<PAGE>
[ILLINOIS ONE BANCORP, INC. LETTERHEAD]
April 15, 1998
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
Illinois One Bancorp, Inc. ("IOBI") to be held at 1:00 p.m., local time, on May
22, 1998 at the office of Illinois One Bank, National Association located at
Posey Avenue and Lincoln Boulevard West, Shawneetown, Illinois. At the Special
Meeting you will be asked to consider and vote upon a proposal to approve an
Agreement and Plan of Merger (the "Merger Agreement") dated as of December 15,
1997, which provides for the merger (the "Merger") of IOBI with and into
National City Bancshares, Inc. ("NCBE").
If the Merger is approved and consummated, each issued and outstanding share
of common stock of IOBI ("IOBI Common"), other than shares held by shareholders
properly exercising dissenters' rights, will be converted into the right to
receive from NCBE that number of shares of NCBE common stock ("NCBE Common")
having an aggregate Average Value (as defined in the Merger Agreement) of
$9,269.13, but not less than 221.22 or more than 243.28 shares of NCBE Common.
The provisions for converting shares of IOBI Common into NCBE Common and cash in
lieu of fractional shares are set forth in the Merger Agreement and described in
the accompanying Prospectus/Proxy Statement.
After careful review and consideration, your Board of Directors believes
that the proposed Merger is in the best interests of IOBI and its shareholders.
ACCORDINGLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE MERGER AGREEMENT.
Please read the accompanying Prospectus/Proxy Statement which describes the
Merger and related matters in more detail. Your participation in the Special
Meeting, in person or by proxy, is important. The affirmative vote of the
holders of two-thirds of the shares of IOBI Common outstanding and entitled to
vote is required to approve the Merger. Therefore, please mark, sign and date
the enclosed proxy card and mail it as soon as possible in the enclosed
postage-paid envelope so that your shares will be represented at the Special
Meeting. If you attend the Special Meeting, you may revoke your proxy and vote
your shares in person if you wish, even if you have previously mailed in your
proxy card. In the event that proxies representing a sufficient number of votes
to approve the Merger are not obtained prior to the Special Meeting, a proposal
to adjourn the Special Meeting in order to solicit additional proxies will be
put to a vote at the Special Meeting.
Sincerely,
James J. Galt
PRESIDENT
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ILLINOIS ONE BANCORP, INC.
To be held on May 22, 1998
TO THE SHAREHOLDERS OF ILLINOIS ONE BANCORP, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Illinois One Bancorp, Inc. ("IOBI"), an Illinois corporation, will
be held on May 22, 1998, at 1:00 p.m., local time, at the office of Illinois One
Bank, National Association, located at Posey Avenue and Lincoln Boulevard West,
Shawneetown, Illinois, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger (the "Merger Agreement"), dated as of December 15, 1997,
between IOBI and National City Bancshares, Inc. ("NCBE"), an Indiana
corporation, and the transactions contemplated thereby, pursuant to
which, among other things, IOBI will be merged (the "Merger") with and
into NCBE, upon the terms and conditions set forth in the Merger
Agreement, as more fully described in the accompanying Prospectus/Proxy
Statement.
2. Such other matters as may properly come before the Special Meeting or
any adjournments or postponements thereof.
A copy of the Merger Agreement is attached as Appendix A to the accompanying
Prospectus/Proxy Statement and is incorporated by reference in this Notice.
The Board of Directors of IOBI has fixed the close of business on April 7,
1998, as the record date for determination of shareholders entitled to notice of
and to vote at the Special Meeting or at any adjournments or postponements
thereof. In the event that proxies representing a sufficient number of votes to
approve the Merger are not obtained prior to the Special Meeting, a proposal to
adjourn the Special Meeting in order to solicit additional proxies will be put
to a vote at the Special Meeting.
THE BOARD OF DIRECTORS OF IOBI HAS APPROVED THE MERGER AGREEMENT AND
BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF ITS SHAREHOLDERS. THE
BOARD, THEREFORE, UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF IOBI VOTE
"FOR" APPROVAL OF THE MERGER AGREEMENT.
THE ACCOMPANYING PROSPECTUS/PROXY STATEMENT DESCRIBES THE RIGHTS OF IOBI
SHAREHOLDERS TO DISSENT FROM THE MERGER AND THE PROCEDURES WHICH MUST BE
FOLLOWED IN ORDER TO PERFECT SUCH RIGHTS.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
By Order of the Board of Directors,
Patrick Felker, Secretary
Shawneetown, Illinois
April 15, 1998
<PAGE>
Filed pursuant to Rule 424(b)2
Registration No. 333-48933
NATIONAL CITY BANCSHARES, INC.
PROSPECTUS
UP TO 577,417 SHARES OF COMMON STOCK
---------------------
ILLINOIS ONE BANCORP, INC.
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22, 1998
This Prospectus/Proxy Statement relates to the proposed acquisition of
Illinois One Bancorp, Inc. ("IOBI"), an Illinois corporation, by National City
Bancshares, Inc. ("NCBE"), an Indiana corporation, by means of the merger (the
"Merger") of IOBI with and into NCBE, pursuant to the terms of an Agreement and
Plan of Merger (the "Merger Agreement") dated as of December 15, 1997, between
IOBI and NCBE. A copy of the Merger Agreement is attached hereto as Appendix A
and is incorporated by reference herein.
This Prospectus/Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of IOBI to be used at the
Special Meeting of Shareholders (the "Special Meeting") of IOBI to be held on
May 22, 1998. At the Special Meeting, holders of shares of IOBI's common stock,
no par value ("IOBI Common"), will be asked to consider and vote upon approval
of the Merger Agreement and the transactions contemplated thereby. Any proxy
given pursuant to this solicitation may be revoked at any time prior to the
voting thereof at the Special Meeting. In the event that proxies representing a
sufficient number of votes to approve the Merger are not obtained prior to the
Special Meeting, a proposal to adjourn the Special Meeting in order to solicit
additional proxies will be put to a vote at the Special Meeting. Shareholders of
IOBI are entitled to dissenters' rights in connection with the Merger as
described herein. See "SPECIAL MEETING" and "THE MERGER--Dissenters' Rights."
This Prospectus/Proxy Statement and the accompanying form of proxy are first
being mailed to shareholders of IOBI on or about April 15, 1998.
Pursuant to the Merger Agreement and in connection with the Merger, each
issued and outstanding share of IOBI Common, other than shares held by
shareholders properly exercising dissenters' rights, will be converted into the
right to receive shares of common stock, $1.00 stated value per share, of NCBE
("NCBE Common") and cash in lieu of fractional shares. Each share of IOBI Common
will be converted into that number of shares of NCBE Common which has an
aggregate Average Value (as defined in the Merger Agreement) of $9,269.13,
subject to a minimum of 221.22 shares and a maximum of 243.28 shares of NCBE
Common. See "THE MERGER--Conversion of IOBI Common." This Prospectus/Proxy
Statement also constitutes the prospectus of NCBE with respect to up to 577,417
shares of NCBE Common issuable in the Merger.
The outstanding shares of NCBE Common are traded on the Nasdaq National
Market tier of the Nasdaq Stock Market. The last reported sale price of NCBE
Common on April 7, 1998, was $41.50.
See "RISK FACTORS RELATING TO NCBE COMMON" beginning on page 12 for
information relevant to an investment in NCBE Common.
------------------------
<PAGE>
THE SHARES OF NCBE COMMON HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
THE SHARES OF NCBE COMMON OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS
OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
------------------------
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS APRIL 10, 1998
<PAGE>
ALL INFORMATION CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT WITH RESPECT TO
NCBE HAS BEEN SUPPLIED BY NCBE AND ALL INFORMATION WITH RESPECT TO IOBI HAS BEEN
SUPPLIED BY IOBI.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS RELATING TO NCBE BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(EXCLUDING UNINCORPORATED EXHIBITS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS/PROXY STATEMENT
IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, TO STEPHEN C. BYELICK, JR.,
SECRETARY, NATIONAL CITY BANCSHARES, INC., 227 MAIN STREET, P.O. BOX 868,
EVANSVILLE, INDIANA 47705-0868 (TELEPHONE NUMBER (812) 464-9864). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MAY 15,
1998.
TABLE OF CONTENTS
<TABLE>
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<S> <C>
AVAILABLE INFORMATION...................................................................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 4
SUMMARY.................................................................................................... 5
Parties to the Merger.................................................................................... 5
Special Meeting of IOBI Shareholders..................................................................... 5
The Merger............................................................................................... 6
Summary Comparative Historical and Combined per Share Data............................................... 9
Risk Factors Relating to NCBE Common..................................................................... 10
Stock Price Data......................................................................................... 10
Comparison of Shareholder Rights......................................................................... 10
RISK FACTORS RELATING TO NCBE COMMON....................................................................... 11
Status of NCBE as a Bank Holding Company................................................................. 11
Risks Associated with Acquisitions....................................................................... 11
Impact of Interest Rate Changes.......................................................................... 12
Credit Risk and Loan Concentration....................................................................... 12
Regulatory Risks......................................................................................... 12
Exposure to Local Economic Conditions.................................................................... 12
Competition.............................................................................................. 13
SPECIAL MEETING............................................................................................ 13
Date, Time, Place and Purpose............................................................................ 13
Record Date.............................................................................................. 13
Vote Required............................................................................................ 13
Voting and Revocation of Proxies......................................................................... 13
Solicitation of Proxies.................................................................................. 14
THE MERGER................................................................................................. 14
General.................................................................................................. 14
Background of the Merger................................................................................. 15
Reasons for the Merger................................................................................... 16
Fairness Opinion......................................................................................... 17
Recommendation of IOBI's Board of Directors.............................................................. 19
Closing and Effective Time............................................................................... 19
Conversion of IOBI Common................................................................................ 20
Procedures for Exchange of Certificates.................................................................. 20
Regulatory Approvals..................................................................................... 21
Dissenters' Rights....................................................................................... 22
Representations and Warranties........................................................................... 23
Covenants................................................................................................ 23
Conditions to the Merger................................................................................. 24
</TABLE>
2
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<TABLE>
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<S> <C>
Termination and Waiver................................................................................... 25
No Solicitation; Fees and Expenses....................................................................... 25
Certain Federal Income Tax Consequences.................................................................. 26
Accounting Treatment..................................................................................... 27
Resale of NCBE Common.................................................................................... 27
Interests of Certain Persons in the Merger............................................................... 28
SELECTED FINANCIAL DATA.................................................................................... 29
COMPARATIVE STOCK PRICES AND DIVIDENDS..................................................................... 31
INFORMATION CONCERNING NCBE................................................................................ 32
Business................................................................................................. 32
Recent Developments...................................................................................... 32
Trust Preferred Offering................................................................................. 33
Year 2000 Issue.......................................................................................... 33
Security Ownership of Certain Beneficial Owners and Management........................................... 34
INFORMATION CONCERNING IOBI................................................................................ 35
Business................................................................................................. 35
Selected Financial Data of IOBI.......................................................................... 36
Other Information........................................................................................ 37
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 43
DESCRIPTION OF NCBE CAPITAL STOCK.......................................................................... 48
Authorized Shares........................................................................................ 48
Dividends, Voting, Liquidation and Other Rights.......................................................... 48
Certain Provisions of Articles of Incorporation and By-Laws.............................................. 48
Certain Provisions of the Indiana Law.................................................................... 49
Transfer Agent........................................................................................... 49
COMPARISON OF SHAREHOLDER RIGHTS........................................................................... 49
Classified Board of Directors............................................................................ 49
Business Combinations Not Involving an Interested Shareholder............................................ 49
Business Combinations Involving an Interested Shareholder................................................ 50
Removal of Directors..................................................................................... 50
Amendments to Articles of Incorporation.................................................................. 51
Voting Rights............................................................................................ 51
Special Meetings of Shareholders......................................................................... 51
Shareholder Action by Written Consent.................................................................... 52
Dissenters' Rights....................................................................................... 52
Control Share Acquisitions............................................................................... 52
Indemnification.......................................................................................... 53
Limitation of Liability of Directors..................................................................... 54
Consideration of Non-Shareholder Interests............................................................... 54
LEGAL MATTERS.............................................................................................. 55
EXPERTS.................................................................................................... 55
APPENDIX A-- Agreement and Plan of Merger dated as of December 15, 1997 between National City Bancshares,
Inc. and Illinois One Bancorp, Inc............................................................. A-1
APPENDIX B-- Fairness Opinion of Fister & Associates, Inc.................................................. B-1
APPENDIX C-- Excerpts of the Illinois Business Corporation Act (Dissenters' Rights)........................ C-1
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT IN CONNECTION
WITH THE OFFERING DESCRIBED HEREIN AND ANY SUCH INFORMATION OR REPRESENTATION,
IF GIVEN OR MADE, MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NCBE OR
IOBI. THIS PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE A SOLICITATION OR AN
OFFERING OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR IN ANY JURISDICTION TO ANY PERSON TO WHOM IT WOULD BE UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS
PROSPECTUS/PROXY STATEMENT AT ANY TIME DOES NOT IMPLY THAT ANY INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
3
<PAGE>
AVAILABLE INFORMATION
NCBE is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). The reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located at Seven World Trade Center,
New York, New York 10048, and Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661, and copies of such materials can be obtained
from the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains an
Internet web site that contains reports, proxy and information statements and
other information regarding issuers who file electronically with the Commission.
The address of that site is http://www.sec.gov. In addition, the NCBE Common is
included in the Nasdaq National Market and reports, proxy statements and other
information concerning NCBE are available for inspection at the office of the
National Association of Securities Dealers, Inc., at 1735 K Street, Washington,
D.C. 20006.
NCBE has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
NCBE Common to be issued pursuant to the Merger. This Prospectus/Proxy Statement
does not contain all the information set forth in the Registration Statement and
the exhibits thereto. Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Statements contained in this
Prospectus/Proxy Statement or in any document incorporated in this
Prospectus/Proxy Statement by reference as to the contents of any contract or
other document referred to herein or therein are not necessarily complete, and
in each instance where reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement is qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by NCBE (File No. 0-13585)
pursuant to the Exchange Act are incorporated by reference in this
Prospectus/Proxy Statement:
1. NCBE's Annual Report on Form 10-K for the year ended December 31, 1997
as amended by the Form 10-K/A filed March 26, 1998;
2. NCBE's Current Report on Form 8-K dated March 11, 1998;
3. NCBE's Proxy Statement dated March 17, 1997, relating to the annual
meeting of shareholders held April 15, 1997; and
4. The description of the NCBE Common contained in the Registration
Statement on Form 8-A under the Exchange Act, filed with the Commission
on May 13, 1985, including any amendments or reports filed for the
purpose of updating such description.
All documents and reports filed by NCBE pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus/Proxy Statement
and prior to the date of the Special Meeting shall be deemed to be incorporated
by reference in this Prospectus/Proxy Statement and to be a part hereof from the
dates of filing of such documents or reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus/Proxy
Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus/Proxy Statement.
4
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ALL
RESPECTS BY THE INFORMATION APPEARING ELSEWHERE HEREIN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS/PROXY STATEMENT, THE APPENDICES HERETO AND THE
DOCUMENTS REFERRED TO HEREIN. ALL INFORMATION CONTAINED IN THIS PROSPECTUS/PROXY
STATEMENT RELATING TO NCBE AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY NCBE AND
ALL INFORMATION RELATING TO IOBI AND ITS SUBSIDIARY HAS BEEN SUPPLIED BY IOBI.
SHAREHOLDERS ARE URGED TO READ THIS PROSPECTUS/PROXY STATEMENT AND THE
APPENDICES HERETO IN THEIR ENTIRETY.
PARTIES TO THE MERGER
NCBE
National City Bancshares, Inc. is a bank holding company headquartered in
Evansville, Indiana. As of December 31, 1997, NCBE had total consolidated assets
of $1.3 billion, total loans of $916.4 million, total deposits of $964.0 million
and total shareholders' equity of $146.8 million. NCBE currently owns 100% of 13
financial institution subsidiaries which serve 33 communities from 44 locations.
NCBE's subsidiaries provide a wide range of banking services in the tri-state
area of Indiana, Kentucky and Illinois surrounding Evansville, Indiana.
NCBE is an Indiana corporation. Its principal offices are located at 227
Main Street, Evansville, Indiana 47708 (telephone number (812) 464-9677).
IOBI
Illinois One Bancorp, Inc. is a one-bank holding company headquartered in
Shawneetown, Illinois. As of December 31, 1997, IOBI, together with its banking
subsidiary, Illinois One Bank, National Association (the "Bank"), had, on a
consolidated basis, total assets of $88.1 million, total loans, net of unearned
discount, of $48.9 million, total deposits of $76.4 million, and total
stockholders' equity of $9.9 million. The Bank has three banking offices with
one office in each of Shawneetown, Elizabethtown and Golconda, Illinois.
IOBI is an Illinois corporation. Its principal offices are located at Posey
Avenue and Lincoln Boulevard West, Shawneetown, Illinois 62984 (telephone number
(618) 269-3175).
SPECIAL MEETING OF IOBI SHAREHOLDERS
Date, Time, Place and Purpose
The Special Meeting of IOBI shareholders will be held at the office of the
Bank located at Posey Avenue and Lincoln Boulevard West, Shawneetown, Illinois
on May 22, 1998, at 1:00 p.m., local time to consider and vote to approve the
Merger Agreement and the transactions contemplated thereby, including the
Merger. A copy of the Merger Agreement is attached hereto as Appendix A.
RECORD DATE; VOTE REQUIRED
The record date (the "Record Date") for the Special Meeting is April 7,
1998. There were 2,373.47 shares of IOBI Common outstanding on the Record Date.
The presence, in person or by proxy, of holders of a majority of the issued
and outstanding shares of IOBI Common entitled to vote on the Record Date is
necessary to constitute a quorum at the Special Meeting. Pursuant to the
Illinois Business Corporation Act of 1983, as amended (the "Illinois Law"), the
affirmative vote of the holders of at least two-thirds of all of the issued and
outstanding shares of IOBI Common, or 1,583 shares, is required to adopt the
Merger Agreement and the transactions contemplated thereby.
5
<PAGE>
SECURITY OWNERSHIP OF IOBI MANAGEMENT
As of the close of business on the Record Date, 1,143.85 shares of IOBI
Common, or 48.19%, of all outstanding shares entitled to vote were beneficially
owned by directors and executive officers of IOBI and their affiliates. As of
the close of business on the Record Date, no shares of IOBI Common were
beneficially owned by directors and executive officers of NCBE or their
affiliates.
THE MERGER
The following summary is qualified in its entirety by reference to the full
text of the Merger Agreement, which is attached as Appendix A hereto and
incorporated by reference herein.
EFFECTIVE TIME OF THE MERGER
Subject to the terms and conditions of the Merger Agreement and in
accordance with the Illinois Law and the Indiana Business Corporation Law, as
amended (the "Indiana Law"), the Merger will become effective at the hour and on
the date (the "Effective Time") specified in the Articles of Merger to be filed
pursuant to the Illinois Law and the Indiana Law with the Secretaries of State
of Illinois and Indiana following the closing (the "Closing") of the Merger. At
the Effective Time, IOBI will merge with and into NCBE, and NCBE will be the
surviving corporation in the Merger and the separate corporate existence of IOBI
will terminate.
OPINION OF FINANCIAL ADVISOR TO IOBI
IOBI engaged Fister & Associates, Inc. ("Fister") to advise IOBI's Board of
Directors as to the fairness of the consideration, from a financial perspective,
to be received by IOBI shareholders in the Merger. Fister delivered an opinion
to the IOBI Board of Directors on December 15, 1997 to the effect that the
consideration to be received by the IOBI shareholders in the Merger was fair,
from a financial perspective, to the holders of IOBI Common. Fister has updated
its opinion as of the date of this Prospectus/Proxy Statement. A copy of such
opinion is attached as Appendix B hereto. For a description of the analysis
performed in connection with such opinion, see "THE MERGER--Fairness Opinion."
IOBI has agreed to pay fees to Fister for its services. No portion of the Fister
fee is contingent upon consummation of the Merger. See, "THE MERGER--Fairness
Opinion" for a further description of the opinion of Fister.
BACKGROUND OF AND REASONS FOR THE MERGER AND RECOMMENDATION OF BOARD OF
DIRECTORS
For a description of the background of the Merger, including the steps
involved in the negotiation of the Merger Agreement, see "THE MERGER--Background
of the Merger." For a description of the reasons why the IOBI Board of Directors
believes the Merger is in the best interests of IOBI's shareholders, see "THE
MERGER--Reasons for the Merger."
THE BOARD OF DIRECTORS OF IOBI UNANIMOUSLY RECOMMENDS APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER. SEE "THE MERGER--RECOMMENDATION OF IOBI'S BOARD OF
DIRECTORS."
CONVERSION OF IOBI COMMON
As a result of the Merger, each share of IOBI Common issued and outstanding
immediately prior to the Effective Time, other than shares whose holders have
properly exercised their dissenters' rights under the Illinois Law, will be
converted into the right to receive the number of shares of NCBE Common
specified in the Merger Agreement and cash in lieu of fractional shares
(collectively, the "Merger Consideration"). The Merger Agreement provides that
each share of IOBI Common will be converted into the right to receive that
number of shares of NCBE Common which has an aggregate Average Value of
6
<PAGE>
$9,269.13, subject to a minimum of 221.22 shares and a maximum of 243.28 shares
of NCBE Common. The Merger Agreement defines the Average Value of the NCBE
Common as the average, weighted by daily trading volume, of the mean of the high
and low per share trading prices of a share of NCBE Common as reported by the
Nasdaq National Market for the ten (10) trading days on which NCBE Common is
traded ended three (3) days prior to the Closing. See "THE MERGER--Conversion of
IOBI Common."
No fractional shares of NCBE Common will be issued in the Merger and, in
lieu thereof and as part of the Merger Consideration, each holder of shares of
IOBI Common who would otherwise be entitled to a fractional interest of a share
of NCBE Common (after taking into account all shares of IOBI Common held by such
holder) will be paid an amount in cash equal to the product of such fractional
interest and the Average Value.
Each share of IOBI Common will be converted into the right to receive not
less than 221.22 and not more than 243.28 shares of NCBE Common. It is not
possible, as of the date of this Prospectus/Proxy Statement, to determine the
actual number of shares of NCBE Common into which each share of IOBI Common will
be converted. Assuming, however, for purposes of illustration, that the Closing
occurred on April 7, 1998 each share of IOBI Common would have been converted
into 231.09 shares of NCBE Common.
For information on how shareholders of IOBI will be able to exchange
certificates representing shares of IOBI Common for certificates representing
shares of NCBE Common after the Effective Time, see "THE MERGER--Procedures for
Exchange of Certificates."
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The Merger Agreement contains various customary representations and
warranties of the parties and covenants that the parties will take or refrain
from taking certain actions prior to the Effective Date. See "THE
MERGER--Representations and Warranties" and "--Covenants."
The obligations of both parties to consummate the Merger are subject to the
satisfaction or waiver of certain conditions including: (i) approval by IOBI's
shareholders; (ii) approval by regulatory authorities having jurisdiction over
the parties or the Merger; (iii) no action taken by governmental authorities to
prevent consummation of the Merger; (iv) the registration statement containing
this Prospectus/Proxy Statement having been declared effective and no stop order
having been issued; and (v) the receipt of an opinion of counsel to NCBE as to
the treatment of the Merger as a tax-free reorganization. The obligations of
NCBE are further conditioned upon, among other things, (i) the continued
accuracy of representatives and warranties made by IOBI and the absence of any
material adverse change prior to Closing in the business, assets, properties,
financial condition or results of operations of IOBI or the Bank; (ii) the
receipt of an opinion of counsel to IOBI as to certain matters relating to IOBI
and the Merger; and (iii) the determination by NCBE that the Merger may be
accounted for as a pooling of interests unless the failure to qualify for
pooling arises from circumstances within NCBE's control. The obligations of IOBI
are further conditioned upon, among other things, (i) the continued accuracy of
representations and warranties made by NCBE and the absence of any material
adverse change in the business, assets, properties, financial condition or
results of operations of NCBE and its subsidiaries, taken as a whole; (ii) the
receipt of an opinion of counsel to NCBE as to certain matters relating to NCBE
and the Merger; and (iii) the receipt, as of the date of mailing this
Prospectus/Proxy Statement, of an opinion from its financial advisor to the
effect that the Merger Consideration is fair, from a financial viewpoint, to the
IOBI shareholders. See "THE MERGER--Conditions."
