 30,
- ----------------------------------------------------------------------------------------------------------
Unaudited ($ in thousands,
except per share
amounts) 1997 1996 1995 1994 1993 1998 1997
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 25,704 $ 24,537 $ 23,565 $ 22,268 $ 18,738 $ 12,687 $ 12,710
Income from continuing
operations 8,751 8,185 7,808 7,138 6,340 4,882 4,700
Per common share/:(1)/
Income from continuing
operations 1.82 1.71 1.63 1.49 1.32 1.02 .98
Cash dividends .66 .61 .60 .51 .44 .11 .10
Book value 14.71 13.51 12.56 10.76 10.37 15.62 14.37
SELECTED PERIOD-
END BALANCES
Debt $ 17,624 $ 14,711 $ 10,026 $ 12,360 $ 14,632 $ 15,865 $ 16,147
Total assets 646,826 614,430 576,215 545,404 452,357 658,991 629,189
(1) Per share data has been adjusted retroactively for stock splits.
</TABLE>
FIRST NATIONAL CORPORATION OF WEST POINT
FNC is a Mississippi corporation and a registered bank holding company
under the BHCA which owns all of the issued and outstanding shares of stock of
First National Bank of West Point, National Bank of the South, and First
National Finance Company. As of June 30, 1998, FNC had total consolidated
assets of approximately $115 million and shareholders' equity of approximately
$12 million.
First National Bank of West Point is located in West Point, Mississippi,
where it operates a main office and three branch locations providing retail and
commercial banking services. As of June 30, 1998, it had total assets of
approximately $83 million. National Bank of the South is located in Tuscaloosa,
Alabama, where it operates a main office and two branch locations providing
retail and commercial banking services. As of June 30, 1998, National Bank of
the South had total assets of approximately $36 million. First National Finance
Company has one business location in West Point, Mississippi where it engages in
lending activities, principally the origination of small
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<PAGE>
consumer loans. As of June 30, 1998, First National Finance Company had
approximately $1.3 million in assets.
There is no established trading market for the FNC Common Stock and trading
is very sporadic in the over-the-counter market. Based on transactions that
came to the attention of FNC's management, the FNC Common Stock traded at $115
per share during 1996 and between $115 and $130 per share during 1997. The most
recent trade that came to the attention of FNC's management prior to FNC's and
NBC's announcement of their proposed Merger was 20 shares at $130 per share on
December 12, 1997. The parties do not know what the market price of FNC Common
Stock will be on the Effective Date.
The principal executive offices of FNC are located at 107 Commerce Street,
West Point, Mississippi 39773 and its telephone number is (601) 494-1411.
Additional information concerning the business of FNC and its financial
condition is included below under the headings "Certain Information Concerning
FNC," "Management's Discussion and Analysis of Financial Condition and Results
of Operations of FNC" and "FNC Consolidated Financial Information."
SELECTED FINANCIAL INFORMATION OF FNC
The following selected financial information of FNC with respect to each
year in the three-year period ended December 31, 1997 and the six-month periods
ended June 30, 1998 and 1997 has been derived from the financial statements of
FNC. The information set forth below should be read in conjunction with FNC's
financial statements, the notes thereto, and FNC's Management's Discussion and
Analysis of Financial Condition and Results of Operations for the years ended
December 31, 1997 and 1996 and the six-month periods ended June 30, 1998 and
1997 appearing elsewhere in this Proxy Statement-Prospectus.
19
<PAGE>
FNC SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31 June 30,
- -----------------------------------------------------------------------------------------------
Unaudited ($ in thousands, except
per share amounts) 1997 1996 1995 1998 1997
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 5,425 $ 5,036 $ 4,158 $ 2,659 $ 2,612
Income from continuing operations 1,167 1,235 967 431 593
Per common share:
Income from continuing operations 10.53 10.83 8.48 3.89 5.35
Cash dividends 3.45 3.25 3.10 1.75 1.65
Book value 110.85 103.99 98.63 112.72 110.23
SELECTED PERIOD-END
BALANCES
Debt $ 5,444 $ 4,032 $ 3,369 $ 4,965 $ 6,394
Total assets 115,705 105,577 97,491 115,463 110,811
</TABLE>
20
<PAGE>
FNC QUARTERLY INCOME RESULTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Unaudited ($ in thousands, except per share amounts)
---------------------------------------------
<S> <C> <C> <C> <C>
3/31/98 6/30/98
------- -------
Interest income $ 2,399 $ 2,380
Net interest income 1,344 1,315
Net income 218 213
Net income per share 1.97 1.92
---------------------------------------------
3/31/97 6/30/97 9/30/97 12/31/97
------- ------- ------- --------
Interest income $ 2,312 $ 2,356 $ 2,437 $ 2,603
Net interest income 1,295 1,317 1,344 1,469
Net income 299 294 298 276
Net income per share 2.70 2.65 2.69 2.49
---------------------------------------------
3/31/96 6/30/96 9/30/96 12/31/96
------- ------- ------- --------
Interest income $ 2,109 $ 2,136 $ 2,212 $ 2,363
Net interest income 1,152 1,219 1,269 1,396
Net income 266 336 348 285
Net income per share 2.34 2.94 3.05 2.50
</TABLE>
PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth certain unaudited pro forma combined
selected financial information for NBC. The pro forma information, which
reflects the Merger, is presented for information purposes only. The results
shown are not necessarily indicative of the actual results that might have
occurred if the Merger had been completed at the beginning of the periods
presented. Also, this information is not necessarily indicative of results that
might be achieved in the future if the Merger is completed. See "Pro Forma
Financial Information" contained elsewhere herein.
21
<PAGE>
PRO FORMA NBC
PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION*
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31 June 30,
- ------------------------------------------------------------------------------------------------
Unaudited ($ in thousands, except
per share amounts) 1997 1996 1995 1998 1997
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 31,129 $ 29,573 $ 27,723 $ 15,347 $ 15,322
Income from continuing operations 9,918 9,420 8,775 5,313 5,293
Per common share:
Income from continuing operations 1.75 1.66 1.55 .94 .93
Cash dividends .63 .58 .57 .13 .12
Book value 14.29 13.19 12.28 15.09 13.98
SELECTED PERIOD-END
BALANCES
Debt $ 23,068 $ 18,743 $ 13,394 $ 20,830 $ 22,541
Total assets 761,271 718,747 672,446 773,194 738,740
* Includes NBC and FNC
</TABLE>
COMPARATIVE PER SHARE INFORMATION (UNAUDITED)
The following table sets forth for NBC Common Stock and FNC Common Stock
certain unaudited pro forma combined and unaudited pro forma equivalent per
share financial information for the six-month periods ended June 30, 1998 and
1997 and for the years ended December 31, 1997, 1996 and 1995. Information
under the column titled "NBC" is based on, and should be read in conjunction
with, NBC's 1997 Annual Report and upon NBC's June 30, 1998 Form 10-Q, copies of
which are included with this Proxy Statement-Prospectus. Information under the
column titled "FNC" is based on, and should be read in conjunction with, the
historical financial statements and related notes and Management's Discussion
and Analysis of Financial Condition and Results of Operations of FNC contained
elsewhere in this Proxy Statement-Prospectus.
Information under the column entitled "Pro Forma NBC (with FNC)" is based
upon the pro forma financial statements and related notes contained elsewhere
herein. Such pro forma combined information, which reflects the Merger, is
presented for informational purposes only and should not be construed as
indicative of the actual operations that would have occurred had the Merger been
consummated at the beginning of the periods indicated or that may be obtained in
the future. The pro forma combined information gives effect to the issuance, in
each of the periods presented, of
22
<PAGE>
7.929 shares of NBC Common Stock for each outstanding share of FNC Common Stock.
(The actual Exchange Rate may differ. See "Proposed Merger -- Terms of the
Merger.") The pro forma combined information assumes that the Average Market
Price of NBC Common Stock will be $37.00 per share.
The information under the column entitled "FNC Pro Forma Equivalent" is
derived by multiplying the amounts contained in the column titled "Pro Forma
NBC (with FNC)" by 7.929 (the assumed Exchange Rate for purposes of this pro
forma presentation).
NBC AND FNC
COMPARATIVE PER SHARE INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Unaudited
PRO FORMA FNC PRO
NBC FORMA
NBC FNC (WITH FNC) EQUIVALENT
-----------------------------------------------
<S> <C> <C> <C> <C>
PER COMMON SHARE:
Income from continuing operations:
For the six months ended June 30,
1998 $ 1.02 $ 3.89 $ .94 $ 7.45
1997 .98 5.35 .93 7.38
Income from continuing operations:
For the year ended December 31,
1997 1.82 10.53 1.75 13.88
1996 1.71 10.83 1.66 13.16
1995 1.63 8.48 1.55 12.29
Cash dividends:
For the six months ended June 30,
1998 .11 1.75 .13 1.03
1997 .10 1.70 .12 .95
Cash dividends:
For the year ended December 31,
1997 .66 3.45 .63 5.00
1996 .61 3.25 .58 4.60
1995 .60 3.10 .57 4.52
Book value:
At June 30, 1998 15.62 112.72 15.09 119.65
At December 31, 1997 14.71 110.85 14.29 113.31
</TABLE>
23
<PAGE>
MEETING INFORMATION
You have received this Proxy Statement-Prospectus because the FNC Board is
soliciting your proxy for the Special Meeting. Each copy of this Proxy
Statement-Prospectus mailed to holders of FNC Common Stock is accompanied by a
proxy card for use at the Special Meeting and at any adjournment of the Special
Meeting. The Special Meeting is scheduled to be held at 10:00 A.M., local time,
on December 8, 1998, at the main office of First National Bank of West Point,
107 Commerce Street, West Point, Mississippi. Only holders of record of FNC
Common Stock at the close of business on the Record Date are entitled to vote at
the Special Meeting. At the Special Meeting, shareholders will consider and
vote upon the Merger Agreement. Any other matters that are properly brought
before the Special Meeting or any adjournment of the Special Meeting will also
be voted upon.
PLEASE COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED, POSTAGE PAID ENVELOPE.
SOLICITATION AND REVOCATION OF PROXIES
If you have delivered a proxy for the Special Meeting, you may revoke it
any time before it is voted by attending the Special Meeting and voting in
person. You may also give notice in writing to the Secretary of FNC prior to
the date of the Special Meeting that you are revoking your proxy. Finally, you
may submit a signed proxy card bearing a date later than your initial proxy, and
if it is received before the Special Meeting, the later-dated proxy will be
voted. Proxy cards received at or prior to the Special Meeting and not
subsequently revoked will be voted as directed. If instructions are not given,
executed proxy cards will be voted FOR approval of the Merger Agreement. If any
other matters are properly presented at the Special Meeting for consideration,
the persons named in the proxy card will have discretionary authority to vote on
those matters. The FNC Board is not aware of any matter to be presented at the
Special Meeting other than the proposal to approve the Merger Agreement.
The cost of soliciting proxies from FNC's shareholders will be borne by
FNC, except that NBC will bear all expenses incurred in printing this Proxy
Statement-Prospectus. The solicitation will be made by mail but also may be
made by telephone or other means of telecommunications or in person by the
directors, officers and employees of FNC. If these individuals solicit votes in
that manner, they will receive no additional compensation for doing so.
FNC SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. IF THE MERGER AGREEMENT IS APPROVED, SHAREHOLDERS WILL RECEIVE
INSTRUCTIONS REGARDING THE EXCHANGE OF THEIR STOCK CERTIFICATES AFTER THE MERGER
HAS BEEN CONSUMMATED.
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<PAGE>
RECORD DATE; QUORUM AND VOTE REQUIRED
The Record Date is November 2, 1998. Shareholders of record as of the
close of business on the Record Date are entitled to notice of the Special
Meeting and to vote at the Special Meeting. As of the Record Date, there were
110,781 shares of FNC Common Stock outstanding and entitled to vote at the
Special Meeting.
The presence, in person or by proxy, of shares of FNC Common Stock
representing a majority of the votes entitled to be cast on the Merger Agreement
on the Record Date is necessary to constitute a quorum at the Special Meeting.
Each share of FNC Common Stock outstanding on the Record Date entitles its
holder to one vote as to the approval of the Merger Agreement and any other
proposal that may properly come before the Special Meeting.
FNC will count shares of FNC Common Stock present in person at the Special
Meeting but not voting, and shares of FNC Common Stock for which it has received
proxies but with respect to which holders of such shares have abstained, as
present at the Special Meeting for purposes of determining the presence or
absence of a quorum for the transaction of business.
UNDER THE MBCA, APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE
VOTE OF THE HOLDERS OF A MAJORITY OF ALL VOTES ENTITLED TO BE CAST ON THE MERGER
AGREEMENT AT THE SPECIAL MEETING. BECAUSE APPROVAL OF THE MERGER AGREEMENT
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF OUTSTANDING SHARES
OF FNC COMMON STOCK, ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT
AS NEGATIVE VOTES. ACCORDINGLY, THE FNC BOARD URGES FNC SHAREHOLDERS TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED, POSTAGE-PAID ENVELOPE.
As of the Record Date, the directors and executive officers of FNC
beneficially owned a total of 22,723 shares, or approximately 20.51% of the
outstanding shares of FNC Common Stock. These individuals have indicated that
they will vote their stock in favor of the Merger Agreement.
RECOMMENDATION
The Board of Directors of FNC has unanimously approved the Merger Agreement
and believes the Merger is in the best interests of FNC and its shareholders.
The FNC Board recommends that holders of FNC Common Stock vote FOR approval of
the Merger Agreement. In making its recommendation to shareholders, the FNC
Board considered, among other things, the Fairness Opinion, which concludes that
the terms of the Merger are fair to FNC's shareholders from a financial point of
view. See "Proposed Merger -- Background of and Reasons for the Merger" and
"Proposed Merger -- Opinion of Alex Sheshunoff & Co. Investment Banking," below.
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PROPOSALS OF SHAREHOLDERS FOR NBC'S 1999 ANNUAL MEETING
At its annual meeting each year, NBC's Board of Directors submits to
shareholders its nominees for election as directors. In addition, the Board of
Directors may submit other matters to the shareholders for action at the annual
meeting. Shareholders of NBC may also submit proposals for inclusion in the
proxy material. Proposals of shareholders intended to be presented at NBC's
1999 annual meeting of shareholders must be received by Lewis F. Mallory, Jr.,
Chairman of the Board and Chief Executive Officer of the Company at 301 East
Main Street, Starkville, Mississippi 39759, no later than Friday, December 11,
1998 in order for such proposals to be considered for inclusion in the Proxy
Statement and form of proxy relating to such meeting.
PROPOSED MERGER
This section of the Proxy Statement-Prospectus describes certain aspects of
the Merger. The following description is not intended to include every aspect
of the Merger, but rather contains only the significant terms of the Merger.
This discussion is qualified in its entirety by reference to the Merger
Agreement, which is attached as Appendix A to this Proxy Statement-Prospectus
and is incorporated herein by reference. We urge you to read the Merger
Agreement carefully and in its entirety.
GENERAL
If the shareholders of FNC approve the Merger Agreement and the other
conditions to the consummation of the Merger are satisfied, FNC will be merged
with and into NBC. At that time, the separate existence of FNC will cease.
Immediately after consummation of the Merger, National Bank of the South will be
merged into National Bank of Commerce (Tuscaloosa, Alabama) and First National
Bank will be merged into National Bank of Commerce of Mississippi. As soon as
practicable thereafter, it is anticipated that National Bank of Commerce
(Tuscaloosa, Alabama) also will be merged into National Bank of Commerce of
Mississippi, with National Bank of Commerce of Mississippi being the surviving
bank and conducting the banking operations previously conducted by the two
national bank subsidiaries of NBC and the two national bank subsidiaries of FNC.
Upon consummation of the Merger, FNFC will become a wholly-owned subsidiary of
NBC. As soon as practicable following the Effective Date, it is intended that
all of the banking operations conducted by NBC in the States of Mississippi and
Alabama will be conducted under the name of National Bank of Commerce.
NBC will exchange shares of NBC Common Stock, plus cash instead of any
fractional share, for each outstanding share of FNC Common Stock as to which
dissenters' rights have not been perfected and exercised. Each share of NBC
Common Stock outstanding immediately prior to the effective date of the Merger
will remain outstanding and unchanged as a result of the Merger. See "Terms of
the Merger," below, for a discussion of the calculation of the Exchange Rate.
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BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER. In November 1997, FNC received a proposal to
merge FNC into NBC for a total price to FNC's shareholders of $25,000,000
(approximately $226.50 per share) for 100% control of FNC. This unsolicited
proposal came at a time when FNC was proceeding toward an offer to its
shareholders to buy non-traded minority interest shares of FNC Common Stock at
$130 per share, believing that to be a fair price. The NBC proposal caused the
planned FNC offer to be postponed and ultimately abandoned.
The NBC offer, compared to the buy-back price in FNC's planned offer, was a
material factor in causing FNC's Board to formally evaluate the NBC proposal.
Sheshunoff was engaged to assist the FNC Board of Directors in evaluating the
NBC proposal. With the analysis and advice of Sheshunoff, the FNC Board of
Directors rejected the NBC proposal as inadequate.
However, since the price offered by NBC appeared to be far above what the
shareholders might realize in the foreseeable future under continued independent
operations by FNC, FNC's Board broadened the scope of Sheshunoff's engagement to
obtain their advice and consultation in deciding what course FNC should take
with respect to FNC's future which would be in the best interests of the FNC
shareholders. This led to a study in which the sale of FNC appeared to offer a
substantial advantage to the FNC shareholders. Consequently, the FNC Board
instructed Sheshunoff to seek expressions of interest from potential acquirers
to determine if the Sheshunoff advice as to FNC's fair value might be realized
by actual interest. Thereafter, Sheshunoff received three expressions of
interest confirming Sheshunoff's advice as to the range of values that would be
fair to the FNC shareholders. The three entities expressing interest then were
requested to formalize their expression of interest as actual bids, which
resulted in three bids being submitted. Of these, the bid of NBC was accepted
by FNC's Board, even though the price bid by NBC was approximately $115,200 less
than the price bid by the highest competing bidder. In the judgment of FNC's
Board, in view of the relatively small difference in the nominal prices bid, the
NBC bid was superior and should be accepted after taking into account other
important factors. Those other factors principally included the following:
(i) NBC submitted a fixed total price bid without fixing a minimum (or
maximum) price for the NBC Common Stock to be used to determine the total
number of shares of such stock that will be issued to pay such total price
thus reducing the risk to FNC's shareholders of any decline in the market
price of the NBC Common Stock while the Merger is pending;
(ii) NBC's operations in the neighboring markets (Columbus and Starkville,
Mississippi) are active and well received in those communities, making the
business "fit" of FNC with NBC the best of those bidding which is favorable
to the FNC shareholders as future NBC shareholders;
(iii) NBC operates a bank in the Tuscaloosa, Alabama market, as does FNC,
and the combination of the two Tuscaloosa banks will more likely enhance
shareholder value to FNC shareholders who will become NBC shareholders as a
result of the Merger than would the situations with the competing bids;
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(iv) NBC enjoys a good banking reputation in neighboring market areas
(Columbus and Starkville), which is known in the FNC marketing area. This
is considered to be a positive factor for FNC customers and beneficial to
FNC shareholders as future NBC shareholders;
(v) The FNC Board of Directors perceived the NBC management to have a
strong community service orientation which should benefit the communities
served by FNC;
(vi) The treatment offered FNC's employees by NBC provides FNC employees
the most protection and potentially minimizes the severance obligations
that might result from a sale of FNC; and
(vii) NBC's agreement to provide two directorships on the NBC Board of
Directors to existing members of the FNC Board potentially enhances value
to FNC shareholders by giving them representation on NBC's Board.
While the factors considered cannot be reduced to specific monetary values,
in the judgment of the Board of Directors of FNC, they are sufficient to offset
any small difference in the nominal monetary value of the two highest bids.
Accordingly, it was the belief of the Board of Directors of FNC that the NBC bid
maximizes shareholder value for the FNC shareholders.
Subsequent to the bid process, the Board of Directors of FNC entered into
negotiations with NBC which ultimately led to the execution of the Merger
Agreement.
REASONS OF FNC FOR THE MERGER. In deciding to enter into the Merger
Agreement, the Board of Directors of FNC, after considering various
alternatives, concluded that the Merger Agreement was in the best interests of
FNC and its shareholders because it would permit shareholders to exchange on
favorable terms their ownership interest in FNC for participation in the
ownership of NBC.
