<PAGE>
As filed with the Securities and Exchange Commission on July 31, 1998
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------------------
NATIONAL CITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
------------------------------------
INDIANA 6711 35-1632155
(State or other jurisdiction (Primary Standard (IRS Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
227 Main Street
P.O. Box 868
Evansville, Indiana 47705-0868
(812) 464-9677
(Address, including zip code and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------------
ROBERT A. KEIL
National City Bancshares, Inc.
227 Main Street
P.O. Box 868
Evansville, Indiana 47705-0868
(812) 464-9677
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------------
Copies to:
David C. Worrell Natalia Delgado
Baker & Daniels Jenner & Block
300 North Meridian Street One IBM Plaza
Suite 2700 Chicago, Illinois 60611
Indianapolis, Indiana 46204 (312) 222-9350
(317) 237-0300
------------------------------------
Approximate date of commencement of proposed sale of the securities to
the public:
As soon as practicable after the effective date of this Registration Statement
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Unit Offering Price Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without par value 302,134 (1) (2) $4,962,017 (2) $1,464
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the assumed number of shares of National City Bancshares, Inc.
common stock that may be issued in the merger.
(2) Calculated pursuant to Rule 457(f)(2) under the Securities Act of 1933 based
on the book value per share of the common stock of 1st Bancorp Vienna, Inc.
as of March 31, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
[1st Bancorp Vienna, Inc. Letterhead]
Special Meeting of Shareholders
A MERGER PROPOSAL -- YOUR
VOTE IS VERY IMPORTANT
The Board of Directors of 1st Bancorp Vienna, Inc. ("Bancorp"), has unanimously
approved a merger with National City Bancshares, Inc. ("NCBE"), a $1.5 billion
multi-bank holding company headquartered in Evansville, Indiana.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO SHAREHOLDERS
AND IS IN THEIR BEST INTERESTS. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY
RECOMMENDS THAT YOU VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT. A VOTE OF
THE NCBE SHAREHOLDERS IS NOT REQUIRED TO APPROVE THE MERGER.
Bancorp is calling a Special Meeting of shareholders at which you will be asked
to approve and adopt the merger agreement. The affirmative vote of the holders
of at least two-thirds of the outstanding shares of Bancorp common stock is
required.
If the merger is completed, Bancorp shareholders will receive shares of NCBE
common stock having a value of between $2,480.00 and $2,945.00 for each share of
Bancorp common stock, subject to adjustment depending on the trading price of
NCBE common stock before the merger. The issuance of NCBE common stock in the
merger is expected to be tax-free for federal income tax purposes.
If the merger is completed, the parties expect Bancorp's subsidiary, The First
State Bank of Vienna (the "Bank"), will concurrently merge into Illinois One
Bank, National Association, a subsidiary of NCBE that has its principal office
in Shawneetown, Illinois. The date, time and place of the Special Meeting:
September __, 1998
11:00 a.m.
The First State Bank of Vienna
Third and Vine Streets
Vienna, Illinois
The attached Proxy Statement/Prospectus provides you with detailed information
about the proposed merger. In addition, you may obtain other information about
NCBE from documents filed with the Securities and Exchange Commission. We
encourage you to read this entire document carefully.
Whether or not you plan to attend the Special Meeting, please take the time to
vote by completing and mailing the enclosed proxy card to us. If you sign, date
and mail your proxy without indicating how you wish to vote, your proxy will
count as a vote in favor of the approval and adoption of the merger agreement.
If you fail to return your proxy, the effect will be a vote against approval and
adoption of the merger agreement. YOUR VOTE IS VERY IMPORTANT.
ON BEHALF OF THE BOARD OF DIRECTORS OF BANCORP, I URGE YOU TO VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
WAYNE O'KEEFE
President
<PAGE>
TO THE SHAREHOLDERS OF 1ST BANCORP VIENNA, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held
__________, September __, 1998
The First State Bank of Vienna
Third and Vine Streets
Vienna, Illinois
The Board of Directors of 1st Bancorp Vienna, Inc. ("Bancorp") asks you to
attend a Special Meeting to vote on the following:
1. Proposed Merger. Shareholders will be asked to approve and adopt
the Agreement and Plan of Merger dated May 21, 1998 relating to
the merger of Bancorp with National City Bancshares, Inc.
("NCBE"). In the merger, Bancorp shareholders will receive shares
of NCBE common stock having a value between $2,480.00 and
$2,945.00 for each share of Bancorp common stock, subject to
adjustment depending on the trading price of NCBE common stock
before the merger. The Agreement and Plan of Merger is attached as
Appendix A to the accompanying Proxy Statement/Prospectus; and
2. Other Business. Shareholders will also consider and vote on any
other matters that properly come before the Special Meeting or any
adjournments or postponements.
You are entitled to notice of and to vote at the Special Meeting (or any
adjournments or postponements of it) if you were a Bancorp shareholder at the
close of business on July __, 1998.
By Order of the Board of Directors,
_______________________, Secretary
August __, 1998
Vienna, Illinois
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
THE PROXY STATEMENT/PROSPECTUS DESCRIBES YOUR RIGHTS TO DISSENT FROM THE
MERGER AND THE PROCEDURES YOU MUST FOLLOW TO EXERCISE THOSE RIGHTS.
WE INVITE YOU TO ATTEND THE SPECIAL MEETING. IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED. PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE
ACCOMPANYING POSTAGE-PAID ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN
PERSON, WHICH WILL REVOKE YOUR SIGNED PROXY. YOU MAY ALSO REVOKE YOUR PROXY AT
ANY TIME BEFORE THE VOTING THEREOF AT THE SPECIAL MEETING.
<PAGE>
1ST BANCORP VIENNA, INC.
PROXY STATEMENT FOR SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD
SEPTEMBER _____, 1998
------------------------------
NATIONAL CITY BANCSHARES, INC.
PROSPECTUS
FOR UP TO 302,134 SHARES OF COMMON STOCK
National City Bancshares, Inc. ("NCBE") proposes to acquire 1st Bancorp
Vienna, Inc. ("Bancorp") through the merger of Bancorp into NCBE.
The parties cannot complete the merger unless Bancorp's shareholders
approve the Agreement and Plan of Merger dated May 21, 1998, which is attached
as Appendix A to this Proxy Statement/Prospectus. Bancorp shareholders will vote
on the Agreement and Plan of Merger at a Special Meeting of Shareholders on
September ___, 1998. This Proxy Statement/Prospectus is being furnished to
Bancorp shareholders in connection with the Board of Directors of Bancorp's
solicitation of proxies for use at the Special Meeting.
If Bancorp and NCBE merge, Bancorp shareholders will receive shares of
NCBE's common stock with a value of between $2,480.00 and $2,945.00 for each
Bancorp share, subject to adjustment depending on the trading price of NCBE's
common stock before the merger. This Proxy Statement/Prospectus is also a
Prospectus of NCBE relating to the shares of common stock NCBE will issue.
NCBE's common stock trades on the Nasdaq National Market Tier of the Nasdaq
Stock Market under the symbol "NCBE".
THE "RISK FACTORS" SECTION OF THIS PROXY STATEMENT/PROSPECTUS (BEGINNING ON
PAGE 8) LISTS SOME OF THE FACTORS YOU SHOULD CONSIDER IN EVALUATING THE
AGREEMENT AND PLAN OF MERGER AND THE MERGER.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the NCBE common stock to be issued in the merger or
determined if this Proxy Statement/Prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
Proxy Statement/Prospectus dated August __, 1998, and first mailed to
shareholders on August __, 1998.
<PAGE>
This Proxy Statement/Prospectus incorporates important business and
financial information about NCBE that is not included in or delivered with this
document. The incorporated information is available without charge to Bancorp
shareholders upon written or oral request. Requests should be directed as
follows:
National City Bancshares, Inc.
P.O. Box 868
Evansville, Indiana 47705-0868
Attn: Stephen C. Byelick, Jr.
Ph.: 812-464-9864
To obtain timely delivery, please request the information no later than
September __, 1998.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS
ABOUT THE MERGER...............................................................................................1
SUMMARY...........................................................................................................3
RISK FACTORS......................................................................................................8
Risks Associated with Acquisitions.............................................................................8
Impact of Interest Rate Changes................................................................................8
Credit Risk and Loan Concentration.............................................................................8
Regulatory Risks...............................................................................................9
Exposure to Local Economic Conditions..........................................................................9
Risks Relating to Year 2000 Issue..............................................................................9
Competition....................................................................................................9
Status of NCBE as a Bank Holding Company.......................................................................9
FORWARD-LOOKING STATEMENTS.......................................................................................10
SPECIAL MEETING..................................................................................................10
Date, Time, Place and Purpose.................................................................................10
Record Date...................................................................................................10
Vote Required.................................................................................................10
Voting and Revocation of Proxies..............................................................................10
Solicitation of Proxies.......................................................................................11
THE MERGER.......................................................................................................11
General.......................................................................................................11
Background of the Merger......................................................................................12
Reasons for the Merger........................................................................................12
Recommendation of Bancorp's
Board of Directors.........................................................................................13
Closing and Effective Time....................................................................................13
Conversion of Bancorp Common..................................................................................14
Procedures for Exchange of Certificates.......................................................................14
Regulatory Approvals..........................................................................................15
Dissenters' Rights............................................................................................16
Representations and Warranties................................................................................17
Covenants.....................................................................................................18
Conditions to the Merger......................................................................................18
Termination and Waiver........................................................................................19
No Solicitation; Fees and Expenses............................................................................19
Certain Federal Income Tax Consequences.......................................................................20
Accounting Treatment..........................................................................................21
Resale of NCBE Common.........................................................................................21
CONCURRENT BANK MERGER...........................................................................................22
SELECTED FINANCIAL DATA..........................................................................................23
PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL
INFORMATION...................................................................................................24
COMPARATIVE STOCK PRICES
AND DIVIDENDS.................................................................................................31
INFORMATION CONCERNING NCBE......................................................................................32
Business......................................................................................................32
Recent Developments...........................................................................................32
Year 2000 Issue...............................................................................................34
Security Ownership of Certain Beneficial
Owners and Management......................................................................................35
INFORMATION CONCERNING BANCORP...................................................................................36
Business......................................................................................................36
Selected Financial Data of Bancorp............................................................................36
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................................................................................37
Comparison of Financial Condition at
March 31, 1998 and December 31, 1997.......................................................................37
Comparison of Operating Results for the
Years Ended December 31, 1997 and 1996,
and the Periods Ended March 31, 1998
and 1997...................................................................................................38
Other Data....................................................................................................44
<PAGE>
DESCRIPTION OF NCBE CAPITAL STOCK................................................................................51
Authorized Shares.............................................................................................51
NCBE Common...................................................................................................51
NCBE Preferred................................................................................................51
Certain Provisions of Articles of
Incorporation and By-Laws..................................................................................51
Certain Provisions of Indiana Law.............................................................................52
Transfer Agent................................................................................................52
COMPARISON OF SHAREHOLDER RIGHTS.................................................................................52
Classified Board of Directors.................................................................................52
Business Combinations Not Involving
an Interested Shareholder..................................................................................52
Business Combinations Involving an
Interested Shareholder.....................................................................................53
Removal of Directors..........................................................................................53
Amendments to Articles of Incorporation.......................................................................54
Voting Rights.................................................................................................54
Special Meetings of Shareholders..............................................................................54
Shareholder Action by Written Consent.........................................................................54
Dissenters' Rights............................................................................................55
Control Share Acquisitions....................................................................................55
Indemnification...............................................................................................55
Limitation of Liability of Directors..........................................................................56
Consideration of Non-Shareholder Interests....................................................................57
LEGAL MATTERS....................................................................................................58
EXPERTS..........................................................................................................58
WHERE YOU CAN FIND
MORE INFORMATION..............................................................................................58
INDEX TO BANCORP FINANCIAL
STATEMENTS...................................................................................................F-1
APPENDIX A -
Agreement and Plan of Merger dated as
of May 21, 1998 between National City
Bancshares, Inc. and 1st Bancorp Vienna,
Inc........................................................................................................A-1
APPENDIX B -
Excerpts of the Illinois Business
Corporation Act (Dissenters' Rights).......................................................................B-1
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL BANCORP SHAREHOLDERS RECEIVE IN THE
MERGER?
A: In the merger, NCBE expects to issue shares of its
common stock having a value between $2,480.00 and
$2,945.00 for each outstanding share of Bancorp
common stock. The value of the NCBE shares you
will receive will depend upon an average trading value
of NCBE common stock prior to the merger. That
value (the "Average NCBE Value") will be the
average of the means between the highest and lowest
per share trading sales prices for a share of NCBE
common stock over the 10 trading day period ending
on the business day prior to the closing of the merger.
- If the Average NCBE Value is $40.00 to $47.50, each Bancorp share will
convert into 62 shares of NCBE common stock.
- If the Average NCBE Value is more than $47.50, each Bancorp share will
convert into shares of NCBE common stock with an Average NCBE Value of
$2,945.00.
- If the Average NCBE Value is less than $40.00, each Bancorp share will
convert into shares of NCBE common stock with an Average NCBE Value of
$2,480.00.
The actual value of the shares of NCBE common stock to be issued in the
merger cannot be determined at this time, since it depends on trading prices
reported prior to the time the merger is closed. The last reported sales price
on August __, 1998 for NCBE common stock as reported by the Nasdaq Stock Market
was $______. If the merger was closed on August __, 1998, the Average NCBE Value
would have been $______, and the exchange ratio would have been _____ shares of
NCBE common stock for each share of Bancorp common stock with an aggregate
average trading price of $________.
EXAMPLE: The number of shares of NCBE common
stock you will receive will depend on the
Average NCBE Value, as follows:
<TABLE>
<CAPTION>
For an approximate
If the Average Then the value (based on the
NCBE Value exchange Average NCBE Value)
is: ratio is: of:
- -------------- --------- -------------------
<S> <C> <C>
$50.00 58.9000 $2,945.00
$47.50 62.0000 $2,945.00
$43.75 62.0000 $2,712.50
$40.00 62.0000 $2,480.00
$37.50 66.1333 $2,480.00
</TABLE>
Bancorp shareholders should note that the exact number of shares to be
issued in the merger is not likely to be known at the time of the Special
Meeting.
Q: WHY IS BANCORP PROPOSING TO MERGE WITH NCBE?
A: The Bancorp Board of Directors has unanimously
concluded that the proposed merger with NCBE is in
the best interests of Bancorp and its shareholders. In
reaching this conclusion, the Bancorp Board of
Directors considered a number of factors with a view
to maximizing shareholder value in the immediate and
long term including the significant premium offered to
shareholders, the greater liquidity of the NCBE
common stock, and the tax-free nature of the
transaction. To review the reasons in greater detail,
see page 12.
Q: WHAT ARE THE TAX CONSEQUENCES TO BANCORP
SHAREHOLDERS?
A: The merger is intended to qualify as a tax-free reorganization for federal
income tax purposes. No gain or loss will be recognized by Bancorp
shareholders upon receipt of NCBE shares. To review the tax consequences in
greater detail, see page 20.
1
<PAGE>
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy in the enclosed return envelope as soon as
possible, so that your shares may be represented at the special Bancorp
shareholders' meeting. The Bancorp Board of Directors unanimously
recommends that you vote FOR approval and adoption of the merger agreement.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, NCBE will send
you written instructions for exchanging your share
certificates.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: Neither Bancorp nor NCBE expect any changes in
their dividend policies before the merger. After the
merger, the NCBE annualized dividend rate is
expected to be $0.72 per share.
Q: WHEN DO YOU EXPECT THE MERGER TO BE
COMPLETED?
A: We are working towards completing the merger as
quickly as possible. In addition to the approval of
Bancorp shareholders, we must also obtain regulatory
approvals. We hope to complete the merger by
September 30, 1998.
2
<PAGE>
SUMMARY
This summary highlights selected information from this Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents to which we have referred you. See "Where
You Can Find More Information" on page 58. We have included page references
in parentheses to direct you to a more complete description of the topics
presented in this summary.
PARTIES TO THE MERGER
NATIONAL CITY BANCSHARES, INC.
227 MAIN STREET
EVANSVILLE, INDIANA 47708
(812) 464-9677
National City Bancshares, Inc. is an Indiana corporation that owns 14
financial institution subsidiaries. These subsidiaries provide a wide range
of banking services from 47 locations in the tri-state area of Indiana,
Kentucky and Illinois surrounding Evansville, Indiana. As of March 31, 1998,
NCBE had total consolidated assets of $1.5 billion, total loans of $1.0
billion, total deposits of $1.2 billion and total shareholders' equity of
$149.8 million.
1ST BANCORP VIENNA, INC.
THIRD AND VINE STREETS
VIENNA, ILLINOIS 62995
(618) 658-4607
1st Bancorp Vienna, Inc. is an Illinois corporation that owns The First
State Bank of Vienna (the "Bank"). As of March 31, 1998, the Bank had total
assets of $39.5 million, net loans of $20.7 million, total deposits of $34.2
million, and total shareholders' equity of $5.0 million. The Bank has one
banking office in Vienna, Illinois.
SPECIAL MEETING OF BANCORP
SHAREHOLDERS
MEETING INFORMATION (See page 10).
The Special Meeting of Bancorp shareholders will be held at the office
of The Bank located at Third and Vine Streets, Vienna, Illinois on September
___, 1998, at 11:00 a.m., local time, to vote to approve and adopt the merger
agreement. The affirmative vote of the holders of at least two-thirds of
outstanding shares of Bancorp common stock is required to approve and adopt
the merger agreement. On the record date, there were 4,264 shares of Bancorp
common stock outstanding.
If you owned shares of Bancorp as of the close of business on July ___,
1998, the record date, you are entitled to vote. You will have one vote for
each share you owned on the record date.
SECURITY OWNERSHIP OF MANAGEMENT
As of the close of business on the record date, the directors and
executive officers of Bancorp and their affiliates beneficially owned 1,028
shares of Bancorp common stock, or 24.1% of all outstanding shares entitled
to vote on the merger. As of the close of business on the record date, the
directors and executive officers of NCBE and their affiliates did not
beneficially own any shares of Bancorp common stock.
SUMMARY OF THE MERGER
The merger agreement is attached as Appendix A to this Proxy
Statement/Prospectus. We encourage you to read the merger agreement, as it
is the legal document that governs the merger.
RECOMMENDATION OF BANCORP BOARD OF DIRECTORS (See page 13).
The Bancorp Board of Directors believes that the merger is in the best
interests of Bancorp shareholders and unanimously recommends that Bancorp
shareholders vote FOR approval and adoption of the merger agreement.
CONDITIONS TO THE MERGER (See page 18).
Bancorp and NCBE will not complete the merger unless:
- Bancorp shareholders and regulatory authorities
approve it;
- No legal restrictions prohibit it; and
3
<PAGE>
- There have been no developments that would prevent the merger from
qualifying as a tax-free transaction.
NCBE will not have to complete the merger unless:
- Bancorp's representations in the merger
agreement remain accurate;
- Bancorp's and the Bank's financial condition do
not change materially; and
- There have been developments outside the
control of NCBE that would prevent the merger
from being accounted for as a "pooling of
interests."
Bancorp will not have to complete the merger unless:
- NCBE's representations in the merger agreement
remain accurate; and
- NCBE's financial condition does not change
materially.
TERMINATION OF THE MERGER AGREEMENT (See page 19).
The merger agreement may be terminated and the merger abandoned before
or after Bancorp shareholders approve the merger agreement:
- by mutual consent of Bancorp and NCBE;
- by Bancorp if Bancorp or its Board of Directors
accepts or approves a "competing transaction";
- by Bancorp, if any of the conditions to its
obligation to consummate the merger have not
been satisfied by December 31, 1998; or
- by NCBE, if any of the conditions to its obligation to consummate the
merger have not been satisfied by December 31, 1998.
REIMBURSEMENT OF EXPENSES (See page 19).
In the merger agreement, Bancorp agreed not to seek any competing
transaction for an acquisition of Bancorp or the Bank except where required by
fiduciary duties of Bancorp's Board of Directors.
A competing transaction includes any of the following:
- - an offer by another person to acquire 25% or more of
Bancorp's or the Bank's common stock;
- - a proposal for a merger, consolidation, share
exchange, business combination or similar transaction
involving Bancorp or the Bank; or
- - a proposal for a sale, lease, exchange, transfer, or other disposition of
25% or more of the assets of Bancorp.
If the merger agreement is terminated under certain circumstances in
connection with a competing transaction, Bancorp will reimburse NCBE's
expenses incurred in the merger up to $150,000.
REGULATORY APPROVALS (See page 15).
The transaction is subject to approval by banking regulatory authorities.
Regulatory approvals are expected to be received prior to the Special Meeting.
FEDERAL INCOME TAX CONSEQUENCES (See page 20).
The merger is intended to qualify as a tax-free reorganization for federal
income tax purposes. No gain or loss will be recognized by Bancorp shareholders
upon receipt of NCBE shares.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES
OF THE MERGER TO YOU.
ACCOUNTING TREATMENT (See page 21).
NCBE expects to account for the merger as a "pooling of interests." This
means that NCBE will carry forward Bancorp's assets, liabilities and income
in NCBE's consolidated financial statements and that no goodwill will be
recognized in the transaction.
4
<PAGE>
DISSENTERS' RIGHTS (See page 16).
Under Illinois law, Bancorp shareholders can demand the fair value of their
Bancorp shares if they deliver a written demand for payment and do not vote in
favor of the merger agreement. Appendix B contains the relevant portions of
Illinois law.
CONCURRENT BANK MERGER (See page 22).
If the merger with NCBE is closed, the Bank will concurrently merge into
Illinois One Bank, National Association, a subsidiary of NCBE, that has its
principal office in Shawneetown, Illinois.
RISK FACTORS RELATING TO NCBE COMMON
(See page 8).
An investment in NCBE common stock involves risks, including those
described in this document.
STOCK PRICE DATA
(See page 31).
The following table sets forth as of May 21, 1998 (the last trading day
before the public announcement of the proposed acquisition), the last sale
price per share for the NCBE common stock, and the pro forma equivalent for a
share of Bancorp common stock. There is no public trading market for Bancorp
common stock.
<TABLE>
<CAPTION>
Pro Forma
Bancorp
NCBE Bancorp Common
Common Common Stock
Stock Stock Equivalent
------- ------- ----------
<S> <C> <C> <C>
Price Per Share................... $37.625 N/A $2,480.00*
(as of May 21, 1998)
</TABLE>
- ------------
* Assumes that each share of Bancorp common stock is converted into 65.914
shares of NCBE common stock.
COMPARISON OF SHAREHOLDER RIGHTS
(See page 52).
There are several differences in the laws and corporate documents under
which NCBE and Bancorp operate. As a result, the rights of Bancorp
shareholders are different from NCBE shareholders in a number of respects,
including classification of the board of directors into three classes,
removal of directors, shareholder votes required to approve certain business
combinations, and the authorization of preferred stock (the terms of which
may be set by the board of directors).
5
<PAGE>
SUMMARY COMPARATIVE HISTORICAL AND COMBINED PER SHARE DATA
The following summary presents selected comparative per share data
on (i) a historical basis for NCBE and Bancorp, (ii) a pro forma combined
basis per share of NCBE common stock, giving effect to the Merger and the
Other Pooling Acquisitions (as defined under "INFORMATION CONCERNING NCBE --
Recent Developments"), (iii) an equivalent pro forma basis per share of
Bancorp Common, giving effect to the Merger only, and (iv) an equivalent pro
forma basis per share, giving effect to the Merger (A) as of March 31, 1998
for all Other Pooling Acquisitions and (B) for all prior periods, all Other
Pooling Acquisitions except for the acquisitions of Downstate Banking Co. and
Commonwealth Commercial Corp., which NCBE intends to account for as
immaterial poolings. As further described in "INFORMATION CONCERNING NCBE --
Recent Developments," NCBE consummated its acquisitions of the Mayfield
Branch and Bank of Illinois in Mt. Vernon (the "Purchase Transactions") in
the first quarter. The Purchase Transactions are not individually or in the
aggregate considered material to NCBE from a financial statement presentation
standpoint, and the pro forma data does not include the Purchase Transactions
(except to the extent they are reflected in NCBE's first quarter
information). The data presented is not necessarily indicative of the results
of the future operations of the combined organization or the actual results
that would have occurred if the Merger or Other Pooling Acquisitions had been
consummated prior to the periods indicated. The data presented should be read
in conjunction with the more detailed information and financial statements
included herein or incorporated by reference in this Proxy
Statement/Prospectus and with the unaudited pro forma financial statements
included elsewhere in this Proxy Statement/Prospectus. See "WHERE YOU CAN
FIND MORE INFORMATION," "SELECTED FINANCIAL DATA," "INFORMATION CONCERNING
BANCORP" and "INDEX TO BANCORP FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
Quarter Ended
March 31, Year Ended December 31,
-------------------------- -----------------------------------------
1998 1997 1997 1996 1995
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Income per Common Share:
NCBE:
Basic 0.48 0.44 1.72 1.52 1.30
Diluted 0.47 0.43 1.69 1.52 1.30
Bancorp:
Basic 29.78 31.52 122.48 110.85 92.20
Diluted 29.78 31.52 122.48 110.85 92.20
NCBE pro forma (all Other Pooling
Acquisitions and Bancorp):
Basic 0.48 0.43 1.72 1.53 1.34
Diluted 0.47 0.43 1.70 1.53 1.34
Bancorp equivalent pro forma
(NCBE only) (1):
Basic 31.74 29.10 113.75 100.52 85.97
Diluted 31.08 28.44 111.76 100.52 85.97
Bancorp equivalent pro forma
(all Other Pooling Acquisitions
and NCBE) (1):
Basic 31.74 28.44 113.75 101.18 88.62
Diluted 31.08 28.44 112.43 101.18 88.62
Dividends per Common Share:
NCBE 0.18 0.15 0.64 0.55 0.40
Bancorp 0.00 0.00 42.00 35.00 26.00
Bancorp equivalent pro forma (1) 11.90 9.92 42.33 36.37 26.45
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
March 30, 1998 December 31, 1997
------------------- -------------------
<S> <C> <C>
Book Value per Common Share:
NCBE 13.93 13.69
Bancorp 1,163.70 1,133.44
NCBE pro forma (all Other Pooling 3
Acquisitions and HHFC) 13.69 13.4
Bancorp equivalent pro forma 8
(NCBE only) (1) 921.23 905.36
Bancorp equivalent pro forma (all 905.36 888.17
Other Pooling Acquisitions and
NCBE) (1)
</TABLE>
(1) Equivalent pro forma per share data represents the pro forma per share data
for NCBE multiplied by 66.133, the assumed number of shares of NCBE common
stock to be issued in the merger for each share of Bancorp common stock.
7
<PAGE>
RISK FACTORS
IN CONSIDERING WHETHER TO APPROVE THE MERGER AGREEMENT, BANCORP
SHAREHOLDERS SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER INFORMATION
CONTAINED AND INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS,
THE FOLLOWING RISK FACTORS. CERTAIN CAPITALIZED TERMS USED IN THIS SECTION
ARE DEFINED IN OTHER SECTIONS OF THIS PROXY STATEMENT/PROSPECTUS.
RISKS ASSOCIATED WITH ACQUISITIONS
NCBE has grown significantly as a result of acquisitions. Since January
1, 1995, NCBE has completed numerous acquisitions of financial institutions
or their branches. As the banking industry continues to consolidate, NCBE
expects to pursue other acquisitions. NCBE is currently a party to definitive
agreements relating to seven separate pending acquisitions. See "Information
Concerning NCBE -- Recent Developments." NCBE's pending acquisitions are
subject to various conditions, including shareholder and regulatory approval.
No assurance can be given that the pending acquisitions will be consummated.
The future profitability of NCBE will depend upon management's ability
to improve the profitability of acquired institutions and to realize
operational synergies. Acquisitions involve numerous risks, including
difficulties in assimilating operations of the acquired company, diversion of
management's attention from other business concerns, risks of entering new
geographic markets, loss of key employees of the acquired company and
assumption of undisclosed liabilities. Future acquisitions may result in
dilutive issuances of equity securities, the incurrence of additional debt
and the amortization of expenses related to goodwill and intangible assets,
any of which could have a material adverse effect on NCBE. In addition, as
consolidation of the banking industry continues, the competition for suitable
acquisition candidates will increase. NCBE competes with other banking
companies for acquisition opportunities and many of these competitors have
greater financial resources and acquisition experience than NCBE.
IMPACT OF INTEREST RATE CHANGES
NCBE's derives its results of operations from its subsidiaries'
operations and depends principally on net interest income, which is the
difference between interest earned on loans and investments and interest
expense paid on deposits and other borrowings.
Like other financial institutions, NCBE's interest income and interest
expense are affected by general, regional and local economic conditions and
by the policies of regulatory authorities, including the monetary policies of
the Federal Reserve Board. While management has taken measures intended to
manage the risks of operating in a changing interest rate environment, there
can be no assurance that such measures will effectively avoid undue interest
rate risk.
CREDIT RISK AND LOAN CONCENTRATION
As a lender, NCBE is exposed to the risk that its customers will be
unable to repay their loans according to their terms and that the collateral
securing the payment of their such loans (if any) may not be sufficient to
assure repayment. Credit losses could have a material adverse effect on
NCBE's operating results.
As of March 31, 1998, NCBE's total loan portfolio was approximately $1.0
billion or 69.6% of its total assets. The three components of the loan
portfolio are real estate loans, $566 million or 54.4% of total loans,
commercial and industrial loans, $316 million or 30.4% of total loans, and
consumer loans, $159 million or 15.2% of total loans. NCBE's credit risk with
respect to its consumer installment loan portfolio and commercial loan
portfolio relates principally to the general creditworthiness of individuals
and businesses within its local market area. NCBE's credit risk with respect
to its real estate mortgage and construction loan portfolio relates
principally to the general creditworthiness of individuals and the value of
real estate serving as security for the repayment of the loans.
8
<PAGE>
REGULATORY RISKS
The banking industry is heavily regulated. These regulations are
primarily intended to protect depositors and the FDIC, not NCBE shareholders
or other creditors. Regulations affecting financial institutions are
undergoing continuous change, and the ultimate effect of such changes cannot
be predicted. Regulations and laws affecting NCBE and its subsidiaries may be
modified at any time, and new legislation affecting financial institutions
may be proposed and enacted. There is no assurance that such modifications or
new laws will not materially and adversely affect the business, condition or
operations of NCBE and its subsidiaries.
EXPOSURE TO LOCAL ECONOMIC CONDITIONS
The success of NCBE and its subsidiaries depends to a certain extent
upon the general economic conditions of the local geographic markets they
serve. Unlike larger banks which are more geographically diversified, NCBE's
subsidiaries provide financial and banking services to customers in the
tri-state area of Indiana, Kentucky and Illinois surrounding Evansville,
Indiana. No assurance can be given concerning the economic conditions that
will exist in such markets.
RISKS RELATING TO YEAR 2000 ISSUE
Many existing computer programs were designed to use only two digits to
identify a year in the date field without considering the impact of the
upcoming change in the century. If not corrected, many computer applications
could fail or create erroneous results by or at the year 2000. NCBE is
committed to a plan for achieving compliance with the risks created by the
"Year 2000" problem. Management believes that the expenditures required to
bring NCBE systems into compliance will not have a materially adverse effect
on NCBE's financial condition or future performance. However, the Year 2000
problem is pervasive and complex and can potentially effect any computer
process. In addition, the efforts of NCBE and its subsidiaries with respect
to Year 2000 compliance are subject to examination by banking regulatory
agencies. An adverse rating could result in the delay or deferral of
regulatory applications seeking approval of acquisitions or such approvals
may only be given subject to additional conditions. See "INFORMATION
CONCERNING NCBE -- Year 2000 Issue."
COMPETITION
NCBE's subsidiaries face substantial competition for deposit, credit and
trust relationships, as well as other sources of funding in the communities
they serve. Competing providers include other national and state banks,
thrifts and trust companies, insurance companies, mortgage banking
operations, credit unions, finance companies, money market funds and other
financial and nonfinancial companies which may offer products functionally
equivalent to those offered by NCBE's subsidiaries. Competing providers may
have greater financial resources than NCBE and offer services within and
outside the market areas served by NCBE's subsidiaries.
STATUS OF NCBE AS A BANK HOLDING COMPANY
NCBE is a legal entity separate and distinct from its subsidiaries,
although the principal source of NCBE's cash revenues is dividends from its
subsidiaries. The right of NCBE to participate in the assets of any
subsidiary upon the subsidiary's liquidation, reorganization or otherwise
will be subject to the claims of the subsidiary's creditors, which will take
priority except to the extent that NCBE may itself be a creditor with a
recognized claim. NCBE's principal source of funds is dividends received from
its banking subsidiaries. Regulations limit the amount of dividends without
prior approval. During 1998, the subsidiaries may pay approximately $3.3
million plus any 1998 net profits to NCBE without prior regulatory approval.
9
<PAGE>
FORWARD-LOOKING STATEMENTS
This document, and the documents that have been incorporated herein by
reference (see, "Where You Can Find More Information" on page _), include
forward-looking statements about NCBE that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
future results of operations of NCBE after the Merger, set forth under
"Questions and Answers About The Merger," "Summary," "Risk Factors" and those
preceded by, followed by or that otherwise include the words "believes,"
"expects," "anticipates," "intends," "estimates" or similar expressions. For
those statements, NCBE claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
NCBE and Bancorp participate in the financial services industry, which
is characterized by competition and consolidation. You should understand that
the factors discussed under "Risk Factors" on page _, in addition to those
discussed elsewhere in this document and the documents which are incorporated
by reference, could affect the future financial results of NCBE and could
cause actual results to differ materially from those expressed in
forward-looking statements contained or incorporated by reference in this
document.
SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE
This Proxy Statement/Prospectus is being furnished to holders of
Bancorp's common stock, $100.00 par value per share ("Bancorp Common"), in
connection with the solicitation of proxies by the Board of Directors of
Bancorp for use at the Special Meeting to be held at the office of the Bank
located at Third and Vine Streets, Vienna, Illinois, on September __, 1998,
at 11:00 a.m., local time, and at any adjournment or postponement thereof. At
the Special Meeting, the shareholders of Bancorp will be asked to consider
and vote upon the approval and adoption of the Agreement and Plan of Merger
dated May 21, 1998 (the "Merger Agreement") with National City Bancshares,
Inc. ("NCBE") relating to the merger (the "Merger") of Bancorp with and into
NCBE.
RECORD DATE
The Board of Directors of Bancorp has fixed July __, 1998, as the record
date for determining the shareholders of Bancorp entitled to receive notice
of and to vote at the Special Meeting (the "Record Date"). As of the close of
business on the Record Date, there were 4,264 shares of Bancorp Common issued
and outstanding. Only holders of Bancorp Common of record at the close of
business on the Record Date are entitled to notice of and to vote at the
Special Meeting. No shares of Bancorp Common can be voted at the Special
Meeting, unless the record holder is present in person or represented by
proxy at the Special Meeting.
VOTE REQUIRED
The presence, in person or by proxy, of holders of a majority of the
issued and outstanding shares of Bancorp Common entitled to vote on the
Record Date, or 2,133 shares, is necessary to constitute a quorum at the
Special Meeting. The affirmative vote of the holders of at least two-thirds
of the issued and outstanding shares of Bancorp Common, or 2,840 shares, is
required to approve the Merger Agreement and the transactions contemplated
thereby. Each holder of Bancorp Common is entitled to one vote per share of
Bancorp Common held at the close of business on the Record Date.
VOTING AND REVOCATION OF PROXIES
Proxies for use at the Special Meeting accompany this Proxy
Statement/Prospectus. A shareholder may use his or her proxy if he or she is
unable to attend the Special Meeting in person or wishes to have his or her
shares voted by proxy even if he or she does attend the Special Meeting.
Shares of Bancorp Common represented by a proxy properly signed and returned
to Bancorp at, or prior to, the Special Meeting, unless subsequently revoked,
will be voted at the
10
<PAGE>
Special Meeting in accordance with instructions thereon. If a proxy is
properly signed and returned without voting instructions, any shares of
Bancorp Common represented by such proxy will be voted FOR approval of the
Merger Agreement and the transactions contemplated thereby, including the
Merger. Any proxy given pursuant to this solicitation may be revoked at any
time before the vote on the matters to be considered at the Special Meeting
by filing with the Secretary of Bancorp a written revocation or a duly
executed proxy bearing a later date. All written notices of revocation and
other communications with respect to revocation of Bancorp proxies should be
addressed to 1st Bancorp Vienna, Inc., P.O. Box 35, Vienna, Illinois 62995,
Attention: Corporate Secretary. A holder of Bancorp Common who previously
signed and returned a proxy and who elects to attend the Special Meeting and
vote in person may withdraw his or her proxy at any time before it is
exercised by giving notice of such revocation to the Secretary of Bancorp at
the Special Meeting and voting in person by ballot at the Special Meeting;
however, attendance at the Special Meeting will not in and of itself
constitute a revocation of the proxy.
Bancorp intends to count holders of shares of Bancorp Common present in
person at the Special Meeting but not voting, and holders of shares of
Bancorp Common for which Bancorp has received proxies but with respect to
which holders of 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. Brokers may give a proxy to vote the shares they
hold in street name for customers who are the beneficial owners of such
shares only if they receive specific instructions from such customers. Since
the affirmative vote of the holders of two-thirds of the issued and
outstanding shares of Bancorp Common entitled to vote at the close of
business on the Record Date is required to approve and adopt the Merger
Agreement, abstentions and shares not voted or for which customers do not
give specific voting instructions will have the effect of a vote against the
Merger Agreement.
If sufficient proxies are not obtained to approve and adopt the Merger
Agreement, the persons named as proxies in the enclosed form of proxy intend
to propose and vote for one or more adjournments or postponements of the
Special Meeting to permit further solicitation of proxies voting in favor of
the Merger Agreement. No proxy that is voted against the proposal to approve
and adopt the Merger Agreement will be voted in favor of any such adjournment
or postponement.