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 IOBI
shareholders: (i) by mutual consent of IOBI and NCBE; (ii) by IOBI if IOBI or
its Board of Directors accepts or approves a "Competing Transaction" (as defined
below); (iii) by IOBI, if any of the conditions to its obligation to consummate
the Merger have not been satisfied by June 15, 1998; or (iii) by NCBE, if any of
the conditions to its obligation
7
<PAGE>
to consummate the Merger have not been satisfied by June 15, 1998. See "THE
MERGER--Termination and Waiver."
In the Merger Agreement, IOBI has agreed not to solicit or conduct
negotiations or discussions with third parties regarding an acquisition of IOBI
or the Bank except where such actions are required by fiduciary duties of IOBI's
Board of Directors. If the Merger Agreement is terminated in certain
circumstances upon the occurrence of a Triggering Event, IOBI 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 and the occurrence of any of
the following events within one year from termination: (i) IOBI enters into an
agreement with a third party for a Competing Transaction; (ii) the Board of
Directors of IOBI recommends a Competing Transaction to IOBI's shareholders; or
(iii) following the announcement of a Competing Transaction, the Board of
Directors of IOBI withdraws or modifies its recommendation. "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 IOBI or the Bank; (ii) a proposal for a merger,
consolidation, share exchange, business combination or similar transaction
involving IOBI; or (iii) a proposal for the sale, lease, exchange or other
disposition of 25% or more of IOBI's assets. See "THE MERGER--No Solicitation;
Fees and Expenses."
REGULATORY APPROVALS
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 Federal Reserve Board approved the Merger on March 12,
1998. See "THE MERGER--Regulatory Approvals."
ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. The qualification of the Merger for pooling of
interests accounting is a condition to NCBE's obligation to consummate the
Merger unless the Merger does not so qualify due to acts or circumstances within
the control of NCBE. If such condition is not met, the Merger will not be
consummated unless the condition is waived by NCBE. See "THE MERGER--Accounting
Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a tax-free reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). If the
Merger so qualifies, no gain or loss will be recognized by the holders of shares
of IOBI Common upon receipt of the Merger Consideration (except for cash
received in lieu of fractional shares and by shareholders properly exercising
their dissenters' rights). Consummation of the Merger is conditioned on there
being delivered to the parties at the closing an opinion of counsel to NCBE to
the effect that the Merger will qualify as a tax free-reorganization.
EACH SHAREHOLDER OF IOBI 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 FOREIGN LAWS AND THE POSSIBLE EFFECT OF
CHANGES IN FEDERAL AND OTHER TAX LAWS. SEE "THE MERGER--CERTAIN FEDERAL INCOME
TAX CONSEQUENCES."
DISSENTERS' RIGHTS
The rights of dissenting shareholders of IOBI are governed by the Illinois
Law. Under the Illinois Law, the applicable portions of which are attached
hereto as Appendix C, a shareholder will be entitled to receive, in cash, the
fair value of his or her shares of IOBI Common held immediately before the
Merger is consummated if such shareholder delivers to IOBI, prior to the Special
Meeting, a written demand for
8
<PAGE>
payment for his or her shares if the Merger is consummated and the shareholder
does not vote in favor of the Merger Agreement and the transactions contemplated
thereby. If holders of more than approximately 9% of the outstanding shares of
IOBI Common should properly exercise their dissenters' rights, the Merger would
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 "THE MERGER--Dissenters' Rights".
SUMMARY COMPARATIVE HISTORICAL AND COMBINED PER SHARE DATA
The following summary presents, for the periods indicated, selected
comparative historical, pro forma combined and pro forma equivalent unaudited
per share data for NCBE and IOBI. The pro forma amounts assume that the Merger
had been effective during the periods presented and had been accounted for under
the pooling of interests method of accounting. For a description of the pooling
of interests method of accounting, see "THE MERGER--Accounting Treatment." The
data presented is not necessarily indicative of the results of the future
operation of the combined organization or the actual results that would have
occurred if the Merger 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
Prospectus/Proxy Statement and with the unaudited pro forma financial statements
included elsewhere in this Prospectus/Proxy Statement. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE," "SELECTED FINANCIAL DATA," "INFORMATION
CONCERNING IOBI" and "INDEX TO IOBI FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
---------------------- ---------------------- ----------------------
<CAPTION>
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share:
Historical:
NCBE:
Basic............................................ $ 1.72 $ 1.72 $ 1.52 $ 1.52 $ 1.30 $ 1.30
Diluted.......................................... 1.69 1.69 1.52 1.52 1.30 1.30
IOBI:
Basic............................................ 401.10 401.10 462.99 462.99 387.20 387.20
Diluted.......................................... 401.10 401.10 462.99 462.99 387.20 387.20
Pro forma combined per NCBE share:
Basic............................................ 1.72 1.71 1.55 1.54 1.32 1.31
Diluted.......................................... 1.70 1.69 1.55 1.54 1.32 1.31
Equivalent pro forma per IOBI share:
Basic............................................ 380.52 416.01 342.91 374.65 292.02 318.70
Diluted.......................................... 376.09 411.14 342.91 374.65 292.02 318.70
Dividends per common share:
Historical:
NCBE............................................... 0.64 0.64 0.55 0.55 0.40 0.40
IOBI............................................... 20.00 20.00 12.25 12.25 5.00 5.00
Equivalent pro forma per IOBI share.................. 141.58 155.70 121.67 133.80 88.49 97.31
Book value per common share:
Historical:
NCBE............................................... 13.69 13.69 12.12 12.12 11.71 11.71
IOBI............................................... 4,159.51 4,159.51 3,713.97 3,713.97 3,341.94 3,341.94
Pro forma combined per NCBE share.................... 13.92 13.86 12.88 12.82 13.60 12.87
Equivalent pro forma per IOBI share.................. 3,028.50 3,371.86 2,681.19 3,118.95 2,590.49 3,131.01
</TABLE>
9
<PAGE>
The number of shares of the NCBE Common to be issued for each share of IOBI
Common in the Merger will depend upon the Average Value of the NCBE Common.
Average Value is defined as the average, weighted by daily trading volume, of
the mean of the reported high and low per share trading prices for 10 trading
days ended prior to the Closing. The pro forma information in the table is
computed on both a Minimum basis (assuming that 525,059 shares are issued in the
Merger) and on a Maximum basis (assuming that 577,417 shares are issued in the
Merger).
RISK FACTORS RELATING TO NCBE COMMON
An investment in NCBE Common involves certain risks, including those
described in this Prospectus/ Proxy Statement. See "RISK FACTORS RELATING TO
NCBE COMMON."
STOCK PRICE DATA
The following table sets forth as of November 5, 1997 (the last trading day
before the public announcement of the proposed acquisition), the last sale price
per share for the NCBE Common, as adjusted for the 5% stock dividend paid in
December 1997, and the pro forma equivalent for a share of IOBI Common. There is
no public trading market for the IOBI Common. See "COMPARATIVE STOCK PRICES AND
DIVIDENDS."
<TABLE>
<CAPTION>
PRO FORMA
IOBI COMMON
NCBE COMMON IOBI COMMON EQUIVALENT
----------- ----------------- -------------
<S> <C> <C> <C>
Price Per Share......................................................... $ 46.67 N/A $ 10,324.33*
(as of November 5, 1997)
</TABLE>
- ------------------------
* Assumes that each share of IOBI Common is converted into 221.22 shares of
NCBE Common, the minimum number of shares of NCBE Common that may be issued
in the Merger. If the maximum number of shares of NCBE Common (243.28) were
issued on such date, the pro forma IOBI Common equivalent would be
$11,353.88.
COMPARISON OF SHAREHOLDER RIGHTS
The rights of the holders of IOBI Common and NCBE Common differ in certain
respects. The rights of the shareholders of IOBI who receive shares of NCBE
Common in the Merger will be governed by the Indiana Law and by the Articles of
Incorporation and Bylaws of NCBE. The governing law and constituent documents of
NCBE differ, in several respects, from those which apply to IOBI. As a result,
there are material differences between the rights of the holders of the IOBI
Common and the NCBE Common, including: shareholder votes required for approving
certain business combinations, removing directors, and amending Articles of
Incorporation; the circumstances under which a shareholder may dissent from
corporate action and receive fair value for his or her shares; and certain
Indiana statutory takeover provisions. See "COMPARISON OF SHAREHOLDER RIGHTS."
10
<PAGE>
RISK FACTORS RELATING TO NCBE COMMON
IOBI SHAREHOLDERS SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER
INFORMATION CONTAINED AND INCORPORATED BY REFERENCE IN THIS PROSPECTUS/PROXY
STATEMENT, THE FOLLOWING RISK FACTORS IN EVALUATING THE NCBE COMMON TO BE ISSUED
IN THE MERGER. CERTAIN STATEMENTS IN THIS PROSPECTUS/PROXY STATEMENT AND IN
DOCUMENTS INCORPORATED BY REFERENCE HEREIN, INCLUDING, WITHOUT LIMITATION, THIS
SECTION AND "INFORMATION CONCERNING NCBE", CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION
21E OF THE EXCHANGE ACT. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF NCBE TO DIFFER MATERIALLY FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS.
SUCH FACTORS INCLUDE, AMONG OTHER THINGS, THE FOLLOWING: THE FACTORS SET
FORTH IN THIS SECTION; GENERAL AND LOCAL ECONOMIC CONDITIONS; RISKS ASSOCIATED
WITH ACQUISITIONS; LEGISLATIVE AND REGULATORY INITIATIVES; MONETARY AND FISCAL
POLICIES OF THE FEDERAL GOVERNMENT; DEPOSIT FLOWS; THE COST OF FUNDS; GENERAL
MARKET RATES OF INTEREST; INTEREST RATES ON COMPETING INVESTMENTS; DEMAND FOR
LOAN PRODUCTS; DEMAND FOR FINANCIAL SERVICES; CHANGES IN ACCOUNTING POLICIES OR
GUIDELINES; AND CHANGES IN THE QUALITY OR COMPOSITION OF NCBE'S LOAN AND
INVESTMENT PORTFOLIOS. NCBE DOES NOT UNDERTAKE AND SPECIFICALLY DISCLAIMS ANY
OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT THE OCCURRENCE OF
ANTICIPATED OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH
STATEMENTS.
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
latter's liquidation, reorganization or otherwise will be subject to the claims
of the subsidiaries' 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 that may be paid by such
subsidiaries without prior approval. During 1998, approximately $3.3 million
plus any 1998 net profits can be paid by the banking subsidiaries to NCBE
without prior regulatory approval.
The banking subsidiaries are also subject to legal restrictions which limit
the transfer of funds by any of the banking subsidiaries to NCBE and its
nonbanking subsidiaries, whether in the form of loans, extensions of credit,
investments, asset purchases or otherwise. Such transfers by any banking
subsidiary to NCBE or any of NCBE's nonbanking subsidiaries are limited in
amount to 10% of such subsidiary's capital and surplus and, with respect to NCBE
and all such nonbanking subsidiaries, to an aggregate of 20% of such banking
subsidiary capital and surplus. Furthermore, such loans and extensions of credit
are required to be secured in specified amounts.
RISKS ASSOCIATED WITH ACQUISITIONS
NCBE has experienced significant growth as a result of acquisitions. Since
January 1, 1995, NCBE has acquired ten financial institutions or branches of
financial institutions. As the banking industry continues to consolidate, NCBE
expects to pursue other acquisitions in the future. 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
expected operational synergies. Acquisitions involve numerous risks, including
difficulties in the assimilation of the operations of the acquired company, a
diversion of management's attention from other business concerns, risks of
entering new geographic markets, the potential loss of key employees of the
acquired company and the 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
11
<PAGE>
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 can be expected to increase. NCBE competes
with other banking companies for acquisition opportunities and many of these
competitors have greater financial resources and acquisition experience than
NCBE. In addition, the "needs improvement" rating from a banking regulatory
agency received with respect to NCBE's Year 2000 compliance efforts could
adversely affect NCBE's plans to grow by acquisition. See "INFORMATION
CONCERNING NCBE--Recent Developments."
IMPACT OF INTEREST RATE CHANGES
NCBE's results of operations are derived from the operations of its
subsidiaries and are principally dependent on net interest income, calculated as
the difference between interest earned on loans and investments and the interest
expense paid on deposits and other borrowings. Like other banks and financial
institutions, NCBE's interest income and interest expense are affected by
general 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 be
effective in avoiding undue interest rate risk.
CREDIT RISK AND LOAN CONCENTRATION
NCBE is exposed to the risk that customers to whom its subsidiaries have
made loans will be unable to repay those loans according to their terms and that
collateral securing such loans (if any) may not be sufficient in value to assure
repayment. Credit losses could have a material adverse effect on NCBE's
operating results.
A primary risk facing NCBE, and financial institutions in general, is credit
risk, that is, the risk of losing principal and interest due to a borrower's
failure to perform according to the terms of such borrower's loan agreement. As
of December 31, 1997, NCBE's total loan portfolio was approximately $916.4
million or 70.6% of its total assets. The three largest components of the loan
portfolio are real estate loans, $501.9 million or 54.7% of total loans,
commercial and industrial loans, $201.4 million or 22.0% of total loans, and
consumer loans, $149.5 million or 16.3% 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 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.
REGULATORY RISKS
The banking industry is heavily regulated. These regulations are primarily
intended to protect depositors and the FDIC, not 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 is dependent to a certain extent
upon the general economic conditions of the 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
12
<PAGE>
Indiana, Kentucky and Illinois surrounding Evansville, Indiana. No assurance can
be given concerning the economic conditions which will exist in such markets.
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.
SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE
This Prospectus/Proxy Statement is being furnished to shareholders of IOBI
in connection with the solicitation of proxies by the Board of Directors of IOBI
for use at the Special Meeting to be held at the office of the Bank located at
Posey Avenue and Lincoln Boulevard West, Shawneetown, Illinois, on May 22, 1998,
at 1:00 p.m., local time, and at any adjournment or postponement thereof.
At the Special Meeting, the shareholders of IOBI will be asked to consider
and vote upon the approval of the Merger Agreement and the transactions
contemplated thereby, including the Merger of IOBI with and into NCBE.
This Prospectus/Proxy Statement, the attached Notice of Special Meeting and
the Proxy Card are first being sent to shareholders of IOBI on or about April
15, 1998.
RECORD DATE
The Board of Directors of IOBI has fixed April 7, 1998, as the Record Date
for the determination of shareholders of IOBI to receive notice of and to vote
at the Special Meeting. As of the close of business on the Record Date, there
were 2,373.74 shares of IOBI Common issued and outstanding. Only holders of IOBI
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 IOBI 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 IOBI Common entitled to vote on the Record Date is
necessary to constitute a quorum at the Special Meeting. Pursuant to the
Illinois Law, the affirmative vote of the holders of at least two-thirds (66.7%)
of all of the issued and outstanding shares of IOBI Common is required to
approve the Merger Agreement and the transactions contemplated thereby,
including the Merger. Each holder of IOBI Common is entitled to one vote per
share of IOBI 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 Prospectus/Proxy
Statement. 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 IOBI
Common represented by a proxy properly signed and returned to IOBI at, or prior
to, the Special Meeting, unless subsequently revoked, will be voted at the
Special Meeting in accordance with instructions thereon. If a proxy is properly
signed and returned and the manner of voting is not indicated on the proxy, any
shares of IOBI Common represented by such proxy will be voted FOR approval of
the Merger Agreement and the
13
<PAGE>
transactions contemplated thereby, including the Merger. Any proxy given
pursuant to this solicitation may be revoked at any time prior to the voting
thereof on the matters to be considered at the Special Meeting by filing with
the Secretary of IOBI 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 IOBI proxies should be addressed to Illinois One
Bancorp, Inc., P.O. Box 279, Shawneetown, Illinois 62984, Attention: Corporate
Secretary. A holder of IOBI 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 IOBI 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.
IOBI intends to count holders of shares of IOBI Common present in person at
the Special Meeting but not voting, and holders of shares of IOBI Common for
which IOBI 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, if
any, who hold shares in street name for customers who are the beneficial owners
of such shares are prohibited from giving a proxy to vote shares held for such
customers with respect to the approval of the Merger Agreement and the
transactions contemplated thereby, including the Merger, without specific
instructions from such customers. Since the affirmative vote of the holders of
at least two-thirds of the issued and outstanding shares of IOBI Common entitled
to vote at the close of business on the Record Date is required to approve the
Merger Agreement and the transactions contemplated thereby, including the
Merger, such non-voting shares and abstentions and the failure of such customers
to provide specific instructions with respect to their shares of IOBI Common
will have the effect of a vote against the approval of the Merger Agreement.
In the event that sufficient proxies are not obtained to approve 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 which 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 IOBI Common by
use of the mail, proxies also may be solicited personally or by telephone by
directors, officers and employees of IOBI, who will not be specifically
compensated for such services.
NCBE has agreed to bear the entire cost of printing this Prospectus/Proxy
Statement and all filing fees paid to the Commission and other regulatory filing
fees incurred in connection with the Merger.
THE MERGER
GENERAL
This section of the Prospectus/Proxy Statement 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 Prospectus/Proxy Statement, 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 herein and reference is
made thereto for a complete description of the terms of the Merger. Shareholders
of IOBI are urged to read the Merger Agreement in its entirety.
14
<PAGE>
BACKGROUND OF THE MERGER
In order to achieve its goal of maximizing shareholder value and to maintain
its viability as a community bank, beginning in September 1993, IOBI began to
hold annual strategic planning conferences involving management and the Board of
Directors. The purpose of these conferences was to discuss the strategic
direction of IOBI and initiatives that could be taken to maximize shareholder
value. As a result of these conferences, IOBI implemented and completed several
initiatives including the merger of its then three subsidiary banks into one
bank, the establishment of an incentive compensation system for all of its
employees, a simplification and realignment of its organizational structure, and
the establishment of an outside directors' committee to address issues of
management succession, directors retirement, and redemption of IOBI's
shareholders' interests from time-to-time.
IOBI desired to be an acquiror of other financial institutions but due to
the illiquidity of its stock, the significant premiums being paid by acquirors
of financial institutions in its markets, the increased competition for
acquisition candidates in its markets, and the relative scarcity of viable
buying opportunities for IOBI, IOBI was finding that its acquisition
opportunities were extremely limited and found prospective target companies
generally uninterested. At the same time, IOBI and its directors were
increasingly receiving overtures from other larger, regional financial
institutions which were interested in acquiring IOBI.
At the March 1996 annual strategic planning conference, several of the
directors expressed concern over the lack of marketability of the IOBI Common,
the significant premiums being paid by regional acquirors, IOBI's inability to
redeem IOBI Common at comparable prices from shareholders who desired to sell,
and the increasing costs of health insurance and technology. In July 1996, IOBI
undertook a strategic analysis of its various alternatives including among other
things, remaining independent, selling to a third party, and implementing a
stock buyback program. The IOBI Board of Directors reviewed the financial and
tax implications of each of the alternatives on IOBI and its shareholders.
In March 1997, John D. Lippert, the Chairman of the Board and Chief
Executive Officer of NCBE, visited with Tom Patton, the President of IOBI, to
introduce himself and NCBE to IOBI. Thereafter, in April 1997, Ben Bloodworth,
the Executive Vice President of NCBE, met with Tom Patton again and expressed
NCBE's interest in a possible affiliation with IOBI. NCBE followed up with
several telephone calls expressing further NCBE's interest in meeting with Mr.
Patton concerning a possible affiliation.
In May 1997, NCBE sent a letter to Mr. Patton expressing NCBE's interest in
affiliating with IOBI. In July 1997, the IOBI Board of Directors met and formed
a committee which reviewed the proposal with management and IOBI's accountants,
reviewed the financial condition and history of NCBE, reviewed the prospective
value of IOBI to a third party, the recent prices being derived in similar
transactions, and analyzed the ability of IOBI to redeem IOBI Common at a
similar price from shareholders who desired to sell and the effect thereof on
IOBI. As a result of the review, the committee did not accept the terms outlined
in NCBE's letter, but rather recommended that the Board of Directors investigate
further the terms of a possible affiliation with NCBE.
In September 1997, NCBE sent another letter to Mr. Patton expressing NCBE's
continuing interest in negotiating an affiliation with IOBI. In October 1997,
the entire IOBI Board of Directors visited with representatives of management of
NCBE and negotiated the materials terms of a prospective affiliation with NCBE.
These terms were set forth in a letter from NCBE to IOBI dated October 20, 1997
(the "Letter Agreement"). On October 20, 1997, the IOBI Board of Directors
approved the materials terms as set forth in the Letter Agreement and authorized
management of IOBI and its counsel to negotiate the terms of a definitive
agreement. On November 10, 1997, NCBE sent to IOBI a proposed definitive
agreement.
Between November 10, 1997 the date the Letter Agreement was ratified, and
December 15, 1997, the date the Merger Agreement was approved, various drafts of
the definitive agreement were prepared. Each of the parties reviewed and
discussed the details of such drafts with their respective counsel until a final
15
<PAGE>
draft acceptable to each of the parties was agreed upon. This final draft
agreement and plan of merger was the version which was ultimately approved by
the IOBI Board of Directors on December 15, 1997.
On December 15, 1997 the IOBI Board of Directors, with 11 of the 11
directors present, met to review and consider the Merger Agreement. At the
meeting, IOBI's financial advisor, Fister & Associates, Inc. ("Fister"),
presented the IOBI Board of Directors with an analysis of the proposed terms of
the Merger, including the assumptions upon which it relied. Fister concluded its
presentation by providing the IOBI Board of Directors with its opinion that the
consideration to be paid in the Merger to IOBI shareholders was fair from a
financial point of view. Following the review and acceptance of the Fister
fairness opinion, including the analysis, assumptions and projections supporting
such opinion, and an in-depth analysis, review and discussion of the Merger
Agreement with IOBI's counsel and accountant, the IOBI Board of Directors voted
unanimously in favor of the adoption of the Merger Agreement as being in the
best interest of the IOBI shareholders.
REASONS FOR THE MERGER
The IOBI Board of Directors believes the Merger is in the best interests of
IOBI'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 IOBI shareholders
approve the Merger Agreement, IOBI reviewed a number of factors with a view to
maximizing shareholder value in the intermediate and long term. Among the
factors considered by the IOBI Board of Directors were, without limitation, the
following:
(1) the illiquidity of IOBI's shares compared to the liquidity in NCBE's
Common offered as a result of the Merger;
(2) the significant premium to be received by the holders of IOBI shares
relative to the historical book value of IOBI Common; in addition to,
the likely effects on IOBI's capital resulting from a redemption by IOBI
of its shares at similar price from those IOBI shareholders desiring to
sell;
(3) the scarcity of opportunities and intense price competition associated
with potential acquisitions by IOBI;
(4) the ability of IOBI's shareholders to defer any tax liability associated
with the increase in the value of their stock as a result of the Merger;
(5) the historical earnings performance of NCBE and the performance of the
NCBE Common;
(6) NCBE's dividend payment history;
(7) the compatibility of the respective business and community banking
philosophies of NCBE and IOBI relative to other prospective acquirors;
(8) the improved benefits offered to employees of IOBI as a result of the
Merger;
(9) the return to IOBI's shareholders resulting from the Merger versus the
return to IOBI's shareholders resulting from other strategic
alternatives, including IOBI's remaining independent; and
(10) the increasing costs of employment benefits and technology to IOBI.
The foregoing discussion of the information and factors considered by the
IOBI Board of Directors is not intended to be exhaustive, but is believed to
include all material factors and information considered. In reaching its
decision to approve and recommend the Merger, the IOBI Board of Directors did
not assign any relative or specific weights to the foregoing factors, and
individual directors may have given differing weights to different factors.
After deliberating with respect to the Merger and other transactions
contemplated by the Merger Agreement considering, among other things, the
matters discussed above and the opinion of its financial
16
<PAGE>
advisor, Fister (discussed below), the IOBI 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 IOBI
and its shareholders.