The Board of Directors also concluded that the shareholders of FNC would
benefit from the Merger by obtaining greater liquidity in their investment by
obtaining shares of stock of a corporation whose securities are more widely
held.
Among the other factors (including those set out elsewhere herein)
considered by the Board of Directors of FNC in deciding to approve and recommend
the terms of the Merger were:
(i) The parties' respective earnings and dividend records, financial
conditions, historical stock prices and management and the proximity
of their respective market areas;
(ii) The opportunity to provide additional products and services which
will enhance competitiveness in the markets currently served by FNC;
(iii) The outlook for each in the financial institutions industry;
(iv) The opinion rendered by Sheshunoff, FNC's financial advisor, to the
effect that based upon and subject to certain procedures, matters and
limitations, the terms of the
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Merger Agreement are fair, from a financial point of view, to the
holders of FNC Common Stock; and
(v) The treatment offered FNC's employees by NBC which provides the
employees the most protection and potentially minimizes severance
obligations that might result from a sale of FNC.
FNC's Board did not assign a specific or relative weight to the foregoing
factors in its considerations. FNC's Board believes that the Merger will
provide significant value to all FNC shareholders and will enable them to
participate in opportunities for growth that FNC's Board believes the Merger
make possible.
TERMS OF THE MERGER
If the shareholders of FNC approve the Merger Agreement and the other
conditions to the consummation of the Merger are satisfied, the Merger will be
completed on the Effective Date. (See "Proposed Merger -- Representations and
Warranties; Conditions to the Merger; Waiver" for a discussion of the other
conditions to completing the Merger.)
FNC shareholders will receive for each share of FNC Common Stock a number
of shares of NBC Common Stock that has a market value of approximately $293.37,
as determined by the Average Market Price of NBC Common Stock. For example, if
the Average Market Price is $37.00, then the Exchange Rate will be 7.929 shares
of NBC Common Stock for each share of FNC Common Stock.
On the Effective Date each outstanding share of FNC Common Stock, other
than shares held by shareholders who exercise and perfect dissenters' rights,
will automatically convert to the number of shares of NBC Common Stock described
above. FNC shareholders will automatically be entitled to all of the rights and
privileges afforded to NBC shareholders at that time. However, the actual
physical exchange of FNC Common Stock certificates for certificates representing
NBC Common Stock will occur after the Effective Date.
YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO FNC OR NBC AT THIS TIME.
IF THE MERGER IS CONSUMMATED, YOU WILL RECEIVE INSTRUCTIONS REGARDING THE
EXCHANGE OF YOUR CERTIFICATES FOR NBC COMMON STOCK.
For a discussion of the rights of dissenting shareholders, see "Proposed
Merger -- Rights of Dissenting Shareholders."
OPINION OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING TO FNC
FNC retained Sheshunoff to market FNC to potential acquirers and to provide
its opinion of the fairness, from a financial viewpoint, of the consideration to
be received by FNC's shareholders in connection with the proposed Merger with
NBC. As part of its investment banking business,
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Sheshunoff is regularly engaged in the valuation of securities in connection
with mergers and acquisitions, and valuations for estate, corporate and other
purposes. FNC's Board of Directors retained Sheshunoff based upon Sheshunoff's
experience as a financial advisor in mergers and acquisitions of financial
institutions, and its knowledge of financial institutions. On July 15, 1998, the
date the FNC Board of Directors approved the Merger Agreement, Sheshunoff
rendered its oral opinion that, as of such date, the consideration to be
received in the proposed Merger was fair, from a financial point of view, to the
shareholders of FNC. Sheshunoff reviewed NBC and FNC financial data as of
June 30, 1998 and bank stock market conditions since the signing of the Merger
Agreement, and rendered its written Fairness Opinion as of October 1, 1998.
The full text of Sheshunoff's Fairness Opinion which sets forth, among
other things, assumptions made, procedures followed, matters considered, and
limitations on the review undertaken, is attached as Appendix B to this Proxy
Statement-Prospectus. FNC's shareholders are urged to read the Fairness Opinion
carefully and in its entirety. The Fairness Opinion is addressed to FNC's Board
of Directors and does not constitute a recommendation to any shareholder of FNC
as to how such shareholder should vote at the Special Meeting.
In connection with the Fairness Opinion, Sheshunoff: (i) reviewed the
Merger Agreement; (ii) reviewed certain publicly available financial statements
and other information concerning FNC and NBC; (iii) reviewed certain internal
financial statements and other financial and operating data of FNC provided by
its management; (iv) discussed the past and current operations, financial
condition, and future prospects of FNC with its executive management; (v)
compared FNC and NBC from a financial point of view with certain other banking
companies that Sheshunoff deemed to be relevant; (vi) compared the financial
performance of NBC and the limited market prices and limited trading activity of
NBC's Common Stock with that of certain other comparable publicly traded
companies and their equity securities; (vii) reviewed the financial terms, to
the extent publicly available, of certain comparable merger transactions in the
Southeastern United States and in Mississippi; and (viii) performed such other
analyses and reviews as Sheshunoff deemed appropriate.
In connection with its review, Sheshunoff relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it or
made publicly available and did not assume any responsibility for independent
verification of such information. With respect to internal confidential
financial projections provided by FNC, Sheshunoff assumed that such projections
were reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the future financial performance of FNC and did not
independently verify the validity of such assumptions. Sheshunoff did not make
any independent evaluation or appraisal of the assets or liabilities of FNC, nor
was Sheshunoff furnished with any such appraisals. Sheshunoff did not examine
any individual loan files of FNC. Sheshunoff is not an expert in the evaluation
of loan portfolios for the purposes of assessing the adequacy of the allowance
for losses with respect thereto and has assumed that such allowances for each of
the companies are in the aggregate, adequate to cover such losses.
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With respect to NBC, Sheshunoff relied upon internal and publicly available
data regarding NBC's financial condition and performance. Sheshunoff met with
and discussed historical and projected financial information with the
management of NBC. Sheshunoff did not conduct any independent evaluation or
appraisal of the assets, liabilities or business prospects of NBC, was not
furnished with any evaluations or appraisals, and did not review any individual
credit files of NBC.
The Fairness Opinion is necessarily based on economic and other conditions
as in effect on, and the information made available to Sheshunoff as of December
31, 1997 and June 30, 1998. The Fairness Opinion is also based on market
information as of September 24, 1998.
In connection with rendering the Fairness Opinion, Sheshunoff performed a
variety of financial analyses. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such a fairness opinion is not readily susceptible
to partial analysis or summary description. Moreover, the evaluation of
fairness, from a financial point of view, of the consideration to be received by
the shareholders of FNC is to some extent a subjective one based on the
experience and judgment of Sheshunoff and not merely the result of mathematical
analysis of financial data. Accordingly, notwithstanding the separate factors
summarized below, Sheshunoff believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying its opinion. The ranges of valuations
resulting from any particular analysis described below should not be taken to be
Sheshunoff's view of the actual value of FNC.
In performing its analyses, Sheshunoff made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of FNC or NBC. The analyses
performed by Sheshunoff are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses, nor are they appraisals. In addition, Sheshunoff's analyses
should not be viewed as determinative of FNC's Board's or FNC's management's
opinion with respect to the value of FNC.
The following is a summary of the analyses performed by Sheshunoff in
connection with the Fairness Opinion dated as of October 1, 1998. The following
discussion contains financial information concerning FNC and NBC as of June 30,
1998, and market information as of September 24, 1998:
Analysis of Selected Transactions. Sheshunoff performed an analysis of
premiums paid in selected pending or recently completed acquisitions of banking
organizations in Mississippi and in the Southeastern United States, with
comparable characteristics to the FNC and NBC transaction. Two sets of
comparable transactions were analyzed to ensure a thorough comparison.
The first set of comparable transactions (the "State Transactions")
consisted of a group of comparable transactions based upon the asset size and
geographical market area of FNC. The State
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Transactions specifically consisted of seven (7) mergers and acquisitions of
banks with total assets less than $250 million located in Mississippi which sold
for common stock between January 1, 1997 and September 24, 1998. The analysis
yielded multiples of the State Transactions' purchase price relative to: (i)
book value ranging from 0.99 times to 3.39 times with an average of 1.81 times
and a median of 1.58 times (compared with the multiple implied in the Merger of
2.56 times June 30, 1998 book value); (ii) last 12 months earnings ranging from
10.9 times to 43.2 times with an average of 24.3 times and a median of 21.0
times (compared with the multiple implied in the Merger of 32.3 times last 12
months earnings as of June 30, 1998); (iii) total assets ranging between 13.3%
and 28.2% with an average of 18.9% and a median of 16.2% (compared with the
multiple implied in the Merger of 28.2% of June 30, 1998 total assets); and (iv)
total deposits ranging from 15.0% to 33.0% with an average of 22.2% and a median
of 19.4% (compared with the multiple implied in the Merger of 33.5% of deposits
as of June 30, 1998).
The second set of comparable transactions (the "Southeastern Transactions")
consisted of a narrowly defined group of comparable transactions based upon the
profitability, asset size and geographical market area of FNC. The Southeastern
Transactions specifically consisted of thirty-nine (39) mergers and acquisitions
of banks in the Southeast with total assets less than $250 million, return on
average equity less than 10%, and which sold for common stock between January 1,
1997 and September 24, 1998. The analysis yielded multiples of the Southeastern
Transactions' purchase price relative to: (i) book value ranging from 0.99 times
to 3.39 times with an average of 2.03 times and a median of 1.80 times (compared
with the multiple implied in the Merger of 2.56 times June 30, 1998 book value);
(ii) last 12 months earnings ranging from 13.1 times to 59.7 times with an
average of 28.3 times and a median of 28.0 times (compared with the multiple
implied in the Merger of 32.3 times last 12 months earnings as of June 30,
1998); (iii) total assets ranging between 11.6% and 45.6% with an average of
22.0% and a median of 20.9% (compared with the multiple implied in the Merger of
28.2% of June 30, 1998 total assets); and (iv) total deposits ranging from 13.4%
to 63.2% with an average of 26.1% and a median of 24.1% (compared with the
multiple implied in the Merger of 33.5% of deposits as of June 30, 1998).
Discounted Cash Flow Analysis. Using discounted cash flow analysis,
Sheshunoff estimated the present value of the future stream of after-tax cash
flow that FNC could produce through the year 2002, under various circumstances,
assuming that FNC performed in accordance with the earnings/return projections
of management. Sheshunoff estimated the terminal value for FNC at the end of
the period by applying multiples of earnings ranging from 15 times to 20 times
and then discounting the cash flow streams, dividends paid to the shareholders
(assuming all earnings in excess of that required to maintain a tangible equity
to tangible asset percentage of 6.0% are paid out in dividends) and terminal
value using discount rates ranging from 12% to 14% chosen to reflect different
assumptions regarding the required rates of return of FNC and the inherent risk
surrounding the underlying projections. This discounted cash flow analysis
indicated a range of $196.79 per share to $224.00 per share based on 110,781
fully diluted shares outstanding, compared to the value of the consideration to
be received in the Merger of $293.37 per share, based on the last traded price
per share of NBC Common Stock.
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Sheshunoff also performed a cash flow analysis using an estimated terminal
value for FNC at the end of the period by applying multiples of book value
ranging from 2.00 times to 3.25 times and then discounting the cash flow
streams, dividends paid to the shareholders (assuming all earnings in excess of
that required to maintain a tangible equity to tangible asset percentage of
6.0% are paid out in dividends) and terminal value using discount rates ranging
from 12% to 14% chosen to reflect different assumptions regarding the required
rates of return of FNC and the inherent risk surrounding the underlying
projections. This discounted cash flow analysis indicated a range of $155.87
per share to $197.80 per share, compared to the value of the consideration to be
received in the Merger of $293.37 per share, based on the last traded price per
share of NBC's Common Stock.
Comparable Company Analysis. Sheshunoff compared selected balance sheet
data, asset quality, capitalization and profitability measures and market
statistics using financial data at June 30, 1998 and market data as of
September 28, 1998 for NBC to a group of selected Southeastern bank holding
companies which Sheshunoff deemed to be relevant.
The group of selected Southeastern bank holding companies (the "Comparable
Composite") included Bank of South Carolina Corp., Bank of Essex, Capital Bank,
Golden Isles Financial, Marathon Financial Corp., Security Bank Corp., and Shore
Financial Corp. This comparison, among other things, showed that: (i) NBC's
equity to asset percentage was 11.4%, compared to an average of 13.7% and a
median of 11.3% for the Comparable Composite; (ii) for the last twelve months
ended June 30, 1998, NBC's return on average equity was 12.4%, compared to an
average of 17.0% and a median of 16.9% for the Comparable Composite; (iii) for
the last twelve months ended June 30, 1998, NBC's return on average assets was
1.39%, compared to an average of 1.32% and a median of 1.31% for the Comparable
Composite; (iv) as of June 30, 1998, NBC's nonperforming loans to total loans
ratio was 0.39%, compared to an average of 0.50% and a median of 0.46% for the
Comparable Composite; (v) NBC's last traded price per share to June 30, 1998
book value per share was 2.40 times, compared to an average of 3.26 times and
median of 3.01 times for the Comparable Composite; and (vi) NBC's last traded
price per share to last twelve months earnings per share as of June 30, 1998 was
20.1 times, compared to an average of 19.9 times and median of 19.2 times for
the Comparable Composite.
No company or transaction used in the comparable company and comparable
transaction analyses is identical to FNC or the Merger. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of FNC and other factors that could affect the public trading
value of the companies to which they are being compared. Mathematical analysis
(such as determining the average or median) is not in itself a meaningful method
of using comparable transaction data or comparable company data.
Pursuant to an engagement letter dated December 19, 1997, between FNC and
Sheshunoff, FNC agreed to pay Sheshunoff a retainer fee of $5,000 and a
transaction fee equal to one half of one percent or 0.50% of the consideration
paid to FNC for up to the first $18 million of total transaction value, 0.75% of
the total transaction value between $18 million and $20 million, and 0.90% of
the total transaction value in excess of $20 million.
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FNC also agreed to indemnify and hold harmless Sheshunoff and its officers and
employees against certain liabilities in connection with its services under the
engagement letter, except for liabilities resulting from the negligence of
Sheshunoff. Sheshunoff has furnished NBC with annual valuations for minority
interest shares of NBC owned by its Employee Stock Ownership Plan since 1992.
CLOSING DATE AND EFFECTIVE DATE OF THE MERGER
The Merger Agreement provides for a closing date that is one (1) day after
all conditions to the Merger have been satisfied or any other date chosen by
agreement of the parties. The parties will choose an Effective Date on which
the Merger will be effective. The Effective Date will be set forth in the
Certificate of Merger issued by the Secretary of State of Mississippi relating
to the Merger. It is expected that the Effective Date will occur shortly after
the closing date. The parties currently anticipate an Effective Date of
December 31, 1998.
NBC and FNC anticipate that all conditions to consummation of the Merger
will be satisfied so that the Merger can be consummated in the fourth quarter of
1998. However, delays in the consummation of the Merger could occur.
The necessary shareholder and regulatory approvals may not be obtained.
Other conditions precedent to the Merger also may not be satisfied. These
conditions are not all within the control of NBC and/or FNC, and the parties
cannot assure you that they will be satisfied. However, as of the date of this
Proxy Statement-Prospectus, the parties are not aware of any condition or
approval that cannot or will not be met or obtained.
The Board of Directors of either NBC or FNC may terminate the Merger
Agreement if the Merger is not consummated by December 31, 1998, except as
otherwise provided in Section 9.1 of the Merger Agreement. See "Proposed
Merger -- Conditions to Consummation of the Merger" and "Proposed
Merger -- Waiver, Amendment, and Termination of the Merger Agreement."
EMPLOYEE BENEFITS
In anticipation of the Merger and in order to compensate certain
individuals for their extraordinary efforts in completing the Merger and to
ensure that the services of those individuals remained available to FNC until
the Merger was consummated, FNC entered into retention agreements with four (4)
of its officers, three of whom are also directors of FNC, and one officer of
National Bank of the South that provide for cash payments of $30,000 to four (4)
and $15,000 to one (1) of these individuals upon consummation of the Merger.
Certain of the officers and directors of FNC, including four (4) of these five
(5) individuals, are also parties to employment agreements with FNC that provide
for enhanced severance benefits if their employment relationship is terminated
without cause within two (2) years after the Merger is consummated.
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All other FNC employees are covered by a severance plan that provides for
enhanced severance benefits if their employment relationship is terminated
without cause within two (2) years after the Merger is consummated.
In addition, all of the employees of FNC and its subsidiaries who become
employed by NBC or its subsidiaries as of the Effective Date will be entitled to
the same employee benefits as those offered by NBC and its subsidiaries to their
employees. However, employees of FNC and its subsidiaries will not be required
to wait for any period in order to be eligible to participate in NBC's plans and
NBC will also give FNC's employees full credit for their years of service (for
both eligibility and vesting) with FNC (to the extent permitted under the terms
of NBC's plans).
SURRENDER AND EXCHANGE OF STOCK CERTIFICATES
Sun Trust Bank, Atlanta, Georgia, will act as Exchange Agent for purposes
of the exchange of FNC Common Stock for NBC Common Stock. Shortly after the
Effective Date, a letter of transmittal will be mailed to all non-dissenting
shareholders of FNC. This letter of transmittal will include instructions for
the exchange of the FNC Common Stock certificates for certificates representing
NBC Common Stock. Each certificate representing FNC Common Stock outstanding
immediately prior to the Effective Date will be deemed for all purposes to
evidence ownership of the number of shares of NBC Common Stock into which such
shares have been converted on the Effective Date, regardless of when they are
actually exchanged.
FNC SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS.
When the Exchange Agent receives certificates for FNC Common Stock,
together with a properly completed letter of transmittal, it will issue and mail
to each holder of FNC Common Stock who surrendered those items a certificate
representing the number of shares of NBC Common Stock to which such holder is
entitled. If the holder would otherwise be entitled to receive a fraction of a
share of NBC Common Stock, the Exchange Agent will mail the holder a check
representing cash paid instead of the fractional share.
Holders of record of FNC Common Stock on the Effective Date will be
entitled to vote at any meeting of NBC shareholders if the record date for the
NBC meeting is after the Effective Date of the Merger. In that case, holders of
FNC Common Stock would be able to vote the number of shares of NBC Common Stock
into which their FNC Common Stock has been converted regardless of whether such
shareholders have surrendered their stock certificates. Dividends or other
distributions payable after the Effective Date on NBC Common Stock will be
distributed only after surrender of the FNC Common Stock certificates. When you
surrender your FNC Common Stock certificate for exchange, the Exchange Agent
will send to you all previously paid but undelivered dividends and other
distributions on your NBC Common Stock. You will not receive interest on those
distributions for any period during which NBC holds them awaiting the exchange
of your FNC Common Stock. Also, taxes may be deducted from those distributions.
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IMPORTANT NOTICE
IF YOU CANNOT LOCATE YOUR FNC COMMON STOCK CERTIFICATE(S), PLEASE CONTACT
MS. MARY ANN BRIGGS AT FIRST NATIONAL BANK OF WEST POINT, 107 COMMERCE STREET,
WEST POINT, MISSISSIPPI 39773, TELEPHONE NUMBER (601) 494-1411, PRIOR TO THE
SPECIAL MEETING. FNC WILL ISSUE NEW CERTIFICATES TO SHAREHOLDERS WHO HAVE
MISPLACED THEIR CERTIFICATES ONLY IF (A) THE SHAREHOLDERS SIGN AN AFFIDAVIT
CERTIFYING THAT THE CERTIFICATES CANNOT BE LOCATED, AND (B) THE SHAREHOLDERS
AGREE TO INDEMNIFY FNC AND NBC AGAINST ANY CLAIM THAT MAY BE MADE AGAINST EITHER
OF THEM BY THE HOLDER OF THE LOST CERTIFICATE(S). FNC OR NBC MAY REQUIRE A
SHAREHOLDER TO POST A BOND IN AN AMOUNT SUFFICIENT TO SUPPORT THE SHAREHOLDER'S
INDEMNIFICATION OBLIGATION. IF YOU HAVE MISPLACED YOUR STOCK CERTIFICATES OR IF
YOU HOLD CERTIFICATES IN NAMES OTHER THAN YOUR OWN, WE ENCOURAGE YOU TO RESOLVE
THOSE MATTERS BEFORE THE EFFECTIVE DATE OF THE MERGER. THIS WILL HELP TO AVOID
DELAYS IN EXCHANGING YOUR FNC COMMON STOCK.