SOLICITATION OF PROXIES
In addition to solicitation of proxies from shareholders of Bancorp
Common by use of the mail, proxies also may be solicited personally or by
telephone by directors, officers and employees of Bancorp, who will not be
specifically compensated for such services.
NCBE has agreed to bear the entire cost of printing this Proxy
Statement/Prospectus and all filing fees paid to the Securities and Exchange
Commission (the "SEC") and other regulatory filing fees incurred in
connection with the Merger.
THE MERGER
GENERAL
This section of the Proxy Statement/Prospectus describes certain aspects
of the proposed Merger, including the principal provisions of the Merger
Agreement. The following information is qualified in its entirety by
reference to the other information contained elsewhere in this Proxy
Statement/Prospectus, including the Appendices hereto and the documents
incorporated herein by reference. A copy of the Merger Agreement (excluding
the Disclosure Schedule thereto) is attached hereto as Appendix A and is
incorporated by reference in this Proxy Statement/Prospectus. Please refer to
the Merger Agreement for a complete description of the terms of the Merger.
Shareholders of Bancorp are urged to read the Merger Agreement in its
entirety.
11
<PAGE>
BACKGROUND OF THE MERGER
The Board of Directors of Bancorp began a process several years ago to
increase the retained earnings (undivided profit) account in order to either
acquire other institutions or establish branches in different communities.
The Board of Directors felt that for Bancorp to remain a viable institution,
it should not remain as one facility with operations restricted to its
immediate trade area. Several contacts were made pertaining to possible
acquisitions, and a marketing firm was employed to research possible
branching into other communities. Neither of these alternatives proved to be
viable, because of the high prices that were being paid in acquisitions by
other institutions, and because prime locations were not available for
branches.
As the Board of Directors was considering possible acquisitions and new
branch locations, several approaches were made by institutions interested in
discussing a possible acquisition of Bancorp. In early 1997, the Bancorp
Board of Directors decided to begin looking seriously at possible
acquisitions of Bancorp by other institutions. During 1997 and 1998, Bancorp
discussed possible transactions proposed by three different financial
institutions. These proposals were declined by the Bancorp Board of Directors
for various reasons, including inadequacy of price and regulatory and market
considerations associated with the proposed transactions.
In early March 1998, an individual representing NCBE contacted Bancorp
by telephone to discuss a possible acquisition. As a follow up to that
contact, a meeting was held on March 17, 1998 to discuss the possibility of a
merger between NCBE and Bancorp. Discussions that followed between NCBE and
Bancorp led to a definitive acquisition proposal from NCBE, including a
proposed definitive agreement.
The Bancorp Board of Directors evaluated the NCBE proposal and other
alternatives during March and April 1998. In its evaluation of the NCBE
proposal, the Bancorp Board of Directors considered a number of different
factors, including discounted cash flows of Bancorp, prices paid in recent
acquisitions involving similar institutions measured as a multiple of
earnings and book value of the acquired institution, prices paid by NCBE in
prior transactions, the expected financial performance of NCBE after the
acquisition, the effect of the acquisition on NCBE earnings per share, the
net interest margin of Bancorp, market demographics, economies of scale, and
capital in excess of regulatory requirements. After consideration of these
and other factors, the Bancorp Board of Directors recommended further
negotiation of the NCBE proposal, including a proposed adjustment to the
number of NCBE Common shares to be exchanged for each Bancorp Common share in
the Merger. The proposed definitive agreement, as modified through further
negotiations between Bancorp and NCBE, was unanimously approved by the
Bancorp Board of Directors.
REASONS FOR THE MERGER
The Bancorp Board of Directors believes the Merger is in the best
interests of Bancorp's shareholders and unanimously recommends that the
shareholders vote "FOR" approval of the Merger Agreement. In negotiating the
terms of the Merger and the Merger Agreement, and in formulating its
recommendation that Bancorp shareholders approve the Merger Agreement, the
Bancorp Board of Directors reviewed a number of factors with a view to
maximizing shareholder value in the intermediate and long term. Among the
factors considered by the Bancorp Board of Directors were, without
limitation, the following:
(1) the illiquidity of Bancorp's shares compared to the liquidity of the
NCBE Common offered in the Merger;
(2) the significant premium to be received by the holders of Bancorp
shares relative to the historical book value of the Bancorp Common;
(3) the scarcity of opportunities and intense price competition associated
with potential acquisitions by Bancorp;
(4) the ability of Bancorp shareholders to defer any tax liability
associated with the increase in the value of their stock as a result
of the Merger;
12
<PAGE>
(5) the historical earnings performance of NCBE and the performance of
NCBE Common;
(6) NCBE's dividend payment history;
(7) the compatibility of the respective business and community banking
philosophies of NCBE and Bancorp relative to other potential
acquirers;
(8) the improved benefits offered to employees of Bancorp as a result of
the Merger;
(9) the return to Bancorp shareholders resulting from the Merger as
compared to the return to Bancorp shareholders resulting from other
strategic alternatives, including Bancorp remaining independent; and
(10) increasing costs of employment benefits and technology to Bancorp.
The foregoing discussion of the information and factors considered by
the Bancorp Board of Directors is not intended to be exclusive, but is
believed to include all material factors and information considered. In
reaching its decision to approve and recommend the Merger, the Bancorp Board
of Directors did not assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to the
various factors.
After deliberating with respect to the Merger and other transactions
contemplated by the Merger Agreement considering, among other things, the
matters discussed above, the Bancorp Board of Directors unanimously (with all
directors present) approved the Merger and adopted the Merger Agreement and
the transactions contemplated thereby, as being in the best interests of
Bancorp and its shareholders.
RECOMMENDATION OF BANCORP'S BOARD OF DIRECTORS
For the reasons described above, the Board of Directors of Bancorp
believes that the affiliation through the Merger of Bancorp with NCBE is in
the best interest of Bancorp and its shareholders and in the best interest of
the customers and communities that the Bank serves.
THE BANCORP BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF
BANCORP COMMON VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
CLOSING AND EFFECTIVE TIME
The Merger Agreement provides that, unless otherwise agreed and assuming
all conditions have been satisfied or waived, the closing of the Merger (the
"Closing") will be held on the date fixed by agreement of NCBE and Bancorp as
soon as practicable following the date on which all required approvals are
received and any required waiting periods have expired.
If the Merger Agreement is approved by the requisite vote of Bancorp
shareholders, all other conditions of the Merger Agreement are satisfied or
waived and the Closing is held, the Merger will become effective at the date
and time (the "Effective Time") specified in the Articles of Merger that are
required by the Merger Agreement to be filed with the Offices of the
Secretaries of State of the States of Illinois and Indiana. It is presently
contemplated that the Effective Time will occur during the third or fourth
quarter of 1998. The Merger Agreement may be terminated by either party if,
among other things, the Closing does not occur on or before December 31,
1998. See "--Termination and Waiver."
13
<PAGE>
CONVERSION OF BANCORP COMMON
As a result of the Merger, each share of Bancorp Common issued and
outstanding immediately before the Effective Time, other than shares whose
holders have properly exercised their dissenters' rights under the Illinois
Business Corporation Act (the "Illinois Law"), will be converted into the
right to receive NCBE's common shares, without par value ("NCBE Common"), and
cash in lieu of fractional shares as specified in the Merger Agreement. The
Merger Agreement provides that each eligible share of Bancorp Common will be
converted into the right to receive shares of NCBE Common with an Average
NCBE Value of not less than $2,480.00 and not more than $2,945.00. The actual
number of shares of NCBE Common to be issued in the Merger will depend upon
the Average NCBE Value, which is defined as the average of the means between
the highest and lowest per share trading prices for NCBE Common as reported
by the Nasdaq National Market for the ten (10) trading days on which NCBE
Common is traded ended on the business day prior to the Closing. A trading
day means a day on which at least 100 shares of NCBE Common are traded on the
Nasdaq National Market.
- If the Average NCBE Value is $40.00 to $47.50, each share of Bancorp
Common will convert into 62 shares of NCBE Common.
- If the Average NCBE Value is more than $47.50, each share of Bancorp
Common will convert into shares of NCBE Common with an Average NCBE
Value of $2,945.00.
- If the Average NCBE Value is less than $40.00, each share of Bancorp
Common will convert into shares of NCBE Common with an Average NCBE
Value of $2,480.00.
EXAMPLE: The number of shares of NCBE Common depends on the Average NCBE
Value, as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
If the Average Then the For an approximate value
NCBE Value exchange (based on the Average
is: ratio is: NCBE Value) of:
- -------------- --------- ------------------------
$50.00 58.9000 $2,945.00
$47.50 62.0000 $2,945.00
$43.75 62.0000 $2,712.50
$40.00 62.0000 $2,480.00
$37.50 66.1333 $2,480.00
</TABLE>
The actual value of NCBE Common to be issued in the Merger cannot be
determined at this time since it depends on trading prices reported before the
Merger is closed. The last reported sales price on August __, 1998 for NCBE
Common as reported by the Nasdaq Stock Market was $______. If the Merger was
closed on August __, 1998, the Average NCBE Value would have been $______, and
the exchange ratio would have been _____ shares of NCBE Common for each share of
Bancorp Common or an aggregate average trading price of $________.
No fractional shares of NCBE Common will be issued in the Merger. In lieu
of fractional shares, holders of shares of Bancorp Common who would otherwise be
entitled to a fractional share of NCBE Common (after taking into account all
shares of Bancorp Common held by such holder) will be paid an amount in cash
equal to the product of such fractional interest and the Average NCBE Value. The
shares of NCBE Common to be issued in the Merger and cash paid in lieu of
fractional interests is referred to as the "Merger Consideration."
PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of Bancorp Common into the right to receive the Merger
Consideration will occur by operation of law at the Effective Time. After the
Effective Time, certificates that represented shares of Bancorp Common before
the Effective Time will be deemed, for all corporate purposes other than the
payment of dividends and other
14
<PAGE>
distributions on such shares, to evidence ownership of and entitlement to
receive shares of NCBE Common. Within five (5) business days after the Effective
Time, an exchange agent appointed by NCBE (the "Exchange Agent"), will send a
transmittal letter and instructions to each record holder of certificates for
Bancorp Common whose shares were converted into the right to receive the Merger
Consideration, advising such holder of the number of shares of NCBE Common such
holder is entitled to receive pursuant to the Merger Agreement, the amount of
cash such holder is due in lieu of a fractional share of NCBE Common, and the
procedures for surrendering Bancorp stock certificates in exchange for a
certificate for the number of whole shares of NCBE Common, and a check for the
cash amount (if any) such holder is entitled to receive in lieu of a fractional
share. The letter of transmittal will also specify that delivery will be
effected, and risk of loss and title to the certificates for Bancorp Common will
pass, only upon proper delivery of the certificates for Bancorp Common to the
Exchange Agent. The letter of transmittal will be in such form and have such
other provisions as the Merger Agreement contains and as NCBE may reasonably
specify. After the receipt by the Exchange Agent of a holder's certificates for
Bancorp Common, together with a duly executed letter of transmittal and any
other required documents, the Exchange Agent will deliver to such holder the
Merger Consideration such holder is entitled to receive under the Merger
Agreement. SHAREHOLDERS OF BANCORP ARE REQUESTED NOT TO SURRENDER THEIR
CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL. Unless
and until the certificates for Bancorp Common are surrendered, together with a
duly executed letter of transmittal and any other required documents, dividends
or other distributions on the shares of NCBE Common issuable with respect to
such Bancorp Common, and cash payments for fractional shares which would
otherwise be payable, will not be delivered to the holders of such certificates.
In such a case, upon surrender of the certificates for Bancorp Common, together
with a letter of transmittal duly executed and any other required documents,
there will be delivered cash payment for fractional shares and any dividends or
other distributions on such shares of NCBE Common with a record date following
the Effective Time that became payable between the Effective Time and the time
of such surrender. No interest on any such cash payment or dividends will accrue
or be paid.
If a certificate for Bancorp Common has been lost, the Exchange Agent will
issue the Merger Consideration upon receipt of an affidavit as to such loss, and
an indemnity agreement, if required by NCBE.
REGULATORY APPROVALS
NCBE agreed, in the Merger Agreement, to file all regulatory applications
to obtain the requisite regulatory approvals for the Merger. The Merger cannot
proceed in the absence of such regulatory approvals.
Although the Merger is subject to approval by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), on July 22, 1998, the Federal
Reserve Board waived such requirement in view of the need to obtain approval of
the concurrent merger of the Bank into NCBE's subsidiary, Illinois One Bank,
National Association ("IOB") from the Office of the Comptroller of the Currency
("OCC") under the Bank Merger Act, as amended (the "Merger Act").
The BHC Act provides that the Federal Reserve Board may not approve any
transaction (i) that would result in a monopoly, or that would be in furtherance
of any combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States, or (ii) the effect of
which in any section of the country may be substantially to lessen competition,
or to tend to create a monopoly, or that in any other manner would be in
restraint of trade, unless the Federal Reserve Board finds that the
anticompetitive effects of the proposed transaction are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the communities to be served. In conducting its review
of any application for approval, the Federal Reserve Board is required to
consider the financial and managerial resources and future prospects of the
company or companies and the banks concerned, and the convenience and needs of
the communities to be served. Under the BHC Act as interpreted by the Federal
Reserve Board and the courts, the Federal Reserve Board may deny any application
if it determines that the financial or managerial resources of the acquiring
bank holding company are inadequate.
15
<PAGE>
The merger of the Bank into IOB (the "Bank Merger") is subject to the
approval of the OCC under the Merger Act. The OCC will evaluate the merger
application under standards substantially the same as these applicable under the
BHC Act (as described above).
Separate approval from the Office of Banks and Real Estate of the State of
Illinois will not be required; however, the Office of Banks and Real Estate will
receive the OCC application and have an opportunity to provide comments to the
OCC concerning it.
The Bank Merger may not be consummated until 30 days following OCC
approval, during which time the Department of Justice ("DOJ") may challenge the
Bank Merger on antitrust grounds and seek the divestiture of certain assets and
liabilities. With the approval of the OCC and the DOJ, the waiting period may be
reduced to no less than fifteen days. The commencement of an antitrust action by
the DOJ would stay the effectiveness of OCC approval of the Bank Merger unless a
court specifically orders otherwise. In reviewing the Bank Merger, the DOJ could
analyze the effect of the Bank Merger on competition differently than the OCC
and, thus, it is possible that the DOJ could reach a different conclusion than
the OCC regarding the competitive effects of the Bank Merger.
DISSENTERS' RIGHTS
The rights of Bancorp shareholders who choose to dissent from the Merger
are governed by the provisions of the Illinois Law. An excerpt of the Illinois
Law (Sections 11.65 and 11.70) governing dissenters' rights is attached hereto
as Appendix B.
Pursuant to Section 11.70 of the Illinois Law, a shareholder may assert
dissenters' rights only if the shareholder delivers to Bancorp prior to the vote
taken with respect to the Merger at the Special Meeting a written demand for
payment for his or her shares of Bancorp Common if the Merger is consummated and
the shareholder does not vote in favor of the Merger.
Within 10 days after the Effective Time, or 30 days after the shareholder
delivers to Bancorp the written demand for payment, whichever is later, NCBE
will send each shareholder who has delivered a written demand for payment a
statement setting forth the opinion of NCBE as to the estimated value of the
shares of Bancorp Common, Bancorp's balance sheet as of the most recently
completed fiscal year ending not earlier than sixteen months prior to delivery
of the statement, together with the statement of income for that year and the
latest available interim financial statements, and a commitment to pay the
estimated value for the shares of Bancorp Common of the dissenting shareholder
upon transmittal to NCBE of the certificates, or other evidence of ownership,
with respect to such shares of Bancorp Common.
If the dissenting shareholder does not agree with the opinion of NCBE as to
the estimated value of the shares, the shareholder, within 30 days after the
delivery of the statement of value, must notify NCBE in writing of his or her
estimate of value and demand payment for the difference between the
shareholder's estimate of value and the amount of the payment by NCBE. If,
within 60 days from delivery to NCBE of the shareholder notification of estimate
of value of the shares, NCBE and the dissenting shareholder have not agreed in
writing upon the value of the shares of Bancorp Common, NCBE must either pay the
difference in value demanded or file a petition in the circuit court of Johnson
County, Illinois requesting the court to determine the fair value of the shares.
NCBE must make all dissenters, whether or not residents of Illinois, whose
demands remain unsettled parties to such proceeding and all parties will be
served with a copy of the petition. Failure of NCBE to commence an action will
not limit or affect the right of dissenting shareholders to otherwise commence
an action as permitted by law. In an appraisal proceeding, the court may appoint
one or more persons as appraisers to receive evidence and recommend a decision
on the question of fair value.
Each dissenter made a party to an appraisal proceeding is entitled to
judgment for the amount, if any, by which the court finds that the fair value of
the shares exceeds the amount paid by NCBE. The judgment will include an
allowance for interest at such rate as the court may find to be fair and
equitable from the Effective Time to the date of payment.
16
<PAGE>
The court, in an appraisal proceeding, will determine all costs of the
proceeding, including the reasonable compensation and expenses of the
appraisers, if any, but will exclude the fees and expenses of counsel and
experts for any party. If the fair value of the shares as determined by the
court materially exceeds the amount offered by NCBE, or if no offer was made,
then all or any part of such expenses may be assessed against NCBE. If the
amount by which any dissenter estimated the value of the shares materially
exceeds the value as determined by the court, then all or any part of the costs
may be assessed against the dissenter.
If the holders of more than approximately 9% of the outstanding shares of
Bancorp Common properly exercise their dissenters' rights, the Merger will not
qualify as a pooling of interests for accounting and financial reporting
purposes, which qualification is a condition to the obligation of NCBE to
proceed with the Merger. See "-- Accounting Treatment".
THE FOREGOING SUMMARY DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE
PROVISIONS OF THE ILLINOIS LAW RELATING TO THE RIGHTS OF DISSENTING SHAREHOLDERS
OF BANCORP, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE EXCERPTS FROM
THE ILLINOIS LAW INCLUDED HEREIN AS APPENDIX B.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties of the parties. The representations and warranties made by NCBE
relate to, among other things: (i) the organization and corporate power of NCBE,
the authorization, execution and delivery of the Merger Agreement and the Merger
Agreement's noncontravention of charter documents, material agreements, laws and
regulations; (ii) the absence of any requirement to obtain the approval of
NCBE's shareholders in connection with the Merger; (iii) capitalization; (iv)
the delivery and accuracy of reports filed by NCBE under the Exchange Act; (v)
the conformity of financial statements in such reports to generally accepted
accounting principles ("GAAP"); (vi) the absence of any undisclosed material
liabilities and any material adverse change in NCBE's financial condition,
results of operations or business; (vii) the absence of any litigation, claim,
investigation, or other proceeding which, if adversely determined, would have a
material adverse effect; (viii) the authorization and nonassessability of the
shares of NCBE Common to be issued in the Merger; (ix) the absence of any
circumstances that would prevent the Merger from qualifying as a pooling of
interests or as a reorganization for federal income tax purposes; and (x) the
absence of any untrue statements or omissions of material fact on the part of
NCBE in the Merger Agreement and related documents.
The representations and warranties made by Bancorp relate to, among other
things: (i) the organization and corporate power of Bancorp, the capitalization
of Bancorp, the organization of the Bank, and the capitalization of the Bank;
(ii) the authorization, execution and delivery of the Merger Agreement and the
Merger Agreement's noncontravention of charter documents of Bancorp and the
Bank; (iii) ownership and organization of subsidiaries; (iv) delivery of
financial statements of the Bank and the conformity of such financial statements
to GAAP; (v) the filing of tax returns and payment of taxes; (vi) contracts,
commitments or other agreements in excess of $25,000 to which Bancorp or the
Bank is a party; (vii) ownership of real estate; (viii) the absence of any
material adverse change in the business financial condition, properties, results
of operations or capitalization of Bancorp or the Bank; (ix) the absence of any
litigation, claim, investigation or other proceeding which, if adversely
determined, would have a material adverse effect on the business or financial
condition of Bancorp or the Bank and the absence of any investigations, actions
or other legal proceedings involving any director, officer or employee of
Bancorp or the Bank; (x) insurance; (xi) substantial compliance with applicable
laws and regulations; (xii) the absence of any obligation to pay broker's or
finder's fees in connection with the Merger; (xiii) compliance of employee
benefit plans with applicable laws, rules and regulations; (xiv) labor-related
matters; (xv) the absence of knowledge of certain environmental related
conditions or events; (xvi) the absence of enforcement actions and other
regulatory related matters; (xvii) the absence of any circumstances that would
prevent the Merger from qualifying as a pooling of interests or as a
reorganization for federal income tax purposes; and (xviii) the absence of any
untrue statements or omissions of material fact on the part of Bancorp in the
Merger Agreement and related documents.
17
<PAGE>
COVENANTS
The Merger Agreement contains covenants that the parties will take or
refrain from taking certain actions prior to the Effective Time. As to NCBE,
these covenants include, among other things, agreements to: (i) file, at its
sole expense, and prepare all regulatory applications required to consummate the
Merger, keep Bancorp informed of the status of such applications; (ii) file a
Registration Statement on Form S-4 with the Commission relating to the shares of
NCBE Common to be issued in the Merger; (iii) use its best efforts to list the
shares of NCBE Common to be issued in the Merger on the Nasdaq National Market;
(iv) provide Bancorp with access during regular business hours to books and
records relating to NCBE's assets, properties, operations and liabilities; (v)
not knowingly take any action that would adversely affect the ability to account
for the Merger as a pooling of interests or to qualify as a reorganization for
federal income tax purposes or that would adversely affect regulatory approval
of the Merger; and (vi) take all actions necessary to cause IOB to approve a
merger agreement with the Bank with respect to the Bank Merger and to approve
the Bank Merger.
The covenants made by Bancorp include, among other things, agreements by
Bancorp and the Bank to: (i) conduct their business in the ordinary course, not
default in any obligations under material contracts, maintain insurance and
existing business organization and relationships, and comply with applicable
laws; (ii) notify NCBE of any event that may have a material adverse effect on
the financial condition, operations, business or assets of Bancorp and the Bank
or would interfere with Bancorp's ability to satisfy any conditions to its
obligation to consummate the Merger; (iii) not incur any obligation or liability
other than in the ordinary course of business, amend any material contract,
acquire any interest in another entity, sell or dispose of real property, expand
or enhance its data processing system, make any loan, commitment or line of
credit to a single borrower in excess of $1,000,000, make any capital
expenditures except for repairs, renewals or replacements in excess of $25,000
individually or $100,000 in the aggregate, issue, sell, pledge or redeem any
capital stock of Bancorp or the Bank, pay cash dividends on the Bancorp Common
in excess of $0.27 per share, payable semi-annually in accordance with past
practices, amend the articles of incorporation or by-laws or similar documents
of Bancorp or the Bank, enter into or amend an employment agreement, pay any
extraordinary bonus, establish any general increase in salaries, compromise or
settle a tax claim, open a new office, close any existing office, or knowingly
take any action that would adversely affect the ability to account for the
Merger as a pooling of interests; (iv) not modify its practices relating to
loans to directors, officers and employees; (v) not knowingly violate any laws,
regulations, judgments or orders; (vi) maintain all books and records in
accordance with GAAP; (vii) provide NCBE with access during regular business
hours to books and records relating to Bancorp's and the Bank's assets,
properties, operations and liabilities; (viii) provide NCBE with copies of
certain reports to the Board of Directors of Bancorp or the Bank and monthly
financial statements and confer with NCBE on the general status of ongoing
operations; (ix) notify NCBE of any material change in operations or certain
complaints, investigations or threatened litigation; (x) furnish NCBE with the
information in Bancorp's possession that is required for any regulatory
applications in connection with the Merger; (xi) obtain and deliver to NCBE at
least 31 days prior to the Closing, an agreement from each person who may
reasonably be deemed an "affiliate" of Bancorp for purposes of Rule 145 under
the Securities Act, an agreement regarding compliance with Rule 145 and
restricting transfers of NCBE Common following the Merger; (xii) cause a special
meeting of Bancorp shareholders to be held and recommend approval of the Merger
Agreement and the Merger; and (xii) take certain actions with respect to the
Bank Merger.
CONDITIONS TO THE MERGER
In addition to the approval of Bancorp shareholders, the obligations of
both parties to consummate the Merger are subject to the satisfaction or waiver
of certain other conditions, including, among others: (i) that all required
regulatory approvals have been obtained; (ii) that no action or proceeding has
been commenced to restrain the Merger; (iii) the absence of any notice from any
governmental agency indicating that the Merger would violate any law; (iv) the
effectiveness of the Registration Statement and the absence of a stop order with
respect thereto; and (v) the absence of any developments outside of the control
of NCBE that would prevent the Merger from qualifying as a tax-free
reorganization.
18
<PAGE>
The obligation of NCBE to consummate the Merger is further conditioned on
the following: (i) the continued accuracy in all material respects of the
representations and warranties of Bancorp in the Merger Agreement, the
performance or satisfaction in all material respects of all covenants to be
performed by Bancorp under the Merger Agreement, and the absence of any material
adverse change prior to the Closing in the business, assets, properties,
financial condition or results of operations of Bancorp or the Bank; (ii) the
receipt of opinions of counsel to Bancorp as to certain matters relating to
Bancorp and the Merger; and (iii) the absence of any developments outside of the
control of NCBE that would preclude the Merger from being accounted for as a
pooling of interests.
The obligation of Bancorp to consummate the Merger is further conditioned
on the following: (i) the continued accuracy in all material respects of the
representations and warranties of NCBE in the Merger Agreement, the performance
or satisfaction in all material respects of all covenants to be performed by
NCBE under the Merger Agreement and the absence of any material adverse change
prior to the Closing in the business assets, properties, financial conditions of
NCBE and its subsidiaries, taken as a whole; and (ii) the receipt of opinions of
counsel to NCBE as to certain matters relating to NCBE and the Merger.
TERMINATION AND WAIVER
The Merger Agreement may be terminated and the Merger abandoned prior to
the Effective Time, before or after approval of the Merger Agreement by the
Bancorp shareholders: (i) by mutual consent of Bancorp and NCBE; (ii) by Bancorp
if Bancorp or its Board of Directors accepts or approves a "Competing
Transaction"; (iii) by NCBE, if any of the conditions to its obligation to
consummate the Merger have not been satisfied by December 31, 1998; or (iv) by
Bancorp, if any of the conditions to its obligation to consummate the Merger
have not been satisfied by December 31, 1998.
Bancorp and NCBE may, by written instrument, amend or modify the Merger
Agreement in whole or in part, or waive compliance with any of the covenants or
conditions of the Merger Agreement, before or after approval of the Merger
Agreement by the Bancorp shareholders, to the extent authorized by applicable
law.
NO SOLICITATION; FEES AND EXPENSES
The Merger Agreement prohibits Bancorp, the Bank and their officers,
directors and representatives, from soliciting or authorizing the solicitation
of inquiries or proposals from third parties regarding an acquisition of
Bancorp, the Bank, or all or substantially all of their assets, unless Bancorp's
Board of Directors has reasonably determined, based on the written advice of
counsel, that the failure to do so would breach its fiduciary duties. The
foregoing prohibition also extends to conducting discussions or negotiations
with third parties or furnishing confidential information to any person relating
to an acquisition proposal. Bancorp is required to communicate to NCBE the terms
of any such proposal.
Except as described below or as otherwise expressly provided in the Merger
Agreement, each party is to pay its own fees and expenses incurred in connection
with the Merger, the Merger Agreement and the transactions contemplated therein.
Upon the occurrence of a Triggering Event, Bancorp is required to reimburse
NCBE for all out-of-pocket expenses incurred by NCBE in connection with the
transactions contemplated by the Merger Agreement up to a maximum of $150,000.
"Triggering Event" means the termination of the Merger Agreement for any reason
other than certain specified conditions to the Merger and the occurrence of any
of the following events within six months: (i) Bancorp enters into an agreement
with a third party for a Competing Transaction; (ii) the recommendation of a
Competing Transaction by the Bancorp Board of Directors; or (iii) the withdrawal
or modification of the recommendation of the Merger Agreement by the Bancorp
Board of Directors following the announcement of a Competing Transaction.
"Competing Transaction" means any of the following (other than the transactions
contemplated by the Merger Agreement): (i) an offer for 25% or more of the
outstanding capital stock of Bancorp or the Bank; (ii) a proposal for a merger,
consolidation, share exchange, business combination or similar transaction
involving Bancorp or the Bank; or (iii) a proposal for the sale, lease, exchange
or other disposition of 25% or more of Bancorp's assets.
19
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the Merger to certain Bancorp shareholders and does not purport
to be a complete analysis or listing of all potential tax considerations or
consequences relevant to a decision whether to vote for the approval of the
Merger Agreement. The discussion does not address all aspects of federal income
taxation that may be applicable to Bancorp shareholders in light of their status
or personal investment circumstances, nor does it address the federal income tax
consequences of the Merger that are applicable to Bancorp shareholders subject
to special federal income tax treatment including, without limitation, foreign
persons, insurance companies, tax-exempt entities, retirement plans, dealers in
securities, persons who acquired their Bancorp Common pursuant to the exercise
of employee stock options or otherwise as compensation. In addition, the
discussion does not address the effect of any applicable state, local or foreign
tax laws, or the effect of any federal tax laws other than those pertaining to
the federal income tax. As a result, each Bancorp shareholder is urged to
consult his or her own tax advisor to determine the specific tax consequences of
the Merger to such shareholder. The discussion assumes that shares of Bancorp
Common are held as capital assets (within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code")) at the Effective Time.
Subject to the conditions and assumptions described below, it is the
opinion of Baker & Daniels, counsel to NCBE ("Counsel"), that, assuming the
Merger occurs in accordance with the Merger Agreement, the Merger will
constitute a reorganization for federal income tax purposes under Section 368(a)
of the Code, with the following federal income tax consequences:
(i) Bancorp shareholders will recognize no gain or loss as a result of
the exchange of their Bancorp Common solely for shares of NCBE Common
pursuant to the Merger, except with respect to cash received in lieu of
fractional share interests, if any, as discussed below.
(ii) The aggregate adjusted tax basis of the shares of NCBE Common
received by each Bancorp shareholder in the Merger (including any
fractional share of NCBE Common deemed to be received, as described in
paragraph (iv) below) will be equal to the aggregate adjusted tax basis of
the shares of Bancorp Common surrendered.
(iii) The holding period of the shares of NCBE Common received by each
Bancorp shareholder in the Merger (including any fractional share of NCBE
Common deemed to be received, as described in paragraph (iv) below) will
include the holding period of the shares of Bancorp Common exchanged
therefor.
(iv) An Bancorp shareholder who receives cash in lieu of a fractional
share of NCBE Common will be treated as if the fractional share had been
received by such shareholder in the Merger and then redeemed by NCBE in
return for the cash amount. The receipt of such cash will cause the
recipient to recognize capital gain or loss equal to the difference between
the amount of cash received and the portion of such holder's adjusted tax
basis in the shares of NCBE Common allocable to the fractional share.
(v) Cash received by Bancorp shareholders exercising dissenters' rights
will be treated as (a) a distribution in full payment of such shares,
resulting in capital gain or loss, or (b) ordinary income, as the case may
be, depending upon such shareholder's individual situation.
Counsel's opinion is subject to certain conditions and customary
assumptions and relies upon various representations made by NCBE, Bancorp and
certain shareholders of Bancorp. If any of these representations or assumptions
is inaccurate, the tax consequences of the Merger could differ from those
described herein. Counsel's opinion is also based upon the Code, regulations
proposed or promulgated thereunder, judicial precedent relating thereto, and
current administrative rulings and practice, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences discussed herein. An opinion of counsel, unlike a private letter
ruling from the Internal Revenue Service ("Service"), has no binding effect. The
Service could take a position contrary to Counsel's opinion and, if the matter
were litigated, a court could reach a decision contrary to the opinion. Neither
20
<PAGE>
NCBE nor Bancorp has requested an advance ruling as to the federal income tax
consequences of the Merger, and the Service is not expected to issue such a
ruling.
THE FOREGOING IS A GENERAL SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO SHAREHOLDERS OF BANCORP WITHOUT REGARD TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX SITUATION AND
STATUS. EACH SHAREHOLDER OF BANCORP SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING
THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE
POSSIBLE EFFECT OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Merger is expected to qualify as a "pooling of interests" for
accounting and financial reporting purposes. Under this method of accounting,
the assets and liabilities of NCBE and Bancorp will be carried forward after the
Effective Time into the consolidated financial statements of NCBE at their
recorded amounts, the consolidated income of NCBE will include income of NCBE
and Bancorp for the entire fiscal year in which the Merger occurs, the
separately reported income of NCBE and Bancorp for prior periods will be
combined and restated as consolidated income of NCBE, and no goodwill will be
recognized.
The Merger Agreement provides that a condition to NCBE's obligation to
consummate the Merger is that there have been no developments outside the
control of NCBE that would preclude the Merger from qualifying as a pooling of
interests. As of the date of this Proxy Statement/Prospectus, NCBE and Bancorp
are not aware of any existing facts or circumstances which would preclude the
Merger from qualifying as a pooling of interests.
The unaudited pro forma financial information contained in this Proxy
Statement/Prospectus has been prepared using the pooling of interests accounting
method to account for the Merger.
RESALE OF NCBE COMMON
The shares of NCBE Common issuable pursuant to the Merger will be freely
transferable under the Securities Act except for shares issued to any Bancorp
shareholder who may be deemed to be an "affiliate" of NCBE for purposes of Rule
144 under the Securities Act or an "affiliate" of Bancorp for purposes of Rule
145 under the Securities Act. Persons who may be deemed to be affiliates of
Bancorp or NCBE generally include individuals who, or entities which, control,
are controlled by or are under common control with Bancorp or NCBE and will
include directors and certain officers of Bancorp and NCBE and may include
principal shareholders of Bancorp and NCBE, if any.
Rules 144 and 145 under the Securities Act will restrict the sale of NCBE
Common received in the Merger by affiliates and certain of their family members
and related interests. Generally, during the first year following the Effective
Time, those persons who are affiliates of Bancorp at the time of the Special
Meeting, provided they are not affiliates of NCBE at or following the Effective
Time, may publicly resell any NCBE Common received by them in the Merger,
subject to certain limitations as to, among other things, the amount of NCBE
Common sold by them in any three-month period and as to the manner of sale.
After the one year period, such affiliates may resell their shares without such
restrictions so long as there is adequate current public information with
respect to NCBE as required by Rule 144 under the Securities Act.
The ability of affiliates to resell shares of NCBE Common received in the
Merger under Rule 144 or 145 under the Securities Act generally will be subject
to NCBE's having satisfied its Exchange Act reporting requirements for specified
periods prior to the time of sale. Affiliates also would be permitted to resell
shares of NCBE Common received in the Merger that have been registered under the
Securities Act or are exempt from the Securities Act registration requirements.
21
<PAGE>
Guidelines of the Commission regarding qualifying for the pooling of
interests method of accounting also limit sales of shares of the acquiring and
acquired company by affiliates of either company in a business combination.
Guidelines of the Commission indicate further that the pooling of interests
method of accounting will generally not be challenged on the basis of sales by
affiliates of the acquiring or acquired company if they do not dispose of any of
the shares of the corporation they own or shares of a corporation they receive
in connection with a merger during the period beginning 30 days before the
merger and ending when financial results covering at least 30 days of
post-merger operations of the combined entity have been published.
The Merger Agreement provides that Bancorp will obtain and deliver to NCBE
an agreement from each person who may reasonably be deemed an affiliate of
Bancorp providing that such affiliate will not transfer any shares of NCBE
Common received in the Merger except in compliance with the Securities Act and
in compliance with the requirements described in the preceding paragraph
regarding the non-disposition of any shares of Bancorp Common or NCBE Common (or
any interest therein) during the period commencing 30 days prior to the
Effective Time through the date on which financial results covering at least 30
days of combined operations of NCBE and Bancorp after the Merger have been
published.
This Proxy Statement/Prospectus does not cover resales of shares of NCBE
Common received by any person who may be deemed to be an affiliate of Bancorp or
NCBE.
CONCURRENT BANK MERGER
The Bank and IOB have entered into a Merger Agreement dated as of June 16,
1998 (the "Bank Merger Agreement") relating to the merger of the Bank with and
into IOB (the "Bank Merger"). A form of the Bank Merger Agreement is attached as
Exhibit A to the Merger Agreement (Appendix A to this Proxy
Statement/Prospectus). The following information is qualified in its entirety by
reference to the Bank Merger Agreement.
Under the Bank Merger Agreement, the Bank will be merged into IOB, with IOB
as the surviving bank. The Bank will thereafter be operated as a branch of IOB.
The Merger Agreement has been approved by the Boards of Directors of the Bank
and IOB and by Bancorp and NCBE as the sole shareholders of the Bank and IOB,
respectively.
The Bank Merger cannot be completed unless regulatory approval is obtained.
See "THE MERGER -- Regulatory Approvals."
It is expected that the Bank Merger will become effective concurrently with
the Merger.
22
<PAGE>
SELECTED FINANCIAL DATA
The following tables present selected unaudited consolidated historical
financial data for NCBE. The data presented is derived from the consolidated
financial statements of NCBE and should be read in conjunction with the more
detailed information and financial statements incorporated by reference in this
Proxy Statement/Prospectus. See "WHERE YOU CAN FIND MORE INFORMATION."