FAIRNESS OPINION
On December 2, 1997, IOBI's Board of Directors retained Fister to render an
opinion as to the fairness, from a financial point of view, of the consideration
to be received in the Merger by the shareholders of IOBI.
Fister is a regional investment banking firm of recognized standing. As part
of its investment banking services, it is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
divestitures, private placements and valuations for corporate reorganizations,
estate tax, and other purposes. Fister was chosen on the basis of its
familiarity with the financial services industry generally and in the relevant
area, and its qualifications, ability, previous experience, and reputation. No
limitations were imposed by the IOBI Board of Directors upon Fister with respect
to the investigations made or procedures followed by Fister in rendering its
opinion.
The Merger Agreement provides that as a condition precedent to IOBI's
obligation to consummate the Merger, IOBI shall have received an opinion from
Fister, updated as of the date of the mailing of this Prospectus/Proxy
Statement, to the effect that the consideration to be received by IOBI
shareholders pursuant to the Merger Agreement is fair, from a financial point of
view, to the IOBI shareholders. Fister has rendered a written opinion to the
IOBI Board of Directors dated December 15, 1997, and updated as of the date of
this Prospectus/Proxy Statement to the effect that, as of such dates, the
consideration to be received by the shareholders of IOBI is fair, from a
financial point of view, to the shareholders of IOBI. Such opinion describes the
assumptions made, matters considered and the scope of the review undertaken and
procedures followed by Fister. Fister's opinion is included in this
Prospectus/Proxy Statement as Appendix B. IOBI SHAREHOLDERS ARE ENCOURAGED TO
READ FISTER'S OPINION IN ITS ENTIRETY.
The consideration to be received by the shareholders of IOBI was determined
through negotiation between IOBI and NCBE. (See "THE MERGER--Background of the
Merger.") Fister did not recommend the amount of consideration to be paid.
In arriving at its opinion, and in connection with its review of the
proposed transaction, Fister, among other things:
- Reviewed financial information on the Bank, for the periods ended November
28, 1997, December 31, 1996, 1995 and 1994; and IOBI for the periods ended
June 30, 1997, December 31, 1996, 1995 and 1994;
- Reviewed the Merger Agreement and the then most recent draft of the
Prospectus/Proxy Statement;
- Compared certain financial characteristics of IOBI and NCBE with other
Illinois and Midwestern financial institutions Fister deemed to be
comparable;
- Compared the proposed terms of the offer contemplated in the Merger
Agreement with the financial terms of certain other mergers and
acquisitions in the financial services industry which Fister deemed to be
relevant;
- Conducted discussions with executive officers of IOBI concerning IOBI's
business and prospects;
In connection with its written opinion dated as of the date of this
Prospectus/Proxy Statement, Fister performed procedures to update certain of its
analyses and reviewed the assumptions on which such analyses were based and the
factors considered in connection therewith. The following is a brief summary of
the analyses performed by Fister in connection with the rendering of its
opinion.
17
<PAGE>
Fister utilized a four step analysis in determining that the Merger is fair
from a financial point of view to the shareholders of IOBI. The steps were as
follows:
Step 1. Fister determined the fair market value of 100% controlling
interest in the Bank by utilizing a comparable sales methodology.
Step 2. The value of the Bank was then substituted on the balance sheet of
IOBI under "Investments in Subsidiary" thus producing a
consolidated book value for IOBI. The fair market value of IOBI
Common was then determined.
Step 3. In order to determine the fairness of the transaction, Fister
analyzed the consideration to be received in exchange for IOBI
Common from NCBE, namely $9,269.13 worth of NCBE Common.
Step 4. Based on a comparison of the value of IOBI Common as determined by
Fister versus the consideration to be received from NCBE, Fister
opined on the fairness of the Merger from a financial point of view
to the shareholders of IOBI.
STEP 1: VALUATION OF ILLINOIS ONE BANK, N.A. Fister analyzed sales of
similar size banks to multi-bank holding companies throughout the country within
a specified period of time as reported by a reputable source. Average price to
equity, price to earnings, equity to assets and tangible book premium to deposit
ratios were developed from these deals and applied to the target banks' equity
capital and earnings. Fister looked at deals announced in the "midwest region"
between November 29, 1996 and November 28, 1997, in which the asset range of the
seller was between $70 million to $100 million. Fister defined the midwest
region to include the following states: Iowa, Illinois, Indiana, Kansas,
Kentucky, Michigan, Minnesota, Missouri, North Dakota, Nebraska, Ohio, South
Dakota, and Wisconsin. The search of bank deals utilizing this criteria yielded
eleven deals within this time period. This list, however, was pared down as five
of the deals had no publicly reported multiples as yet and one took place in a
large metropolitan area which Fister concluded was not comparable to the market
served by the Bank. The following table shows the results of Fister's analysis
of the five representative transactions:
<TABLE>
<CAPTION>
BUYER: SELLER: ANN'D SELLER:
1: TOTAL 1: TOTAL DEAL 1: EQTY/
ASSETS ASSETS ANNOUNCE VALUE ASSETS
BUYER ST SELLER ST ($000) ($000) DATE ($M) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 German American Bcp IN CSB Bancorp IN 481,041 75,077 10/21/97 22.80 12.12
2 Commerce Bancshares MO CNB Bancorp KS 9,648,833 94,247 06/11/97 14.50 9.26
3 Gold Banc Corp KS Peoples KS 304,609 72,324 04/17/97 9.30 9.89
Bancshares
4 F&M Bancorporation WI Citizens Nat'l WI 1,173,494 72,334 02/27/97 15.60 13.36
Bcp
5 Firstbank Corp MI Lakeview MI 404,571 83,883 02/19/97 16.60 9.98
Financial B
Average 15.76 10.92
<CAPTION>
ANN'D
ANN'D ANN'D ANN'D TGBK
DEAL DEAL PR/ DEAL PR/ PREM/
PR/BK TG BK 4-QTR COREDEPS
BUYER (%) (%) EPS(X) (%)
<S> <C> <C> <C> <C>
1 German American Bcp 250.58 250.58 30.12 25.14
2 Commerce Bancshares 166.11 166.11 12.08 7.35
3 Gold Banc Corp 223.65 311.76 10.38 12.00
4 F&M Bancorporation 164.21 164.51 23.89 10.20
5 Firstbank Corp 181.98 181.98 18.33 11.06
197.31 214.99 18.96 13.15
</TABLE>
Utilizing the results of the above-representative transactions, and applying the
following weightings to the resulting ratios:
<TABLE>
<S> <C>
price-to-book....................................... 5%
price-to-earnings................................... 5%
tangible book premium to deposits................... 90%
</TABLE>
Fister determined the fair market value of the Bank as of November 28, 1997 to
be $18,201,000.
STEP 2: VALUATION OF IOBI. In order to value IOBI, the holding company of
the Bank, Fister utilized an adjusted book value method, in that IOBI derives
all of its value from its underlying asset, the Bank. Fister replaced the value
that IOBI had on its books under "Investments in Subsidiary" with 100% of the
new
18
<PAGE>
value derived in Step 1, above. Utilizing this methodology, Fister derived a new
equity value for IOBI of $16,937,421 or, $7,136.14 per share.
STEP 3: ANALYSIS OF CONSIDERATION TO BE RECEIVED. Fister compared the
$9,269.13 worth of NCBE Common to be exchanged for each share of IOBI Common to
the $7,136.14 value per share derived in Step 2, above.
STEP 4: DETERMINATION OF FAIRNESS. Based on the 29.89% premium to be
received by the IOBI shareholders in the instant transaction, Fister opined that
the consideration to be received by IOBI shareholders in the Merger is fair,
from a financial point of view.
In rendering its opinion, Fister reviewed the agreements respecting the
Merger contained in the Merger Agreement. Fister also reviewed the financial and
other information that was publicly available or furnished to it by IOBI,
including information provided during its discussion with the executive officers
of IOBI which included discussions of recent developments and management's
financial projections. Fister also reviewed other available pertinent
information that it considered relevant and conduct such studies, analyses and
investigations as it deemed appropriate for purposes of rendering its opinion.
In rendering its opinion, Fister relied upon and assumed without independent
verification, the accuracy, completeness and fairness of all of the financial
and other information that was available or that was otherwise reviewed by it.
With respect to financial projections supplied to Fister, it assumed that such
financial projections were reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of IOBI as to the
future operating and financial performance of IOBI. Fister assumed that the
Merger would comply with applicable law and regulations as currently in effect.
Fister did not make an independent evaluation or appraisal of the assets and
liabilities of IOBI or NCBE.
Fister's opinion was based on economic, market, financial and other
conditions in existence at the time of its opinion. Fister's opinion is directed
to the IOBI Board of Directors and is not intended to be and does not constitute
a recommendation to the IOBI shareholders as to how such shareholder should vote
at the Special Meeting.
Other than with respect to this engagement, Fister has no business
relationship with either IOBI or NCBE and its fee is not contingent on the
Merger being consummation and is not based upon any percentage of any valuation
or other amount.
RECOMMENDATION OF IOBI'S BOARD OF DIRECTORS
For the reasons described above, the Board of Directors of IOBI believes
that the affiliation through the Merger of IOBI with NCBE is in the best
interest of IOBI and its shareholders and in the best interest of the customers
and communities that the Bank serves.
THE IOBI BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF IOBI
COMMON VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
Certain members of the management and Board of Directors of IOBI have
interests in the Merger that are in addition to the interests of shareholders of
IOBI generally. See "--Interests of Certain Persons in 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 IOBI 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 IOBI
shareholders, all other conditions of the Merger Agreement are satisfied or
waived and the Closing is held, the Merger will become effective
19
<PAGE>
at the date and time (the "Effective Time") specified in the Articles of Merger
which 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 second calendar
quarter of 1998. The Merger Agreement may be terminated by either party if,
among other things, the Closing does not occur on or before June 15, 1998. See
"--Termination and Waiver."
CONVERSION OF IOBI COMMON
As a result of the Merger, each share of IOBI Common issued and outstanding
immediately prior to the Effective Time, other than shares whose holders have
properly exercised their dissenters' rights under the Illinois Law, will be
converted into the right to receive the number of shares of NCBE Common
specified in the Merger Agreement and cash in lieu of fractional shares of NCBE
Common. The Merger Agreement provides that each eligible share of IOBI Common
will be converted into the right to receive that number of shares of NCBE Common
having an aggregate Average Value of $9,269.13, subject to a minimum of 221.22
shares and a maximum of 243.28 shares of NCBE Common. The Merger Agreement
defines the Average Value of the NCBE Common as the average, weighted by daily
trading volume, of the mean of the high and low per share trading prices of a
share of NCBE Common as reported by the Nasdaq National Market for the ten (10)
trading days on which NCBE Common is traded ended three (3) days prior to the
Closing.
No fractional shares of NCBE Common will be issued in the Merger and, in
lieu thereof and as part of the Merger Consideration, holders of shares of IOBI
Common who would otherwise be entitled to a fractional interest of a share of
NCBE Common (after taking into account all shares of IOBI Common held by such
holder) will be paid an amount in cash equal to the product of such fractional
interest and the Average Value.
Each share of IOBI Common will be converted into the right to receive not
less than 221.22 and not more than 243.28 shares of NCBE Common. It is not
possible, as of the date of this Prospectus/Proxy Statement, to determine the
actual number of shares of NCBE Common into which each share of IOBI Common will
be converted. Assuming, however, for purposes of illustration, that the Closing
occurred on April 7, 1998, each share of IOBI Common would have been converted
into 231.09 shares of NCBE Common.
PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of IOBI Common into the right to receive the Merger
Consideration will occur by operation of law at the Effective Time. After the
Effective Time, certificates theretofore evidencing shares of IOBI Common which
may be exchanged for shares of NCBE Common will be deemed, for all corporate
purposes other than the payment of dividends and other distributions on such
shares, to evidence ownership of and entitlement to receive such shares of NCBE
Common.
Within five (5) business days after the Effective Time, The National City
Bank of Evansville, the exchange agent in the Merger (the "Exchange Agent"),
will send a transmittal letter and instructions to each record holder of
certificates for IOBI 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, of the
amount of cash such holder is due in lieu of a fractional share of NCBE Common,
and of the procedures for surrendering such 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 IOBI Common will
pass, only upon proper delivery of the certificates for IOBI Common to the
Exchange Agent and 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 IOBI Common, together with
a letter of transmittal duly executed and any other required documents, the
Exchange Agent will deliver to such
20
<PAGE>
holder the Merger Consideration such holder is entitled to receive under the
Merger Agreement. SHAREHOLDERS OF IOBI ARE REQUESTED NOT TO SURRENDER THEIR
CERTIFICATES FOR EXCHANGE UNTIL SUCH LETTER OF TRANSMITTAL AND INSTRUCTIONS ARE
RECEIVED. Unless and until the certificates for IOBI Common are surrendered,
together with a letter of transmittal duly executed and any other required
documents, dividends or other distributions on the shares of NCBE Common
issuable with respect to such IOBI Common and cash payments for fractional
shares which would otherwise be payable will not be delivered to the holders of
such certificates and, in such case, upon surrender of the certificates for IOBI
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 which 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 IOBI Common has been lost, the Exchange Agent will
issue the Merger Consideration properly payable in accordance with the Merger
Agreement 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.
The Federal Reserve Board received NCBE's application with respect to the
Merger on February 3, 1998 and deemed it a complete record. The Federal Reserve
Board approved the application on March 12, 1998 and approved consummation on a
date not earlier than March 27, 1998.
DISSENTERS' RIGHTS
The rights of IOBI 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 C.
Pursuant to Section 11.70 of the Illinois Law, a shareholder may assert
dissenters' rights only if the shareholder delivers to IOBI 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 IOBI Common if the Merger is consummated and
the shareholder does not vote in favor of the Merger.
Within ten days after the Effective Time, or 30 days after the shareholder
delivers to IOBI 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
IOBI Common, IOBI'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 IOBI Common of the dissenting shareholder upon transmittal to NCBE
of the certificate(s), or other evidence of ownership, with respect to such
shares of IOBI 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 IOBI Common, NCBE must either pay the
difference in value demanded or file a petition in the circuit court of Gallatin
County, Illinois requesting the court to determine the fair value of the shares.
NCBE must make all dissenters, whether or not residents of Illinois,
21
<PAGE>
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
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.
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
IOBI Common properly exercise their dissenters' rights, the Merger would 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 IOBI, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE EXCERPTS FROM THE
ILLINOIS LAW INCLUDED HEREIN AS APPENDIX C.
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)
organization of subsidiaries; (v) delivery of reports filed by NCBE under the
Exchange Act; (vi) the conformity of financial statements in such reports to
generally accepted accounting principles ("GAAP"); (vii) the absence of any
undisclosed material liabilities and any material adverse change in NCBE's
financial condition, results of operations or business; (viii) the absence of
any litigation, claim, investigation, or other proceeding which, if adversely
determined, would have a material adverse effect; (ix) the authorization and
nonassessability of the shares of NCBE Common to be issued in the Merger; (x)
the absence of any circumstances that would prevent the Merger from qualifying
as a pooling of interests; and (xi) 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 IOBI relate to, among other
things: (i) the organization, good standing and corporate power of IOBI, the
capitalization of IOBI, the organization and good standing 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 IOBI 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 IOBI or the Bank is a party; (vii) ownership of real estate;
(viii) the absence of any material adverse change in the Bank's financial
condition, properties, results of operations or capitalization of the Bank; (ix)
the absence of any
22
<PAGE>
litigation, claim, investigation or other proceeding which, if adversely
determined, would have a material adverse effect on the business or financial
condition of IOBI or the Bank and the absence of any investigations, actions or
other legal proceedings involving any director, officer or employee of IOBI 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; and (xviii) the absence of any untrue
statements or omissions of material fact on the part of IOBI in the Merger
Agreement and related documents.
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 and keep IOBI 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) list the shares of NCBE Common to
be issued in the Merger on the Nasdaq National Market; (iv) provide IOBI with
access during regular business hours to books and records relating to NCBE's
assets, properties, operations and liabilities; and (v) indemnify IOBI directors
and officers for certain liabilities after the Effective Time of the Merger. See
"--Interests of Certain Persons in the Merger."
The covenants made by IOBI include, among other things, agreements by IOBI
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 IOBI and the Bank or
would interfere with IOBI'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 or redeem any capital stock of IOBI or
the Bank, pay cash dividends on the IOBI Common in excess of $5.00 per share per
quarter, in accordance with past practices (however, holders of IOBI Common may
for any given quarter only receive cash dividends attributable either to IOBI or
NCBE, not both), amend the articles of incorporation or by-laws or similar
documents of IOBI or the Bank, enter into or amend an employment agreement,
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 IOBI's and the Bank's assets, properties,
operations and liabilities; (viii) provide NCBE with copies of certain reports
to the Board of Directors of IOBI 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 the operations or certain complaints,
investigations or threatened litigation; (x) furnish NCBE with the information
in IOBI'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 IOBI 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; and (xii) cause a special meeting of IOBI
shareholders to be held and recommend approval of the Merger Agreement and the
Merger.
23
<PAGE>
CONDITIONS TO THE MERGER
In addition to the approval of IOBI 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 receipt of an opinion of Baker & Daniels to the
effect that the Merger will constitute a tax-free reorganization.
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 IOBI in the Merger Agreement, the performance
or satisfaction in all material respects of all covenants to be performed by
IOBI under the Merger Agreement, and the absence of any material adverse change
prior to Closing in the business, assets, properties, financial condition or
results of operations of IOBI or the Bank; (ii) the receipt of opinions of
counsel to IOBI as to certain matters relating to IOBI and the Merger; and (iii)
the determination by NCBE that the Merger may be accounted for as a pooling of
interests, unless it fails to qualify due to circumstances within the control of
NCBE.
The obligation of IOBI 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; (ii) the receipt of opinions of
counsel to NCBE as to certain matters relating to NCBE and the Merger; and (iii)
the receipt, as of the date of mailing this Prospectus/Proxy Statement of an
opinion from its financial advisor to effect that the Merger Consideration is
fair, from a financial viewpoint, to the IOBI shareholders.
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 IOBI
shareholders: (i) by mutual consent of IOBI and NCBE; (ii) by IOBI if IOBI or
its Board of Directors accepts or approves a "Competing Transaction"; (iii) by
IOBI, if any of the conditions to its obligation to consummate the Merger have
not been satisfied by June 15, 1998; or (iv) by NCBE, if any of the conditions
to its obligation to consummate the Merger have not been satisfied by June 15,
1998.
IOBI 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 IOBI shareholders, to the extent authorized by applicable law.
NO SOLICITATION; FEES AND EXPENSES
The Merger Agreement prohibits IOBI, 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 IOBI, the
Bank, or all or substantially all of their assets, unless IOBI'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. IOBI is required to communicate to NCBE the terms of any
such proposal.
24
<PAGE>
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, IOBI 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 one year: (i) IOBI enters into an agreement with
a third party for a Competing Transaction; (ii) the recommendation of a
Competing Transaction by the IOBI Board of Directors; or (iii) the withdrawal or
modification of the recommendation of the Merger Agreement by the IOBI 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 IOBI or the Bank; (ii) a proposal for a merger,
consolidation, share exchange, business combination or similar transaction
involving IOBI; or (iii) a proposal for the sale, lease, exchange or other
disposition of 25% or more of IOBI's assets.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the Merger to certain IOBI 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 IOBI 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 IOBI 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 IOBI 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 IOBI 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 IOBI Common are held as
capital assets (within the meaning of Section 1221 of the Code) at the Effective
Time.
It is a condition to the Merger that as of the Closing the parties receive
an opinion from Baker & Daniels, counsel to NCBE ("Counsel"), to the effect
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) IOBI shareholders will recognize no gain or loss as a result of the
exchange of their IOBI 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 IOBI 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
IOBI Common surrendered.
(iii) The holding period of the shares of NCBE Common received by each
IOBI 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 IOBI Common exchanged therefor.
(iv) An IOBI 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
25
<PAGE>
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 IOBI 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 will be subject to certain conditions and customary
assumptions and will rely upon various representations made by NCBE, IOBI and
certain shareholders of IOBI. If any of these representations or assumptions is
inaccurate, the tax consequences of the Merger could differ from those described
herein. Counsel's opinion will 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
NCBE nor IOBI 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.
Based upon the advice of Counsel, the parties believe that the Merger will
qualify as a reorganization for federal income tax purposes. Accordingly, the
material federal income tax consequences to a holder of IOBI Common will be as
described in (i) through (v) above.
THE FOREGOING IS A GENERAL SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO SHAREHOLDERS OF IOBI WITHOUT REGARD TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX SITUATION AND
STATUS. EACH SHAREHOLDER OF IOBI 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 IOBI 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 IOBI
for the entire fiscal year in which the Merger occurs, the separately reported
income of NCBE and IOBI 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 the obligation of NCBE to
consummate the Merger is that NCBE determine that the Merger will qualify as a
pooling of interests (unless its failure to qualify results from circumstances
within NCBE's control). In the event such condition is not met, the Merger would
not be consummated unless the condition was waived by NCBE. As of the date of
this Prospectus/Proxy Statement, NCBE and IOBI 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
Prospectus/Proxy Statement 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 IOBI
shareholder who may be deemed to be an "affiliate" of
26
<PAGE>
NCBE for purposes of Rule 144 under the Securities Act or an "affiliate" of IOBI
for purposes of Rule 145 under the Securities Act. Persons who may be deemed to
be affiliates of IOBI or NCBE generally include individuals who, or entities
which, control, are controlled by or are under common control with IOBI or NCBE
and will include directors and certain officers of IOBI and NCBE and may include
principal shareholders of IOBI 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 IOBI 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 as summarized herein
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
pursuant to an effective registration statement under the Securities Act or
another available exemption from the Securities Act registration requirements.
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 IOBI will obtain and deliver to NCBE an
agreement from each person who may reasonably be deemed an affiliate of IOBI
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 IOBI 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 IOBI after the Merger have been published.
This Prospectus/Proxy Statement does not cover resales of shares of NCBE
Common received by any person who may be deemed to be an affiliate of IOBI or
NCBE.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the IOBI Board of Directors have certain interests in the
transactions contemplated by the Merger Agreement that are in addition to their
interests as IOBI shareholders, including those referred to below.
In the Merger Agreement, NCBE has agreed to indemnify directors and officers
of IOBI to the fullest extent permitted by Illinois law against all liabilities
based in whole or in part out of or pertaining to the Merger or the Merger
Agreement, whether asserted before or after the Effective Time. NCBE has also
agreed that IOBI may purchase an extension of the discovery period under its
existing directors' and officers' liability insurance policy.
27
<PAGE>
SELECTED FINANCIAL DATA
The following tables present selected unaudited consolidated historical
financial data for NCBE and pro forma combined amounts reflecting the Merger.
The pro forma amounts assume that the Merger had been effective during the
periods presented. The data presented is derived from the consolidated financial
statements of NCBE and IOBI and should be read in conjunction with the more
detailed information and financial statements included herein or incorporated by
reference in this Prospectus/Proxy Statement and with the unaudited pro forma
financial statements included elsewhere in this Prospectus/Proxy Statement. The
pro forma amounts may not be indicative of the results that actually would have
occurred if the Merger had been in effect on the dates indicated. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "INFORMATION CONCERNING IOBI"
AND "INDEX TO IOBI FINANCIAL STATEMENTS."