EXPENSES
NBC will pay all expenses of printing and distributing this Proxy
Statement-Prospectus. The parties otherwise will pay all of their own expenses
related to negotiating and completing the Merger.
REPRESENTATIONS AND WARRANTIES
FNC and NBC have made certain representations and warranties to each other
as part of the Merger Agreement. FNC's representations and warranties relate
to, among other things:
* its organization and authority to enter into the Merger Agreement;
* its capitalization, properties, and financial statements;
* pending and threatened litigation against FNC; and
* FNC's contractual obligations and contingent liabilities.
FNC's representations and warranties are generally contained in Article V
of the Merger Agreement.
NBC's representations and warranties relate to, among other things:
* its organization and authority to enter into the Merger Agreement;
* its capitalization and financial statements;
* its pending and threatened litigation; and
* its public reports.
NBC's representations and warranties are generally contained in Article VI
of the Merger Agreement.
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The representations and warranties of the parties generally will not
survive the Effective Date.
CONDITIONS TO THE MERGER; WAIVER
The Merger Agreement contains a number of conditions to completing the
Merger. The conditions must either be met or waived (if they are waivable) in
order for the Merger to occur. The conditions to completing the Merger include,
among other things:
* the Merger Agreement must be approved by FNC's shareholders;
* necessary regulatory approvals must be obtained (particularly the approval
of the OCC and the Federal Reserve Board);
* the Tax Opinion must be issued;
* the Registration Statement must become effective under the Securities Act
and there may not be a stop order suspending its effectiveness;
* there may not be an order, decree or injunction enjoining or prohibiting
completion of the Merger;
* the representations and warranties set forth in the Merger Agreement must
be accurate as of the closing date;
* the Merger must qualify for pooling-of-interests accounting treatment; and
* certain opinions of counsel must be received by the parties.
Most of the conditions to completing the Merger may be waived at any time
by the party for whose benefit they were created. Regulatory and shareholder
approvals may not be waived, however. Also, the Merger Agreement may be amended
or supplemented at any time by written agreement of the parties. However, any
material change in the terms of the Merger Agreement after the Special Meeting
would require a resolicitation of votes from FNC's shareholders.
REGULATORY AND OTHER APPROVALS
NBC and FNC are registered bank holding companies and are regulated by the
Federal Reserve Board. The banking subsidiaries of NBC and FNC are national
banks and are regulated by the OCC. The Federal Reserve Board must approve the
Merger in order for the parties to complete the Merger. OCC approval also must
be obtained in order to complete the merger of the banking subsidiaries of NBC
and FNC. FNC and NBC must wait at least 15 days after the date of Federal
Reserve Board approval before they may complete the Merger. During this 15-day
period, the Department of Justice may object to the Merger on antitrust grounds.
In addition, the Merger must be completed within 90 days of the date of Federal
Reserve Board approval.
The exchange of shares of NBC Common Stock for FNC Common Stock in the
Merger has been registered with the SEC. The transaction also will be
registered with various state securities commissions as may be required.
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The regulatory approvals required to complete the Merger may be obtained or
denied prior to or after the Special Meeting. The vote on the Merger Agreement
at the Special Meeting does not depend upon and is not conditioned upon receipt
of any regulatory approvals before the Special Meeting. Even if the Merger
Agreement is approved at the Special Meeting, it may not be consummated. The
Merger Agreement will terminate if the requisite regulatory approvals are not
obtained.
BUSINESS PENDING THE MERGER
The Merger Agreement requires FNC to continue to operate its business in
the ordinary course pending the Merger. Among other things, FNC may not,
without NBC's consent:
* pay any dividends prior to the Effective Date other than the regular semi-
annual dividends, and in no event exceeding one hundred five percent (105%)
of the dividend paid on the previous corresponding semi-annual payment
date;
* lend an amount exceeding $150,000 to an individual or entity or lend an
amount, which when aggregated with other loans to the same individual or
entity or related interest, would exceed $300,000;
* hire new, additional or replacement employees;
* grant promotions to current employees;
* make, incur, or agree to incur, any single capital expenditure which alone
exceeds $10,000 or enter into any lease agreement with rental payments
exceeding $10,000;
* other than previously agreed upon contracts, pay, or agree to pay, any
bonus to any employee officer, or director;
* grant any raise or salary increase to any employee, officer, or director;
* enter into any contracts, contract renewals or extensions;
* purchase, lease or sell any assets outside the normal course of business;
* purchase or sell investment securities;
* issue any additional common stock or cause to be declared any stock
dividend or stock split; or
* establish any additional employee benefit plan.
FNC may not solicit bids or other transactions that would result in a
merger of FNC with an entity other than NBC.
Section 7.2 of the Merger Agreement contains the significant restrictions
on FNC's conduct of business pending the Merger.
TERMINATION
Either party may terminate the Merger Agreement prior to the Effective Date
for certain reasons. A party may terminate the Merger Agreement for these
reasons even after the Merger Agreement is approved by FNC's shareholders.
These reasons include, among others:
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* a material breach by the other party of any covenant, representation or
warranty in the Merger Agreement;
* any application for any required federal or state regulatory approval is
denied;
* the parties do not receive the opinion of T. E. Lott & Company described
below under the section entitled "Material Tax Consequences;"
* the shareholders of FNC fail to approve the Merger at the Special Meeting;
* the Merger is not consummated by December 31, 1998, unless extended
pursuant to Section 9.1 of the Merger Agreement;
* by FNC, if a material adverse change occurs in the financial condition of
NBC;
* by NBC, if a material adverse change occurs in the financial condition of
FNC; or
* by NBC, if it shall determine that the Merger does not qualify as a
pooling-of-interests for accounting purposes.
Certain provisions of the Merger Agreement, including provisions relating
to reimbursement of expenses, survive both the Merger and a termination of the
Merger Agreement without the Merger having been completed.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
If the conditions to the Merger are met or waived, FNC will be merged with
and into NBC on the Effective Date. At that time, FNC will cease to exist as a
separate company. Following the Merger, it is anticipated that the two national
bank subsidiaries of NBC, National Bank of Commerce, Tuscaloosa, Alabama, and
National Bank of Commerce of Mississippi, and the two national bank subsidiaries
of FNC, First National Bank of West Point and National Bank of the South will be
merged into a single national bank, National Bank of Commerce of Mississippi and
that, as soon as possible thereafter, National Bank of Commerce of Mississippi
will change its name to National Bank of Commerce. Upon conclusion of the
merger of NBC's and FNC's national bank subsidiaries, it is anticipated that the
combined operation will continue to offer banking services similar to, and in
some cases superior to, those offered by the four banks prior to the merger. See
"Proposed Merger -- General," above.
Upon consummation of the Merger, it is anticipated that two of the current
members of FNC's Board of Directors will be elected to the Board of Directors of
NBC. For information about the current directors of NBC, please see NBC's 1998
Proxy Statement, a copy of which is enclosed with this Proxy Statement-
Prospectus.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
If the Merger is completed, all shareholders of FNC, other than those who
exercise and perfect dissenters' rights, will become shareholders of NBC. Their
rights as shareholders will then be governed by NBC's Articles of Incorporation
and Bylaws rather than FNC's Articles of Incorporation and Bylaws. The
following is a summary of the significant differences between the rights of
FNC's shareholders and NBC's shareholders not described elsewhere in this Proxy
Statement-Prospectus.
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STOCK. NBC is authorized to issue one class of stock, Common Stock, par
value $1.00. NBC is authorized to issue 10,000,000 shares of its Common Stock.
FNC is authorized to issue one class of stock, Common Stock, par value $5.00.
FNC is authorized to issue 180,000 shares of its Common Stock.
LIQUIDITY OF STOCK. There currently is no ready market for the shares of
FNC Common Stock, and such a market is not likely to develop in the future. The
shares of NBC Common Stock, if issued in the Merger, will be registered under
applicable securities laws and may therefore be freely resold by persons who are
not "affiliates" of FNC or NBC. See "Resale of NBC Common Stock." The NBC
Common Stock also is traded sporadically in the over-the-counter market. Current
quotes of the market price of NBC Common Stock are available from the firms of
Sterne, Agee and Leach, Inc. and J. C. Bradford & Co. which make a market in
NBC's Common Stock.
DIRECTORS' QUALIFICATIONS. NBC maintains certain qualifications for its
directors as follows:
* must be a stockholder of NBC;
* must not be under 21 years of age and not over 75 years of age at the time
he or she is elected (and must retire at the next shareholders' meeting
after his or her 75th birthday);
* may not serve as an attorney for any other financial institution or bank or
savings and loan holding company; and
* may not be a member of the Board of Directors of any other financial
institution or bank or savings and loan holding company if such service is
prohibited by laws or regulations applicable to depository institutions.
FNC does not place limits on qualification for its directors.
REMOVAL OF DIRECTORS. NBC's directors may be removed only for cause
(defined as "final conviction of a felony, unsound mind, adjudication of
bankruptcy, non-acceptance of office or conduct prejudicial to the interests of
the corporation") by the affirmative vote of a majority of the entire Board of
Directors or by the shareholders if the number of shares that were sufficient to
elect the director are not voted against the director's removal. FNC's
directors may be removed at any time, with or without cause, by the affirmative
vote of a majority of the shareholders. FNC's Board of Directors may not remove
directors.
AMENDMENT OF ARTICLES AND BYLAWS. Mississippi law provides that unless the
MBCA, the articles of incorporation or the board of directors require a greater
vote or a vote by voting groups, an amendment must be approved by a majority
vote by each voting group with respect to which the amendment would create
dissenters' rights. NBC's Articles of Incorporation provide that the
affirmative vote of 75% or more of the outstanding voting shares of NBC is
required to amend or repeal Article 6 (issuance of capital stock), Article 7
(merger/consolidation of NBC or the sale/exchange/lease of assets), Article 9
(tender offer, exchange offer, merger/consolidation or purchase/acquisition of
assets) or Article 12 (number and election of directors). FNC's Articles of
Incorporation provide that the affirmative vote of at least 80% of the votes of
all classes of stock of
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FNC entitled to vote in the election of directors, considered as one class, and
at least a majority of the votes of all such classes of stock of FNC, considered
as one class, which are not "beneficially owned", directly or indirectly, by any
other corporation, person or other entity which is the "beneficial owner",
directly or indirectly, of more than 10% of the outstanding shares of stock of
FNC entitled to vote, is required to amend or rescind Article FIFTH
(merger/consolidation, sale/lease/exchange/other disposition of assets).
The Bylaws of NBC may be altered, amended or repealed by a majority vote of
the Board of Directors or by a vote of two-thirds of the outstanding voting
shares of NBC. FNC's Bylaws may be amended or repealed by a majority vote of
the Board of Directors or by a majority vote of the shareholders.
SPECIAL MEETINGS OF SHAREHOLDERS. Special meetings of the shareholders of
NBC may be called by the Chairman of the Board, the President, a majority of the
Board of Directors or by shareholders holding more than 20% of the outstanding
NBC Common Stock. Special meetings of FNC shareholders may be called by the
Chairman of the Board, the President, a majority of the Board of Directors, or
by shareholders holding one-third or more of the outstanding FNC Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Merger Agreement protects the officers and directors of FNC from
liability for actions arising while they served as officers and/or directors of
FNC. NBC has also agreed to elect two members of FNC's Board of Directors to
serve on its Board of Directors, to continue certain employee benefits for FNC's
employees and to assume the existing employment or employment retention
agreements which FNC has with five of its current employees. See "Employee
Benefits" and "Management and Operations After the Merger," above.
MATERIAL TAX CONSEQUENCES
The following is a summary description of the material income tax
consequences of the Merger. It is not intended to be a complete description of
the federal income tax consequences of the Merger. Tax laws are complex, and
your individual circumstances may affect the tax consequences to you. In
addition, we have not included information about the tax consequences of the
Merger under state, local or other tax laws. We urge you to consult a tax
advisor regarding the tax consequences of the Merger to you.
The parties must receive the Tax Opinion in order to complete the Merger.
The Tax Opinion is included as Appendix D to this Proxy Statement-Prospectus.
We urge you to read the Tax Opinion and to discuss it with your tax and
financial advisors so that you will understand the tax consequences of the
Merger to your situation.
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The Tax Opinion is based upon representations made by NBC and FNC about the
terms of the Merger and certain other matters. Based upon the accuracy of those
representations and certain other matters described in the Tax Opinion, it
concludes that:
* the Merger will constitute a reorganization within the meaning of
Section 368 of the Internal Revenue Code; and
* FNC's shareholders who exchange FNC Common Stock for NBC Common Stock in
the Merger will not recognize gain or loss for federal income tax purposes
in that exchange.
See "Proposed Merger -- Representations and Warranties; Conditions to the
Merger; Waiver."
If the Merger constitutes a reorganization within the meaning of
Section 368 of the Internal Revenue Code, then:
* neither FNC nor NBC will recognize any gain or loss by reason of the
Merger;
* FNC's shareholders will not recognize any gain or loss for federal income
tax purposes to the extent they receive NBC Common Stock in exchange for
FNC Common Stock in the Merger;
* the tax basis in the NBC Common Stock received in the Merger will be the
same as the tax basis in the FNC Common Stock surrendered in exchange
therefor;
* the holding period, for federal income tax purposes, for NBC Common Stock
received in exchange for FNC Common Stock will include the period during
which the shareholder held the FNC Common Stock surrendered in the exchange
(as long as the FNC Common Stock was held as a capital asset at the
Effective Date); and
* where solely cash is received by a holder of FNC Common Stock in exchange
for FNC Common Stock pursuant to the exercise of dissenter's rights, such
cash will be treated as having been received in redemption of such holder's
FNC Common Stock, subject to the provisions and limitations of I.R.C.
Section 302.
RESALE OF NBC COMMON STOCK
The shares of NBC Common Stock that will be exchanged for FNC Common Stock
in the Merger have been registered under the Securities Act. Shareholders who
are not "affiliates" of FNC or NBC may freely trade the NBC Common Stock upon
completion of the Merger. The term "affiliate" generally means each person who
was an executive officer, director or 10% shareholder of FNC or NBC prior to the
Merger.
Those shareholders who are deemed to be affiliates of FNC may only sell
their NBC Common Stock as provided by Rule 145 of the Securities Act, or as
otherwise permitted under the Securities Act. Those shareholders may publicly
resell NBC Common Stock received by them in the Merger if they register the
resale of those shares or they comply with the restrictions of Rule 145 (unless
they are "affiliates" of NBC). If you are or may be an affiliate of FNC, you
should carefully consider the resale restrictions imposed by Rule 145 before you
attempt to transfer any shares of
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NBC Common Stock after the Merger. In addition, shares of NBC Common Stock
issued to affiliates of FNC in the Merger will not be transferable until
financial results that include at least 30 days of post-Merger combined
operations of NBC and FNC have been published. This restriction is necessary in
order to satisfy certain requirements for pooling-of-interests accounting
treatment.
RIGHTS OF DISSENTING SHAREHOLDERS
IF YOU OBJECT TO THE MERGER AND DESIRE TO PERFECT DISSENTERS' RIGHTS, YOU
WILL LOSE THE RIGHT TO DISSENT FROM THE MERGER IF YOU DO NOT TAKE THE FOLLOWING
STEPS TIMELY. IF YOU LOSE YOUR RIGHT TO DISSENT, THE SHARES YOU OWN WILL BE
CONVERTED INTO THE RIGHT TO RECEIVE NBC COMMON STOCK (AND CASH FOR ANY
FRACTIONAL SHARES) IN ACCORDANCE WITH THE TERMS OF THE MERGER AGREEMENT.
The MBCA provides FNC shareholders with the right to dissent and obtain
payment for their FNC shares if the Merger is consummated. The availability of
dissenters' rights is conditioned upon compliance with the provisions of MCBA
Sections 79-4-13.01, et seq. Accordingly, any FNC shareholder who wishes to
dissent from the proposed Merger and receive the cash value of his or her shares
should consult with legal counsel. The following summary of dissenter's rights
is qualified in its entirety by reference to MBCA Sections 79-4-13.01, et seq.,
a copy of which is attached as Appendix C to this Proxy Statement-Prospectus.
The following summary does not address dissenter's rights in connection with
"after-acquired shares" as referenced in MCBA Sections 79-4-13.27 and
79-4-13.28. For information about the handling of "after-acquired shares,"
please refer to the copies of those Sections of the MCBA which are included in
Appendix C to this Proxy Statement-Prospectus.
To assert dissenter's rights, an FNC shareholder must (i) give notice in
writing to FNC, prior to the vote on the Merger Agreement, that he or she
intends to demand payment for his or her shares if the Merger is consummated,
and (ii) not vote his or her shares in favor of the Merger Agreement.
If the Merger Agreement is approved at the Special Meeting, NBC, no later
than ten (10) days after the date the Merger becomes effective, will deliver a
written notice (the "Dissenters' Notice") to each shareholder who satisfied the
requirements in the preceding paragraph. The Dissenter's Notice will (i) state
where the shareholder's payment demand ("Payment Demand") is to be sent and
where and when the shareholder's certificates must be deposited, (ii) supply a
form for the Payment Demand that includes the date of the first announcement to
the news media or to FNC shareholders of the terms of the proposed Merger and
requires the dissenting shareholder to certify whether or not he or she acquired
beneficial ownership of the shares before that date, (iii) set a date by which
NBC must receive the shareholder's Payment Demand, which date may not be fewer
than thirty (30) nor more than sixty (60) days after the date the Dissenters'
Notice is delivered, and (iv) be accompanied by a copy of Article 13 of the
MBCA.
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Upon receipt of a Dissenters' Notice, any shareholder who wishes to perfect
his or her dissenter's rights must send NBC a Payment Demand, certify whether he
or she acquired beneficial ownership of the shares before the date set forth in
the Dissenters' Notice, and deposit his or her certificates in accordance with
the terms of the Dissenters' Notice. The Payment Demand must be received by NBC
on or before the date set forth in the Dissenters' Notice. An FNC shareholder
who demands payment and properly deposits his or her shares retains all other
rights of an FNC shareholder until those rights are canceled or modified by the
consummation of the Merger.
As soon as the Merger is consummated or upon receipt of the Payment Demand,
NBC will pay each dissenting shareholder who has complied with his or her legal
obligations, the amount NBC estimates to be the fair value of that
shareholder's shares, plus accrued interest. This payment will be accompanied
by (i) FNC's balance sheet as of the end of its most recently completed fiscal
year, an income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial statements;
(ii) a statement of NBC's estimate of the fair value of FNC shares; (iii) an
explanation of how the interest was calculated; (iv) a statement of the
dissenting shareholder's right to demand payment of his or her own estimate of
the fair value of his or her shares, and the amount of interest due, if he or
she is dissatisfied with the amount of the payment; and (v) a copy of Article 13
of the MBCA.
A dissenting shareholder may notify NBC in writing of his or her estimate
of the fair value of shares and amount of interest due, and demand payment of
his or her estimate (less any payments previously made) if: (i) the dissenting
shareholder believes that the amount previously paid by NBC is less than the
fair value of his or her shares or that the interest paid was incorrectly
calculated; (ii) in the case of a shareholder who was the beneficial owner of
these shares before the date set forth in the Dissenter's Notice, NBC fails to
make payment within sixty (60) days after the date set for receipt of the
Payment Demand; or (iii) NBC, having failed to consummate the Merger, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within 60 days after the date set for receipt of the
Payment Demand. A dissenting shareholder is deemed to waive this right to
demand payment unless he or she notifies NBC of his or her demand in writing
within 30 days after NBC makes or offers payment for his or her shares.
If a demand for payment remains unsettled, NBC will commence a proceeding
within sixty (60) days after receiving the Payment Demand and petition the
Chancery Court of Oktibbeha County, Mississippi (the "Chancery Court") to
determine the fair value of the shares and accrued interest. If NBC does not
commence this proceeding within this 60-day period, NBC will pay each dissenting
shareholder whose demand remains unsettled the amount demanded.
NBC will make all dissenting shareholders whose demands remain unsettled
parties to the proceeding and all parties must be served with a copy of the
petition. The Chancery Court may appoint one or more persons as appraisers to
receive evidence and recommend a decision on the question of fair value. The
appraisers have the powers described in the order appointing them, or in any
amendment to it. Dissenting shareholders are entitled to the same discovery
rights as parties in other civil litigation.
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Each dissenting shareholder made a party to the proceeding will be entitled
to judgement (i) for the amount, if any, by which the Chancery Court finds the
fair value of his or her shares, plus interest, exceeds the amount paid by NBC,
or (ii) for the fair value, plus accrued interest, of his or her after-acquired
shares for which NBC elected to withhold payment.