NCBE - HISTORICAL
(Dollar amounts other than per share data in thousands)
<TABLE>
<CAPTION>
Quarter Ended
March 31, Year Ended December 31,
-------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 13,903 $ 12,528 $ 51,995 $ 48,606 $ 44,433 $ 39,933 $ 38,010
Provision for loan losses 229 366 1,891 2,704 399 78 736
---------- --------- ----------- ---------- --------- --------- ----------
Net interest income after provision
for loan losses 13,674 12,162 50,104 45,902 44,034 39,855 37,274
Noninterest income 2,714 2,533 10,088 8,606 7,117 5,209 6,707
Noninterest expense 8,995 7,899 34,390 29,966 28,968 28,644 28,343
---------- --------- ----------- ---------- --------- --------- ----------
Income before income taxes 7,393 6,796 25,802 24,542 22,183 16,420 15,638
Income taxes 2,280 2,123 7,451 8,046 7,784 5,668 4,861
---------- --------- ----------- ---------- --------- --------- ----------
Net income $ 5,113 $ 4,673 $ 18,351 $ 16,496 $ 14,399 $ 10,752 $ 10,777
---------- --------- ----------- ---------- --------- --------- ----------
---------- --------- ----------- ---------- --------- --------- ----------
PER SHARE DATA
Net income
Basic $ 0.48 $ 0.44 $ 1.72 $ 1.52 $ 1.30 $ 0.97 $ 0.97
Diluted 0.47 0.43 1.69 1.52 1.30 0.97 0.97
Book value 13.93 12.79 13.69 12.12 11.71 10.47 10.23
Cash dividends declared 0.18 0.15 0.64 0.55 0.40 0.40 0.38
SUMMARY OF FINANCIAL
CONDITION
Total assets $1,496,247 $1,227,643 $1,298,260 $1,172,057 $1,081,921 $1,004,160 $ 993,468
Securities 320,679 290,894 279,328 282,894 258,895 268,103 269,098
Loans, net 1,031,647 835,014 908,387 793,443 730,821 639,485 574,028
Deposits 1,158,831 947,488 964,046 913,350 864,136 849,306 844,808
Shareholders' equity 149,763 129,800 146,803 129,694 130,606 114,750 113,975
SELECTED FINANCIAL RATIOS
Net income to average assets 0.38% 0.40% 1.47% 1.48% 1.40% 1.09% 1.09%
Net income to average equity 3.55 3.62 13.42 12.89 11.74 9.39 9.79
Cash dividend payout ratio 37.85 34.05 36.74 37.05 30.05 36.77 31.65
Average equity to average assets 10.73 10.93 10.98 11.48 11.93 11.59 11.14
Weighted average shares (basic) 10,744,301 10,684,348 10,679,448 10,843,295 11,095,116 11,040,906 11,146,280
Weighted average shares (diluted) 10,893,547 10,803,886 10,832,943 10,843,295 11,095,116 11,040,906 11,146,280
</TABLE>
23
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following tables contain unaudited pro forma condensed consolidated
financial statements including a balance sheet as of March 31, 1998, and
statements of earnings for the three months ended March 31, 1998 and the
years ended December 31, 1997, 1996, and 1995. These statements present
information for NCBE and on a pro forma combined basis giving effect to the
Merger (A) as of March 31, 1998 for all Other Pooling Acquisitions (as
defined under "INFORMATION CONCERNING NCBE" -- "Recent Developments") and (B)
for all prior periods, all Other Pooling Acquisitions except for the
acquisitions of Downstate Banking Co. and Commonwealth Commercial Corp.,
which NCBE intends to account for as immaterial poolings. As further
described in "INFORMATION CONCERNING NCBE" --"Recent Developments," NCBE
consummated the Purchase Transactions in the first quarter. The Purchase
Transactions are not individually or in the aggregate considered material to
NCBE from a financial statement presentation standpoint, and the pro forma
data does not include the Purchase Transactions (except to the extent they
are reflected in NCBE's first quarter information). The data presented is not
necessarily indicative of the results of the future operations of the
combined organization or the actual results that would have occurred if the
Merger or Other Pooling Acquisitions had been consummated prior to the
periods indicated. The data presented should be read in conjunction with the
more detailed information and financial statements included herein or
incorporated by reference in this Proxy Statement/Prospectus and with the
unaudited pro forma financial statements included elsewhere in this Proxy
Statement/Prospectus. See "WHERE YOU CAN FIND MORE INFORMATION," "SUMMARY
COMPARATIVE HISTORICAL AND COMBINED PER SHARE DATA," "SELECTED FINANCIAL
DATA," "INFORMATION CONCERNING BANCORP" and "INDEX TO BANCORP FINANCIAL
STATEMENTS."
24
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(in thousands, other than share data)
<TABLE>
<CAPTION>
NCBE and
Other Pooling Proforma
NCBE Acquisitions Bancorp Adjustments Total
----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 44,319 $ 61,642 $ 878 $ 62,520
Time deposits in banks 1,391 5,410 0 5,410
Federal funds sold 0 19,224 2,744 21,968
Securities held to maturity 0 3,770 3,111 6,881
Securities available for sale 307,409 439,101 11,479 450,580
Nonmarketable equity securities 13,270 17,922 0 17,922
Loans - net of allowance for loan losses
of $7,969 in 1997 and $7,189 in 1996) 1,031,647 1,484,952 20,670 1,505,622
Premises and equipment 35,881 44,823 257 45,080
Intangible assets 39,898 42,744 0 42,744
Other Assets 22,432 30,462 414 30,876
----------- ------------ ----------- ------------ -----------
Total assets $ 1,496,247 $ 2,150,050 $ 39,553 $ 0 $ 2,189,603
----------- ------------ ----------- ------------ -----------
----------- ------------ ----------- ------------ -----------
LIABILITIES
Deposits
Noninterest-bearing demand 138,591 232,834 3,437 236,271
Interest-bearing: 0
Savings, daily interest checking, and
money market accounts 1,020,240 1,445,665 30,783 1,476,448
Time deposits of 100,000 or more 0 21,661 0 21,661
Other time 0 0 0 0
----------- ------------ ----------- ------------ -----------
Total deposits 1,158,831 1,700,160 34,220 0 1,734,380
----------- ------------ ----------- ------------ -----------
Short-term borrowings 51,516 57,952 0 57,952
Other borrowings 84,991 120,085 0 120,085
Guaranteed preferred beneficial interests
in the Corporation's subordinated debenture 34,500 34,500 0 34,500
Dividends payable 1,935 1,935 0 1,935
Deferred income taxes 4,109 4,213 28 4,241
Other liabilities 10,602 16,022 343 16,365
----------- ------------ ----------- ------------ -----------
Total liabilities 1,346,484 1,934,867 34,591 0 1,969,458
----------- ------------ ----------- ------------ -----------
Common stock owned by ESOP subject to
put options 0 4,186 0 (4,186)(1) 0
EQUITY
Class A nonvoting preferred 0 361 0 (361)(2) 0
Class B nonvoting preferred 0 9 0 (9)(2) 0
Common stock - 1.00 stated value: 0 0 0
Shares authorized - 20,000,000 0 0 0 0
Shares outstanding - 10,727,247 10,752 17,411 600 370(2) 18,381
Treasury stock (415.53 shares at cost) 0 (1,192) (1,203) 2,395(3) 0
Capital surplus 79,969 89,966 2,534 92,500
Unearned ESOP shares 0 (358) 0 (358)
Retained earnings 56,036 105,071 2,969 (2,395)(3) 105,645
Common stock owned by ESOP
subject to put redemption 0 (4,186) 0 4,186(1) 0
Unrealized gain (loss) on securities
available for sale 3,006 3,915 62 3,977
----------- ------------ ----------- ------------ -----------
Total equity 149,763 210,997 4,962 4,186 220,145
----------- ------------ ----------- ------------ -----------
Total liabilities and equity $ 1,496,247 $ 2,150,050 $ 39,553 $ 2,189,603
----------- ------------ ----------- ------------ -----------
----------- ------------ ----------- ------------ -----------
</TABLE>
Proforma adjustment explanations:
(1) Shares of common stock held by the employee stock ownership plan ("ESOP") of
Hoosier Hills Financial Corporation ("HHFC") subject to a put option will be
exchanged for NCBE Common in the acquisition of HHFC. The ESOP plan will be
terminated and common shares will be distributed to the participants.
(2) Preferred stock issued by Community First Financial, Inc. will be exchanged
for 79,916 NCBE Common.
(3) Reflects the retirement of treasury shares reflected on the financial
statements of Bancorp, HHFC and Illinois One Bancorp, Inc.
25
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THREE MONTHS ENDED MARCH 31, 1998
(in thousands, other than share data)
<TABLE>
<CAPTION>
NCBE and
Other
Pooling
NCBE Acquisitions Bancorp Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans:
Taxable $ 21,656 $ 32,670 $ 475 $ 33,145
Tax-exempt 0 0 0 0
Interest and dividends on securities: 0 0 0
Taxable 4,057 5,165 193 5,358
Tax-exempt 0 543 32 575
Interest on federal funds sold 37 291 33 324
Interest on other income 50 130 0 130
----------- ----------- ----------- -----------
Total interest income 25,800 38,799 733 39,532
----------- ----------- ----------- -----------
Interest expense
Interest on deposits 10,047 15,432 350 15,782
Interest on short-term borrowings 1,850 1,878 0 1,878
Interest on other borrowings 0 551 0 551
----------- ----------- ----------- -----------
Total interest expense 11,897 17,861 350 18,211
----------- ----------- ----------- -----------
Net interest income 13,903 20,938 383 21,321
Provision for loan losses 229 393 11 404
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 13,674 20,545 372 20,917
----------- ----------- ----------- -----------
Noninterest income
Trust income 483 483 0 483
Service charges on deposit accounts 1,081 1,687 42 1,729
Other service charges and fees 0 47 0 47
Securities gains (losses) 68 65 0 65
Other 1,082 1,698 5 1,703
----------- ----------- ----------- -----------
Total noninterest income 2,714 3,980 47 4,027
----------- ----------- ----------- -----------
Noninterest expense
Salaries, wages, and other employee benefits 4,768 7,252 138 7,390
Occupancy expense 1,276 1,898 25 1,923
Furniture and equipment expense 0 0 0 0
Assessments of the FDIC 0 0 0 0
Other 2,951 4,599 72 4,671
----------- ----------- ----------- -----------
Total noninterest expense 8,995 13,749 235 13,984
----------- ----------- ----------- -----------
Income before income taxes 7,393 10,776 184 10,960
Income tax expense 2,280 3,228 57 3,285
----------- ----------- ----------- -----------
Net income $ 5,113 $ 7,548 $ 127 $ 7,675
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share:
Basic $ 0.48 $ 0.48 $ 0.48
Diluted $ 0.47 $ 0.47 $ 0.47
Weighted shares:
Basic 10,744,301 15,754,879 16,036,870
Diluted 10,893,547 15,904,125 16,186,116
</TABLE>
26
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THREE MONTHS ENDED MARCH 31, 1997
(in thousands, other than share data)
<TABLE>
<CAPTION>
NCBE and
Other
Pooling
NCBE Acquisitions Bancorp Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans:
Taxable $ 18,103 $ 27,517 $ 469 $ 27,986
Tax-exempt 0 0 0 0
Interest and dividends on securities: 0 0 0 0
Taxable 4,282 5,297 194 5,491
Tax-exempt 0 646 25 671
Interest on federal funds sold 39 226 24 250
Interest on other income 48 123 0 123
----------- ----------- ----------- -----------
Total interest income $ 22,472 $ 33,809 $ 712 $ 34,521
----------- ----------- ----------- -----------
Interest expense
Interest on deposits 8,436 13,135 324 13,459
Interest on short-term borrowings 0 3 0 3
Interest on other borrowings 1,508 1,997 0 1,997
----------- ----------- ----------- -----------
Total interest expense 9,944 15,135 324 15,459
----------- ----------- ----------- -----------
Net interest income $ 12,528 $ 18,674 $ 388 $ 19,062
Provision for loan losses 366 622 11 633
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses 12,162 18,052 377 18,429
----------- ----------- ----------- -----------
Noninterest income
Trust income 429 436 0 436
Service charges on deposit accounts 918 1,480 42 1,522
Other service charges and fees 0 29 0 29
Securities gains (losses) 469 482 0 482
Other 717 979 5 984
----------- ----------- ----------- -----------
Total noninterest income 2,533 3,406 47 3,453
----------- ----------- ----------- -----------
Noninterest expense
Salaries, wages, and other employee benefits 4,557 6,706 134 6,840
Occupancy expense 1,088 1,449 20 1,469
Furniture and equipment expense 0 157 0 157
Assessments of the FDIC 0 5 0 5
Other 2,254 3,459 66 3,525
----------- ----------- ----------- -----------
Total noninterest expense 7,899 11,776 220 11,996
----------- ----------- ----------- -----------
Income before income taxes 6,796 9,682 204 9,886
Income tax expense 2,123 3,017 57 3,074
----------- ----------- ----------- -----------
Net income $ 4,673 $ 6,665 $ 147 $ 6,812
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share:
Basic $ 0.44 $ 0.43 $ 0.43
Diluted $ 0.43 $ 0.43 $ 0.43
Weighted shares:
Basic 10,684,348 15,388,594 15,670,585
Diluted 10,803,886 15,508,132 15,790,123
</TABLE>
27
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR YEAR ENDED DECEMBER 31, 1997
(in thousands, other than share data)
<TABLE>
<CAPTION>
NCBE and
Other
Pooling
NCBE Acquisitions Bancorp Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans:
Taxable $ 77,215 $ 116,780 $ 1,919 $ 118,699
Tax-exempt 924 924 0 924
Interest and dividends on securities: 0 0 0 0
Taxable 8,775 14,026 784 14,810
Tax-exempt 8,282 9,896 106 10,002
Interest on federal funds sold 218 893 113 1,006
Interest on other income 214 570 0 570
----------- ----------- ----------- -----------
Total interest income 95,628 143,089 2,922 146,011
----------- ----------- ----------- -----------
Interest expense
Interest on deposits 36,118 55,378 1,369 56,747
Interest on short-term borrowings 3,165 3,257 0 3,257
Interest on other borrowings 4,350 6,814 0 6,814
----------- ----------- ----------- -----------
Total interest expense 43,633 65,449 1,369 66,818
----------- ----------- ----------- -----------
Net interest income 51,995 77,640 1,553 79,193
Provision for loan losses 1,891 2,646 42 2,688
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses 50,104 74,994 1,511 76,505
----------- ----------- ----------- -----------
Noninterest income
Trust income 1,927 1,927 0 1,927
Service charges on deposit accounts 3,981 6,200 187 6,387
Other service charges and fees 2,631 2,770 0 2,770
Securities gains (losses) 794 804 0 804
Other 755 1,863 21 1,884
----------- ----------- ----------- -----------
Total noninterest income 10,088 13,564 208 13,772
----------- ----------- ----------- -----------
Noninterest expense
Salaries, wages, and other employee benefits 19,479 28,657 583 29,240
Occupancy expense 2,114 3,763 86 3,849
Furniture and equipment expense 2,497 2,972 0 2,972
Assessments of the FDIC 175 306 0 306
Other 10,125 15,228 264 15,492
----------- ----------- ----------- -----------
Total noninterest expense 34,390 50,926 933 51,859
----------- ----------- ----------- -----------
Income before income taxes 25,802 37,632 786 38,418
Income tax expense 7,451 11,229 245 11,474
----------- ----------- ----------- -----------
Net income $ 18,351 $ 26,403 $ 541 $ 26,944
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share:
Basic $ 1.72 $ 1.75 $ 1.72
Diluted $ 1.69 $ 1.75 $ 1.70
Weighted shares:
Basic 10,679,448 15,383,694 15,665,685
Diluted 10,832,943 15,537,189 15,819,180
</TABLE>
28
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NCBE and
Other
Pooling
NCBE Acquisitions Bancorp Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans:
Taxable $ 69,372 $ 105,024 $ 1,804 $ 106,828
Tax-exempt 695 695 0 695
Interest and dividends on securities: 0 0 0 0
Taxable 11,069 16,252 783 17,035
Tax-exempt 4,887 6,456 106 6,562
Interest on federal funds sold 253 882 60 942
Interest on other income 273 949 0 949
--- --- - ---
Total interest income 86,549 130,258 2,753 133,011
------ ------- ----- -------
Interest expense
Interest on deposits 33,041 51,100 1,251 52,351
Interest on short-term borrowings 2,277 2,381 0 2,381
Interest on other borrowings 2,625 4,654 0 4,654
----- ----- - -----
Total interest expense 37,943 58,135 1,251 59,386
------ ------ ----- ------
Net interest income 48,606 72,123 1,502 73,625
Provision for loan losses 2,704 3,612 84 3,696
----- ----- -- -----
Net interest income after provision
for loan losses 45,902 68,511 1,418 69,929
------ ------ ----- ------
Noninterest income
Trust income 1,748 1,818 0 1,818
Service charges on deposit accounts 3,650 5,892 158 6,050
Other service charges and fees 2,358 2,581 0 2,581
Securities gains (losses) 42 21 0 21
Other 808 1,656 28 1,684
--- ----- -- -----
Total noninterest income 8,606 11,968 186 12,154
----- ------ --- ------
Noninterest expense
Salaries, wages, and other employee benefits 16,694 25,300 536 25,836
Occupancy expense 1,993 3,652 87 3,739
Furniture and equipment expense 2,345 2,779 0 2,779
Assessments of the FDIC 798 987 0 987
Other 8,136 12,908 248 13,156
----- ------ --- ------
Total noninterest expense 29,966 45,626 871 46,497
------ ------ --- ------
Income before income taxes 24,542 34,853 733 35,586
Income tax expense 8,046 1,102 216 11,318
----- ------ --- ------
Net income $ 16,496 $ 23,751 $ 517 $ 24,268
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share:
Basic $ 1.52 $ 1.53 $ 1.53
Diluted $ 1.52 $ 1.53 $ 1.53
Weighted shares:
Basic 10,843,295 15,547,541 15,829,532
Diluted 10,843,295 15,547,541 15,829,532
</TABLE>
29
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NCBE and
Other
Pooling
NCBE Acquisitions Bancorp Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans:
Taxable $ 61,615 $ 93,300 $ 2,549 $ 95,849
Tax-exempt 693 693 0 693
Interest and dividends on securities:
Taxable 12,226 17,263 0 17,263
Tax-exempt 2,859 5,816 0 5,816
Interest on federal funds sold 855 1,447 0 1,447
Interest on other income 596 820 0 820
----------- ----------- ----------- -----------
Total interest income 78,844 119,339 2,549 121,888
----------- ----------- ----------- -----------
Interest expense
Interest on deposits 32,291 48,701 1,202 49,903
Interest on short-term borrowings 1,218 1,401 0 1,401
Interest on other borrowings 902 2,363 0 2,363
----------- ----------- ----------- -----------
Total interest expense 34,411 52,465 1,202 53,667
----------- ----------- ----------- -----------
Net interest income 44,433 66,874 1,347 68,221
Provision for loan losses 399 1,095 43 1,138
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 44,034 65,779 1,304 67,083
----------- ----------- ----------- -----------
Noninterest Income
Trust income 1,503 1,608 0 1,608
Service charges on deposit accounts 2,959 5,123 151 5,274
Other service charges and fees 1,814 1,973 0 1,973
Securities gains (losses) 26 37 0 37
Other 815 1,702 0 1,702
----------- ----------- ----------- -----------
Total noninterest income 7,117 10,443 151 10,594
----------- ----------- ----------- -----------
Noninterest expense
Salaries, wages, and other employee benefits 16,577 24,893 860 25,753
Occupancy expense 1,980 3,184 0 3,184
Furniture and equipment expense 2,082 2,753 0 2,753
Assessments of the FDIC 1,082 1,419 0 1,419
Other 7,247 11,996 0 11,996
----------- ----------- ----------- -----------
Total noninterest expense 28,968 44,245 860 45,105
----------- ----------- ----------- -----------
Income before income taxes 22,183 31,977 595 32,572
Income tax expense 7,784 10,849 165 11,014
----------- ----------- ----------- -----------
Net income $ 14,399 $ 21,128 $ 430 $ 21,558
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share:
Basic $ 1.30 $ 1.34 $ 1.34
Diluted $ 1.30 $ 1.34 $ 1.34
Weighted shares:
Basic 11,095,116 15,799,362 16,081,353
Diluted 11,095,116 15,799,362 16,081,353
</TABLE>
30
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
Shares of NCBE Common are traded on the Nasdaq National Market tier of
the Nasdaq Stock Market under the symbol "NCBE". The following table sets
forth the high and low sales prices of NCBE Common and cash dividends
declared for the periods indicated. Prices and dividends have been adjusted
to reflect stock dividends and splits. There is no established public trading
market for the shares of Bancorp Common. Management of Bancorp is not aware
of any transactions involving Bancorp Common that have occurred in the past
two years except for two transactions. In the third quarter of 1996, 30
shares were sold at $1,300 per share and in the second quarter of 1997,
Bancorp repurchased 400 shares for $1,100 per share.
<TABLE>
<CAPTION>
NCBE Common Bancorp Common
------------------------------------- ---------------------------------------
Cash Cash
Dividends Dividends
Low High Declared Low High Declared
--- ---- --------- --- ---- --------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter $ 21.54 $ 27.10 $ 0.11 -- -- --
Second Quarter 25.17 26.76 0.14 1/2 -- -- $ 15.00
Third Quarter 25.17 26.42 0.15 1/2 $ 1,300.00 $ 1,300.00 --
Fourth Quarter 25.40 28.57 0.15 -- -- 20.00
1997
First Quarter 27.86 32.26 0.15 1/4 -- -- --
Second Quarter 30.24 40.24 0.15 1/4 1,100.00 1,100.00 20.00
Third Quarter 38.57 41.67 0.15 1/4 -- -- --
Fourth Quarter 40.00 51.19 0.18 -- -- 22.00
1998
First Quarter 38.50 45.50 0.18 -- -- --
Second Quarter 37.00 45.00 0.18 -- -- --
Third Quarter (1)
</TABLE>
- ------------
(1) Through August _, 1998.
On May 21, 1998, the last trading day before the public announcement of
the proposed acquisition, the closing sale price of NCBE Common was $37.625
per share. Based upon the per share price of NCBE Common on such date, the
equivalent per share price of Bancorp Common would have been $2,332.75. The
equivalent per share price for Bancorp Common is calculated by multiplying
the specified closing sale price of NCBE Common by the number of shares of
NCBE Common to be issued for each share of Bancorp Common in the Merger. The
foregoing illustration assumes that each share of Bancorp Common was
converted into 62 shares of NCBE Common.
On August _, 1998, the closing sale price of NCBE Common was $_______
per share. Based on the per share price of NCBE Common on such date, the
equivalent per share price for Bancorp Common would have been $_________,
assuming that each share of Bancorp Common was converted into _____ shares of
NCBE Common.
As of July __, 1998, there were _____ and 68 holders of record of NCBE
Common and Bancorp Common, respectively.
Both NCBE and Bancorp depend upon dividends from their financial
institution subsidiaries to pay dividends to their shareholders. The ability
of the financial institution subsidiaries to pay such dividends is limited by
applicable banking laws and regulations.
Shareholders of Bancorp are advised to obtain current market quotations
for NCBE Common.
31
<PAGE>
INFORMATION CONCERNING NCBE
BUSINESS
NCBE was organized in 1985 to act as a bank holding company for The
National City Bank of Evansville ("NCB"), which remains NCBE's principal
banking subsidiary. As of July 30, 1998, NCBE owned 13 commercial banks,
including NCB, one savings bank, a leasing subsidiary and a property
management company. As of March 31, 1998, NCBE had total consolidated assets
of $1.5 billion, total loans of $1.0 billion, total deposits of $1.2 billion
and total shareholders' equity of $149.8 million. NCBE's financial
institution subsidiaries provide a wide range of banking services from 47
locations in the tri-state area of Indiana, Kentucky, and Illinois
surrounding Evansville, Indiana.
RECENT DEVELOPMENTS
The following is a brief description of the three acquisitions that NCBE
has completed since December 31, 1997:
MAYFIELD BRANCH. On January 8, 1998, NCBE's subsidiary, First Kentucky
Bank, through an affiliate acquired the Mayfield, Kentucky Branch of Republic
Bank & Trust Company. First Kentucky Bank assumed deposit liabilities of
$65.7 million in consideration of a deposit premium of $4.6 million. First
Kentucky Bank also purchased the office facility and certain loans of the
branch.
BANK OF ILLINOIS IN MT. VERNON. On March 6, 1998, NCBE acquired Vernois
Bancshares, Inc., the holding company for Bank of Illinois in Mt. Vernon
("BOI"), an Illinois banking corporation with three offices in Mount Vernon,
Illinois. NCBE paid $27.5 million in cash for all of the outstanding stock of
the holding company. As of December 31, 1997, BOI had total assets of $163.5
million, net loans of $109.3 million and total deposits of $127.7 million.
The acquisition was accounted for using the purchase method of accounting and
the results of operations of BOI will be included in NCBE's consolidated
results of operations from the date of acquisition.
The acquisitions of the Mayfield Branch and BOI are collectively
referred to as the "Purchase Transactions".
ILLINOIS ONE BANK, NATIONAL ASSOCIATION. On May 31, 1998, NCBE acquired
Illinois One Bancorp., Inc. ("IOBI"), the holding company for Illinois One
Bank, National Association ("IOB"), a national banking association with
offices in Shawneetown, Elizabethtown and Golconda, Illinois. NCBE issued
572,737 shares of NCBE Common in the transaction. The acquisition was
accounted for using the pooling of interests method of accounting. As of
March 31, 1998, IOB had total assets of $87.8 million, and total
shareholders' equity of $10.9 million.
The following is a brief description of pending acquisitions. The
pending acquisitions, together with the IOBI acquisition, are collectively
referred to as the "Other Pooling Acquisitions."
TRIGG COUNTY FARMERS BANK. NCBE is a party to an Agreement and Plan of
Merger dated February 11, 1998, with Trigg Bancorp, Inc. ("TBI"), the holding
company for Trigg County Farmers Bank ("TCFB"), a Kentucky banking
corporation, which has three offices in Cadiz, Kentucky. The agreement
relates to the acquisition of TBI in a merger transaction in which up to
736,278 shares of NCBE Common would be issued. As of March 31, 1998, TCFB had
total assets of $97.4 million and total shareholders equity of $8.6 million.
The acquisition is subject to regulatory approval and approval by the
shareholders of TBI. The acquisition is expected to qualify for the pooling
of interests method of accounting. The parties expect to close the merger in
the third quarter of 1998.
COMMUNITY FIRST BANK OF KENTUCKY AND COMMUNITY FIRST BANK, N.A. NCBE is
a party to an Agreement and Plan of Merger dated March 9, 1998, with
Community First Financial, Inc. ("CFF"), the holding company for Community
First Bank of Kentucky, a Kentucky banking corporation, which has two offices
in Warsaw and Dry Ridge, Kentucky, and Community First Bank, National
Association, a national banking association, which has six offices in
Maysville, May's Lick and Mount Olivet, Kentucky and Aberdeen and Ripley,
Ohio. The agreement relates to the acquisition of CFF in a merger transaction
in which up to 1,441,862 shares of NCBE Common would be issued to
shareholders of CFF. As of March 31, 1998, CFF's subsidiary banks had total
assets of $135.2 million and total shareholders' equity of $12.7 million. The
acquisition is subject to regulatory approval and approval by
32
<PAGE>
shareholders of CFF. The acquisition is expected to qualify for the pooling
of interests method of accounting. The parties expect to close the merger in
the third quarter of 1998.
THE RIPLEY COUNTY BANK. NCBE is a party to an Agreement and Plan of
Merger dated April 21, 1998, with Hoosier Hills Financial Corporation
("HHFC"), the holding company for The Ripley County Bank ("RCB"), an Indiana
banking corporation, which has offices in Milan, Osgood, and Versailles,
Indiana. The agreement relates to the acquisition of HHFC in a merger
transaction in which up to 775,625 shares of NCBE Common (subject to increase
under certain circumstances, at NCBE's election) would be issued. As of March
31, 1998, RCB had total assets of $109.5 million, net loans of $85.6 million,
total deposits of $86.8 million and total shareholders' equity of $11.4
million. The acquisition is subject to the approval of the shareholders of
HHFC and the Federal Reserve. The acquisition is expected to qualify for the
pooling of interests method of accounting. The parties expect to close the
merger in the third or fourth quarter of 1998.
PRINCETON FEDERAL BANK, FSB. NCBE is a party to an Agreement and Plan of
Reorganization dated May 22, 1998 with Princeton Federal Bank, fsb ("PFB"), a
federal savings bank, with a single office in Princeton, Kentucky. The
agreement relates to the acquisition of PFB in a transaction in which PFB
would merge with an interim subsidiary of NCBE, and approximately 201,000
shares of NCBE Common would be issued. As of March 31, 1998, PFB had total
assets of $32.3 million and total shareholders equity of $4.4 million. The
acquisition is subject to regulatory approval and the approval of
shareholders of PFB. The acquisition is expected to qualify for the pooling
of interests method of accounting. The parties expect to close the merger in
the third or fourth quarter of 1998.
BANK OF CRITTENDEN. NCBE is a party to an Agreement and Plan of Merger
dated June 30, 1998 with Commonwealth Commercial Corp. ("CCC"), the holding
company for Bank of Crittenden ("BC"), a Kentucky banking corporation, which
has one office in Crittenden, Kentucky. The agreement relates to the
acquisition of CCC in a merger transaction in which approximately to 209,000
shares of NCBE Common would be issued. As of March 31, 1998, BC had total
assets of $25.9 million, net loans of $18.4 million, total deposits of $22.1
million and total shareholders' equity of $2.6 million. The acquisition is
subject to the approval of the Federal Reserve. The acquisition is expected
to qualify for the pooling of interests method of accounting. The parties
expect to close the merger in the fourth quarter of 1998.
DOWNSTATE NATIONAL BANK. NCBE is a party to an Agreement and Plan of
Merger dated July 9, 1998, with Downstate Banking Co. ("DBC"), the holding
company for Downstate National Bank ("DNB"), which has one office in
Brookport, Illinois. The agreement relates to the acquisition of DBC in a
merger transaction in which approximately 101,250 shares of NCBE Common would
be issued. DNB would concurrently merge into and become a branch of NCBE's
subsidiary, Illinois One Bank, National Association. As of March 31, 1998,
DNB had total assets of $21.9 million, net loans of $12.7 million, total
deposits of $19.6 million and total shareholders' equity of $2.0 million. The
acquisition is subject to the approval of the Office of the Comptroller of
the Currency. The acquisition is expected to qualify for the pooling of
interests method of accounting. The parties expect to close the merger in the
fourth quarter of 1998.
THE PROGRESSIVE BANK, NATIONAL ASSOCIATION. NCBE is party to an
Agreement and Plan of Merger dated July 14, 1998, with Progressive
Bancshares, Inc. ("PBI"), the holding company for The Progressive Bank,
National Association ("TPB"), which has four offices in Lexington,
Lawrenceburg and Owingsville, Kentucky. The agreement relates to the
acquisition of PBI in a merger transaction in which approximately 975,700
shares of NCBE Common would be issued. As of March 31, 1998, TPB had total
assets of $142.9 million, net loans of $114.5 million, total deposits of
$125.7 million, and total shareholders' equity of $11.1 million. The
acquisition is subject to regulatory approval and the approval of the
shareholders of PBI. The acquisition is expected to qualify for the pooling
of interest method of accounting. The parties expect to close the merger in
the fourth quarter of 1998.
33
<PAGE>
The following is a description of a recent securities offering:
TRUST PREFERRED OFFERING. On March 30, 1998, NCBE Capital Trust I (the
"Trust"), an affiliate of NCBE, completed a $34.5 million public offering of
its cumulative trust preferred securities. The Trust used the proceeds of the
public offering and funds from NCBE to purchase $35.6 million principal
amount of subordinated debentures to be issued by NCBE. NCBE used the net
proceeds from the sale of its subordinated debentures to repay indebtedness
incurred in the acquisitions of VBI discussed above.
YEAR 2000 ISSUE
The Year 2000 poses a unique set of challenges to industries reliant on
information technology. As a result of methods employed by early programmers,
many software applications and operational programs may be unable to
distinguish the year 2000 from the year 1900. If not effectively addressed,
this problem could result in the production of inaccurate data, or, in the
worst cases, the inability of the systems to continue to function altogether.
Financial institutions are particularly vulnerable due to the industry's
dependence on electronic data processing systems.
NCBE is committed to a plan for achieving Year 2000 compliance.
Management believes that the expenditures required to bring systems into
compliance will not have a materially adverse effect on NCBE's performance.
However, the Year 2000 problem is pervasive and complex and can potentially
affect any computer process. Accordingly, no assurance can be given that Year
2000 compliance can be achieved without additional unanticipated expenditures
and uncertainties that might affect future financial results.
NCBE and its banking subsidiaries are subject to examination with
respect to their Year 2000 compliance by various state and federal agencies,
including the Federal Reserve Board, the OCC, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, and state banking
agencies. If NCBE does not maintain at least its current "satisfactory"
rating with respect to its Year 2000 compliance efforts, action on regulatory
applications seeking approval of acquisitions may be delayed until the rating
is improved. There can be no assurance that Year 2000 compliance issues will
not delay the consummation of pending acquisitions or future acquisitions or
otherwise adversely affect NCBE's ability to continue to grow through
acquisition.
34
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of NCBE Common
beneficially owned as of the Record Date by (i) each person or group of
persons known to NCBE to be the beneficial owner of more than five percent
(5%) of the issued and outstanding shares of NCBE Common and (ii) each
director and executive officer of NCBE. Also set forth below is such
information adjusted for the Merger (assuming the issuance of 302,134 shares
of NCBE Common). Except as otherwise noted, each person or group identified
below holds sole voting and sole investment power with respect to the shares
identified as beneficially owned.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to the Merger After the Merger
----------------------- ----------------------
Name Shares Percent Shares Percent
- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Janice L. Beesley 60,734(1) * 60,734 *
Michael F. Elliott 340,895(2) _._% 340,895 _._%
Susanne R. Emge 24,580(3) * 24,580 *
Donald G. Harris 12,095 * 12,095 *
H. Ray Hoops 1,015 * 1,015 *
Robert A. Keil 57,443(4) * 57,443 *
John D. Lippert 71,797(5) * 71,797 *
Ronald G. Reherman 9,105(6) * 9,105 *
Curtis D. Ritterling 2,651(7) 2,651
Laurence R. Steenberg 29,402(8) * 29,402 *
Richard F. Welp 4,154(9) 4,154
Stephen C. Byelick, Jr. 216(7) 216
All directors and executive 613,901(10) _._% 613,901 _._%
officers as a group (12 persons)
</TABLE>
- ------------
* Less than 1%.
(1) Includes 28,218 shares with sole voting and investment power, 28,106
shares with sole voting and investment power by spouse and 4,410 shares
that may be purchased pursuant to options exercisable within 60 days.
(2) Includes 251,813 shares with sole voting and investment power; 19,262
shares with shared voting and investment power with spouse; 20,819 shares
with sole voting and investment power by spouse; and 3,248 shares held by
a trust with shared voting and investment power; and 45,753 shares subject
to options exercisable within 60 days.
(3) Includes 2,028 shares with sole voting and investment power; 14,899 shares
with shared voting and investment power with spouse; and 7,658 shares with
sole voting and investment power by spouse.
(4) Includes 11,720 shares with shared voting and investment powers with
spouse; and 45,753 shares subject to options exercisable within 60
days. (5) Includes 15,695 shares with sole voting and investment
power; 8,274 shares with sole voting and investment power by spouse;
and 47,828 shares subject to options exercisable within 60 days.
(6) Includes 3,401 shares with sole voting and investment power; and 5,704
shares with shared voting and investment power with spouse.
(7) Shares voting and investment power for all shares with spouse.
(8) All shares are held in trust for a limited partnership of which Mr.
Steenberg is a general partner with sole voting and investment power.
(9) Includes 1,960 shares with sole voting and investment power; and 2,194
shares with shared voting and investment power with spouse.
(10) Includes 143,744 shares subject to options exercisable within 60 days.
35
<PAGE>
INFORMATION CONCERNING BANCORP
BUSINESS
Bancorp was incorporated under the laws of the State of Illinois on
February 4, 1986 to serve as a bank holding company for the Bank. The Bank is a
state banking association that commenced business in 1957. The business of
Bancorp consists solely of the ownership, supervision and control of the Bank.
The Bank has one banking office in Vienna, Illinois. As of March 31, 1998,
Bancorp had, on a consolidated basis, total assets of $39.6 million, loans net
of unearned discount of $20.7 million, total deposits of $34.2 million, and
stockholders' equity of $5.0 million. Bancorp employed 13 full-time employees as
of March 31, 1998.
The Bank is a full-service community bank that offers banking services to
commercial and residential customers throughout southern Illinois. Such banking
services include commercial, real estate, and personal loans; money market
accounts; and checking, savings, and time deposit accounts. The lending portion
of the Bank's business relates primarily to the activities of small- to
medium-sized businesses, local community residences, and other consumer
purposes.
The Bank is subject to competition from major banking institutions as well
as other financial institutions in its principal service area, such as savings
and loan associations, insurance companies, credit unions, and finance
companies.
Bancorp is subject to supervision, regulation, and examination by the
Federal Reserve Board and the Bank is subject to supervision, regulation, and
examination by the Commissioner of Banks and Real Estate and the Federal Deposit
Insurance Corporation. The deposits of the Bank are insured by the Bank
Insurance Fund (BIF) of the Federal Deposit Insurance Corporation.