NCBE--HISTORICAL
(Dollar amounts other than per share data in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net interest income.................................. $ 51,995 $ 48,606 $ 44,433 $ 39,933 $ 38,010
Provision for loan losses............................ 1,891 2,704 399 78 736
----------- ----------- ----------- ----------- -----------
Net interest income after provision for loan
losses............................................. 50,104 45,902 44,034 39,855 37,274
Noninterest income................................... 10,088 8,606 7,117 5,209 6,707
Noninterest expense.................................. 34,390 29,966 28,968 28,644 28,343
----------- ----------- ----------- ----------- -----------
Income before income taxes........................... 25,802 24,542 22,183 16,420 15,638
Income taxes......................................... 7,451 8,046 7,784 5,668 4,861
----------- ----------- ----------- ----------- -----------
Net income........................................... $ 18,351 $ 16,496 $ 14,399 $ 10,752 $ 10,777
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
PER SHARE DATA
Net income
Basic.............................................. $ 1.72 $ 1.52 $ 1.30 $ 0.97 $ 0.97
Diluted............................................ 1.69 1.52 1.30 0.97 0.97
Book value........................................... 13.69 12.12 11.71 10.47 10.23
Cash dividends declared.............................. 0.64 0.55 0.40 0.40 0.38
SUMMARY OF FINANCIAL CONDITION
Total assets......................................... $ 1,298,260 $ 1,172,057 $ 1,081,921 $ 1,004,160 $ 993,468
Securities........................................... 279,328 282,894 258,895 268,103 269,098
Loans, net........................................... 916,356 800,622 736,997 645,235 579,556
Deposits............................................. 964,046 913,350 864,136 849,306 844,808
Shareholders' equity................................. 146,803 129,694 130,606 114,750 113,975
SELECTED FINANCIAL RATIOS
Net income to average assets......................... 1.47% 1.48% 1.40% 1.09% 1.09%
Net income to average equity......................... 13.42 12.89 11.74 9.39 9.79
Cash dividend payout ratio........................... 36.74 37.05 30.05 36.77 31.65
Average equity to average assets..................... 10.98 11.48 11.93 11.59 11.14
Weighted average shares (basic)...................... 10,679,448 10,843,295 11,095,116 11,040,906 11,146,280
Weighted average shares (diluted).................... 10,832,943 10,843,295 11,095,116 11,040,906 11,146,280
</TABLE>
28
<PAGE>
NCBE--IOBI PRO FORMA
(Dollar amounts other than per share data in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1997 1996 1995
------------------------ ------------------------ ------------------------
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net interest income...................... $ 55,425 $ 55,425 $ 52,007 $ 52,007 $ 47,567 $ 47,567
Provision for loan losses................ 2,071 2,071 2,852 2,852 269 269
Net interest income after provision for
loan losses............................ 53,354 53,354 49,155 49,155 47,298 47,298
Noninterest income....................... 10,531 10,531 8,853 8,853 7,377 7,377
Noninterest expense...................... 36,744 36,744 32,101 32,101 31,184 31,184
Income before income taxes............... 27,141 27,141 25,907 25,907 23,491 23,491
Income taxes............................. 7,838 7,838 8,313 8,313 8,173 8,173
Net income............................... 19,303 19,303 17,594 17,594 15,318 15,318
PER SHARE DATA
Net Income
Basic.................................. 1.72 1.71 1.55 1.54 1.32 1.31
Diluted................................ 1.70 1.69 1.55 1.54 1.32 1.31
Book value............................... 13.92 13.86 12.88 12.82 13.60 12.87
Cash dividends declared.................. 0.73 0.72 0.61 0.60 0.42 0.42
SUMMARY OF FINANCIAL CONDITION
Total assets............................. 1,386,329 1,386,329 1,251,290 1,251,290 1,159,681 1,159,681
Investment securities.................... 302,245 302,245 305,962 305,962 286,854 286,854
Loans, net............................... 956,752 956,752 840,457 840,457 769,283 769,283
Total deposits........................... 1,040,435 1,040,435 981,507 981,507 931,039 931,039
Shareholders' equity..................... 156,675 156,675 138,509 138,509 138,538 138,538
SELECTED FINANCIAL RATIOS
Net income to average assets............. 1.45 1.45 1.47 1.47 1.39 1.39
Net income to average equity............. 13.21 13.21 12.90 12.90 11.70 11.70
Dividend payout ratio.................... 0.35 0.35 0.35 0.35 0.28 0.28
Average equity to average assets......... 10.99 10.99 11.43 11.43 11.87 11.87
Weighted average shares (basic).......... 11,204,507 11,256,865 11,368,354 11,420,712 11,620,175 11,672,533
Weighted average shares (diluted)........ 11,358,002 11,410,360 11,368,354 11,420,712 11,620,175 11,672,533
End of period shares outstanding......... 11,252,306 11,304,664 10,755,485 10,807,843 10,714,449 10,766,807
NCBE only................................ 10,727,247 10,727,247 10,230,426 10,230,426 10,189,390 10,189,390
NCBE dividend declared................... 0.64 0.64 0.55 0.55 0.40 0.40
IOBI pro forma shares.................... 525,059 577,417 525,059 577,417 525,059 577,417
IOBI dividend on pro forma shares........ 0.09 0.08 0.06 0.05 0.02 0.02
Equivalent pro forma per IOBI share...... 141.58 155.70 121.67 133.80 88.49 97.31
</TABLE>
The number of shares of the NCBE Common to be issued for each share of IOBI
Common in the Merger will depend upon the Average Value of the NCBE Common.
Average Value is the average, weighted by daily trading volume, of the mean of
the reported high and low per share trading prices for 10 trading days on which
NCBE Common is traded ended 3 days prior to the Closing. The pro forma
information in the table is computed on both a Minimum basis (assuming that
525,059 shares are issued in the Merger) and a Maximum basis (assuming that
577,417 shares are issued in the Merger).
29
<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 IOBI Common. Management of IOBI is not aware of any transactions
involving IOBI Common which have occurred in the past two years.
<TABLE>
<CAPTION>
NCBE COMMON IOBI 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 N.A. N.A. 0.75
Second Quarter.................................... 25.17 26.76 0.141/2 N.A. N.A. 0.75
Third Quarter..................................... 25.17 26.42 0.151/2 N.A. N.A. 0.75
Fourth Quarter.................................... 25.40 28.57 0.15 N.A. N.A. 10.00
1997
First Quarter..................................... 27.86 32.26 0.151/4 N.A. N.A. 5.00
Second Quarter.................................... 30.24 40.24 0.151/4 N.A. N.A. 5.00
Third Quarter..................................... 38.57 41.67 0.151/4 N.A. N.A. 5.00
Fourth Quarter.................................... 40.00 51.19 0.18 N.A. N.A. 5.00
1998
First Quarter..................................... 38.50 45.50 0.18 N.A. N.A. 5.00
</TABLE>
On November 5, 1997, the last trading day before the public announcement of
the proposed acquisition, the closing sale price of NCBE Common, was $46.67 per
share, as adjusted for a 5% stock dividend paid in December 1997. Based upon the
per share price of NCBE Common on such date, the equivalent per share price of
IOBI Common would have been $10,323.45. The equivalent per share price for IOBI
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
IOBI Common in the Merger. The foregoing illustration was determined based upon
the assumption that each share of IOBI Common was converted into 221.22 shares
of NCBE Common which is the minimum number of shares of NCBE Common that may be
issued in the Merger. If the maximum number of shares of NCBE Common (243.28)
were issued on such date, the equivalent per share price of IOBI Common would
have been $11,353.88. The number of shares of NCBE Common issuable in the
Merger, as described elsewhere herein, is subject to adjustment. See "THE
MERGER--Conversion of IOBI Common".
On April 7, 1998, the closing sale price of NCBE Common was $41.50 per
share. Based on the per share price of NCBE Common on such date, the equivalent
per share price for IOBI Common was $9,590.24. The equivalent per share price
for IOBI Common is calculated by assuming that each share of IOBI Common was
converted into 231.09 shares of NCBE Common.
As of April 7, 1998, there were 2,512 and 68 holders of record of NCBE
Common and IOBI Common, respectively.
Both NCBE and IOBI 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 IOBI are advised to obtain current market quotations for
NCBE Common.
30
<PAGE>
INFORMATION CONCERNING NCBE
BUSINESS
NCBE was organized in 1985 as a bank holding company for The National City
Bank of Evansville ("NCB") which remains NCBE's principal banking subsidiary. As
of March 6, 1998, NCBE owned 12 commercial banks, including NCB, one savings
bank, a leasing subsidiary and a property management company. As of December 31,
1997, NCBE had total consolidated assets of $1.3 billion, total loans of $916.4
million, total deposits of $964.0 million and total shareholders' equity of
$146.8 million. NCBE's 13 financial institution subsidiaries serve 33
communities from 44 locations and provide a wide range of banking services in
the tri-state area of Indiana, Kentucky, and Illinois surrounding Evansville,
Indiana.
RECENT DEVELOPMENTS
The following is a brief description of the two 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 following is a brief description of two other pending acquisitions:
TRIGG COUNTY FARMERS BANK, INC. 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 December 31, 1997, TCFB had total assets of $96.4
million, net loans of $52.1 million, total deposits of $72.3 million and total
shareholders equity of $8.5 million. The acquisition is subject to the approval
of the shareholders of TBI, the Federal Reserve and the Kentucky Department of
Financial Institutions. The acquisition is expected to qualify for the pooling
of interests method of accounting. The parties expect to close the merger in the
second or 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 December 31, 1997, CFF
had total assets of $129.7 million, net loans of $101.9 million, total deposits
of $114.0 million and total shareholders' equity of $12.6 million. The
acquisition is subject to the approval of the shareholders of CFF, the Federal
Reserve and the Kentucky Department of Financial Institutions. The acquisition
is expected to qualify for the pooling of interests method of accounting. The
parties expect to close the merger in the second or third quarter of 1998.
31
<PAGE>
TRUST PREFERRED OFFERING
On March 30, 1998, NCBE and its affiliate, NCBE Capital Trust I (the
"Trust") completed a
$34.5 million public offering of the Trust's cumulative preferred trust
securities. The Trust used the proceeds of the public offering to purchase an
equivalent principal amount of subordinated debentures issued by NCBE. NCBE used
the net proceeds from the sale of its subordinated debentures to repay
indebtedness incurred in the acquisitions discussed above.
YEAR 2000 ISSUE
The year 2000 has posed a unique set of challenges to those 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.
In 1996, NCBE started the process of identifying the hardware and software
issues required to be addressed to assure year 2000 compliance. NCBE began by
assessing the issues related to the year 2000 and the potential for those issues
to adversely affect NCBE's own operations and those of its subsidiaries. Since
that time, NCBE has established a Year 2000 Compliance Team (the "Team")
composed of representatives from key areas throughout the organization. It is
the mission of this Team to identify areas subject to complications related to
the year 2000 and to initiate remedial measures designed to eliminate any
adverse effects on NCBE's operations. The Team has identified all
mission-critical software and hardware that may be adversely affected by the
year 2000 and has required vendors to represent that the systems and products
provided are or will be year 2000 compliant. Management of NCBE expects that all
mission critical software will be upgraded to achieve year 2000 compliance and
tested by December 31, 1998. In addition, the Team is developing contingency
plans to address systems which do not become year 2000 compliant by December 31,
1998.
NCBE is committed to a plan for achieving compliance, focusing not only on
its own data processing systems, but also on its customers. The Team has taken
steps to educate and assist its customers with identifying their year 2000
compliance problems. In addition, the Team has proposed policy and procedure
changes to help identify potential risks to NCBE and to gain an understanding of
how customers are managing the risks associated with the year 2000.
Management of NCBE 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 Comptroller of the Currency, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, and state banking
agencies. Following a recent examination, a rating of "needs improvement" was
received with regard to NCBE's year 2000 compliance efforts. If the examining
agency does not issue a more satisfactory rating, NCBE will not qualify for
expedited processing of regulatory applications seeking approval of future
acquisitions or such approvals may only be given subject to additional
conditions. While management expects to devote sufficient corporate resources to
address regulatory concerns in this area, there can be no assurance that Year
2000 compliance issues will not delay the consummation of the pending
acquisitions (other than this transaction, which was approved by the Federal
Reserve on March 12, 1998) or future acquisitions or otherwise adversely affect
NCBE's ability to continue to grow through acquisition.
32
<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 525,059 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
BENEFICIAL OWNERSHIP OWNERSHIP
PRIOR TO THE MERGER AFTER THE MERGER
--------------------- ----------------
NAME SHARES PERCENT SHARES PERCENT
- ------------------------------------------------------------ ----------- ------- ------- -------
<S> <C> <C> <C> <C>
Janice L. Beesley........................................... 60,678(1) * 60,678 *
Michael F. Elliott.......................................... 338,328(2) 3.13% 338,328 2.99%
Susanne R. Emge............................................. 24,479(3) * 24,479 *
Donald G. Harris............................................ 12,042 * 12,042 *
H. Ray Hoops................................................ 848 * 848 *
Robert A. Keil.............................................. 57,177(4) * 57,177 *
John D. Lippert............................................. 71,979(5) * 71,979 *
Ronald G. Reherman.......................................... 9,065(6) * 9,065 *
Curtis D. Ritterling........................................ 151(7) * 151 *
Laurence R. Steenberg....................................... 29,402(8) * 29,402 *
Richard F. Welp............................................. 3,686(9) * 3,686 *
All directors and executive officers as a group (12
persons).................................................. 607,868(10) 5.58% 607,868 5.32%
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes 56,268 shares with shared voting and investment power with spouse
and 4,410 shares that may be purchased pursuant to options exercisable
within 60 days.
(2) Includes 251,807 shares with sole voting and investment power; 16,793
shares with shared voting and investment power with spouse; 20,727 shares
with sole voting and investment power by spouse; 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 2,020 shares with sole voting and investment power; 14,829 shares
with shared voting and investment power with spouse; and 7,630 shares with
sole voting and investment power by spouse.
(4) Includes 11,424 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 3,386 shares with sole voting and investment power; and 5,679
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 1,492 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.
33
<PAGE>
INFORMATION CONCERNING IOBI
BUSINESS
IOBI was incorporated under the laws of the State of Illinois on December
16, 1980 to serve as a bank holding company for the Bank. The Bank is a national
banking association that commenced business in 1934. The business of IOBI
consists solely of the ownership, supervision and control of the Bank. The Bank
has a total of three banking offices, with an office in each of Shawneetown,
Elizabethtown and Golconda, Illinois. As of December 31, 1997, IOBI had, on a
consolidated basis, total assets of $88.1 million, loans, net of unearned
discount, of $48.9 million, total deposits of $76.4 million, and stockholders'
equity of $9.9 million, and employed 37 full-time employees and 2 part-time
employees.
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 vigorous 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.
IOBI is subject to supervision, regulation, and examination by the Federal
Reserve Board and the Bank is subject to supervision, regulation, and
examination by the Office of the Comptroller of the Currency. The deposits of
the Bank are insured by the Bank Insurance Fund (BIF) of the Federal Deposit
Insurance Corporation.
In the following pages, statistical information about IOBI is presented.
Such information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of IOBI included elsewhere herein.
34
<PAGE>
SELECTED FINANCIAL DATA OF IOBI
The selected consolidated data as of and for the two years ended June 30,
1997 and 1996 have been derived from financial statements audited by independent
public accountants, whose report can be found elsewhere in this Prospectus/Proxy
Statement. This data should be read in conjunction with IOBI's Consolidated
Financial Statements and the Notes thereto and "--Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX-MONTH PERIODS FISCAL YEAR
ENDED DECEMBER 31, ENDED JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(DOLLAR AMOUNTS OTHER THAN PER SHARE DATA IN
THOUSANDS)
Net interest income..................................... $ 1,755 $ 1,677 $ 3,347 $ 3,039
Provision for loan losses............................... 90 100 190 48
Noninterest income...................................... 243 202 406 435
Noninterest expense..................................... 1,180 1,049 2,221 2,148
Income before income taxes............................ 728 730 1,342 1,278
Income taxes............................................ 229 135 294 313
---------- ---------- ---------- ----------
Net income............................................ $ 499 $ 595 $ 1,048 $ 965
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Per Common Share
Basic Earnings.......................................... $ 210.10 $ 250.78 $ 441.59 $ 406.77
Book value.............................................. 4,159.31 3,713.97 3,941.49 3,435.90
Cash dividends declared................................. 9.71 10.75 21.04 5.02
Totals
Net loans............................................... $ 48,907 $ 47,415 $ 47,684 42,061
Allowance for loan losses............................... 542 437 506 407
Securities.............................................. 22,917 23,068 23,175 26,334
Total assets............................................ 88,069 79,201 81,370 77,101
Deposits................................................ 76,388 68,133 70,004 66,386
Stockholders' equity.................................... 9,872 8,815 9,355 8,155
Selected Financial Ratios
Net income to average assets............................ .59% .76% 1.32% 1.28%
Net income to average equity............................ 5.19% 7.01% 11.97% 12.57%
Cash dividend payout.................................... 4.62% 4.29% 4.76% 1.24%
Average equity to average assets........................ 11.35% 10.68% 11.05% 10.21%
Tangible equity to tangible assets...................... 10.02% 9.76% 10.21% 9.13%
Total capital to risk weighted assets................... 18.80% 17.80% 18.73% 20.79%
Other Data
Weighted average shares................................. 2,373.47 2,373.47 2,373.47 2,373.47
Risk weighted assets.................................... $ 48,305 $ 45,124 $ 45,635 $ 40,948
</TABLE>
35
<PAGE>
OTHER INFORMATION
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY, AND
INTEREST RATES. The following table shows the condensed average balance sheets
for the periods presented and the percentage of each principal category of
assets, liabilities, and stockholders' equity to total assets. 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.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------
1997 1996
------------------------------------------------ -----------------------------------
PERCENT OF INTEREST PERCENT OF INTEREST
AVERAGE TOTAL INCOME/ AVERAGE AVERAGE TOTAL INCOME/
BALANCE ASSETS EXPENSE YIELD/ RATE BALANCE ASSETS EXPENSE
--------- ----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Assets:
Interest-earning assets:
Loans(1).......................... $ 44,872 56.64% $ 4,287 9.55% $ 37,888 50.19% $ 3,665
Taxable investment securities..... 15,945 20.12 939 5.89 18,876 25.00 1,185
Nontaxable investment
securities(2)................... 8,810 11.12 695 7.89 9,287 12.30 750
Interest-bearing deposits in other
financial institutions.......... 50 0.06 2 4.00 100 0.13 5
Federal funds sold................ 3,375 4.26 188 5.57 3,378 4.47 175
--------- ----------- ----------- --- --------- ----------- -----------
Total interest-earning assets....... 73,052 92.20 6,111 8.37 69,529 92.09 5,780
Noninterest-earning assets:
Cash and due from banks........... 2,678 3.38 2,466 3.27
Premises and equipment, net....... 1,563 1.97 1,594 2.11
Other assets...................... 2,399 3.03 2,313 3.06
Allowance for loan losses......... (457) (0.58) (399) (0.53)
--------- ----------- --------- -----------
Total assets........................ $ 79,235 100.00% $ 75,503 100.00%
--------- ----------- --------- -----------
Liabilities and stockholders'
equity:
Interest-bearing liabilities:
NOW and money market demand
accounts........................ $ 18,322 23.12% $ 487 2.66% $ 18,323 24.27% $ 519
Savings............................. 10,961 13.83 335 3.06 11,123 14.73 358
Time deposits....................... 28,576 36.07 1,571 5.50 26,223 34.72 1,430
Notes payable....................... 1,585 2.00 135 8.52 2,029 2.69 179
--------- ----------- ----------- --- --------- ----------- -----------
Total interest-bearing
liabilities....................... 59,444 75.02 2,528 4.25 57,698 76.41 2,486
Noninterest-bearing liabilities:
Demand deposits................... 10,337 13.05 9,490 12.57
Other liabilities................. 699 0.88 639 0.85
--------- ----------- --------- -----------
Total liabilities................... 70,480 88.95 67,827 89.83
Stockholders' equity................ 8,755 11.05 7,676 10.17
--------- ----------- --------- -----------
Total liabilities and stockholders'
equity............................ 79,235 100.00% $ 75,503 100.00%
--------- ----------- --------- -----------
Net interest income................. $ 3,583 $ 3,294
----------- -----------
Interest rate spread................ 4.12%
---
Net interest rate margin............ 4.90%
---
Interest-bearing liabilities to
earning assets ratio.............. 81.37% 82.98%
--------- ---------
<CAPTION>
AVERAGE
YIELD/ RATE
-----------
<S> <C>
Assets:
Interest-earning assets:
Loans(1).......................... 9.67%
Taxable investment securities..... 6.28
Nontaxable investment
securities(2)................... 8.08
Interest-bearing deposits in other
financial institutions.......... 5.00
Federal funds sold................ 5.18
---
Total interest-earning assets....... 8.31
Noninterest-earning assets:
Cash and due from banks...........
Premises and equipment, net.......
Other assets......................
Allowance for loan losses.........
Total assets........................
Liabilities and stockholders'
equity:
Interest-bearing liabilities:
NOW and money market demand
accounts........................ 2.83%
Savings............................. 3.22
Time deposits....................... 5.45
Notes payable....................... 8.82
---
Total interest-bearing
liabilities....................... 4.31
Noninterest-bearing liabilities:
Demand deposits...................
Other liabilities.................
Total liabilities...................
Stockholders' equity................
Total liabilities and stockholders'
equity............................
Net interest income.................
Interest rate spread................ 4.00%
---
Net interest rate margin............ 4.74%
---
Interest-bearing liabilities to
earning assets ratio..............
</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 income presented on a fully tax-equivalent basis. The
tax effect resulted in an increase in interest income of $236,000 and
$255,000 for the years ended June 30, 1997 and 1996, respectively.
36
<PAGE>
INTEREST DIFFERENTIAL. The following table sets forth, on a tax-equivalent
basis for the periods presented, a summary of the changes in interest income and
expenses resulting from changes in yields/rates. The change in interest due to
both rate and volume has been allocated to rate and volume changes in proportion
to the relationship of the absolute dollar amounts of the changes in each.
<TABLE>
<CAPTION>
AMOUNT OF 1997 INCREASE (DECREASE)
COMPARED TO 1996 INCREASE
(DECREASE) DUE TO:
-----------------------------------
VOLUME(1) RATE(2) NET
----------- ----------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest earned on:
Loans.............................................................................. $ 668 (46) 622
Taxable investment securities(3)................................................... (176) (70) (246)
Nontaxable investment securities................................................... (38) (17) (55)
Interest-bearing deposits in other financial institutions.......................... (2) (1) (3)
Federal funds sold................................................................. -- 13 13
----- --- ---
Total interest-earning assets........................................................ 452 (121) 331
----- --- ---
Interest paid on:
NOW and money market demand accounts............................................... -- (32) (32)
Savings............................................................................ (5) (18) (23)
Time deposits...................................................................... 129 12 141
Notes payable...................................................................... (38) (6) (44)
----- --- ---
Total interest-bearing liabilities................................................... 86 (44) 42
Net interest income.................................................................. $ 366 (77) 289
----- --- ---
</TABLE>
- ------------------------
(1) Change in volume multiplied by yield/rate of prior period.
(2) Change in yield/rate multiplied by volume of prior period.
(3) Nontaxable investment securities are presented on a fully tax-equivalent
basis, assuming a tax rate of 34%.
INVESTMENT PORTFOLIO. The book value of investment securities is summarized
as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------
1997 1996
---------------------- ----------------------
PERCENT OF PERCENT OF
TOTAL TOTAL
AMOUNT SECURITIES AMOUNT SECURITIES
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
U.S. Treasury securities and securities of U.S. Government agencies... $ 8,156 35.2% $ 7,708 29.3%
Obligations of states and political subdivisions...................... 8,420 36.3 9,199 34.9
Mortgage-backed securities............................................ 6,261 27.0 9,093 34.5
Other................................................................. 338 1.5 334 1.3
--------- ----- --------- -----
Total................................................................. $ 23,175 100.0% $ 26,334 100.0%
--------- ----- --------- -----
</TABLE>
37
<PAGE>
The following table summarizes maturity and yield information on debt
securities at June 30, 1997:
<TABLE>
<CAPTION>
JUNE 30,
MATURING
---------------------------------------------------------------------------------
AFTER ONE THROUGH FIVE AFTER FIVE THROUGH TEN
IN ONE YEAR OR LESS YEARS YEARS TOTAL
---------------------- ---------------------- ---------------------- ---------
AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT
--------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
U.S. Treasury securities and securities of
U.S. Government agencies................. $ 1,976 4.97% $ 5,977 6.01% $ 203 6.90% $ 8,156
Obligations of states and political
subdivisions............................. 1,259 8.20 5,877 6.99 1,304 5.60 8,420
--------- --- --------- --- --------- --- ---------
Other(2)................................... -- -- -- -- -- -- --
--------- --- --------- --- --------- --- ---------
Total...................................... $ 3,235 6.21% 11,834 6.49% $ 1,507 5.77% $ 16,576
--------- --- --------- --- --------- --- ---------
</TABLE>
- ------------------------
(1) Nontaxable investment income presented on a full tax-equivalent basis,
assuming a tax rate of 34%.