The Chancery Court will determine all costs of the proceeding including the
reasonable compensation and expense of appraisers appointed by the Chancery
Court. The Chancery Court will assess these costs against NBC, except that it
may assess costs against all or some of the dissenting shareholders, in amounts
it finds equitable, if it finds the dissenting shareholders acted arbitrarily,
vexatiously or not in good faith in demanding payment.
The Chancery Court may assess the fees and expenses of counsel and experts
for the respective parties, in amounts it finds equitable as follows: (i)
against NBC and in favor of any and all dissenting shareholders if it finds that
NBC did not substantially comply with its legal obligations under Article 13 of
the MBCA or (ii) against either NBC or a dissenting shareholder, in favor of any
other party, if it finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to the
rights provided by Article 13 of the MBCA.
NBC has the right to terminate the Merger Agreement if the number of shares
of FNC Common Stock as to which holders are legally entitled to assert
dissenters' rights constitutes 7.28% or more of the outstanding shares of FNC
Common Stock. See "Proposed Merger -- Termination."
The foregoing summary of dissenters' rights under the MBCA is necessarily
incomplete and is qualified in its entirety by reference to Section 79-4-13.01
et seq. of the MBCA, which is set forth in its entirety in this Proxy Statement-
Prospectus as Appendix C.
YOU MUST DO ALL OF THE THINGS DESCRIBED ABOVE IN ORDER TO PRESERVE YOUR
RIGHT TO DISSENT AND TO RECEIVE THE FAIR VALUE TO YOUR SHARES IN CASH. IF YOU
DO NOT FOLLOW EACH OF THESE STEPS AS DESCRIBED, YOU WILL HAVE NO RIGHT TO
RECEIVE CASH FOR YOUR SHARES.
ACCOUNTING TREATMENT
NBC intends to account for the Merger as a pooling-of-interests. In order
for the Merger to qualify for pooling-of-interests accounting treatment, among
other things, more than 92.62% of the outstanding FNC Common Stock must be
exchanged for NBC Common Stock. Also, in order for the pooling-of-interests
accounting method to apply, "affiliates" of FNC cannot sell, transfer, pledge or
otherwise alienate or encumber any shares of NBC Common Stock received in the
Merger until the results of at least 30 days of post-Merger combined operations
of FNC and NBC have been published. NBC is not obligated to consummate the
Merger if the Merger does not qualify for pooling-of-interests accounting
treatment under these circumstances.
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CERTAIN REGULATORY CONSIDERATIONS
GENERAL
NBC is regulated and supervised by the Federal Reserve Board. Under the
BHCA, bank holding companies may not directly or indirectly acquire the
ownership or control of more than 5% of the voting shares or substantially all
of the assets of any company, including a bank, without the prior approval of
the Federal Reserve Board. Bank holding companies also generally are prohibited
from engaging under the BHCA in nonbanking activities (with certain exceptions).
NBC's national banking subsidiaries are regulated, supervised and examined
by the OCC. NBC's banking subsidiaries also are subject to various requirements
and restrictions under federal and state law, including
* requirements to maintain reserves against deposits;
* restrictions on the types and amounts of loans that may be made;
* restrictions on the interest that may be charged on loans; and
* limitations on the types of investments that may be made and the types of
services that may be offered.
Various consumer laws and regulations also affect the operations of NBC and its
subsidiaries. Commercial banks such as NBC's national banking subsidiaries also
are affected by the Federal Reserve Board's attempts to control the money supply
and credit availability in order to influence the economy.
PAYMENT OF DIVIDENDS
NBC derives substantially all of its income from the payment of dividends
by its banking subsidiaries. The ability of its banking subsidiaries to pay
dividends affects NBC's ability to pay dividends to its shareholders. Various
statutory restrictions apply to NBC's banking subsidiaries' ability to pay
dividends to NBC. As of June 30, 1998, NBC's banking subsidiaries had
approximately $10.8 million (plus retained earnings in 1998) available to pay
dividends to NBC.
The OCC may prohibit a national bank from engaging in an unsafe or unsound
practice. The OCC has indicated that it generally would be an unsafe and
unsound practice to pay dividends if the payment of the dividend would deplete a
bank's capital to an inadequate level. NBC's banking subsidiaries' ability to
pay dividends in the future is influenced by bank regulatory policies or
agreements and by capital guidelines. The level of this influence could
increase in the future. Additional information on this topic is available in
NBC's 1997 Annual Report, a copy of which is enclosed with this Proxy Statement-
Prospectus, and in the documents that are incorporated by reference herein. See
"Available Information."
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The Federal Reserve Board maintains a policy that requires bank holding
companies to serve as a source of strength for their subsidiary banks. In
furtherance of this policy, the Federal Reserve Board has stated that a bank
holding company generally should not maintain a rate of cash dividends unless
its net income available to common stockholders has been sufficient to fully
fund the dividends, and the prospective rate of earnings retention appears to be
consistent with the holding company's capital needs, asset quality and overall
financial condition.
RESTRICTIONS ON EXTENSIONS OF CREDIT
Federal law restricts NBC's banking subsidiaries' ability to
* extend credit to affiliates (including NBC);
* purchase assets of affiliates;
* issue a guarantee, acceptance or letter of credit on behalf of affiliates
(including an endorsement or standby letter of credit); or
* purchase or invest in the stock or securities of an affiliate or take that
stock or securities as collateral for loans to any borrower.
Extensions of credit and issuances to affiliates generally must be secured
by eligible collateral. In addition, all such transactions with a single
affiliate are generally limited to 10% of NBC's banking subsidiaries' capital
and surplus and all such transactions with affiliates may not exceed 20% of
NBC's banking subsidiaries' capital and surplus.
NBC's banking subsidiaries are also limited in the aggregate amount that
may be loaned to a single borrower or a group of borrowers that are deemed to be
affiliated with each other for purposes of these rules. These loans are limited
to 15% of NBC's banking subsidiaries' capital and surplus.
The limitations described above in this section apply to all national
banks.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet of NBC as of
June 30, 1998 and income statements of NBC for the six-month periods ended
June 30, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995
give effect to the pending merger with FNC. The statements also assume that the
Merger is accounted for as a pooling-of-interests. The pro forma combined
balance sheet treats the Merger as if it occurred on June 30, 1998; the pro
forma combined income statements treat the Merger as if it had occurred on
January 1, 1995.
The information for the six-month periods ended June 30, 1998 and 1997, in
the column titled "NBC" is summarized from the consolidated financial statements
of NBC contained in NBC's June 30, 1998 Form 10-Q, a copy of which is enclosed
with this Proxy Statement-Prospectus. The
47
<PAGE>
information for the years ended December 31, 1997, 1996 and 1995, in the column
titled "NBC" is summarized from the consolidated financial statements of NBC
contained in NBC's 1997 Annual Report, a copy of which is enclosed with this
Proxy Statement-Prospectus.
The information contained in the column titled "FNC" is based on the
financial statements and related notes, and Management's Discussion and Analysis
of Financial Condition and Results of Operations, of FNC contained elsewhere in
this Proxy Statement-Prospectus.
We encourage you to read all of the other financial information about NBC
and FNC included with or contained in this Proxy Statement-Prospectus.
The Pro Forma Financial Statements are presented for information purposes
only. The results shown in them are not necessarily indicative of the actual
results that might have occurred if the Merger had been completed on January 1,
1995. Also, they are not necessarily indicative of results that might be
achieved in the future if the Merger is completed.
48
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
The following unaudited pro forma combined condensed balance sheet combines the
consolidated historical balance sheets of NBC Capital Corporation and First
National Corporation of West Point, assuming the companies had been combined as
of June 30, 1998, on a "pooling of interests" accounting basis.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
NBC FNC Adjustments Combined
--------- --------- ------------ ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks $ 25,760 $ 2,647 $ - $ 28,407
Interest-bearing deposits due from banks 112 40 - 152
Federal funds sold and securities purchased
under agreements to resell 6,942 1,550 - 8,492
Securities:
Held-to-maturity 31,141 - - 31,141
Available-for-sale 162,109 29,022 - 191,131
-------- -------- ------- ---------
Total securities 193,250 29,022 - 222,272
Loans, net of unearned interest 403,004 77,050 - 480,054
Allowance for loan losses (6,934) (903) (2) (2,100) (9,937)
-------- -------- ------- ---------
Net loans 396,070 76,147 (2,100) 470,117
Premises and equipment, net 13,126 2,520 - 15,646
Intangible assets 2,453 1,238 - 3,691
Other 21,278 2,299 (2) 840 24,417
-------- -------- ------- ---------
Total assets $658,991 $115,463 $(1,260) $773,194
======== ======== ======= =========
LIABILITIES:
Noninterest-bearing deposits $ 74,968 $ 8,479 $ - $ 83,447
Interest-bearing deposits 474,019 88,416 - 562,435
-------- -------- ------- ---------
Total deposits 548,987 96,895 - 645,882
Federal funds purchased and securities
sold under agreements to repurchase 10,717 - - 10,717
Other borrowed funds 15,865 4,965 - 20,830
Other liabilities 8,435 1,116 (3) 525 10,076
-------- -------- ------- ---------
Total liabilities 584,004 102,976 525 687,505
-------- -------- ------- ---------
STOCKHOLDERS' EQUITY:
Common stock 4,800 648 (1) 230 5,678
Surplus 33,002 6,600 (1) (230) 39,372
Retained earnings 36,747 6,004 (1) (918) 40,048
- - (2) (1,260) -
- - (3) (525) -
Treasury stock - (918) (1) 918 -
Accumulated other comprehensive income 438 153 - 591
-------- -------- ------- ---------
Total stockholders' equity 74,987 12,487 (1,785) 85,689
-------- -------- ------- ---------
Total liabilities and stockholders'
equity $658,991 $115,463 $(1,260) $773,194
======== ======== ======= =========
</TABLE>
See accompanying Notes to Pro Forma Combined Condensed Financial Statements.
49
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
The following pro forma combined condensed statements of consolidated income
presents the combined statements of income of NBC Capital Corporation and First
National Corporation of West Point, assuming the companies had been combined for
each period presented on a pooling of interests accounting basis:
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1998
-----------------------------------------
Pro Forma
NBC FNC Adjustments Combined
------- ------ ----------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $18,299 $3,883 $ - $22,182
Interest and dividends on securities 5,232 801 - 6,033
Other interest income 467 95 - 562
------- ------ ----------- -------
Total interest income 23,998 4,779 - 28,777
Interest expense:
Interest on deposits 10,511 1,968 - 12,479
Interest on borrowed funds 799 152 - 951
------- ------ ----------- -------
Total interest expense 11,310 2,120 - 13,430
------- ------ ----------- -------
Net interest income 12,688 2,659 - 15,347
Provision for loan losses 520 155 - 675
------- ------ ----------- -------
Net interest income after provision for loan losses 12,168 2,504 - 14,672
Noninterest income 3,995 271 - 4,266
Noninterest expense 9,762 2,192 - 11,954
------- ------ ----------- -------
Net income before income taxes 6,401 583 - 6,984
Income tax expense 1,519 152 - 1,671
------- ------ ----------- -------
Net income $ 4,882 $ 431 $ - $ 5,313
======= ====== =========== =======
Net income per share:
Basic $1.02 $3.89 $ - $.94
Diluted 1.02 3.89 - .94
Weighted-average common share outstanding:
Basic 4,800 111 - 5,678
Diluted 4,800 111 - 5,678
</TABLE>
See accompanying Notes to Pro Forma Combined Condensed Financial Statements.
50
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1997
-----------------------------------------
Pro Forma
NBC FNC Adjustments Combined
------- ------ ----------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $17,600 $3,753 $ - $21,353
Interest and dividends on securities 4,957 890 - 5,847
Other interest income 444 25 - 469
------- ------ ----------- -------
Total interest income 23,001 4,668 - 27,669
Interest expense:
Interest on deposits 9,666 1,924 - 11,590
Interest on borrowed funds 625 132 - 757
------- ------ ----------- -------
Total interest expense 10,291 2,056 - 12,347
------- ------ ----------- -------
Net interest income 12,710 2,612 - 15,322
Provision for loan losses 520 170 - 690
------- ------ ----------- -------
Net interest income after provision for loan losses 12,190 2,442 - 14,632
Noninterest income 3,650 313 - 3,963
Noninterest expense 9,301 1,967 - 11,268
------- ------ ----------- -------
Net income before income taxes 6,539 788 - 7,327
Income tax expense 1,839 195 - 2,034
------- ------ ----------- -------
Net income $ 4,700 $ 593 $ - $ 5,293
======= ====== =========== =======
Net income per share:
Basic $.98 $5.35 $ - $.93
Diluted .98 5.35 - .93
Weighted-average common share outstanding:
Basic 4,800 111 - 5,678
Diluted 4,800 111 - 5,678
</TABLE>
See accompanying Notes to Pro Forma Combined Condensed Financial Statements.
51
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
-----------------------------------------
Pro Forma
NBC FNC Adjustments Combined
------- ------ ----------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $35,883 $7,909 $ - $43,792
Interest and dividends on securities 10,318 1,737 - 12,055
Other interest income 919 62 - 981
------- ------ ----------- -------
Total interest income 47,120 9,708 - 56,828
Interest expense:
Interest on deposits 19,913 3,908 - 23,821
Interest on borrowed funds 1,503 375 - 1,878
------- ------ ----------- -------
Total interest expense 21,416 4,283 - 25,699
------- ------ ----------- -------
Net interest income 25,704 5,425 - 31,129
Provision for loan losses 1,100 377 - 1,477
------- ------ ----------- -------
Net interest income after provision for loan losses 24,604 5,048 - 29,652
Noninterest income 7,157 620 - 7,777
Noninterest expense 19,721 4,048 - 23,769
------- ------ ----------- -------
Net income before income taxes 12,040 1,620 - 13,660
Income tax expense 3,289 453 - 3,742
------- ------ ----------- -------
Net income $ 8,751 $1,167 $ - $ 9,918
======= ====== =========== =======
Net income per share:
Basic $ 1.82 $10.53 $ - $ 1.75
Diluted 1.82 10.53 - 1.75
Weighted-average common share outstanding:
Basic 4,800 111 - 5,678
Diluted 4,800 111 - 5,678
</TABLE>
See accompanying Notes to Pro Forma Combined Condensed Financial Statements.
52
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
-----------------------------------------
Pro Forma
NBC FNC Adjustments Combined
------- ------ ----------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $32,913 $6,834 $ - $39,747
Interest and dividends on securities 10,530 1,909 - 12,439
Other interest income 402 77 - 479
------- ------ ----------- -------
Total interest income 43,845 8,820 - 52,665
Interest expense:
Interest on deposits 18,513 3,539 - 22,052
Interest on borrowed funds 795 245 - 1,040
------- ------ ----------- -------
Total interest expense 19,308 3,784 - 23,092
------- ------ ----------- -------
Net interest income 24,537 5,036 - 29,573
Provision for loan losses 1,314 363 - 1,677
------- ------ ----------- -------
Net interest income after provision for loan losses 23,223 4,673 - 27,896
Noninterest income 6,641 686 - 7,327
Noninterest expense 18,971 3,690 - 22,661
------- ------ ----------- -------
Net income before income taxes 10,893 1,669 - 12,562
Income tax expense 2,708 434 - 3,142
------- ------ ----------- -------
Net income $ 8,185 $1,235 $ - $ 9,420
======= ====== =========== =======
Net income per share:
Basic $ 1.71 $10.83 $ $ 1.66
Diluted 1.71 10.83 - 1.66
Weighted-average common share outstanding:
Basic 4,800 114 - 5,678
Diluted 4,800 114 - 5,678
</TABLE>
See accompanying Notes to Pro Forma Combined Condensed Financial Statements.
53
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
-----------------------------------------
Pro Forma
NBC FNC Adjustments Combined
------- ------ ----------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $30,731 $4,945 $ - $35,676
Interest and dividends on securities 11,073 2,479 - 13,552
Other interest income 446 170 - 616
------- ------ ----------- -------
Total interest income 42,250 7,594 - 49,844
Interest expense:
Interest on deposits 17,907 3,188 - 21,095
Interest on borrowed funds 778 248 - 1,026
------- ------ ----------- -------
Total interest expense 18,685 3,436 - 22,121
------- ------ ----------- -------
Net interest income 23,565 4,158 - 27,723
Provision for loan losses 1,165 124 - 1,289
------- ------ ----------- -------
Net interest income after provision for loan losses 22,400 4,034 - 26,434
Noninterest income 5,863 594 - 6,457
Noninterest expense 18,025 3,400 - 21,425
------- ------ ----------- -------
Net income before income taxes 10,238 1,228 - 11,466
Income tax expense 2,430 261 - 2,691
------- ------ ----------- -------
Net income $ 7,808 $ 967 $ - $ 8,775
======= ====== =========== =======
Net income per share:
Basic $ 1.63 $8.48 $ - $ 1.55
Diluted 1.63 8.48 - 1.55
Weighted-average common share outstanding:
Basic 4,800 114 - 5,678
Diluted 4,800 114 - 5,678
</TABLE>
See accompanying Notes to Pro Forma Combined Condensed Financial Statements.
54
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The unaudited pro forma combined condensed information presented herein is not
necessarily indicative of the results of operations or the combined financial
position that would have resulted had the Merger been consummated at the
beginning of the applicable periods presented, nor is it necessarily indicative
of the results of operations in future periods or the future financial position
of the combined entities.
1. The FNC Merger will be accounted for on a "pooling of interest" accounting
basis. The acquisition value is $32,500,000 and the number of shares of NBC
stock to be issued is based on an average sale price (as defined in the
Merger Agreement) prior to closing. For these pro forma purposes, that price
is assumed to be $37 per share resulting in the issuance of 878,378 shares of
NBC Capital Corporation common stock in exchange for the outstanding common
stock of First National Corporation of West Point.
2. The Definitive Agreement and Plan of Reorganization and Merger contains a
provision under which NBC may adjust the allowance for loan losses of FNC by
a maximum amount of $2.1 million in order to comply with the methodology used
by NBC in determining its allowance for loan losses. Under the terms of the
agreement, NBC may waive or adjust the amount, as it deems necessary.
(In Thousands)
Maximum additional allowance requirement $2,100
Deferred tax asset (840)
------
Net adjustment $1,260
======
For pro forma presentation purposes, the maximum adjustment has been used.
3. In connection with the Merger, NBC and FNC expect to incur certain
restructuring and merger related costs, including investment banking, legal,
accounting, and other related transaction costs and fees. Additionally,
other restructuring and merger related costs associated with the integration
of the separate financial institutions are expected to be incurred. Based
upon information currently available, the total amount of restructuring and
merger related expenses to be recognized in connection with the Merger is
estimated to be $525 thousand, after tax. Since the Merger has not yet been
consummated, the restructuring and merger related expenses can only be
estimated at this time, and are subject to revision, as further information
becomes available. The following is a breakdown of the estimated
restructuring and merger related costs:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Investment banking $325
Professional fees 120
Employee related 215
Restructuring costs 65
----
Total estimated costs 725
Income tax effect 200
----
Total $525
====
</TABLE>
These restructuring and merger related costs will be charged to expense in the
period in which the Merger is consummated, or in subsequent periods when
incurred.
55
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
4. NBC expects to realize revenue enhancements and cost savings from the Merger.
The pro forma financial information does not reflect any of the potential
revenue enhancements or potential savings from the consolidation of
operations of NBC and FNC.
56
<PAGE>
CERTAIN INFORMATION CONCERNING NBC
This Proxy Statement-Prospectus is accompanied by NBC's 1997 Annual Report,
its June 30, 1998 Form 10-Q and its 1998 Proxy Statement, and investors are
urged to read and carefully consider the information contained in those
documents.
NBC's capital stock consists of a single class of $1.00 par value common
stock, of which 10,000,000 shares are authorized and 4,800,000 shares are issued
and outstanding. NBC's Board of Directors is comprised of up to 25 directors,
as determined from time to time by resolution of the Board of Directors, of
which 20 are currently elected and serving. The Merger Agreement provides that
upon consummation of the Merger, NBC's Board of Directors will elect two of the
members of FNC's Board of Directors to serve on NBC's Board of Directors. NBC
shareholders are allowed to cumulate their votes in the election of directors.