SELECTED FINANCIAL DATA OF BANCORP
The selected consolidated data as of and for the two years ended December
31, 1997 and 1996 have been derived from financial statements audited by
independent public accountants, whose report can be found elsewhere in this
Proxy Statement/Prospectus. This data should be read in conjunction with
Bancorp's Consolidated Financial Statements and the Notes thereto and
"--Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Quarter Ended Year Ended
March 31, December 31,
(Dollar amounts other than ------------------------------- ------------------------------
per share data in thousands) 1998 1997 1997 1996
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net interest income $ 383 $ 388 $ 1,553 $ 1,502
Provision for loan losses 11 11 42 84
Noninterest income 47 47 208 186
Noninterest expense 235 220 933 871
Income before income taxes 184 204 786 733
Income taxes 57 57 245 216
Net income $ 127 $ 147 $ 541 $ 517
Per Common Share
Basic Earnings $ 29.78 $ 31.52 $ 122.48 $ 110.85
Book value 1,163.70 1,071.40 1,133.44 1,045.24
Cash dividend declared - - 42.00 35.00
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Year Ended
March 31, December 31,
(Dollar amounts other than ------------------------------- ------------------------------
per share data in thousands) 1998 1997 1997 1996
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Totals
Loans $ 20,966 $ 20,840 $ 20,937 $ 21,279
Allowance for loan losses 296 304 315 282
Securities 14,590 13,725 13,992 13,169
Total assets 39,553 38,024 38,670 37,166
Deposits 34,220 32,681 33,377 31,837
Stockholders' equity 4,962 4,997 4,833 4,875
Selected Financial Ratios
Net income to average assets .32% .39% 1.41% 1.42%
Net income to average equity 2.56 2.97 11.20 10.95
Cash dividend payout - - 33.09 31.53
Average equity to average assets 12.68 13.16 12.62 13.00
Tangible equity to tangible assets 12.68 13.28 12.63 13.42
Total capital to risk weighted assets 25.06 25.33 24.48 24.31
Other Data
Weighted average shares 4,264 4,664 4,417 4,664
Risk weighted assets $ 19,797 $ 19,727 $ 19,745 $ 20,052
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION. The following discussion and analysis is intended to review
the significant factors affecting the financial condition and results of
operations of Bancorp for the three months ended March 31, 1998 and the two-year
period ended December 31, 1997. It provides a more comprehensive review of
factors not otherwise apparent from the consolidated financial statements of
Bancorp alone. Reference should be made to those consolidated financial
statements and the selected financial data presented elsewhere herein for an
understanding of the following review.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND DECEMBER 31, 1997
Bancorp's total assets increased by $1.5 million, or 4.05%, from $37.2
million at December 31, 1996 to $38.7 million at December 31, 1997. Total assets
increased by $883,000, or 2.28%, to $39.6 million as of March 31, 1998.
Total net loans decreased by approximately $375,000 during the year ended
December 31, 1997. Net loans totaled $20.6 million and $21.0 million at December
31, 1997 and 1996, respectively. The decrease in net loans during the year ended
December 31, 1997 is primarily due to a decrease in agricultural real estate
loans. For the three months ended March 31, 1998, total net loans increased by
$48,000 to $20.7 million. This increase was primarily attributable to increases
in the residential and agricultural real estate and consumer loan portfolios,
partially offset by decreases in the areas of non-real estate commercial and
agricultural loans and commercial real estate loans.
The allowance for loan losses totaled $296,000, $315,000, and $282,000 at
March 31, 1998, December 31, 1997 and December 31, 1996, respectively. The
allowance for loan losses as a percentage of non-performing loans was 56.06%,
115.81%, and 216.92% as of March 31, 1998, December 31, 1997 and December 31,
1996, respectively. During 1997, net loan charge-offs amounted to $9,000. An
additional provision of $42,000 was made during the year. During the three
months ended March 31, 1998, net loan charge-offs amounted to $30,000, while an
additional provision of $11,000 was also made during the period. The
determination of the allowance for loan losses is based on management's
analysis, performed on a periodic basis, of various factors, including the
market value of the underlying collateral, growth and composition of the loan
portfolio, the relationship of the allowance for loan losses to outstanding
loans, historical loss experience, delinquency trends and prevailing economic
conditions. Although management
37
<PAGE>
believes its allowance for loan losses is adequate, there can be no assurance
that additional allowances will not be required or that losses on loans will not
be incurred.
At March 31, 1998, the ratio of non-performing loans to total loans was
2.52%, as compared to 1.30% at December 31, 1997, and 0.61% at December 31,
1996. The increase in the ratio is primarily due to increases in the amounts of
loans 90 days or more past due in the real estate and commercial areas. At
December 31, 1997, the ratio of the allowance for loan losses to total loans was
1.50%, as compared to 1.33% at December 31, 1996. The increase in this ratio was
due to the $42,000 provision to the allowance during 1997 which was deemed
necessary due to an increase in nonperforming loans. At March 31, 1998, the
ratio of the allowance for loan losses to total loans had decreased to 1.41%.
At March 31, 1998 and December 31, 1997, Bancorp's investment portfolio
included investment securities classified as available for sale carried at
market values of $11.5 million and $11.8 million, respectively. The balance of
Bancorp's investment portfolio at March 31, 1998 and December 31, 1997 consisted
of securities classified as held to maturity totaling $3.1 million and $2.2
million, respectively.
At March 31, 1998, deposits increased to $34.2 million from $33.4 million
at December 31, 1997. As of December 31, 1997, deposits increased to $33.4
million from $31.8 million at December 31, 1996 for a net increase of 4.83%. The
increase in deposits was primarily attributable to the Bank's ongoing efforts to
competitively attract deposits.
Time deposits at December 31, 1997 included approximately $2.0 million of
deposits with balances of $100,000 or more that mature within one year. Such
time deposits are inherently risky because their continued presence in the Bank
is often dependent solely upon the rates paid by the Bank rather than any
customer relationship and, therefore, are likely to be withdrawn upon maturity
if another institution offers higher interest rates. The Bank may be required to
resort to other funding sources such as borrowing or sales of its securities
held available for sale if the Bank believes that increasing its rates to
maintain such deposits would adversely affect its operating results. At this
time, the Bank does not believe that it will need to significantly increase its
deposit rates to maintain such certificates of deposit, and, therefore, does not
anticipate resorting to alternative funding sources.
Historically, Bancorp has not made significant use of borrowings. At March
31, 1998 and December 31, 1997, Bancorp had no outstanding borrowings.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996,
AND THE PERIODS ENDED MARCH 31, 1998 AND 1997
NET INCOME ANALYSIS. Bancorp's net income for the year ended December 31,
1997 was $541,000, as compared to $517,000 for the year ended December 31, 1996.
The increase in net income was due primarily to increases in net interest income
and non-interest income, aided by a decrease in the provision for loan loss
expense. These items were partially offset by increases in non-interest expense
and the provision for income taxes.
For the three months ended March 31, 1998 and March 31, 1997, net income
was $127,000 and $147,000, respectively. The decrease was due primarily to an
increase in non-interest expense and a decrease in net interest income.
NET INTEREST INCOME. Net interest income is the largest component of
earnings and is affected by the volume of the sources and uses of funds, the
respective rates earned and paid on those funds, the mix of those funds, and the
volume of nonperforming assets. Bancorp's net interest income increased
approximately 3.20% to $1.6 million on a tax-equivalent basis for the year ended
December 31, 1997. The net yield on interest-earning assets, which is calculated
by dividing tax-equivalent net interest income by average interest-earning
assets, was 4.39% in 1997, as compared to 4.47% in 1996. Bancorp's yield on
interest-earning assets increased to 8.12% in 1997 from 8.05% in 1996, while the
cost of funds increased to 4.60% in 1997 from 4.46% in 1996. The increase in net
yield on interest-earning assets was
38
<PAGE>
primarily attributable to increases in the average rate earned on loans and
investment securities in 1997 as compared to 1996.
During the year ended December 31, 1997, increases in the average volume of
loans resulted in an increase in interest income of $62,000. This increase was
accompanied by a $61,000 increase in interest income due to net increases in the
average volume of investment securities and federal funds sold. Changes in
interest rates on the average volume of investment securities, federal funds
sold, and loans increased interest income by $45,000. Increases in the average
volume of time deposits resulted in an increase in interest expense of $88,000,
which was accompanied by a $4,000 increase due to changes in the average volume
of demand and savings deposits. Changes in interest rates on the average volume
of interest-bearing demand deposits and time deposits increased interest expense
by $26,000. The net effect of the volume and rate changes associated with all
categories of interest-earning assets during the year ended December 31, 1997
increased interest income by $168,000 compared to the year ended December 31,
1996, while the net effect of the volume and rate changes associated with all
categories of interest-bearing liabilities increased interest expense by
$118,000.
Net interest income on a tax-equivalent basis was $400,000 for the
three-month period ended March 31, 1998, a 0.50% decrease from the same period
of 1997. On a tax-equivalent basis, interest income increased by $24,000 for the
three-month period ended March 31, 1998 and interest expense increased by
$26,000. The decrease in net interest income was primarily attributable to the
level of interest-bearing liabilities at March 31, 1998 increasing at a higher
rate than interest-earning assets, as compared to the corresponding period in
1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses charged to expense
was $42,000 for the year ended December 31, 1997, compared to $84,000 for the
year ended December 31, 1996. The increase in the provision expense is a result
of management's intention to increase the allowance for loan losses to a
sufficient level based upon the level of nonperforming loans in the loan
portfolio.
The provision for loan losses was $11,000 for both the three months ended
March 31, 1998 and the three months ended March 31, 1997.
The allowance for loan losses is maintained at a level considered adequate
to provide for potential losses. The provision for loan losses is based on a
periodic analysis considering, among other factors, current economic conditions,
loan portfolio composition, past loan loss experience, independent appraisals,
loan collateral, and payment experience. In addition to the allowance for losses
on identified problem loans, an overall unallocated allowance is established to
provide for unidentified credit losses inherent in the portfolio. As adjustments
become necessary, they are reflected in the results of operations in the periods
in which they become known.
Management believes the allowance for loan losses is adequate to absorb
losses in the loan portfolio. While management uses available information to
recognize loan losses, future additions to the allowance may be necessary based
on changes in economic conditions. In addition, various regulatory agencies, as
an integral part of the examination process, periodically review the allowance
for loan losses. Such agencies may require Bancorp to increase the allowance for
loan losses based on their judgments and interpretations about information
available to them at the time of their examinations.
NON-INTEREST INCOME. Bancorp's non-interest income was $208,000 for the
year ended December 31, 1997, as compared to $186,000 for the year ended
December 31, 1996. This increase is due primarily to a $29,000 increase in
service charges collected from customers, partially offset by a $7,000 net
decrease in various other income items.
Non-interest income for the three months ended March 31, 1998 was $47,000,
remaining at the same level as compared to the same period in 1997.
39
<PAGE>
NON-INTEREST EXPENSE. Non-interest expense increased 7.12% to $933,000 for
the year ended December 31, 1997, as compared to $871,000 for the year ended
December 31, 1996. This increase resulted from a $47,000 increase in salaries
and employee benefits, and net increases of $15,000 in other expense items.
Non-interest expense totaled $235,000 for the three months ended March 31,
1998 as compared to $220,000 for the three months ended March 31, 1997. The
components of the increase between the two periods were a $4,000 increase in
salaries and employee benefits, a $5,000 increase in net occupancy expense, and
a net increase of $6,000 in other expense items.
INCOME TAXES. Bancorp recorded income tax expense of $245,000 for the year
ended December 31, 1997 and $216,000 for the year ended December 31, 1996. The
effective income tax rates were 31.17% and 29.47% for the years ended December
31, 1997 and 1996, respectively. A factor which affected the increase in the
effective rate was Bancorp's net income becoming subject to payment of state
income tax during 1997.
Income taxes of $57,000 were recorded for both the three months ended March
31, 1998 and the three months ended March 31, 1997.
LIQUIDITY. The role of liquidity is to ensure funds are available to meet
depositors' withdrawal and borrowers' credit demands while at the same time
maximizing profitability. This is accomplished by balancing changes in demand
for funds with changes in the supply of those funds. Liquidity to meet the
demand is provided by maturing assets, short-term liquid assets that can be
converted to cash and the ability to attract funds from external sources,
principally depositors.
The Bank has a number of sources of funds to meet liquidity needs on a
daily basis. An increase in loans affects liquidity as the repayment of
principal and interest are a daily source of funds. The deposit base, consisting
of consumer and commercial deposits and large dollar denomination ($100,000 and
over) certificates of deposit, is another source of funds. The majority of these
deposits are from long-term customers and are a stable source of funds. The Bank
has no brokered deposits. Federal funds purchased also provide an available
source of liquidity, although this source is seldom needed.
Other sources of funds available to meet daily needs include the sales of
securities under agreements to repurchase. Also, the Bank is authorized to
borrow from correspondent banks to supplement their supply of lendable funds and
to meet deposit withdrawal requirements. There were no outstanding borrowings as
of December 31, 1997 or March 31, 1998.
Bancorp's liquidity depends primarily on the dividends paid to it as the
sole shareholder of the Bank.
CAPITAL ADEQUACY. Bancorp's total stockholders' equity was $5.0 million,
$4.8 million, and $4.9 million at March 31, 1998, December 31, 1997 and December
31, 1996, respectively. From December 31, 1997 to March 31, 1998, equity capital
increased $129,000 as a result of net income of $127,000 and a net unrealized
gain on securities available for sale of $2,000. From December 31, 1996 to
December 31, 1997, equity capital decreased by $42,000 as a result of net income
of $541,000 and a net unrealized gain on securities available for sale of
$36,000, offset by cash dividends of $179,000, and the purchase of treasury
stock for $440,000.
Bank holding companies and their subsidiary banks are required to meet
certain risk based capital ratios by the applicable regulatory authorities.
These risk based ratios measure the relationship of capital to risk weighted
assets, which are the sum of on and off balance sheet amounts for various assets
and commitments, adjusted by various risk weightings prescribed by the
regulatory authorities.
At December 31, 1997, the Bank's tier 1 and total risk based capital ratios
were 24.07% and 25.32%, respectively. These ratios exceed the minimum 4.0% and
8.0% ratios prescribed by the regulators. A minimum leverage ratio, based upon
tier 1 capital and average total assets, supplements the risk based capital
ratios. The minimum leverage ratio is
40
<PAGE>
3.0%; however, most banks are required to maintain a minimum in excess of that
amount. The Bank's leverage ratio was 12.71% at December 31, 1997. Further
details regarding regulatory capital requirements and the capital ratios of the
Bank are contained in Note 12 to the consolidated financial statements. Bancorp
and the Bank exceed all regulatory capital ratios required to be categorized as
well-capitalized.
RETURN ON EQUITY AND ASSETS
The following table presents various key financial ratios for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996
------ -----
<S> <C> <C>
Return on average assets 1.41% 1.42%
Return on average stockholders' equity 11.20% 10.95%
Dividend payout ratio 33.09% 31.53%
Average equity to average assets ratio 12.62% 13.00%
</TABLE>
RISK MANAGEMENT. Bancorp's management objective in structuring the balance
sheet is to maximize the return on stockholders' equity while minimizing the
associated risks. The major risks involved in the banking industry are market,
credit, and liquidity risks. The following is a discussion of Bancorp's
management of those risks.
Market Risk Management. Bancorp's management believes its loan and
investment portfolios are sufficiently diversified to minimize the effect of a
downturn in any particular industry or market. Although the Bank has a
diversified loan portfolio, a substantial portion of its borrowers' abilities to
honor their contractual obligations is dependent upon the agribusiness economic
sector in its geographic lending area. Commercial and agricultural loans as of
December 31, 1997 totaled $3.0 million, or 13.94% of the loan portfolio.
Residential real estate loans at December 31, 1997 totaled $9.7 million, or
45.87% of the loan portfolio, while other real estate loans totaled $5.1
million, or 24.27%, of the loan portfolio. Loans to consumers totaled $3.4
million, or 15.92%, of the loan portfolio as of December 31, 1997. The
commercial and agricultural loan portfolio, which includes loans made primarily
to businesses located in southern Illinois and served by the Bank, is generally
secured by business assets such as farm equipment, crops, inventory, accounts
receivable, and equipment.
As of December 31, 1997, the total investment portfolio was $14.0 million.
Of this portfolio, approximately 59.07% is comprised of U.S. Treasury and
government agency issues, approximately 13.54% is comprised of state and
municipal issues, and the remaining portion is comprised of mortgage-backed
securities and other securities.
Credit Risk Management. The risks Bancorp's management assumes in providing
credit products to customers are fundamental to its business operations. Credit
risk management includes defining an acceptable level of risk and return,
establishing policies and procedures to govern the credit process, and
maintaining a thorough portfolio review function. Credit policies are ultimately
the responsibility of Bancorp's Board of Directors and, as such, are reviewed
and approved by the Board of Directors. Of equal importance in this risk
management process are the ongoing monitoring procedures performed by
management.
Nonperforming loans represented 2.52% of total loans as of March 31, 1998,
as compared to 1.30% and 0.61% at December 31, 1997 and 1996, respectively.
Bancorp owned no other real estate at March 31, 1998, December 31, 1997, or
December 31, 1996.
Liquidity Risk Management. Liquidity is a measurement of Bancorp's ability
to meet the borrowing needs and the deposit withdrawal requirements of its
customers. Bancorp actively manages the composition of its assets and
liabilities to maintain the appropriate level of liquidity in the balance sheet.
Management is guided by regularly reviewed policies when determining the
appropriate portion of total assets which should be comprised of readily
marketable assets available to meet future liquidity needs.
41
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and notes thereto presented herein
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the change in the relative
purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased cost of Bancorp's operations. Unlike
most industrial companies, nearly all the assets and liabilities of the Bank are
monetary in nature. As a result, interest rates have a greater impact on
Bancorp's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
OTHER MATTERS
As with all providers of financial services, Bancorp's operations are
heavily dependent on information technology systems. Bancorp is addressing the
potential problems associated with the possibility that the computers that
control or operate Bancorp's information technology system and infrastructure
may not be programmed to read four-digit date codes and, upon arrival of the
year 2000, may recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data. Bancorp is working
with the companies that supply or service its information technology systems to
identify and remedy any year 2000 related problems.
As of the date of this statement, Bancorp has not identified any specific
expenses that are reasonably likely to be incurred by Bancorp in connection with
this issue and does not expect to incur significant expense to implement the
necessary corrective measures. No assurance can be given, however, that
significant expense will not be incurred in future periods. In the event that
Bancorp is ultimately required to purchase replacement computer systems,
programs and equipment, or incur substantial expense to make its current
systems, programs and equipment year 2000 compliant, Bancorp's net earnings and
financial condition could be adversely affected.
In addition to possible expense related to its own systems, Bancorp could
incur losses if loan payments are delayed due to year 2000 problems affecting
any major borrowers in the Bank's primary market area. Because the Bank's loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses and the Bank's primary market area is not significantly dependent
upon one employer or industry, the Bank does not expect any significant or
prolonged difficulties that will affect net earnings or cash flow.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Transfers and Servicing of Financial Assets. In June, 1996,
the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." SFAS No. 125 establishes
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on the consistent application of
the financial components approach. This approach requires the recognition of
financial assets and servicing assets that are controlled by the reporting
entity, the derecognition of financial assets when control is surrendered, and
the derecognition of liabilities when they are extinguished. Specific criteria
are established for determining when control has been surrendered in the
transfer of financial assets. SFAS No. 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996. Subsequent to the issuance of SFAS No. 125, the FASB issued
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." This statement defers for one year the effective date of
SFAS No. 125 as applies to secured borrowings and collateral and certain other
transactions. Bancorp has adopted the relevant provisions of the statement
during 1997, and will adopt the provisions of the statement which become
effective in 1998 at that time. The provisions of the statement adopted in 1997
did not have a material effect on Bancorp's financial position or operating
results, and management does not currently believe that the future adoption of
additional provisions of this statement will have such an effect.
Earnings per Share. In February, 1997, the FASB issued SFAS No. 128,
"Earnings per Share". SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly held
42
<PAGE>
common stock or potential common stock. The statement simplifies the standards
for computing earnings per share previously found in APB Opinion No. 15,
"Earnings per Share", and makes them comparable to international EPS standards.
It replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures, and requires
a reconciliation of the two computations. This statement is effective for
financial statements issued for periods ending after December 15, 1997, with
earlier application not permitted. Bancorp has adopted SFAS No. 128 effective
for the year ended December 31, 1997.
Comprehensive Income. In June, 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes 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. This statement 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.
This statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. This statement is effective for fiscal years beginning after
December 15, 1997. The provisions of this statement are reflected in the
accompanying financial statements.
Disclosures about Segments of an Enterprise and Related Information. In
June, 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
statement is effective for financial statements for periods beginning after
December 15, 1997. The management of Bancorp plans to adopt the appropriate
provisions of the statement during 1998 as applicable, and does not currently
believe that the future adoption of this statement will have a material effect
on Bancorp's financial position or operating results.
Employer's Disclosure about Pensions and Other Postretirement Benefits. In
February, 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits. This
statement is effective for financial statements for periods beginning after
December 15, 1997. The management of Bancorp plans to adopt the appropriate
provisions of the statements at January 1, 1998, and does not currently believe
that the future adoption of this statement will have a material effect on
Bancorp's financial position or operating results.
Accounting for Derivative Instruments and Hedging Activities. On June 15,
1998, the FASB issued FAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." FAS 133 established a new model for accounting for
derivatives and hedging activities and supersedes and amends a number of
existing standards. FAS 133 is effective for fiscal years beginning after June
15, 1999, but earlier application is permitted as of the beginning of any fiscal
quarters subsequent to June 15, 1998. Upon the statement's initial application,
all derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. In
addition, all hedging relationships must be designated, reassessed and
documented pursuant to the provisions of FAS 133. Adoption of FAS 133 is not
expected to have a material financial statement impact on Bancorp.
43
<PAGE>
OTHER DATA
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY, AND
INTEREST RATES
The following table shows the condensed average balance sheets for the
periods presented. Also shown are the average yield on each category of
interest-earning assets and the average rate paid on interest-bearing
liabilities for each of the periods presented.
44
<PAGE>
AVERAGE BALANCES AND RATES - TAXABLE EQUIVALENT BASIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- --------------------------
Average Average Average Average Average Average
Balances Interest Rate Balances Interest Rate Balances Interest Rate
-------- -------- ---- -------- -------- ---- -------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets (1)
Loans $21,136 $1,925 9.11% $20,441 $1,811 8.86% $17,901 $1,495 8.35%
Securities
Taxable 11,603 784 6.76 11,689 783 6.70 12,955 914 7.06
Tax exempt 1,988 161 8.10 1,998 161 8.06 2,041 165 8.08
Federal funds sold 2,026 113 5.58 844 60 7.11 809 39 4.82
------- ----- ---- ------- ----- ----- ------- ----- -----
Total interest-earning
assets 36,753 2,983 8.12 34,972 2,815 8.05 33,706 2,613 7.75
----- ---- ----- ----- ----- -----
Non-earning assets,
less allowance for
loan losses 1,517 1,356 1,622
----- ----- -----
Total assets $38,270 $36,328 $35,328
------- ------- -------
------- ------- -------
Interest-bearing
liabilities
Deposits: Demand $ 7,713 239 3.10 $ 7,599 235 3.09 $ 7,248 227 3.13
Savings 3,404 103 3.03 3,373 102 3.02 3,333 100 3.00
Time 18,672 1,027 5.50 17,063 914 5.36 16,779 873 5.20
Federal funds
purchased and
securities sold
under agreements
to repurchase - - - - 87 2 2.30
------- ----- ----- ------- ----- ----- ------- ----- -----
Total interest bearing
liabilities 29,789 1,369 4.60 28,035 1,251 4.46 27,447 1,202 4.38
----- ---- ----- ----- ----- -----
Non-interest bearing
liabilities
Demand deposits 3,053 2,931 2,886
Other 599 639 539
------- ------- -------
Total liabilities 33,441 31,605 30,872
Stockholders' equity 4,829 4,723 4,456
------- ------- -------
Total liabilities
and stockholders'
equity $38,270 $36,328 $35,328
------- ------- -------
------- ------- -------
Net interest income $1,614 $1,564 $1,411
------ ------ ------
------ ------ ------
Net interest spread 3.52% 3.59% 3.37%
---- ----- -----
---- ----- -----
Net yield on interest-
earning assets 4.39% 4.47% 4.19%
---- ----- -----
---- ----- -----
Ratio of average interest-
earning assets to average
interest-bearing liabilities 123.38% 124.74% 122.80%
------ ------ ------
</TABLE>
(1) Average balances include nonaccrual loans. The income on such loans is
included in interest income and is recognized only upon receipt.
(2) Nontaxable investment and loan income presented on a fully tax-equivalent
basis, assuming a tax rate of 34%. The tax effect resulted in an increase in
interest income of $61,000, $62,000, and $64,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
45
<PAGE>
RATE/VOLUME ANALYSIS
The following table sets forth the changes in net interest income due to
changes in rates (computed on a taxable equivalent basis) and changes in volume
for 1997 and 1996. Taxable equivalent rates are based on a 34% tax rate. The
change in interest due to both rate and volume has been allocated to the change
due to volume and change due to rate in proportion to the relationship of the
absolute dollar amounts of the change in each.
TAXABLE EQUIVALENT RATE/VOLUME ANALYSIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997/1996 1996/1995
--------------------------------- ---------------------------------
Increase (Decrease) due to Increase (Decrease) due to
--------------------------------- ---------------------------------
Net Change Rate Volume Net Change Rate Volume
---------- ---- ------ ---------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans $ 114 $ 52 $ 62 $ 316 $ 95 $ 221
Securities:
Taxable 1 7 (6) (131) (45) (86)
Tax exempt - 1 (1) (4) - (4)
Federal funds sold 53 (15) 68 21 19 2
------- ------- -------- ------- ------- --------
Total interest income $ 168 $ 45 $ 123 $ 202 $ 69 $ 133
------- ------- -------- ------- ------- --------
Interest expense
Deposits: Demand $ 4 $ 1 $ 3 $ 8 $ (3) $ 11
Savings 1 - 1 2 1 1
Time 113 25 88 41 26 15
Federal funds purchased
and securities sold under
agreements to repurchase - - - (2) - (2)
------- ------- -------- ------- ------- --------
Total interest expense $ 118 $ 26 $ 92 $ 49 $ 24 $ 25
------- ------- -------- ------- ------- --------
Net interest income $ 50 $ 19 $ 31 $ 153 45 $ 108
------- ------- -------- ------- ------- --------
------- ------- -------- ------- ------- --------
</TABLE>
Securities
The carrying value of securities is summarized as follows:
<TABLE>
<CAPTION>
(In Thousands)
March 31, December 31, December 31,
1998 1997 1996
--------- ------------ ------------
<S> <C> <C> <C>
U. S. Treasury and government
agencies $ 8,283 $ 8,265 $ 5,733
Obligations of states and political
subdivisions 2,814 1,894 1,887
Mortgage-backed securities 3,493 3,833 5,299
Other debt securities - - 250
-------- -------- ---------
$ 14,590 $ 13,992 $ 13,169
-------- -------- --------
-------- -------- --------
</TABLE>
46
<PAGE>
The expected maturity distribution and weighted average rates on a tax
equivalent basis of securities at December 31, 1997 and March 31, 1998 follows:
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
----------------- ------------------ ----------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury and
government agencies $ 500 6.01% $3,001 6.23% $4,763 6.44% $ -- --%
Obligations of states and
political subdivisions 82 7.22 475 7.49 1,137 7.74 200 8.58
Mortgage-backed securities 627 6.23 2,247 7.18 856 7.21 104 7.49
------ ----- ------ ------- ------- ------ ------ -----
$1,209 6.20% $5,723 6.71% $6,756 6.76% $304 8.22%
------ ----- ------ ------- ------- ------ ------ -----
------ ----- ------ ------- ------- ------ ------ -----
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
-------------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
----------------- ------------------ ----------------- --------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury and
government agencies $1,752 6.83% $2,503 6.21% $3,528 6.38% $ 500 3.46%
Obligations of states and
political subdivisions 335 7.22 475 7.73 1,488 7.34 516 6.43
Mortgage-backed securities 518 6.15 2,223 6.84 649 7.21 103 7.44
------ ----- ------ ------- ------- ------ ------ -----
$2,605 6.76% $5,201 6.61% $5,665 6.73% $1,119 5.18%
------ ----- ------ ------- ------- ------ ------ -----
------ ----- ------ ------- ------- ------ ------ -----
</TABLE>
The above expected maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations without call or
prepayment penalties.
LOAN PORTFOLIO
Bancorp's primary source of income is interest on loans. The following
table sets forth the composition of the loan portfolio at March 31, 1998,
December 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
(Dollars in Thousands)
March 31, December 31, December 31,
1998 1997 1996
------------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 2,421 11.40% $ 2,956 13.94% $ 2,947 13.67%
Real Estate - Construction 132 0.62 124 0.58 127 0.59
Real Estate - Commercial 2,737 12.89 2,890 13.63 2,785 12.91
Real Estate - Agricultural 2,228 10.49 2,134 10.06 2,632 12.20
Real Estate - Residential 10,122 47.66 9,726 45.87 9,565 44.36
Consumer 3,597 16.94 3,375 15.92 3,509 16.27
------- ------- ------- ------- ------- -------
Total Gross Loans $21,237 100.00% $ 21,205 100.00% $21,565 100.00%
Less - Unearned income 271 268 286
- Allowance for loan losses 296 315 282
------- ------- -------
Total Loans, Net $20,670 $20,622 $20,997
------- ------- -------
------- ------- -------
</TABLE>
47
<PAGE>
The following tables present the amount of commercial, financial and
agricultural loans, and construction and development loans, at December 31, 1997
and March 31, 1998, maturing in the periods indicated. Also shown are the
amounts due after one year classified according to sensitivity to changes in
interest rates.
<TABLE>
<CAPTION>
(In Thousands)
December 31, 1997
--------------------------------------------------------------------------------------
Over
One Year Rate Structure for Loans
One Year Through Over Five Maturing over One Year
or Less Five Years Years Total Predetermined Adjustable
-------- ---------- --------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 2,587 $ 346 $ 23 $ 2,956 $ 369 $ --
Real Estate - Construction 124 -- -- 124 -- --
-------- ---------- --------- -------- ------------- ----------
$ 2,711 $ 346 $ 23 $ 3,080 $ 369 $ --
-------- ---------- --------- -------- ------------- ----------
-------- ---------- --------- -------- ------------- ----------
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
--------------------------------------------------------------------------------------
Over
One Year Rate Structure for Loans
One Year Through Over Five Maturing over One Year
or Less Five Years Years Total Predetermined Adjustable
-------- ---------- --------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 2,017 $ 376 $ 28 $ 2,421 $ 404 $ --
Real Estate - Construction 132 -- -- 132 -- --
-------- ---------- --------- -------- ------------- ----------
$ 2,149 $ 376 $ 28 $ 2,553 $ 404 $ -
-------- ---------- --------- -------- ------------- ----------
-------- ---------- --------- -------- ------------- ----------
</TABLE>
NONPERFORMING LOANS AND ASSETS
Nonperforming loans, which include nonaccrual loans, restructured loans,
and loans 90 days or more past due, but still accruing interest, were
approximately $528,000, $272,000, and $130,000 as of March 31, 1998, December
31, 1997, and December 31, 1996, respectively. Nonperforming assets include
nonperforming loans and other real estate. There was no other real estate owned
at March 31, 1998, December 31, 1997, or December 31, 1996. Bancorp's ratios of
nonperforming assets to total assets were 1.33%, 0.70%, and 0.35% as of March
31, 1998, December 31, 1997, and December 31, 1996, respectively.
It is generally Bancorp's policy to discontinue the accrual of interest on
loans when principal or interest is due and has remained unpaid for 90 days or
more, unless the loan is well secured and in the process of collection. If
interest on nonaccrual loans had been accrued, such income would have amounted
to $2,000 for the year ended December 31, 1997. Bancorp did not receive or
recognize interest income on nonaccrual loans for the year ended December 31,
1997.
In addition to the nonperforming loans discussed above, there were loans
for which payments were current or less than 90 days past due where the
borrowers were experiencing significant financial difficulties, which amounted
to $812,000 at December 31, 1997. These loans are monitored by management and
considered in determining the level of the allowance for loan losses.
48
<PAGE>
The following schedule summarizes nonaccrual loans past due 90 days or more
and still accruing, restructured loans, and other real estate owned at March 31,
1998, December 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
(In Thousands)
March 31, December 31, December 31,
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Nonaccrual loans $ - $ 23 $ 61
Loans contractually past due 90 days
or more and still accruing 528 249 69
Restructured loans - - -
- - -
---------- ----------- -----------
Total nonperforming loans $ 528 $ 272 $ 130
Other real estate - - -
- - -
---------- ----------- -----------
Total nonperforming assets $ 528 $ 272 $ 130
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a valuation allowance established to
provide for loans which may not be paid in their entirety. The allowance is
increased by provisions charged to expense and decreased by loan charge-offs,
net of recoveries of previously charged-off loans. Loans are charged off by
management when deemed uncollectible. The allowance for loan losses as a
percentage of nonperforming loans was 56.06%, 115.81%, and 216.92% as of March
31, 1998, December 31, 1997, and December 31, 1996, respectively.
The following table summarizes Bancorp's loan loss experience for the three
months ended March 31, 1998 and the last two years ended December 31:
<TABLE>
<CAPTION>
(In Thousands)
March 31, December 31, December 31,
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Loans, net of unearned income:
Average outstanding during period $ 21,210 $ 21,136 $ 20,441
----------- ----------- -----------
----------- ----------- -----------
Allowance for loan losses:
Balance at beginning of period $ 315 $ 282 $ 216
Charge-offs:
Commercial, financial & agricultural 23 3 3
Real estate - Construction - - -
Real estate - Mortgage - 5 10
Consumer 8 20 13
----------- ----------- -----------
Total 31 28 26
----------- ----------- -----------
Recoveries:
Commercial, financial & agricultural - - 1
Real estate - Construction - - -
Real estate - Mortgage - 14 1
Consumer 1 5 6
----------- ----------- -----------
Total 1 19 8
----------- ----------- -----------
Net charge-offs (recoveries) 30 9 18
Provision charged to operations 11 42 84
---------- ----------- -----------
Balance at end of period $ 296 $ 315 $ 282
----------- ----------- -----------
----------- ----------- -----------
Net charge-offs to average loans
outstanding during period .1414% .0426% .0881%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
49
<PAGE>
Management views the allowance for loan losses as being available for all
potential or previously unidentified loan losses which may occur in the future.
The risk of future losses which is inherent in the loan portfolio is not
precisely attributable to a particular loan or category of loans. Based on its
review of adequacy, Bancorp's management has estimated those portions of the
allowance that could be attributable to major categories of loans.
The following table sets forth the allocation of the allowance for loan
losses and the percent of loans in each category to total
loans as of March 31, 1998, December 31, 1997, and December 31, 1996:
<TABLE>
<CAPTION>
(Dollars in Thousands)
March 31, December 31, December 31,
1998 1997 1996
-------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 64 11.40% $ 59 13.94% $ 60 13.67%
Real Estate - Construction 2 .62 2 .58 2 .59
Real Estate - Commercial 37 12.89 44 13.63 34 12.91
Real Estate - Residential &
Agricultural 164 58.15 178 55.93 148 56.56
Consumer 29 16.94 32 15.92 38 16.27
--------- ------- --------- ------- --------- -------
$ 296 100.00% $ 315 100.00% $ 282 100.00%
--------- ------- --------- ------- --------- -------
--------- ------- --------- ------- --------- -------
</TABLE>
Allocations estimated for the loan categories do not specifically represent
that loan charge-offs of that magnitude will necessarily be incurred. The
allocation does not restrict future loan losses attributable to other
categories. The risk factors considered when determining the overall level of
the allowance for loan losses are the same when estimating the allocation by
major category, as specified in the allowance category.
Deposits
The following table shows, for each type of deposit, the average balance
and rate paid on each type of deposit for the years ended December 31, 1997 and
1996:
<TABLE>
<CAPTION>
(In Thousands)
December 31,
------------------------------------------------------------------------
1997 1996
----------------------------------- -------------------------------
Average Interest Average Interest
Balance Expense Rate Balance Expense Rate
---------- --------- ---------- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 3,053 $ - -% $ 2,931 $ - -%
NOW and money market demand
accounts 7,713 239 3.10 7,599 235 3.09
Savings 3,404 103 3.03 3,373 102 3.02
Time deposits 18,672 1,027 5.50 17,063 914 5.36
---------- --------- ---------- --------- --------- -----
Total $ 32,842 $ 1,369 4.17% $ 30,966 $ 1,251 4.04%
---------- --------- ---------- --------- --------- -----
</TABLE>
Maturities of time deposits over $100,000 at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Three months or less $ 539
Over three through six months 914
Over six months through twelve months 583
Over twelve months 425
------------
$ 2,461
------------
------------
</TABLE>
50
<PAGE>
DESCRIPTION OF NCBE CAPITAL STOCK
AUTHORIZED SHARES
NCBE's Articles of Incorporation presently authorize the issuance of
29,000,000 shares of NCBE Common and 1,000,000 preferred shares, without par
value ("NCBE Preferred"). As of July 8, 1998, there were 11,333,512 shares of
NCBE Common issued and outstanding and no shares of NCBE Preferred issued and
outstanding.
NCBE COMMON
The holders of NCBE Common are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Subject to
preferences that may be applicable to any outstanding NCBE Preferred, holders of
NCBE Common are entitled to receive ratably such dividends as may be declared by
the NCBE Board out of funds legally available therefor. In the event of a
liquidation or dissolution of NCBE, holders of NCBE Common are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference of any outstanding NCBE Preferred.
Holders of NCBE Common have no preemptive rights and have no rights to
convert their NCBE Common into any other securities. All of the outstanding
shares of NCBE Common are, and the shares of NCBE Common issued pursuant to the
Merger will be, duly authorized, validly issued, fully paid and nonassessable.
NCBE PREFERRED
The NCBE Board is authorized to designate any series of NCBE Preferred and
the powers, preferences and rights of the shares of such series and the
qualifications, limitations or restrictions thereof without further action by
the holders of NCBE Common. As of the Record Date, no shares of NCBE Preferred
were issued or outstanding.