(2) Equity securities of $237,800 in Federal Home Loan Bank stock and $100,800
in Federal Reserve Bank stock are not included in this table, as these
securities have no stated maturity.
LOAN PORTFOLIO. The composition of the loan portfolio is summarized as
follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------
1997 1996
---------------------- ----------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Commercial and agricultural......................................... $ 26,656 55.9 $ 21,301 50.6%
Real estate mortgage................................................ 14,563 30.5 13,897 33.0
Installment......................................................... 5,912 12.4 6,312 15.0
Municipal........................................................... 573 1.2 586 1.4
Other............................................................... 13 -- -- --
--------- ----- --------- -----------
Total............................................................... $ 47,717 100.0% $ 42,096 100.00%
--------- ----- --------- -----------
</TABLE>
38
<PAGE>
The following table sets forth the maturities and sensitivities composition
of total loans at June 30, 1997 and summarizes maturity information for the loan
portfolio at June 30, 1997:
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------------------------
AFTER ONE
IN ONE YEAR THROUGH AFTER FIVE
OR LESS FIVE YEARS YEARS TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Fixed Rate Loans:
Commercial and agricultural (including municipal).................. $ 2,073 3,917 -- 5,990
Real estate mortgage............................................... 9,383 5,069 -- 14,452
Installment........................................................ 1,238 1,028 -- 2,266
Other.............................................................. 13 -- -- 13
----------- ----------- ----------- ---------
Total.............................................................. 12,707 10,014 -- 22,721
----------- ----------- ----------- ---------
Variable Rate Loans:
Commercial and agricultural (including municipal).................. $ 21,080 159 -- 21,239
Real estate mortgage............................................... 111 -- -- 111
Installment........................................................ 3,128 518 -- 3,646
Other.............................................................. -- -- -- --
----------- ----------- ----------- ---------
Total.............................................................. 24,319 677 -- 24,996
----------- ----------- ----------- ---------
Total Loans:
Commercial and agricultural (including municipal).................. 23,153 4,076 -- 27,229
Real estate mortgage............................................... 9,494 5,069 -- 14,563
Installment........................................................ 4,366 1,546 -- 5,912
Other.............................................................. 13 -- -- 13
----------- ----------- ----------- ---------
Total.............................................................. $ 37,026 10,691 -- 47,717
----------- ----------- ----------- ---------
</TABLE>
RISK ELEMENTS INVOLVED IN LENDING ACTIVITIES. The following table details
the nonperforming asset information for the periods presented:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, --------------------
1997 1997 1996
--------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans................................................................ $ 504 142 251
Loans past due 90 days or more.................................................. 205 454 83
----- --- ---
Total nonperforming loans....................................................... 709 596 334
Foreclosed property............................................................. 114 155 25
----- --- ---
Total nonperforming assets...................................................... 823 751 359
----- --- ---
Nonperforming loans to loans.................................................... 1.45% 1.25% 0.79%
----- --- ---
Nonperforming assets to loans plus foreclosed property.......................... 1.68% 1.57% 0.85%
----- --- ---
Nonperforming assets to total assets............................................ 0.93% 0.92% 0.47%
----- --- ---
</TABLE>
It is generally the policy of IOBI 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 $38,000 and $35,000 for the years ended June 30, 1997 and 1996, respectively.
The Company did not receive or recognize interest income on nonaccrual loans for
the years ended June 30, 1997 and 1996.
39
<PAGE>
POTENTIAL PROBLEM LOANS. Certain loans may require frequent management
attention and are reviewed on a monthly or more frequent basis. Although
payments on these loans are less than 90 days past due or in many cases are
current, the borrowers have or have had a history of financial difficulties and
management has concern as to the borrower's ability to comply with present loan
repayment terms. As such, these loans may result in classification at some
future point as nonperforming. At December 31, 1997 and June 30, 1997, such
loans (excluding all nonperforming loans described above) amounted to $3,001,000
and $2,916,000, respectively.
FOREIGN LOANS OUTSTANDING. IOBI had no loans to any foreign countries on
any of the dates specified in the tables.
LOAN CONCENTRATIONS. 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 $12,694,000 at June 30, 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.
SUMMARY OF LOAN LOSS EXPERIENCE. The following table summarizes changes in
the allowance for loan loss arising from loans charged off and recoveries on
loans previously charged off, by loan category and additions to the allowance
that have been charged to expense.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED JUNE 30,
ENDED
DECEMBER 31, --------------------
1997 1997 1996
--------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period................................................ $ 506 407 390
Loans charged off:
Commercial and agricultural (including municipal)........................... 26 44 32
Real estate mortgage........................................................ 5 12 4
Installment and other....................................................... 38 75 37
----- --------- ---------
Total charge-offs............................................................. 69 131 73
----- --------- ---------
Recoveries of loans previously charged off:
Commercial and agricultural (including municipal)........................... 1 5 4
Installment and other....................................................... 14 35 38
----- --------- ---------
Total recoveries.............................................................. 15 40 42
----- --------- ---------
Net charge-offs............................................................... 54 91 31
----- --------- ---------
Additions to allowance charged to expense..................................... 90 190 48
----- --------- ---------
Balance at end of period...................................................... $ 542 506 407
----- --------- ---------
Net charge-offs to average loans (annualized for December 31, 1997)........... 0.22% 0.20 0.08
----- --------- ---------
Allowance for loan losses to loans............................................ 1.11% 1.06 0.97
----- --------- ---------
Allowance for loan losses to nonperforming loans.............................. 76.45% 84.90 121.86
----- --------- ---------
</TABLE>
The level of the allowance for loan losses is reviewed quarterly by the
board of directors and management utilizing two methods of analysis. The first
method assigns specific allocation percentages based on the loans' risk ratings
and includes unused loan commitments. These specific allocation percentages are
reviewed annually by the board of directors and management. The second method
utilizes a loss history for each type of loan category while estimating the
potential loss exposure.
40
<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, IOBI's management has estimated those portions of the
allowance that could be attributable to major categories of loans as detailed in
the following table:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
ALLOWANCE TOTAL LOANS ALLOWANCE TOTAL LOANS
----------- --------------- ----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and agricultural
(including municipal)....................................... $ 306 60.5% $ 237 58.2%
Real estate mortgage.......................................... 14 2.8 19 4.7
Installment................................................... 89 17.6 94 23.1
Unallocated................................................... 97 19.1 57 14.0
----- ----- ----- -----
Total......................................................... $ 506 100.0% $ 407 100.0%
----- ----- ----- -----
----- ----- ----- -----
</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 June 30, 1997
and 1996:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------
1997 1996
------------------------ ------------------------
AVERAGE INTEREST AVERAGE INTEREST
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- -------- ---- ------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits............... $10,337 -- -- % $ 9,490 -- -- %
NOW and money market demand accounts.............. 18,322 $ 487 2.66 18,323 $ 519 2.83
Savings........................................... 10,961 335 3.06 11,123 358 3.22
Time deposits..................................... 28,576 1,571 5.50 26,223 1,430 5.45
------- -------- ---- ------- -------- ----
Total............................................. $68,196 $ 2,393 3.51% $65,159 $ 2,307 3.56%
------- -------- ---- ------- -------- ----
------- -------- ---- ------- -------- ----
</TABLE>
The following table shows the maturity of time deposits of $100,000 or more
at June 30, 1997:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Three months or less........................................................................ $ 2,091
Over three through six months............................................................... 1,295
Over six through 12 months.................................................................. 915
Over 12 months.............................................................................. 1,478
------
$ 5,779
------
------
</TABLE>
RETURN OF EQUITY AND ASSETS. The following ratios are among those commonly
used in analyzing the performance of banks and bank holding companies.
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Return on average assets........................................................................ 1.32% 1.28%
Return on average equity........................................................................ 11.97 12.57
--------- ---------
</TABLE>
41
<PAGE>
PROPERTIES. Both IOBI's and the Bank's principal offices are located at
Posey Avenue and North Lincoln Boulevard West in Shawneetown, Illinois, 62984.
The Bank also operates two branch facilities: one of which is located on Main
Street in Galconda, Illinois, 62938; and the other, located at the intersection
of First Street and Main Street in Elizabethtown, Illinois, 62931.
LEGAL PROCEEDINGS. During the normal course of business, various legal
claims have arisen which, in the opinion of the management of IOBI, will not
result in any material liability to IOBI.
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 IOBI for the six months ended December 31, 1997 and the two-year
period ended June 30, 1997. It provides a more comprehensive review of factors
not otherwise apparent from the consolidated financial statements of IOBI 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.
NET INCOME ANALYSIS. IOBI's net income for the year ended June 30, 1997 was
$1,048,000, compared to $965,000 for the year ended June 30, 1996. The increase
in net income was due primarily to an increase in interest income, offset by an
increase in provision for loan loss expense.
For the six months ended December 31, 1997 and 1996, net income was $499,000
and $595,000, respectively. The decrease was due primarily to an increase in
noninterest expense, offset by an increase 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. IOBI's net interest income increased
approximately 9% to $3,583,000 on a tax-equivalent basis for the year ended June
30, 1997. The net interest margin, which is calculated by dividing
tax-equivalent net interest income by average interest-earning assets, was 4.90%
in 1997, compared to 4.74% in 1996. IOBI's yield on interest-earning assets
increased to 8.37% in 1997 from 8.31% in 1996, while the cost of funds decreased
to 4.25% in 1997 from 4.31% in 1996. The increase in net interest margin was
attributable to strong growth in the loan portfolio during the year ended June
30, 1997.
During the year ended June 30, 1997, increases in the average volume of
loans resulted in an increase in interest income of $668,000. This increase was
partially offset by a $214,000 decrease in interest income due to decreases in
the average volume of taxable and nontaxable investment securities. Changes in
interest rates on the average volume of taxable and nontaxable investment
securities and loans decreased interest income by $133,000. Increases in the
average volume of time deposits resulted in an increase in interest expense of
$129,000, which was partially offset by a decrease due to changes in the average
volume of savings and notes payable. Changes in interest rates on the average
volume of NOW, money markets, and notes payable decreased interest expense by
$56,000. The net effect of the volume and rate changes associated with all
categories of interest-earning assets during the year ended June 30, 1997 as
compared to the year ended June 30, 1996 increased interest income by $331,000,
while the net effect of the volume and rate changes associated with all
categories of interest-bearing liabilities increased interest expense by
$42,000.
Net interest income on a tax-equivalent basis was $2,072,000 for the
six-month period ended December 31, 1997, a 4.7% increase from the same period
of 1996. Interest income increased $170,000 for the six-month period ended
December 31, 1997 and interest expense increased $93,000. The increase was
primarily attributable to continued strong growth in the loan portfolio.
PROVISION FOR LOAN LOSSES. The provision for loan losses charged to expense
was $190,000 for the year ended June 30, 1997, compared to $48,000 for the year
ended June 30, 1996. The increase in provision
42
<PAGE>
expense is a result of management's intention to increase the allowance for loan
losses to a sufficient level based on the growth in the loan portfolio.
The provision for loan losses was $90,000 for the six months ended December
31, 1997, compared to $100,000 for the same period in 1996.
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 IOBI to increase the allowance for
loan losses based on their judgments and interpretations about information
available to them at the time of their examinations.
The ratio of nonperforming loans to loans for 1997 and 1996 has remained at
a relatively low level as a result of aggressive account collections and the
effectiveness of management in working with the problem credits coupled with
acquisitions of foreclosed real estate.
NONINTEREST INCOME. IOBI's noninterest income was $406,000 for the year
ended June 30, 1997, as compared to $435,000 for the year ended June 30, 1996.
The decrease in this income level is due primarily to a reduction of the amount
of gains and losses recorded on the sale of investment securities.
Noninterest income for the six months ended December 31, 1997 was $243,000,
a 20.3% increase from the six months ended December 31, 1996. The increase was
due primarily to increases in service charges on deposits as a result of changes
in the service charge structure and other miscellaneous income.
NONINTEREST EXPENSE. Noninterest expense increased 3% to $2,221,000 for the
year ended June 30, 1997 as compared to the year ended June 30, 1996. This
increase is the result of increases in professional fees, and postage, printing,
and supplies expense. The increase is offset by a decrease in other
miscellaneous expenses.
Noninterest expense for the six months ended December 31, 1997 was
$1,180,000, compared to $1,049,000 for the same period in 1996. The increase was
primarily the result of increases in professional fees due to the merger and
other miscellaneous expenses.
INCOME TAXES. IOBI recorded income tax expense of $294,000 for the year
ended June 30, 1997 and $313,000 for the year ended June 30, 1996. The effective
income tax rates were 21.8% and 24.5% for the years ended June 30, 1997 and
1996, respectively.
Income tax expense of $229,000 and $135,000 was recorded for the six months
ended December 31, 1997 and 1996, respectively.
LIQUIDITY AND INTEREST RATE SENSITIVITY. Liquidity is provided to IOBI
through earning assets, including short-term investments in federal funds sold,
and through maturities in the investment and loan portfolios. In addition,
liquidity is provided by borrowed funds.
The asset/liability management process, which involves management of the
components of the balance sheet to allow assets and liabilities to reprice at
approximately the same time, is a dynamic process essential to minimizing the
effect of interest rate fluctuations on net interest income. The following
tables reflect
43
<PAGE>
IOBI's GAP analysis (rate-sensitive assets minus rate-sensitive liabilities) as
of December 31, 1997 and June 30, 1997, respectively:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------------
OVER OVER
3 MONTHS 1 YEAR
3 MONTHS THROUGH THROUGH OVER
OR LESS 12 MONTHS 5 YEARS 5 YEARS TOTAL
----------- ----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets:
Investments in debt and equity securities................... $ 1,731 3,464 17,384 338 22,917
Loans....................................................... 32,466 7,432 9,060 -- 48,958
Federal funds sold.......................................... 9,547 -- -- -- 9,547
----------- ----------- ----------- --------- ---------
Total interest-sensitive assets............................... 43,744 10,896 26,444 338 81,422
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
Liabilities:
NOW and money market demand accounts(1)..................... 4,487 5,577 8,762 -- 18,826
Savings(1).................................................. 501 5,983 6,761 -- 13,245
Time deposits(1)............................................ 7,771 14,694 6,900 -- 29,365
Notes payable............................................... -- -- 1,016 -- 1,016
----------- ----------- ----------- --------- ---------
Total interest-sensitive liabilities.......................... 12,759 26,254 23,439 -- 62,452
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
Interest-sensitivity gap at December 31, 1997:
Incremental................................................. $ 30,985 (15,358) 3,005 338 18,970
----------- ----------- ----------- --------- ---------
Cumulative.................................................. $ 30,985 15,627 18,632 18,970
----------- ----------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------------------------
OVER OVER
3 MONTHS 1 YEAR
3 MONTHS THROUGH THROUGH OVER
OR LESS 12 MONTHS 5 YEARS 5 YEARS TOTAL
----------- ----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets:
Investments in debt and equity securities................... $ 2,510 4,088 16,239 338 23,175
Loans....................................................... 29,492 7,534 10,691 -- 47,717
Federal funds sold.......................................... 4,342 -- -- -- 4,342
----------- ----------- ----------- --------- ---------
Total interest-sensitive assets............................... 36,344 11,622 26,930 338 75,234
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
Liabilities:
NOW and money market demand accounts(1)..................... 4,348 5,505 8,131 -- 17,984
Savings(1).................................................. 510 3,657 6,700 -- 10,867
Time deposits(1)............................................ 16,139 7,278 6,676 -- 30,093
Notes payable............................................... -- -- 1,266 -- 1,266
----------- ----------- ----------- --------- ---------
Total interest-sensitive liabilities.......................... 20,997 16,440 22,773 -- 60,210
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
Interest-sensitivity gap at June 30, 1997:
Incremental................................................. $ 15,347 (4,818) 4,157 338 15,024
----------- ----------- ----------- --------- ---------
Cumulative.................................................. $ 15,347 10,529 14,686 15,024
----------- ----------- ----------- ---------
</TABLE>
- ------------------------
(1) IOBI's experience with NOW, money market demand accounts, and savings has
been that, although these deposits are subject to immediate withdrawal or
repricing, a portion of these balances have remained relatively constant in
periods of both rising and falling rates. Therefore, a portion of these
deposits is included in the "Over 1 year through 5 years" category. Time
deposits have been categorized based on contractual maturity dates.
44
<PAGE>
As indicated in the preceding tables, IOBI was asset sensitive on a
cumulative basis in the near term (three months or less) at December 31, 1997
and June 30, 1997, based on contractual maturities and earliest repricing dates.
In this regard, an increase in the general level of interest rates would
generally have a positive effect on IOBI's net interest income, as the repricing
of the larger volume of interest-sensitive assets would create a larger amount
of interest income than the additional amount of interest expense created by the
repricing of the smaller volume of interest-sensitive liabilities.
The following table summarizes certain trends in IOBI's consolidated balance
sheet during the two-year period:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Total assets................................................................... $ 81,370 77,101
Earning assets................................................................. $ 75,234 70,904
Deposits....................................................................... $ 70,004 66,386
Loans to deposits (net loans).................................................. 68.12% 63.36
Loans to total assets (net loans).............................................. 58.60% 54.55
Debt and equity securities to total assets..................................... 28.48% 34.16
</TABLE>
The composition of total assets and earning assets changed during 1997 as
maturities of investment securities were utilized to fund loan growth. IOBI's
earning assets increased $4,297,000 from 1996 to 1997. Investment securities
were $23,175,000 at June 30, 1997 as compared to $26,334,000 at June 30, 1996.
Loans, net of unearned discount, were $47,684,000 at June 30, 1997, compared to
$42,061,000 at June 30, 1996. Deposits increased $3,618,000 from June 30, 1996
to June 30, 1997.
CAPITAL ADEQUACY. IOBI's equity capital was $9,872,000, $9,355,000, and
$8,155,000 at December 31, 1997 and June 30, 1997 and 1996, respectively. From
June 30, 1997 to December 31, 1997, equity capital increased $517,000 as a
result of net income of $499,000 and a net unrealized gain on securities
available-for-sale of $41,000, offset by cash dividends of $23,000. From June
30, 1996 to June 30, 1997, equity capital increased $1,200,000 as a result of
net income of $1,048,000 and a net unrealized gain on securities
available-for-sale of $202,000, offset by cash dividends of $50,000.
Risk-based capital guidelines for financial institutions were adopted by
regulatory authorities and were effective January 1, 1991. These guidelines were
designed to relate regulatory capital requirements to the risk profile of the
specific institutions, and to provide for uniform requirements among the various
regulators. Currently, the risk-based capital guidelines require the Bank to
meet a minimum total capital ratio of 8.0%, of which at least 4.0% must consist
of Tier I capital. Tier I capital generally consists of (a) common shareholders'
equity, (b) qualifying perpetual preferred stock and related surplus subject to
certain limitations specified by the FDIC, and (c) minority interests in the
equity accounts of consolidated subsidiaries less goodwill and any other
intangible assets and investments in subsidiaries that the FDIC determines
should be deducted from Tier I capital. The FDIC also requires a minimum
leverage ratio of 3.0%, defined as the ratio of Tier I capital less purchased
mortgage servicing rights to total assets, for banking organizations deemed the
strongest and most highly rated by banking regulators. A higher minimum leverage
ratio is required of less highly rated banking organizations.
The following tables summarize the Bank's risk-based capital and leverage
ratios:
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIOS
- ----------------------------------------------------------------------------------------------------------
TOTAL TIER 1 LEVERAGE RATIOS
- ---------------------------------- ---------------------------------- ----------------------------------
JUNE 30, JUNE 30, JUNE 30,
DECEMBER 31, -------------------- DECEMBER 31, -------------------- DECEMBER 31, --------------------
1997 1997 1996 1997 1997 1996 1997 1997 1996
- ------------ --------- --------- ------------ --------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
20.84% 21.50% 22.79% 19.71% 20.39% 21.80% 11.27% 11.73% 11.80%
</TABLE>
45
<PAGE>
RISK MANAGEMENT. IOBI'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 IOBI's management
of these risks.
MARKET RISK MANAGEMENT. IOBI'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 IOBI 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 June 30,
1997 totaled $26,656,000, or 55.9%, of the loan portfolio, while real estate
loans totaled $14,563,000, or 30.5%, of the loan portfolio; and installment,
municipal, and other loans totaled $6,498,000, or 13.6%, of the loan portfolio.
The commercial and agricultural loan portfolio, which includes loans made
primarily to businesses located in southern Illinois and served by IOBI, is
generally secured by business assets such as farm equipment, crops, inventory,
accounts receivable, and equipment. At June 30, 1997, the total investment
portfolio was $23,175,000. Approximately 35.2% of the portfolio is comprised of
U.S. Government issues, approximately 36.3% is comprised of State and Municipal
Bonds, and the remaining portion is comprised of mortgage-backed securities and
other securities.
CREDIT RISK MANAGEMENT. The risks IOBI's management assumes in providing
credit products to customers are fundamental to its business operation. 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 IOBI'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 1.45% of total loans at December 31, 1997,
compared to 1.25% and 0.79% at June 30, 1997 and 1996, respectively. Other real
estate owned by IOBI totaled $114,000 at December 31, 1997, and $155,000 and
$25,000 at June 30, 1997 and 1996, respectively.
LIQUIDITY RISK MANAGEMENT. Liquidity is a measurement of IOBI's ability to
meet the borrowing needs and the deposit withdrawal requirements of its
customers. IOBI 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.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS. Statement of Financial Accounting
Standards (SFAS) 125 established accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of liabilities.
The standards established by SFAS 125 are based on consistent applications of a
"financial components" approach that focuses on control. Under such approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities that it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS 125 provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996 and is to be applied prospectively. Earlier or retroactive
application is not permitted. The adoption of SFAS 125 did not have a material
effect on the consolidated financial position or results of operations.
EFFECT OF INFLATION. Persistent high rates of inflation can have a
significant effect on the reported financial condition and results of operations
of all industries. However, the asset and liability structure of commercial
banks is substantially different from that of an industrial company in that
virtually all assets and liabilities of commercial banks are monetary in nature.
Accordingly, changes in interest rates may have a significant impact on a
commercial bank's performance. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services.
Inflation does have an impact on the growth of total assets in the banking
industry, often resulting in a need to increase equity capital at higher than
normal rates to maintain an appropriate equity-to-assets ratio.
46
<PAGE>
DESCRIPTION OF NCBE CAPITAL STOCK
AUTHORIZED SHARES
NCBE's Articles of Incorporation presently authorize the issuance of
20,000,000 shares of common stock, $1.00 stated value per share. As of February
28, 1998, there were 10,745,060 shares of NCBE Common issued and outstanding.
DIVIDENDS, VOTING, LIQUIDATION AND OTHER RIGHTS
Holders of NCBE's Common are entitled to receive dividends when, as and if
declared by NCBE's Board of Directors out of funds legally available therefor.
The ability of the financial institution subsidiaries of NCBE to pay cash
dividends, which are expected to be NCBE's principal source of income, is
restricted by applicable banking laws and regulations. Such dividends have
previously been NCBE's principal source of income.
Holders of NCBE Common are entitled to one vote per share on all matters to
be voted upon by the shareholders other than the election of directors. NCBE
shareholders are entitled to cumulative voting on election of directors.
Cumulative voting permits a shareholder to cast a number of votes equal to the
number of shares owned multiplied by the number of directors to be elected. Such
votes may be cast for one nominee or spread among designated nominees.
In the event of liquidation, dissolution or winding up of NCBE, whether
voluntary or involuntary, the holders of NCBE Common would be entitled to share
ratably in any of its assets or funds that are available for distribution to its
shareholders after the satisfaction of its liabilities (or after adequate
provision is made therefor).
Holders of shares of NCBE Common do not have the preemptive right to
subscribe on a pro-rata basis for any presently or subsequently authorized
shares of NCBE Common.
The shares of NCBE Common presently outstanding are, and the shares of NCBE
Common to be issued pursuant to the Merger will be, when issued and delivered
pursuant to the Merger Agreement and as described herein, duly authorized,
validly issued, fully paid and non-assessable.