NBC shareholders also enjoy preemptive rights, or the right to subscribe in
proportion to their current ownership percentages, with respect to any newly
issued shares of any class of NBC stock, except for stock issued other than for
cash in order to consummate a merger or acquisition recommended by NBC's Board
of Directors. The Articles of Incorporation of NBC provide certain
supramajority voting requirements for acquisitions involving NBC that are not
approved by a majority of its Board of Directors. Upon consummation of the
Merger it is anticipated that FNC shareholders will hold approximately 15% of
the outstanding NBC Common Stock. For further information concerning the NBC
Common Stock, please see the discussion under the caption "Market for Company's
Common Stock and Related Stockholder Matters" in NBC's 1997 Annual Report, a
copy of which is included with this Proxy Statement-Prospectus.
Over the last several years, management of NBC and management of FNC have
had informal discussions concerning potential mergers and acquisitions of their
respective companies. In July 1996, the management of NBC was given authority
by its Board of Directors to make a written offer to FNC. In September of 1996,
FNC responded that they were not interested in any sale or combination at that
time. Again, in November of 1997, management of NBC was given approval by its
Board of Directors to make an offer to FNC. In February of 1998, this offer was
rejected as inadequate. In April 1998, NBC was contacted through FNC's
investment advisor and asked to submit a preliminary indication of interest in
FNC. This was followed by a request for a firm offer which was subsequently
submitted to the investment advisor. FNC and its investment advisor
subsequently accepted NBC's offer and the Merger Agreement was signed in July
1998. See "Proposed Merger -- Background of and Reasons for the Merger."
CERTAIN INFORMATION CONCERNING FNC
PRINCIPAL BUSINESS
FIRST NATIONAL CORPORATION OF WEST POINT. FNC was organized on March 20,
1984 and is a bank holding company registered under the Bank Holding Company Act
of 1956, as amended.
57
<PAGE>
At June 30, 1998, FNC had total consolidated assets of approximately $115
million and shareholders' equity of approximately $12 million. FNC is domiciled
in West Point, Mississippi and its principal executive offices are located at
107 Commerce Street, West Point, Mississippi 39773 and its telephone number is
(601) 494-1411.
First National Bank of West Point is located in West Point, Mississippi,
where it provides retail and commercial banking services through a main office
and three branch locations. As of June 30, 1998, it had total assets of
approximately $83 million. National Bank of the South is located in Tuscaloosa,
Alabama, where it provides retail and commercial banking services through a main
office and two branch offices. As of June 30, 1998, National Bank of the South
had total assets of approximately $36 million. First National Finance Company
engages in lending activities, principally the origination of small consumer
loans, through one business location in West Point, Mississippi. As of June 30,
1998, First National Finance Company had approximately $1.3 million in assets.
COMPETITION
FNC and its subsidiaries currently serve two (2) counties and two (2)
municipalities in Mississippi and Alabama. Over this same area, FNC competes
directly with 13 competing banking institutions, and a number of credit unions,
finance companies, brokerage firms, mortgage companies and insurance companies.
The competing banking institutions range in asset size from approximately $100
million to in excess of $28 billion. Several of FNC's competitors are branches
or divisions of nationwide and regional companies with more resources than FNC
and its subsidiaries.
SUPERVISION AND REGULATION
FNC and its subsidiaries are subject to extensive state and federal banking
laws and regulations which impose specific requirements or restrictions on and
provide for general regulatory oversight with respect to virtually all aspects
of operations. These laws and regulations are generally intended to protect
depositors, not shareholders. For additional information concerning
governmental supervision and regulation of FNC, please see the discussion
entitled "Supervision and Regulation" in NBC's 1997 Annual Report, a copy of
which is enclosed with this Proxy Statement-Prospectus, which discussion is
equally applicable to the business and operations of FNC and its subsidiaries.
SEASONALITY OF BUSINESS AND CUSTOMERS
There is no material concentration of deposits from any single customer or
group of customers. No significant portion of FNC's loans is concentrated
within a single industry or group of related industries. Historically, the
business of FNC has not been seasonal in nature and management of FNC does not
anticipate any seasonal trends in the future. FNC does not rely on foreign
sources of funds or income.
58
<PAGE>
EMPLOYEES
As of the date of this Proxy Statement-Prospectus, FNC and its subsidiaries
employed 63 persons full-time and 4 persons part-time.
PROPERTIES
The following listing describes the location and general character of the
principal properties owned or leased by FNC and its subsidiaries:
<TABLE>
<CAPTION>
Approximate Office
Location Own/Lease Use Space (square feet)
- ------------------------------------ --------- -------------- -------------------
<S> <C> <C> <C>
107 Commerce St., West Point, MS Own Banking 18,000
1120 E. Main St., West Point, MS Own Banking 1,900
215 Hwy. 45 S., West Point, MS Own Banking 1,520
1425 Hwy. 45 N., West Point, MS Lease Banking 825
212 E. Main St., West Point, MS Own Administration 1,200
1101 Greensboro Ave., Tuscaloosa, AL Own Banking 11,000
1665 McFarland Blvd., Tuscaloosa, AL Own Banking 900
6561 Hwy. 69 S., Tuscaloosa, AL Lease Banking 2,000
301 E. Main St., West Point, MS Lease FNFC Office 1,200
</TABLE>
In the opinion of FNC's management, all of FNC's properties are in
generally good condition and are adequate to meet the needs of the communities
they serve.
LEGAL PROCEEDINGS
FNC is a party to various ordinary routine legal proceedings incidental to
its business. Management of FNC does not believe that any of these proceedings
will have a material effect on the financial position or results of operations
of FNC.
STOCK PRICES AND DIVIDENDS
There is no established trading market for the FNC Common Stock. Based
upon sales that have come to the attention of FNC's management, the prices paid
for FNC Common Stock have ranged from $115 to $130 per share from September 1996
through July 1998. You should note that management of FNC is not necessarily
aware of each sale of FNC Common Stock or the price at which it occurred.
59
<PAGE>
DIVIDENDS PER SHARE
AS OF THE END OF EACH FISCAL QUARTER
CASH DIVIDENDS PAID
<TABLE>
<S> <C> <C>
1998:
June 30 $1.75
March 31 $ 0
1997:
December 31 $1.80
September 30 $ 0
June 30 $1.65
March 31 $ 0
1996:
December 31 $1.65
September 30 $ 0
June 30 $1.60
March 31 $ 0
</TABLE>
On the Record Date, there were 318 shareholders of FNC Common Stock.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth as of the Record Date certain information
with respect to the beneficial ownership as defined in Rule 13d-3 of the
Exchange Act for each person who is an officer, director or beneficial owner of
more than five percent of the FNC Common Stock, and for all of the directors and
executive officers of FNC as a group. Except as otherwise indicated, all shares
indicated as beneficially owned are held with sole voting and investment power.
60
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name Beneficial Ownership of Class
- ----------------------------- -------------------------- ----------------
<S> <C> <C>
Dr. T. N. Braddock(1) 453 shares *
John D. Cade(1)(2) 250 shares(3) *
Robert L. Calvert, III(1)(4) 11,011 shares(5)(6) 9.94%
Kyle Chandler(1) 230 shares *
Dr. M. G. Hazard(1) 307 shares *
Mark G. Hazard, III(1)(7) 288 shares *
P. T. Hodo, Jr.(1)(8) 1,552 shares(9) 1.40%
Pete Hodo, III(1)(10) 412 shares *
John C. Jameson, III(1) 867 shares *
James W. Pryor(1) 753 shares *
H. Stokes Smith(1) 3,025 shares(11) 2.73%
Milton O. Sundbeck, Jr.(1) 805 shares *
E. H. Tumlinson(1) 2,497 shares (12) 2.25%
R. H. Weems, Jr.(1) 273 shares *
</TABLE>
All directors and executive officers as a group own 22,723 shares, or 20.51% of
the outstanding shares of stock.
*Less than one percent.
(1) Director of First National Corporation.
(2) Vice Chairman of the Board of First National Corporation, Chairman and
Chief Executive Officer of National Bank of the South.
(3) Includes 50 shares owned by Virginia D. Cade of which Mr. Cade disclaims
any beneficial ownership.
(4) Chairman of the Board of First National Corporation.
(5) Includes 1,721 shares owned by C & H Properties of which Mr. Calvert
exercises voting control.
(6) Includes 150 shares owned by Mr. Calvert's wife of which he disclaims any
beneficial ownership.
(7) President of First National Bank of West Point.
61
<PAGE>
(8) Chairman Emeritus of First National Corporation.
(9) Includes 1,138 shares owned by Mr. Hodo's wife of which he exercises voting
control.
(10) President and Chief Operating Officer of First National Corporation; Chief
Executive Officer of First National Bank of West Point.
(11) Includes 1,200 shares owned by Mr. Smith's wife of which he exercises
voting control.
(12) Includes 1,000 shares owned by the estate of J. Homer Tumlinson of which
Mr. Tumlinson exercises voting control.
FNC CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AUDITED)
AND THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
62
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
UNAUDITED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
ASSETS (In Thousands)
<S> <C>
Cash and due from banks $ 2,647
Interest-bearing deposits with banks 40
Federal funds sold 1,550
Securities 29,022
Loans, net of reserve for loan losses of $903,226 76,147
Premises and equipment 2,520
Interest receivable 1,329
Acquisition premium 1,238
Other assets 970
--------
$115,463
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 8,479
Time, $100,000 or more 14,875
Other interest-bearing 73,541
--------
Total deposits 96,895
Interest payable 640
Borrowed funds 4,965
Other liabilities 476
--------
Total liabilities 102,976
--------
Stockholders' equity:
Common stock, $5 par value, 180,000 shares
authorized, 129,600 issued and outstanding 648
Surplus 6,600
Undivided profits 6,004
Accumulated other comprehensive income 153
--------
13,405
Treasury stock, at cost (18,819 shares) (918)
--------
Total stockholders' equity 12,487
--------
$115,463
========
</TABLE>
The accompanying notes are an integral part of these statements.
63
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------ ------
( In Thousands,
Except Per Share Amounts)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,883 $3,753
Interest and dividends on investment securities:
Taxable interest and dividends 584 652
Tax-exempt interest 217 238
Interest on federal funds sold 93 25
Interest on deposits in banks 2 -
4,779 4,668
------ ------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 335 334
Interest on other deposits 1,633 1,590
Interest on borrowed funds 152 132
------ ------
2,120 2,056
------ ------
Net interest income 2,659 2,612
Provision for loan losses 155 170
------ ------
Net interest income after provision for
loan losses 2,504 2,442
OTHER INCOME
Service charges on deposit accounts 199 264
Other service charges and fees 47 47
Trust Department income - 2
Securities gains (losses), net 5 (10)
Other 20 10
------ ------
271 313
OTHER EXPENSE
Salaries 970 800
Employee benefits 156 168
Net occupancy expense 137 137
Furniture and equipment expense 123 150
Amortization of acquisition premium 58 58
Advertising and promotion 78 69
Deposit insurance premiums 12 7
Other 658 578
------ ------
2,192 1,967
------ ------
Income before income taxes 583 788
Income taxes 152 195
------ ------
Net income $ 431 $ 593
====== ======
Net income per share $ 3.89 $ 5.35
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
64
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
UNAUDITED CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Accumulated
Other
Compre-
Common Undivided hensive Treasury
Stock Surplus Profits Income Stock Total
------ ------- --------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Balance, January 1, 1998 $648 $6,600 $5,767 $189 $(918) $12,286
Comprehensive income:
Net income for the period - - 431 - - -
Net changes in unrealized
gain (loss) on available-
for-sale securities,
net of tax - - - (36) - -
Comprehensive income - - - - - 395
Cash dividends, $1.75 per share - - (194) - - (194)
---- ------ ------ ---- ----- -------
Balance, June 30, 1998 $648 $6,600 $6,004 $153 $(918) $12,487
==== ====== ====== ==== ===== =======
</TABLE>
The accompanying notes are an integral part of these statements.
65
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 431 $ 593
Adjustments to reconcile net income to net cash:
Depreciation and amortization 200 219
Provision for loan losses 155 170
FHLB stock dividend (7) (10)
Increase in interest receivable (119) (23)
(Increase) decrease in other assets (143) 31
Increase (decrease) in interest payable (3) 98
Increase in other liabilities 120 449
Securities (gains) losses, net (5) 10
------- ------
Net cash provided by operating activities 629 1,537
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities (10,416) (3,070)
Proceeds from sales of available-for-sale securities 1,208 907
Proceeds from maturities and calls of available-for-
sale securities 3,779 447
(Increase) decrease in loans 2,123 (4,471)
Net additions to premises and equipment (61) (185)
------- ------
Net cash used in investing activities (3,367) (6,372)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits (76) 1,976
Increase (decrease) in borrowed funds (479) 2,362
Dividends on common stock (199) (188)
------- ------
Net cash provided by (used in) financing activities (754) 4,150
------- ------
Net decrease in cash and cash equivalents (3,492) (685)
Cash and cash equivalents at beginning of period 7,729 3,602
------- ------
Cash and cash equivalents at end of period $ 4,237 $2,917
======= ======
Cash paid during the period for:
Interest $ 2,123 $1,958
Income taxes 292 120
</TABLE>
The accompanying notes are an integral part of these statements.
66
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. The statements
should be read in conjunction with the summary of accounting policies and
notes to financial statements included in the Corporation's consolidated
financial statements for the year ended December 31, 1997 and 1996. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted in accordance with the rules of the Securities and Exchange
Commission.
NOTE B - ACCOUNTING POLICIES
Reference is made to the accounting policies of the Corporation described in
the notes to consolidated financial statements for the year ended December 31,
1997 and 1996. The Corporation has consistently followed those policies in
preparing this report.
NOTE C - PROPOSED MERGER
In July, 1998, the Corporation executed a merger agreement with NBC Capital
Corporation. Consummation of the merger is dependent upon the approval of the
shareholders and various regulatory agencies.
67
<PAGE>
REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
First National Corporation of West Point
West Point, Mississippi
We have audited the accompanying consolidated balance sheets of First National
Corporation of West Point and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, changes in 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 Corporation'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 audits 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 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 First National
Corporation of West Point and subsidiaries as of December 31, 1997 and 1996, and
the consolidated 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.
/S/ T. E. LOTT & COMPANY
Columbus, Mississippi
January 12, 1998 (Except for Note N
as to which the date is July 24, 1998)
68
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
ASSETS (In Thousands)
<S> <C> <C>
Cash and due from banks $ 4,850 $ 2,369
Interest-bearing deposits with banks 79 33
Federal funds sold 2,800 1,200
Securities (Note B) 23,635 26,024
Loans, net of reserve for loan losses of $964,019
in 1997 and $747,630 in 1996 (Note C) 78,425 70,404
Premises and equipment (Note D) 2,598 2,416
Interest receivable 1,210 1,198
Acquisition premium 1,295 1,408
Other assets 813 525
-------- --------
$115,705 $105,577
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 8,815 $ 7,693
Time, $100,000 or more 12,512 9,985
Other interest-bearing 75,645 71,347
-------- --------
Total deposits 96,972 89,025
Interest payable 643 569
Borrowed funds (Note E) 5,444 4,032
Other liabilities 360 89
-------- --------
Total liabilities 103,419 93,715
-------- --------
Stockholders' equity (Note J):
Common stock, $5 par value, 180,000 shares
authorized, 129,600 issued and outstanding
in 1997 and 1996 648 648
Surplus 6,600 6,600
Undivided profits 5,767 4,988
Accumulated other comprehensive income, net of tax 189 119
-------- --------
13,204 12,355
Treasury stock, at cost (Note G) (918) (493)
-------- --------
Total stockholders' equity 12,286 11,862
-------- --------
$115,705 $105,577
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
69
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $7,909 $6,834 $4,945
Interest and dividends on investment securities:
Taxable interest and dividends 1,276 1,390 1,939
Tax-exempt interest 461 519 540
Interest on federal funds sold 35 56 169
Interest on deposits in banks 27 21 1
------ ------ ------
9,708 8,820 7,594
------ ------ ------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 672 526 404
Interest on other deposits 3,236 3,013 2,784
Interest on borrowed funds 375 245 248
------ ------ ------
4,283 3,784 3,436
------ ------ ------
Net interest income 5,425 5,036 4,158
Provision for loan losses (Note C) 377 363 124
------ ------ ------
Net interest income after provision for
loan losses 5,048 4,673 4,034
------ ------ ------
OTHER INCOME
Service charges on deposit accounts 486 471 396
Other service charges and fees 114 132 116
Trust Department income 4 2 2
Securities gains, net 8 62 66
Other 8 19 14
------ ------ ------
620 686 594
------ ------ ------
OTHER EXPENSE
Salaries 1,739 1,573 1,425
Employee benefits 297 258 249
Net occupancy expense 228 199 193
Furniture and equipment expense 300 248 254
Amortization of acquisition premium 117 117 117
Advertising and promotion 205 185 178
Deposit insurance premiums (Note J) 19 147 100
Other 1,143 963 884
------ ------ ------
4,048 3,690 3,400
------ ------ ------
Income before income taxes 1,620 1,669 1,228
Income taxes (Note F) 453 434 261
------ ------ ------
Net income $1,167 $1,235 $ 967
====== ====== ======
Net income per share $10.53 $10.83 $ 8.48
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
70
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Accumulated
Other
Compre-
Common Undivided hensive Treasury
Stock Surplus Profits Income Stock Total
------ ------- --------- ----------- -------- -----
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $648 $6,600 $3,510 $(1,142) $(494) $ 9,122
Comprehensive income:
Net income for 1995 - - 967 - - -
Net changes in unrealized gain (loss)
on available-for-sale securities,
net of tax - - - 1,514 - -
Comprehensive income - - - - - 2,481
Cash dividends, $3.10 per share - - (354) - - (354)
Purchase of treasury stock - - - - (5) (5)
Sale of treasury stock - - - - 6 6
---- ------ ------ -------- ----- -------
Balance, December 31, 1995 648 6,600 4,123 372 (493) 11,250
Comprehensive income:
Net income for 1996 - - 1,235 - - -
Net changes in unrealized gain (loss)
on available-for-sale securities,
net of tax - - - (253) - -
Comprehensive income - - - - - 982
Cash dividends, $3.25 per share - - (370) - - (370)
---- ------ ------ -------- ----- -------
Balance, December 31, 1996 648 6,600 4,988 119 (493) 11,862
Comprehensive income:
Net income for 1997 - - 1,167 - - -
Net changes in unrealized gain (loss)
on available-for-sale securities,
net of tax - - - 70 - -
Comprehensive income - - - - - 1,237
Cash dividends, $3.45 per share - - (388) - - (388)
Purchase of treasury stock - - - - (430) (430)
Sale of treasury stock - - - - 5 5
---- ------ ------ -------- ----- -------
Balance, December 31, 1997 $648 $6,600 $5,767 $ 189 $(918) $12,286
==== ====== ====== ======== ===== =======
</TABLE>
The accompanying notes are an integral part of these statements.
71
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------ -------- --------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,167 $ 1,235 $ 967
Adjustments to reconcile net income to net cash:
Depreciation and amortization 435 380 374
Deferred income tax benefit (66) (23) (5)
Provision for loan losses 377 363 124
FHLB stock dividend (24) (18) (17)
(Increase) decrease in interest receivable (12) 101 (228)
(Increase) decrease in other assets (264) 138 (282)
Increase in interest payable 54 20 187
Increase (decrease) in other liabilities 73 (94) (46)
Securities gains, net (8) (62) (66)
------ -------- --------
Net cash provided by operating activities 1,732 2,040 1,008
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities (5,419) (6,348) (9,809)
Proceeds from sales of available-for-sale securities 3,401 6,980 16,600
Proceeds from maturities and calls of available-for-
sale securities 4,543 5,552 5,475
Purchases of held-to-maturity securities - - (677)
Proceeds of maturities and call of held-to-maturity
securities - - 796
Increase in loans (8,398) (14,301) (23,231)
Net additions to premises and equipment (498) (509) (293)
------ -------- --------
Net cash used in investing activities (6,371) (8,626) (11,139)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 7,947 6,885 9,420
Increase in borrowed funds 1,432 662 140
Dividends on common stock (188) (370) (354)
Sale of treasury stock 5 - 6
Purchase of stock for treasury (430) - (5)
------ -------- --------
Net cash provided by financing activities 8,766 7,177 9,207
------ -------- --------
Net increase in cash and cash equivalents 4,127 591 (924)
Cash and cash equivalents at beginning of year 3,602 3,011 3,935
------ -------- --------
Cash and cash equivalents at end of year $7,729 $ 3,602 $ 3,011
====== ======== ========
Cash paid during the year for:
Interest $4,209 $ 3,765 $ 3,249
Income taxes 368 452 252
</TABLE>
The accompanying notes are an integral part of these statements.