The NCBE Board may create and issue a series of NCBE Preferred with rights,
privileges or restrictions, and adopt a shareholder rights plan, having the
effect of discriminating against an existing or prospective holder of such
securities as a result of such security holder beneficially owning or commencing
a tender offer for a substantial amount of NCBE Common. One of the effects of
authorized but unissued and unreserved shares of capital stock may be to render
more difficult or discourage an attempt by a potential acquiror to obtain
control of NCBE by means of a merger, tender offer, proxy contest or otherwise,
and thereby protect the continuity of NCBE's management. The issuance of such
shares of capital stock may have the effect of delaying, deferring or preventing
a change in control of NCBE without any further action by the shareholders of
NCBE. NCBE has no present intention to adopt a shareholder rights plan, but
could do so without shareholder approval at any future time.
CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION AND BY-LAWS
Certain provisions of NCBE's Articles of Incorporation and By-laws may
delay or make more difficult unsolicited acquisitions or changes of control of
NCBE. Such provisions could have the effect of discouraging third parties from
making proposals involving an unsolicited acquisition or change in control of
NCBE, although such proposals, if made, might be considered desirable by a
majority of NCBE's shareholders. Such provisions may also have the effect of
making it more difficult for third parties to cause the replacement of the
current management of NCBE without the concurrence of the Board of Directors.
These provisions include: (i) the classification of the Board of Directors into
three classes, each class serving "staggered" terms of office of three years;
(ii) the requirement that any business combination be approved by the holders of
80% of the shares entitled to vote thereon, unless the transaction has been
approved by NCBE's Board of Directors; and (iii) requirements for advance notice
for making nominations at shareholders' meetings. See "COMPARISON OF SHAREHOLDER
RIGHTS."
NCBE's By-laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the
51
<PAGE>
Board of Directors, of candidates for election as directors. Although NCBE's
By-laws do not give the Board of Directors any power to approve or disapprove
shareholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of shareholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
proposals without regard to whether consideration of such nominees or proposals
might be harmful or beneficial to NCBE and its shareholders.
CERTAIN PROVISIONS OF INDIANA LAW
The Indiana Business Corporation Law (the "Indiana Law") applies to NCBE as
an Indiana corporation. Certain provisions of the Indiana Law may delay, prevent
or make more difficult changes of control of NCBE. Such provisions also may have
the effect of preventing changes in the management of NCBE. It is possible that
such provisions could make it more difficult to accomplish transactions which
shareholders may otherwise deem to be in their best interests. See "COMPARISON
OF SHAREHOLDER RIGHTS -- Business Combinations Involving Interested Shareholder"
and "COMPARISON OF SHAREHOLDER RIGHTS -- Control Share Acquisitions."
TRANSFER AGENT
Fifth Third Bank, Cincinnati, Ohio is the transfer agent for shares of NCBE
Common.
COMPARISON OF SHAREHOLDER RIGHTS
The rights of holders of shares of NCBE Common are governed by the Indiana
Law and by NCBE's Articles of Incorporation and By-laws. The rights of holders
of shares of Bancorp Common are governed by the Illinois Law and by Bancorp's
Articles of Incorporation and By-laws. The rights of holders of shares of
Bancorp Common differ in certain respects from the rights which they would have
as shareholders of NCBE. A summary of the material differences between the
respective rights of the shareholders of NCBE and Bancorp is set forth below.
CLASSIFIED BOARD OF DIRECTORS
NCBE. The Articles of Incorporation and By-laws of NCBE divide the Board of
Directors into three classes, as nearly equal in number as possible, with each
class of directors serving a staggered term of three years. Directors are
elected by a plurality of votes cast by shares entitled to vote. The purpose of
a classified Board of Directors is to promote stability and continuity within
the Board. However, a classified Board of Directors also has the effect of
decreasing the number of directors that may otherwise be elected by holders of
NCBE Common and, therefore, may have the effect of precluding a contest for the
election of directors or delay, prevent or make more difficult changes in
control of NCBE.
BANCORP. Bancorp does not have a classified Board of Directors. The By-laws
of Bancorp provide for a Board of Directors of seven members. Pursuant to Board
resolution, as permitted by the By-laws, the current number of directors is six.
Each member serves a term until the next annual meeting of shareholders.
BUSINESS COMBINATIONS NOT INVOLVING AN INTERESTED SHAREHOLDER
NCBE. Under the Indiana Law, a majority of the shares entitled to vote on a
proposed plan of merger or share exchange is required for approval unless any
class or series of shares is entitled to vote separately as a class on the plan.
However, the vote of the shareholders of the surviving corporation on a plan of
merger is not required if (i) the articles of incorporation of the surviving
corporation will not differ from its articles before the merger, (ii) each
shareholder of the surviving corporation whose shares were outstanding
immediately before the effective date of the merger will hold the same
proportionate number of shares held by all such shareholders (except for shares
of the surviving corporation received solely as a result of the shareholder's
proportionate shareholdings in the other corporations party to the merger), with
identical designations, preferences, limitations and relative rights,
immediately after the merger, (iii) the number
52
<PAGE>
of voting shares outstanding immediately after the merger, plus the number of
voting shares issuable as a result of the merger (either by the conversion of
securities issued pursuant to the merger or the exercise of rights and warrants
issued pursuant to the merger), will not exceed by more than 20% the total
number of voting shares of the surviving corporation outstanding immediately
before the merger, and (iv) the number of participating shares outstanding
immediately after the merger, plus the number of participating shares issuable
as a result of the merger (either by the conversion of securities issued
pursuant to the merger or the exercise of rights and warrants issued pursuant to
the merger), will not exceed by more than 20% the total number of participating
shares of the surviving corporation outstanding immediately before the merger.
NCBE's Articles of Incorporation require the affirmative vote of 80% of the
shares entitled to vote on any merger, consolidation or acquisition of NCBE by
another corporation that is not approved by a majority of the members of NCBE's
Board of Directors.
BANCORP. Under the Illinois Law, the affirmative vote of at least
two-thirds of the shares entitled to vote on a proposed plan of merger is
required for approval unless any class or series of shares is entitled to vote
as a class on the plan. If any class is entitled to vote on the plan, the
proposed plan must be approved by an affirmative vote of (i) at least two-thirds
of the shares of each class or series of shares entitled to vote as a class and
(ii) at least two-thirds of the total number of shares entitled to vote on the
proposed plan. The articles of incorporation of any corporation may supersede
the two-thirds vote requirement by specifying any smaller or larger vote
requirement; provided, however, that the vote requirement may not be less than a
majority of the shares entitled to vote. Bancorp's Articles of Incorporation and
By-laws do not contain any provisions changing the statutory requirements.
BUSINESS COMBINATIONS INVOLVING AN INTERESTED SHAREHOLDER
NCBE. The Indiana Law restricts the ability of a "resident domestic
corporation" to engage in any combination with an "interested shareholder" for
five years after the interested shareholder's date of acquiring shares unless
the combination or the purchase of shares by the interested shareholder on the
interested shareholder's date of acquiring shares is approved by the board of
directors of the resident domestic corporation before that date. If the
combination was not previously approved, the interested shareholder may effect a
combination after the five-year period only if such shareholder receives
approval from a majority of the disinterested shares or the offer meets certain
fair price criteria. A "resident domestic corporation" means an Indiana
corporation that has 100 or more shareholders. "Interested shareholder" means
any person, other than the resident domestic corporation or its subsidiaries,
who is (i) the beneficial owner, directly or indirectly, of 10% or more of the
voting power of the outstanding voting shares of the resident domestic
corporation or (ii) an affiliate or associate of the resident domestic
corporation and at any time within the five-year period immediately before the
date in question was the beneficial owner of 10% or more of the voting power of
the outstanding shares of the resident domestic corporation. The above
provisions do not apply to a corporation that so elects in an amendment to its
articles of incorporation approved by a majority of the disinterested shares.
Such an amendment, however, would not become effective for 18 months after its
passage and would apply only to stock acquisitions occurring after its effective
date. NCBE's Articles of Incorporation do not exclude it from the restrictions
imposed by such provisions.
BANCORP. Although there are corresponding provisions under the Illinois Law
regarding business combinations with an "interested shareholder", such
provisions do not apply to Bancorp because Bancorp does not have a class of
equity securities registered under Section 12 of the Exchange Act and is not
subject to Section 15(d) of the Exchange Act.
REMOVAL OF DIRECTORS
NCBE. Under the Indiana Law, directors may be removed in any manner
provided in the corporation's articles of incorporation. NCBE's Articles of
Incorporation provide that a member of the Board of Directors may be removed,
only for good cause and only at a meeting of shareholders expressly called for
that purpose, by the affirmative vote of the holders of at least 662/3% of all
votes entitled to be cast in an election of directors.
53
<PAGE>
BANCORP. The Illinois Law provides that directors may be removed, with or
without cause, by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote at an election of directors.
AMENDMENTS TO ARTICLES OF INCORPORATION
NCBE. The Indiana Law provides that, unless a greater vote is required
under a specific provision of the Indiana Law or by a corporation's articles of
incorporation or its board of directors, a corporation may amend its articles of
incorporation upon the affirmative vote of the holders of a greater number of
shares cast in favor of the amendment than the holders of shares cast against
the amendment, unless the amendment would create dissenters' rights in which
case a favorable vote of the holders of a majority of the outstanding shares is
required. Under the Indiana Law, a corporation's board of directors may
condition its submission of a proposed amendment to the shareholders of the
corporation on any basis, including the requirement of the affirmative vote of
holders of a greater percentage of the voting shares of the corporation than
otherwise would be required under the Indiana Law. NCBE's Articles of
Incorporation provide that amendments must be approved by the holders of a
majority of the outstanding voting shares; except that any amendment to the
provisions concerning business combinations must be approved by the holders of
eighty percent (80%) of the outstanding voting shares.
BANCORP. The Illinois Law provides that, unless a greater or lesser vote
(provided that it is not less than holders of a majority of the shares entitled
to vote) is required by the corporation's articles of incorporation, a
corporation may amend its articles of incorporation upon receiving the
affirmative vote of at least two-thirds of its voting shares. Bancorp's Articles
of Incorporation do not contain a greater or lesser vote requirement.
VOTING RIGHTS
NCBE. Holders of shares of NCBE Common are entitled to cast one vote per
share on all matters to be voted upon by shareholders.
BANCORP. Holders of shares of Bancorp Common are entitled to one vote per
share on all matters to be voted upon by shareholders.
SPECIAL MEETINGS OF SHAREHOLDERS
NCBE. The Indiana Law provides that a corporation with more than 50
shareholders must hold a special meeting of shareholders on demand of its board
of directors or the persons specifically authorized to do so by the
corporation's articles or by-laws. NCBE's Articles of Incorporation and By-laws
provide that the Chairman of the Board, the President or a majority of the Board
of Directors may call a special meeting of shareholders. Further, as long as
NCBE has 50 or more shareholders, a special meeting will be called upon the
request of the holders of at least 80% of the votes entitled to be cast.
BANCORP. Bancorp's By-Laws provide that special meetings of the
shareholders of a corporation may be called at any time, for any purpose or
purposes, by the President or by a majority of the Board of Directors or at the
request of the holders of 20% or more of all the outstanding shares.
SHAREHOLDER ACTION BY WRITTEN CONSENT
NCBE. Under the Indiana Law, any action required or permitted to be taken
at a meeting of shareholders may be taken without a meeting if a written consent
to such action is signed by all shareholders entitled to vote thereon.
BANCORP. Under the Illinois Law, unless precluded by the articles of
incorporation, action may be taken by the shareholders without a meeting and
without a vote, if a consent in writing, setting forth the action taken is
signed (i) by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to take such action at a meeting, or
(ii) by all of the shareholders entitled to vote; provided, however, if the
action taken is by
54
<PAGE>
less than unanimous written consent, five days' advance notice of the subject
matter must have been given and prompt notice of the action taken must be
provided to those shareholders who did not consent. Bancorp's Articles of
Incorporation do not prohibit actions to be taken by written consent.
DISSENTERS' RIGHTS
NCBE. Under the Indiana Law, a shareholder of a corporation is entitled
(subject to certain exceptions) to receive payment for the fair value of his
shares if, among other things, such shareholder dissents from a plan of share
exchange, sale or exchange of all or substantially all of the property of the
corporation, or a merger or control share acquisition to which such corporation
is a party. NCBE's shareholders are not required to vote on the Merger nor are
they entitled to exercise dissenters' rights in connection with the Merger.
BANCORP. Under the Illinois Law, a shareholder of a corporation who
dissents from, among other things, a plan of merger, consolidation, plan of
share exchange, or sale, lease or exchange of all or substantially all of the
property of the corporation has the right (subject to certain exceptions) to
demand payment of the fair value of such shareholder's stock. Shareholders of
Bancorp are entitled to exercise such rights in connection with the Merger. See
"THE MERGER -- Dissenters' Rights."
CONTROL SHARE ACQUISITIONS
NCBE. Pursuant to the Indiana Law, an "acquiring person" who makes a
"control share acquisition" in an "issuing public corporation" may not exercise
voting rights on any "control shares" unless such voting rights are conferred by
a majority vote of the disinterested shareholders of the issuing corporation at
a special meeting of such shareholders held upon the request and at the expense
of the acquiring person. Unless otherwise provided in a corporation's articles
of incorporation or by-laws before a control share acquisition has occurred, in
the event that control shares acquired in a control share acquisition are
accorded full voting rights and the acquiring person acquires control shares
with a majority or more of all voting power, all shareholders of the issuing
corporation have dissenters' rights to receive the fair value of their shares.
"Control shares" means shares acquired by a person that, when added to all other
shares of the issuing public corporation owned by that person or in respect of
which that person may exercise or direct the exercise of voting power, would
otherwise entitled that person to exercise voting power of the issuing public
corporation in the election of directors within any of the following ranges: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than
a majority or (iii) a majority or more. "Control share acquisition" means,
subject to certain exceptions, the acquisition, directly or indirectly, by any
person of ownership of, or the power to direct the exercise of voting power with
respect to, issued and outstanding control shares. Shares acquired within 90
days or pursuant to a plan to make a control share acquisition are considered to
have been acquired in the same acquisition. "Issuing public corporation" means a
corporation which is organized in Indiana, has 100 or more shareholders, its
principal place of business, its principal office or substantial assets within
Indiana and either (i) more than 10% of its shareholders resident in Indiana,
(ii) more than 10% of its shares owned by Indiana residents or (iii) 10,000
shareholders resident in Indiana. The above provisions do not apply if, before a
control share acquisition is made, the corporation's articles of incorporation
or by-laws (including a board adopted by-law) provide that said provisions do
not apply. NCBE's Articles of Incorporation and By-laws do not exclude NCBE from
the restrictions imposed by such provisions. Further, NCBE's Articles of
Incorporation opt into a provision of the Indiana Law that allows NCBE to redeem
an acquiring person's control shares under certain circumstances, including the
person's failure to file an acquiring person statement regarding the control
shares.
BANCORP. There is no corresponding provision under the Illinois Law.
INDEMNIFICATION
NCBE. Pursuant to the Indiana Law, NCBE is obligated to indemnify certain
officers and directors in connection with liabilities arising from legal
proceedings resulting from such person's service to NCBE in certain
circumstances. NCBE may also voluntarily undertake to indemnify certain persons
acting on NCBE's behalf in certain circumstances.
55
<PAGE>
The Indiana Law provides for mandatory indemnification of directors and officers
of Indiana corporations and permissive indemnification of directors, officers,
employees and agents of corporations who are made parties to proceedings as a
result of their relationship with such corporation. The Indiana Law also applies
to individuals who are serving at such corporation's request as directors,
officers, employees and agents of such corporation's subsidiaries. The Indiana
Law requires corporations, unless limited by their articles of incorporation, to
indemnify any director or officer against reasonable expenses incurred in
connection with any proceeding to which such person was a party if the
individual is wholly successful on the merits. The Indiana Law authorizes
corporations to indemnify any director, officer, employee or agent against
liability incurred in such a proceeding generally if the individual's conduct
was in good faith and the individual reasonably believed, in the case of conduct
in the individual's official capacity, that his or her conduct was in the
corporation's best interests and in all other cases that his or her conduct was
not opposed to the best interests of such corporation. The Indiana Law further
authorizes any court of competent jurisdiction, unless the articles of
incorporation provide otherwise, to order indemnification generally if the court
determines a director or officer of a corporation is entitled to mandatory
indemnification or is otherwise fairly and reasonably entitled to
indemnification in view of all the relevant circumstances. The Indiana Law also
authorizes corporations to advance reasonable expenses in advance of final
disposition of a proceeding generally if the individual affirms in writing a
good faith belief that he satisfies the standard of conduct for permissive
indemnification, the individual undertakes in a signed writing to repay the
advance if it is determined he does not satisfy the standard of conduct for
permissive indemnification and the corporation determines that the facts then
known do not preclude indemnification. Finally, the Indiana Law authorizes
further indemnification to the extent that the corporation may provide in its
articles of incorporation, by-laws, a resolution of the board of directors or
the shareholders or any other authorization, whenever adopted, after notice, by
a majority vote of holders of all the voting shares then issued and outstanding.
NCBE's Articles of Incorporation do not contain provisions altering the
statutory provisions.
BANCORP. The Illinois Law permits a corporation to indemnify a person who,
by reason of his or her relationship with the corporation, was or is a party, or
is threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including any action by or in the right of the corporation,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, if such person acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful;
provided, however, that in the case of actions by or in the right of the
corporation, no indemnification may be made in respect of any claim, issue or
matter as to which such person has been adjudged to be liable to the corporation
unless, and only to the extent, that the court in which such action or suit was
brought determines upon application that despite the adjudication of liability,
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court deems proper.
Notwithstanding the foregoing, the Illinois Law provides that, to the extent
that such person has been successful, on the merits or otherwise, in the defense
of any action, suit or proceeding referred to above, or in defense of any claim,
issue or matter therein, such person must be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection therewith. The Illinois Law also authorizes corporations to pay
expenses in advance of final disposition of a proceeding if the person in
question undertakes to repay such amount, if it shall ultimately be determined
that he or she is not entitled to be indemnified by the corporation. The
Illinois Law provides that the indemnification and advancement of expenses
provided for therein is not exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any by-law,
agreement, vote of shareholders or disinterested directors, or otherwise. The
By-laws of Bancorp include indemnification provisions that are generally similar
to those contemplated by the Illinois Law.
LIMITATION OF LIABILITY OF DIRECTORS
NCBE. The Indiana Law provides that a director is not liable for any action
taken as a director, or any failure to act, unless the director has breached or
failed to perform the duties of the director's office in compliance with the
Indiana Law and the breach or failure to perform constitutes willful misconduct
or recklessness. Subject to this standard, a director who votes for or assents
to distributions in violation of the Indiana Law is personally liable to the
56
<PAGE>
corporation for the amount of the illegal distribution and is entitled to
contribution from the other directors who voted for or assented to such
distribution and the shareholders who received the distribution.
BANCORP. The Illinois Law provides that a corporation may include in its
articles of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director, provided that the provision
does not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its shareholders; (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law; (iii) under certain provisions of the Illinois Law; or
(iv) for any transaction in which the director derived an improper personal
benefit. No such provision may eliminate or limit the liability of any director
for any act or omission occurring before the date when the provision is included
in the articles of incorporation. The Articles of Incorporation of Bancorp do
not contain any provisions limiting the liability of directors.
CONSIDERATION OF NON-SHAREHOLDER INTERESTS
NCBE. The Indiana Law specifically authorizes directors, in considering the
best interests of a corporation, to consider the short-term and long-term
interests of the corporation as well as the effects of any action on
shareholders, employees, suppliers and customers of the corporation and
communities in which offices or other facilities of the corporation are located,
and any other factors the directors consider pertinent. Under the Indiana Law,
directors are not required to approve a proposed corporate action if the
directors determine in good faith after considering and weighing as they deem
appropriate the effect of such action on the corporation's constituents that
such approval is not in the best interest of the corporation. In addition, the
Indiana Law states that directors are not required to redeem any rights under or
render inapplicable a shareholder rights plan or to take or decline to take any
other action solely because of the effect such action might have on a proposed
acquisition of control of a corporation or the amounts to be paid to
shareholders under such an acquisition. The Indiana Law explicitly provides that
the different or higher degree of scrutiny imposed under the Delaware General
Corporation Law with respect to Delaware corporations and certain other
jurisdictions upon director actions taken in response to potential changes in
control will not apply. Any determination made with respect to the foregoing by
a majority of the disinterested directors will conclusively be presumed to be
valid unless it can be demonstrated that such determination was not made in good
faith.
BANCORP. The Illinois Law provides that, in discharging the duties of their
respective positions, the board of directors and individual directors may, in
considering the best long-term and short-term interests of the corporation,
consider the effects of any action upon employees, suppliers and customers of
the corporation or its subsidiaries, communities in which offices or other
establishments of the corporation or its subsidiaries are located, and all other
pertinent factors.
AUTHORIZATION OF PREFERRED SHARES
NCBE. NCBE's Articles of Incorporation authorize NCBE to issue up to
1,000,000 preferred shares, without par value, in multiple series without
shareholder approval. Prior to issuance, NCBE's Board would set the preferred
shares' voting rights (which may be limited our unlimited), dividend or
distribution rights, rights to priority in relation to common shares or other
series of preferred shares, redemption or conversion prices, liquidation
preferences, and sinking fund provisions. NCBE currently has no preferred shares
outstanding. Depending upon the terms of the preferred shares issued, such
issuance may result in the dilution of the voting rights of common shareholders
and in holders of preferred shares with preferences and other rights superior to
rights of holders of common shares. The authorized preferred shares may also be
viewed as having possible anti-takeover effects, because the shares could be
used in the adoption of a shareholder rights plan or other defensive measures.
BANCORP. Bancorp's Articles of Incorporation do not authorize any
preferred shares.
57
<PAGE>
LEGAL MATTERS
The legality of the securities offered hereby and certain tax
consequences of the Merger will be passed upon by Baker & Daniels, Indianapolis,
Indiana. Certain matters on behalf of Bancorp in connection with the Merger will
be passed upon by Jenner & Block, Chicago, Illinois.
EXPERTS
The consolidated financial statements of NCBE and subsidiaries as of
December 31, 1997 and 1996 and each of the three years in the three-year period
ended December 31, 1997, incorporated by reference to NCBE's Annual Report on
Form 10-K, have been audited by McGladrey & Pullen, LLP, independent certified
public accountants, as set forth in their report and incorporated herein by
reference. The financial statements referred to above are incorporated herein by
reference in reliance upon such reports and upon the authority of such firm as
experts in auditing and accounting.
The consolidated financial statements of Bancorp as of December 31, 1997
and 1996 and the years then ended, included in this Proxy Statement/Prospectus
have been audited by Gray Hunter Stenn LLP, certified public accountants, as set
forth in their report thereon appearing elsewhere herein and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
NCBE files annual, quarterly and current reports, proxy statements and
other information with the SEC. Shareholders may read and copy any reports,
statements or other information that NCBE files at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information about the public reference
rooms. NCBE's public filings are also available from commercial document
retrieval services and at the Internet web site maintained by the SEC at
http://www.sec.gov.
NCBE has filed a Registration Statement to register with the SEC the
shares of NCBE common stock to be issued to shareholders in the Merger. This
Proxy Statement/Prospectus is a part of that Registration Statement and
constitutes a prospectus of NCBE, as well as a proxy statement of Bancorp for
the Special Meeting.
As allowed by SEC rules, this Proxy Statement/Prospectus does not
contain all the information that shareholders can find in the Registration
Statement or the exhibits to the Registration Statement.
The SEC allows NCBE to "incorporate by reference" information into this
Proxy Statement/Prospectus, which means that it can disclose important
information to shareholders by referring them to another document field
separately with the SEC. The information incorporated by reference is deemed to
be part of this Proxy Statement/Prospectus. This Proxy Statement/Prospectus
incorporates by references the documents set forth below that NCBE has
previously filed with the SEC. These documents contain important information
about NCBE and its financial condition.
<TABLE>
<CAPTION>
NCBE SEC Filings (File No. 0-13585) Period or Date Filed
- ---------------------------------- --------------------
<S> <C>
Annual Report on Form 10-K and 10-K/A .................................................. Year ended December 31, 1997
Quarterly Report on Form 10-Q ......................................................... Quarter ended March 31, 1998
Current Reports on Form 8-K ............................................................ Filed March 11, April 30, May 27, July _
and July _, 1998
Proxy Statement ........................................................................ Filed April 22, 1998
</TABLE>
58
<PAGE>
INDEX TO BANCORP FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report.................................................................. F-2
Consolidated Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997......................................................................... F-3
Consolidated Statements of Income for the three-month
periods ended March 31, 1998 and 1997 (unaudited) and
years ended December 31, 1997 and 1996....................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the three-month period ended March 31, 1998
(unaudited) and years ended December 31, 1997 and 1996....................................... F-5
Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 1998 and 1997 (unaudited) and
years ended December 31, 1997 and 1996....................................................... F-6
Notes to Consolidated Financial Statements - December 31, 1997................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
1st Bancorp Vienna, Inc.
Vienna, Illinois
We have audited the accompanying consolidated balance sheet of 1st Bancorp
Vienna, Inc. and Subsidiary as of December 31, 1997 and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
two years ended December 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 1st Bancorp Vienna, Inc. and
Subsidiary at December 31, 1997, and the results of their operations and their
cash flows for the two years ended December 31, 1997 and 1996 in conformity with
generally accepted accounting principles.
Marion, Illinois
June 8, 1998
F-2
<PAGE>
1ST BANCORP VIENNA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, 1998 December 31,
(Unaudited) 1997
------------------------- ------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 878 $ 927
Federal funds sold 2,744 2,475
------------------------- ------------------------
Cash and cash equivalents 3,622 3,402
Investment securities
Held to maturity (fair value of $3,065 at
March 31, 1998 and $2,169 at December 31, 1997) 3,111 2,190
Available for sale (amortized cost of $11,385 at
March 31, 1998 and $11,712 at December 31, 1997) 11,479 11,802
Loans, net 20,670 20,622
Bank premises and equipment 257 267
Accrued interest receivable 405 378
Other assets 9 9
------------------------- ------------------------
Total Assets $ 39,553 $ 38,670
------------------------- ------------------------
------------------------- ------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing deposits $ 3,437 $ 2,905
Interest-bearing deposits 30,783 30,472
Dividends payable - 94
Deferred tax payable 28 27
Income tax payable 51 23
Accrued interest payable on deposits 253 301
Other liabilities 39 15
------------------------- ------------------------
Total Liabilities 34,591 33,837
------------------------- ------------------------
Commitments and Contingent Liabilities
Stockholders' Equity
Common stock, par value $100.00; 14,000 shares
authorized, 6,000 shares issued; 4,264 shares
outstanding at March 31, 1998 and December 31, 1997 600 600
Surplus 2,534 2,534
Treasury stock (1,736 shares at cost) (1,203) (1,203)
Retained earnings 2,969 2,842
Accumulated other comprehensive income:
Unrealized gains on securities 62 60
------------------------- ------------------------
Total Stockholders' Equity 4,962 4,833
------------------------- ------------------------
Total Liabilities and Stockholders' Equity $ 39,553 $ 38,670
------------------------- ------------------------
------------------------- ------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
1ST BANCORP VIENNA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
---------------------------- -----------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 475 $ 469 $ 1,919 $ 1,804
Interest on securities
Taxable 193 194 784 783
Tax-exempt 32 25 106 106
Interest on federal funds sold 33 24 113 60
----------- ----------- ----------- -----------
Total Interest Income 733 712 2,922 2,753
Interest Expense
Interest on deposits 350 324 1,369 1,251
----------- ----------- ----------- -----------
Net Interest Income 383 388 1,553 1,502
Provision for Loan Losses 11 11 42 84
----------- ----------- ----------- -----------
Net Interest Income After Provision for
Loan Losses 372 377 1,511 1,418
----------- ----------- ----------- -----------
Non-Interest Income
Service charges 42 42 187 158
Other income 5 5 21 28
----------- ----------- ----------- -----------
Total Non-Interest Income 47 47 208 186
----------- ----------- ----------- -----------
Non-Interest Expense
Salaries and employee benefits 138 134 583 536
Net occupancy expense 25 20 86 87
Legal and professional 7 8 44 48
Computer services 25 23 87 83
Other expenses 40 35 133 117
----------- ----------- ----------- -----------
Total Non-Interest Expense 235 220 933 871
----------- ----------- ----------- -----------
Net Income Before Income Taxes 184 204 786 733
Provision for Income Taxes 57 57 245 216
----------- ----------- ----------- -----------
Net Income $ 127 $ 147 $ 541 $ 517
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Income per Common Share
Basic $ 29.78 $ 31.52 $ 122.48 $ 110.85
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
1ST BANCORP VIENNA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Accumulated
Other
Number of Common Treasury Retained Comprehensive
Shares Stock Surplus Stock Earnings Income Total
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 4,554 $ 600 $ 2,534 $ (763) $ 2,126 $ 90 $ 4,587
Comprehensive income:
Net income - - - - 517 - 517
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising
during the period (net of tax of $34) - - - - - (66) (66)
-------- -------- -------- -------- -------- -------- --------
Total comprehensive income - - - - 517 (66) 451
Cash dividends declared
($35.00 per share) - - - - (163) - (163)
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1996 4,554 600 2,534 (763) 2,480 24 4,875
Comprehensive income:
Net income - - - - 541 - 541
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period
(net of tax of $19) - - - - - 36 36
-------- -------- -------- -------- -------- -------- --------
Total comprehensive income - $ - - - 541 36 577
Cash dividends declared
($42.00 per share) - - - - (179) - (179)
Purchase of treasury stock
(400 shares at cost) (440) - - (440) - - (440)
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1997 4,254 600 2,534 (1,203) 2,842 60 4,833
Comprehensive income (Unaudited):
Net income - - - - 127 - 127
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising
during the period (net of tax of $1) - - - - - 2 2
-------- -------- -------- -------- -------- -------- --------
Total comprehensive income - - - - 127 2 129
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1998 (Unaudited) 4,254 $ 600 $ 2,534 $ (1,203) $ 2,969 $ 62 $ 4,962
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
1ST BANCORP VIENNA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
------------------------- ------------------------
1998 1997 1997 1996
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Net Income $ 127 $ 147 $ 541 $ 517
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 15 12 48 48
Provision for bad debts 11 11 42 84
Accretion of bond discount (2) (1) (11) (9)
Amortization of bond premium 4 7 30 57
(Increase) decrease in accrued interest receivable (27) (25) 21 (11)
(Increase) decrease in prepaid expenses (1) (12) (7) 1
Increase (decrease) in accrued interest payable (48) (25) 35 60
Increase (decrease) in other liabilities 22 19 (12) (21)
Increase (decrease) in income taxes payable 29 1 (32) 36
-------- -------- -------- --------
Net Cash Provided by Operating Activities 130 134 655 762
-------- -------- -------- --------
Cash Flows From Investing Activities
Purchases of securities held to maturity (921) - - (239)
Purchases of securities available for sale (1,514) (1,003) (4,209) (2,504)
Proceeds from maturities of securities
available for sale 1,840 405 3,223 2,539
Proceeds from maturities of securities
held to maturity - - 199 736
Net (increase) decrease in loans (59) 451 333 (2,100)
Purchases of premises and equipment (5) (1) (17) (33)
-------- -------- -------- --------
Net Cash Used in Investing Activities (659) (148) (471) (1,601)
-------- -------- -------- --------
Cash Flows From Financing Activities
Net increase (decrease) in deposits 843 846 1,537 547
Dividends paid (94) (93) (179 (140)
Purchase of treasury stock - - (440) -
-------- -------- -------- --------
Net Cash Provided by Financing Activities 749 753 918 407
-------- --------- -------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents 220 739 1,102 (432)
Cash and Cash Equivalents at Beginning
of Period 3,402 2,300 2,300 2,732
-------- -------- -------- --------
Cash and Cash Equivalents at End of Period $ 3,622 $ 3,039 $ 3,402 $ 2,300
-------- -------- -------- --------
-------- -------- -------- --------
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 398 $ 349 $ 1,334 $ 1,191
Cash paid for income taxes 28 55 289 203
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
1ST BANCORP VIENNA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of 1st Bancorp Vienna, Inc. (the
"Bancorp") and its wholly owned subsidiary, First State Bank of Vienna (the
"Bank") are in accordance with generally accepted accounting principles and
conform to general practices within the financial institution industry. The more
significant of the principles used in the preparation of the accompanying
financial statements are briefly described below.
Business. The Bancorp (through the Bank) provides a full range of financial
services to individual and corporate customers from the Bank's location in
Vienna, Illinois. The Bank's primary market area consists of Johnson County,
Illinois and surrounding counties in southern Illinois. The Bancorp is subject
to competition from other financial institutions in the area, is subject to the
regulations of certain regulatory agencies, and undergoes periodic examinations
by those regulatory authorities.
The Bancorp is primarily engaged in the business of directing, planning and
coordinating the business activities of the Bank. These activities primarily
consist of accepting deposits from the general public and investing these funds
in loans in the Bank's market area and in investment securities.
Principles of consolidation. The accompanying consolidated financial statements
include the accounts of the Bancorp and the Bank. All significant intercompany
balances and transactions have been eliminated in consolidation.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the 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 periods. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses.
Management believes that the allowance for losses on loans is adequate. While
management uses available information to recognize such losses, future additions
to the allowance may be necessary based upon changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for losses. Such agencies may
require the Bank to recognize additions to the allowance based upon their
judgments about information available to them at the time of their examination.
Investment Securities. The Bank accounts for its security holdings in accordance
with Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115). At acquisition, SFAS
No. 115 requires that securities be classified into one of three categories:
trading, available for sale, or held to maturity. Trading securities are bought
and held principally with the intention of selling them in the near term. The
Bank has no trading securities as of December 31, 1997. Investment securities
that management has the ability and intent to hold to maturity are classified as
held to maturity and carried at cost, adjusted for amortization of premium and
accretion of discounts using the interest method. Other marketable securities
are classified as available for sale and are carried at fair value. Realized and
unrealized gains and losses (if any) on trading securities are included in net
income. Unrealized gains and losses on securities available for sale are
recognized as direct increases or decreases in retained earnings, net of tax.
Cost of securities sold is recognized using the specific identification method.
F-7
<PAGE>
Securities available for sale are stated at fair value. Fair value is based on
market prices quoted in financial publications or other independent sources.
Subsequent to the adoption of SFAS No. 115, net unrealized gains or losses are
excluded from earnings and reported, net of deferred income taxes, as a separate
component of stockholders' equity until realized. The adjusted cost of the
specific security available for sale that is sold is used to compute any gain or
loss upon sale.
Loans and allowance for loan losses. Loans are stated at the amount of unpaid
principal, reduced by unearned discount and allowance for loan losses. Unearned
discount on installment loans is recognized as income over the terms of the
loans by a method which approximates the level yield method. Interest on all
other loans is accrued and credited to operations based upon the principal
amount outstanding.
The Bank's allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb probable losses inherent in the
loan portfolio. The amount of the allowance is based on management's evaluation
of the collectibility of the loan portfolio, including the nature of the
portfolio, credit concentrations, trends in historical loss experience, specific
impaired loans, and economic conditions. The Bank's allowance is increased by a
provision for loan losses, which is charged to expense, and reduced by
charge-offs, net of recoveries. Changes in the allowance relating to impaired
loans are charged or credited to the provision for loan losses.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of interest is doubtful.
A loan is considered impaired when it is probable a creditor will be unable to
collect all amounts due, both principal and interest, according to the
contractual terms of the loan agreement. Impaired loans are measured based on
the present value of expected future cash flows discounted at the loan's
effective rate, at the observable market price of the loan or the fair value of
the collateral if the loan is collateral dependent. Smaller balance, homogeneous
loans, including consumer and residential mortgages, are collectively evaluated
for impairment.
Foreclosed property. Real estate properties acquired through, or in lieu of,
loan foreclosure are to be sold and are initially recorded at fair value at the
date of foreclosure establishing a new cost basis. Any writedowns required prior
to actual foreclosure are charged to the reserve for loan losses. Subsequent to
foreclosure, losses on the periodic revaluation of the property are charged to
current period earnings as noninterest expense. Gains and losses resulting from
the sale of foreclosed property are credited or charged to current period
earnings. Costs of maintaining and operating foreclosed property are expensed as
incurred and expenditures to complete or improve foreclosed properties are
capitalized if the expenditures are expected to be recovered upon ultimate sale
of the property.
Premises and equipment. Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using straight line and
accelerated methods over the estimated service lives of the assets. Expenditures
for major renewals and improvements of premises and equipment are capitalized
and those for maintenance and repairs are expensed as incurred.
Income taxes. The Bancorp and the Bank file consolidated income tax returns.
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in net income in the period which includes the
enactment date.
Advertising. The Bank routinely charges the costs of advertising to expense as
incurred. No capitalized advertising costs are present on the balance sheet. A
total of $16,000 and $15,000 in advertising costs were charged to expense during
the years ended December 31, 1997 and 1996, respectively.
F-8
<PAGE>
Per share information. Earnings per share is calculated by dividing net income
by the weighted average number of common shares outstanding during each year.
Off-balance sheet financial instruments. In the ordinary course of business, the
Bank has entered into off-balance sheet financial instruments consisting of
commitments to extend credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they become payable.
Cash and cash equivalents. For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, cash items and clearings, cash in other banks,
and federal funds sold. Cash on hand, cash items and clearings and cash in other
banks are noninterest-bearing; federal funds sold are interest bearing.
Impact of new accounting standards. Accounting for Transfers and Servicing of
Financial Assets. In June, 1996, the FASB issued SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
SFAS No. 125 establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on the
consistent application of the financial components approach. This approach
requires the recognition of financial assets and servicing assets that are
controlled by the reporting entity, the derecognition of financial assets when
control is surrendered, and the derecognition of liabilities when they are
extinguished. Specific criteria are established for determining when control has
been surrendered in the transfer of financial assets. SFAS No. 125 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. Subsequent to the issuance of
SFAS No. 125, the FASB issued SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125." This statement defers for one
year the effective date of SFAS No. 125 as applies to secured borrowings and
collateral and certain other transactions. The Bancorp has adopted the relevant
provisions of the statement during 1997, and will adopt the provisions of the
statement which become effective in 1998 at that time. The provisions of the
statement adopted in 1997 did not have a material effect on the Bancorp's
financial position or operating results, and management does not currently
believe that the future adoption of additional provisions of this statement will
have such an effect.