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; 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 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
47
<PAGE>
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 THE INDIANA 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
The National City Bank of Evansville, Evansville, Indiana 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 IOBI Common are governed by the Illinois Law and by IOBI's Articles
of Incorporation and By-laws. The rights of holders of shares of IOBI 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 IOBI 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.
IOBI. IOBI does not have a classified Board of Directors. The By-laws of
IOBI provide for a Board of Directors of eleven members, with each member
serving 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 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
48
<PAGE>
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 other business combination transaction with another corporation
that is not approved by a majority of the members of NCBE's Board of Directors.
IOBI. 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. IOBI'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.
IOBI. Although there are corresponding provisions under the Illinois Law
regarding business combinations with an "interested shareholder", such
provisions do not apply to IOBI because IOBI 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. In addition, unless the
articles of incorporation provide otherwise, the shareholders or directors may
remove one or more directors with or without cause. A director may be removed by
the shareholders, if they are otherwise authorized to do so, only at a meeting
called for that purpose, and such purpose must be stated in the notice of the
meeting. A director elected by a voting
49
<PAGE>
group of shareholders may be removed only by that voting group. NCBE's Articles
of Incorporation do not contain any provisions changing the statutory provisions
relating to the removal of directors.
IOBI. 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.
IOBI. 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. IOBI's Articles of
Incorporation do not contain a greater or lesser vote requirement.
VOTING RIGHTS
NCBE. On all matters other than the election of directors, NCBE
shareholders are entitled to cast one vote per share of NCBE Common. NCBE
shareholders are entitled to cumulative voting on election of directors.
Cumulative voting permits a shareholder to cast a number of votes equal to the
number of shares owned multiplied by the number of directors to be elected. Such
votes may be cast for one nominee or spread among designated nominees.
IOBI. Holders of shares of IOBI Common are entitled to one vote per share
on all matters to be voted upon by the 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 By-laws provide that a special meeting
of shareholders must be held upon the request of the Chairman of the Board, the
President, a majority of the Board of Directors or the holders of 25% or more of
the outstanding shares of voting stock.
IOBI. IOBI'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 Board
of Directors, the President or the holders of 20% or more of all the outstanding
shares.
50
<PAGE>
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.
IOBI. 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 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. IOBI'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.
IOBI. 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 IOBI 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
51
<PAGE>
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.
IOBI. 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. 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 generally
provide for the indemnification of NCBE's directors, officers, employees and
agents to the extent permitted by the Indiana Law.
IOBI. 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
52
<PAGE>
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 IOBI
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
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.
IOBI. 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 IOBI 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.
IOBI. 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
53
<PAGE>
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.
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 IOBI in connection with the Merger will be passed
upon Howard & Howard, Peoria, 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 IOBI as of June 30, 1997 and each
of the years in the two-year period ended June 30, 1997, included in this
Prospectus/Proxy Statement have been audited by KPMG Peat Marwick LLP,
independent auditors, as set forth in a 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.
54
<PAGE>
INDEX TO IOBI FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 (unaudited) and June 30, 1997.......................... F-3
Consolidated Statements of Income for the six-month periods ended December 31, 1997 and 1996 (unaudited)
and years ended June 30, 1997 and 1996................................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the six-month period ended December 31, 1997
(unaudited) and years ended June 30, 1997 and 1996....................................................... F-5
Consolidated Statements of Cash Flows for the six-month periods ended December 31, 1997 and 1996
(unaudited) and years ended June 30, 1997 and 1996....................................................... F-6
Notes to Consolidated Financial Statements June 30, 1997................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Illinois One Bancorp, Inc.,
Shawneetown, Illinois:
We have audited the accompanying consolidated balance sheet of Illinois One
Bancorp, Inc. and subsidiary as of June 30, 1997 and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
two years ended June 30, 1997. These consolidated 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Illinois One Bancorp, Inc. and
subsidiary at June 30, 1997, and the results of their operations and their cash
flows for the two years ended June 30, 1997 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
January 7, 1998
F-2
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND JUNE 30, 1997
<TABLE>
<S> <C> <C>
DECEMBER 31, JUNE 30,
1997 1997
-------------- -------------
(UNAUDITED)
ASSETS
Cash and due from banks (note 2).......................................................... $ 3,157,018 2,610,812
Federal funds sold........................................................................ 9,547,018 4,341,996
-------------- -------------
Cash and cash equivalents................................................................. 12,704,036 6,952,808
-------------- -------------
Debt and equity securities available-for-sale, at estimated market value (note 3)......... 22,916,785 23,175,305
Loans (note 4)............................................................................ 48,957,820 47,716,625
Less:
Unearned discount..................................................................... 50,533 32,773
Allowance for loan losses............................................................. 542,101 505,853
-------------- -------------
Loans, net................................................................................ 48,365,186 47,177,999
-------------- -------------
Premises and equipment, net (note 5)...................................................... 1,490,709 1,556,875
Accrued interest receivable............................................................... 1,248,265 1,059,411
Excess of cost over fair value of net assets acquired..................................... 1,162,454 1,183,466
Other assets (note 7)..................................................................... 181,864 264,397
-------------- -------------
$ 88,069,299 81,370,261
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits.............................................................. 14,951,956 11,060,084
Interest-bearing deposits (note 6)........................................................ 61,436,498 58,944,164
-------------- -------------
Total deposits............................................................................ 76,388,454 70,004,248
Accrued interest payable.................................................................. 381,975 362,566
Notes payable (note 8).................................................................... 1,016,307 1,266,307
Other liabilities......................................................................... 410,099 381,863
-------------- -------------
Total liabilities......................................................................... 78,196,835 72,014,984
-------------- -------------
Commitments and contingent liabilities (note 10)
Stockholders' equity (note 2):
Common stock, no par, 12,500 shares authorized, 2,789 shares issued, and 2,373.47 shares
outstanding........................................................................... 2,462,852 2,462,852
Retained earnings....................................................................... 8,139,487 7,663,870
Treasury stock (415.53 shares at cost).................................................. (899,992) (899,992)
Net unrealized gain on securities available-for-sale.................................... 170,117 128,547
-------------- -------------
Total stockholders' equity................................................................ 9,872,464 9,355,277
-------------- -------------
Total liabilities and stockholders' equity................................................ $ 88,069,299 81,370,261
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
SIX-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
AND YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans............................. $ 2,288,683 2,124,590 4,286,944 3,665,428
Interest on interest-bearing deposits in other
financial institutions............................... -- 2,084 2,084 5,191
Interest and dividends on debt and equity securities:
Taxable.............................................. 438,032 493,471 939,332 1,184,663
Exempt from federal income tax....................... 209,380 40,532 458,837 494,850
Interest on federal funds sold......................... 167,495 73,057 187,549 175,141
------------ ------------ ------------ ------------
Total interest income.................................... 3,103,590 2,933,734 5,874,746 5,525,273
Interest expense:
Interest on deposits (note 6).......................... 1,295,425 1,181,698 2,392,564 2,307,082
Interest on notes payable (note 8)..................... 53,142 74,714 135,002 178,721
Interest on federal funds purchased.................... -- -- -- 190
------------ ------------ ------------ ------------
Total interest expense................................... 1,348,567 1,256,412 2,527,566 2,485,993
------------ ------------ ------------ ------------
Net interest income...................................... 1,755,023 1,677,322 3,347,180 3,039,280
Provision for loan losses (note 4)....................... 90,000 100,000 190,000 48,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses...... 1,665,023 1,577,322 3,157,180 2,991,280
------------ ------------ ------------ ------------
Noninterest income:
Service charges on deposits............................ 174,911 154,239 305,544 318,533
Gain (loss) on sale of debt and equity securities, net
(note 3)............................................. 705 (1,313) (820) 20,477
Other income........................................... 67,054 49,168 100,932 96,160
------------ ------------ ------------ ------------
Total noninterest income................................. 242,670 202,094 405,656 435,170
------------ ------------ ------------ ------------
Noninterest expense:
Salaries............................................... 416,462 374,404 783,271 803,860
Employee benefits (note 9)............................. 97,466 130,214 292,040 241,965
Occupancy and equipment expense (note 5)............... 181,772 182,498 359,164 368,922
Professional fees...................................... 144,150 77,149 174,099 136,841
FDIC and other insurance............................... 37,947 33,941 71,229 61,140
Postage, printing, and supplies........................ 70,567 60,788 133,683 119,921
Director and committee fees............................ 76,452 71,755 143,383 136,637
Other expenses......................................... 155,359 118,323 264,294 278,345
------------ ------------ ------------ ------------
Total noninterest expense................................ 1,180,175 1,049,072 2,221,163 2,147,631
------------ ------------ ------------ ------------
Income before income tax expense......................... 727,518 730,344 1,341,673 1,278,819
Income tax expense (note 7).............................. 228,856 135,123 293,561 313,372
------------ ------------ ------------ ------------
Net income............................................... $ 498,662 595,221 1,048,112 965,447
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic earnings per share................................. $ 210.10 250.78 441.59 406.77
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX-MONTH PERIOD ENDED DECEMBER 31, 1997
AND YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN (LOSS)
ON
SECURITIES TOTAL
COMMON RETAINED TREASURY AVAILABLE- STOCKHOLDERS'
STOCK EARNINGS STOCK FOR-SALE EQUITY
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995 (unaudited).......... $ 2,462,852 5,712,166 (899,992) (77,543) 7,197,483
Net income.................................. -- 965,447 -- -- 965,447
Cash dividends.............................. -- (11,925) -- -- (11,925)
Change in unrealized gain (loss) on
securities available-for-sale............. -- -- -- 4,018 4,018
------------ ------------ ----------- ------------ ------------
Balance, June 30, 1996...................... 2,462,852 6,665,688 (899,992) (73,525) 8,155,023
Net income.................................. -- 1,048,112 -- -- 1,048,112
Cash dividends.............................. -- (49,930) -- -- (49,930)
Change in unrealized gain (loss) on
securities available-for-sale............. -- -- -- 202,072 202,072
------------ ------------ ----------- ------------ ------------
Balance, June 30, 1997...................... 2,462,852 7,663,870 (899,992) 128,547 9,355,277
Net income (unaudited)...................... -- 498,662 -- -- 498,662
Cash dividends (unaudited).................. -- (23,045) -- -- (23,045)
Change in unrealized gain (loss) on
securities available-for-sale
(unaudited)............................... -- -- -- 41,570 41,570
------------ ------------ ----------- ------------ ------------
Balance, December 31, 1997 (unaudited)...... $ 2,462,852 8,139,487 (899,992) 170,117 9,872,464
------------ ------------ ----------- ------------ ------------
------------ ------------ ----------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
AND YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 498,662 595,221 1,048,112 965,447
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 158,424 122,391 263,642 305,427
Provision for loan losses.............................. 90,000 100,000 190,000 48,000
Deferred tax expense................................... (16,752) 3,660 (12,652) 5,695
Loss (gain) on sale of investments in debt and equity
securities, net...................................... (705) 1,313 820 (20,477)
(Increase) decrease in accrued interest receivable and
other assets......................................... (106,321) (227,056) (258,696) 161
Increase (decrease) in accrued interest payable and
other liabilities.................................... 42,982 31,140 (574) 26,307
----------- ----------- ----------- -----------
Net cash provided by operating activities.............. 666,290 626,669 1,230,652 1,330,560
----------- ----------- ----------- -----------
Cash flows from investing activities:
Decrease in interest-bearing deposits in other financial
institutions........................................... -- 100,000 100,000 --
Activity in debt and equity securities
available-for-sale:
Proceeds from sales.................................... 549,280 1,138,297 1,138,297 1,049,013
Proceeds from principal repayments and maturities...... 1,739,997 2,589,344 4,009,121 4,324,640
Proceeds from calls.................................... 943,237 -- 500,000 20,666
Purchases.............................................. (2,952,993) (349,906) (2,246,338) (2,758,123)
Activity in debt and equity securities held-to-maturity:
Proceeds from principal repayments and maturities...... -- -- -- 55,000
Proceeds from calls.................................... -- -- -- 1,300,000
Purchases.............................................. -- -- -- (637,770)
Net increase in loans.................................... (1,294,947) (5,424,043) (5,712,053) (4,937,553)
Purchases of premises and equipment...................... (10,797) (18,957) (155,841) (141,118)
Proceeds from sales of premises and equipment............ -- -- 4,677 18,932
----------- ----------- ----------- -----------
Net cash used in investing activities...................... (1,026,223) (1,965,265) (2,362,137) (1,706,313)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net increase in deposits................................. 6,384,206 1,746,503 3,618,158 3,054,662
Principal payments on notes payable...................... (250,000) (387,500) (637,500) (249,989)
Cash dividends paid...................................... (23,045) (25,504) (49,930) (11,925)
----------- ----------- ----------- -----------
Net cash provided by financing activities.................. 6,111,161 1,333,499 2,930,728 2,792,748
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents....... 5,751,228 (5,097) 1,799,243 2,416,995
Cash and cash equivalents at beginning of year............. 6,952,808 5,153,565 5,153,565 2,736,570
----------- ----------- ----------- -----------
Cash and cash equivalents at end of year................... $12,704,036 5,148,468 6,952,808 5,153,565
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental information:
Cash payments for interest............................... $ 1,329,158 1,241,902 2,489,871 2,470,777
Cash payments for income taxes........................... 171,000 126,200 323,211 301,211
Noncash transactions--transfer of debt securities to
available-for-sale from held-to-maturity............... -- -- -- 12,955,435
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Illinois One Bancorp, Inc. (Bancorp) and its wholly owned subsidiary
Illinois One Bank, N.A. (the Bank), are subject to competition from other
financial institutions and the regulations of certain regulatory agencies, and
undergo periodic examinations by those regulatory agencies. Following is a
description of the more significant accounting policies:
BASIS OF PRESENTATION
The consolidated financial statements of the Bancorp and the Bank have been
prepared in conformity with generally accepted accounting principles and conform
to predominant practices within the banking industry. The preparation of the
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions,
including the determination of the allowance for loan losses, that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, cash and cash equivalents
include cash and due from banks, and federal funds sold.
DEBT AND EQUITY SECURITIES
At the time of purchase, securities are classified in one of two categories:
available-for-sale or held-to-maturity. Held-to-maturity securities are those
securities which the Bank has the ability and intent to hold until maturity. All
securities not classified as held-to-maturity are classified as
available-for-sale. At June 30, 1997, all debt and equity securities were
classified as available-for-sale.
Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized gains and losses, net of the
related tax effect, on available-for-sale securities are excluded from earnings
and reported as a separate component of stockholders' equity until realized.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary results in a charge to
earnings and the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the lives of the
respective securities, with consideration of historical and estimated prepayment
rates for mortgage-backed securities, as an adjustment to yield using the
interest method. Dividend and interest income are recognized when earned.
Realized gains and losses for securities classified as available-for-sale are
included in earnings based on the specific identification method for determining
the cost of securities sold.
LOANS
Unearned discount on certain installment loans is recognized as income
principally on the sum-of-the-digits method over the term of the loan, which
approximates the level yield method. Interest on all other
F-7
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
loans is recognized based upon the principal amount outstanding using the
simple-interest method. The recognition of interest income is discontinued when,
in management's judgment, the interest will not be collectible in the normal
course of business. Subsequent interest income is recognized only upon receipt.
Loans are returned to accrual status only when management believes full
collectibility of principal and interest is expected.
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. When measuring impairment, the expected
future cash flows of an impaired loan must be discounted at the loan's effective
interest rate. Alternatively, impairment can be measured by reference to an
observable market price, if one exists, or the fair value of the collateral for
a collateral-dependent loan. Regardless of the historical measurement used, the
Bank measures impairment based on the fair value of the collateral when the
creditor has determined foreclosure is probable. Additionally, impairment of a
restructured loan is measured by discounting the total expected future cash
flows at the loan's effective rate of interest as stated in the original loan
agreement. The Bank continues to use its existing nonaccrual methods for
recognizing interest income on impaired loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is available to absorb loan charge-offs. The
allowance is increased by provisions charged to expense and is reduced by loan
charge-offs, net of recoveries. The provision charged to expense each year is
that amount which management believes is sufficient to bring the balance of the
allowance to a level adequate to absorb potential loan losses, based on
knowledge and evaluation of the current loan portfolio and the current economic
environment.
Management believes the allowance for loan losses is adequate to absorb loan
losses in the 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, regulatory agencies, as an
integral part of the examination process, periodically review the adequacy of
the allowance for loan losses. Such agencies may require the Bank to increase
the allowance for loan losses based on their judgments about information
available to them at the time of their examination.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using straight-line and accelerated methods over the
estimated useful lives of the applicable assets. Property additions and
betterments are capitalized while maintenance and repairs which do not extend
the useful lives of the assets are expensed as incurred.
OTHER REAL ESTATE OWNED
Other real estate owned, included in other assets in the accompanying
consolidated balance sheet, represents property acquired through foreclosure or
deeded to the Bank in lieu of foreclosure. Other real estate is initially
recorded on an individual asset basis at fair value minus estimated selling
costs. If, subsequent to foreclosure, the fair value declines below the recorded
value, the deficiency is recorded in a
F-8
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
valuation allowance through a provision charged to expense. Subsequent increases
in the fair value minus estimated costs are recorded through a reversal of the
valuation allowance, but not below zero.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
Excess of cost over fair value of net assets acquired (goodwill) is
amortized on a straight-line basis over a period of 40 years. Management
evaluates the period of amortization continually to determine whether later
events warrant a revised estimate.
INCOME TAXES
The Bank's parent, Bancorp, and the Bank file a consolidated income tax
return. 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 income in the period which includes the
enactment date.
EARNINGS PER SHARE
Earnings per share are calculated by dividing net income by the weighted
average number of shares of common stock outstanding during each year.
(2) CASH AND DUE FROM BANKS AND CAPITAL REQUIREMENTS
The Bank is required to maintain certain daily reserve balances on hand in
accordance with regulatory requirements. Vault cash maintained at the Bank
exceeded such requirements at June 30, 1997.
The Bank is a wholly owned subsidiary of Bancorp. Bancorp relies on dividend
payments from the Bank to meet its debt service payments and operating expenses.
Bancorp's debt agreement with an unaffiliated bank is secured by 100% of the
common stock of the Bank and requires maintenance of minimum stated
capital-to-asset ratios and minimum total stockholder's equity balances. Such
requirements have been met at June 30, 1997.
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Bank. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve
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 are also subject to qualitative
judgments 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 (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets
F-9
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(2) CASH AND DUE FROM BANKS AND CAPITAL REQUIREMENTS (CONTINUED)
(as defined). Management believes, as of June 30, 1997, the Bank meets all
capital adequacy requirements to which it is subject.
As of March 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as WELL CAPITALIZED under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Bank's actual and required capital amounts and ratios as of June 30,
1997 are as follows:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
-------------------- -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets)............. $ 9,813 21.50% $ 3,651 8.00% $ 4,564 10.00%
Tier I capital (to risk-weighted assets)............ $ 9,307 20.39% $ 1,825 4.00% $ 2,738 6.00%
Tier I capital (to adjusted average assets)......... $ 9,307 11.73% $ 2,380 3.00% $ 3,967 5.00%
</TABLE>
(3) DEBT AND EQUITY SECURITIES
During December 1995, the Bank transferred securities classified as
held-to-maturity to available-for-sale with an amortized cost of $12,955,435
under the terms of the Special Report issued by the Financial Accounting
Standards Board (FASB) in November 1995.
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated market values of debt and equity securities classified as
available-for-sale at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities..................................... $ 2,971,544 4,607 (12,454) 2,963,697
Securities of U.S. Government agencies....................... 5,222,198 2,212 (32,553) 5,191,857
Obligations of states and political subdivisions............. 8,186,829 233,392 (158) 8,420,063
Mortgage-backed securities:
Guaranteed by U.S. Government agencies..................... 4,564,845 39,623 (41,889) 4,562,579
Other...................................................... 1,696,521 2,118 (130) 1,698,509
Federal Home Loan Bank stock................................. 237,800 -- -- 237,800
Federal Reserve Bank stock................................... 100,800 -- -- 100,800
------------- ----------- ----------- ------------
$ 22,980,537 281,952 (87,184) 23,175,305
------------- ----------- ----------- ------------
------------- ----------- ----------- ------------
</TABLE>
The amortized cost and estimated market value of debt and equity securities
classified as available-for-sale at June 30, 1997 by contractual maturity are
shown below. Expected maturities may differ from
F-10
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(3) DEBT AND EQUITY SECURITIES (CONTINUED)
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
------------- ------------
<S> <C> <C>
Due in one year or less.............................................................. $ 3,236,077 3,234,655
Due from one year through five years................................................. 11,684,631 11,834,223
Due from five years through ten years................................................ 1,459,863 1,506,739
------------- ------------
16,380,571 16,575,617
------------- ------------
Mortgage-backed securities........................................................... 6,261,366 6,261,088
Federal Home Loan Bank stock--no stated maturity..................................... 237,800 237,800
Federal Reserve Bank stock--no stated maturity....................................... 100,800 100,800
------------- ------------
$ 22,980,537 23,175,305
------------- ------------
------------- ------------
</TABLE>
The Bank, as a member of the Federal Home Loan Bank System administered by
the Federal Housing Finance Board, is required to maintain an investment in the
capital stock of the Federal Home Loan Bank of Chicago (FHLB) in an amount equal
to the greater of 1% of the aggregate outstanding balance of loans secured by
dwelling units at the beginning of each year or .3% of the total assets of the
Bank. The stock, along with the Bank's investment in Federal Reserve Bank Stock,
has no stated maturity and is recorded at cost which represents redemption
value.
Proceeds from sales of debt and equity securities for the years ended June
30, 1997 and 1996 were $1,138,297 and $1,049,013, respectively. Gross gains of
$37,253 and $65,477 and gross losses of $38,073 and $45,000 were realized on
those sales for 1997 and 1996, respectively.
The carrying value of investments pledged to secure public funds and for
other purposes was $6,947,943 at June 30, 1997.
(4) LOANS
The composition of the loan portfolio at June 30, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Commercial and agricultural........................................................................ $ 26,655,672
Real estate mortgage............................................................................... 14,562,674
Installment........................................................................................ 5,912,243
Municipal.......................................................................................... 573,428
Other.............................................................................................. 12,608
-------------
$ 47,716,625
-------------
-------------
</TABLE>
F-11
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(4) LOANS (CONTINUED)
Transactions in the allowance for loan losses for the years ended June 30,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Balance at beginning of year.............................................................. $ 407,241 389,548
Provision charged to expense.............................................................. 190,000 48,000
Loans charged off......................................................................... (130,835) (72,706)
Recoveries of loans previously charged off................................................ 39,447 42,399
---------- ----------
Net charge-offs........................................................................... (91,388) (30,307)
---------- ----------
Balance at end of year.................................................................... $ 505,853 407,241
---------- ----------
---------- ----------
</TABLE>
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 $12,694,000 at June 30, 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.
The aggregate amount of loans to officers and directors and loans for the
benefit of officers and directors was $1,365,846 at June 30, 1997. Such loans
were made in the normal course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with other persons and did not involve more than the
normal risk of collectibility.
A summary of impaired loans at June 30, 1997 follows:
<TABLE>
<CAPTION>
<S> <C>
Nonaccrual loans.................................................................................... $ 142,156
Impaired loans continuing to accrue interest........................................................ 2,684,625
------------
Total impaired loans................................................................................ $ 2,826,781
------------
------------
Allowance for loan losses on impaired loans......................................................... $ 214,702
------------
Impaired loans with no related allowance for loan losses............................................ $ 1,342,456
------------
Average balance of impaired loans during the year................................................... $ 2,861,012
------------
------------
</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 $38,048 and $34,911 for the years ended June 30, 1997 and 1996,
respectively. The Bank did not receive or recognize interest income on
nonaccrual loans for the years ended June 30, 1997 and 1996.
The amount recognized as interest income on other impaired loans continuing
to accrue interest was $169,945 and $101,079 for the years ended June 30, 1997
and 1996, respectively.