72
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES
The accounting principles followed by First National Corporation of West Point
(Corporation) and its subsidiaries and the methods of applying those principles
conform with generally accepted accounting principles and with general
practices within the banking industry. The following is a summary of the
significant policies:
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiaries, First National Bank of West Point (FNB),
National Bank of the South (NBS) and First National Finance Company.
Intercompany accounts and transactions have been eliminated.
2. BASIS OF ACCOUNTING
The Corporation and its subsidiaries use the accrual basis of accounting except
for Trust Department income which is recorded on the cash basis as received,
the amount of which does not differ materially from the accrual basis.
3. ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
4. NATURE OF OPERATIONS
The Corporation is a multi-bank holding company. Its primary assets are its
investments in its subsidiary banks and its finance company. FNB and NBS
operate under national bank charters and provide full banking services. As
national banks, they are subject to the regulation of the Office of the
Comptroller of the Currency. FNB provides services primarily to the Clay
County, Mississippi area. NBS serves the Tuscaloosa, Alabama area. First
National Finance Company is located in West Point, Mississippi.
(Continued)
73
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
5. SECURITIES
Investments in securities are classified into three categories and are
accounted for as follows:
Available-for-Sale Securities
Securities classified as available-for-sale are those securities that are
intended to be held for an indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified as available-for-sale
would be based on various factors, including movements in interest rates,
liquidity needs, security risk assessments, changes in the mix of assets and
liabilities and other similar factors. These securities are carried at their
estimated fair value, and the net unrealized gain or loss is reported in
stockholders' equity, net of tax, until realized.
Gains and losses on the sale of available-for-sale securities are determined
using the adjusted cost of the specific security sold.
Premiums and discounts are recognized in interest income using the interest
method.
Securities to be Held-to-Maturity
Securities classified as held-to-maturity are those securities for which there
is a positive intent and ability to hold to maturity. These securities are
carried at cost adjusted for amortization of premium and accretion of discount,
computed by the interest method.
Trading Account Securities
Trading account securities are those securities which are held for the purpose
of selling them at a profit. The Corporation and its subsidiaries do not
engage in this type of activity.
6. LOANS
Loans are carried at the principal amount outstanding, net of unearned
interest. Interest income on installment loans is recognized using a method
which approximates the interest method. Interest income on all other loans is
recognized based on the principal balance outstanding and the stated rate of
the loan.
The accrual of interest on loans is discontinued when, in the opinion of
management, there is indication that the borrower may be unable to meet
payments as they become due. Thereafter, no interest is taken into income
until received.
(Continued)
74
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
7. PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation. The
depreciation policy is to provide for depreciation over the estimated useful
lives of the assets using the straight-line method. Repairs and maintenance
expenditures are charged to operating expenses; major expenditures for renewals
and betterments are capitalized and depreciated. When items of property are
sold or otherwise disposed of, the related assets and accumulated depreciation
are removed from the accounts and any resulting gains or losses are credited or
charged to income.
8. RESERVE FOR LOAN LOSSES
For financial reporting purposes, the provision for loan losses charged to
operations is based upon management's estimations of the amount necessary to
maintain the reserve at an adequate level, considering losses charged to the
reserve, current economic conditions, reviews of individual credits, changes in
the size and character of the loan portfolio and other factors warranting
consideration. Reserves for any impaired loans are generally determined based
on collateral values. Loans are charged against the reserve for loan losses
when management believes that the collectibility of the principal is unlikely.
It should be understood that estimates of credit losses involve an exercise of
judgment. While it is possible that in particular periods the Bank may sustain
losses that are substantial relative to the reserve for loan losses, it is the
judgment of management that the reserve for loan losses reflected in the
consolidated balance sheets is adequate to absorb estimated losses that exist
in the current loan portfolio.
9. EMPLOYEE BENEFITS
FNB and NBS provide a deferred compensation arrangement (401(K) plan) whereby
employees contribute a percentage of their compensation. Matching
contributions by the banks are in amounts determined at its discretion. The
Plan also allows for nonelective contributions in amounts determined by the
employer.
(Continued)
75
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
10. INCOME TAXES
Amounts provided for income tax expense are based on income reported for
consolidated financial statement purposes rather than amounts currently payable
under tax laws. Provisions for income taxes are based on taxes payable or
refundable for the current year (after exclusion of non-taxable income such as
interest on state and municipal securities) and deferred taxes on temporary
differences between the amount of taxable and pretax financial income and
between the tax bases of assets and liabilities and their reported amounts in
the financial statements. Deferred tax assets and liabilities are included in
the financial statements at currently enacted income tax rates applicable to
the period in which the deferred tax assets and liabilities are expected to be
realized or settled as prescribed in Financial Accounting Standards Board
(FASB) Statement No. 109, "Accounting for Income Taxes." As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision of income taxes.
The Corporation files consolidated income tax returns. The subsidiaries
provide for income taxes on a separate return basis and remit to the
Corporation amounts determined to be payable.
11. OTHER REAL ESTATE
Other real estate consists of properties acquired through foreclosure and is
recorded at the lower of cost or current appraisal less any estimated costs to
sell. Any write-down from the cost to fair value required at the time of
foreclosure is charged to the reserve for loan losses. Subsequent gains or
losses on other real estate are reported in other operating income or expense.
12. ACQUISITION PREMIUM
The acquisition premium is associated with the purchase of assets and
liabilities in the formation of NBS. The premium is being amortized to expense
over fifteen years using the straight-line method.
13. CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and federal funds sold. Generally, federal funds are sold
for a one-day period.
(Continued)
76
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
14. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business FNB and NBS enter into off-balance sheet
financial instruments consisting of commitments to extend credit, credit card
lines, commercial letters of credit and standby letters of credit. Such
financial instruments are recorded in the financial statements when they are
exercised.
15. PER SHARE DATA
The computation of per share data is based on 110,781, 114,052, and 114,052
shares outstanding at December 31, 1997, 1996 and 1995, respectively. In
February, 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, "Earnings Per Share" which is effective for years ending
after December 15, 1997. Under Statement No. 128, two earnings per share (EPS)
amounts are to be considered and presented, if applicable. Basic EPS is
calculated based on income available to common shareholders by the weighted-
average number of common shares outstanding during the reporting period.
Diluted EPS includes any additional dilution from potential common stock
outstanding, such as exercise of stock options. The Corporation has no
arrangements resulting in potential common stock outstanding. Therefore,
diluted EPS is not presented.
16. ACCOUNTING PRONOUNCEMENTS
In June, 1997, the FASB issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME which establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements. Comprehensive
income is defined as the change in equity during a period for non-owner
transactions and is divided into net income and other comprehensive income.
Other comprehensive income includes revenues, expenses, gains, and losses that
are excluded from earnings under current accounting standards. This statement
does not change or modify the reporting or display in the income statement.
Statement No. 130 is effective for interim and annual periods beginning after
December 31, 1997. Comparative financial statements provided for earlier
periods are required to be classified to reflect the application of this
statement. The implementation of this statement in the accompanying
consolidated financial statements had no material impact on the consolidated
financial statements.
NOTE B - SECURITIES
Securities at December 31, 1997 and 1996, consisted of available-for-sale
securities with a carrying amount of $23,634,975 and $26,023,548, respectively.
(Continued)
77
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SECURITIES (Continued)
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of securities available-for-sale and securities to be
held-to-maturity at December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
(In Thousands)
December 31, 1997
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Available-for-sale securities:
U. S. Treasury securities $ 999 $ - $ 6 $ 993
Obligations of other U. S.
Government agencies 13,529 62 67 13,524
Obligations of states and
municipal subdivisions 7,442 296 1 7,737
Mortgage-backed securities 465 1 - 466
Equity securities 915 - - 915
------- ---- --- -------
$23,350 $359 $74 $23,635
======= ==== === =======
Held-to-maturity securities $ - $ - $ - $ -
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
(In Thousands)
December 31, 1996
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Available-for-sale securities:
U. S. Treasury securities $ 998 $ - $ 13 $ 985
Obligations of other U. S.
Government agencies 15,521 41 158 15,404
Obligations of states and
municipal subdivisions 8,553 356 47 8,862
Mortgage-backed securities 13 2 - 15
Equity securities 758 - - 758
======= ==== ==== =======
$25,843 $399 $218 $26,024
======= ==== ==== =======
Held-to-maturity securities $ - $ - $ - $ -
======= ==== ==== =======
</TABLE>
(Continued)
78
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SECURITIES (Continued)
The amortized cost and estimated market value of investment securities at
December 31, 1997, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
(In Thousands)
Estimated
Amortized Fair
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less $12,595 $12,556
Due after one year through five years 7,128 7,359
Due after five years through ten years 2,147 2,221
Due after ten years 100 118
Mortgage-backed securities and other
installment obligations 1,380 1,381
------- -------
$23,350 $23,635
======= =======
</TABLE>
Gross gains of $17,217, $68,345, and $80,449, and gross losses of $9,563,
$5,896, and $14,419 were realized on available-for-sale securities in 1997,
1996, and 1995, respectively.
Securities included no investments in any one issuer the aggregate-adjusted
cost of which exceeded 10% of the consolidated stockholders' equity.
Investment securities with a carrying value of $7,095,828 and $10,201,641 at
December 31, 1997 and 1996, respectively, were pledged for various purposes as
required by law.
NOTE C - LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
(In Thousands)
December 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Real estate loans $47,044 $40,919
Loans to finance agricultural production and
to farmers 2,952 2,504
Commercial and industrial loans 9,870 7,210
Loans to individuals for personal expenditures 18,784 19,507
All other loans 952 1,231
------- -------
79,602 71,371
Unearned interest (213) (219)
Reserve for loan losses (964) (748)
------- -------
$78,425 $70,404
======= =======
</TABLE>
(Continued)
79
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - LOANS (Continued)
Transactions in the reserve for loan losses were as follows:
<TABLE>
<CAPTION>
(In Thousands)
Years Ended
December 31,
------------------------
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Balance, beginning of year $ 748 $ 697 $ 656
Additions:
Provision charged to operations 377 363 124
Recoveries 228 101 35
------ ----- -----
1,353 1,161 815
Deductions:
Loans charged off (389) (413) (118)
------ ----- -----
Balance, end of year $ 964 $ 748 $ 697
====== ===== =====
</TABLE>
Loans on which the accrual of interest has been discontinued and, therefore,
considered to be impaired amounted to $930,277 at December 31, 1997, and
$123,543 at December 31, 1996, for which reserves of $121,200 and $14,320,
respectively, were recorded. The average balance outstanding of impaired
loans for the year 1997 was approximately $561,000. For 1996, the average
balance outstanding of impaired loans was not considered significant.
Interest recognized on impaired loans was not significant.
NOTE D - PREMISES AND EQUIPMENT
Major classifications are summarized as follows:
<TABLE>
<CAPTION>
(In Thousands)
December 31,
Estimated Useful ----------------
Lives in Years 1997 1996
---------------- ------ ------
<S> <C> <C> <C>
Land - $ 445 $ 445
Construction - 24 -
Buildings 8 - 40 2,146 1,903
Equipment 3 - 15 2,383 2,165
------ ------
4,998 4,513
Less accumulated depreciation 2,400 2,097
------ ------
$2,598 $2,416
====== ======
</TABLE>
80
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - BORROWED FUNDS
Borrowed funds at December 31, 1997 and 1996, are summarized as follows:
(In Thousands)
1997 1996
------ ------
Advances due to Federal Home Loan Bank $4,294 $1,532
7.042% note payable to a correspondent bank,
due June 30, 2000 150 350
8.00% note payable to a correspondent bank,
due June 30, 2005 1,000 1,000
Federal funds purchased - 1,150
------ ------
$5,444 $4,032
====== ======
The advances due to the Federal Home Loan Bank are collateralized by single
family first mortgage loans, Federal Home Loan Bank stock and amounts on
deposit with the Federal Home Loan Bank. At December 31, 1997, interest rates
on these advances ranged from 5.62% to 6.634%.
The notes payable to a correspondent bank are collateralized by First National
Bank of West Point common stock.
Federal funds purchased generally mature within one to four days from the
transaction date.
Annual principal payment requirements at December 31, 1997, are as follows (in
thousands):
Year Amount
---------- ------
1998 $ 321
1999 1,878
2000 356
2001 544
2002 264
Thereafter 2,081
------
$5,444
======
81
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - INCOME TAXES
The consolidated provision for income taxes, including the tax effects of
securities transactions (1997 - $2,602, 1996 - $21,233, and 1995 - $22,450) is
as follows:
(In Thousands)
Years Ended
December 31,
------------------------
1997 1996 1995
---- ---- ----
Current income tax expense $519 $456 $266
Deferred tax benefit (66) (22) (5)
---- ---- ----
$453 $434 $261
==== ==== ====
The current tax expense represents the income taxes as shown on the
Corporation's consolidated tax return. The deferred tax benefit arises
because of depreciation, discount accretion on securities, loan loss
provision, and other temporary differences between the financial statements
and tax accounting.
The reasons for the difference between the federal statutory rate of 34% and
the effective tax rates are as follows:
<TABLE>
<CAPTION>
($ In Thousands)
Years Ended December 31,
------------------------------------------------------
1997 1996 1995
------------------ --------------- ---------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory
rates $ 551 34% $ 567 34% $ 418 34%
Change in rates
resulting from:
Tax-exempt
interest (156) (10%) (175) (11%) (184) (14%)
Non-deductible
expenses 27 2% 26 1% 22 1%
Other, net 31 2% 16 1% 5 -
----- --- ----- -- ---- ---
$ 453 28% $ 434 25% $261 21%
===== === ===== == ==== ===
</TABLE>
(Continued)
82
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - INCOME TAXES (Continued)
The components of the net deferred tax asset included in the consolidated
financial statements at December 31, 1997 and 1996, are as follows:
(In Thousands)
1997 1996
----- ----
ASSETS:
Reserve for loan losses $ 274 $193
Other 8 14
----- ----
Total deferred tax assets 282 207
----- ----
LIABILITIES:
Premises and equipment 52 55
Investment securities 37 26
Unrealized gain on available-for-sale securities 97 61
----- ----
Total deferred tax liabilities 186 142
----- ----
Net deferred tax asset $ 96 $ 65
===== ====
NOTE G - TREASURY STOCK
Treasury stock is carried at its cost. At December 31, 1997 and 1996, 18,819
and 15,548 shares, respectively, were held in treasury. During the year 1997,
3,311 shares were reacquired as treasury stock at an average per share cost of
$130, and 40 shares were sold at an average per share price of $130.
NOTE H - RELATED PARTY TRANSACTIONS
In the normal course of business, loans are made to directors and officers and
to companies in which they have significant ownership interest. These loans
are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions. Such
loans amounted to approximately $2,636,000 at December 31, 1997, and
$1,526,000 at December 31, 1996. In the opinion of management, such loans are
consistent with sound banking practices and are within applicable regulatory
and lending limitations.
(Continued)
83
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - RELATED PARTY TRANSACTIONS (Continued)
For the year ended December 31, 1997, an analysis of activity with respect to
these related party loans is as follows:
(In
Thousands)
Balance at beginning of year $1,526
New loans made 1,418
Repayments (308)
------
$2,636
======
NOTE I - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are outstanding various commitments
and contingent liabilities, such as guaranties and commitments to extend
credit, which are not reflected in the accompanying financial statements. The
exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for commitments to extend credit is represented by
the contractual amount of the instrument. The banks utilize the same credit
policies in making commitments and conditional obligations as they do for
other lending activities.
FNB has entered into a ground lease for a term of 10 years relating to a
branch facility. The agreement contains an option to renew for two successive
5 year periods. Beginning March, 1997, monthly payments of $2,669 are
included in net occupancy expense in the consolidated statement of income.
The amount of outstanding letters of credit issued was $88,500 at December 31,
1997, and $8,000 at December 31, 1996, and loan commitments approximated
$6,527,000 at December 31, 1997, and $7,018,000 at December 31, 1996.
NOTE J - REGULATORY MATTERS
Dividends paid by the Corporation are provided from dividends received from
its bank subsidiaries. Under regulations controlling national banks, the
payment of dividends by banks without prior approval from the Comptroller of
the Currency is limited to the current year's net profits (as defined by the
Comptroller of the Currency) and retained net profits of the two preceding
years. Also under regulations controlling national banks, the bank
subsidiaries are limited to the amount they may lend the Corporation. Any such
loans are required to be on a fully secured basis.
(Continued)
84
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - REGULATORY MATTERS (Continued)
The Corporation and its subsidiary banks are subject to regulatory capital
requirements administered by federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the Corporation's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation and its subsidiary banks must meet specific
capital guidelines that involve quantitative measures of assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgment by regulators about components, risk weightings, and other related
factors.
To ensure capital adequacy, quantitative measures have been established by
regulators and these require the Corporation and its bank subsidiaries to
maintain minimum amounts and ratios (set forth in the table below) of total
and Tier I capital (as defined) to risk-weighted assets (as defined), and of
Tier I capital to adjusted total assets (leverage). Management believes, as
of December 31, 1997, that the Corporation and its subsidiary banks exceed all
capital adequacy requirements.
At December 31, 1997, FNB and NBS were categorized by regulators as well-
capitalized under the regulatory framework for prompt corrective action. A
financial institution is considered to be well-capitalized if it has total
risk-based capital of 10% or more, has a Tier I risk-based ratio of 6% or
more, and has a Tier I leverage capital ratio of 5% or more. There are no
conditions or anticipated events that, in the opinion of management, would
change the categorization.
The actual capital amounts and ratios at December 31, 1997 and 1996, are
presented in the following table. No amount was deducted from capital for
interest-rate risk exposure:
<TABLE>
<CAPTION>
($ In Thousands)
Subsidiary Banks
Corporation --------------------------------
(Consolidated) FNB NBS
--------------- --------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Total risk-based $12,679 16.5% $8,453 16.3% $3,115 12.7%
Tier I risk-based 11,721 15.3% 7,806 15.1% 2,851 11.6%
Tier I leverage 11,721 10.6% 7,806 9.9% 2,851 8.0%
DECEMBER 31, 1996
Total risk-based $11,575 16.8% $8,112 17.7% $2,918 13.2%
Tier I risk-based 10,828 15.7% 7,580 16.6% 2,736 12.4%
Tier I leverage 10,828 10.7% 7,580 10.7% 2,736 8.3%
</TABLE>
(Continued)
85
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - REGULATORY MATTERS (Continued)
The minimum amounts of capital and ratios as established by banking regulators
at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
($ In Thousands)
Subsidiary Banks
Corporation --------------------------------
(Consolidated) FNB NBS
---------------- --------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Total risk-based $6,133 8.0% $4,142 8.0% $1,966 8.0%
Tier I risk-based 3,066 4.0% 2,071 4.0% 983 4.0%
Tier I leverage 3,304 3.0% 2,356 3.0% 1,067 3.0%
DECEMBER 31, 1996
Total risk-based $5,508 8.0% $3,664 8.0% $1,770 8.0%
Tier I risk-based 2,754 4.0% 1,832 4.0% 885 4.0%
Tier I leverage 3,024 3.0% 2,121 3.0% 987 3.0%
</TABLE>
In May, 1994, NBS was organized for the purpose of acquiring certain assets
and assuming the deposits of a failed savings institution. These deposits
were, and currently are, insured by the Savings Association Insurance Fund
(SAIF) of the FDIC. The remaining deposits are insured by the Bank Insurance
Fund (BIF) of the FDIC. In September, 1996, banking legislation was enacted
requiring that all institutions with SAIF deposits pay a one-time special
assessment. For NBS, this assessment was $96,034 and is included in deposit
insurance premiums in the consolidated statement of income for the year ended
December 31, 1996.
NOTE K - CONCENTRATIONS OF CREDIT
Most loans, commitments, and letters of credit of FNB and NBS have been
granted to customers in their market area. Generally, such customers are also
depositors. Investments in state and municipal securities also involve
governmental entities within the banks' market areas. The concentrations of
credit by type of loan are set forth in Note C. The distribution of
commitments to extend credit approximates the distribution of loans
outstanding. Letters of credit were granted primarily to commercial borrowers.
86
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L - DISCLOSURE ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
is made in accordance with FASB Statement No. 107, "Disclosures About Fair
Value of Financial Instruments." The estimated fair value amounts have been
determined using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that could be realized in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS - For such short-term instruments, the carrying
amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES - For securities held as investments, fair value equals
market price, if available. If a quoted market pace is not available, fair
value is estimated using quoted market prices for similar securities.
LOAN RECEIVABLES - The fair value of loans is estimated by discounting the
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining
maturities.