Earnings per Share. In February, 1997, the FASB issued SFAS No. 128, "Earnings
per Share". SFAS No. 128 establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held common
stock or potential common stock. The statement simplifies the standards for
computing earnings per share previously found in APB Opinion No. 15, "Earnings
per Share", and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures, and requires
a reconciliation of the two computations. This statement is effective for
financial statements issued for periods ending after December 15, 1997, with
earlier application not permitted. The Bancorp has adopted SFAS No. 128
effective for the year ended December 31, 1997.
Comprehensive Income. In June, 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes 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. This
statement 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.
This statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. This statement is effective for fiscal years beginning after
December 15, 1997. The provisions of this statement are reflected in the
accompanying financial statements.
Disclosures about Segments of an Enterprise and Related Information. In June,
1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information". SFAS No. 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements
F-9
<PAGE>
and requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997. The management of the
Bancorp plans to adopt the appropriate provisions of the statement during 1998
as applicable, and does not currently believe that the future adoption of this
statement will have a material effect on the Bancorp's financial position or
operating results.
Employer's Disclosure about Pensions and Other Postretirement Benefits. In
February, 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits. This
statement is effective for financial statements for periods beginning after
December 15, 1997. The management of the Bancorp plans to adopt the appropriate
provisions of the statements at January 1, 1998, and does not currently believe
that the future adoption of this statement will have a material effect on the
Bancorp's financial position or operating results.
2. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities classified
as held to maturity are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gain Loss Fair Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
U. S. Treasury and government
agencies $ 500 $ -- $ 60 $ 440
Obligations of states and
political subdivisions 1,690 40 -- --
--------- --------- --------- ---------
Totals $ 2,190 $ 40 $ 61 $ 2,169
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
At December 31, 1997, held to maturity investment securities with amortized cost
values of $500,000 and estimated fair values of $440,000 were pledged to secure
public deposits and for other purposes required or permitted by law.
During the years ended December 31, 1997 and 1996, there were no sales of held
to maturity securities.
The amortized cost and estimated fair values of investment securities classified
as available for sale are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gain Loss Fair Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
U. S. Treasury and government
agencies $ 7,754 $ 11 $ -- $ 7,765
Obligations of states and
political subdivisions 201 3 -- 204
Mortgage-backed securities 3,757 90 14 3,833
--------- --------- --------- ---------
Totals $ 11,712 $ 104 $ 14 $ 11,802
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-10
<PAGE>
At December 31, 1997, available for sale debt securities with amortized cost
values of $2,139,000 and estimated fair values of $2,147,000 were pledged to
secure public deposits and for other purposes required or permitted by law.
The amortized cost and estimated market value of debt securities at December 31,
1997, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because issuers may have the right to call or prepay
obligations without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------------
Held to Maturity Available for Sale
--------------------------- -----------------------------
Amortized Estimated Amortized Estimated
(In thousands) Cost Fair Value Cost Fair Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1 year and less $ 82 $ 82 $ 1,086 $ 1,090
Over 1 through 5 years 475 487 3,347 3,348
Over 5 through 10 years 1,433 1,393 4,755 4,776
Over 10 years 200 207 2,524 2,588
--------- --------- --------- ---------
Total $ 2,190 $ 2,169 $ 11,712 $ 11,802
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
For the years ended December 31, 1997 and 1996, there were no gains or losses
resulting from sales of investment securities.
3. LOANS
Major classifications of loans at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Commercial, financial and agricultural $ 2,956
Real estate:
Construction 124
Commercial 2,890
Agricultural 2,134
Residential 9,726
Consumer 3,375
------------
Total Gross Loans $ 21,205
Less - Unearned discount 268
------------
$ 20,937
Less - Allowance for loan losses 315
------------
Loans, net $ 20,622
------------
------------
</TABLE>
Changes in the allowance for loan losses for the years ended December 31, 1997
and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
(In thousands)
<S> <C> <C>
Balance, beginning of period $ 282 $ 216
Loans charged off (28) (26)
Recoveries 19 8
Provisions 42 84
----------- ----------
Balance, end of period $ 315 $ 282
----------- ----------
----------- ----------
</TABLE>
F-11
<PAGE>
Loans to officers, directors and employees of the Company and Bank are shown in
Note 9.
The Bank grants commercial and agricultural, real estate mortgage, and
installment loans to customers in the Bank's immediate geographic lending area.
Although the Bank has a diversified loan portfolio, a substantial portion of its
borrowers' abilities to honor their contractual obligations is dependent upon
the agribusiness economic sector in this geographic lending area. Direct and
indirect agricultural loans totaled approximately $3.3 million at December 31,
1997. Generally, such loans are secured by farm assets and are expected to be
repaid from cash flows of the farm operations. The Bank's policy for requiring
collateral and access to that collateral is essentially the same as in extending
credit to the Bank's other customers.
A summary of impaired loans at December 31, 1997 follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Nonaccrual loans $ 23
Impaired loans continuing to
accrue interest 1,061
--------------
Total impaired loans $ 1,084
Allowance for loan losses on
impaired loans $ 106
Average balance of impaired
loans during the year $ 913
</TABLE>
If interest on nonaccrual loans, including amounts computed on principal
balances charged off on such loans, had been accrued, such income would have
been $2,000 for the year ended December 31, 1997. The Bank did not receive or
recognize interest income on nonaccrual loans for the year ended December 31,
1997.
The amount recognized as interest income on other impaired loans continuing to
accrue interest was $88,000 for the year ended December 31, 1997.
4. BANK PREMISES AND EQUIPMENT
Major classifications of these assets at December 31, 1997 are summarized as
follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Banking premises $ 632
Landscaping 15
Equipment, furniture and fixtures 412
------------
$ 1,059
Accumulated depreciation 792
------------
Total, net $ 267
------------
------------
</TABLE>
Depreciation expense for the year ended December 31, 1997 and 1996 was $48,000
and $48,000, respectively.
F-12
<PAGE>
5. COMMITMENTS AND CONTINGENCIES
The Bank is, in the normal course of business, a party to certain off-balance
sheet financial instruments with inherent credit risk. These instruments, which
include commitments to extend credit and standby letters of credit, are used by
the Bank to meet the financing needs of its customers. These instruments
involve, to varying degrees, credit risk in excess of the amount recognized in
the Bank's balance sheet.
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Undisbursed lines of credit $ 668
---------
---------
Letter of credit $ 73
---------
---------
</TABLE>
The Bank's maximum exposure to credit loss under undisbursed lines of credit and
letters of credit is the equivalent of the contractual amount of those
instruments. The same credit policies are used by the Bank in granting lines of
credit and conditional obligations as are used in the extension of credit.
Undisbursed lines of credit are legally binding agreements to lend to a borrower
as long as the borrower performs in accordance with the terms of the contract.
Lines of credit generally have fixed expiration dates or other termination
clauses. As many of the lines of credit are expected to expire without being
drawn upon, the undisbursed lines of credit amount does not necessarily
represent future cash requirements.
Letters of credit are commitments issued by the Bank to guarantee specific
performance of a customer to a third party. Collateral may be required by both
lines of credit and letters of credit in accordance with the normal credit
evaluation process based upon the creditworthiness of the customer and the
credit risk associated with the particular transaction. Collateral held varies,
but may include commercial real estate, accounts receivable, inventory and
equipment.
The Bank is involved in various litigation arising in the ordinary course of
business. In the opinion of management, at the present time, disposition of the
suits and claims will not have a material effect on the financial position or
results of operations of the Bank.
6. INTEREST-BEARING DEPOSITS
Interest-bearing deposits at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
NOW and money market demand accounts $ 7,967
Savings 3,388
Time deposits $100,000 and over 2,461
Other time deposits 16,656
-------------
Total $ 30,472
-------------
-------------
</TABLE>
A summary of time deposits by time remaining until maturity is as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Due in one year or less $ 13,998
Due after one year through two years 2,039
Due after two years through three years 2,005
Due after three years through four years 308
Due after four years through five years 767
-------------
Total $ 19,117
-------------
-------------
</TABLE>
F-13
<PAGE>
Interest expense on deposits for the years ended December 31, 1997 and 1996
consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
(In thousands)
<S> <C> <C>
NOW and money market demand accounts $ 204 $ 202
Savings 101 102
Time deposits $100,000 and over 124 79
Other time deposits 940 868
----------- ----------
$ 1,369 $ 1,251
----------- ----------
----------- ----------
</TABLE>
7. INCOME TAXES
Components of the income tax expense shown on the statement of income for the
periods ending December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
(In thousands)
<S> <C> <C>
Current Tax Expense
- -------------------
Federal $ 237 $ 235
State 20 -
--------- ---------
Total Current $ 257 $ 235
------------- --------- ---------
Deferred Tax Expense (Benefit)
- ------------------------------
Federal $ (11) $ (19)
State (1) -
--------- ---------
Total Deferred $ (12) $ (19)
-------------- --------- ---------
Total Expense $ 245 $ 216
- ------------- --------- ---------
--------- ---------
</TABLE>
A reconciliation of the reported income tax expense to income tax expense
computed by applying the Federal statutory rate of 34% to income before income
taxes is as follows for the periods ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
Statutory Federal tax expense $ 267 $ 249
Increase (decrease) in tax
expense resulting from:
State tax expense, net of federal benefit 13 -
Tax-exempt income (40) (40)
Nondeductible interest expense 6 5
Other, net (1) 2
--------- ---------
Total income tax expense $ 245 $ 216
--------- ----------
--------- ----------
</TABLE>
F-14
<PAGE>
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Deferred Tax Assets:
- --------------------
Allowance for loan losses $ 25
----------
Total Deferred Tax Assets $ 25
------------------------- ----------
----------
Deferred Tax Liabilities:
- -------------------------
Difference between book and tax depreciation $ 20
Accretion on municipal securities 1
Allowance for unrealized gains on securities
available for sale 31
----------
Total Deferred Tax Liabilities $ 52
------------------------------ ----------
----------
Net Deferred Tax Asset (Liability) $ (27)
----------
----------
</TABLE>
No valuation allowance was required for deferred tax assets at December 31,
1997.
8. PENSION PLAN
The Bank has a 401K profit sharing plan with an effective starting date of
January 1, 1988 covering substantially all of its employees. The Bank has
contributed $17,000 and $16,000 to the 401K profit sharing plan during the years
ended December 31, 1997 and 1996, respectively. Profit sharing contributions are
determined annually by the Bank.
9. TRANSACTIONS WITH OFFICERS, DIRECTORS AND EMPLOYEES
Certain officers, directors, and employees of the Bancorp and their affiliates
incurred indebtedness in the form of loans as customers. The activity in these
loans for the years ended December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
(In thousands)
1997 1996
---------- ----------
<S> <C> <C> <C>
Balance at January 1 $ 912 $ 827
New Loans 153 708
Payments (173) (623)
---------- ----------
Balance at December 31 $ 892 $ 912
---------- ----------
---------- ----------
</TABLE>
Deposits by officers, directors, and employees were $610,000 at December 31,
1997.
10. RESTRICTIONS ON CASH
The Bank is required to maintain an average reserve balance pursuant to Federal
Reserve Bank regulations. The average amount of those reserve balances at
December 31, 1997 was $172,000.
F-15
<PAGE>
11. CONCENTRATION OF CREDIT RISK
Practically all of the Bank's loans, commitments, and commercial and standby
letters of credit have been granted to customers in the Bank's market area.
Practically all such customers are depositors of the Bank. Investments in state
and municipal securities also include governmental entities within the Bank's
market area. The concentrations of credit by type of loan are set forth in Note
3.
12. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
its primary federal regulator, the Federal Deposit Insurance Corporation (FDIC).
Failure to meet the minimum regulatory capital requirements can initiate certain
mandatory (and possibly additional discretionary) actions by regulators that, if
undertaken, could have a direct material effect on the Bancorp's and the Bank's
financial statements. Under the regulatory capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines involving quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification under the
prompt corrective action guidelines are also subject to qualitative judgements
by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulations to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total risk-based
capital and Tier I capital to risk-weighted assets (as defined in the
regulations), and Tier I capital to adjusted total assets (as defined).
Management believes, as of December 31, 1997, that the Bank meets all the
capital adequacy requirements to which it is subject.
As of January 2, 1997, the most recent notification from the Bureau of Banks and
Trust Companies, the Bank was categorized as well capitalized under the
regulatory framework for prompt corrective action. To remain categorized as well
capitalized, the Bank will have to maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as disclosed in the table below.
There are no conditions or events since the most recent notification that
management believes have changed the Bank's prompt corrective action category.
The Bank's actual and required capital amounts and ratios as of December 31,
1997 are as follows:
<TABLE>
<CAPTION>
To Be Well
(In thousands) Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
-------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------ ---------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 5,016 25.32% >= $ 1,585 >= 8.00% $ 1,981 >= 10.00%
Tier I Capital
(to Risk-Weighted Assets) 4,768 24.07% >= $ 792 >= 4.00% 1,189 >= 6.00%
Tier I Capital
(to Average Assets) 4,768 12.71% >= $ 1,126 >= 3.00% 1,876 >= 5.00%
</TABLE>
F-16
<PAGE>
13. PARENT COMPANY ONLY FINANCIAL INFORMATION
Following are condensed balance sheets of the Bancorp (parent company only) as
of December 31, 1997 and condensed statements of income and cash flows for the
years ended December 31, 1997 and 1996:
Condensed Balance Sheets
(dollars expressed in thousands)
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash $ 2
Investment in Bank 4,828
Dividends receivable 98
Other assets 1
------------
Total assets $ 4,929
------------
------------
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C>
Dividends payable $ 93
Other liabilities 3
-----------
Total liabilities $ 96
-----------
Stockholders' equity:
Common stock $ 2,534
Surplus 600
Retained earnings 2,842
Treasury stock (1,203)
Accumulated other comprehensive income:
Unrealized gains on securities 60
------------
Total stockholders' equity $ 4,833
-----------
Total liabilities and stockholders' equity $ 4,929
-----------
-----------
</TABLE>
F-17
<PAGE>
Condensed Statements of Income
(dollars expressed in thousands)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Income - dividends from Bank $ 623 $ 168
Expense:
Directors fees $ 3 $ 3
Other noninterest expense 2 2
------- -------
Total expense $ 5 $ 5
------- -------
Income before income tax benefit and equity
in undistributed earnings of Bank $ 618 $ 163
Income tax benefit 2 2
------- -------
Income before equity in undistributed
earnings of Bank $ 620 $ 165
Equity (deficit) in undistributed earnings of Bank (79) 352
------- -------
Net income $ 541 $ 517
------- -------
------- -------
</TABLE>
Condensed Statements of Cash Flows
(dollars expressed in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 541 $ 517
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity (deficit) in undistributed earnings of Bank 79 (352)
Decrease in dividends receivable (1) (24)
-------- --------
Net cash provided by operating activities
$ 619 $ 141
Cash flows from financing activities:
Cash dividends paid on common stock (179) (140)
Purchase of treasury stock (440) -
-------- --------
Net increase in cash and cash equivalents $ - $ 1
Cash and cash equivalents at beginning of year 2 1
-------- --------
Cash and cash equivalents at end of year $ 2 $ 2
-------- --------
-------- --------
Supplemental disclosures of cash flow information
cash paid during the year for:
Income taxes $ 287 $ 201
Interest - -
</TABLE>
F-18
<PAGE>
14. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements as of March 31, 1998 and for the
three-month periods ended March 31, 1998 and 1997 include the accounts of
Bancorp and Bank after elimination of material intercompany transactions. This
unaudited data, in the opinion of the management of Bancorp, includes all
adjustments necessary for the fair presentation thereof. All adjustments made
were of a normal and recurring nature. Footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted for these statements. The results of operations for
the three months ended March 31, 1998 and 1997 are not necessarily indicative of
the operating results for the full year.
15. SUBSEQUENT EVENT
On May 21, 1998, Bancorp entered into an Agreement and Plan of Merger with
National City Bancshares, Inc. (National City) to merge into National City (the
Merger Agreement). As of March 31, 1998, National City, which is headquartered
in Evansville, Indiana, had total assets of $1.5 billion. The Merger Agreement
with National City will be effected by converting Bancorp's common stock into
the right to receive as consideration, on a per share basis, that number of
shares of National City common stock having a value between $2,480.00 and
$2,945.00 for each share of Bancorp common stock, subject to adjustment
depending on the trading price of National City common stock before the merger.
The merger is contingent upon approval of various regulatory agencies and the
affirmative vote of the holders of at least two-thirds of the outstanding
Bancorp common stock.
If the merger is completed, the parties expect that the Bank will concurrently
merge into Illinois One Bank, NA, a subsidiary of National City that has its
principal office in Shawneetown, Illinois.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value.
The fair value for cash and short-term investments is the financial statement
carrying amount.
The fair value for securities equals quoted market price, if available. If a
quoted market price is not available, fair value is estimated using quoted
market prices for similar securities or dealer quotes.
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. The fair value of
commitments to extend credit is estimated using fees currently charged to enter
into similar agreements and the creditworthiness of the customers. The fair
value of letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.
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 by discounting the future
cash flows using the rates currently offered for deposits of similar remaining
maturities.
The carrying amounts of accrued interest approximate their fair values.
The fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Because no
market exists for a significant portion of the Bank's financial instruments,
fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subject to judgment
and therefore cannot be determined with precision. Changes in assumptions could
significantly affect these estimates.
F-19
<PAGE>
The Company, in accordance with SFAS No. 107, has estimated fair values of the
financial instruments as follows:
<TABLE>
<CAPTION>
December 31,
1997
-------------------------
(In thousands)
-------------------------
Carrying Fair
Amount Value
-------- --------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 3,402 $ 3,402
Investment securities 13,992 13,971
Loans 20,937 20,831
Allowance for loan losses (315) --
-------- --------
Loans, net of allowance 20,622 20,831
Accrued interest receivable 378 378
Financial Liabilities:
Deposits 33,377 33,385
Accrued interest on deposits 301 301
Off Balance Sheet Financial Instruments:
Loan commitments 0 0
Letters of credit 0 0
</TABLE>
17. EARNINGS PER SHARE
The following data shows the amounts used in computing earnings per share. There
were no potentially dilutive securities during 1996 or 1997.
<TABLE>
<CAPTION>
1997 1996
----------- ---------
(In thousands, except share data)
<S> <C> <C>
Income available to common stockholders
used in basic and diluted EPS $ 541 $ 517
----------- ---------
----------- ---------
Weighted average number of common shares
used in basic EPS 4,417 4,664
----------- ---------
----------- ---------
</TABLE>
Earnings per share amounts for 1996 have been restated to give effect to the
application of SFAS No. 128 which was adopted by the Bancorp in 1997. There was
no effect of the restatement on earnings per share for 1996.
F-20
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
the 21st day of May, 1998, by and between National City Bancshares, Inc., an
Indiana corporation ("NCBE"), and 1st Bancorp Vienna, Inc., an Illinois
corporation ("Bancorp").
W I T N E S S E T H:
WHEREAS, Bancorp owns all of the outstanding capital stock of First State
Bank of Vienna, an Illinois banking corporation located in Vienna, Illinois (the
"Bank"); and
WHEREAS, the parties desire that Bancorp merge (the "Holding Company
Merger") with and into NCBE and, if practicable, that the Bank merge (the "Bank
Merger" and, together with the Holding Company Merger, the "Mergers") into
Illinois One Bank, National Association, a national banking association ("IOB"),
which is in the process of being acquired by NCBE in transactions to be
accounted for as poolings-of-interests upon the terms and conditions contained
herein; and
WHEREAS, the Boards of Directors of Bancorp and the Bank deem the Mergers
advisable and in the best interests of their shareholders and have adopted
resolutions approving this Agreement and the Merger Agreement relating to the
Bank Merger in the form attached hereto as Exhibit A (the "Merger Agreement")
and directing that this Agreement be submitted for consideration at a meeting of
Bancorp's shareholders and, after execution of the Merger Agreement by IOB,
directing that the Merger Agreement be approved by Bancorp as the sole
shareholder of the Bank; and
WHEREAS, the Board of Directors of NCBE has adopted a resolution approving
the Mergers and this Agreement and agreeing to cause IOB to enter into the
Merger Agreement after NCBE completes the acquisition of IOB.
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
representations, warranties and covenants herein contained and for the purpose
of prescribing the terms and conditions of the Mergers, the mode of carrying the
Mergers into effect, the manner of converting the capital stock of Bancorp, and
such other provisions as are deemed desirable in connection with the Mergers,
the parties, intending to be bound, hereby agree as follows:
1. THE MERGERS.
(a) The Holding Company Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Indiana
Business Corporation Law (the "IBCL") and the Business Corporation Act of
Illinois (the "BCA" and, together with the IBCL, the "Statutes"), at the
Effective Time (as hereafter defined), Bancorp will be merged with and into
NCBE. Bancorp shall be the merging corporation under the Merger and its separate
corporate existence shall cease as of the Effective Time. NCBE shall be the
surviving corporation under the Holding Company Merger (the "Surviving
Corporation") and shall succeed to and assume all rights and obligations of
Bancorp in accordance with the Statutes.
(b) The Bank Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the National Bank Act and the Illinois
Banking Act (the "Bank Statutes"), at the Effective Time of the Bank Merger (as
defined in Section 1(b) of the Merger Agreement), the Bank will be merged with
and into IOB. The Bank shall be the merging association under the Bank Merger
and its separate corporate existence shall cease as of the Effective Time of the
Bank Merger. IOB shall be the surviving association under the Bank Merger and
shall succeed to and assume all rights and obligations of the Bank in accordance
with the Bank Statutes. At the Effective Time of the Bank Merger, each share of
common stock, $100.00 par value, of the Bank ("Bank Stock") outstanding
A-1
<PAGE>
immediately prior to the Effective Time of the Bank Merger, shall be cancelled
by operation of law as set forth in Section 2 of the Merger Agreement.
(c) Regulatory Approvals. The parties acknowledge that certain approvals
must be received from or notices must be given to federal and state banking
regulatory agencies including: (i) the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"); (ii) the Office of the Comptroller of the
Currency; (iii) the Commissioner of the Office of Banks and Real Estate of the
State of Illinois; and (iv) any other banking regulatory authorities having
jurisdiction over the parties or the Mergers (the governmental agencies referred
to in items (i)-(iv) above are collectively referred to herein as the
"Applicable Governmental Authorities").
(d) Closing; Effective Time. The delivery of the certificates and opinions
called for by this Agreement shall take place at the offices of NCBE, 227 Main
Street, Evansville, Indiana, at a closing (the "Closing") to be fixed by
agreement of NCBE and Bancorp within five (5) business days following the latest
of (i) approval by all the Applicable Governmental Authorities; (ii) the
expiration of any waiting period imposed by law; and (iii) satisfaction or
waiver (to the extent legally permissible) of the conditions set forth in
Sections 11, 12 and 13 of this Agreement. The parties shall execute and file on
or prior to the Closing, articles of merger in the form required by the Statutes
(the "Articles of Merger") relating to the Holding Company Merger with the
Indiana Secretary of State and the Illinois Secretary of State. The time at
which the Holding Company Merger becomes effective shall be specified in the
Articles of Merger and is hereafter referred to as the "Effective Time". Unless
the parties agree otherwise, the Effective Time shall occur at the close of
business on the date of the Closing.
2. EFFECTS OF THE HOLDING COMPANY MERGER.
(a) Effects of the Holding Company Merger. The Holding Company Merger shall
have the effects set forth in the Statutes.
(b) Articles of Incorporation and By-Laws. The Articles of Incorporation
and the By-Laws of NCBE as in effect at the Effective Time shall be the Articles
of Incorporation and By-Laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
(c) Directors. The directors of NCBE serving at the Effective Time shall be
the directors of the Surviving Corporation until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
(d) Officers. The officers of NCBE serving at the Effective Time shall be
the officers of the Surviving Corporation until the earlier of their resignation
or removal or until their respective successors are duly elected and qualified,
as the case may be.
3. CONVERSION OF BANCORP COMMON. Without any action on the part of any
holders of any of Bancorp's shares of Common Stock, $100.00 par value per share
("Bancorp Common"), or shares of capital stock of NCBE, the Holding Company
Merger shall have the following effects with regard to the Bancorp Common:
(a) Conversion of Bancorp Common. As of the Effective Time, each issued and
outstanding share of Bancorp Common other than Dissenting Shares (as hereafter
defined) shall be converted into the right to receive shares of NCBE's Common
Stock, without par value ("NCBE Common"), computed as follows:
(i) If the Average NCBE Value (as hereafter defined) is greater than
or equal to $40.00, but less than or equal to $47.50, then each share of
Bancorp Common shall be converted into 62 shares of NCBE Common.
(ii) If the Average NCBE Value is greater than $47.50, then each
share of Bancorp Common shall be converted into that number of shares of
NCBE Common valued at the Average NCBE Value having an aggregate value
equal to $2,945.00.
A-2
<PAGE>
(iii) If the Average NCBE Value is less than $40.00, then each share
of Bancorp Common shall be converted into that number of shares of NCBE
Common valued at the Average NCBE Value having an aggregate value equal to
$2,480.00.
(iv) "Average NCBE Value" shall mean the average of the means
between the highest and lowest per share trading prices for NCBE Common
reported by the Nasdaq National Market for the ten (10) trading days ended
on the business day prior to the Closing. A "trading day" shall mean a day
on which at least 100 shares of NCBE Common are traded on the Nasdaq
National Market.
(b) Share Adjustment. If between the date hereof and prior to the Closing,
the number of outstanding shares of NCBE Common should be changed as the result
of a stock dividend, stock split or reclassification (a "Share Adjustment"), the
minimum and maximum amounts for the Average NCBE Values and the fixed number of
shares of NCBE Common to be received by holders of Bancorp Common pursuant to
Section 3(a) shall be appropriately adjusted to reflect the Share Adjustment.
(c) No Fractional Shares. No certificates or scrip representing fractional
shares of NCBE Common shall be issued upon the surrender for exchange of
certificates evidencing Bancorp Common. Each holder of Bancorp Common who would
otherwise have been entitled to receive a fractional interest in a share of NCBE
Common shall have the right to receive cash (without interest) in an amount
equal to such fractional interest of a share of NCBE Common multiplied by the
Average NCBE Value. Such cash, together with the shares of NCBE Common to be
issued pursuant to Section 3(a) is referred to as the "Merger Consideration."
(d) Cancellation of Treasury Stock. As of the Effective Time, each share of
Bancorp Common that is owned by Bancorp in its treasury shall automatically be
canceled and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor. The foregoing shall not apply to any issued and
outstanding shares held by Bancorp in a fiduciary or similar capacity.
(e) Dissenting Shares. "Dissenting Shares" shall mean shares of Bancorp
Common held by any person who properly exercises and perfects rights under the
BCA as a dissenting shareholder. The holder of any Dissenting Shares shall only
have the rights accorded a dissenting shareholder under the BCA and shall not
receive any part of the Merger Consideration.
4. EFFECT ON NCBE COMMON. The Mergers shall have no effect on the shares of
NCBE Common issued and outstanding immediately prior to the Effective Time.
5. EXCHANGE OF CERTIFICATES.
(a) Surrender of Certificates. Within five (5) business days after the
Effective Time, the exchange agent appointed by NCBE (the "Exchange Agent"),
shall send to each record holder of Bancorp Common (except for holders of
Dissenting Shares), a letter of transmittal for use in effecting the surrender
of certificates formerly evidencing Bancorp Common in exchange for the Merger
Consideration. The letter of transmittal shall specify how surrender of the
certificates formerly evidencing shares of Bancorp Common shall be effected.
Upon surrender of a certificate formerly evidencing Bancorp Common to the
Exchange Agent together with such letter of transmittal and such other
documentation that reasonably may be required by NCBE or the Exchange Agent, the
Merger Consideration shall be issued, and the certificate so surrendered shall
be canceled. No interest shall accrue or be paid with respect to the Merger
Consideration. There shall be no obligation to deliver the Merger Consideration
in respect of any shares of Bancorp Common until (and then only to the extent
that) the holder thereof validly surrenders the certificates formerly
representing the shares of Bancorp Common for exchange as provided in this
Section 5, or, in lieu thereof, delivers to the Exchange Agent an appropriate
affidavit of loss and an indemnity agreement as may be required in any such case
by NCBE in its reasonable discretion. If any payment for shares of Bancorp
Common is to be made in a name other than the registered holder of a surrendered
certificate, it shall be a condition to the payment that the certificate shall
be properly endorsed or otherwise in proper form for transfer, that all
signatures shall be guaranteed by a bank,
A-3
<PAGE>
broker or other institutional member of the Medallion Signature Guarantee
Program, and that the person requesting the payment shall either (i) pay to the
Exchange Agent any transfer or other taxes required by reason of the payment to
a person other than the registered holder of a surrendered certificate or (ii)
establish to the satisfaction of the Exchange Agent that such taxes have been
paid or are not payable.
(b) Distributions with Respect to Unexchanged Shares. All dividends or
other distributions with respect to NCBE Common with a record date after the
Effective Time shall be delivered to the holder of any unsurrendered certificate
evidencing shares of Bancorp Common with respect to the shares of NCBE Common
evidenced thereby upon the surrender of such certificate in accordance with this
Section 5.
(c) Escheat. Notwithstanding anything in this Section 5 or elsewhere in
this Agreement to the contrary, neither the Exchange Agent nor any party hereto
shall be liable to a former holder of Bancorp Common for any property delivered
to a public official pursuant to applicable escheat or abandoned property laws.
(d) No Further Ownership Rights in Bancorp Common. The Merger Consideration
paid upon the surrender of a certificate evidencing shares of Bancorp Common in
accordance with the terms of this Section 5 shall be deemed to have been paid in
full satisfaction of all rights pertaining to the shares of Bancorp Common
theretofore represented by such certificate, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Bancorp Common which were outstanding immediately
prior to the Effective Time.
(e) Withholding Rights. NCBE shall be entitled to deduct and withhold from
any dividends payable to former holders of Bancorp Common such amounts as NCBE
is required to deduct and withhold with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "Code"). Such withheld
amounts shall be treated as having been paid by any such former holder of shares
of Bancorp Common.
6. REPRESENTATIONS AND WARRANTIES OF NCBE. NCBE represents and warrants to
Bancorp as follows:
(a) Organization, Authorization and No Violation. NCBE is a corporation
duly organized and validly existing under the laws of the State of Indiana. NCBE
has all necessary corporate power to own its properties and assets and to carry
on its business as now conducted. Subject to receipt of approvals from the
Applicable Governmental Authorities, the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby by NCBE
have been duly authorized by all necessary corporate action on the part of NCBE,
and this Agreement constitutes the legal, valid and binding obligation of NCBE,
enforceable against NCBE in accordance with its terms, except as limited by (i)
bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance laws
and other similar laws affecting creditors' rights generally, and (ii) general
principles of equity, regardless of whether asserted in a proceeding in equity
or law. The execution and delivery of this Agreement by NCBE and the
consummation of the transactions contemplated by this Agreement, will not
violate the provisions of, or constitute a breach or default under, the articles
of incorporation or by-laws of NCBE or any material agreement to which NCBE is a
party or is bound, or any other material license, law, order, rule, regulation
or judgment to which NCBE is a party. NCBE is duly registered with the Federal
Reserve Board as a bank holding company under the Bank Holding Company Act of
1956, as amended.
(b) No Shareholder Vote. No vote by the shareholders of NCBE is required to
approve the Mergers under Indiana law, the articles of incorporation or by-laws
of NCBE or any rules of the National Association of Securities Dealers, Inc.
which apply to Nasdaq National Market issuers.
(c) Capital Stock. The authorized capital stock of NCBE consists of
20,000,000 shares of NCBE Common, of which 10,759,219 shares were issued and
outstanding as of May 1, 1998. All of the issued and outstanding shares of NCBE
Common are duly and validly issued and outstanding and are fully paid and
non-assessable. None of the shares of NCBE Common have been issued in violation
of any preemptive rights. As of the date hereof, there are no outstanding
options, warrants, rights to subscribe for, calls, or commitments of any
character whatsoever relating to,
A-4
<PAGE>
or securities or rights convertible into or exchangeable for, such shares or
contracts, commitments, understandings or arrangements by which NCBE is or may
be obligated to issue additional shares of capital stock or other equity
securities of NCBE, other than (i) options to purchase shares of NCBE Common
which have been granted pursuant to NCBE's Incentive Stock Option Plan, and (ii)
commitments to issue shares of NCBE Common in connection with the pending
acquisitions of Illinois One Bancorp, Inc., Trigg Bancorp, Inc., Community First
Financial, Inc. and Hoosier Hills Financial Corporation.
(d) SEC Documents. NCBE has provided Bancorp with copies of the following
reports (the "SEC Documents") filed by NCBE with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"): (i) the annual report on Form 10-K for the year
ended December 31, 1997, as amended; and (ii) the definitive proxy materials for
the 1998 annual meeting of NCBE shareholders. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder and did not contain any untrue statement of a material fact or omit
to state any material fact necessary to make the statements contained therein
not misleading.
(e) Financial Information. NCBE has delivered to Bancorp the consolidated
balance sheets of NCBE and its subsidiaries as of December 31, 1997 and 1996 and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for the three (3) years ended December 31, 1997, together with
the notes thereto, that are included in the SEC Documents. Such financial
statements have been audited by McGladrey & Pullen, LLP, independent auditors,
whose report thereon is included with such financial statements. Such financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis (except for changes, if any,
required by GAAP and disclosed therein) and fairly present in all material
respects the consolidated financial position and the consolidated results of
operations, changes in shareholders' equity and cash flows of NCBE and its
consolidated subsidiaries as of the dates and for the periods indicated. At
December 31, 1997, there were no material liabilities of NCBE and its
subsidiaries (actual, contingent or accrued) which, in accordance with GAAP
applied on a consistent basis, should have been shown or reflected in such
financial statements or the notes thereto, but which are not so reflected.
(f) Absence of Changes. Except as disclosed in the SEC Documents, since
December 31, 1997, NCBE has not incurred any obligation or liability (absolute
or contingent), except normal trade or business obligations or liabilities
incurred in the ordinary course of business, and there has not been any material
adverse change in the financial condition, results of operations or business of
NCBE and its subsidiaries taken as whole, nor have there been any events or
transactions having such a material adverse effect which should be disclosed in
order to make the financial statements described in subsection (e) not
misleading.
(g) Litigation. There is no litigation, claim, investigation or other
proceeding pending or, to the knowledge of NCBE, threatened, against or
adversely affecting NCBE or any of its subsidiaries, or of which the property of
NCBE or any of its subsidiaries is or would be subject and which would have a
material adverse effect on the financial condition, results of operations or
business of NCBE and its subsidiaries, taken as a whole. To the knowledge of
NCBE management, there is no litigation, claim, investigation or other
proceeding to which any director, officer, employee or agent of NCBE or any of
its subsidiaries in their respective capacities as directors, officers,
employees or agents, is a party, pending of threatened against any such
director, officer, employee or agent. There is no outstanding order, writ,
injunction or decree of any court, government or governmental agency against or,
affecting NCBE or any of its subsidiaries, or the assets or business of NCBE or
any of its subsidiaries, which could reasonably be expected to have a material
adverse effect on the financial condition, results of operations or business of
NCBE and its subsidiaries, taken as a whole, or which challenges the validity of
the transactions contemplated by this Agreement.
(h) Shares to be Issued in the Merger. The shares of NCBE Common to be
issued in the Holding Company Merger are duly authorized and, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable.
A-5
<PAGE>
(i) Pooling-of-Interests. As of the date of this Agreement and based upon
the advice of its independent accountants, NCBE believes that the Holding
Company Merger will qualify for the pooling-of-interests method of accounting
under Accounting Principles Board No. 16 ("APB 16").
(j) Tax Treatment. As of the date of this Agreement and based upon the
advice of its counsel, NCBE believes that the Holding Company Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
(k) True and Complete Information. No representation or warranty made by
NCBE contained in this Agreement and no statement of NCBE contained in any
certificate, list, exhibit or other instrument specified in this Agreement,
whether heretofore furnished to Bancorp or hereinafter required to be furnished
to Bancorp, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained therein not misleading.
7. REPRESENTATIONS AND WARRANTIES OF BANCORP. Bancorp represents and
warrants to NCBE, except as disclosed in the writing delivered to NCBE
concurrently with the execution of this Agreement (the "Disclosure Schedule"),
as follows:
(a)(i) Organization and Good Standing of Bancorp. Bancorp is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Illinois and has all necessary corporate power to own
its properties and assets and to carry on its business as now conducted.
Bancorp is duly qualified to conduct its business and is in good standing
in each jurisdiction in which the nature of the business transacted by
Bancorp requires such qualification. Bancorp is duly registered with the
Federal Reserve Board as a bank holding company under the Bank Holding
Company Act of 1956, as amended.
(ii) Capital Stock. On the date hereof, Bancorp has 14,000 shares of
Bancorp Common authorized, of which 4,264 shares are issued and outstanding
and no shares are held in the treasury. All of the issued and outstanding
shares of Bancorp Common are duly and validly authorized and issued, fully
paid and nonassessable. None of the issued and outstanding shares of
Bancorp Common have been issued in violation of any preemptive rights.
There are no shares of any class of capital stock or equity securities of
Bancorp outstanding other than the Bancorp Common and there are no
outstanding, options, warrants, rights to subscribe for, calls, or
commitments of any character whatsoever relating to, or securities
convertible into or exchangeable for, such shares or contracts,
commitments, understandings or arrangements by which Bancorp is or may be
obligated to issue additional shares of any class of capital stock or other
equity securities of Bancorp.
(iii) Organization of the Bank. The Bank is a banking corporation
duly organized, validly existing and in good standing under the laws of the
State of Illinois. The deposits of the Bank are insured by the Bank
Insurance Fund administered by the FDIC up to applicable limits.