F-12
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment at June 30, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Land, building and improvements................................................. $ 1,522,014
Furniture, fixtures, and equipment.............................................. 1,435,720
------------
2,957,734
Less accumulated depreciation................................................... 1,400,859
------------
$ 1,556,875
------------
------------
</TABLE>
Depreciation charged to occupancy and equipment expense was $163,416 and
$172,474 for the years ended June 30, 1997 and 1996, respectively.
At June 30, 1997, the Bank had certain operating leases for equipment which
expire at various dates through 2001. Rent expense of $12,798 and $13,680 was
incurred for the years ended June 30, 1997 and 1996, respectively. Minimum
future lease payments required are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30:
- -----------------------------------------------------------------------------------
<S> <C>
1998............................................................................... $ 12,033
1999............................................................................... 8,688
2000............................................................................... 858
2001............................................................................... 429
---------
$ 22,008
---------
---------
</TABLE>
(6) INTEREST-BEARING DEPOSITS
Interest-bearing deposits at June 30, 1997 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
NOW and money market demand accounts........................................... $ 17,984,269
Savings........................................................................ 10,866,712
Time deposits $100,000 and over................................................ 5,779,572
Other time deposits............................................................ 24,313,611
-------------
$ 58,944,164
-------------
-------------
</TABLE>
A summary of time deposits by time remaining until maturity is as follows:
<TABLE>
<CAPTION>
<S> <C>
Due in one year or less........................................................ $ 19,571,119
Due after one year through two years........................................... 7,496,046
Due after two years through three years........................................ 3,026,018
-------------
$ 30,093,183
-------------
-------------
</TABLE>
F-13
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INTEREST-BEARING DEPOSITS (CONTINUED)
Interest expense on deposits for the years ended June 30, 1997 and 1996
consists of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
NOW and money market demand accounts.............................. $ 486,748 519,318
Savings........................................................... 334,724 358,060
Time deposits $100,000 and over................................... 259,937 207,611
Other time deposits............................................... 1,311,155 1,222,093
------------ ------------
$ 2,392,564 2,307,082
------------ ------------
------------ ------------
</TABLE>
(7) INCOME TAXES
The composition of income tax expense for the years ended June 30, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Current--federal...................................................... $ 240,159 238,829
Current--state........................................................ 66,054 68,848
Deferred taxes........................................................ (12,652) 5,695
---------- ----------
Income tax expense.................................................... $ 293,561 313,372
---------- ----------
---------- ----------
</TABLE>
Expected income tax expense, computed by applying the effective federal
statutory income tax rate of 34% to income before income tax expense, is
reconciled to actual income tax expense as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Computed "expected" income tax expense.............................. $ 456,169 434,798
Increase (decrease) in taxes resulting from:
Tax-exempt interest income........................................ (160,728) (165,851)
State tax, net of federal benefit................................. 43,596 45,440
Goodwill amortization............................................. 14,289 14,289
Utilization of AMT credit......................................... (43,771) --
Other, net........................................................ (15,994) (15,304)
----------- -----------
Income tax expense.................................................. $ 293,561 313,372
----------- -----------
----------- -----------
</TABLE>
F-14
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES (CONTINUED)
The components of the deferred tax assets and deferred tax liabilities as of
June 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Allowance for loan losses...................................................... $ 64,502
Deferred directors' fees....................................................... 25,178
-----------
89,680
-----------
Deferred tax liabilities:
Net unrealized gain on securities available-for-sale........................... 66,221
Deferred loan fees............................................................. 33,844
Depreciation of premises and equipment......................................... 120,739
Other.......................................................................... 10,076
-----------
230,880
-----------
Net deferred tax liability....................................................... $ (141,200)
-----------
-----------
</TABLE>
A valuation allowance is provided on deferred tax assets when it is more
likely than not that some portion of the assets will not be recognized. Bancorp
has not established a valuation allowance as of June 30, 1997, due to
management's belief that all criteria for recognition have been met, including
the existence of a history of taxes paid sufficient to support the realization
of the deferred tax assets.
(8) NOTES PAYABLE
Notes payable at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Secured term loan, due June 30, 1999............................................ $ 1,266,307
Unsecured line of credit, due June 30, 1999..................................... --
------------
$ 1,266,307
------------
------------
</TABLE>
The notes are collateralized by common stock of the Bank. The secured term
loan and unsecured line of credit with an unaffiliated bank bear interest at the
prime rate (8.50% at June 30, 1997). Maximum available credit under the line of
credit is $100,000.
(9) EMPLOYEE BENEFIT PLAN
The Bank maintains a defined contribution 401(k) employee benefit plan
covering substantially all employees. The Bank makes contributions to the plan
equal to 4% of covered employees' annual salaries. Employees are allowed to make
additional contributions up to 15% of their annual salary. Employer
contributions to the plan were $31,760 and $30,217 for the years ended June 30,
1997 and 1996.
Postretirement benefits other than the 401(k) plan are generally not
provided for the Bank's employees.
(10) COMMITMENTS AND CONTINGENT LIABILITIES
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to
F-15
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
extend credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for financial instruments included on the
balance sheets. The contractual amount of off-balance-sheet financial
instruments which represents credit risk as of June 30, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Commitments to extend credit...................................................... $ 736,787
Standby letters of credit......................................................... 108,000
----------
----------
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Standby
letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. Commitments and standby letters
of credit generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since certain of the commitments and letters of
credit are expected to expire without being drawn upon, the total commitment and
letter of credit amounts do not necessarily represent future cash requirements.
The Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the customer. Collateral
held varies but may include accounts receivable; inventory; property, plant, and
equipment; investments in debt securities; deposits with financial institutions;
residential real estate; and income-producing commercial properties.
Of the total commitments to extend credit, $3,705 represents fixed-rate loan
commitments at June 30, 1997.
Various legal claims have arisen during the normal course of business which,
in the opinion of management after discussion with legal counsel, will not
result in any material liability to the Bank.
The Bank held a due-from-bank account of $1,203,227 and sold federal funds
in the amount of $3,850,000 to an unaffiliated bank at June 30, 1997.
F-16
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) PARENT COMPANY ONLY FINANCIAL INFORMATION
Following are condensed balance sheets of Bancorp (parent company only) as
of June 30, 1997 and condensed schedules of income and cash flows for the years
ended June 30, 1997 and 1996:
CONDENSED BALANCE SHEETS
(DOLLARS EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash............................................................................... $ 36
Investment in Bank................................................................. 10,619
---------
Total assets....................................................................... $ 10,655
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable...................................................................... 1,266
Other liabilities.................................................................. 34
---------
Stockholders' equity:
Common stock..................................................................... 2,463
Retained earnings................................................................ 7,663
Treasury stock................................................................... (900)
Net unrealized gain on securities available-for-sale............................. 129
---------
Total stockholders' equity......................................................... 9,335
---------
Total liabilities and stockholders' equity......................................... $ 10,655
---------
---------
</TABLE>
CONDENSED SCHEDULES OF INCOME
(DOLLARS EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Income--dividends from Bank.................................................. $ 771 $ 377
Expense:
Interest................................................................... 135 179
Directors and committee fees............................................... 60 60
Legal and professional fees................................................ 16 --
Other noninterest expense.................................................. 2 4
--------- ---------
Total expense................................................................ 213 243
--------- ---------
Income before income tax benefit and equity in undistributed earnings of
Bank....................................................................... 558 134
Income tax benefit........................................................... 151 98
--------- ---------
Income before equity in undistributed earnings of Bank....................... 709 232
Equity in undistributed earnings of Bank..................................... 339 773
--------- ---------
Net income................................................................... $ 1,048 $ 965
--------- ---------
--------- ---------
</TABLE>
F-17
<PAGE>
ILLINOIS ONE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) PARENT COMPANY ONLY FINANCIAL INFORMATION (CONTINUED)
CONDENSED SCHEDULES OF CASH FLOWS
(DOLLARS EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................ $ 1,048 965
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of Bank................................ (339) (733)
Other, net.............................................................. (14) 37
--------- ---------
Net cash provided by operating activities................................... 695 269
Cash flows from investing activities--principal payments on notes payable... (638) (250)
Cash flows from financing activities--cash dividends paid on common stock... (50) (12)
--------- ---------
Net increase in cash and cash equivalents................................... 7 7
Cash and cash equivalents at beginning of year.............................. 29 22
--------- ---------
Cash and cash equivalents at end of year.................................... $ 36 29
--------- ---------
Supplemental disclosures of cash flow information--cash paid during the year
for:
Interest.................................................................. $ 135 179
Income taxes.............................................................. -- --
--------- ---------
--------- ---------
</TABLE>
(12) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements as of December 31, 1997 and
for the six-month periods ended December 31, 1997 and 1996 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.
(13) SUBSEQUENT EVENT
On December 15, 1997, 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 December 31, 1997, National City, which is
headquartered in Evansville, Indiana, had total assets of $1.3 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 as shall equal $9,269.13,
provided, however, that each share of Bancorp common stock shall be converted
into not less than 221.22 and not more than 243.28 shares of National City
common stock under the terms of the Merger Agreement. 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.
F-18
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
the 15th day of December, 1997, by and between National City Bancshares, Inc.,
an Indiana corporation ("NCBE"), and Illinois One Bancorp, Inc., an Illinois
corporation ("IOBI").
W I T N E S S E T H:
WHEREAS, IOBI owns all of the outstanding capital stock of Illinois One
Bank, National Association, a national banking association (the "Bank"); and
WHEREAS, the parties desire that IOBI merge with and into NCBE (the
"Merger") in a transaction to be accounted for as a pooling-of-interests upon
the terms and conditions contained herein; and
WHEREAS, the Board of Directors of IOBI deems the Merger advisable and in
the best interests of IOBI and its stockholders and has adopted a resolution
approving this Agreement and directing that this Agreement be submitted for
consideration at a meeting of IOBI's stockholders; and
WHEREAS, the Board of Directors of NCBE has adopted a resolution approving
the Merger and this Agreement.
NOW, THEREFORE, for and 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 Merger, the mode of
carrying the Merger into effect, the manner of converting the capital stock of
IOBI, and such other provisions as are deemed desirable in connection with the
Merger, the parties, intending to be bound, hereby agree as follows:
1. THE MERGER.
(a) 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),
IOBI will be merged with and into NCBE. IOBI 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 Merger (the
"Surviving Corporation") and shall succeed to and assume all rights and
obligations of IOBI in accordance with the Statutes.
(b) 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"); and (ii) any other banking regulatory
authorities having jurisdiction over the parties or the Merger (the governmental
agencies referred to in items (i)-(ii) above are collectively referred to herein
as the "Applicable Governmental Authorities").
(c) 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") fixed by agreement of
NCBE and IOBI as promptly as practicable 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 Merger with the Indiana Secretary of State and the
Illinois Secretary of State. The time at which the Merger becomes effective
shall be specified in the Articles of Merger and is hereafter referred to as the
"Effective Time".
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<PAGE>
2. EFFECTS OF THE MERGER.
(a) EFFECTS OF THE MERGER. The 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 IOBI COMMON. Without any action on the part of any holders
of any of IOBI's shares of Common Stock, no par value ("IOBI Common"), or shares
of capital stock of NCBE, the Merger shall have the following effects with
regard to the IOBI Common:
(a) CONVERSION OF IOBI COMMON. As of the Effective Time, each issued and
outstanding share of IOBI Common other than Dissenting Shares (as hereafter
defined) shall be converted into the right to receive from NCBE that number of
shares of Common Stock, without par value ("NCBE Common") as shall equal
$9,269.13 divided by the Average Value (as hereafter defined) of the NCBE
Common; provided, however, that each share of IOBI Common shall be converted
into not less than 221.22 and not more than 243.28 shares of NCBE Common. The
Average Value of a share of NCBE Common shall be equal to the average, weighted
by daily trading volume, of the mean of the high and low per share trading
prices as reported by the Nasdaq National Market System for the ten (10) trading
days on which NCBE Common is traded ended three (3) days prior to the Closing.
If between the date hereof and prior to the Closing, the 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 number of
shares of NCBE Common to be received by holders of IOBI Common amounts shall be
appropriately adjusted to reflect the Share Adjustment.
(b) NO FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of NCBE Common shall be issued upon the surrender for exchange of
certificates evidencing IOBI Common. Each holder of IOBI Common exchanged
pursuant to the Merger 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 Value of the NCBE Common. Such
cash, together with the shares of NCBE Common to be issued pursuant to Section
3(a) is referred to as the "Merger Consideration."
(c) CANCELLATION OF TREASURY STOCK. As of the Effective Time, each share of
IOBI Common that is owned by IOBI 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 IOBI in a fiduciary or similar capacity.
(d) DISSENTING SHARES. "Dissenting Shares" shall mean shares of IOBI Common
held by any person who properly exercises and perfects rights under the BCA as a
dissenting stockholder. The holder of any Dissenting Shares shall only have the
rights accorded a dissenting stockholder under the BCA and shall not receive any
part of the Merger Consideration.
4. EFFECT ON NCBE COMMON. The Merger shall have no effect on the shares of
NCBE Common issued and outstanding immediately prior to the Effective Time.
A-2
<PAGE>
5. EXCHANGE OF CERTIFICATES.
(a) SURRENDER OF CERTIFICATES. Within five (5) business days after the
Effective Time, The National City Bank of Evansville (the "Exchange Agent"),
shall send to each record holder of IOBI Common (except for holders of
Dissenting Shares), a letter of transmittal for use in effecting the surrender
of certificates formerly evidencing IOBI Common in exchange for the Merger
Consideration. The letter of transmittal shall specify how surrender of the
certificates formerly evidencing shares of IOBI Common shall be effected. Upon
surrender of a certificate formerly evidencing IOBI 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 IOBI Common until (and then only to the extent that)
the holder thereof validly surrenders the certificates formerly representing the
shares of IOBI 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. Neither the Exchange Agent nor NCBE shall impose a fee
for the issuance of any replacement certificates evidencing IOBI Common. If any
payment for shares of IOBI 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 member of the
Medallion Signature Guarantee Program that is either a member firm of any
national securities exchange in the United States or the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
in the United States, 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. No 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(s)
evidencing shares of IOBI Common with respect to the shares of NCBE Common
evidenced thereby, and no cash payment in lieu of fractional shares shall be
delivered to any such holder pursuant to Section 3, in each case until the
surrender of such certificate(s) in accordance with this Section 5. Subject to
the effect of applicable escheat laws, following surrender of any such
certificate(s) there shall be paid to the holder of such certificate(s), without
interest, (i) at the time of such surrender, the amount of any cash payable in
lieu of any fractional share of NCBE Common to which such holder is entitled and
(ii) if such certificate(s) is (are) exchangeable for one or more whole shares
of NCBE Common, (x) at the time of such surrender the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of NCBE Common and (y) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such whole shares of NCBE
Common.
(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 IOBI Common for any property delivered to a
public official pursuant to applicable escheat or abandoned property laws.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. The Merger Consideration
paid upon the surrender of a certificate evidencing shares of IOBI Common in
accordance with the terms of this Section 5 (and any cash paid in lieu of any
fractional share pursuant to Section 3) shall be deemed to have been paid in
full satisfaction of all rights pertaining to the shares of IOBI Common
theretofore represented by such certificate(s), subject, however, to the
Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
A-3
<PAGE>
been declared or made by IOBI on such shares of IOBI Common in accordance with
the terms of this Agreement or prior to the date of this Agreement and which
remain unpaid at the Effective Time and have not been paid prior to such
surrender, and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of IOBI Common which
were outstanding immediately prior to the Effective Time.
(e) WITHHOLDING RIGHTS. NCBE shall be entitled to deduct and withhold from
the Merger Consideration or any dividends payable to former holders of IOBI
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 IOBI Common.
6. REPRESENTATIONS AND WARRANTIES OF NCBE. NCBE represents and warrants to
IOBI 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 holders of any of the capital stock
of NCBE to approve the Merger is required 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 9,929,724 shares were issued and
outstanding as of November 30, 1997 (after giving effect to the stock dividend
paid on December 8, 1997 to holders of record on November 24, 1997). 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 and there are no
outstanding options, warrants, rights to subscribe for, calls, or commitments of
any character whatsoever relating to, 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 outstanding options
to purchase shares of NCBE Common pursuant to NCBE's Incentive Stock Option Plan
and commitments to issue shares of NCBE Common in connection with the proposed
acquisition of Fourth First Bancorp.
(d) SUBSIDIARIES. Each of NCBE's significant subsidiaries (as such term is
defined in Rule 1-02 of Regulation S-X as promulgated by the Securities and
Exchange Commission (the "Commission")) is duly organized, validly existing and
in good standing (if applicable) under the laws of the jurisdiction of its
incorporation and has the corporate power to own its respective properties and
assets and to carry on its respective business as now being conducted.
A-4
<PAGE>
(e) SEC DOCUMENTS. NCBE has provided IOBI with copies of the following
reports filed by NCBE with the Commission pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"): (i) annual report on Form 10-K for
the year ended December 31, 1996; and (ii) quarterly reports on Form 10-Q for
the quarters ended March 31, June 30 and September 30, 1997 (collectively, the
"SEC Documents"). 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.
(f) FINANCIAL INFORMATION. NCBE has delivered to IOBI the consolidated
balance sheets of NCBE and its subsidiaries as of December 31, 1996 and 1995 and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for the three (3) years ended December 31, 1996, together with
the notes thereto, and the unaudited consolidated balance sheet of NCBE and its
subsidiaries as of September 30, 1997 and the related unaudited statements of
income, changes in shareholders' equity and cash flow for the three months then
ended that are included in the SEC Documents. Such financial statements (other
than for interim periods) 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 (subject, in the case of interim financial statements, to
normal recurring year-end adjustments). At December 31, 1996, 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.
(g) ABSENCE OF CHANGES. Except as disclosed in the SEC Documents, since
December 31, 1996, 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 (f) not
misleading.
(h) 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 best of NCBE's
knowledge, 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.
(i) SHARES TO BE ISSUED IN THE MERGER. The shares of NCBE Common to be
issued in the Merger are duly authorized and, when issued in accordance with
this Agreement, will be validly issued, fully paid and nonassessable.
(j) POOLING-OF-INTERESTS. As of the date of this Agreement, NCBE has no
reason to believe that the Merger will not qualify as a pooling-of-interests for
accounting purposes.
A-5
<PAGE>
(k) TRUE AND COMPLETE INFORMATION. No representation or warranty made by
NCBE contained in this Agreement and no statement contained in any certificate,
list, exhibit or other instrument specified in this Agreement, whether
heretofore furnished to IOBI or hereinafter required to be furnished to IOBI,
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 IOBI. IOBI 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 IOBI. IOBI 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. IOBI is duly qualified
to conduct its business and is in good standing in each jurisdiction in
which the nature of the business transacted by IOBI requires such
qualification. IOBI 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, IOBI has 12,500 shares of IOBI
Common authorized, of which 2,373.47 shares are issued and outstanding and
415.53 shares are held in the treasury. All of the issued and outstanding
shares of IOBI Common are duly and validly authorized and issued, fully paid
and nonassessable. None of the issued and outstanding shares of IOBI Common
have been issued in violation of any preemptive rights. There are no shares
of any class of capital stock or equity securities of IOBI outstanding other
than the IOBI 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 IOBI is or
may be obligated to issue additional shares of any class of capital stock or
other equity securities of IOBI.
(iii) ORGANIZATION OF THE BANK. The Bank is a national banking
association duly organized, validly existing and in good standing under the
laws of the United States. 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 55,000
shares of Common Stock, $10.00 par value per share ("Bank Stock") of which
55,000 shares are issued and outstanding and no shares are held in the
treasury. IOBI 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
nonassessable. 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 IOBI,
the execution and delivery of this Agreement by IOBI and the consummation of the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of IOBI and this
Agreement constitutes the legal, valid and binding obligations of IOBI,
enforceable against IOBI in accordance with their 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 IOBI and the consummation
of the transactions contemplated by this Agreement will not violate the
provisions of, or
A-6
<PAGE>
constitute a breach or default under (i) the articles of incorporation or
by-laws of IOBI or the articles of association and by-laws of the Bank, (ii) any
Material Contract (as defined in Section 7(f)) of IOBI or the Bank or (iii) any
other material license, law, order, rule, regulation or judgment to which IOBI
or the Bank is a party, is bound or by which any of their respective properties
or assets is subject. The minute books of IOBI accurately reflect in all
material respects all corporate actions held or taken by its stockholders and
Board of Directors (including committees of the Board of Directors).
(c) SUBSIDIARIES. The only entity (including, without limitation,
corporations, partnerships, limited liability companies and joint ventures) in
which IOBI has a direct or indirect equity or ownership interest is the Bank.
(d) FINANCIAL STATEMENTS. IOBI has delivered to NCBE balance sheets of the
Bank as of June 30, 1997 and 1996 and the related statements of income,
stockholder's equity and cash flows for the two years ended June 30, 1997 and
1996. Such financial statements have been audited by KPMG Peat Marwick LLP,
independent auditors, 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 sheets present fairly the financial condition of
the Bank as of their respective dates and the statements of income present
fairly the results of operations for the respective periods covered. At June 30,
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) Each of IOBI 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 IOBI
and the Bank either singly or in the aggregate have set aside adequate
reserves. The amounts recorded as reserves for Taxes on the financial
statements of the Bank as of June 30, 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 June 30,
1997 or for any year or period prior thereto. The federal and state Returns
of IOBI 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 June 30, 1994 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 IOBI or the Bank. Neither IOBI 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 IOBI nor the Bank has in effect any power of
attorney or authorization to anyone to represent it with respect to any
Taxes. IOBI has not filed any consolidated federal income tax return with an
"affiliated group" (within the meaning of Section 1504 of the Code), where
IOBI was not the common parent of the group. Neither IOBI 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
IOBI or the Bank. Neither IOBI nor the Bank has filed a consent under
Section 341(f) of the Code. IOBI has made available to NCBE or its
representatives complete and correct copies of its federal and state income
tax returns filed on or prior to September 30, 1997, and all examination
reports, if any, relating
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to the audit of such returns by the IRS or other tax authority for each
taxable year beginning on or after July 1, 1994.
(ii) All monies required to be withheld from employees of IOBI 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 IOBI management is adequate, has been established.
(f) MATERIAL CONTRACTS. All executory contracts, indentures, commitments,
and other agreements in excess of $25,000 to which IOBI or the Bank is a party
or to which IOBI or the Bank or any of their properties are subject
(collectively, the "Material Contracts" and each a "Material Contract") were
entered into in the ordinary course of business. Each of IOBI and the Bank has
duly performed all its obligations thereunder to the extent that such
obligations to perform have accrued, and no material breach or default
thereunder by IOBI or the Bank or, to the best knowledge of IOBI management, any
other party thereto has occurred which will impair the ability of IOBI or the
Bank to enforce any material rights thereunder.
(g) REAL ESTATE. The Bank has good title to all of the assets reflected as
owned by it in its June 30, 1997 financial statements, 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. As of the date hereof,
the real properties, structures, buildings, equipment, and the tangible personal
property owned, operated or leased by IOBI or the Bank are (i) to the best
knowledge of IOBI management, in good repair, order and condition, except for
depletion, depreciation and ordinary wear and tear, and (ii) to the best of
IOBI's knowledge, free from any known structural defects. As of the date hereof,
there are no laws, conditions of record or other impediments which materially
interfere with the intended uses by IOBI or the Bank of the real property or
tangible personal property owned or leased by either of them.
(h) NO MATERIAL ADVERSE CHANGE. Since June 30, 1997, there has been no
material adverse change in the business, financial condition, properties,
results of operation, or capitalization of the Bank.
(i) LITIGATION. Except as set forth on the Disclosure Schedule, there is no
litigation, claim, investigation or other proceeding pending or, to the
knowledge of IOBI, threatened, against or adversely affecting IOBI or the Bank,
or of which the property of IOBI 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 IOBI and the Bank, taken as a whole. To the best of
IOBI's knowledge, there is no litigation, claim, investigation or other
proceeding to which any director, officer, employee or agent of IOBI 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 IOBI or the Bank, or the
assets or business of IOBI or the Bank, which could reasonably be expected to
have a material adverse effect on the financial condition, results of operations
or business of IOBI and the Bank, taken as a whole, or which challenges the
validity of the transactions contemplated by this Agreement.