DEPOSIT LIABILITIES - The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining
maturities.
BORROWED FUNDS - Borrowed funds consist of obligations with floating rates.
As a result, the carrying amount of these obligations approximate market
value.
(Continued)
87
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L - DISCLOSURE ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
OFF-BALANCE SHEET INSTRUMENTS
Generally, commitments to extend credit and letters of credit are for a term
of thirty days to ninety days. Management is of the opinion the estimated
fair value is not significantly different than the contractual or notational
amounts.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 7,729 $ 7,729 $ 3,602 $ 3,602
Investment securities, available for sale 23,635 23,635 26,024 26,024
Loans 79,389 79,190 71,152 70,430
Less allowance for credit losses (964) (964) (748) (748)
-------- -------- -------- -------
$109,789 $109,590 $100,030 $99,308
======== ======== ======== =======
Financial liabilities:
Deposits $ 96,972 $ 97,610 $ 89,025 $89,010
Borrowed funds 5,444 5,444 4,032 4,032
-------- -------- -------- -------
$102,416 $103,054 $ 93,057 $93,042
======== ======== ======== =======
Off-balance sheet instruments $ 6,616 $ 6,616 $ 7,026 $ 7,026
======== ======== ======== =======
</TABLE>
The fair value estimates presented herein are based on pertinent 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, such amounts have not been comprehensively revalued for
purposes of these financial statements since that date and, therefore, current
estimates of fair value may differ significantly from the amounts presented
herein.
88
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - CONDENSED PARENT COMPANY STATEMENTS
Presented below are the balance sheets at December 31, 1997 and 1996, and
statements of income and cash flows for the years ended December 31, 1997,
1996, and 1995, for First National Corporation of West Point (parent only).
BALANCE SHEETS
<TABLE>
<CAPTION>
(In Thousands)
1997 1996
------- -------
<S> <C> <C>
ASSETS
Cash $ 427 $ 221
Investment in subsidiaries 12,850 12,651
Premises and equipment 275 277
Other assets 83 63
------- -------
$13,635 $13,212
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowed funds $ 1,150 $ 1,350
Dividend payable 199 -
Stockholders' equity 12,286 11,862
------- -------
$13,635 $13,212
======= =======
</TABLE>
STATEMENTS OF INCOME
(In Thousands)
1997 1996 1995
------ ------ ------
INCOME
Dividends from FNB $ 950 $1,182 $1,198
Dividends from Finance Company 200 - 90
Interest 5 4 3
Other 17 18 13
------ ------ ------
Total income 1,172 1,204 1,304
(Continued)
89
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - CONDENSED PARENT COMPANY STATEMENTS
STATEMENTS OF INCOME
(Continued)
<TABLE>
<CAPTION>
(In Thousands)
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
EXPENSES
Interest $ 118 $ 101 $ 167
Other 23 11 7
------ ------ ------
Total expenses 141 112 174
------ ------ ------
Income before income taxes and undistributed
income of subsidiaries 1,031 1,092 1,130
Income tax benefit (37) (34) (53)
------ ------ ------
Income before undistributed income of
subsidiaries 1,068 1,126 1,183
Dividends in excess of subsidiary earnings - - (216)
Equity in net undistributed income of subsidiaries 99 109 -
------ ------ ------
Net income $1,167 $1,235 $ 967
====== ====== ======
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In Thousands)
1997 1996 1995
------ ------ ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,167 $1,235 967
Depreciation and amortization 12 7 5
Equity in undistributed income of subsidiaries (99) (109) 216
Other, net (23) (3) (42)
------ ------ -----
Net cash provided by operating activities 1,057 1,130 1,146
</TABLE>
(Continued)
90
<PAGE>
FIRST NATIONAL CORPORATION OF WEST POINT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - CONDENSED PARENT COMPANY STATEMENTS (Continued)
STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
(In Thousands)
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries $ (30) $(500) $(250)
Addition to premises and equipment (8) (34) -
----- ----- -----
Net cash used in investing activities (38) (534) (250)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (188) (370) (354)
Decrease in borrowed funds (200) (450) (300)
Sale of treasury stock 5 - 6
Purchase of stock for treasury (430) - (5)
----- ----- -----
Net cash used in financing activities (813) (820) (653)
----- ----- -----
Net increase (decrease) in cash and cash equivalents 206 (224) 243
Cash and cash equivalents at beginning of year 221 445 202
----- ----- -----
Cash and cash equivalents at end of year $ 427 $ 221 $ 445
===== ===== =====
</TABLE>
NOTE N - SUBSEQUENT EVENT
On July 24, 1998, the Corporation entered into an agreement with NBC Capital
Corporation under which the Corporation would be merged into NBC Capital
Corporation and shareholders of the Corporation would receive common stock of
NBC Capital Corporation in exchange for Corporation common stock. The
agreement is subject to regulatory approval and the approval of the
Corporation's shareholders.
91
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF FNC
The following discussion provides certain information concerning the
consolidated financial condition and results of operations of FNC and its
subsidiaries, First National Bank of West Point, National Bank of the South and
First National Finance Company for the years ended December 31, 1997 and 1996,
and for the six month period ending June 30, 1998, compared to the six month
period ending June 30, 1997. Results for the six month period ended June 30,
1998, may not be indicative of the results for the entire year ending December
31, 1998. Management's discussion and analysis should be read in connection
with the consolidated financial statements and accompanying notes of FNC
presented elsewhere in this Proxy Statement - Prospectus.
RESULTS OF OPERATIONS
GENERAL
FNC and its banking subsidiaries conduct a general commercial banking business
which consists of attracting deposits from the general public and applying those
funds to the origination of loans for commercial, consumer and residential
purposes. First National Finance Company conducts a business that consists of
making small consumer loans to the general public.
The earnings of FNC depend primarily on FNC's net interest income (i.e., the
difference between the income earned on FNC's loans and investments and the
interest paid on its deposits and other borrowed funds). Among the factors
affecting net interest income are the type and volume of its deposits and other
borrowed funds, and the relative sensitivity of its interest earning assets and
its interest bearing liabilities to changes in market interest rates.
FNC's income is also affected by fees it receives for its banking services, by
its provisions for loan losses and by the level of its operating expenses. All
aspects of FNC's operations are affected by general market, economic and
competitive conditions.
FNC reported net income of $431,000 for the six-month period ended June 30,
1998, a decrease of $162,000 from a net income of $593,000 for the six-month
period ended June 30, 1997. Pre-tax income was $583,000 for the six months
ended June 30, 1998, a $205,000 decrease from the $788,000 income for the six
months ended June 30, 1997.
FNC reported net income of $1,167,000 for the year ended December 31, 1997, a
decrease of $68,000 from net income of $1,235,000 for the year ended December
31, 1996. Pretax income was $1,620,000 for the year ended December 31, 1997, a
$49,000 decrease from the $1,669,000 earned during the year ended December 31,
1996. Changes occurring in the major components of FNC's income statement for
such periods are discussed below.
92
<PAGE>
NET INTEREST INCOME
Net interest income is the primary source of income for FNC and represents the
amount by which interest generated by earning assets exceeds the cost of funds,
primarily interest paid to FNC's depositors on interest bearing accounts.
Net interest income was $2,659,000 for the six months ended June 30, 1998, a
1.8% increase from net interest income of $2,612,000 for the six months ended
June 30, 1997. The increase in net interest income is primarily due to the
increase in interest on loans of $130,000 offset by a decrease in interest and
dividends on securities of $89,000. Average rates earned on interest bearing
assets decreased to 9.0% as of June 30, 1998, from 9.6% as of June 30, 1997.
Average loans, net of unearned discount, of $77,566,000 for the six months ended
June 30, 1998, increased 12.3% over average loans of $69,077,000 for the same
period in 1997. Average interest bearing deposits for the six months ended June
30, 1998, were $87,439,000, an increase of 3.2% over average interest bearing
deposits of $84,746,000 for the same period in 1997.
Net interest income was $5,425,000 for the year ended December 31, 1997, a 7.7%
increase from net interest income of $5,036,000 for the year ended December 31,
1996. The increase in net interest income resulted from the increase in average
loans outstanding as well as a decrease in interest costs on NOW accounts
partially offset by the decrease in the volume of Federal funds sold and
securities. The average rate earned on interest bearing assets was 9.3% as of
December 31, 1997, and December 31, 1996. Average loans, net of unearned
discount, of $76,834,000 for the year ended December 31, 1997, increased 18.6%
from average loans of $64,786,000 for the same period in 1996. Average interest
bearing deposits for the year ended December 31, 1997, were $85,513,000, an
increase of 10.8% over average deposits of $77,165,000 for the same period in
1996.
The following table sets forth for the periods indicated an analysis of net
interest income by each major category of interest earning assets and interest
bearing liabilities. The rates earned and paid on each major type of asset and
liability account are set forth beside the average balance in the account for
the period, and the average yields on all interest bearing liabilities are also
summarized.
<TABLE>
<CAPTION>
Six Months Ended June 30,
(Dollars in Thousands)
1998 1997
---------------------------- ----------------------------
Average Interest Yield/ Average Interest Yield/
Balance Inc./Exp Rate Balance Inc./Exp Rate
(2) (3) (2) (3)
-------- ------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans (1) $ 77,566 $3,883 10.0% $ 69,077 $3,753 10.9%
Securities - held to maturity - - - - - -
Securities - available for sale 24,715 801 6.5% 27,696 890 6.4%
Deposits in other banks 76 2 5.3% - - -
Federal funds sold 3,389 93 5.5% 880 25 5.7%
--------- ------- ------ --------
Total interest earning assets/interest
income/average yield 105,746 4,779 9.0% 97,653 4,668 9.6%
------ --------
Noninterest earning assets 9,850 10,295
-------- --------
$115,596 $107,948
======== ========
</TABLE>
( Continued )
93
<PAGE>
<TABLE>
<CAPTION>
NET INTEREST INCOME (Continued)
Six Months Ended June 30,
(Dollars in Thousands)
1998 1997
----------------------------- ---------------------------
Average Interest Yield/ Average Interest Yield/
Balance Inc./Exp Rate Balance Inc./Exp Rate
(2) (3) (2) (3)
-------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C>
Interest bearing liabilities:
NOW, money market and savings $ 34,944 $ 497 2.8% $ 33,765 $ 530 3.1%
Certificates of deposit 45,670 1,272 5.6% 44,215 1,201 5.4%
Individual retirement accounts 6,825 199 5.8% 6,766 193 5.7%
Federal funds purchased 148 4 5.4% 338 10 5.6%
Borrowed funds 5,047 148 5.9% 4,473 122 5.5%
-------- ------ -------- -----
Total interest bearing liabilities/
interest expense/rate 92,634 2,120 4.6% 89,557 2,056 4.6%
------ -----
Noninterest bearing liabilities 10,570 6,353
Stockholders' equity 12,392 12,038
-------- --------
$115,596 $107,948
======== ========
Net interest income $2,659 $2,612
====== ======
Net yield on interest earning assets 5.0% 5.3%
a</TABLE>
(1) Includes nonaccrual loans.
(2) Average balances are based on the average balance outstanding throughout
the six months ended June 30, 1998 and 1997.
(3) Annualized.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
1997 1996
------------------------------ ------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Inc./Exp Rate Balance Inc./Exp Rate
(2) (2)
------- ------ ------ ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans (1) $ 76,834 $7,909 10.3% $ 64,786 $6,834 10.5%
Securities - held to maturity - - - - - -
Securities - available for sale 26,627 1,737 6.5% 29,107 1,909 6.6%
Deposits in other banks 479 27 5.6% 408 21 5.1%
Federal funds sold 596 35 5.9% 1,037 56 5.4%
------- ------ -------- -----
Total interest earning assets/interest
income/average yield 104,536 9,708 9.3% 95,338 8,820 9.3%
------ -----
Noninterest earnings assets 7,716 7,048
-------- --------
$112,252 $102,386
======== ========
Interest bearing liabilities:
NOW, money market and savings $ 33,840 1,089 3.2% $ 30,469 1,022 3.4%
Certificates of deposit 44,896 2,424 5.4% 40,360 2,156 5.3%
Individual retirement accounts 6,777 395 5.8% 6,336 361 5.7%
Federal funds purchased 442 25 5.7% 846 47 5.6%
Borrowed funds 5,373 350 6.5% 3,113 198 6.4%
--------- ----- ------- -----
Total interest bearing liabilities/
interest expense/ rate 91,328 4,283 4.7% 81,124 3,784 4.7%
----- -----
Noninterest bearing liabilities 8,844 9,701
Stockholders' equity 12,080 11,561
-------- -------
$112,252 $102,386
======== ========
Net interest income $5,425 $5,036
====== ======
Net yield on interest earning assets 5.2% 5.3%
</TABLE>
(1) Includes nonaccrual loans.
(2) Average balances are based on the average balances outstanding throughout
years ended December 31, 1997 and 1996.
( Continued )
94
<PAGE>
NET INTEREST INCOME (Continued)
Changes in interest income and interest expense can result from variances in
both volume and rate. FNC has an asset and liability management strategy
designed to provide a proper balance between rate sensitive assets and rate
sensitive liabilities to attempt to maximize interest margins, and to provide
adequate liquidity for anticipated needs.
The following tables set forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and rate.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Six Months Ended June 30, 1998 Year Ended December 31, 1997
Compared with Compared with
Six Months Ended June 30, 1997 Year Ended December 31, 1996
------------------------------ ----------------------------
Attributed to Attributed to
----------------------------- ----------------------------
Volume Rate Total Volume Rate Total
------- -------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 397 $(267) $ 130 $1,267 $(192) $1,075
Securities - held to maturity - - - - - -
Securities - available for sale (104) 15 (89) (146) (26) (172)
Deposits in other banks 2 - 2 4 2 6
Federal funds sold 69 (1) 68 (27) 6 (21)
----- ------ ------ ------ ----- ------
Increase (decrease) in interest income 364 (253) 111 1,098 (210) 888
----- ------ ------ ------ ----- ------
Interest bearing liabilities:
NOW, money market and savings 104 (137) (33) 113 (46) 67
Certificates of deposit 33 38 71 230 37 267
Individual retirement accounts 2 4 6 27 7 34
Federal funds purchased (5) (1) (6) (23) 1 (22)
Note payable 17 9 26 147 6 153
----- ------ ------ ------ ----- ------
Increase (decrease) in interest expense 151 (87) 64 494 5 499
----- ------ ------ ------ ----- ------
Net interest income $ 213 $(166) $ 47 $ 604 $(215) $ 389
===== ===== ====== ======= ===== ======
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Thousands)
Year Ended December 31, 1996
Compared with
Year Ended December 31, 1995
---------------------------------
Attributed to
---------------------------------
Volume Rate Total
------ ------- ------
<S> <C> <C> <C>
Interest earning assets:
Loans $2,014 $(125) $1,889
Securities - held to maturity - - -
Securities - available for sale (570) - (570)
Deposits in other banks 17 3 20
Federal funds sold (88) (25) (113)
------ ------- ------
Increase (decrease) in interest income 1,373 (147) 1,226
------ ------- ------
Interest bearing liabilities:
NOW, money market and savings (74) 202 128
Certificates of deposit (177) 381 204
Individual retirement accounts 3 17 20
Federal funds purchased 45 - 45
Note payable (13) (36) (49)
------ ------- ------
Increase (decrease) in interest expense (216) 564 348
------ ------- ------
Net interest income $1,589 $(711) $ 878
====== ======= ======
</TABLE>
95
<PAGE>
PROVISION FOR LOAN LOSSES
FNC's allowance for loan losses is established through charges to operating
income in the form of the provision for loan losses. Actual loan losses or
recoveries of loan losses are charged or credited directly to the allowance for
loan losses.
FNC recorded a $155,000 provision for loan losses for the six months ended June
30, 1998, and a $170,000 provision for loan losses for the six months ended June
30, 1997. The allowance for loan losses expressed as a percentage of
outstanding loans was 1.2% and 1.1% as of June 30, 1998, and June 30, 1997,
respectively.
For the year ended December 31, 1997 and 1996, FNC recorded a provision for loan
losses of $377,000 and $363,000, respectively. The allowances for loan losses
as of December 31, 1997 and 1996, were $964,000 and $748,000, respectively. The
allowance for loan losses expressed as a percentage of outstanding loans was
1.2% and 1.1% as of December 31, 1997 and 1996, respectively.
Nonaccrual loans were $445,000 and $930,000 for the six-month period ending June
30, 1998, and the year ending December 31, 1997, respectively.
NONINTEREST INCOME
Noninterest income, which includes all service charges, and fees and gains and
losses from securities sold, decreased 15.5% from $313,000 for the six months
ended June 30, 1997, to $271,000 for the six months ending June 30, 1998. The
$42,000 decrease was primarily due to a decrease in service charges on deposit
accounts.
Noninterest income decreased 9.6% to $620,000 for the year ended December 31,
1997, from $686,000 for the year ended December 31, 1996. The $66,000 decrease
was due primarily to net gains related to securities in 1997 of $8,000 compared
to net gains related to securities in 1996 of $62,000.
NONINTEREST EXPENSE
Noninterest expense includes expenses which FNC incurs in the course of
operations such as employee compensation and benefits, occupancy expense and
general operating expenses. These expenses increased 11.4% from $1,967,000 for
the six months ended June 30, 1997, to $2,192,000 for the six months ended June
30, 1998. The increase was mainly attributable to an increase in salaries and
employee benefits of $158,000, due to an increase in the number of employees of
National Bank of the South.
Noninterest expense increased 9.7% to $4,048,000 for the year ended December 31,
1997, from $3,690,000 for the year ended December 31, 1996. The increase was
mainly attributable to an increase in salaries and employee benefits which
increased approximately $205,000 from the year ended December 31, 1996, to the
same period in 1997.
96
<PAGE>
FEDERAL INCOME TAXES
FNC's provision for income taxes was $152,000 and $195,000 for the six-month
periods ended June 30, 1998 and 1997, respectively. These provisions reflected
effective tax rates of 26% and 25%, respectively.
FNC's provision for income taxes was $453,000 and $434,000 for the years ended
December 31, 1997 and 1996, respectively. These provisions reflected effective
tax rates of 28% and 25%, respectively.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
CAPITAL RESOURCES
The Office of the Comptroller of the Currency (the "OCC") has adopted risk-based
and leverage capital measures to assist in the assessment of the capital
adequacy of the banks it regulates. The principal objectives of the risk-based
measures are to: (i) make regulatory capital requirements more sensitive to
differences in risk profiles among financial institutions; (ii) factor off-
balance sheet exposures into the assessment of capital adequacy; (iii) minimize
disincentives to holding liquid, low-risk assets; and (iv) achieve greater
consistency in the evaluation of the capital adequacy of financial institutions.
The risk-based capital guidelines include both a definition of capital and a
framework for calculating risk weighted assets by assigning assets and off-
balance sheet items to broad risk categories. The financial institution's risk-
based capital ratio is calculated by dividing its qualifying capital (the
numerator of the ratio) by its risk weighted assets (the denominator).
The risk-based capital ratio focuses principally on broad categories of credit
risk. The risk-based ratio does not, however, incorporate other factors that can
affect a bank's financial condition. These factors include overall interest rate
exposure, liquidity, funding and market risks, the effectiveness of loan and
investment policies, and management's ability to monitor and control financial
and operating risks.
First National Bank of West Point and National Bank of the South are national
banks and, as such, qualifying total capital consists of two types of capital
components: "core capital elements" (comprising Tier 1 capital) and
"supplementary capital elements" (comprising Tier 2 capital). Certain assets are
deducted from a financial institution's capital for the purpose of calculating
the risk-based capital ratio.
Assets and credit equivalent amounts of off-balance sheet items are assigned to
one of four risk categories, according to certain criteria. The aggregate dollar
value of the amount in each category is then multiplied by the risk weight
associated with that category. The resulting weighted values from each of the
risk categories are added together, and this sum is the financial institution's
total risk weighted assets that comprise the denominator of the risk-based
capital ratio. Assets deducted from a bank's capital in determining the
numerator of the risk-based capital ratio are not included as part of the
financial institution's risk weighted assets.
( Continued )
97
<PAGE>
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION (Continued)
CAPITAL RESOURCES (Continued)
Risk weights for off-balance sheet items are determined by a two-step process.
First, the "credit equivalent amount" of off-balance sheet items is determined,
in most cases by multiplying the off-balance sheet items by a credit conversion
factor. Second, in most cases, the credit equivalent amount is assigned to the
appropriate risk category according to designated criteria.