(iv) Capital Stock of the Bank. On the date hereof, the Bank has
6,000 shares of Bank Stock authorized, of which 6,000 shares are issued and
outstanding and no shares are held in the treasury. Bancorp is the record
and beneficial owner of all of the issued and outstanding shares of Bank
Stock. All of the issued and outstanding shares of Bank Stock are duly and
validly authorized and issued, fully paid and non-assessable. None of the
issued and outstanding shares of Bank Stock have been issued in violation
of any preemptive rights. There are no shares of any class of capital stock
or equity securities of the Bank outstanding other than Bank Stock and
there are no outstanding options, warrants, rights to subscribe for, calls,
or commitments of any character whatsoever relating to, or securities
convertible into or exchangeable for, such shares or contracts,
commitments, understandings or arrangements by which the Bank is or may be
obligated to issue additional shares of any class of capital stock or other
equity securities of the Bank.
(b) Authorization and No Violation. Subject to receipt of approvals from
the Applicable Governmental Authorities and approval by the shareholders of
Bancorp, the execution and delivery of this Agreement by Bancorp and the
consummation of the transactions contemplated by this Agreement have been duly
and validly authorized by all
A-6
<PAGE>
necessary corporate action on the part of Bancorp and this Agreement constitutes
the legal, valid and binding obligation of Bancorp, enforceable against Bancorp
in accordance with its terms, except as limited by (x) bankruptcy, insolvency,
moratorium, reorganization, fraudulent conveyance laws and other similar laws
affecting creditors' rights generally, and (y) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law. The
execution of this Agreement by Bancorp and the consummation of the transactions
contemplated by this Agreement will not violate the provisions of, or constitute
a breach or default under (i) the articles of incorporation or by-laws of
Bancorp or the articles of incorporation and by-laws of the Bank, (ii) any
Material Contract (as defined in Section 7(f)) of Bancorp or the Bank or (iii)
any other material license, law, order, rule, regulation or judgment to which
Bancorp or the Bank is a party, is bound or by which any of their respective
properties or assets is subject. The minute books of Bancorp accurately reflect
in all material respects all corporate actions held or taken by its shareholders
and Board of Directors (including committees of the Board of Directors).
(c) Subsidiaries. The only entities (including, without limitation,
corporations, partnerships, limited liability companies and joint ventures) in
which Bancorp has a direct or indirect equity or ownership interest are the Bank
and entities in which the Bank has acquired ownership interests pursuant to
debts previously contracted.
(d) Financial Statements. Bancorp has delivered to NCBE the balance sheet
of the Bank as of August 29, 1997 and the related statements of income, changes
in shareholders' equity and cash flows for the eight months ended August 29,
1997. Such financial statements have been audited by Gray Hunter Stenn,
certified public accountants, whose report thereon is included with such
financial statements. Such financial statements have been prepared in conformity
with GAAP applied on a consistent basis (except for changes, if any, required by
GAAP and disclosed therein), the balance sheet presents fairly the financial
condition of the Bank as of its date and the statement of income presents fairly
the results of operations for the period covered. At August 29, 1997, there were
no material liabilities of the Bank (actual, contingent or accrued) which, in
accordance with GAAP applied on a consistent basis, should have been shown or
reflected in such financial statements or the notes thereto, but which are not
so shown or reflected.
(e) Taxes and Tax Returns.
(i) To the knowledge of Bancorp management, each of Bancorp and the
Bank has duly filed all federal and state tax information and tax returns
(the "Returns") required to be filed by it (all such returns being accurate
and complete in all material respects) and has duly paid or made provision
for the payment of all material taxes and other governmental charges which
have been incurred and are shown to be due on said Returns or are otherwise
due or claimed to be due from it or imposed on it or its respective
properties, assets, income, franchises, licenses, sales or use, by any
federal, state or local taxing authorities (collectively, the "Taxes") on
or prior to the date hereof other than Taxes which are being contested in
good faith and by appropriate proceedings and as to which Bancorp and the
Bank either singly or in the aggregate have set aside adequate reserves. To
the knowledge of Bancorp management, the amounts recorded as reserves for
Taxes on the financial statements of the Bank as of August 29, 1997, are
sufficient in the aggregate for the payment of all unpaid Taxes (including
any interest or penalties thereon) whether or not disputed or accrued, for
the period ended August 29, 1997 or for any year or period prior thereto.
The federal and state Returns of Bancorp and the Bank have been examined by
the Internal Revenue Service ("IRS") or other appropriate tax authority or
the tax years have been closed without audit and any liability with respect
thereto has been satisfied for all years to and including the year ended
December 31, 1993 and, if required, the appropriate tax authorities have
been apprised of such liabilities and the satisfaction thereof. There are
no material disputes pending, or claims asserted, for Taxes upon Bancorp or
the Bank. Neither Bancorp nor the Bank has been required to give any
currently effective waivers extending the statutory period of limitation
applicable to any federal, state or local Return for any period. Neither
Bancorp nor the Bank has in effect any power of attorney or authorization
to anyone to represent it with respect to any Taxes. Bancorp has not filed
any consolidated federal income tax return with an "affiliated group"
(within the meaning of Section 1504 of the Code), where Bancorp was not the
common parent of the group. Neither Bancorp nor the Bank is, or has been, a
party to any tax allocation agreement or arrangement pursuant to which it
has any contingent or outstanding liability to anyone other than Bancorp or
the Bank. Neither Bancorp nor the Bank has filed a consent under Section
341(f) of the Code. Bancorp has made available to NCBE or its
representatives complete and correct copies of its federal and state income
tax
A-7
<PAGE>
returns filed on or prior to April 15, 1998, and all examination reports,
if any, relating to the audit of such returns by the IRS or other tax
authority for each taxable year beginning on or after January 1, 1995.
(ii) All monies required to be withheld from employees of Bancorp
and the Bank for income taxes, social security and unemployment insurance
taxes or collected from customers or others as sales, use or other taxes
have been withheld or collected and paid, when due, to the appropriate
governmental authority, or if such payment is not yet due, a reserve, which
in the opinion of Bancorp management is adequate, has been established.
(f) Material Contracts. The Disclosure Schedule contains a list of all
executory contracts, indentures, commitments, and other agreements (other than
agreements or commitments for loans made in the ordinary course of
business of the Bank) in excess of $25,000 to which Bancorp or the Bank is a
party or to which Bancorp or the Bank or any of their properties are subject
(collectively, the "Material Contracts" and each a "Material Contract"). All
Material Contracts were entered into in the ordinary course of business. Each of
Bancorp and the Bank has duly performed all of its material obligations
thereunder to the extent that such obligations to perform have accrued, and no
material breach or default thereunder by Bancorp or the Bank or, to the
knowledge of Bancorp management, any other party thereto has occurred which will
impair the ability of Bancorp or the Bank to enforce any material rights
thereunder.
(g) Real Estate. Bancorp or the Bank has good title to all of the assets
reflected as owned in the financial statements described in Subsection (e), and
in the case of real property, transferable and insurable title in fee simple,
and in all cases free and clear of any material liens or other encumbrances. The
real properties, structures, buildings, equipment, and the tangible personal
property owned, operated or leased by Bancorp or the Bank are (i) in good
repair, order and condition, except for depletion, depreciation and ordinary
wear and tear, and (ii) free from any known material structural defects. There
are no laws, conditions of record or other impediments which materially
interfere with the intended uses by Bancorp or the Bank of the real property or
tangible personal property owned or leased by either of them.
(h) No Material Adverse Change. Since August 29, 1997, there has been no
material adverse change in the business, financial condition, properties,
results of operation, or capitalization of Bancorp or the Bank.
(i) Litigation. There is no litigation, claim, investigation or other
proceeding pending or, to the knowledge of Bancorp management, threatened,
against or adversely affecting Bancorp or the Bank, or of which the property of
Bancorp or the Bank is or would be subject and which would have a material
adverse effect on the financial condition, results of operations or business of
Bancorp and the Bank, taken as a whole. To the knowledge of Bancorp management,
there is no litigation, claim, investigation or other proceeding to which any
director, officer, employee or agent of Bancorp or the Bank in their respective
capacities as directors, officers, employees or agents, is a party, pending or
threatened against any such director, officer, employee or agent. There is no
outstanding order, writ, injunction or decree of any court, government or
governmental agency against or, affecting Bancorp or the Bank, or the assets or
business of Bancorp or the Bank, which could reasonably be expected to have a
material adverse effect on the financial condition, results of operations or
business of Bancorp and the Bank, taken as a whole, or which challenges the
validity of the transactions contemplated by this Agreement.
(j) Insurance. Each of Bancorp and the Bank has in effect insurance
coverage with reputable insurers, which in respect to amounts, types and risks
insured, is adequate in the opinion of Bancorp management for the business in
which Bancorp and the Bank are engaged. All policies of insurance owned or held
by Bancorp or the Bank for current coverage are in full force and effect, all
material premiums with respect thereto covering all periods up to and including
the date hereof is paid (other than retrospective premiums which may be payable
with respect to worker's compensation insurance policies), and no notice of
cancellation or termination has been received with respect to any such policy.
(k) Compliance with Laws. Each of Bancorp and the Bank has conducted its
business in substantial compliance with all applicable federal, state and local
laws, regulations and orders including, without limitation, disclosure, usury,
A-8
<PAGE>
equal credit opportunity, equal employment, fair credit reporting, lender
liability, and other laws, regulations and orders, and the forms, procedures and
practices used by Bancorp and the Bank, to the knowledge of Bancorp management,
are in compliance with such laws, regulations and orders except to the extent
that non-compliance with any such law, regulation or order would not have a
material adverse effect on Bancorp and the Bank, taken as a whole.
(l) Broker's and Finder's Fees. Neither Bancorp nor the Bank has incurred
any obligation or liability, contingent or otherwise, for any brokers or finders
in respect of the matters provided for in this Agreement.
(m) Employee Benefit Plans.
(i) Except for Bancorp and the Bank, there are no other trades or
businesses, whether or not incorporated, which, together with Bancorp or
the Bank, would be deemed to be a "single employer" within the meaning of
Section 414(b), (c) or (m) of the Code.
(ii) The Disclosure Schedule sets forth a true and a complete list
of (A) each employee benefit plan, as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") that
Bancorp or the Bank currently maintains or has maintained within the three
year period preceding the date hereof (the "ERISA Plans"), and (B) each
other plan, arrangement, program and agreement providing employee benefits,
including, but not limited to, deferred compensation, bonuses, severance
pay or fringe benefits, and consulting or employment agreements, that are
presently maintained for the benefit of any current or former employees of
Bancorp or the Bank (the ERISA Plans and such other plans are collectively
referred to as the "Plans"). Bancorp has made available to NCBE copies of
all Plans and any related documents or instruments establishing the Plans
or any related trusts or funding arrangements; the most recent
determination letter, or any outstanding request for a determination
letter, from the IRS with respect to each ERISA Plan intended to satisfy
the requirements of Section 401(a) of the Code and a copy of the
application on which the determination letter or request for determination
letter is based; fidelity bonds; actuarial valuations, if applicable, for
the most recent three plan years for which such valuations are available;
current summary plan descriptions; annual returns/reports on Form 5500 and
summary annual report for the three most recent plan years; Form 5310 and
any related filings with the IRS, the Department of Labor ("DOL") or the
Pension Benefit Guaranty Corporation ("PBGC") within the last year
preceding the date of this Agreement; and any material correspondence to or
from the IRS, DOL or PBGC within the last three years preceding the date
hereof in connection with any Plan.
(iii) Neither Bancorp nor the Bank currently maintains or
contributes to, or has ever maintained or contributed to, a "multi-employer
plan" as defined in Section 3(37) of ERISA.
(iv) No Plan provides benefits, including without limitation death
or medical benefits (whether or not insured), with respect to current or
former employees for any period extending beyond their retirement or other
termination of service other than (A) continuation group health coverage
pursuant to Section 4980B of the Code or applicable state law; (B)
benefits, the full cost of which is borne by the current or former employee
(or his or her beneficiary); or (C) benefits which in the aggregate are not
material.
(v) Each ERISA Plan intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter from the IRS that
the Plan is qualified and satisfies all legal requirements, including the
requirements of the Tax Reform Act of 1986. To the knowledge of Bancorp
management, nothing has occurred since the dates of the respective IRS
favorable determination letters that could adversely affect the
qualification of the Plans and their related trusts.
(vi) All of the Plans, and any related trust agreement, group
annuity contract, insurance policy or other funding arrangement are in
substantial compliance with all applicable laws, rules and regulations,
including without limitation, the rules and regulations promulgated by the
DOL, PBGC or IRS pursuant to the provisions of ERISA and the Code, and each
of such Plans has been administered in substantial compliance with such
requirements and its own terms.
A-9
<PAGE>
(vii) Neither Bancorp nor the Bank currently maintains or
contributes to, or has ever maintained or contributed to, a Plan that is
subject to Title IV of ERISA or the minimum funding requirements of Section
412 of the Code.
(viii) To the knowledge of Bancorp management, none of Bancorp, the
Bank, any of the Plans, any trust created thereunder, or any trustee or
administrator thereof has engaged in a transaction in connection with which
Bancorp or the Bank, any of the Plans, any such trust, or any trustee or
administrator thereof, or any party dealing with the Plans or related
trusts could be subject to either a civil penalty assessed pursuant to
Sections 409 or 502 of ERISA or a tax imposed pursuant to Sections 4975 or
4976 of the Code. To the knowledge of Bancorp management, none of Bancorp,
the Bank, NCBE or the Surviving Bank is, or, as a result of any actions,
omissions, occurrences or state of facts existing prior to or at the
Effective Time, is likely to become liable for any tax imposed under
Sections 4978 or 4978(B) of the Code in connection with the ERISA Plans.
(ix) There are no (A) actions, suits, arbitrations or claims (other
than routine claims for benefits), (B) legal, administrative or other
proceedings or governmental investigations or audits, or (C) complaints to
or by any governmental entity, which are pending, anticipated or
threatened, against any Plan or its assets, or against any Plan fiduciary
or administrator, or against Bancorp or the Bank or their officers or
employees with respect to any Plan.
(x) Each ERISA Plan may be terminated directly or indirectly by the
Surviving Corporation, in its discretion, at any time after the Effective
Time, in accordance with its terms, without any liability on the part of
the Surviving Corporation, NCBE, Bancorp or the Bank, to any person, entity
or government agency for any conduct, practice or omission of Bancorp or
the Bank which occurred prior to the Effective Time, except for liabilities
to and the rights of the employees thereunder accrued prior to the
Effective Time, or if later, the time of termination.
(xi) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (A) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director
or any employee of Bancorp or the Bank from Bancorp or the Bank under any
Plan or otherwise; (B) materially increase any benefits otherwise payable
under any Plan; or (C) result in any acceleration of the time of payment or
vesting of any such benefits to any material extent.
(n) Labor Matters. Neither Bancorp nor the Bank is a party to any organized
labor contract or collective bargaining agreement.
(o) Environmental Matters.
(i) As used herein, the term "Environmental Laws" shall mean all
local, state and federal environmental, health and safety laws and
regulations and common law standards in all jurisdictions in which Bancorp
and the Bank have done business or owned, leased or operated property,
including, without limitation, the Federal Resource Conservation and
Recovery Act, the Federal Comprehensive Environmental Response,
Compensation and Liability Act, the Federal Clean Water Act, the Federal
Clean Air Act, and the Federal Occupational Safety and Health Act.
(ii) To the knowledge of Bancorp management, neither the conduct nor
operation of Bancorp or the Bank nor any condition of any property
presently or previously owned, leased or operated by any of them violates
or violated Environmental Laws or has in any respect that would have a
material adverse effect on the financial condition, results of operations
or business of Bancorp and the Bank, taken as a whole, and no condition has
existed or event has occurred with respect to either of them or any such
property that, with notice or the passage of time, or both, would
constitute a violation of Environmental Laws or obligate (or potentially
obligate) Bancorp, NCBE, the Bank or the Surviving Bank to remedy,
stabilize, neutralize or otherwise alter the environmental condition of any
such property where the aggregate cost of such actions would have a
material adverse effect on the financial condition, results of operations
or business of Bancorp and the Bank, taken as a whole. Neither Bancorp nor
the Bank has received any notice from any person or entity that Bancorp or
the Bank or the operation or condition of any property
A-10
<PAGE>
ever owned, leased or operated by either of them are or were in violation
of any Environmental Laws or that any of them are responsible for the
cleanup or other remediation of any pollutants, contaminants, or hazardous
or toxic wastes, substances or materials at, on or beneath any such
property.
(p) Regulatory Compliance. Neither Bancorp nor the Bank is a party to any
enforcement action instituted by any memorandum of understanding, agreement,
consent agreement or cease and desist order with any federal or state regulatory
agency, and neither Bancorp nor the Bank has been advised by any federal or
state regulatory agency that it is considering taking such action. There is no
material unresolved violation, criticism or exception cited by any such federal
or state regulatory agency with respect to any examination of Bancorp or the
Bank.
(q) True and Complete Information. No representation or warranty made by
Bancorp contained in this Agreement and no statement of Bancorp contained in
the Disclosure Schedule or any certificate, list, exhibit or other instrument
specified in this Agreement, whether heretofore furnished to NCBE or
hereinafter required to be furnished to NCBE, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained therein not misleading.
8. COVENANTS OF NCBE. NCBE agrees with Bancorp as follows:
(a) Regulatory Approvals. NCBE shall, at its sole expense, be responsible
for the preparation and filing of all regulatory applications or notices to the
Applicable Governmental Authorities. NCBE agrees to file such regulatory
applications or notices as soon as practicable and in any event within sixty
(60) days after the date hereof. Any failure by NCBE to file such regulatory
applications or notices within such 60-day period (or such extended period as
determined solely by Bancorp) shall be grounds for Bancorp to terminate this
Agreement pursuant to Section 16(c) provided that such right is exercised within
ten (10) days of the expiration of such 60-day (or extended) period. NCBE shall
use its reasonable efforts to obtain the approvals of the Applicable
Governmental Authorities for the transactions contemplated by this Agreement;
however, NCBE's obligation to use its reasonable efforts to obtain the approvals
of the Applicable Governmental Authorities shall not be construed as including
an obligation to accept any unreasonable terms of or conditions to an approval
of any Applicable Governmental Authority, to change the business practices of
NCBE or any NCBE subsidiary in any material respect or to institute any
litigation in connection with such approvals. NCBE shall keep Bancorp informed
as to the status of such applications and make available to Bancorp, upon
reasonable request by Bancorp from time to time, copies of such applications and
any supplementally filed materials.
(b) Registration Statement. NCBE shall file with the Commission a
Registration Statement on Form S-4 (the "Registration Statement") relating to
the shares of NCBE Common to be issued pursuant to the Merger, and shall use its
best efforts to cause the Registration Statement to become effective. At the
time the Registration Statement becomes effective, the Registration Statement,
including the Proxy Statement/Prospectus included therein (the "Proxy
Statement/Prospectus"), as amended or supplemented, shall comply in all material
respects with the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder, and the
information in the Proxy Statement/Prospectus furnished by NCBE for inclusion
therein shall 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 not false or misleading.
(c) Listing. NCBE shall use its best efforts to list the shares of NCBE
Common to be issued in the Holding Company Merger on the Nasdaq National Market.
(d) Access to Information. NCBE shall permit Bancorp reasonable access
during regular business hours to its properties. NCBE shall disclose and make
available to Bancorp and shall use its best efforts to cause its agents and
authorized representatives to disclose and make available to Bancorp, all books,
papers and records relating to its assets, properties, operations, obligations
and liabilities, including, but not limited to, all books of account, tax
records, minute books of directors' and shareholders' meetings, organizational
documents, material contracts and agreements, loan files, filings with any
regulatory authority, accountants' workpapers (if available and subject to the
respective
A-11
<PAGE>
independent accountants' consent), litigation files (but only to the extent that
such review would not result in a material waiver of the attorney-client or
attorney work product privileges under the rules of evidence), plans affecting
employees, and any other business activities or prospects in which Bancorp may
have a reasonable and legitimate interest in furtherance of the transactions
contemplated by this Agreement.
(e) Actions Related to the Bank Merger. After the date that NCBE has
completed its acquisition of IOB, NCBE shall take all action necessary to cause
IOB (or with the approval of Bancorp, another banking subsidiary of NCBE) to
approve and enter into the Merger Agreement and shall, as the sole shareholder
of IOB, approve the Merger Agreement and the Bank Merger.
9. AGREEMENTS WITH RESPECT TO CONDUCT OF BANCORP AND THE BANK PRIOR TO THE
CLOSING. Bancorp agrees with NCBE as follows:
(a) Ordinary Course, Insurance and Preservation of Business. Each of
Bancorp and the Bank will, except as otherwise agreed to in writing by NCBE:
(i) carry on its respective business in the ordinary course and
consistent with its respective policies, procedures and practices as
heretofore conducted;
(ii) except as terminated in accordance with their terms or in
accordance with the terms of this Agreement, keep in full force and effect,
and not cause a default of any of its obligations under, any Material
Contracts;
(iii) keep in full force and effect the insurance coverage in effect
on the date hereof;
(iv) maintain, renew, keep in full force and effect and preserve its
business organization, material rights, franchises, permits and licenses,
retain its present employee force, maintain its existing, or substantially
equivalent, credit arrangements with banks and other financial institutions
and use its best efforts to continue its general customer relationships;
and
(v) duly comply in all material respects with all laws applicable to
it and to the conduct of its business.
(b) Notice. Bancorp will promptly notify NCBE of any event which hereafter
becomes known to Bancorp management which may reasonably have a material adverse
effect on the financial condition, operations, business or assets of Bancorp and
the Bank, taken as a whole, or if Bancorp determines that it may be unable to
fulfill the conditions set forth in Section 11 or 12 hereof.
(c) Prohibited Action Without Approval. Neither Bancorp nor the Bank will,
except with the prior written consent of NCBE, do any of the following:
(i) incur or agree to incur any obligation or liability (absolute or
contingent) other than the taking of deposits and other liabilities
incurred in the ordinary course of business and consistent with prior
practice, and liabilities arising out of, incurred in connection with, or
related to the consummation of this Agreement; make or permit any amendment
or termination of any Material Contract; acquire (by merger, consolidation,
or acquisition of stock or assets) any corporation, partnership, limited
liability company or other business organization or division or substantial
part thereof, except for interests in entities acquired by the Bank
pursuant to debts previously contracted; sell or otherwise dispose of any
substantial part of its assets; enter into, dispose or divest itself of any
joint venture or partnership or cause any business entity to become a
subsidiary or affiliate, except for interests in entities acquired by the
Bank pursuant to debts previously contracted; sell or otherwise dispose of
any real property owned or operated by Bancorp or the Bank, except for
interests in properties acquired by the Bank pursuant to debts previously
contracted; enhance, expand, modify, replace or alter any computer or data
processing system owned, leased or licensed by Bancorp or the Bank
(including any software associated with any such computer or system); make,
originate or otherwise acquire one or more loans, or one or more loan
commitments for one or more loans,
A-12
<PAGE>
or one or more lines of credit, in an aggregate amount in excess of
$1,000,000 to any person other than renewals or restructurings of loans in
existence on the date hereof; or enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing; or
(ii) make any capital expenditure, except for ordinary repairs,
renewals and replacements in excess of $25,000 individually or $100,000 in
the aggregate; or
(iii) issue, sell, redeem or acquire for value, or agree to do so,
any shares of the capital stock or other equity securities, options or
other ownership interests of Bancorp or debt securities, or declare, issue
or pay any dividend or other distribution of assets, whether consisting of
money, other personal property, real property or other things of value, to
its shareholders other than (A) cash dividends on the Bancorp Common in an
amount not to exceed $22.00 per share payable semi-annually in accordance
with past practices on July and January, (B) cash dividends payable by the
Bank, (C) sinking fund or other mandatory payments required under the terms
of any indenture or loan agreement or repurchases of any outstanding debt
securities to be applied against any such sinking fund payments in amounts
which do not exceed, with respect to any series or class of debt
securities, the sinking fund payments required within the next twelve-month
period, (D) the payment of any debt security upon the maturity thereof, and
(E) obligations or liabilities permitted to be incurred pursuant to Section
9(c)(i) hereof; or
(iv) sell, pledge or redeem any of the Bank Stock; amend its
articles of incorporation or by-laws or permit the Bank to amend its
articles of association or by-laws; split, combine or reclassify any shares
of capital stock; or enter into any agreement, commitment or arrangement
with respect to any of the foregoing; or
(v) enter into or amend any employment agreement, pay any
extraordinary bonus or establish any general increase in salaries except
for merit, cost of living and other changes in compensation in accordance
with past practices; or
(vi) compromise or otherwise settle or adjust any assertion or claim
of a deficiency in taxes (or interest thereon or penalties in connection
therewith) or file any appeal from an asserted deficiency, except in a form
previously approved by NCBE, or file any federal or state tax return before
furnishing a copy to NCBE and affording NCBE an opportunity to consult with
the filing entity; or
(vii) open any new office or close any current office of the Bank at
which business is conducted; or
(viii) knowingly take any actions that would adversely affect the
ability of the Mergers to be accounted for using the pooling-of-interests
method of accounting under APB 16.
(d) No Solicitation.
(i) Neither Bancorp nor any officer, director or any representative
thereof shall solicit or authorize the solicitation of, or, unless
Bancorp's Board of Directors has reasonably determined in good faith based
upon the written advice of counsel that the failure to do so would cause
the Board of Directors to breach its fiduciary duties under applicable law,
enter into or authorize any discussions with any third party concerning, or
furnish or authorize the furnishing of any confidential information
relating to Bancorp or the Bank to any third party for the purpose of
studying, considering, soliciting or inducing any offer or possible offer
by any such third party or any other third party to acquire Bancorp or any
or all of the capital stock, other equity securities or other ownership
interests, or all or substantially all of the assets, of Bancorp or the
Bank. Bancorp will promptly communicate to NCBE the terms of any proposal
or contract it may receive with respect to any such transactions.
(ii) Upon the execution of this Agreement, Bancorp shall immediately
terminate all discussions then existing with any third parties regarding
any possible offer to acquire Bancorp or the Bank.
A-13
<PAGE>
(e) Insider Lending. The Bank shall not change or modify any of its current
practices relating to the lending of money, secured or unsecured, to its
affiliated persons, including but not limited to its directors, officers and
employees.
(f) No Violation. Neither Bancorp nor the Bank will take any action which
knowingly violates any statute, code, ordinance, rule, regulation or judgment,
order, writ, arbitral award, injunction or decree of any court, governmental
agency or body or arbitrator, domestic or foreign, having jurisdiction over its
properties.
(g) Accounting. Each of Bancorp and the Bank will maintain its books,
accounts and records in accordance with GAAP. Neither Bancorp nor the Bank shall
make any change in any method of accounting or accounting practice, or any
change in the method used in allocating income, charging costs or accounting for
income, except as may be required by law, regulation or GAAP. Neither Bancorp
nor the Bank shall change any practice or policy with respect to the charging
off of loans or the maintenance of its reserve for possible loan losses, except
as required by law, regulation or GAAP.
10. ADDITIONAL AGREEMENTS.
(a) Continuing Access to Information. Through the Effective Time, Bancorp
shall permit NCBE and its authorized representatives reasonable access during
regular business hours to Bancorp's properties and those of the Bank. Bancorp
shall make its and the Bank's directors, management and other employees and
agents and authorized representatives (including counsel and independent public
accountants) available to confer with NCBE and its authorized representatives at
reasonable times and upon reasonable request, and Bancorp shall, and shall cause
the Bank to, disclose and make available to NCBE, and shall use its best efforts
to cause its agents and authorized representatives to disclose and make
available to NCBE, all books, papers and records relating to the assets,
properties, operations, obligations and liabilities of Bancorp and the Bank,
including, but not limited to, all books of account, tax records, minute books
of directors' and shareholders' meetings, organizational documents, material
contracts and agreements, loan files, filings with any regulatory authority,
accountants' workpapers (if available and subject to the respective independent
accountants' consent), litigation files (but only to the extent that such review
would not result in a material waiver of the attorney-client or attorney work
product privileges under the rules of evidence), plans affecting employees, and
any other business activities or prospects in which NCBE may have a reasonable
and legitimate interest in furtherance of the transactions contemplated by this
Agreement.
(b) Management Reports. Bancorp shall promptly provide to NCBE copies of
any reports to the Board of Directors of Bancorp or the Bank or any committee
thereof and minutes of all meetings of the Board of Directors of Bancorp and the
Bank and each committee thereof. Throughout the period prior to the Effective
Time, Bancorp and the Bank will cause one or more designated representatives to
confer with representatives of NCBE on the ongoing operations of Bancorp and the
Bank.
(c) Information for Regulatory Filings. Upon request by NCBE, Bancorp shall
promptly furnish NCBE with any information within its possession which relates
to Bancorp or the Bank and which is required under any applicable law or
regulation for inclusion in any filing that NCBE is required to make with any
Applicable Governmental Authority. Bancorp agrees that all information so
furnished shall be true and correct in all material respects without omission of
any material fact required to be stated therein or necessary to make the
information stated therein not misleading.
(d) Restriction on Resales. Bancorp shall obtain and deliver to NCBE, at
least thirty-one (31) days prior to the Closing, the signed agreement, in the
form of Exhibit B hereto, of each of its officers and directors and shall use
its best efforts to obtain similar agreements from each other person who owns 5%
or more of the outstanding shares of Bancorp Common and any other persons who
may reasonably be deemed by NCBE to be an "affiliate" of Bancorp within the
meaning of such term as used in Rule 145 under the Securities Act.
(e) Shareholder Approval. As soon as practicable after NCBE has filed all
regulatory applications under Section 8(c), Bancorp shall cause to be duly
called and held a special meeting of the holders of Bancorp Common for
A-14
<PAGE>
submission of this Agreement and the Merger for approval of such shareholders as
required by the BCA. In connection with such shareholders' meeting, (i) Bancorp
shall cooperate and assist NCBE in preparing and filing the Registration
Statement, and any amendments or supplements thereto, including the Proxy
Statement/Prospectus with the SEC and applicable state securities authorities,
and Bancorp shall mail the Proxy Statement/Prospectus to its shareholders; (ii)
Bancorp shall furnish NCBE all information within its possession concerning
itself that NCBE may reasonably request in connection with the Proxy
Statement/Prospectus; (iii) the Board of Directors of Bancorp (subject to
compliance with its fiduciary duties as advised in writing by counsel) shall
recommend to its shareholders the approval of this Agreement and the Merger
contemplated hereby and use its best efforts to obtain such approval; and (iv)
Bancorp agrees that the information furnished by it to NCBE for inclusion in the
Proxy Statement/Prospectus shall 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 not false or misleading.
(f) Actions Related to Bank Merger. If NCBE has completed the acquisition
of IOB and IOB has executed the Merger Agreement, Bancorp shall take all actions
necessary to cause the Bank to approve and enter into the Merger Agreement and
shall, as the sole shareholder of the Bank, approve the Merger Agreement and the
Bank Merger; provided, however, that the consummation of the Bank Merger shall
not be a condition to the consummation of the Holding Company Merger.
11. CONDITIONS TO OBLIGATIONS OF BOTH PARTIES. The respective obligations
of each party to effect the Holding Company Merger are subject to the
satisfaction or waiver on or prior to the Closing of the following conditions:
(a) Shareholder Approval. The Holding Company Merger shall have been
approved by the holders of at least two-thirds of the outstanding shares of
Bancorp Common.
(b) Regulatory Approval. The Holding Company Merger shall have been
approved by all Applicable Governmental Authorities and all applicable waiting
periods shall have expired.
(c) No Action to Prevent Consummation.
(i) No action or proceeding shall have been instituted before a
court or other governmental body, agency or authority or other person which
is reasonably expected to (A) result in an order enjoining the Holding
Company Merger, (B) result in a determination that a party has failed to
comply with applicable legal requirements in connection with the Holding
Company Merger; or (C) have a material adverse effect on the future conduct
of the business of a party;
(ii) No governmental agency shall have notified either party in
writing to the effect that consummation of the transactions contemplated by
this Agreement would constitute a violation of any statute, rule,
regulation or policy and that it intends to commence proceedings to
restrain consummation of the Holding Company Merger; and
(iii) No statute, rule, regulation or policy shall have been
promulgated or enacted by any governmental or regulatory agency of
competent jurisdiction which shall prevent or declare the Holding Company
Merger illegal.
(d) Listing. The shares of NCBE Common to be issued in the Holding Company
Merger shall have been listed on the Nasdaq National Market, subject to notice
of issuance.
(e) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be subject of any stop order or
proceeding seeking a stop order.
(f) No Change in Tax Treatment. There shall have been no developments
outside of the control of NCBE after the date hereof that would preclude the
Holding Company Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
A-15
<PAGE>
12. CONDITIONS TO OBLIGATIONS OF NCBE. The obligation of NCBE to effect the
Holding Company Merger is subject to the satisfaction or waiver on or prior to
the Closing of the following conditions:
(a) Status as of Closing. All representations and warranties of Bancorp
contained in this Agreement shall be true as though made at and as of the
Closing except for such untruths or inaccuracies which individually or in the
aggregate would not have a material adverse effect on Bancorp and the Bank,
taken as a whole; Bancorp shall have performed and satisfied or otherwise
complied with all covenants made by it in this Agreement which are to be
performed on or prior to the Closing; there shall not have occurred any material
adverse change in the business, assets, properties, financial condition or
results of operations of Bancorp and the Bank, taken as a whole; and there shall
be delivered to NCBE a certificate (dated the Closing and signed by the chief
executive officer of Bancorp) stating that to the best of his knowledge such
conditions have been satisfied.
(b) Attorneys' Opinion. NCBE shall have received an opinion, dated the
Closing, of Jenner & Block, counsel for Bancorp, in substantially the form of
Exhibit C attached hereto.
(c) No Change in Pooling-of-Interests Treatment. There shall have been no
developments outside of the control of NCBE after the date hereof that would
preclude the Holding Company Merger from qualifying for the pooling-of-interests
method of accounting under APB 16.
13. CONDITIONS TO OBLIGATIONS OF BANCORP. The obligation of Bancorp to
effect the Holding Company Merger is subject to the satisfaction or waiver on or
prior to the Closing of the following conditions:
(a) Status as of Closing. All representations and warranties of NCBE
contained in this Agreement shall be true as though made at and as of the
Closing except for such truths or inaccuracies which individually or in the
aggregate would not have a material adverse effect on NCBE and its subsidiaries,
taken as a whole; NCBE shall have performed and satisfied all covenants made by
it in this Agreement which are to be performed on or prior to the Closing; there
shall not have occurred any material adverse change in the business, assets,
properties, financial condition or results of operations of NCBE and its
subsidiaries, taken as a whole; and there shall be delivered to Bancorp a
certificate (dated the Closing and signed by the President of NCBE) stating that
to the best of his knowledge such conditions have been satisfied.
(b) Attorneys' Opinion. Bancorp shall have received an opinion, dated the
Closing, of Baker & Daniels, counsel for NCBE, in substantially the form of
Exhibit D attached hereto.
14. INFORMATION. The parties acknowledge the confidential and proprietary
nature of the "Information" (as hereafter defined) which has heretofore been
exchanged and which will be received from each other hereunder and agree to hold
and keep the same confidential. Such Information shall include any and all
financial, technical, commercial, marketing, customer or other information
concerning the business, operations and affairs of a party that may be provided
to the other, irrespective of the form of the communication, by such party's
employees or authorized representatives. Such Information shall not include
information which is or becomes generally available to the public other than as
a result of a disclosure by a party or its authorized representatives in
violation of this Agreement. The parties agree that the Information will be used
solely for the purposes contemplated by this Agreement and that such Information
will not be disclosed to any person other than employees and authorized
representatives of a party who are directly involved in evaluating the Holding
Company Merger. The Information shall not be used in any way detrimental to a
party, including use directly or indirectly in the conduct of the other party's
business or any business or enterprise in which such party may have an interest,
now or in the future, and whether or not now in competition with such other
party. Upon termination of this Agreement without the Holding Company Merger
becoming effective, each party shall: (a) deliver to the other originals and all
copies of all Information made available to such party; (b) not retain any
copies, extracts or other reproductions in whole or in part of such Information;
and (c) destroy all memoranda, notes and other writings prepared by any party or
its authorized representatives based on the Information.
A-16
<PAGE>
15. PAYMENT OF EXPENSES.
(a) Expenses Generally. Except as otherwise provided in subsection (b)
below, each party hereto shall pay its own fees and expenses incident to
preparing for, entering into, and carrying out this Agreement and the
transactions contemplated hereby.
(b) Reimbursement of NCBE. Upon the occurrence of a Triggering Event (as
hereafter defined), Bancorp shall reimburse NCBE for all of its out-of-pocket
expenses and costs, including fees of accountants and attorneys, incurred in
connection with the transactions contemplated by this Agreement up to a maximum
of $150,000. As used herein, the term "Triggering Event" shall mean both (A) the
termination of this Agreement for any reason other than the failure of any of
the conditions set forth in Sections 11(b), 11(c), 11(d), 11(e) or termination
pursuant to Sections 16(a) or 16(c) hereof and (B) the occurrence of any of the
following within six (6) months of the date of termination: (1) Bancorp enters
into any agreement with respect to a Competing Transaction; (2) the Board of
Directors of Bancorp recommends a Competing Transaction to Bancorp's
shareholders; or (3) following the announcement of a Competing Transaction, the
Board of Directors of Bancorp withdraws or modifies its recommendation of the
Holding Company Merger or this Agreement. The term "Competing Transaction" means
any of the following: (1) an offer by any person or group of persons (other than
NCBE) to acquire ownership of twenty-five percent (25%) or more of the Bancorp
Common or the Bank Stock; or (2) a proposal for a merger, consolidation, share
exchange, business combination, or similar transaction involving Bancorp; or (3)
a proposal for a sale, lease, exchange, transfer or other disposition of
twenty-five percent (25%) or more of the assets of Bancorp. The terms "person"
and "group of persons" shall have the meanings conferred thereon by Sections
3(a)(9) and 13(d)(3) of the Exchange Act and the regulations promulgated
thereunder.