(j) INSURANCE. Each of IOBI 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 IOBI for the business in which IOBI and the Bank
are engaged. All policies of insurance owned or held by IOBI or the Bank 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 IOBI and the Bank has conducted its
business in substantial compliance with all applicable federal, state and local
laws, regulations and orders including, without
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limitation, disclosure, usury, equal credit opportunity, equal employment, fair
credit reporting, lender liability, and other laws, regulations and orders, and
the forms, procedures and practices used by IOBI and the Bank, to the best
knowledge of IOBI 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 IOBI and the Bank, taken as a
whole.
(l) BROKER'S AND FINDER'S FEES. Neither IOBI 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 IOBI and the Bank, there are no other trades or
businesses, whether or not incorporated, which, together with IOBI 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 IOBI 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 IOBI or the
Bank (the ERISA Plans and such other plans are collectively referred to as
the "Plans"). IOBI 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 IOBI 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 best knowledge of IOBI
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) To the best of IOBI's knowledge, all of the Plans, and any related
trust agreement, group annuity contract, insurance policy or other funding
arrangement are in substantial compliance with all
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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.
(vii) Neither IOBI 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) None of IOBI, 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 IOBI 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. Neither IOBI nor the Bank is, or, as a
result of any actions, omissions, occurrences or state of facts existing
prior to or at the Effective Time, may become liable for any tax imposed
under Sections 4978 or 4978(B) of the Code.
(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 IOBI or the Bank or their officers or employees with respect to any
Plan.
(x) To the best of IOBI's knowledge, 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 to the Surviving Corporation, NCBE, IOBI or the Bank, to any
person, entity or government agency for any conduct, practice or omission of
IOBI 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 IOBI or the Bank from IOBI 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 IOBI nor the Bank is a party to or has in effect
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 IOBI 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 best of IOBI's knowledge, neither the conduct nor operation
of IOBI 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 IOBI
and the Bank, taken as a whole, and no condition has existed or event has
occurred with respect to any 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) IOBI or the Bank to
remedy, stabilize, neutralize or
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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 IOBI and the Bank,
taken as a whole. Neither IOBI nor the Bank has received any notice from any
person or entity that IOBI or the Bank or the operation or condition of any
property ever owned, leased or operated by any 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 IOBI 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 the Illinois Office of Banks
and Real Estate, the Federal Reserve Board, the FDIC or any federal or state
regulatory agency, and neither IOBI 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 IOBI or
the Bank.
(q) POOLING-OF-INTERESTS. As of the date of this Agreement, IOBI has no
reason to believe that the Merger will not qualify as a pooling-of-interests for
accounting purposes.
(r) TRUE AND COMPLETE INFORMATION. No representation or warranty made by
IOBI contained in this Agreement and no statement 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 IOBI 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 shall use its best efforts to obtain
the approvals of the Applicable Governmental Authorities for the transactions
contemplated by this Agreement; however, NCBE's obligation to use its best
efforts to obtain the approvals of the Applicable Governmental Authorities shall
not be construed as including an obligation to accept any commercially
unreasonable terms of or commercially unreasonable conditions to an approval of
any Applicable Governmental Authority, to change in a commercially unreasonable
manner the business practices of NCBE or any NCBE subsidiary or institute any
litigation in connection with such approvals. NCBE shall keep IOBI reasonably
informed as to the status of such applications and make available to IOBI, upon
reasonable request by IOBI 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 Merger on the Nasdaq National Market.
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(d) ACCESS TO INFORMATION. NCBE shall permit IOBI reasonable access during
regular business hours to its properties. NCBE shall disclose and make available
to IOBI and shall use its best efforts to cause its agents and authorized
representatives to disclose and make available to IOBI, 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
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 IOBI may have
a reasonable and legitimate interest in furtherance of the transactions
contemplated by this Agreement.
(e) EMPLOYEE-RELATED MATTERS. Subject to the continuing discretion of the
Board of Directors of the Bank following the Merger, NCBE expects that the Bank
will retain its current employees, including the officers. As soon as
practicable following the Effective Time, employees of the Bank shall be
entitled to participate in all employee benefit plans of NCBE. For purposes of
eligibility and vesting in the NCBE Employees' Savings and Profit Sharing Plan,
employees of the Bank will be given credit for their years of service as
employees of the Bank. For purposes of the NCBE Employees' Plan for Pensions,
employees of the Bank will be subject to all eligibility and vesting provisions
of such plan, including years of service, without credit for service as an
employee of the Bank. None of the provisions of this Section 8(e) shall confer
upon any employee of IOBI or the Bank any right to be employed or retained in
the employment of the Bank.
(f) INDEMNIFICATION OF IOBI DIRECTORS AND OFFICERS. NCBE agrees to
indemnify and hold harmless each person who is now, or who becomes prior to the
Effective Time, a director or officer of IOBI (the "Indemnified Parties"), to
the fullest extent permitted by Illinois law, against any losses, claims,
damages, liabilities, costs, expenses (including reasonable attorney's fees and
expenses in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by
Illinois law upon receipt of any required undertaking), judgments, fines and
amounts paid in settlement in connection with any threatened or actual claim,
action, suit, proceeding or investigation based in whole or in part on, or
arising in whole or in part out of or, pertaining to this Agreement, the Merger,
and any of the transactions contemplated in this Agreement, whether asserted
before or after the Effective Time. The Indemnified Parties may retain counsel
reasonably satisfactory to them after consultation with NCBE; provided, however,
that NCBE shall have the right to assume the defense thereof and upon such
assumption NCBE shall not be liable to any Indemnified Party for any legal
expenses of other counsel or any other expenses subsequently incurred by any
Indemnified Party in connection with the defense thereof. NCBE shall not be
liable for any settlement effected without its prior written consent (which
consent shall not be unreasonably withheld). NCBE shall have no obligation
hereunder to any Indemnified Party if a court of competent jurisdiction shall
ultimately determine that indemnification of such Indemnified Party in the
manner contemplated hereby is prohibited by Illinois law. Any Indemnified Party
wishing to claim indemnification under this Section 8(f), upon learning of any
such claim, action, suit, proceeding or investigation, shall notify NCBE
thereof, provided that the failure to so notify shall not affect the obligation
of NCBE under this Section 8(f), except to the extent such failure to notify
materially prejudices NCBE. NCBE's obligations under this Section 8(f) shall
continue in full force and effect for a period of three (3) years from the
Effective Time; provided, however, that all rights to indemnification in respect
of any claim asserted or made within such period shall continue until the final
disposition of such claim. The provisions of this Section 8(f) are intended to
be for the benefit of, and shall be enforceable by, each Indemnified Party and
his or her heirs and representatives.
(g) DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. NCBE agrees that IOBI may
purchase an extension of the discovery period under its existing directors' and
officers' liability insurance policy for a total cost not to exceed $8,000.
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9. AGREEMENTS WITH RESPECT TO CONDUCT OF IOBI AND THE BANK PRIOR TO THE
CLOSING. IOBI agrees with NCBE as follows:
(a) ORDINARY COURSE, INSURANCE AND PRESERVATION OF BUSINESS. Each of IOBI
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. IOBI will promptly notify NCBE of any event of which hereafter
becomes known to IOBI management which may reasonably have a material adverse
effect on the financial condition, operations, business or assets of IOBI and
the Bank, taken as a whole, or if IOBI determines that it may be unable to
fulfill the conditions set forth in Section 11 or 12 hereof.
(c) PROHIBITED ACTION WITHOUT APPROVAL. Neither IOBI 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; 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; sell or otherwise
dispose of any real property owned or operated by IOBI or the Bank; enhance,
expand, modify, replace or alter any computer or data processing system
owned, leased or licensed by IOBI 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, 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 IOBI 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
stockholders other than (A) cash dividends on the IOBI Common in an amount
not to exceed $5.00 per share per quarter, payable in accordance with past
practices; provided, however, that IOBI and NCBE shall cooperate with each
other to
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coordinate the record and payment dates of their respective dividends for
the quarter in which the Effective Time occurs, such that IOBI shareholders
shall receive a quarterly dividend from either IOBI or NCBE but not both
during or with respect to such quarter, (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; 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 Merger to be accounted for using the pooling-of-interests method.
(d) NO SOLICITATION.
(i) Neither IOBI nor the Bank nor any officer, director or any
representative thereof shall solicit or authorize the solicitation of, or,
unless IOBI'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 IOBI 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 IOBI or any or
all of the capital stock, other equity securities or other ownership
interests, or all or substantially all of the assets, of IOBI or the Bank.
IOBI 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, IOBI shall immediately
terminate all discussions then existing with any third parties regarding any
possible offer to acquire IOBI or the Bank.
(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 IOBI 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 IOBI and the Bank will maintain its books, accounts
and records in accordance with GAAP. Neither IOBI 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
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for income, except as may be required by law, regulation or GAAP. Neither IOBI
nor the Bank shall change any practice or policy with respect to the charging
off or loans or the maintenance of its reserve for possible loan losses, except
as required by law, regulation or GAAP.
10. ADDITIONAL AGREEMENTS. IOBI agrees as follows:
(a) CONTINUING ACCESS TO INFORMATION. Through the Effective Time, IOBI
shall permit NCBE and its authorized representatives reasonable access during
regular business hours to IOBI's properties and those of the Bank. IOBI 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 IOBI 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 IOBI 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. IOBI shall promptly provide to NCBE copies of any
reports to the Board of Directors of IOBI or the Bank or any committee thereof
and minutes of all meetings of the Board of Directors of IOBI and the Bank and
each committee thereof. Throughout the period prior to the Effective Time, IOBI
and the Bank will cause one or more designated representatives to confer with
representatives of NCBE on the ongoing operations of IOBI and the Bank.
(c) NOTIFICATION OF CHANGE. IOBI shall promptly notify NCBE of any material
change in the ordinary course of business or in the operation of the properties
of IOBI or the Bank and of any governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated), or
the institution or the threat of litigation involving IOBI or Bank which is
material to, or which might have a material adverse effect on IOBI and the Bank,
taken as a whole, or of any breach by IOBI or the Bank of any representation,
warranty, covenant or agreement set forth in this Agreement, and will keep NCBE
promptly and fully informed of such events.
(d) INFORMATION FOR REGULATORY FILINGS. Upon request by NCBE, IOBI shall
promptly furnish NCBE with any information within its possession which relates
to IOBI 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. IOBI 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.
(e) RESTRICTION ON RESALES. IOBI shall obtain and deliver to NCBE, at least
thirty-one (31) days prior to the Closing, the signed agreement, in the form of
Exhibit A 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 IOBI Common and any other persons who may
reasonably be deemed by NCBE to be an "affiliate" of IOBI within the meaning of
such term as used in Rule 145 under the Securities Act.
(f) STOCKHOLDER APPROVAL. IOBI shall cause to be duly called and held a
special meeting of the holders of IOBI Common for submission of this Agreement
and the Merger for approval of such stockholders as required by the BCA. In
connection with such stockholders' meeting, (i) IOBI shall cooperate and assist
NCBE in preparing and filing the Registration Statement, and any amendments or
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supplements thereto, including the Proxy Statement/Prospectus with the SEC and
applicable state securities authorities, and IOBI shall mail the Proxy
Statement/Prospectus to its shareholders; (ii) IOBI 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 IOBI (subject to compliance with its fiduciary duties as advised in
writing by counsel) shall recommend to its stockholders the approval of this
Agreement and the Merger contemplated hereby and use its best efforts to obtain
such approval; and (iv) IOBI agrees that the information furnished 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.
11. CONDITIONS TO OBLIGATIONS OF BOTH PARTIES. The respective obligations
of each party to effect the Merger is subject to the satisfaction or waiver on
or prior to the Closing of the following conditions:
(a) STOCKHOLDER APPROVAL. The Merger shall have been approved by the
holders of two-thirds of the outstanding shares of IOBI Common.
(b) REGULATORY APPROVAL. The transactions contemplated by this Agreement
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 (i) result in an order enjoining the Merger, (ii)
result in a determination that a party has failed to comply with applicable
legal requirements in connection with the Merger; or (iii) 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 law and that it intends to
commence proceedings to restrain consummation of the 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 Merger illegal.
(d) 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.
(e) FEDERAL TAX OPINION. The parties shall have received an opinion of
Baker & Daniels to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a)(1)(A) of the Code and such opinion shall
not have been withdrawn or modified in any material respect prior to the
Effective Time.
12. CONDITIONS TO OBLIGATIONS OF NCBE. The obligation of NCBE to effect
the 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 IOBI
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 IOBI and the Bank, taken
as a whole; IOBI 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
IOBI 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
IOBI) stating that to the best of his knowledge such conditions have been
satisfied.
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(b) ATTORNEY'S OPINION. NCBE shall have received an opinion, dated the
Closing, of Schiff, Hardin & Waite, counsel for IOBI, in substantially the form
of Exhibit B attached hereto.
(c) POOLING-OF-INTERESTS. In the opinion of NCBE, after consultation with
its independent auditors, the Merger shall qualify for the pooling-of-interests
method under Accounting Principles Board No. 16 if consummated in accordance
with this Agreement; provided, however, that this condition shall be waived if
the reasons that the Merger does not so qualify arise solely out of actions or
circumstances within the control of NCBE.
13. CONDITIONS TO OBLIGATIONS OF IOBI. The obligation of IOBI to effect
the Merger is subject to the satisfaction or waiver on or prior to the Closing
of the following conditions:
(a) STATUS 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 IOBI 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) ATTORNEY'S OPINION. IOBI shall have received an opinion, dated the
Closing, of Baker & Daniels, counsel for NCBE, in substantially the form of
Exhibit C attached hereto.
(c) FAIRNESS OPINION. IOBI shall have received from Fister and Associates,
Inc., St. Louis, Missouri, an opinion, in form and substance reasonably
acceptable to IOBI, updating as of the date of mailing the Proxy
Statement/Prospectus the opinion delivered on the date of this Agreement to the
effect that the Merger Consideration is fair, from a financial point of view, to
the IOBI shareholders.
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 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 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.
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 carry out this Agreement and the transactions
contemplated hereby.
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(b) REIMBURSEMENT OF NCBE. Upon the occurrence of a Triggering Event (as
hereafter defined), IOBI 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 (i) the
termination of this Agreement for any reason other than a failure of any of the
conditions set forth in Sections 11(b), 11(c), 11(d), 11(e), 11(f) or pursuant
to Section 16 hereof and (ii) the occurrence of any of the following within one
(1) year of the date of termination: (A) IOBI enters into any agreement with
respect to a Competing Transaction; (B) the Board of Directors of IOBI
recommends a Competing Transaction to IOBI's shareholders; or (C) following the
announcement of a Competing Transaction, the Board of Directors of IOBI
withdraws or modifies its recommendation of the Merger or this Agreement. The
term "Competing Transaction" means any of the following: (x) an offer by any
person or group of persons (other than NCBE) to acquire ownership of twenty-five
percent (25%) or more of the IOBI Common or the Bank Stock; or (y) a proposal
for a merger, consolidation, share exchange, business combination, or similar
transaction involving IOBI; or (z) a proposal for a sale, lease, exchange,
transfer or other disposition of twenty-five percent (25%) or more of the assets
of IOBI shall occur. 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 any provision to the
contrary herein, and notwithstanding the fact that the shareholders of IOBI have
approved this Agreement, this Agreement may be terminated at any time on or
prior to the Closing:
(a) MUTUAL CONSENT. By mutual written consent of a majority of the members
of each of the Boards of Directors of IOBI and NCBE, or
(b) COMPETING TRANSACTION. By the Board of Directors of IOBI if IOBI or its
Board of Directors accepts, approves or recommends a Competing Transaction to
its stockholders, provided that IOBI has simultaneously delivered to NCBE the
amounts payable pursuant to Section 15(b).
(c) OTHERWISE. (i) By the Board of Directors of IOBI, upon written notice
to NCBE, if by June 15, 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; or
(ii) by the Board of Directors of NCBE, upon written notice to IOBI, if by June
15, 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.
(d) EFFECT OF TERMINATION. Upon termination of this Agreement by either
NCBE or IOBI 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 IOBI or the
respective directors, officers, employees, agents or stockholders 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 IOBI 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 or the earlier
termination of this Agreement. The covenants contained in Sections 5, 8(d), 8(f)
and 15(b) shall survive the Effective Time or the earlier termination of this
Agreement.
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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 IOBI, addressed to:
Illinois One Bancorp, Inc.
Posey Avenue & Lincoln Boulevard West
Shawneetown, Illinois 62984
Attn: Tom Patton
Fax No. (618) 269-3179
With a copy addressed to:
Schiff Hardin & Waite
Suite 100
300 Hamilton Boulevard
Peoria, Illinois 61602
Attn: Theodore L. Eissfeldt
Fax No. (309) 673-2801
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 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.
(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 IOBI, to the extent
authorized by applicable law, by a writing signed by IOBI 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
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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.
<TABLE>
<S> <C> <C>
NATIONAL CITY BANCSHARES, INC.
By: /s/ ROBERT A. KEIL
----------------------------------------
Robert A. Keil, President
ATTEST:
/s/ HAROLD A. MANN
- ----------------------------------------
Harold A. Mann, Secretary
ILLINOIS ONE BANCORP, INC.
By: /s/ JAMES J. GALT
----------------------------------------
James J. Galt, President
ATTEST:
/s/ PATRICK FELKER
- ----------------------------------------
Patrick Felker, Secretary
</TABLE>
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EXHIBIT A
FORM OF AFFILIATE LETTER
Gentlemen:
In connection with the merger (the "Merger") of Illinois One Bancorp, Inc.,
an Illinois corporation ("IOBI"), with and into National City Bancshares, Inc.,
an Indiana corporation ("NCBE"), pursuant to the Agreement and Plan of Merger
dated as of December 15, 1997 (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 ($1.00 stated value per share), 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 IOBI 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 IOBI to
cause the Merger to be consummated, I hereby represent and warrant to, and agree
with NCBE and IOBI 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 IOBI
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 IOBI 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,
______________________________________
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<PAGE>
EXHIBIT B
FORM OF OPINION OF COUNSEL FOR IOBI
Capitalized terms used and not otherwise defined herein have the meanings
given them in the Plan and Agreement of Merger (the "Agreement").
1. IOBI is an existing corporation 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 an existing national banking association in good standing under the laws of
the United States.
2. IOBI and the Bank have the requisite corporate power and authority
necessary to carry out their respective businesses as currently conducted.
3. The authorized capital stock of IOBI consists of 12,500 shares of IOBI
common stock, no par value. To the best of our knowledge after due inquiry,
there are 2,373.47 shares of IOBI Common issued and outstanding and 415.53
shares in the treasury.
4. The authorized capital stock of the Bank consists of 55,000 shares of
common stock, $10.00 par value per share. To the best of our knowledge after due
inquiry, there are 55,000 shares of Bank Stock issued and outstanding, all of
which are owned of record by IOBI.
5. All the outstanding shares of IOBI Common and Bank Stock have been duly
authorized and validly issued and are fully paid and non-assessable and, to the
best of our knowledge after due inquiry, were not issued in violation of any
preemptive rights.
6. The Agreement has been duly executed and delivered by IOBI and
constitutes a valid and binding obligation of IOBI, enforceable against IOBI 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.
7. All consents or approvals of any Applicable Governmental Authorities
required to be obtained by IOBI in connection with the Merger have been
obtained.
8. The execution and delivery by IOBI of, and the performance by IOBI of
its agreements in, the Agreement do not: (a) violate its articles of
incorporation or by-laws or the articles of association or by-laws of the Bank,
or (b) to the best of our knowledge after due inquiry, violate, result in a
breach of or constitute a default under any material contract, agreement or
other instrument to which IOBI is a party or by which its properties are bound.
9. Upon the filing and acceptance of the Articles of Merger by the Illinois
Secretary of State and assuming the Merger is effective under the laws of the
State of Indiana, the Merger will become effective under the BCA upon the
issuance of a Certificate of Merger by the Illinois Secretary of State.
10. The meeting of stockholders of IOBI held on , 1998, was
duly held in accordance with all applicable requirements of the BCA and the
articles of incorporation and bylaws of IOBI, and the Agreement was duly adopted
by the affirmative vote of the holders of two-thirds of the outstanding shares
of IOBI Common, which is the only vote on the part of the holders of any class
of IOBI capital stock required in order to approve the Merger.
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EXHIBIT C
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 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 (stated value $1.00 per share). All shares of
NCBE Common to be issued to shareholders of IOBI pursuant to the 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 Merger have been
obtained.
6. No vote by the holders of any of the capital stock of NCBE to approve
the Merger is required 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 Merger is effective under the laws of the
State of Illinois, the Merger will become effective under the IBCL at the time
specified in the Articles of Merger.
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APPENDIX B
[LETTERHEAD OF FISTER & ASSOCIATES, INC.]
April 15, 1998
Board of Directors
Illinois One Bancorp, Inc.
Posey Avenue & Lincoln Boulevard West
P.O. Box 279
Shawneetown, IL 62984
Board of Directors:
We understand that Illinois One Bancorp, Inc. ("IOBI") and National City
Bancshares, Inc. ("NCBE") have entered into an Agreement and Plan of Merger (the
"Merger"), dated December 15, 1997, which provides for, among other things, the
merger of IOBI with and into NCBE. We have been told that each issued and
outstanding IOBI common share, no par value, will be converted into the right to
receive from NCBE that number of NCBE common shares, without par value, equal to
$9.269.13 divided by the Average Value of the NCBE common shares; provided,
however, that each share of IOBI common shall be converted into not less than
221.22 and not more than 243.28 shares of NCBE commons stock. The Average Value
of a share of NCBE common stock shall be equal to the average, weighted by daily
trading volume, of the mean of the high and low per share trading prices as
reported by the Nasdaq National Market System for the ten trading days which
NCBE common is traded ended three days prior to the closing of the Merger.
We have been requested by the IOBI Board of Directors to render our opinion
(the "Opinion") that the Merger is fair to the IOBI Shareholders from a
financial point of view. This Opinion does not in any manner address the
underlying business decision as to whether the Board of Directors or the
Shareholder should proceed with or effect the Merger.
Fister & Associates, Inc., as part of our investment banking services, is
regularly engaged in the valuation of businesses and securities in connection
with mergers, acquisitions, divestitures, underwritings, private placements and
valuations for corporate reorganizations, estate tax, and other purposes. We are
familiar with IOBI and NCBE and have completed our financial analysis of the
Merger. Further, Fister & Associates, Inc., has no business relationship with
either IOBI or NCBE and its fee is not contingent on the Merger being
consummated and is not based upon any percentage of any valuation or other
amount.
In rendering the Opinion, we have reviewed the agreements respecting the
Merger. We also have reviewed the financial and other information that was
publicly available or furnished to us by IOBI, including information provided
during our discussion with the executive officers of IOBI, which included
discussions of recent developments and management's financial projections. We
have also reviewed other available pertinent information that we consider
relevant and conducted such studies, analyses and investigations as we deemed
appropriate for purposes of the Opinion.
In rendering the Opinion, we have relied upon and assumed, without
independent verification, the accuracy, completeness and fairness of all of the
financial and other information that was available or that
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<PAGE>
was otherwise reviewed by us. With respect to the financial projections supplied
to us, we have assumed that they have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of IOBI as to the future operating and financial performance of such.
We have assumed that the Merger would comply with applicable law and regulations
as currently in effect. We did not make an independent evaluation or appraisal
of the assets and liabilities of IOBI or NCBE.
Our Opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. The Opinion is for the use and benefit of the Board of
Directors of IOBI. The Opinion is not intended to be and does not constitute a
recommendation to the Shareholders and the Board of Directors of IOBI as to
whether to accept the shares of NCBE to be offered to the Shareholders of IOBI
in the Merger.
Based upon the foregoing and such other factors as we deem relevant, and in
reliance thereon, we are of the opinion that (i) the shares of NCBE to be
received by the Shareholders of IOBI pursuant to the Merger have a fair market
value not less than the shares of IOBI that they will deliver and (ii) that the
Merger is fair to the IOBI Shareholders from a financial point of view.
Yours very truly,
FISTER & ASSOCIATES, INC.
/s/ RICHARD E. FISTER
Richard E. Fister
President
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APPENDIX C
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 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.
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(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.
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(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.
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