National banks are required to maintain a minimum risk-based capital ratio of
total capital (after deductions) to risk weighted assets of 8%. In general, 50%
of this ratio must consist of Tier 1 capital. Certain restrictions and
limitations also apply regarding the calculation of Tier 1 capital. Tier 2
capital elements that are not used as part of Tier 1 capital generally will
qualify for inclusion in a financial institution's capital base up to a maximum
of 100% of the financial institution's Tier 1 capital.
In addition, the OCC has promulgated capital leverage guidelines designed to
supplement the risk-based capital guidelines. The principal objective of the
leverage ratio is to address the extent to which a financial institution could
leverage its equity capital base. The OCC requires its regulated national banks
to meet a minimum leverage capital requirement of Tier 1 capital to total assets
of not less than 3% for a bank that is not anticipating or experiencing
significant growth and is highly rated (i.e., a composite rating of 1 on a scale
of 1 to 5). Banks that the OCC determines are anticipating or experiencing
significant growth or that are not highly rated must meet a minimum leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis points.
The Federal Reserve which regulates holding companies has promulgated capital
leverage guidelines designed to supplement the risk-based capital guidelines.
Bank holding companies must maintain a minimum leverage ratio of 3%, although
companies with greater risk profiles may be required to maintain additional Core
Capital of at least 100 to 200 basis points above the 3% minimum.
The following tables summarize the capital ratios of FNC and its subsidiary
banks for the periods indicated. For all periods FNC and its subsidiary banks
are considered to be well-capitalized.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Subsidiary Banks
-------------------------------------
FNC National Bank
(Consolidated) FNB of West Point Of the South
---------------- ----------------- -----------------
JUNE 30, 1998 Amount Ratio Amount Ratio Amount Ratio
------- ------ ------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Total risk-based $12,193 15.7% $8,973 16.6% $3,037 13.8%
Tier 1 risk-based 11,290 14.6% 8,329 15.5% 2,816 12.8%
Tier 1 leverage 11,290 9.7% 8,329 10.5% 2,816 7.9%
DECEMBER 31, 1997
Total risk-based $12,679 16.5% $8,453 16.3% $3,115 12.7%
Tier 1 risk-based 11,721 15.3% 7,806 15.1% 2,851 11.6%
Tier 1 leverage 11,721 10.6% 7,806 9.9% 2,851 8.0%
</TABLE>
( Continued )
98
<PAGE>
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION (Continued)
<TABLE>
<CAPTION>
CAPITAL RESOURCES (Continued)
(Dollars in Thousands)
Subsidiary Banks
-------------------------------------
FNC National Bank
(Consolidated) FNB of West Point Of the South
----------------------- ------------------ -----------------
DECEMBER 31, 1996 Amount Ratio Amount Ratio Amount Ratio
--------- ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Total risk-based $11,575 16.8% $8,112 17.7% 2,918 13.2%
Tier 1 risk-based 10,828 15.7% 7,580 16.6% 2,736 12.4%
Tier 1 leverage 10,828 10.7% 7,580 10.7% 2,736 8.3%
Regulatory Minimums
-------------------------
Adequately Well
CAPITAL RATIOS Capitalized Capitalized
----------- -----------
Total risk based 8.0% 10.0%
Tier 1 risk-based 4.0% 6.0%
Tier 1 leverage 4.0% 5.0%
</TABLE>
LIQUIDITY
FNC's asset and liability management policy is intended to maintain adequate
liquidity and thereby enhance its ability to raise funds to support asset
growth, meet deposit withdrawals and lending needs, maintain reserve
requirements, and otherwise sustain operations. FNC accomplishes this through
management of the maturities of its interest-earning assets and interest bearing
liabilities. Liquidity is monitored and overall interest rate risk is assessed
through reports showing both sensitivity ratios and existing dollar "gap" data.
FNC believes its present position to be adequate to meet its current and future
liquidity needs.
The liquidity of FNC is maintained in the form of readily marketable investment
securities, demand deposits with commercial banks, vault cash and federal funds
sold. While the minimum liquidity requirement for banks is determined by federal
bank regulatory agencies as a percentage of deposit liabilities, FNC's
management monitors liquidity requirements as warranted by interest rate trends,
changes in the economy and the scheduled maturity and interest rate sensitivity
of the investment and loan portfolio, deposits and anticipated loan fundings. In
addition to the liquidity provided by the foregoing, FNC and its subsidiary
banks have made arrangements with the Federal Home Loan Bank to obtain
borrowings which could be used to meet any liquidity needs.
FNC is a legal entity separate and distinct from its subsidiaries. A principal
source of cash flow of FNC, including cash flow to pay dividends to its
shareholders, is dividends from its subsidiary banking institutions. There are
statutory and regulatory limitations on the payment of dividends by these
subsidiary banking institutions. As national banks, dividend payments of First
National Bank and National Bank of the South are limited to the current year's
net profits (as defined by the OCC) and retained earnings of the two preceding
years. At June 30, 1998, First National Bank had approximately $200,000 (plus
retained earnings in 1998) available to pay dividends. National Bank of the
South had no retained earnings available for payment of dividends.
Further information regarding FNC's sources and uses of cash is presented in
FNC's Consolidated Statements of Cash Flows included in FNC's audited
consolidated statements.
99
<PAGE>
INTEREST RATE SENSITIVITY
Interest rate sensitivity refers to the relationship between market interest
rates and net interest income resulting from the repricing of certain assets and
liabilities. Interest rate risk arises when an earning asset matures or when its
rate of interest changes in a time frame different from that of the supporting
interest bearing liability. One way to reduce the risk of significant adverse
effects of market rate fluctuations on net interest income is to minimize the
difference between rate sensitive assets and liabilities, referred to as "gap."
Maintaining an equilibrium between rate sensitive assets and liabilities will
reduce some of the risk associated with changes in market rates, but it will not
guarantee a stable net interest spread because yields and rates may change
simultaneously and by different amounts. These changes in market spreads could
materially affect the overall net interest spread even if assets and liabilities
were perfectly matched. If more assets than liabilities reprice within a given
period, an asset sensitive position or "positive gap" is created. During a
positive gap, a decline in market rates will have a negative impact on net
interest income. Alternatively, where more liabilities than assets reprice in a
given period, a liability sensitive position or "negative gap" is created and a
decline in interest rates will have a positive impact on net interest income.
The following table shows the interest rate sensitivity gaps for different time
periods and the cumulative interest rate sensitivity gaps for the same periods
as of June 30, 1998.
<TABLE>
<CAPTION>
0 to 90 91 Days Over
Days To 1 Year 1 Year Total
------- --------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans $22,450 $ 22,756 $32,052 $ 77,258
Securities 8,886 5,926 14,210 29,022
Deposits in other banks 40 - - 40
Federal funds sold 1,550 - - 1,550
------- --------- -------- --------
Total Interest Earning Assets $32,926 $ 28,682 $46,262 $107,870
======= ========= ======== ========
INTEREST BEARING LIABILITIES:
NOW, money market and savings accounts (1) $ - $ 32,565 $ - $ 32,565
Time deposits 16,948 23,940 14,963 55,851
Borrowed funds 1,280 1,050 2,635 4,965
------- --------- -------- --------
Total interest bearing liabilities 18,228 57,555 17,598 93,381
------- --------- -------- --------
Period GAP $14,698 $(28,873) $28,664 $ 14,489
======= ======== ======= =========
Cumulative GAP $14,698 $(14,175) $14,489
======= ======== =======
Period GAP to total interest earning assets 13.6% (26.8%) 26.6%
Cumulative GAP to total interest earning assets 13.6% (13.1%) 13.4%
</TABLE>
(1) NOW, money market and savings accounts are subject to immediate withdrawal
and repricing. These deposits do not tend to immediately react to changes
in interest rates and FNC believes these deposits are a stable and
predictable funding source. Therefore, these deposits are included in the
repricing period that management believes most closely matches the periods
in which they are likely to reprice.
( Continued )
100
<PAGE>
INTEREST RATE SENSITIVITY (Continued)
Varying interest rate environments can create unexpected changes in prepayment
levels of assets and liabilities which are not reflected in the interest
sensitivity analysis. These prepayments may have significant effects on FNC's
net interest margin. Because of these factors, an interest sensitivity gap
report may not provide a complete assessment of FNB's exposure to changes in
interest rates.
LOANS
The following table classifies the Bank's loans according to type as of the
dates shown:
<TABLE>
<CAPTION>
(Dollars In Thousands)
December 31,
June 30, ------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Installment $16,556 $18,784 $19,507
Commercial, financial and agricultural 15,766 12,822 9,714
Real estate - construction 8,412 10,474 10,521
Real estate - mortgage 35,352 36,570 30,398
Credit card 975 850 1,013
Other 197 102 218
------- ------- -------
Total 77,258 79,602 71,371
Less allowance for loan losses (903) (964) (748)
Less unearned income (208) (213) (219)
------- ------- -------
Total Net $76,147 $78,425 $70,404
======= ======= =======
</TABLE>
The maturities of loans, net of unearned discount, at June 30, 1998, were as
follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Less than 1 year $45,206
1-5 years 24,731
5-15 years 5,301
Over 15 years 2,020
-------
Total $77,258
=======
Loans maturing after one year with:
Fixed interest rates $12,020
Floating interest rates 20,032
-------
$32,052
=======
</TABLE>
101
<PAGE>
INVESTMENT SECURITIES
The following table summarizes the book value of securities for the dates
indicated.
<TABLE>
<CAPTION>
December 31,
June 30, --------------
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
AVAILABLE FOR SALE:
U. S. Treasury and other U. S. agencies $19,933 $14,984 $16,404
Obligations of states and municipal subdividsions 8,368 7,736 8,862
Other 721 915 758
HELD TO MATURITY: - - -
-------- ------- --------
Total $29,022 $23,635 $26,024
======== ======= ========
</TABLE>
Set forth is a distribution of FNC's investment securities by maturity
at June 30, 1998:
<TABLE>
<CAPTION>
(Dollars in Thousands)
---------------------------------------------------------------------------------------------
Maturing Maturing
After One After
Maturing But Five But Maturing
Within One Year Within Five Years Within Ten Years After Ten Years Total
------------------ ----------------- ---------------- -------------- -------
Amount Yield Amount Yield Amount Yield Amount Yield Amount
-------- ------- ------ ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities - held to
maturity $ - - $ - - $ - - $ - - $ -
Securities - available
for sale 14,812 6.3% 10,663 6.3% 2,448 5.4% 1,099 6.4% 29,022
------- --- ------- --- ------ --- ------ ---- -------
Total $14,812 6.3% $10,663 6.3% $2,448 5.4% $1,099 6.4% $29,022
======= === ======= === ====== === ====== ==== =======
</TABLE>
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS
The provision for loan losses represents a determination by FNC's management of
the amount necessary to be charged to operating income and transferred to the
allowance for loan losses to maintain a level which it considers adequate in
relation to the risk of losses inherent in the loan portfolio. It is FNC's
policy to provide for exposure to losses of specifically identified credits, and
a general allowance for the remainder of the loan portfolio, and, while it is
also FNC's policy to charge off in the current period those loans in which a
loss is deemed to exist, risks of losses also exist which cannot be quantified
precisely or attributed to particular loans or classes of loans.
In assessing the adequacy of its allowance for loan losses, management relies
predominantly on its ongoing review of the loan portfolio, which is undertaken
both to ascertain whether there are probable losses which must be charged off
and to assess the risk characteristics of individually significant loans and of
the portfolio in the aggregate. This review takes into consideration the
judgments of the responsible lending officers, the credit review officer, the
Chief Executive Officer and the Board of Directors, and also those of the bank
regulatory agency that reviews the loan portfolio as part of its regular
examination of FNC and its subsidiaries.
( Continued )
102
<PAGE>
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS (Continued)
In evaluating the allowance for loan losses, management also considers FNC's
loan loss experience, the amount of past due and nonperforming loans, current
and anticipated economic conditions, changes in lending and collection
procedures, changes in loan volumes and the quality of FNC's loan review system.
The allowance for loan losses at June 30, 1998, was $903,000, compared to
$964,000 at December 31, 1997, and $748,000 at December 31, 1996. Although
additional losses may occur, management believes the allowance for loan losses
to be adequate as of the date presented.
<TABLE>
<CAPTION>
(Dollars in Thousands)
As of and for As of and for the
the Six Years Ended
Months Ended December 31,
June 30, ------------------
1998 1997 1996
----------- ------ --------
<S> <C> <C> <C>
Balance at beginning of period $ 964 $ 748 $ 697
Charge-offs:
Commercial, financial and agricultural (44) (40) (83)
Real estate - construction - - -
Real estate - mortgage (13) (80) (11)
Installment loans (168) (257) (303)
Credit card loans (25) (12) (16)
------- ------- ------
Total charge-offs (250) (389) (413)
------- ------- ------
Recoveries:
Commercial, financial and agricultural 3 92 3
Real estate - construction - - -
Real estate - mortgage - 67 29
Installment loans 28 67 67
Credit card loans 3 2 2
------- ------- ------
Total recoveries 34 228 101
------- ------- ------
Net charge-offs (216) (161) (312)
Provision charged to expense 155 377 363
------- ------- ------
Balance at end of period $ 903 $ 964 $ 748
======= ======= ======
Net charge-offs as a percentage of average loans .56% (1) .21% .48%
Allowance as a percentage of loans, net 1.2% 1.2% 1.1%
</TABLE>
(1) Annualized for 1998
DEPOSITS
The average balances and average rates paid by category of deposit at
the dates shown below are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
As of June 30, As of December 31,
--------------- -------------------------------------
1998 1997 1996
--------------- -------------- ------------------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
NONINTEREST BEARING:
Demand $ 8,729 - $ 8,032 - $ 9,103 -
INTEREST BEARING:
NOW, money market and savings 34,944 2.8% 33,840 3.2% 30,469 3.4%
Certificates of deposit 45,670 5.6% 44,896 5.4% 40,360 5.3%
Individual retirement accounts 6,825 5.8% 6,777 5.8% 6,336 5.7%
------- ------- -------
Total $96,168 4.0% $93,545 4.2% $86,268 4.1%
======= ======= =======
</TABLE>
( Continued )
103
<PAGE>
DEPOSITS (Continued)
The scheduled maturities of certificates of deposit in denominations of $100,000
or more at June 30, 1998, and December 31, 1997, including public funds, are
shown below:
<TABLE>
<CAPTION>
(In Thousands)
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Due in three months or less $ 6,167 $ 4,771
Due in over three to twelve months 5,753 4,483
Due in over twelve months 2,955 3,258
------- --------
Total $14,875 $12,512
======= ========
</TABLE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following is an analysis of nonperforming assets as of the dates shown:
<TABLE>
<CAPTION>
(In Thousands)
December 31,
June 30, ------------------------------
1998 1997 1996 1995
---------- -------- -------- ---------
<S> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis $ 445 $ 930 $ 124 $ 114
Accruing loans which are contractually past
due 90 days or more as to principal or
interest payments 202 516 738 430
Foreclosed assets 432 239 - -
------- ------ ----- -------
Total $ 1,079 $1,685 $ 862 $ 544
======= ====== ===== =======
</TABLE>
The accrual of interest on a loan is discontinued when, in the opinion of
management (based upon such criteria as default in payment, asset deterioration,
decline in cash flow, recurring operating loss, declining sales, bankruptcy and
other financial conditions which could result in default), the borrower's
financial condition is such that the collection of interest is doubtful.
Placing a loan on nonaccrual status has a two-fold impact on net interest
income. First, it causes an immediate charge against earnings with respect to
that particular loan. Second, it eliminates future interest earnings with
respect to that particular loan. Interest on such loans is not recognized until
all of the principal is collected or until the loan is returned to a performing
status.
104
<PAGE>
RETURN ON EQUITY AND ASSETS
The return on equity and return on assets for the periods shown below are as
follows:
<TABLE>
<CAPTION>
For the
Six Months For the Years Ended
Ended December 31,
June 30, -------------------
1998(1) 1997 1996
---------- -------- -------
<S> <C> <C> <C>
Return on average assets .7 1.1 1.2
Return on average equity 6.9 9.7 10.7
Average equity to average assets ratio 10.7 10.8 11.3
Dividend payout ratio 45.0 33.2 30.0
</TABLE>
(1) Annualized for 1998
ACCOUNTING MATTERS
In June, 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS 130 established standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general purpose financial statements. SFAS 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 requires that companies (i) classify items of other
comprehensive income by their nature in a financial statement and (ii) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position at the end of an accounting period. SFAS 130 is effective
for fiscal years beginning after December 31, 1997, and FNC began following the
statement in the first quarter of 1998. As required by the statement,
reclassification of earlier periods has been reflected in the financial
statements included elsewhere herein.
In June, 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in its
financial statements and that those instrument be measured at fair value.
Implementation is required for all fiscal quarters of fiscal years beginning
after June 15, 1999. FNC has not determined the impact the adoption of this
statement may have on its consolidated financial statements.
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YEAR 2000
Like many financial institutions, FNC and its subsidiaries rely upon computers
for the daily conduct of its business and for information systems processing.
There is concern among industry experts that on January 1, 2000, computers will
be unable to "read" the new year, which may result in widespread computer
malfunctions. While FNC believes that it has available resources and has
adopted a plan to address Year 2000 compliance, it is largely dependent on third
party vendors. FNC handles its own data processing using an IBM AS 400
mainframe computer and software licensed from a third party vendor. FNC has
been informed by this vendor that its software will be Year 2000 compliant. FNC
is seeking assurance about the Year 2000 compliance with respect to the other
third party hardware or software system it uses, and FNC believes that its
internal systems and software and the network connections it maintains will be
adequately programmed to address the Year 2000 issue. FNC has also begun
testing these systems to confirm that they will be Year 2000 compliant. Based
on information currently available, management does not believe that FNC will
incur significant costs in connection with the Year 2000 issue. Nevertheless,
there is a risk that some of the hardware or software that FNC uses will not be
Year 2000 compliant, and FNC cannot predict with any certainty the costs FNC
will incur to respond to any Year 2000 issues. Factors which may affect the
amount of these costs include FNC's ability to control third party modification
plans, FNC's ability to identify and correct all relevant computer codes, the
availability and cost of engaging personnel trained in solving Year 2000 issues,
and other similar uncertainties.
Further, the business of many of FNC's customers may be negatively affected by
the Year 2000 issue, and any financial difficulties incurred by FNC's customers
in solving Year 2000 issues could negatively affect those customers' ability to
repay any loans which FNC may have extended. Therefore, even if FNC does not
incur significant direct costs in connection with responding to the Year 2000
issue, there can be no assurance that the failure or delay of FNC's customers or
other third parties in addressing the Year 2000 issue or the costs involved in
such process will not have a material adverse effect on FNC's business,
financial condition, or results of operations.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as FNC are primarily monetary in nature. Therefore, interest
rates have a more significant effect on FNC's performance than do the effects of
changes in the general rate of inflation and change in prices. In addition,
interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. As discussed previously,
management seeks to manage the relationships between interest sensitive assets
and liabilities in order to protect against wide interest rate fluctuations,
including those resulting from inflation.
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RELATIONSHIP WITH INDEPENDENT AUDITORS
T. E. Lott & Company, independent auditors, has continuously served as the
independent auditor for FNC from 1978 through the present and for NBC from 1974
through the present. A representative of T. E. Lott & Company is expected to be
present at the Special Meeting. This representative will have an opportunity to
make a statement if he or she desires and will be available to respond to
appropriate questions.
VALIDITY OF SHARES
Gholson, Hicks & Nichols, A Professional Association, has passed upon the
validity of the shares to be issued by NBC in the Merger. As of the date of
this Proxy Statement-Prospectus, members of the firm of Gholson, Hicks &
Nichols, A Professional Association, beneficially owned 67,366 shares of NBC
Common Stock. In addition, Mr. Hunter Gholson serves as a director of NBC.
EXPERTS
The audited consolidated financial statements of NBC included in NBC's 1997
Annual Report have been audited by T. E. Lott & Company, independent auditors,
as set forth in their report thereon incorporated by reference herein. Such
consolidated financial statements are incorporated herein by reference in
reliance upon T. E. Lott & Company's report given upon the authority of such
firm as experts in accounting and auditing.
T. E. Lott & Company, independent certified public accountants, has audited
the consolidated financial statements of FNC for the years ended December 31,
1997 and 1996. Those financial statements are included in the Proxy Statement
of FNC, which is referred to and made a part of this Proxy Statement-Prospectus,
and have been included in reliance upon the report of T. E. Lott & Company
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
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