16. TERMINATION OF AGREEMENT. Notwithstanding the fact that the
shareholders of Bancorp have approved this Agreement, this Agreement may be
terminated at any time on or prior to the Effective Time:
(a) Mutual Consent. By mutual consent of Bancorp and NCBE;
(b) Competing Transaction. By Bancorp, if Bancorp accepts, approves or
recommends a Competing Transaction to its shareholders; provided that Bancorp
has simultaneously delivered to NCBE the amounts payable pursuant to Section
15(b); or
(c) Otherwise. (i) By Bancorp, upon written notice to NCBE, if by December
31, 1998, any of the conditions set forth in Sections 11 or 13 shall not have
been satisfied or are no longer capable of being satisfied; (ii) by Bancorp,
upon written notice to NCBE, pursuant to Section 8(a); or (iii) by the Board of
Directors of NCBE, upon written notice to Bancorp, if by December 31, 1998, any
of the conditions set forth in Sections 11 or 12 shall not have been satisfied
or are no longer capable of being satisfied.
(d) Effect of Termination. Upon termination of this Agreement by either
NCBE or Bancorp pursuant to this Section 16, there shall be no liability by
reason of this Agreement or the termination thereof on the part of NCBE or
Bancorp or the respective directors, officers, employees, agents or shareholders
of either of them, except for any liability under Section 15(b) or unless such
termination results from a party's intentional or reckless misrepresentation or
intentional or reckless breach of any covenant contained herein.
17. PUBLICITY AND REPORTS. NCBE and Bancorp shall coordinate all publicity
relating to the transactions contemplated by this Agreement and, except as
otherwise required by law, neither party shall issue any press release,
publicity statement or other public notice relating to this Agreement or any of
the transactions contemplated hereby without obtaining the prior written consent
of the other, which consent shall not be unreasonably withheld.
18. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as set
forth in the following sentence, none of the representations, warranties or
covenants of the parties shall survive the Effective Time
A-17
<PAGE>
or the earlier termination of this Agreement. The covenants contained in
Sections 5 and 14 shall survive the Effective Time or the earlier termination of
this Agreement.
19. NOTICES. Any notice of communication required or permitted hereunder
shall be sufficiently given if in writing and (a) delivered in person; (b) sent
by facsimile transmission (with confirmation of receipt by the recipient) or
express delivery service; or (c) mailed by certified or registered mail, postage
prepaid, as follows:
If to NCBE, addressed to:
National City Bancshares, Inc.
227 Main Street
P. O. Box 868
Evansville, Indiana 47705-0868
Attn: Robert A. Keil
Fax No. (812) 464-9825
With a copy addressed to:
Baker & Daniels
300 North Meridian Street, Suite 2700
Indianapolis, Indiana 46204-1782
Attn: David C. Worrell
Fax No. (317) 237-1000
If to Bancorp, addressed to:
1st Bancorp Vienna, Inc.
Third and Vine Streets
Vienna, Illinois 62995
Attn: Tom Jones
Fax No. (618) 658-4607
With a copy addressed to:
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Attn: Bruce G. Wilson
Fax No. (312) 527-0484
20. MISCELLANEOUS.
(a) Assignment. Neither this Agreement nor any rights, duties or
obligations hereunder shall be assignable by either party, in whole or in part,
without the consent of the other party and any attempted assignment in violation
of this prohibition shall be null and void.
(b) Law Governing. This Agreement will be governed in all respects,
including validity, interpretation and effect, by the internal laws of the State
of Indiana.
(c) Counterparts. This Agreement may be executed in several counterparts
and one or more separate documents, all of which together shall constitute one
and the same instrument with the same force and effect as though all of the
parties had executed the same documents.
A-18
<PAGE>
(d) Amendment and Waiver. Any of the terms or conditions of this Agreement
may be waived, amended or modified in whole or in part at any time before or
after the approval of this Agreement by the shareholders of Bancorp, to the
extent authorized by applicable law, by a writing signed by Bancorp and NCBE.
(e) Entire Agreement. All exhibits and the Disclosure Schedule referred to
in this Agreement are integral parts hereof, and this Agreement, such exhibits
and Disclosure Schedule, constitute the entire agreement among the parties
hereto with respect to the matters contained herein and therein, and supersede
all prior agreements and understandings between the parties with respect
thereto.
(f) Remedies. Subject to the terms hereof, in the event of any willful
breach of this Agreement in any material respect by any of the parties hereto,
any other party hereto damaged shall have all the rights, remedies and causes of
action available at law or in equity.
(g) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
NATIONAL CITY BANCSHARES, INC.
By: /s/ Robert A. Keil
-------------------------
Robert A. Keil, President
ATTEST:
/s/ Stephen C. Byelick, Jr.
- ---------------------------------------
Stephen C. Byelick, Jr., Secretary
1ST BANCORP VIENNA, INC.
By: /s/ Wayne O'Keefe
-------------------------
Wayne O'Keefe, President
ATTEST:
/s/ Tom Jones
- ---------------------------------------
Tom Jones, Executive Vice President
A-19
<PAGE>
EXHIBIT A
MERGER AGREEMENT
THIS MERGER AGREEMENT ("Agreement") is dated as of _________ __, 1998,
between Illinois One Bank, National Association, a national banking association
("IOB"), and First State Bank of Vienna, an Illinois banking corporation
("FSB").
W I T N E S S E T H:
WHEREAS, as of the date hereof, the outstanding capital stock of IOB
consists of 55,000 shares of Common Stock, $10.00 par value per share (the "IOB
Stock");
WHEREAS, as of the date hereof, the outstanding capital stock of FSB
consists of 6,000 shares of Common Stock, $100.00 par value per share (the "FSB
Stock");
WHEREAS, all of the IOB Stock is owned of record and beneficially by
National City Bancshares, Inc., an Indiana corporation ("NCBE");
WHEREAS, NCBE is a party to an Agreement and Plan of Merger dated _____ __,
1998 (the "Acquisition Agreement") with 1st Bancorp Vienna, Inc., an Illinois
corporation ("Bancorp"), relating to the merger of Bancorp with and into NCBE
(the "Merger");
WHEREAS, all of the FSB Stock is owned of record and beneficially by
Bancorp; and
WHEREAS, the Boards of Directors of IOB, FSB, NCBE and Bancorp have all
approved the merger of FSB with and into IOB (the "Bank Merger").
NOW, THEREFORE, in consideration of the premises and the agreements herein
contained, and for the purpose of prescribing the terms and conditions of the
Bank Merger, the mode of carrying the same into effect, the manner, basis and
such other details and provisions as are deemed necessary or desirable, the
parties hereto agree as follows:
1. THE BANK MERGER.
(a) The Bank Merger. Pursuant to the provisions of the National Bank Act,
as amended (the "NBA"), and the Illinois Banking Act (the "IBA"), FSB shall be
merged with and into IOB, with IOB to survive the Bank Merger as the surviving
bank (the "Surviving Bank").
(b) Effective Time of the Bank Merger. The Bank Merger shall become
effective at the time specified in the certificate approving the Bank Merger
issued by the Comptroller of the Currency. The time at which the Bank Merger
becomes effective is hereinafter referred to as the "Effective Time."
2. CONVERSION OF CAPITAL STOCK. At the Effective Time, each share of FSB
Stock then outstanding shall, by virtue of the Bank Merger and without any
action by the holder or issuer thereof, be surrendered, retired and cancelled
and each share of IOB Stock shall be converted into one share of common stock,
$10.00 par value of the Surviving Bank. No provision is made herein for the
rights of dissenters under either the NBA or the IBA because NCBE, the owner of
all of the outstanding shares of the IOB Stock, and Bancorp, the owner of all of
the outstanding shares of the FSB Stock, have each approved the Bank Merger.
A-20
<PAGE>
3. EFFECT OF THE BANK MERGER
(a) General. At the Effective Time, FSB shall be merged with and into IOB
and the separate existence of FSB shall cease. The Surviving Bank shall have all
the rights, privileges, immunities and powers and shall be subject to all of the
duties and liabilities of a banking association organized under the NBA. The
Surviving Bank shall possess all property, real, personal and mixed, and all
debts due on whatever account, and all other choses in action and all and every
other interest, of or belonging to or due to IOB or FSB and the same shall be
deemed taken and transferred to and vested in the Surviving Bank without further
act or deed, and the title to any such property or rights, or any interest
therein, vested in IOB or FSB shall not revert to or be in any way impaired by
reason of the Bank Merger. The Surviving Bank shall be liable for all the
liabilities and obligations of IOB and FSB in the same manner and to the same
extent as if the Surviving Bank had itself incurred such liabilities and
obligations and had contracted therefor, and any claim existing or any action or
proceeding pending by or against IOB or FSB may be prosecuted to judgment as if
the Bank Merger had not taken place, or the Surviving Bank may be substituted in
its place. Neither the rights of creditors, nor any liens upon the property of
IOB or FSB shall be impaired by the Bank Merger, but such liens shall be limited
to the property upon which they were liens immediately prior to the Effective
Time.
(b) Name. The Surviving Bank shall operate under IOB's name.
(c) Principal Office. The principal office of the Surviving Bank shall be
located at IOB's office at Posey Avenue and Lincoln Boulevard West, Shawneetown,
Illinois.
(d) Articles of Association and By-Laws. The Articles of Association and
By-Laws of IOB shall be the Articles of Association and the By-Laws of the
Surviving Bank.
(e) Directors and Officers. As of the Effective Time, the Board of
Directors of the Surviving Bank will consist of those directors of IOB in office
immediately prior to the Effective Time. As of the Effective Time, the officers
of the Surviving Bank will consist of those officers of IOB in office
immediately prior to the Effective Time. The directors and officers shall hold
office until such time as their respective successors have been elected and
qualified.
4. TERMINATION. Notwithstanding anything herein to the contrary, this
Agreement may be terminated only by written agreement between the parties.
5. REGULATORY APPROVAL; THIRD PARTIES
(a) Regulatory Approval. IOB and FSB shall each use their best efforts to
obtain all approvals of any banking regulatory agency of the United States or of
the State of Illinois, which approval is necessary in order for the transactions
contemplated hereby to comply with federal or state laws, and each shall take
all action proper or advisable to obtain such approvals. IOB and FSB shall cause
to be prepared and filed any and all such applications or submissions necessary
to obtain such approvals.
(b) Information. IOB and FSB shall each furnish the other with all
information reasonably required for inclusion in any application made by IOB or
FSB to any governmental or regulatory body in connection with the transactions
contemplated by this Agreement.
(c) Consents of Third Parties. IOB and FSB shall obtain written consents to
the transactions contemplated hereby to the extent that such consents are
necessary to prevent the consummation of such transactions from constituting a
breach of, or a default under, any agreement to which either of them is a party.
(d) Other Legal Requirements. IOB and FSB shall comply with all other legal
requirements relating to or resulting from the Merger, including any
notifications required to be given to depositors under the Federal Deposit
Insurance Act, as amended, after the Effective Time.
A-21
<PAGE>
6. MISCELLANEOUS
(a) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits thereof, and this
Agreement may be amended, modified or supplemented at any time, and from time to
time (either before or after the shareholders of IOB and FSB has approved the
Bank Merger) pursuant to due authorization of the Boards of Directors of the
parties hereto. No such waiver, amendment or modification shall be effective
unless in writing and signed by the party or parties sought to be bound thereby.
(b) Entire Agreement. This Agreement and the Acquisition Agreement contain
the entire agreement between IOB and FSB with respect to the Bank Merger.
(c) Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America and the laws of the
State of Illinois.
(d) Descriptive Headings. The descriptive headings are for convenience and
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers, all as of the date and year first above
written.
ILLINOIS ONE BANK, NATIONAL ASSOCIATION
By: -----------------------------------
--------------------, -------------
Attest:
- -----------------------------------
- -------------------, --------------
FIRST STATE BANK OF VIENNA
By: -----------------------------------
--------------------, -------------
Attest:
- -----------------------------------
- -------------------, --------------
A-22
<PAGE>
EXHIBIT B
FORM OF AFFILIATE LETTER
Gentlemen:
In connection with the merger (the "Merger") of 1st Bancorp Vienna, Inc.
("Bancorp"), with and into National City Bancshares, Inc. ("NCBE"), pursuant to
the Agreement and Plan of Merger dated as of ________ __, 1998 (the
"Agreement"), I have been advised that I may be deemed to be an "affiliate"
within the meaning of Rule 145 promulgated by the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended (the "1933
Act"), for the purposes of any resales of shares of the common stock, without
par value, of NCBE to be issued to me in the Merger (the "Shares"). I have also
been advised that I may be deemed an "affiliate" of Bancorp for purposes of
qualifying the Merger for pooling of interests accounting treatment under
Opinion 16 of the Accounting Principles Board. Based on such advice and in order
to induce NCBE and Bancorp to cause the Merger to be consummated, I hereby
represent and warrant to, and agree with NCBE and Bancorp as follows:
A. I hereby consent to the placing of a legend on the certificate or
certificates evidencing the Shares referring to the issuance thereof in a
transaction to which Rule 145 under the 1933 Act is applicable and to the
giving of stop transfer instructions to the transfer agent for the Shares
with respect to such certificate or certificates. The legend will state in
substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 under the Securities Act of 1933
applies and may be sold or otherwise transferred only in compliance
with the terms of such Rule."
B. I understand that NCBE is under no obligation to take any action
to facilitate the sale, transfer, or other disposition by me or on my
behalf of any of the Shares.
C. In the event of any sale or transfer of any of the Shares in a
transaction not involving a sale within the limits and in accordance with
the applicable provisions of Rule 145 or a sale in a registered public
offering, I will obtain from each transferee of the Shares in such
transaction a letter agreement substantially similar hereto, or a letter
containing such other information reasonably required by NCBE to evidence
an exception from the applicable registration requirements of federal or
state securities laws, which is binding and enforceable by NCBE against the
transferee.
It is understood and agreed that the legend set forth in Paragraph A above
shall be removed, and the related stock transfer restrictions shall be lifted
forthwith (i) if the sale or other transfer by me or on my behalf of my Shares
shall have been registered under the 1933 Act, (ii) if the sale or other
transfer by me or on my behalf of my Shares is not so registered, such sale is
exempt from the registration requirements of the 1933 Act, or (iii) upon the
expiration of the period specified in Rule 145(d)(3) under the 1933 Act, as it
may be amended from time to time.
I further represent to and covenant with NCBE that I have not, within the
preceding 30 days, sold, transferred or otherwise disposed of any shares of
Bancorp Common Stock held by me and that I will not sell, transfer or otherwise
dispose of any of the Shares received by me in the Merger until after such time
as results covering at least 30 days of combined operations of Bancorp and NCBE
have been published by NCBE, in the form of a quarterly earnings report, an
effective registration statement filed with the SEC, a report to the SEC on Form
10-K, 10-Q or 8-K, or any other public filing or announcement which includes
such combined results of operations.
Very truly yours,
------------------------------
A-23
<PAGE>
EXHIBIT C
FORM OF OPINION OF COUNSEL FOR BANCORP
Capitalized terms used and not otherwise defined herein have the meanings
given them in the Plan and Agreement of Merger (the "Agreement").
1. Bancorp is a corporation organized, validly existing and in good
standing under the laws of the State of Illinois and is registered as a bank
holding company with the Federal Reserve Board under the Bank Holding Company
Act of 1956, as amended. The Bank is a banking corporation duly organized,
validly existing and in good standing under the laws of the State of Illinois.
2. Bancorp and the Bank each have all requisite corporate power and
authority necessary to carry out its business as currently conducted.
3. The authorized capital stock of Bancorp consists of 14,000 shares of
Bancorp Common. Based solely on a review of Bancorp's stock records, there are
4,264 shares of Bancorp Common issued and outstanding and no shares in the
treasury. The authorized capital stock of the Bank consists of 6,000 shares of
Bank Stock. Based solely on a review of the Bank's stock records, there are
6,000 shares of Bank Stock issued and outstanding, all of which are owned of
record by Bancorp, and no shares in the treasury. All of the outstanding shares
of Bancorp Common have been duly authorized and validly issued and are fully
paid and non-assessable and, to our knowledge, were not issued in violation of
any preemptive rights.
4. The Agreement has been duly executed and delivered by Bancorp and
constitutes a valid and binding obligation of Bancorp, enforceable against
Bancorp in accordance with its terms, except to the extent limited by general
principles of equity and by bankruptcy, insolvency, reorganization, liquidation,
fraudulent conveyance, moratorium, readjustment of debt or other laws of general
application relating to or affecting the enforcement of creditors' rights.
5. All consents or approvals from Applicable Governmental Authorities that
are required to be obtained by Bancorp in connection with the Holding Company
Merger have been obtained.
6. The execution and delivery by Bancorp of, and the performance by Bancorp
of its agreements in, the Agreement do not: (a) violate the articles of
incorporation or by-laws of Bancorp or the articles of incorporation or by-laws
of the Bank, or (b) to our knowledge, violate, result in a breach of or
constitute a default under any Material Contract known to us to which Bancorp or
the Bank is a party or by which their properties are bound.
7. The meeting of shareholders of Bancorp held on ________ __, 1998, was
duly held in accordance with all applicable requirements of the BCA and the
articles of incorporation and bylaws of Bancorp. The Agreement was duly adopted
by the affirmative vote of the holders of at least two-thirds of the outstanding
shares of Bancorp Common, which is the only action required on the part of the
holders of Bancorp Common to approve the Holding Company Merger.
8. Upon the filing and acceptance of the Articles of Merger by the Illinois
Secretary of State and assuming the Holding Company Merger is effective under
the laws of the State of Indiana, the Holding Company Merger will become
effective under the BCA upon the issuance of a Certificate of Merger by the
Illinois Secretary of State.
A-24
<PAGE>
EXHIBIT D
FORM OF OPINION OF COUNSEL FOR NCBE
Capitalized terms used and not otherwise defined herein have the meanings
given them in the Plan and Agreement of Merger (the "Agreement").
1. NCBE is a corporation duly organized and validly existing under the laws
of Indiana and is registered as a bank holding company with the Federal Reserve
Board under the Bank Holding Company Act of 1956, as amended.
2. NCBE has all requisite corporate power and authority necessary to carry
out its business as currently conducted.
3. The authorized capital stock of NCBE consists of 20,000,000 shares of
common stock, without par value. All shares of NCBE Common to be issued to
shareholders of HHFC pursuant to the Holding Company Merger have been duly
authorized and, when issued in accordance with the Agreement, will be fully paid
and non-assessable.
4. The Agreement has been duly executed and delivered by NCBE and
constitutes a valid and binding obligation of NCBE, enforceable against NCBE in
accordance with its terms, except to the extent limited by general principles of
equity and by bankruptcy, insolvency, reorganization, liquidation, fraudulent
conveyance, moratorium, readjustment of debt or other laws of general
application relating to or affecting the enforcement of creditors' rights.
5. All consents or approvals of any Applicable Governmental Authorities
required to be obtained by NCBE in connection with the Mergers have been
obtained.
6. No vote by the shareholders of NCBE is required to approve the Holding
Company Merger under Indiana law, the articles of incorporation or by-laws of
NCBE or rules of the National Association of Securities Dealers, Inc. which
apply to Nasdaq National Market issuers.
7. The execution and delivery by NCBE of, and the performance by NCBE of
its agreements in, the Agreement do not: (a) violate its articles of
incorporation or by-laws; or (b) to our knowledge, violate, result in a breach
or constitute a default under any material contract, agreement or other
instrument to which NCBE is a party or by which its respective properties are
bound.
8. Upon the filing and acceptance of the Articles of Merger by the Indiana
Secretary of State and assuming the Holding Company Merger is effective under
the laws of the State of Illinois, the Holding Company Merger will become
effective under the IBCL at the time specified in the Articles of Merger.
A-25
<PAGE>
APPENDIX B
EXCERPTS OF THE ILLINOIS BUSINESS CORPORATION ACT
(DISSENTERS' RIGHTS)
5/11.65 RIGHT TO DISSENT.--(a) A shareholder of a corporation is entitled
to dissent from, and obtain payment for his or her shares in the event of any of
the following corporate actions:
(1) consummation of a plan of merger or consolidation or a plan of share
exchange to which the corporation is a party if (i) shareholder authorization is
required for the merger or consolidation or the share exchange by Section 11.20
or the articles of incorporation or (ii) the corporation is a subsidiary that is
merged with its parent or another subsidiary under Section 11.30;
(2) consummation of a sale, lease or exchange of all, or substantially all,
of the property and assets of the corporation other than in the usual and
regular course of business;
(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of such
shares;
(ii) alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption
or repurchase, of such shares;
(iii) in the case of a corporation incorporated prior to
January 1, 1982, limits or eliminates cumulative voting rights with
respect to such shares; or
(4) any other corporate action taken pursuant to a shareholder vote if the
articles of incorporation, by-laws, or a resolution of the board of directors
provide that shareholders are entitled to dissent and obtain payment for their
shares in accordance with the procedures set forth in Section 11.70 or as may be
otherwise provided in the articles, by-laws or resolution.
(b) A shareholder entitled to dissent and obtain payment for his or
her shares under this Section may not challenge the corporate action
creating his or her entitlement unless the action is fraudulent with
respect to the shareholder or the corporation or constitutes a breach of a
fiduciary duty owed to the shareholder.
(c) A record owner of shares may assert dissenters' rights as to
fewer than all the shares recorded in such person's name only if such
person dissents with respect to all shares beneficially owned by any one
person and notifies the corporation in writing of the name and address of
each person on whose behalf the record owner asserts dissenters' rights.
The rights of a partial dissenter are determined as if the shares as to
which dissent is made and the other shares recorded in the names of
different shareholders. A beneficial owner of shares who is not the record
owner may assert dissenters' rights as to shares held on such person's
behalf only if the beneficial owner submits to the corporation the record
owner's written consent to the dissent before or at the same time the
beneficial owner asserts dissenters' rights.
5/11.70 PROCEDURE TO DISSENT.--(a) If the corporate action giving rise to
the right to dissent is to be approved at a meeting of shareholders, the notice
of meeting shall inform the shareholders of their right to dissent and the
procedure to dissent. If, prior to the meeting, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to vote on the transaction and to determine
whether or not to exercise dissenters' rights, a shareholder may assert
dissenters' rights only if the shareholder delivers
B-1
<PAGE>
to the corporation before the vote is taken a written demand for payment for his
or her shares if the proposed action is consummated, and the shareholder does
not vote in favor of the proposed action.
(b) If the corporate action giving rise to the right to dissent is
not to be approved at a meeting of shareholders, the notice to shareholders
describing the action taken under Section 11.30 or Section 7.10 shall
inform the shareholders of their right to dissent and the procedure to
dissent. If, prior to or concurrently with the notice, the corporation
furnishes to the shareholders material information with respect to the
transaction that will objectively enable a shareholder to determine whether
or not to exercise dissenters' rights, a shareholder may assert dissenter's
rights only if he or she delivers to the corporation within 30 days from
the date of mailing the notice a written demand for payment for his or her
shares.
(c) Within 10 days after the date on which the corporate action
giving rise to the right to dissent is effective or 30 days after the
shareholder delivers to the corporation the written demand for payment,
whichever is later, the corporation shall send each shareholder who has
delivered a written demand for payment a statement setting forth the
opinion of the corporation as to the estimated fair value of the shares,
the corporation's latest balance sheet as of the end of a fiscal year
ending not earlier than 16 months before the delivery of the statement,
together with the statement of income for that year and the latest
available interim financial statements, and either a commitment to pay for
the shares of the dissenting shareholder at the estimated fair value
thereof upon transmittal to the corporation of the certificate or
certificates, or other evidence of ownership, with respect to the shares,
or instructions to the dissenting shareholder to sell his or her shares
within 10 days after delivery of the corporation's statement to the
shareholder. The corporation may instruct the shareholder to sell only if
there is a public market for the shares at which the shares may be readily
sold. If the shareholder does not sell within that 10 day period after
being so instructed by the corporation, for purposes of this Section the
shareholder shall be deemed to have sold his or her shares at the average
closing price of the shares, if listed on a national exchange, or the
average of the bid and asked price with respect to the shares quoted by a
principal market maker, if not listed on a national exchange, during that
10 day period.
(d) A shareholder who makes written demand for payment under this
Section retains all other rights of a shareholder until those rights are
canceled or modified by the consummation of the proposed corporate action.
Upon consummation of that action, the corporation shall pay to each
dissenter who transmits to the corporation the certificate or other
evidence of ownership of the shares the amount the corporation estimates to
be the fair value of the shares, plus accrued interest, accompanied by a
written explanation of how the interest was calculated.
(e) If the shareholder does not agree with the opinion of the
corporation as to the estimated fair value of the shares or the amount of
interest due, the shareholder, within 30 days from the delivery of the
corporation's statement of value, shall notify the corporation in writing
of the shareholder's estimated fair value and amount of interest due and
demand payment for the difference between the shareholder's estimate of
fair value and interest due and the amount of the payment by the
corporation or the proceeds of sale by the shareholder, whichever is
applicable because of the procedure for which the corporation opted
pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the
shareholder notification of estimate of fair value of the shares and
interest due, the corporation and the dissenting shareholder have not
agreed in writing upon the fair value of the shares and interest due, the
corporation shall either pay the difference in value demanded by the
shareholder, with interest, or file a petition in the circuit court of the
county in which either the registered office or the principal office of the
corporation is located, requesting the court to determine the fair value of
the shares and interest due. The corporation shall make all dissenters,
whether or not residents of this State, whose demands remain unsettled
parties to the proceeding as an action against their shares and all parties
shall be served with a copy of the petition. Nonresidents may be served by
registered or certified mail or by publication as provided by law. Failure
of the corporation to commence an action pursuant to this Section shall not
limit or affect the right of the dissenting shareholders to otherwise
commence an action as permitted by law.
B-2
<PAGE>
(g) The jurisdiction of the court in which the proceeding is
commenced under subsection (f) by a corporation is plenary and exclusive.
The court may appoint one or more persons as appraisers to receive evidence
and recommend decision on the question of fair value. The appraisers have
the power described in the order appointing them, or in any amendment to
it.
(h) Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds that the fair
value of his or her shares, plus interest, exceeds the amount paid by the
corporation or the proceeds of sale by the shareholder, whichever amount is
applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable
compensation and expenses of the appraisers, if any, appointed by the court
under subsection (g), but shall exclude the fees and expenses of counsel
and experts for the respective parties. If the fair value of the shares as
determined by the court materially exceeds the amount which the corporation
estimated to be the fair value of the shares or if no estimate was made in
accordance with subsection (c), then all or any part of the costs may be
assessed against the corporation. If the amount which any dissenter
estimated to be the fair value of the shares materially exceeds the fair
value of the shares as determined by the court, then all or any part of the
costs may be assessed against that dissenter. The court may also assess the
fees and expenses of counsel and experts for the respective parties, in
amounts the court finds equitable, as follows:
(1) Against the corporation and in favor of any or all
dissenters if the court finds that the corporation did not
substantially comply with the requirements of subsections (a), (b),
(c), (d), or (f).
(2) Against either the corporation or a dissenter and in
favor of any other party if the court 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 this Section.
If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly
situated and that the fees for those services should not be assessed
against the corporation, the court may award to that counsel
reasonable fees to be paid out of the amounts awarded to the
dissenters who are benefitted. Except as otherwise provided in this
Section, the practice, procedure, judgment and costs shall be
governed by the Code of Civil Procedure.
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means
the value of the shares immediately before the consummation of the
corporate action to which the dissenter objects excluding any
appreciation or depreciation in anticipation of the corporate
action, unless exclusion would be inequitable.
(2) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate
currently paid by the corporation on its principal bank loans or, if
none, at a rate that is fair and equitable under all the
circumstances.
B-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Indiana Business Corporation Law provides that a corporation, unless
limited by its Articles of Incorporation, is required to indemnify its directors
and officers against reasonable expenses incurred in the successful defense of
any proceeding to which the director or officer was a party because of serving
as a director or officer of the corporation.
Registrant may also voluntarily undertake to provide for indemnification of
directors, officers and employees of the Registrant against any and all
liability and reasonable expense that may be incurred by them, arising out of
any claim or action, civil, criminal, administrative or investigative, in which
they may become involved by reason of being or having been a director, officer,
or employee. To be entitled to indemnification, those persons must have been
wholly successful in the claim or action or the Board of Directors must have
determined that such persons acted in good faith in what they reasonably
believed to be the best interests of the Registrant (or at least not opposed to
its best interests) and, in addition, in any criminal action, had reasonable
cause to believe their conduct was lawful (or had no reasonable cause to believe
that their conduct was unlawful).
In addition, the Registrant has a directors' and officers' liability and
company reimbursement policy that insures against certain liabilities, including
liabilities under the Securities Act, subject to applicable retentions.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits: The list of exhibits is incorporated by reference to
the Index to Exhibits on page E-1.
(b) Financial Statement Schedules: All financial statements
schedules are omitted since the required information is not
applicable or is not present in amounts sufficient to require
submission of the schedules.
Item 22. Undertakings.
1. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b), if, in
the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
II-1
<PAGE>
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3. The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities hereunder through use of a prospectus
which is a part of this Registration Statement, by a person or party who is
deemed to be an underwriter within the making of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by
other Items of the applicable form.
4. The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
5. Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable, in the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
6. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
7. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Evansville,
State of Indiana, on July 30, 1998.
NATIONAL CITY BANCSHARES, INC.
By: /S/ Michael F. Elliott
-----------------------------------------
Michael F. Elliott, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Michael F. Elliott and Robert A. Keil and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael F. Elliott Chairman of the Board, Chief Executive July 30, 1998
--------------------------------------------- Officer and Director (Principal Executive
Michael F. Elliott Officer)
/s/ Robert A. Keil President, Chief Financial Officer and July 30, 1998
--------------------------------------------- Director (Principal Financial Officer)
Robert A. Keil
/s/ Stephen C. Byelick, Jr. Secretary and Treasurer (Principal July 30, 1998
--------------------------------------------- Accounting Officer)
Stephen C. Byelick, Jr.
/s/ Janice L. Beesley Director July 30, 1998
---------------------------------------------
Janice L. Beesley
/s/ Susanne R. Emge Director July 30, 1998
---------------------------------------------
Susanne R. Emge
/s/ Donald G. Harris Director July 30, 1998
---------------------------------------------
Donald G. Harris
/s/ Dr. H. Ray Hoops Director July 30, 1998
---------------------------------------------
Dr. H. Ray Hoops
/s/ John D. Lippert Director July 30, 1998
---------------------------------------------
John D. Lippert
/s/ Ronald G. Reherman Director July 30, 1998
---------------------------------------------
Ronald G. Reherman
/s/ Laurence R. Steenberg Director July 30, 1998
---------------------------------------------
Laurence R. Steenberg
/s/ Richard F. Welp Director July 30, 1998
---------------------------------------------
Richard F. Welp
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -------------------------------------------------------------------
<S> <C>
2 Agreement and Plan of Merger dated May 21, 1998 between the
Registrant and 1st Bancorp Vienna, Inc. (incorporated by reference
to Appendix A to the Proxy Statement/Prospectus included in this
Registrant Statement).
3(a) Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 to Form 8-A/A dated June 12, 1998).
3(b) By-Laws of the Registrant, as amended (incorporated by reference to
Exhibit 3(ii) to Form 10-K for the year ending December 31, 1997).
5 Opinion of Baker & Daniels, counsel for Registrant, regarding
legality of securities offered hereby.
8 Opinion of Baker & Daniels, counsel for Registrant, regarding tax
matters.
23(a) Consent of McGladrey & Pullen, LLP.
23(b) Consent of Gray Hunter Stenn LLP
23(c) Consent of Baker & Daniels - included in its opinions filed as
Exhibits 5 and 8.
24 Power of Attorney - included on page II-5.
99 Form of Bancorp Proxy.
</TABLE>
E-1
<PAGE>
EXHIBIT 5
[LETTERHEAD OF BAKER & DANIELS]
July 30, 1998
National City Bancshares, Inc.
227 Main Street
P.O. Box 868
Evansville, Indiana 47705-0868
Ladies and Gentlemen:
We have examined the corporate records and proceedings of National City
Bancshares, Inc., an Indiana corporation (the "Company"), with respect to (a)
the organization of the Company, and (b) the legal sufficiency of all corporate
proceedings of the Company taken in connection with the authorization, issuance,
form, validity and nonassessability of the authorized but unissued shares of the
Common Stock, without par value (the "Common Stock"), of the Company issuable in
connection with the Merger, as that term is defined in the Registration
Statement on Form S-4 (the "Registration Statement"), being filed by the Company
under the Securities Act of 1933, as amended (the "Act").
Based on such examination, we are of the opinion that:
1. The Company is a duly organized and validly existing corporation under
the laws of the State of Indiana.
2. The authorized capital stock of the Company consists of 29,000,000
Common Shares, without par value ("Common Stock"), and 1,000,000 Preferred
Shares, without par value.
3. The shares of Common Stock to be issued in the Merger have been duly
and validly authorized, and such shares will, upon consummation of the Merger
described in the Registration Statement and issuance and delivery of such shares
in accordance with the terms of the Merger, be validly issued and outstanding,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the references to us in the Proxy
Statement/Prospectus which is a part of the Registration Statement. In giving
this consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations of
the Securities and Exchange Commission promulgated thereunder.
Yours very truly,
BAKER & DANIELS
<PAGE>
EXHIBIT 8
[LETTERHEAD OF BAKER & DANIELS]
July 30, 1998
National City Bancshares, Inc.
227 Main Street
P.O. Box 868
Evansville, Indiana 47705-0868
1st Bancorp Vienna, Inc.
Third and Vine Streets
Vienna, Illinois 62995
Ladies and Gentlemen:
This opinion is delivered to you in connection with the Registration
Statement on Form S-4 (the "Registration Statement") being filed by National
City Bancshares, Inc. under the Securities Act of 1933, as amended (the "Act").
We have examined the Registration Statement and such other documents as
we have deemed relevant and necessary as a basis for this opinion. In addition,
we have made such other and further investigations as we have deemed
appropriate.
Based on the foregoing, and subject to the qualifications and limitations
stated herein, we hereby advise you that in our opinion the statements made in
the Registration Statement under the caption "THE MERGER -- Certain Federal
Income Tax Consequences", insofar as they purport to constitute summaries of
matters of United States federal income tax law or legal conclusions with
respect thereto, constitute accurate summaries of the matters described therein
in all material respects.
The foregoing opinion is based on current provisions of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations promulgated
thereunder, published pronouncements of the Internal Revenue Service and other
relevant authorities, all of which are subject to change. No opinions are
expressed concerning any matters other than those specifically addressed herein.
We hereby consent to the filing of this opinion as Exhibit 8 to the
Registration Statement and to the references to us in the Proxy
Statement/Prospectus which is a part of the Registration Statement. In giving
this consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations of
the Securities and Exchange Commission promulgated thereunder.
Yours very truly,
BAKER & DANIELS
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Proxy
Statement/Prospectus forming a part of the Registration Statement on Form S-4
filed by National City Bancshares, Inc. of our report dated February 5, 1998, on
our audits of the consolidated statements of financial position of National City
Bancshares, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years ended December 31, 1997, which are incorporated by
reference in the December 31, 1997 Form 10-K of National City Bancshares, Inc.
and to the reference of our firm under the heading "Experts" in the Proxy
Statement/Prospectus.
/s/ McGLADREY & PULLEN, LLP
Champaign, Illinois
July 30, 1998
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Proxy Statement/Prospectus forming
a part of the Registration Statement on Form S-4 filed by National City
Bancshares, Inc. of our report dated June 8, 1998, on our audit of the
consolidated balance sheets of 1st Bancorp Vienna, Inc. and subsidiary, as of
December 31, 1997, and the related consolidated statements of income, changes
in stockholders' equity, and cash flows for the two years ended December 31,
1997 and 1996. We also consent to the reference to our firm under the caption
"Experts" in the Proxy Statement/Prospectus.
/s/ GRAY HUNTER STENN LLP
Marion, Illinois
July 30, 1998
<PAGE>
EXHIBIT 99
REVOCABLE PROXY
1ST BANCORP VIENNA, INC.
SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER __, 1998
The undersigned, a shareholder of 1ST BANCORP VIENNA, INC. ("Bancorp") hereby
constitutes and appoints __________________________ and _______________________
and each of them acting individually as the attorney and proxy of the
undersigned, with full power of substitution, for and in the name and stead of
the undersigned to attend the Special Meeting of Shareholders of Bancorp to be
held on September __, 1998 at 11:00 a.m., and any adjournment or postponement
thereof, to vote all shares which the undersigned would be entitled to cast if
personally present, upon such business as may properly come before the meeting,
including the following items, as set forth in the notice of meeting and proxy
statement.
1. A proposal to approve and adopt the
Agreement and Plan of Merger between
Bancorp and National City Bancshares, Inc.,
as more fully described in the For Against Abstain
accompanying Proxy Statement/Prospectus. / / / / / /
2. To transact such other business as may
properly come before the meeting.
If not otherwise specified, the shares will be voted FOR Proposal 1. The
undersigned hereby revokes all previous proxies for such meeting, and hereby
acknowledges receipt of the notice of the meeting and the Proxy
Statement/Prospectus furnished herewith.
In the event proxies representing a sufficient number of shares voting to
approve the Agreement and Plan of Merger are not obtained before the meeting, a
proposal to adjourn the meeting in order to solicit additional proxies will be
put to a vote at the meeting.
Please be sure to sign and date Date ______________, 1998
this Proxy below.
- ------------------------------- ----------------------------------
(Shareholder sign above) Co-holder (if any) sign above
NOTE: If shares are registered in more than one name, all owners
should sign. If signing in a fiduciary or representative
capacity, please give full title and attach evidence of
authority. Corporations please sign with full corporate name
by a duly authorized officer and affix the corporate seal.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
